126. Staying Humble & Stacking Sats with Matt Odell

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BTC veteran Matt Odell joins us to share his thoughts on the best ways to use bitcoin. We discuss different bitcoin custody options such as trusting third parties, hardware wallets, multisig, and paper wallets, and the advantages and trade-offs involved. What is the case for staying private on bitcoin, and what are the best tools available? What are the most common risks facing bitcoin holders? Will yield products on bitcoin go away or are they coming back? How do you plan for bitcoin inheritance? And much more!

  • Matt Odell on Twitter
  • Matt’s official website with links to his social media and resources.
  • Matt discusses Lightning and bitcoin privacy on Episode #21 of Citadel Dispatch. acquisition offer. 
  • Samourai Wallet website. Information about the Whirlpool here.
  • Wasabi Wallet website.
  • The Bitcoin Standard Podcast episode on bitcoin as “dark money” with Giacomo Zucco.
  • Saifedean and Tone Vays call out problems with Celsius’ business model in 2019.
  • Saifedean’s first book, The Bitcoin Standard.
  • Saifedean’s second book, The Fiat Standard.

Enjoyed this episode? You can take part in podcast seminars, access Saifedean’s courses – including his ongoing course ECO22: The Fiat Standard – and read chapters of his forthcoming books by becoming a Saifedean.com member. Find out more here.

Podcast Transcript

Saifedean Ammous: [00:02:51] Hello, welcome to another episode of The Bitcoin Standard Podcast! Our guest today is Matt Odell who is a Bitcoin entrepreneur and expert, if such a thing does exist in the world of Bitcoin, I don’t like using the term, but he’s been around the block when it comes to Bitcoin hardware and software for a while.

He’s established a name and credibility for himself for being a very honest person who gives very useful recommendations for people on how to use Bitcoin and how to interact with the network. And we’re hosting Matt today to give us his ideas of how to best use Bitcoin, how to best practice Bitcoin.

So a little bit more about Matt, he hosts the Citadel Dispatch – an interactive live show about Bitcoin freedom, privacy, and open source software. And he is the co-founder of several Bitcoin focused businesses, including BitcoinTV, OpenSats, bitcoindevlist, and FinalMessage. And he joins us today to [00:03:51] discuss basically Bitcoin best practices.

If I were to give an overarching theme of what I’d like to discuss with Matt today, it would be this: I imagine that among my listeners, a lot of the listeners are more interested in the number go up aspect of Bitcoin, just thinking of it as a kind of another financial asset, so many of them will be exposed to it through their exchange or through some kind of investment account or some kind of financial instrument, and I’d like Matt to make the case for why you’re missing out on all the real fun if you’re doing that, and why you should get your hands dirty, and run your own node, and hold your own keys, and do all of those things!

Matt, thank you for joining us.

Matt Odell: Thank you for having me, it’s a pleasure to be here!

Saifedean Ammous: Let us begin with what do you recommend for the Bitcoin newb? Let’s say you’re just somebody who chanced upon Bitcoin Twitter [00:04:51] and took an inadvertent orange bill and found yourself listening to The Bitcoin Standard Podcast today for the first time, and you’re thinking of getting into Bitcoin. What is it that you recommend? How do you recommend people get into Bitcoin?

Matt Odell: The first thing, and I think this goes out to a lot of your audience that is already experienced to a degree with Bitcoin and their onboarding friends and family.

They’re bringing friends and family into the Bitcoin sphere. To me, the number one thing that a newcomer should do in the beginning is receive some big Bitcoin on a mobile wallet. Send it, back up, restore, go through the basics of sovereign Bitcoin usage. And it’s surprisingly simple. You can spend hours, years, days. Me and Saif have spent years focused on going deep onto Bitcoin.

But the cool part of Bitcoin to me is not its complexity, the cool part about Bitcoin to me is its [00:05:51] simplicity. And at its core, when you actually want to interact with the network, it’s as easy as installing an app on your phone.

You guys all have tons of apps on your phone already. My favorite mobile wallet for beginners is Muun wallet. And usually what I do if I have someone that seems like they’re interested in what Bitcoin is about is I have them install a Muun wallet. Instead of sending them to some regulated exchange and just wiping my hands clean and saying – go sign up for this and figure it out yourself. I’ll send them a little Bitcoin to get their feet wet, get their hands dirty. And then I’ll have them send that Bitcoin somewhere else, whether that’s to me or whether that’s to a donation address or some kind of website where you can see it instantly transfer, you actually see the magic happen.

So for me that’s the first step. We could talk about hardware wallets. We could talk about nodes. We could talk [00:06:51] about all these different, more complex ways of using Bitcoin, but at its core, you’re literally just installing a mobile wallet, you’re not going through any regulatory procedures, you’re not asking permission of anyone you’re not uploading your ID, and you’re able to instantly transfer value anywhere in the world, relatively cheap, very fast.

Saifedean Ammous: Yeah. It’s a pretty compelling value proposition if you ask me, but then again – I’m biased! But yeah, that is a good place to start.

And what is your case for self custody? All right, so you’ve played around a little bit and you know that wallet seems to work, why should you wanna take ownership? Why don’t you just keep a small sum of the Bitcoin on your phone, but then keep the rest with an exchange or with a financial institution?

Matt Odell: As a society we’ve been basically groomed into this world where [00:07:51] we give up all personal responsibility in everything we do. We have organizations that treat us like children, that hold our hands. Every aspect of our lives our hands are held. To me, Bitcoin and the greater open source movement is about a move back to personal responsibility.

And so this idea of self custody is radical personal responsibility. It’s you holding your wealth yourself without a third party. That is not really possible outside of Bitcoin. You could hold gold coins, gold bars, you can hold precious metals. Obviously if you have cash under your mattress, I’m sure your audience is aware that ultimately you’re holding an IOU that is controlled by someone else.

So I don’t really think you can self-custody fiat. So Bitcoin essentially is a paradigm shift, but it’s a paradigm shift back to [00:08:51] the way it used to be, which is radical personal responsibility. I just spent a lot of time teaching ranchers how to use Bitcoin. Ranchers, farmers get it. These small family farms, like they’ve only lived in a world of radical personal responsibility, they never left it. Their whole life is in their hands, and every decision they make is a make or break decision.

To me the fundamental value prop of Bitcoin is this self sovereignty aspect. And you do not achieve that if you are asking permission or if you’re trusting someone else to hold your Bitcoin for you.

Saifedean Ammous: Yeah. And I think the you’re very correct on this different approach of responsibility, because the way that the current monetary system, the fiat monetary system works is that effectively, it’s all pretend money. Everybody’s dealing with pretend money and everything is pretend until the central bank signs off of it.

And at any point in time, the [00:09:51] central bank can come and basically change anything. They can go back to your bank and take things out because of something you did months ago. So effectively it’s a loyalty scheme. It’s a loyalty points scheme for government where you know, if you play along nicely. If you are politically on the right side, you get to keep your your coins, your fake monopoly money to play in this game. And of course these are constantly also being devalued through inflation. So I think part of the reason that people have a hard time understanding how a free market economy works is because money is so divorced from being a method of communicating how a market works, because money is this make belief system of points, you know that TV show Whose Line Is It Anyway? The lines are made up and the points don’t matter. That’s basically fiat.

Government [00:10:51] can make up any points at any point in time and, anybody can become rich or poor regardless of what they do in terms of producing value to society, but just by being politically loyal.

And the result of this is that people just don’t understand how money actually works. This is why those anti-capitalist anti-market ideas become so popular because people see all around them. People who are not productive end up with a lot of money and people who are productive end up with little money.

And it’s all because it’s a fake system of money. And, you might not like, initially, the added responsibility of handling your own Bitcoin, but I think the downside of it is that you end up with a system where somebody else basically holds everybody’s money, not just yours.

And then you live in a society in which work is divorced from money eventually.

Matt Odell: Yeah. I [00:11:51] it’s easy to get overwhelmed when you enter the Bitcoin space. One of the number one things I tell people is – we were all there at some point when we got in. You don’t wanna get discouraged. It’s not all or nothing. It’s not something that happens with a flick of the wrist. One morning, you wake up and you decide, like I’m gonna be self sovereign, and I have to do all the steps to be as radically self sovereign as possible.

What I say to people is – dip your toes in. If you feel more comfortable holding Bitcoin with the financial institution, that’s completely reasonable. It comes with its own trade offs. You’re trusting them with complete control of this asset. Arguably the most scarce asset we’ve ever seen in our lifetimes and will ever see.

But that is a trade off you’re making. There’s no rule that says, you have [00:12:51] to do a hundred percent of one or a hundred percent of the other. What I say to people is – in the beginning, get your feet wet, store some of it in a self-sovereign way, fine, keep some with a with a regulated institution that hopefully you trust and you’ve done some research on them. And then over time you will naturally end up in a situation where you’re not gonna wanna keep your Bitcoin with these institutions.

There is a mindset shift that happens once you start to get familiar and more comfortable with using Bitcoin in a sovereign way. And it makes interacting with every other asset, interacting with bureaucracies, financial institutions seem incredibly antiquated. It makes it almost, you have this mindset shifted where to me it’s more overwhelming and more stress inducing more mentally taxing to [00:13:51] not have sovereignty over my funds, and to have to ask permission, to have to remember passwords, and sign in, and hope that there’s not another KYC check, or hope that the website’s not down, or hope that the bank hours are not closed, and that the phone lines are working at their antiquated institution that they set up all the infrastructure in the seventies.

Like that to me becomes the stressful part rather than actually holding my own keys. And that just comes with comfort that comes with time that comes with practice and getting used to how all this works.

Saifedean Ammous: Yeah, absolutely. And I think I should say that for anybody listening, make your own mind up, don’t take any of this as gospel because there are risks and trade offs involved with everything. There’s a recent trend of people saying – you know what, newbs can’t handle their own private keys. Private keys are not for grandmas, and they’re not for your average [00:14:51] user, they’re for shadowy super coders in their hoodies, in the dark, working on laptops. And you shouldn’t really put serious money in something like that because you can’t handle your private key.

And while I could sympathize with that, yeah I can imagine, I know people that would have trouble handling private keys or don’t have the ability to do them, perhaps. But I think that doesn’t mean that all the other alternatives don’t involve risks. And so the question you need to ask yourself is – what are the risks involved with everything?

Because there’s no magic bullet. This is the kind of fiat thinking where opportunity cost doesn’t exist, and real trade offs don’t exist, where we just press a button and then the problem is solved. Just give your money to an exchange, and then the exchange will keep it safe.

It doesn’t work that way. If you’re trusting your exchange, that means they’re in a position to be able to take advantage of you and all the many people that are trusting them. And not just the company itself, but [00:15:51] also actors within the company, actors from outside the company. You have to worry about getting SIM swapped.

You have to understand what a SIM swap is, and you have to make sure that you don’t do it because hundreds or maybe thousands of people have been SIM swapped out of their Bitcoins on exchanges. So risks exist everywhere.

And I think Matt is not out there telling people – you have to do this. It’s more about – here are the drawbacks and the benefits of these different ways, and this is the case for self storage. The case is that ultimately it’s a very low time preference thing in that you put in the work early on, you figure out how to keep your Bitcoin safe and then that’s it. And then it just sits there.

It, you make the investment initially, and then you don’t have to spend your lifetime asking for permission and worrying about all these other attack vectors from outside, other than the ones that you can control.

Matt Odell: I like that you highlighted that [00:16:51] everything does have trade offs, and I think that is key.

A good rubric, I think, when entering the space is, as you’re learning, as you’re going down the rabbit hole, constantly ask yourself, what are the trade offs, and ask others what are the trade offs? And if they tell you there are no trade offs, frankly, there’re completely full of shit, and that should be a red flag for you. Because everything does have trade offs.

To me, a vibrant, robust Bitcoin ecosystem is one where Bitcoiners have many different options with many different trade offs. They’re able to assess those risks themselves and choose the trade off balances that best suit them. And a perfect example here is in between self-custody, holding your keys yourself, and trusting an institution with your keys. Services like Unchained Capital for instance, do something called collaborative custody.

And that’s something that’s only possible with Bitcoin. You can’t do that with precious metals. You can self-custody precious metals, but you can’t do collaborative custody. And the idea there is [00:17:51] when it comes down to Bitcoin, you have something called private keys. The private keys are what allow you to spend your Bitcoin.

We also have a concept called Multisig. Which means you need multiple private keys, you basically need multiple keys to spend that Bitcoin. And these collaborative custody options, you trust the institution with your privacy, but they can’t spend your Bitcoin without the key that you hold, and you can use their key if you lose one of your keys.

So it’s a shared custody model where you’re not trusting them with your actual funds, they can’t steal your money, but you are still trusting them with your privacy. And that’s a nice middle ground, I think, for people. Especially high net worth individuals, as they’re starting to get their feet wet in the personal responsibility side.

Saifedean Ammous: Yeah. And this is something that is facilitated because of Bitcoin’s Multisig capabilities, which is in my opinion, I think the only actual smart contract that works so far. [00:18:51] It’s the only one that has had actual commercial deployment in anything other than essentially the same old Ponzi schemes which we’ve seen done digitally and pre-digitally.

But Multisig is a true innovation of time chain technology, as I prefer to call it. It’s something that was not possible. Well, I guess you could argue that you could lock gold in a safe which has several locks and several people have the keys and they need to meet to open it.

But again, the lock itself is is not what’s holding the gold, because the person who has physical custody of the safe itself can crack it open, even if they don’t have the keys. So it’s not quite the same thing. There’s no way to crack a Multisig. So if you have one out of three keys in the Multisig, you cannot take the money that is in it, which is where it’s different, where [00:19:51] it’s truly a move forward technologically in our ability to store and custody money.

What are your kind of recommendations in terms of private key solutions, private key handling, or some people like to say wallets or hardware devices, what do you recommend in terms of which options or actually let’s phrase it this way, it’s not about which you recommend, what are the trade offs of different options?

Doesn’t matter what you recommend as much as the trade offs.

Matt Odell: You have many different options at your disposal. We’re fortunate enough as Bitcoiners that we have a thriving open source ecosystem that is being built around Bitcoin that is available at our disposal. I think when you get your feet wet, you use mobile wallet.

I like Muun wallet, as I said before. It’s a good beginner [00:20:51] wallet, very user friendly, easy UX, you can back it up yourself, you don’t have to trust Muun with the backup. Then after you graduate from that, the next step for most people is probably is what we call a hardware wallet, or a hardware signer. Which is basically a little dedicated device that holds your private key for you and makes it easy for you to interact with a connected computer, connected phone that is handling the construction of the transaction, but your actual private key never leaves the device.

My favorite in that regard is called ColdCard. There’s these two guys NVK and Peter who work on it out of Canada. They think of a lot of different paranoid things for you and do that paranoia element out of the box. And you’re able to use that hardware wallet or hardware signer or however you [00:21:51] want to call it, you’re able to use that with the software of your choice.

So on the software side, I really like Sparrow Wallet, that’s my hat right now. That’s developed by this guy named Craig Raw outta South Africa, fully open source wallet. You can install it on your computer, works with Mac, Linux, Windows, so that basically is your portal to your Bitcoin wallet, and then the ColdCard is a separate device that holds your secret, holds that private key and keeps it secure. So if your computer gets compromised, you have a privacy risk, but your funds cannot be easily stolen because they are on that separate device. Someone has to get physical access to that separate device.

It has a pin pad on it. If they don’t have your pin, if they enter the pin wrong a certain amount of times, it automatically wipes. Maybe sophisticated actors can, when you’re talking about like the NSA or something, spend hundreds of thousands of dollars to extract that secret from the device. But basically NVK and Peter keep releasing new versions [00:22:51] as these theoretical vulnerabilities happen.

But if it’s like a maid or just like a normal thief, like an average thief or whatever, like they are most likely not gonna be able to get into this device. You could think of it as one of the most secure safes on the market, in that kind of regard.

Saifedean Ammous: Yeah, and what I like about it, the ColdCard, is that as you said, it does all the Bitcoin stuff on the wallet itself rather than on the device.

And that’s really important because the attack vectors, when you are connected to the internet, when you’re performing the signing on a device that’s connected to the internet, are much more plentiful than if you’re doing it with an with an attached device, right?

Matt Odell: Yeah. This is a theory we call cold storage. So basically we can’t all be shadowy super coders and programmers and inspect all the code we run, we [00:23:51] should basically all be operating under the situation that our computers are compromised and our phones are compromised. So if you’re in that situation and you’re a non-technical user, what is the single biggest way to protect yourself?

And the single biggest way to protect yourself is to make sure that those private keys that you control your Bitcoin never touch the internet. And why does that help? Because if they never touch the internet, they’re never on an internet connected device, then that means if someone wants to attack you, if someone wants to take your Bitcoin, they have to physically get that device.

They can’t hack you from India or China or the Philippines or Seattle. Like they have to come into your home or your office, and they have to have that device in their hand in order to take your money.

Saifedean Ammous: Yeah. That completely changes the risk dynamic. And again of course, doesn’t make anything perfect, there are still attack vectors involved with everyone, but realistically you need to assess them, and see which ones are the most relevant in your case. Where do you really think, [00:24:51] do you think the NSA is going to be coming after you, or do you think you just need a place where if a burglar is more likely to walk into your house that they can’t just inadvertently walk away with your Bitcoin private keys.

If they’re just stealing stuff, if that you think is the most likely scenario, then you need to protect against that perhaps with a kind of Multisig solution.

Matt Odell: It’s about reducing your risks as much as possible, not eliminating them completely. Not being the lowest hanging fruit, not being the slowest person running from a bear, while still balancing convenience and simplicity because you don’t want, we see the overwhelming amount of Bitcoin that is lost or stolen is lost.

It is lost because people overcomplicate it, they decide I’m gonna try and be a shadowy super coder and protect myself from the [00:25:51] NSA. And they overcomplicate it, they forget their passwords, they forget what kind of complicated system they decided to do three years earlier, and they lose access to their Bitcoin rather than it being stolen.

So you wanna balance, those are basically the main trade off in this world is convenience versus privacy and security. So you want to find a nice balance in between the two of those, so you’re not shooting yourself in the foot, but you’re still relatively secure and relatively private.

Saifedean Ammous: Yeah, that’s a very good way of putting it. Now, what do you think about skipping hardware wallets and going with paper wallets and having redundant copies, do you think that’s a good thing? Because some people are worried about the the NSA cracking into their hardware wallet, or they think maybe there are exploits that could be deployed on hardware wallets.

Do you think that’s a good way to do it, because you could generate [00:26:51] your private keys on a device that’s not connected to the internet.

Matt Odell: I think it’s a fair conversation to have. Once again, everything does have trade offs. If you’re buying a device from a company, obviously that company will know what your mailing address is that you ship it to. They’re able to potentially swap out the device for a compromised device or someone in the middle.

We’ve seen the NSA specifically get called out, I believe in the Snowden leaks where they were placing Cisco routers with compromised Cisco routers, like in the shipping facility, so Cisco presumably didn’t even know about it. So that’s definitely an attack vector that should be considered.

I think your age is showing a little bit because when I first got into Bitcoin and I believe when you first got into Bitcoin, we didn’t really have a developed hardware wallet ecosystem. Multisig didn’t exist yet. The first cold storage [00:27:51] wallet I made was on a Linux computer that wasn’t connected to the internet, connected to a printer. I printed out three paper wallets.

So essentially the private key is on this piece of paper, three copies of the same one, just in case one of the papers got destroyed. And then I destroyed both the computer and the printer. So it cost me about $900. It was a fun experience destroying the printer specifically, cuz there was more physical parts that were breaking.

You could do that, that is an option. I think hardware wallets on the trade off balance model are significantly easier to use and interact with. When you’re talking about paper wallets, one of the main issues you will have is when it comes time to spend it. You are gonna have to connect it to some kind of internet connected device.

Hardware wallets are designed so you can relatively safely connect to an internet connected device, sign transactions, use it on a relatively often basis [00:28:51] without having your private keys compromised. With paper wallets, that part is up to you, how you handle that, and there’s some nuance there and attack vectors issues you can make.

I think if you’re truly concerned and you have a higher amount, that’s where Multisig comes into play and is really helpful. Because with Multisig what you can do is, so the ColdCard is my favorite hardware wallet, but fortunately we do have other solid hardware while it’s out there.

There’s one project called SeedSigner where you can build your own hardware wallet yourself. From off the shelf parts for about $60. Foundation Devices has a hardware wallet that they forked from ColdCard, and then since then ColdCard changed its code, so Foundation Devices has this different codebase going forward than ColdCard does, there’s obviously the treasurers are still there.

So where I’m going with this is if you are [00:29:51] concerned about the ColdCard being compromised and you don’t wanna trust a single manufacturer.

What you can do is you can actually have a Multisig where you have these multiple keys that are required to spend your funds and you can set it up, maybe you have three hardware wallets and you need two of them to spend. And what that means is two of those hardware wallets need to be compromised for you to lose your funds and lose your ability to access your funds. So I think that trade off balance probably makes more sense at this point than using paper wallets if you’re concern is hardware tampering.

Fortunately Multisig has gotten easier to use, it will get even easier to use over the next six months or so. Sparrow Wallet that I mentioned earlier, not only can you easily use it with your hardware wallet, you can also easily use it to set up a Multisig yourself and you can also easily use it to connect to your own node.

So it scales up with you as you improve your knowledge and you can [00:30:51] keep using that same software stack. There’s also another software called Nunchuk that is in development right now, I wouldn’t trust it with large amounts of funds cuz it’s relatively new, but it aims to make that multisig process even easier for you in terms of setting it up and then using it going forward.

Saifedean Ammous: Yeah, I think the idea here is when you when you diversify your hardware, you necessitate that the attacker would have to compromise two supply chains at the same time in order to spend your coins, which makes it much, much more unlikely than it already is. But yeah, you’re right on the paper wallets. I think some people, if you’re gonna go through the paranoia of destroying a computer to make a wallet it’s worth remembering that basically anytime you’re going to be spending from that address, you need to either destroy a computer

Matt Odell: It [00:31:51] gets expensive really quickly.

Saifedean Ammous: Yeah, it gets expensive because the transaction fee is like a new computer every time! So it’s not very affordable. And I think that also the other problem was just that if you, a lot of people have made this mistake in the early days, where they put in the private key and they spend a part of the coins, and then they if you don’t send the change back to the address, I think with the paper wallet it’s just basically gone.

So you need to be very careful. You need to basically throw away every private key when you spend. If you’re gonna go through the paranoia of making a private key from an, you don’t have to destroy the laptop, you could keep the laptop offline I guess. If you have a laptop that you just keep offline, perhaps. But then again, that could also be compromised in other ways.

Matt Odell: Right, someone can get the laptop after you generate, that’s why the laptop gets destroyed, because someone could access the laptop afterwards. Or [00:32:51] the printer, and the reason the printer is destroyed is cuz printers, modern day printers, most of them store your printouts in memory. Which a lot of people don’t realize. Especially if you’re using like an office printer or something, like not only is it stored in memory, but it’s accessed by a lot of people, so you don’t wanna do that.

But yeah, that goes into basically with that change issue, people lost coin that way, that goes into basically that nuance, that when it comes time to spend, you’re on your own. You have to handle that in a secure way. Hardware wallets attempt to automate that. And I would just say, once again, like this goes back to trying to keep it relatively simple.

You don’t wanna overthink things. And we see a lot of people, you get into this, some people get stuck in this mindset where they’re including the NSA and their threat model. And when I say threat model, what I mean is you have to think in your own situation, what are my largest threats? What am I trying to protect against?

And if you’re trying to protect yourself against the [00:33:51] most sophisticated intelligence agency in the world with basically an endless budget, you’re gonna have a bad time. You’re gonna get overwhelmed, you’re gonna end up in a very complicated position. When in the reality of the situation, if you try and think about it practically, try and think about it in a pragmatic way, you really wanna protect yourself from those 99% of threats underneath that.

And when you look at attacks, what happens usually is it’s the lowest hanging fruit. So we talk a lot about how mobile wallets are, maybe they’re not great for larger amounts, because they’re hot wallets. They’re connected to an internet connected device. But to this day we haven’t seen any real major hacks of mobile wallets.

What do we see? We see super low hanging fruit stuff. Tricking people into entering their secret backup words into a compromised website, sending them emails, telling them if you send us Bitcoin, we will send you double back, and then they never send you double back.

What do we see on the government side? We see 99% of people coming in through [00:34:51] regulated exchanges, giving full ID information, leaving their coins on exchange, and then there’s just a button press to take it. So I think as Bitcoiners, it’s good that we have an adversarial mindset that we try and think of all these different threat factors.

But in reality, when we do see the attacks, 99% of these attacks are gonna be super primitive attacks on low hanging fruit that they hit at scale, and as long as they get 5% of people, 2% of people, 3% of people, that’s a lot of money for them and they don’t have to go and attack people that are even just a little bit more secure.

Saifedean Ammous: Yeah, that’s a good point. Basically that there’s so much hanging low hanging fruit, particularly in the Bitcoin world, because as we were discussing earlier, people don’t really understand the concept of responsibility with money. And I think a part of this is the culture of financial regulation, which was invented as a concept after fiat primarily, in this modern form, has made people [00:35:51] think that if you are able to invest in something that means the government has given it the green light, that means it’s good. Whereas if the government hasn’t given it the green light, then it’s bad.

And people just assume that if it’s available then it must be good. Obviously they wouldn’t let it. There’s somebody there. There’s always a watchman watching out for me and they know, they wouldn’t let those guys be out there doing things.

And so therefore people are extremely trusting. They see a website that says, give us your Bitcoin, we’ll give you double the Bitcoin, they’ll put their money into it. And that’s why if you wanna steal Bitcoin, just go do something like that. It’s much easier than getting violent and attacking others.

And of course, the most common way that people lose their Bitcoin and people get scammed out of their Bitcoins, of course, is shitcoins. That’s the really easy way. Really, instead of going and attacking people, just go set up a shit coin and dump it. Generally I think you are gonna have a better return.

I [00:36:51] don’t recommend shitcoinery, but I would recommend it over violent crime, given the choice, I still prefer it to violent crime.

Matt Odell: That’s good, I’m glad. I’m glad you recommend it over a violent crime.

Saifedean Ammous: Yeah. Shitcoiners and I can see eye to eye on one thing, we need something.

Matt Odell: Shitcoins are probably one of the main ways people lose their Bitcoin, obviously.

And I think most of us have been there. Most of us, I’m a big, a lot of people call me a doomer, they think I’m pessimistic, I’m an optimist, but I’m a realistic optimist. And basically I’m optimistic that as a society, as we get burned we will learn and we will improve.

And we’ve never really been in this situation before. Where there’s almost total control by institutions and states combined together. They’re all like intertwined at this point. And basically what I expect to happen is people are gonna get burned and then as they get burned, [00:37:51] whether that’s on shitcoins, whether that’s on scams, other scams besides shit coins, whether that’s in regulated institutions, you mentioned Bitcoins, but a big thing this cycle has been institutions promising so-called yield. We will give you 6% on your Bitcoin. People sending their Bitcoin into those institutions, giving up their sovereignty, giving up their privacy and then getting rug pulled and losing their money.

So you have these, what is it like a marshmallow test is what they call ’em where you’re basically being tested all the time and you know you won if you end up with more Bitcoin at the end of the day, or at least not less Bitcoin at the end of the day than when you start it. Because everyone’s a scammer, everyone wants to take your Bitcoin, and there’s a million different ways you can lose it, so it’s up to you to, and it’s up to you to make sure your Bitcoin stack grows and that it’s available for use [00:38:51] by your future children and grandchildren and their grandchildren.

Saifedean Ammous: Yeah. Here I think I’m going to bring in a little bit of good old Ludwig von Mises, and I think a very useful way of navigating the world of Bitcoin and digital currencies, and Bitcoin financial institutions is to just remember the very basic insight that money itself cannot yield return.

Money itself is not a chicken that can lay eggs, money is not a cow that can make more cows. It’s not an asset that can get pregnant and produce more of itself. If you put money in a room and you lock it up for a hundred years and you come back, you’re gonna find it sitting there still in the same exact quantity, gold or papers or Bitcoins have no mechanism for spontaneously increasing in quantity.

So therefore the only way that you can make more of whatever form of money, whether it’s dollars or Bitcoin or gold [00:39:51] is that somebody is going to need to take those things, exchange them for something that makes other things, so you take the gold, you sell it, you buy a cow, you take the Bitcoin, you sell it, you buy a chicken, you take the chicken, you take the cow, you take the lemons and you turn them into more chicken, more cows and lemonades.

And then if you make more chicken, more cows, more lemonade than the cost of the chicken and cows and lemons that went in, then you turned in a profit and you can bring in a profit to the person who made the investment. But there’s no way that you could get any kind of return without spending the money.

It can’t make a return if it stays in the form of money. So if you put a money with somebody and they tell you that the money is there and it’s available for you, but it’s also going to make a return, that’s a red flag.

They’re telling you, you can have your cake and you can eat it too. You can keep eating your cake forever, but you’ll always have the cake.

It doesn’t work that way.

If [00:40:51] the money is producing a return, then it’s been exchanged into a productive good. Money is not a productive good on its own. And it’s been exchanged into a productive good, and so it’s making more. So then you need to understand what good is it being exchanged for, and understand that there’s no such thing as no risk, and there’s no such thing as protected downside.

Every single business enterprise in the history of humanity has always had the risk of complete and catastrophic loss. Everything can go to zero overnight, anything. Everything. Every single business that has ever existed could go to zero. You could get an earthquake that swallows the entire business and all of its capital, and it’s gone, it happens.

These things happen, so risk is always there. The idea that you can just protect against risk through financial engineering is fiction. An earthquake can eat the financial engineers too before they can do anything about it.

Matt Odell: I never realized you were so pro-earthquake!

Saifedean Ammous: It’s [00:41:51] a necessary financial corrective mechanism at a certain point! In the fiat system, you’ll take whatever you could get.

No, I’m joking, I’m joking. I don’t support earthquakes. I’m not a Keynesian, I don’t think that destruction is good for GDP. I think destruction is bad. But yeah, the point is there’s no return without risk. And so you need to understand what the risk is, and if they’re telling you’re getting a fixed return and that the downside is zero, then they’re either lying to you or lying to themselves.

We saw with Celsius and Mashinsky. You see how he was speaking about it. And I spoke to him, there was a video that was posted at where I was in a conference in Hong Kong in 2019, and I was on a panel with him and Tone Vays and it’s clear like he was repeating this, you might even think that he actually believed it.

Like he believed that we could take the money, run it through all of these exchanges, lend it out, do things, and then we’ll be able to give [00:42:51] everybody six and eight and 10% yield forever. We’re gonna give everybody 7% forever because the banks are evil, because banks are not giving people good interest rates and it doesn’t work that way.

I don’t know if he believed it, clearly it’s gone to zero. And I think in a Bitcoin world, we’re gonna see this more and more. Because in a fiat world, those companies can be bailed out by fiat, but nobody can print Bitcoin to bail them out.

Matt Odell: Yeah. I think you see a lot of times scammers starting to believe their own bullshit, and then they actually become more convincing scammers because they’re authentically scamming you while they scam themselves.

Saifedean Ammous: And I think, It’s highly likely that the majority of people who have gotten into these things really, truly believe in them. Because they’re in the fiat system, banks did offer interest rates even in my lifetime. I remember when I was a kid, you could make interest by putting money in a bank.

It wasn’t much, but there was some kind of interest. That’s,

Matt Odell: I’ve never seen [00:43:51] that.

Saifedean Ammous: I’m older than you. You were probably born after Greenspan came in and then it’s just been xerp ever since basically in practical terms. Yeah but people think money grows on trees. People think money grows in banks. You put your money in the bank and then the bank will just make more because you gave them the money and they kept it safe for you.

So it’s highly likely that they would believe this would be possible with Bitcoin. And I think it’s sad, I know a lot of probably real good Bitcoiners worked for Celsius or put their money in Celsius thinking this is the future, thinking – we’re bringing banking to Bitcoin. But no, you’re bringing Ponzi’s to Bitcoin, unfortunately.

Matt Odell: This just goes back to like my optimistic, my pessimistic optimistic take, which is there was this guy, I do a lot of consulting work for different Bitcoin companies and there’s a guy that works, he’s one of the higher ups at [00:44:51] one of these orgs, and we got into a lot of arguments about these yield products.

And I said – dude, you’re playing with fire, you’re gonna get rug pulled. We’ve seen it happen a million times at Bitcoin land, and he got rugged by Celsius. He lost some money on Celsius. Fortunately he didn’t have his whole stack there. He didn’t have all his Bitcoin there. But he had a sizable amount.

And the day after withdrawals froze he messaged me. He was like, Matt I get it now. Like I spent hours with him trying to encourage him to get off of Celsius and not use Celsius. But ultimately the real lesson was actually losing access to those funds. And now he has a lifelong lesson that cost him a decent amount of money, but not too much money.

And he’ll never forget it.

Saifedean Ammous: Yeah. I think the last few months have been likely devastating to the possibility of [00:45:51] yield products in,

Matt Odell: I don’t think so. That’s like when us Bitcoins and every bear cycle are like, ah, shitcoins are over. they’re never coming back. I think the yield schemes are just getting started.

We’re gonna see some crazy shit next cycle.

Saifedean Ammous: I think we’ll still see shitcoins. We’ll still see yield products on shitcoins and these kind of things. But I think the kind of Celsius type, decent kind of looking institutions that are somehow regulated and raise funds.

I can see smart contract Ponzi protocols where you yield farm food items, like all of these things. Yeah, I think these won’t die. But can you see somebody raising money for something like Celsius?

Matt Odell: The beauty of, the beauty, talk about quotes taken outta context, the beauty of Celsius was that it [00:46:51] was essentially a front end for all the crazy DeFi yield schemes.

And so is three hours capital. So like institutions would lend out money to Three Arrows or lend out money to Celsius or retail would go to Celsius and Celsius would lend out money to Three Arrows capital, and then they would go and play with all the Ponzi protocols and basically hide that risk on their balance sheet.

And then the front end, which was Celsius or BlockFi would say, oh we only work with reputable borrowers. But the reputable borrowers were going doing all the crazy stuff. I don’t think that’s over yet. I think what we probably see is a bifurcation of the market where like Celsius was one of the things they do in shitcoin land really well is they don’t ask permission.

They just go crazy and they just constantly move [00:47:51] forward on the crazy side, and regulators are really slow to move, bureaucracy just takes really long to actually act. We see enforcement actions happen five years after the fact, six years after the fact. So there’s a window of opportunity where they’re able to operate these bucket shops.

So what I expect to happen is we’re gonna see a move from retail to basically say, oh BlockFi survived the last collapse, they’re fully regulated, they’re based in The United States. They have these big corporate backers. I’m gonna trust the BlockFi of the world or whatever. So we’ll basically see a consolidation, at least on the big ones.

We’ll see this consolidation of whoever survives but retail will still flock to it. First of all, people tend to choose convenience over security and privacy. So they like the regulated institutions that they consider reputable, [00:48:51] and then the second thing is people don’t working, so they will go for something that presents easy money with no trade offs.

It’s one thing that promoters have been very good at, which is basically you will get rich with no risk. And one thing that I have had trouble with being public in the Bitcoin space for as long as I have is that the unfortunate reality is it seems that a lot of Bitcoiners have basically looked at the shitcoiners and they’re like, I want to do that too, I’m gonna tell my audience that they don’t need personal responsibility, there’s no risk, there’s no trade offs and they can instantly become rich and have this passive income.

People love the meme, passive income. So I really don’t think

Saifedean Ammous: Passive income is like free cheese in the mouse trap.

Matt Odell: I think the yield shit gets even bigger. The yield market gets even bigger. “Yield” market gets even bigger in this next cycle. We haven’t [00:49:51] even gotten to see like a sovereign state rug pull yet. I think like the shit we’re about to see is gonna be even crazier than any other cycle we’ve seen in the past.

Saifedean Ammous: Yeah. I should say I think the shitcoins will likely continue to get bigger, but the that doesn’t mean that investing in them is a wise choice because you don’t know which ones are going to get bigger, and so

Matt Odell: It’s gonna be different ones, every cycle you have different pump and dumps.

Saifedean Ammous: Exactly. And this is why they’re so well suited for attracting stupid people because stupid people don’t understand averages and probabilities. And so there’s more than 20,000 shitcoins, and more than 20,000 of these shitcoins have underperformed Bitcoin. Very few shitcoins have outperformed Bitcoin for any kind of sustainable period.

And those that have mostly only really outperformed Bitcoin for the very early people who got in really early, particularly basically the people who launched the [00:50:51] shitcoin. So the vast majority of normal people, if you’re a normal human being who does something with their life and has an income and has money and has savings, who would like to put them in a place, if you get into shitcoin, the odds of you coming out with a lot of money on the other side are very low.

You only of course, on Twitter, you only see the successes because the people who put in $8,000 and then lost them, they’re not out there going on Twitter every day saying, Hey, I lost $8,000 to shitcoins, but the guy who put in $8,000 and then bought a Lambo is out there on Twitter, posting a Lambo every day, and making you think that everybody who puts in $8,000 comes out with a Lambo.

But the vast majority of people who put $8,000, they put it into shit coins that are just, if you go to coin market cap, the vast majority of them are just flat lining in Bitcoin terms. They’re declining in value.

So getting into it, it’s not like you are just, you’re selling out and then you’re gonna make money. I think a lot of the [00:51:51] Bitcoin influencers seem to portray this, that, if you get into shitcoins you make money, but all of us Bitcoiners are choosing to make less money because of principle.

Even if a principle were the case, I think that even if you weren’t principled, if you were just a little bit intelligent about probabilities, you’d realize that the only way that you could really make money in shitcoins is to be essentially an insider in these because otherwise trading day in and day out, there’s no way to tell today which are going to be the best shitcoins in five years from now.

And similarly, all the people tell you should get into shitcoins, they wouldn’t tell you what you should be getting into over the next five years. So what you need to do is daily active management, the daily following of the shitcoin markets in order to be able to flip the right thing on the right time and not get rugged.

And of course it only takes one rug. One bad trade to ruin [00:52:51] 100 genius trades. And so the end result of this is that you’re constantly taking on extra risk and the only people that it works for are the people who basically do it as a full-time job and get in early. And I’ll just, I know you wanna get in, but I just wanna add one thing and this is why I think there’s a cultural difference really, between Bitcoiners and shitcoiners in that everybody who thinks of money as something you save in, I already worked, I’m a cab driver, I’m a doctor, I’m a dentist, I’m an engineer, and I did my job, I earned my money and now I just want to keep it there so that I can have it indefinitely for the future. Because that’s what money does, to secure me and my children. People who have that mentality get Bitcoin.

Yeah. Oh, I can just buy Bitcoin and nobody can print more of it? Great. I can focus on being a doctor and I don’t need to be a stock picker every day of my life. I don’t need to follow monetary policy. I don’t need to follow commodities markets and global geopolitics and all of that stuff in order to know what to do with my portfolio, I’m just gonna [00:53:51] save in something that nobody can print and focus on being a good dentist. Shitcoiners, their culture, as you said is – I wanna quit being a dentist. Because I’m gonna take all of my life saving, put them in a shitcoin, and then I’m gonna 100 X and then quit being a dentist.

There’s always this idea that, I can’t just buy Bitcoin because it’s not making a yield. I need something to make a yield because I need something that’s gonna replace me having to be a dentist because I don’t wanna be working, I don’t wanna be productive. So it’s a way to get out of being productive and hit the jackpot.

For Bitcoiners, it’s a way to focus on being productive and have a place to save.

Matt Odell: Yeah. I think you nailed it Saif. I think it goes back to the simplicity comment I made earlier, like at the core, like we live in this ridiculous society where we’ve been trained that you either need to be a proficient financial [00:54:51] professional, or you have to hire someone to manage your wealth in order to trade markets in order to save money, which is insane.

And the Bitcoin value prop that it offers to people is this idea that you can just save your wealth and focus on living your life. You can do whatever the fuck you wanna do. And at the end of the day, you’re able to hold this asset keep stacking it. And over time it should increase in purchasing power.

This goes way past just shit coins. It’s trading in general.

Saifedean Ammous: Yes. You should not be trading. 99.99% of people should not be trading as a living.

Matt Odell: Yeah. They will lose more money trading than if they just stay humble and stack Sats. And so this idea, first of all, that I as a Bitcoiner think you can’t make money on shitcoins or trading Bitcoin is false.

Of course you can make money. Some people will. Most people will lose more money than if they just stay humble and stack Sats. And it’s not this I’m not, doing this great moral [00:55:51] thing by not participating in these potential shitcoin profits or Bitcoin trading profits with leverage.

No, I know that I will have more money for my children and my grandchildren if I stay humble and stack Sats. So that’s what I do. And if anyone doesn’t believe me (and think) they’re safe on this, what I would say to you is take 2% of your stack and try and trade with it. You will lose that 2%. Then instead of doubling down and putting another 2% in, just learn from that fucking lesson and stay humble and stack stats going forward.

Saifedean Ammous: Yeah. I’d add to that, if you think you can beat that, show me today what you’re going to be doing over the next five years to beat that. And if your recipe is I’m gonna wake up every morning and follow the shitcoin market and figure out which new stupid dog coin is going to moon next, then I’m sorry for your loss of a life.

What kind of existence is it to just wake up every [00:56:51] morning and see which which group of teenagers in the world is going to get rug pulled by a stupid meme today so that you can feed your kids. If active daily trading of shitcoins is your strategy, it’s not going to work.

And also it’s no way to live. Like really, there’s no amount of money that you could pay me so that I could spend all my. Having to manage this. So you have to really, and this is the problem with shitcoiners and fiaters, they all are so adamant that no, you can’t just hold Bitcoin.

And you just tell ’em all right, what do you suggest instead of it? Nassim Taleb is always going on about Bitcoin being bad, all right, show us your portfolio. How do you beat Bitcoin? Of course they can’t tell you because they’re holding, he used to tell people to hold 80% bonds and then invest 20% in some crazy ideas that might work out. Well, that might have worked 15 years ago. Today you’re losing about five, 10% a year on your bonds maybe.

And your 20% long shots are [00:57:51] likely going to come back at something like 1%, most of the time. So you’re losing 10, 20%. With any strategy today, with any strategy because of inflation, all of the financial gurus of wall street, all of their strategies are basically just a mechanism for you to donate wealth to your government.

You’re getting robbed by inflation, whatever you do. And none of these people can reliably show you that they can beat inflation, let alone beat Bitcoin. I’m not telling you, asking you to beat Bitcoin returns. Just show me that you can beat inflation as measured by the increase in the money supply.

Not the CPI. Show me that you can beat that over five years.

Matt Odell: Yeah. Because if you’re not beating inflation, you’re losing money. I think. The fiat coiners have come to the same conclusion out of as us, and they just don’t even realize it. It’s a weaker conclusion, but basically what advocated to retail most of the time now with professional financial advisors which I almost can’t even [00:58:51] say without a smile on my face is to buy index funds.

And why do they say to buy index funds is they say you’re competing against a whole world of traders, and you’re gonna fail at doing that. So buy an index fund, that’s all the companies in one fund, and as global production improves, as humanity scales you should reap the benefits of that.

To me, Bitcoin is essentially a replacement for that index fund, on steroids. Which is this single global ledger that records all of our wealth, that is scarce. That is easy transferable, that doesn’t require permission, and that should increase in purchasing power as adoption increases.

Saifedean Ammous: Yeah, absolutely. And I think it’s just insane, the idea that everybody needs to manage their money. In my mind, this is as insane as going back to a world in which everybody needs to manage their sewage every day. Imagine if you needed to be, a [00:59:51] part of your day every day was that you needed to be your local your house is own sewage engineer.

At the end of the day, you needed to go to your sewage and do things with your hands so that the sewage is processed. We got this to stop being an automated thing, and this is effectively what fiat has done to money. Money had always been the thing that we used as saving, and it was just this automated process where you got paid in a gold coin and then you took the gold coin and you put it under your mattress and it stayed there. And you didn’t have to wake up every morning studying what’s happening between the Japanese central bank and the American central bank, so that your gold coin works.

It just sits there and it works and it holds onto value and it appreciates a little bit. Well now to replace that. It’s, the, you can think of that as being the analog to modern waste wall waste treatment in modern sewage. There used to be a time where we had outhouses and then we had people come and [01:00:51] actually take the feces from the outhouses in order to clean it.

That was a job, this was what what people did in cities. They went around and they collected shit from other people’s homes. So that that was the sewage system that we had. And then modern sewage, piping, allowed modern industrialization in the glorious beauty of hydrocarbon fuels allowed us to build all those systems where now we don’t need to hire somebody to come and take art poop, and it’s just automated.

And it’s that similar to the gold coin, and they both came around at the same time. At the late 19th century, the whole world was saving in gold and holding and installing modern sewage. And now we’ve gone back now, we’ve gone by noon. You have to wake up every morning and follow the Wall Street Journal and Bloomberg and see what the Fed said.

And do they really mean that they’re going to tighten, and do they really mean that, and is he really going to do that? Bitcoin fixes this.

Matt Odell: [01:01:51] It’s all earthquakes folks.

Saifedean Ammous: All right. So the other thing that I wanted to talk to you about is privacy. So we’ve gotten into you’ve stored your keys, you’ve figured out how you’re going to be storing them. How do you recommend staying private or first of all, why do you recommend staying private? We’ve discussed this with Giacomo a couple of weeks ago, but I wanna get your take as well.

Why is privacy important on Bitcoin? Why should you care to be private? Why not just, who cares?

Matt Odell: So one of my major passions in Bitcoin is privacy, and particularly digital privacy in general. So I’ve spent a lot of time talking about this and thinking about it and might be the thing I most disagree with Saif about.

We agree on most things. The way I look at it, first of all, the way I got into Bitcoin is I thought it was bullshit, which I think most people get [01:02:51] into Bitcoin that way. They say there’s no way it can work, I came in early relatively anti-state, not trusting of institutions, and I was like, this thing is gonna get squashed, right?

So I started looking at Bitcoin and basically my rubric of getting into Bitcoin was trying to prove that it wasn’t gonna work. And I went down all the different rabbit holes and I just, my conviction grew and grew, especially over time. Cuz as time goes on, I treat Bitcoin as basically this glorious open bounty system. Where if there’s a vulnerability, anyone in the world can exploit it and make a ton of money. So as time goes on, it’s more robust and more secure and you can trust it more. So the way I look at privacy is first of all, privacy is a prerequisite for freedom. I don’t think you can have freedom without privacy.

If you don’t have privacy, people can use your private information to control you and you don’t have [01:03:51] freedom. I think freedom is a prerequisite for wealth, because if you don’t have freedom then it’s not your money and it can be taken from you at will. So when we talk about Bitcoin as censorship resistant money, we talk about Bitcoin being hard to seize and being easy to use without permission.

And when I go down that rabbit hole the biggest threat to Bitcoin today is not actually too Bitcoin. The network I think is robust. I think it’s really hard to shut down. I think time has proven that I think you would basically need some kind of global cooperation between major countries that hate each other and major governments that hate each other to try and take down Bitcoin.

And I don’t think the will is there. And I don’t think history has shown that they can cooperate with each other. That is one of the coolest parts about Bitcoin is this it’s almost, Bitte has this great tweet of, bitcoin consensus, it’s like a Mexican standoff with everyone holding their gun to each other’s head.

[01:04:51] But the biggest vulnerability to me, if we’re talking about low hanging fruit, on the state side is going after individual Bitcoiners. And that starts with privacy. And the key here is that Bitcoin by default is not private. Most people are coming in through regulated exchanges. They’re providing their full identification information.

They’re uploading the passport, they’re uploading their driver’s license, they’re taking selfies of themselves, they’re putting in their current home address. And that is getting linked to your Bitcoin transaction history. And there’s basically growing lists of Bitcoiners and our transaction history that are not only held by these corporations.

But they’re shared by governments. They’re stored insecurely, they’re leaked, they’re sold. So these lists are growing, Bitcoiners should be concerned about it from an individual level, not on a network level. So how do we protect ourselves from that? Fortunately, there are many tools that are available to Bitcoins to use Bitcoin more private.[01:05:51]

So one aspect here is obviously that KYC record. When we say KYC, we mean know your customer. Know your customer regulations attempt to prevent money laundering. They do not do that, criminals know how to get around it. It only hurts law abiding users. And what happens is we have these lists of our intimate, personal information tied to our transaction history.

So the first step is being aware that record exists. If you’ve bought on a regulated exchange, I have, many of us have, that record always exists. Saif bought this much Bitcoin on this date and you transferred it to this Bitcoin address. That record will never disappear. So you have an option there.

And I, first of all, I would say on the KYC side, I think the KYC side is a temporary thing. I think, one of the memes in Bitcoin is we are still so early. I think we’ll stop being early when most people aren’t buying Bitcoin, they’re [01:06:51] earning Bitcoin for their job. And most people aren’t selling Bitcoin, they’re spending Bitcoin.

And when you end up in that situation, you don’t have these centralized choke points that are connected to the banking system. But right now we do have those centralized choke points. So if you wanna use a bank account to buy Bitcoin or sell Bitcoin, you’re gonna provide all this intimate identification information.

So you can reduce that risk by obviously, either not going through the bank account connected route and doing in person trades, doing peer to peer trades, where you’re sending someone fiat in some method and they’re sending you Bitcoin and you’re not providing this identification information. As I said earlier, you can obviously earn Bitcoin by, if you operate a business, start accepting Bitcoin.

Maybe give a discount if people pay in Bitcoin. So you can get some Bitcoin that’s not tied to your identity. And I would go back to saying that this is not all or nothing. Just like with the self custody conversation, you might have the stack that’s tied to your name, and if your government turns against you, they might [01:07:51] put a gun to your head and say, we’re gonna throw you in jail if you don’t pay the obscene tax. Where if you don’t let us take your Bitcoin, but you still have your key stack, you still have the Tony Soprano duffle bag in the wall, so to speak, or the Breaking Bad barrels buried underground with cash in it.

So it’s not all or nothing. Consider starting to build a stack that’s outside of the regulated services. So that’s one thing to consider. Another thing is if you mind, you’re also able to stack Bitcoin without interacting with the regulated service and asking their permission, so that’s not connected to your identity.

And I’ve been a big advocate of home mining, small scale home mining. And in that situation, even if you’re technically losing money on your electricity bill if you’re losing 10% versus buying over a regulated exchange, treat that as your privacy premium or privacy discount, where I’m [01:08:51] paying that extra 10% because this Bitcoin isn’t attached to my identity, besides that you also have something called collaborative transactions.

The most common version of collaborative transaction is something called a coinjoin.

This allows you to use Bitcoin in a way where you use it with multiple other people, and as you do that it makes it harder to track you on the blockchain. So the blockchain is essentially this ledger of all Bitcoin transactions.

If we are correct, this ledger is gonna out survive all of us. It’s immutable. It will never be changed. It’ll just keep on going forever. But this full record of all Bitcoin transactions, if it’s tied to your identity, then that ledger can be used to track your transactions going forward. Bitcoin transaction tracking is essentially a probability game.

So when you use Bitcoin, unlike using Venmo or PayPal or Chase QuickPay, or any of these fiat systems, you can actually send Bitcoin to yourself. So I can actually generate a new wallet. I can send Bitcoin from my wallet to my other wallet. And so what [01:09:51] these surveillance companies, there’s these professional surveillance companies that are tracking Bitcoin, what do they do?

They’re essentially assessing the probability that each transaction has changed hands. And who has it changed hands to? So when we talk about collaborative transactions and we talk about using Bitcoin in a more private way, we’re talking about breaking that probability analysis, making it so that their guesses are even less likely than they currently are.

So collaborative transactions essentially allow you to construct a transaction without giving up custody of your coins cause of the way Bitcoin works. You can actually do a transaction with other people. Let’s imagine you do it with four other people. So there’s five of you total going into a transaction.

And then there’s five outputs going out on the other side, and all of a sudden that probability is broken. They don’t know necessarily which input is connected to which output and their probability is, a basic probability level is a 20% of which address is connected to which address. So [01:10:51] you break that probability analysis, and as a result it becomes harder to track your Bitcoin.

Another aspect of Bitcoin privacy. I skipped over it already, but the first step is self custody. If you’re holding Bitcoin with a regulated institution or whatever, you’re just completely trusting them with your privacy. So it’s already a non-starter at that point.

If you’re holding it with them, you’re trusting them with your privacy. They’re gonna share with governments. Those lists are not stored securely. They’re gonna get leaked. They’re gonna get sold. So first step is self custody. Second step is using your own node. So to interact with the Bitcoin network you need to use a Bitcoin node.

And if you don’t use your own Bitcoin node, then you’re using someone else’s Bitcoin node and you’re trusting them with your transaction history. And you’re also trusting them, so you’re trusting them with your privacy, but you’re also trusting them with validating the rules of the network.

So you wanna self custody, you wanna use your own node, you want to consider these collaborative [01:11:51] transactions. I would say that’s the order. And at the same time, you wanna be aware of these trade offs of using regulated institutions and trying to reduce your exposure on that side at the same time. There was a lot there.

Saifedean Ammous: That is a lot there. I’m gonna just ask you something that I also asked Giacomo after the, remember there was the Bitfinex hack, which recently they were able to identify them.

I think, we don’t know, it’s all still to be determined in court, but it seems plausible that they did manage to identify them by using chain analysis, that they identified them correctly. And it seems like also this case is true for the DAO hacker for Ethereum as well.

Some people managed to identify him. So I think I wanna go back to that issue of the probabilities that you mentioned. I did not expect this to be the case initially, but I think I expected, when I [01:12:51] first heard about Bitcoin, I thought this was going to become something illegal very quickly.

And for the first year or two, when I heard about it, I thought buying it could end up getting you in jail. And then I thought, you don’t wanna be buying from exchanges, and if you buy from exchanges, they’re gonna probably come after you. And then for a while I always thought this was going to be the way that is going to be dealt with.

And if that was the case, then you can see a scenario where Bitcoin continues to grow with essentially off KYC because it is fought. And so the only way that it grows is people hand it over to one. Without taking each copies of each other’s passports. And then if that was the case, then today we’d have 19 million coins that are predominantly in the hands of people who earned them with no trail from KYC.

This doesn’t seem to have happened. What seems to have happened is that the majority of coins today are owned [01:13:51] by people who have fully KYC positions either there, I don’t know what the exact number is, there were times in which some people said maybe as much as half of all coins or maybe even more are on exchanges.

So they’re held by third parties and then there’s a very significant percentage. Other than that is basically one or two hops away from those third parties, and you could more or less assume that the person who KYC for it either has it, or at least can very easily report on who has it.

You can ask them who’s got that. You can subpoena them and then you can find out whose transaction it is. So in this situation now, since the majority of people are buying and selling Bitcoin from KYC’d situations, do you think this compromises the ability to stay anonymous? Because yes, you’re mixing it in with five people, but then the five other people, what are they gonna do with their coins as Bitcoin’s acceptance increases [01:14:51] in?

And as it’s no longer restricted to only illegal uses, then alright, so you joined the coinjoin, you join the coinjoin of five other people, but if the four of them then take their coins and sell them on Coinbase, then it’s not very difficult to identify that it was you.

Matt Odell: Yeah. You have a process of elimination situation there.

Saifedean Ammous: And if I should add one thing is that I think that the Bitfinex hack shows us that as time goes by, you don’t get, it’s not that alright, now there’s too many hops and now the coins are lost, on the contrary, there’s too many hops, so then it just becomes easier to identify the patterns by data analysis, because the more hops you put in, then you can still track things down. Computers have magical superpowers.

Matt Odell: I think there’s a couple lessons that can be learned from the BitFinex hack. First of all [01:15:51] there’s <a phrase we’d like to talk about in the digital privacy world, which is privacy loves company.

And so ultimately with pretty much every privacy tool that we interact with you’re only as private as the crowd you’re amongst. So if there’s only three people in the world, I’m gonna be parabolic here. But if there’s only three people in the world that wanna be private then if you see people being private, it’s one of those three people, right?

So you need more people to use privacy tools. You need more people to not use KYC. KYC is the single biggest threat we have right now. And I will say again that I think it’s a short term threat because I think ultimately the big solution here is as Bitcoin starts to get used as a day to day currency most people will be earning it and most people will be spending it rather than buying and selling.

And then all of a sudden those records, everything [01:16:51] is more distributed. It’s not like everyone’s using the top five exchanges or something like that. With the BitFInex hackers specifically, KYC is what got them. They made some very amateur mistakes. But that is not an excuse. Like that is where most privacy issues on Bitcoin stem from because the Bitcoin blockchains forever, you might have heard the concept of the internet is forever.

The Streisand effect where Barbra Streisand and tried to remove a photo, and as a result people posted it everywhere. The blockchain is even more forever than the internet. The internet, you might be able to purge something from the transaction ledger will be there forever, and it will outlive all of us.

So if you make one little mistake and you have a sophisticated actor that really wants to take you down, they will track down that mistake. More data becomes obvious over time, external data stuff, like purchase history, participants and collaborative transactions and stuff, [01:17:51] and they will get you on that one mistake. With BitFinex, specifically, they were buying gift cards.

First of all, shout to the BitFinex hacker, richest rapper of all time for a period there. She didn’t have many listeners to rap music, but richest rapper of all time.

Saifedean Ammous: More millions than YouTube views.

David: She deserve, she deserves a shout out for that. But they were buying gift cards essentially.

And those gift cards were linked to their real life identity. And that’s what seems to have done them in. And we saw something similar with Ross, the founder and operator of the silk road, where basically what happened was in an early forum post, he messed something up and it was connected to a real life email address that was connected to his real identity.

And all it took was that one mistake, right? People start looking, they start looking and they go back in the records and they find that one mistake. Now, in that case, it wasn’t on the blockchain [01:18:51] necessarily. But that goes back to the internet being forever. So when you’re talking about sophisticated actors on the privacy side, a lot of times it can just be one little mistake that gets you.

If we’re talking about average people trying to have basic financial privacy, and when I’m talking about financial privacy, I’m not talking about running a, a massive crime ring. I’m talking about if, and a lot of people here probably aren’t paid in Bitcoin yet, but I’m paid in Bitcoin for a lot of my income.

I don’t want my boss to know what I’m spending my money on over the weekend, and I don’t want, I don’t want the people I’m spending money with. I don’t want the guy I’m buying a sandwich from knowing how much money I make. That’s ridiculous. And so collaborative transactions help stop that kind of transaction tracking give you basic financial privacy.

And the good protocols are set up in a way where I used a very Naive example or basic example, [01:19:51] saying you’re in a collaborative transactions with four participants? Like for instance, the way Whirlpool is set up, which is one of the collaborative transaction protocols is it’s set up in a way that some of the participants go on to do another collaborative transaction afterwards.

So you have, I’m not a mathematician, but you have this increasing, you have this increasing set of people that you’re part of. Because if you have five people go into this collaborative transaction and three of them go into another collaborative transaction with five people, and two of those people go into another collaborative transaction with five people, you have this growing number of people over time.

And that probability graph gets even crazier, right? That probab probability analysis gets even crazier. Now all of that can get UNW. If at the end of the day you go and then spend it on a gift card site that is linked to your real life identity, but we’re not aiming here to be perfect.

We’re not aiming to be NSA proof, we’re not [01:20:51] aiming to be DOJ proof. The goal is some basic financial privacy. And the goal is to not be the lowest hanging fruit and any little improvement we make not only helps ourselves, but it helps everyone else that is seeking financial privacy.

Saifedean Ammous: Yeah, I agree. And I think I said this in The Bitcoin Standard and I I still, I think stand by it, which is that Bitcoin’s bad for privacy for criminal activity, but it’s not bad for privacy for things that are not criminal. In other words,

Matt Odell: I don’t know if I love that take.

Saifedean Ammous: I think if there’s if you have bodies to hide, if you steal somebody’s, if you steal millions of dollars worth of Bitcoin or billions of dollars worth of Bitcoin, I don’t recommend using Bitcoin for that. I think, you could. Here’s the thing you can point at somebody like that bien [01:21:51] X hacker and say they made that mistake and you can point at the DAO hacker and say that they made that mistake.

And you could also point at other hundreds, probably thousands of people that are in prison all over the world today because they made specific mistakes. It’s easy to go back and Monday morning quote back and say they’ve made that mistake then. But the reality is that you’re really threading on very thin ice with this kind of trying to hide your tracks on a ledger that is shared over millions of computers all over the world.

If there is a body, if there is somebody who’s lost money, if there’s somebody who’s looking for those coins, I don’t like your odds. So my advice to all criminals is to stick to the tried and tested true methods of dollars because you take somebody’s dollars there’s no way that they can track it back.

There’s no global ledger that tracks the ownership of every dollar. It makes getting rid of dollars much easier than [01:22:51] getting rid of Bitcoin if it is criminal. In a sense I can see why I could definitely see why it would work for you if you’re trying to hide, as you said, like from your boss, if you’re trying to just increase your privacy on a personal level, but I don’t know, like can you really recommend to an actual criminal to steal money and hide it on Bitcoin?

Do you think it’s

Matt Odell: First of all Saif, I do not give advice to criminals. They can do their own research. Cash is obviously the most private way to transact. It’s got nice default privacy. I would say a couple things, first of all, there are probably hundreds of thousands of criminals that have used Bitcoin successfully, privately.

We don’t hear about them. You hear about the ones that get caught.

Saifedean Ammous: Yeah. But most of [01:23:51] these have used it for what I call victimless crimes, which is essentially not crimes.

Matt Odell: But look, I

Saifedean Ammous: Like buying weed is not a real crime and like most of the time,

Matt Odell: But so that’s my issue, right? So my issue is Bitcoin is a global system, right?

And so I’ve done a lot of work with activists, right? And these activists need a global money. They need Bitcoin. They need something like Bitcoin. But they’re considered criminals by their governments. And their governments are actively trying to seize their assets, trying to track their financial transactions, trying to pressure them and their families.

So to me, the dream of a censorship resistant digital money that can be saved and spent at will. There’s an element there that requires relatively user friendly privacy tools. So that people can have decent privacy guarantees on them. I’m not saying it’s gonna be perfect, obviously as you’re dealing with more [01:24:51] and more money, it becomes significantly more difficult to cover your tracks with Bitcoin as you’re deal with more money.

And that’s why we see the large scale hacks. They, a lot of times they get caught. Overwhelming amount of times they get caught. And that’s because it goes back to privacy loves company. If you’re controlling 10 billion worth of Bitcoin and the privacy users in Bitcoin is $5 billion worth of Bitcoin, like you’re gonna have a hard time hiding your $10 billion in that $5 billion.

Obviously, like it’s a higher number. So smaller amounts, easier attainable privacy. But I think as a goal of Bitcoiners should be relatively accessible financial privacy when using Bitcoin, because you never know when your individual government, might not be my government, [01:25:51] might not be Saifs government, but when your individual government decides that you’re a criminal and they want to take your Bitcoin, they want pressure you and your family, they wanna track your transactions.

We should have tools available to them to make it easier for them to use Bitcoin privately. That is basically my frame.

Saifedean Ammous: Yeah. And again, we are going back to the same kind of discussion that I have had with Giacomo, which is I agree on this being a goal, but again the question is now let’s take out the criminal, let’s say a political dissident that you actually like, do you feel comfortable enough telling them to hide their tracks from their government on Bitcoin?

I’d like it to be there, but I think realistically,

Matt Odell: That’s my frustration. I agree with you. My frustration is I spend 45 minutes with them and I barely scratch the surface on what they need to keep in mind when trying to use Bitcoin in an adversarial environment like that.

Saifedean Ammous: And you’re [01:26:51] you’re much more technically qualified than me. So I would not be able to spend the 45 minutes of doing as good of a job as you would. But I think that there’s an element of first – do no harm, which you need to keep in mind. And I wonder whether you might actually be making it more likely that they get caught if they think that they are able to use Bitcoin privately.

I think perhaps there is a little bit of overselling the case. And I and I was being a little bit provocative with Jackon. But maybe may, maybe,

Matt Odell: That’s rare.

Saifedean Ammous: Yeah. But like maybe this is the new coffee, there was a time when we all thought on chain transactions are the free coffee, but like maybe privacy is just not as attainable for the vast majority of users.

I think I can see why if you’ve had an old stash that you had for a long time with no KYC, it’s easier for you to hide your tracks, [01:27:51] but like you’re talking to a political dissident in somewhere and you’re telling them – Hey, use this.

Matt Odell: No, I think it’s the opposite case. I think the coffee transactions that Bitcoin is great for low fee instant transactions on chain selling point was obviously bullshit and trade offs weren’t disclosed properly.

I think at the same time, early Bitcoin, we saw a lot of people saying it was anonymous, internet money with no trade offs that you just didn’t have to worry about it, and you could just use it.

Saifedean Ammous: A lot of people are in jail because of that.

Matt Odell: And one, and the reason is because they were making mistakes cuz they weren’t aware of the trade offs.

And I think we’ve seen a lot of productive conversation around using Bitcoin privately more recently over the last three years or so where most privacy advocates in Bitcoin are very clear with the trade offs, if anything to a fault. Like all the time about flooding Bitcoin, creating fear, uncertainty, doubt [01:28:51] and talking about Bitcoin and people accuse me of pushing people into shitcoins or pushing people out of Bitcoin.

Like I’m one of the most bullish Bitcoin people ever. But I feel compelled that when I talk about using Bitcoin privately to explain all the trade offs and explain all the risks, and I think most people in the Bitcoin privacy community are pretty good about that. And I would just say that if our goal here is creating a money that’s independent of corporations and states, and is immune to that kind of pressure that is truly censorship resistant. We should not be tied to our Bitcoin balances. Our real life identity should not be tied to, our legal names should not be tied to our Bitcoin balances.

And the question is okay, so we can go through a million different scenarios about how a sophisticated state would attack Bitcoin, but if we can’t stop the US government from just sending every American, either a letter saying, we’re taking your Bitcoin. And if you don’t give it to [01:29:51] us, we’re throwing you in jail or a letter saying we’re gonna humbly take 70% of your Bitcoin because of this new syntax we passed because you guys are causing inflation.

Then what the fuck are we doing here? That is we talk about cold storage. We talk about using your, no, we talk about all this other stuff.

The low hanging fruit for a state to take your Bitcoin is to just know how much Bitcoin you have and be, you are going to jail unless you give us this much Bitcoin.

Saifedean Ammous: Yeah, I think yeah, I think that is a realistic and possible attack scenario, we should be prepared for. Obviously it’s not something that is that we would enjoy, but I think it might be the bargain that we need to strike with the fiat world in order to if Bitcoin keeps going up, I can see with almost certainty, at least some governments are going to do this. There’s going to come a point in some country. I’ve said this before. There will come a point at which the Bitcoin that exists on the [01:30:51] Bitcoin exchanges is more valuable than the foreign currency reserves that exist in that country’s central bank.

And at that point, it’s, there’s a switch that’s going to flick in the head of the president or the prime minister or the whoever’s in charge of the country, which is, hang on a second, we’ve only got $2 billion of us dollars left in our bank. But there’s $8 billion of Bitcoin in all of these crypto exchanges.

And I think, that’s why keeping your Bitcoin on that’s why I’ve have said this many times only keep on exchanges, the Bitcoin you’re comfortable giving to your government. I think that’s really going to be the low hanging fruit. Once one government sees that, Hey, hang on a second, we could triple our foreign reserves assets by just taking half of the money from these Bitcoin exchanges.

I think it’s gonna happen. And that’s why I think, this is one of the other things to keep in mind to go back to our horizonal discussion on self [01:31:51] custody. That’s one of the many risks involved with having it in an exchange. One day, your president wakes up and says, Bitcoin is causing global warming and inflation and killing the baby seals.

And therefore we need to take 70% of your Bitcoin so that we can cause inflation and kill baby seals with you. Bear that in mind in your scenarios. No, I agree with you.

Matt Odell: I just think I a hundred percent agree that we’re gonna see a lot of sovereign rug pulls where they’re going to go in and just basically, we’ve seen them do it to people’s bank accounts already.

And it’s just gonna be more of that, but I would just say, you should absolutely self custody, it’s a significant improvement, like not even close to holding it with a regulated third party in terms of state resistance. But if you just buy on Coinbase, connect it to your identity and then send it one hop out to [01:32:51] your ledger wallet or ColdCard or whatever you’re using for cold storage.

And take no kind of privacy precautions whatsoever, is enforcement to steal that money more difficult than clicking a button and taking from an exchange? Yes. Is it that much more difficult? No. It’s not that much more difficult. What I see happening is you pressure a couple big guys.

You, you do what happened with Torrents. You pressure a couple big guys. You make an example out of them. And 90% of people comply. They didn’t have to go store to store, to close people’s businesses down during COVID. They told people that they were gonna get fined if they kept ’em open.

And a couple people didn’t listen to them that were big businesses. And they went to those businesses and they made a huge example of them. And 95% of people complied and they closed their small business.

Saifedean Ammous: Yeah. But I think, I’m not saying that they won’t do it, but I think [01:33:51] in terms of the laws and traditions of particularly Western democracies, for all of the problems that we have about them, I think the concept of property rights is still one of those things that has not been completely eradicated.

The money that’s in the bank, it’s all fake money and it’s all made up. And the idea that the government is just going to confiscate the reserves at the banks has already happened in 1934. And until today, here we are almost 90 years later, the vast majority of Americans don’t know that it happened or don’t understand its significance.

And they just think it was, oh, somebody did something with the back end of our monetary system where they decided they were just go into, changes the way that they handled gold. But anyways, I don’t understand that, but really what it was is that they took away about 40% of society’s gold. And the government confiscated 40% of the society is gold by revaluing it and taking all the gold that was in the banks, and giving people papers.

Could they have gotten away with [01:34:51] that? If they had gone door to door, having to take the gold from everybody’s house and also knowing that the gold was digital, meaning that it could be hidden in people’s calls or it could be, it’s much easier to hide. I think the politics of door to door confiscation is much, much, much more complicated than just getting a bunch of idiots on TV.

A bunch of Keynesians on TV who say, oh, we figured out that we’re gonna fix your, all of the problems – we figured out the solution, the solutions we’re just gonna have to take money from the banks. Don’t bother. You’re still gonna have more dollars.

Matt Odell: Look, that’s why I think enforcement is you make an example out of a few people and most people comply.

Once again, the Bitcoin ledger is forever, right? First of all, as you just mentioned we had executive border 6 1 0 2 in America. The people that weren’t on lists of gold owners were not [01:35:51] affected. The people that were listed as gold owners were known to be committing what I think it was a felony at the time.

But committing whatever crime they decided you were committing. People that had in the bank, obviously just immediately got a haircut. So there’s different layers there. Everything has trade offs. So there’s different risk balance, people should keep that in mind. But then the second precedent we have is, we actually in America, I’m an American, I’m sure a lot of your listeners are Americans, and it’s probably pretty similar in their country as well. If we enter a hyperinflationary period today, the way our tax system is set up in America is our top end cap gains rate is between 30 to 40% depending which state you live in.

Okay. If we enter a hyperinflationary period and a hundred percent of your wealth is in Bitcoin, then you are a criminal unless you give the government 40% of your Bitcoin. Literally no rules need to change. [01:36:51] So that is the current status quo of American Bitcoin policy in my opinion. Is nearly half of your Bitcoin will be seized from you under threat of violence.

You will get thrown in jail if you don’t pay your taxes, I’m saying everyone should pay their taxes, I’m not telling people they shouldn’t pay their taxes, but that’s the current status quo as it is today. That gets very malicious in a hyperinflationary environment.

Saifedean Ammous: Absolutely. And worth remembering here, the current $10,000 reporting threshold, you need to report for any kind of transaction that’s more than $10,000.

This was of course started like everything bad in 1971. And back then $10,000 was in real terms much more than today. Probably more than a hundred thousand dollars. But, as the money devalues, the $10,000 just becomes less and less. And so you go from $10,000 at that time could buy you a house.

So they were asking you to report for transactions that are buying houses. And that seems like a reasonable thing. You tell people, look, [01:37:51] if there’s a Soviet spy who’s buying property in Ohio to build a Soviet base here, we’d need to find out, we’d wanna just make sure that all our big transactions for all the houses aren’t being sourced from some Soviet spy, that then we find that one big giant town in Ohio is a Soviet Soviet hotbed.

It seems reasonable. You could say $10,000 is a reasonable thing, but then of course you devalue the dollar and now $10,000 can’t buy you a lot. And so now, $10,000 is less than the average car. So you still have to report that.

And of course it’s only going to be worth less and less. It’s true. It is a terrible thing, but I think perhaps my difference is that I think the real prize here and the thing that I’m focused on, [01:38:51] and I think that is going to fix all of those things more than all of these individual kind of wins that we could achieve by Bitcoin.

The real prize is ending central banking. That’s the jackpot. And if we can do that, then I think that’s where you’re really going to be winning the war of privacy by putting governments that’s buy on people out of business and by. Taking basically anybody who uses part of their government’s business model as a spying on their citizens is going to be bankrupted because you can’t print money.

And if you waste your money on stupid bullshit, you don’t do it. This is why in the 19th century, they didn’t have a war on drugs. They didn’t have such a very powerful nanny state that tried to control every aspect of people’s lives as we do now, because they didn’t have enough money to do that because they needed to tax people.

They needed to make gold, they couldn’t print gold. Now they can print dollars so they can do all of this crazy stuff. So for me, [01:39:51] I think the real the real price that we need to focus on is, I’m not saying that all that stuff obviously doesn’t matter, but I’m saying what really matters ultimately is if we can put the money printers of the central banks out of business. And if that means paying 40% of your Bitcoin to Caesar to set us free, I think that’s a price worth paying, you should stack harder and stay humble more so you can afford to pay set yourself free, buy your own slavery, buy your own, what is they call it when a slave buys themselves outta slavery, we might end up doing that.

I’m obviously no fan of taxation, but that might be the case.

Matt Odell: I wonder, first of all, like I’m pretty confident that we’re gonna obsolete central banks. I just don’t know why someone would want to use money [01:40:51] controlled by a corporation or a government when you have an option to use a better money that isn’t.

So I’m pretty sure we’re gonna do that. I think what happens in that situation, and it’s not just because Bitcoin exists. I think this house of cards that has been built up has just been primed to fail magnificently at some point. The question is when that happens, but as that’s happening is there’s this theory, dollar milkshake theory that I prescribe to that I think we’re seeing in real time right now, which is this idea that dollar is the reserve currency of the world.

So as a result as we’re entering our inflationary spiral, death spiral so to speak, these other currencies basically hit that first as people flood into dollars and as Americans, we have this benefit that there’s just this delayed situation where our dollars and our dollar is increasing in value compared to these other currencies that are considered [01:41:51] inferior.

But as a result is we’re basically seeing these states fail in real time. And then ultimately the last state to fail will be America. And so these states have increasingly high debt loads. They’ve been used to just printing money. They’ve been used to doing the silent inflation tax which disproportionately affects poor people and they do not even realize, it’s almost like a wealth distribution from poor to rich in that scheme. As these countries start to flail and get more desperate, the tax rates are gonna go up, like they’re gonna, the play is okay, we need more revenue, and we’re desperate, what do those desperate governments do at that point?

And hopefully, my government doesn’t do it. Hopefully your government doesn’t do it. Hopefully everyone who’s listening’s government doesn’t do it. But I think it’s prudent for us to be prepared for a [01:42:51] situation where governments turn on their own people, which they already have in a lot of ways and try and extract as much value out of them as possible during that failure period.

So I would say to think that cap gains, capital gains on Bitcoin will not increase in that failing state situation is incredibly naive. Like I think it will be, once again. I’ll go back to the response to COVID globally. Small business owners are the single most popular category of businesses in America and I’m pretty sure that’s true globally.

And they shut down those businesses and ruin their livelihoods, and no one fucking blinked an eye if you don’t think that in a failed state scenario, they aren’t gonna be easily able to rally up people to be against Bitcoiners and to treat us as a cow that needs to be [01:43:51] butchered or a cow that needs to be milked as, as much of revenue as possible out of us.

Then I think we’re playing a different game. Like I think that’s the scenario that we should be prepared for. Hope that doesn’t happen. If that doesn’t happen then great. But expect it, prepare for it, reduce the pain as much as possible when it does happen.

Saifedean Ammous: Yeah. That’s a very good way of of putting it.

Getting back to privacy, tell us a little bit about what your thoughts are on what tools to use for privacy. I know this is a highly contentious topic and people are always getting angry at each other on Twitter. And I must say I don’t have strong opinions. And I don’t understand the debate very well.

If you wanna skip it, we can skip it.

Matt Odell: Look, first of all, I’ll say I don’t care which tools you use, the number one thing I want people [01:44:51] to do is be aware that there are privacy risks and using Bitcoin, be aware that we’re leaking all this information when we’re using Bitcoin.

And we’re just leaking all this information on the internet in general. I, before the Bitcoin privacy conversation even comes up, why do you have an Amazon Alexa in your house? Like, why do you have a Google Voice in your house? Like why did you pay a corporation to install a wiretap in your home?

Why are you letting Google scan all of your emails? Why do you have a camera on the front of your house that’s sending every single footage that happens in front of your house, and every time you enter and exit your house to Amazon servers that are then shared and stored insecurely, try and reduce, be aware of the privacy information you’re leaking, try and reduce that information as possible.

Don’t send your DNA to a corporation that is then gonna send all that information to China and [01:45:51] the US government and dox all your grandkids. Consider not doing that. Consider making small improvements to your digital privacy situation.

And any time someone considers doing that, or starts being more aware of the amount of privacy informa like private information they’re leaking. That is a win in my book. That is a massive win. Most people are just being very naive about this stuff. I just want you guys to be aware and to start paying attention to it. Now on the Bitcoin privacy tool landscape, specifically collaborative transactions, there’s three tools.

There’s join market, there’s Whirlpool, which you can use with Samurai wallet and Sparrow wallet. And there’s other wallets that are gonna integrate Whirlpool in the future. And there’s Wasabi. They all offer collaborative transactions. Join Market is the most censorship resistant or doesn’t rely on a centralized coordination server.

[01:46:51] So if we have a full blown state attack, which some people are speculating because Ethereum privacy tools got put on a sanction list yesterday. Join market is in the tradeoff balance trying to be the most censorship resistant robust system that exists today.

And then you have Whirlpool and Wasabi, which both operate under this centralized coordinator scheme where there’s this centralized server that can’t break your privacy but is required to basically construct that collaborative transaction. Both those protocols are a bit different. Personally I prefer the Whirlpool protocol, but based on the trade offs they make, this is a very deep conversation.

My show Citadel Dispatch, we go deep on this almost on a weekly basis. There’s hundreds of hours of free content available there. So if you guys are interested in [01:47:51] digging in deep I would recommend that. Specifically, there’s an episode 43, where I go with this guy, Bitcoin Q&A, and we just go from start to finish. Bitcoin privacy, onboarding Bitcoin privacy.

We call it Bitcoin For Beginners. I think it’s useful for beginners and more advanced users. We try and make it very actionable, but yeah, my key takeaway here is I’m not gonna tell you which tools to use. I’m done with all this bullshit drama. I’m not really done with the bullshit drama.

My love of the Bitcoin space is that as many people hate me as possible, then I know I’m talking about the right things. But I just want you guys to be aware that we are leaking a lot of private data, myself included, try and reduce that try and previous situation. Our kids are counting on us.

Our grandkids are counting on us.

Saifedean Ammous: Agreed. Agreed. Yes. All right, let’s see. David’s got a question, [01:48:51] David.

David: Yeah. Hi, Matt and Saif! You have discussed for a bit the trade offs regarding privacy that Bitcoin transactions have. I have a two parts question. First part is maybe you can also commend how this applies to Lightning transactions.

Cause my understanding is that they are somehow more private than on chain transactions. But I don’t understand from a technical point of view, how much more private they are and how high they rate in the privacy scale of not being the lowest hanging fruit?

Matt Odell: Yeah. Lightning is very early.

It’s very new. I think there is a, we talk about incentives in Bitcoin a lot. There’s an incentive for influencers, [01:49:51] public people in the space to hype it up as much as possible and make it seem like there’s minimal trade offs or there’s no risk, that it doesn’t require personal responsibility and education, obviously like everything else that’s not the case.

Right now on the privacy side all else equal, if you’re sending a transaction on Lightning you should have better privacy than if you’re sending it on chain. That’s because if I’m receiving your Lightning payment and I’m not a sophisticated actor, it’s more difficult for me to figure out which Bitcoin was used to spend that, which on chain Bitcoin was used to spend that what UTXO was used to fund that transaction.

There are active attacks you can do on Lightning. I spend three hours on episode 21 of Citadel Dispatch going through like the different Lightning privacy nuances. But the key thing here to take away is [01:50:51] that as it currently stands and there’s a lot of work being done that hopefully will not make this the case. Senders on Lightning have significantly more privacy than receivers on Lightning.

So if you’re running a store and you need to receive Lightning payments, and you have this always on node, those payments, you should operate under the assumption that those payments can be linked. If you’re making a transaction that you are concerned about in an adversary environment and a perfect example would be I think the Canadian truckers.

So the Canadian freedom convoy had a fundraiser and you could donate via on chain Bitcoin or via lightning. In that situation we saw Trudeau and the Canadian government come out really strongly against that fundraising attempt. And they actually went after donors, as well as the recipients. And you were strictly better off if you donated via Lightning there than if you donated via on chain, because on [01:51:51] chain has the clear on chain history and in Lightning if you’re trying to de anonymize or attack the privacy of the sender on a lightning transaction, it’s more of an active attack.

You’re running Lightning nodes. And when we talk about incentives, that’s actually a really cool incentive because basically what that means is these surveillance companies and governments have to lock up a bunch of Bitcoin on lightning and run lightning nodes and actually provide routing for the community.

If they want to try and de anonymize the senders more times than not. So if you’re just, opening up a lightning node, not to receive payments, just to send payments strictly a privacy improvement and it is promising on that side, and I would just add here that there is a project that I’ve been talking a lot about lately called Fedimint which is this open source project that attempts to combine something called chaumian e cash which is a a legacy privacy cryptography [01:52:51] tool created by David Chaum to create a Lightning wallet that you can just install on your phone.

It is custodial, but it’s a federation of custodians. So the idea is you have these multisig custodians instead of a singlesig custodian, maybe you have 8 of 10 need to collude together to take your money and you have privacy from the custodians, so when you make a Lightning payment out of there those custodians and external actors, if there’s a thousand people in that fedimint wallet, they don’t know which of those a thousand are spending.

I would say, just to go back to our earlier privacy tools conversation, it’s the single most bullish privacy tool because it’s just so accessible to the average user. And one thing I’ve noticed in my years of education in this space is that most people will choose the most convenient option.

So fedimints are pretty cool because it’s it basically improves the status quo and the most convenient option becomes [01:53:51] private by default and easily interoperable with the rest of the Lightning network.

Saifedean Ammous: Excellent. Dorian?

Dorian: Thanks Matt, for this great Intel. I have read a lot of your articles in privacy.

It’s a really good writing. So I have a question about the centralized exchanges, more specifically a Bisq software. Do you think that could be a significant player in near future? Do you use it?

Matt Odell: When we talk about trade off balance Bisq is attempting to be on the extreme censorship resistance side at the expense of convenience. All users of Bisq run their own Bisq node, run their own Bitcoin node. It’s attempting to be as censorship [01:54:51] resistant as possible, and the result is it’s not very convenient to use.

So what I’m looking at is ideally we have more convenient P to P trading options that don’t require identification information. One example of that so far is huddlehuddle that doesn’t do KYC. They don’t go as far on the trade off balance in the censorship resistant angle as Bisq because they, a company based in Lavia are holding one of the keys, but they can’t steal your money, right?

They can’t steal your money. So there’s a situation where hot huddlehuddle gets pressured by their government and they have to shut down. But up until this point, they haven’t had to. We have another service called eobosats, which can access in a tor browser. That is making a similar trade off model as huddlehuddle.

But instead the developers are [01:55:51] anonymous, or they’re nyms. So it’s harder to put pressure on them. That might not exist in a couple years, right? Bisq is designed almost like Bitcoin’s designed, right? Like they designed it to try and be as robust and censorship resistant as possible. But I think I’m most bullish on the tools that take a step a little bit more to the convenience side, like huddlehuddle and robosats.

And there’s another one coming out that’s in stealth, that’s mobile first. And I think there’s a very strong argument that if we have a very convenient mobile first app that you just open the app and there is a centralized company behind it, but they’re not taking custody of your funds.

That most governments will probably let that slide. And if they let that slide, then that’s that ideal trade off balance. And then if they get crushed then people will move over to Bisq.

Saifedean Ammous: All right, great. We’ve got another question [01:56:51] from Scott on what, I wanted to ask you this question as well.

Running a node, how do you recommend going about that? What are your thoughts on running a node?

Matt Odell: The easiest way to run a node is to just install something called Bitcoin Core, which is an application on your computer. Sparrow has this functionality, as I was talking about Sparrow wallet earlier, that you can use with your hardware wallet, where you can actually just run Bitcoin Core on your computer.

You can run Sparrow on your computer, and if you’re running both apps at the same time, you’re using your own node and you’re able to interact with your hardware wallet, super simple. That is probably the easiest way for someone to do it. There’s another piece of software called Specter wallet, same thing, run Bitcoin Core.

I think Specter wallet actually takes it a step further because if you install a Specter wallet, there’s actually an option you can check that’s like also installed Bitcoin Core, and then you don’t have to actually click run on two applications, you can just open Specter, and then when you open Specter, it’ll automatically run your Bitcoin node at the same time. [01:57:51] Reminder, when you’re using the Bitcoin network you have to use a Bitcoin node to interact with the network.

And if you’re not using your own node, you’re trusting a corporation or a single individual with both your privacy and them actually validating the rules of the network that gives Bitcoin’s value in the first place. So you want to try to use your own node or at least use your friends and family node.

Other options include things like RasPi Blitz, ronindojo, Umbral, like these tools basically allow you to take a cheap single use computer and you can turn it into a 24, 7 Bitcoin node. And what’s nice about that is it makes it easier to connect to mobile wallets and stuff like that. Cuz you’re just like running it in your closet.

You just scan a QR code, connect it to your mobile wallet, to use it on your phone. And that’s [01:58:51] nice too, because you can have friends and family use it. So I have multiple 24/7 nodes that I run. And then my friends and family, like their first step can be using my node and then their trusting me with their privacy and validity of the rules, but I can’t steal their money.

Saifedean Ammous: Excellent. What about inheritance? How do you get your coins to your grandkids? If you don’t trust, if you don’t wanna trust others,

Matt Odell: inheritance is a tricky situation that we haven’t solved in any straightforward way. So when Saif gave me the warm intro, one of the projects that I have available is something called finalmessage.io.

And that was like a simple tool to take a stab at the inheritance thing because, so I used to live in New York before I got out of there and I used to commute to work on an electric long board that would go like 20 miles an hour [01:59:51] through some of the most ridiculous traffic in the world.

And 2017, like the Bitcoin price was rising. And I realized like if I hit my head we live in a world of personal responsibility now post Bitcoin, and the Bitcoin would be gone. Noone would be able to get that Bitcoin. So Final Message is this idea of a dead man switch where you do trust the service to actually send the message, but the message is encrypted.

So you don’t trust us with the contents of the message, just that we actually send it. But there’s multiple methods here. I think Multisig makes this a lot easier. Final message was designed with multisig in mind, where you could put one key in there, so even if the encryption fails that one key does not spend your funds. But you can work through in your head Multisig scenarios where like a lawyer has one key, your spouse has one key and then you have, [02:00:51] and then maybe someone else has another.

You wanna do it in a way that the threshold, that those entities can’t spend it, they can’t spend it on their own, but together they can spend it basically is the scenario that you work out. And if you want to do it in a singlesig way, there’s something called a pass phrase, which basically when you talk about singlesig you have your secret backup words.

There are either 12 or 24 words. The pass phrase is the 13th or the 25th word that you make up yourself and you need both parts together in order to spend the funds. Figuring out a way to get that last part to someone if you die. A lot of this requires some level of creativity, thinking through your threat model, thinking through what kind of risks you’re trying to avoid.

I will say, just keep in mind that if you give someone full access to your Bitcoin, and [02:01:51] you haven’t thought through a way to make sure they can’t spend it while you’re still alive. Not only are you trusting them not to steal your money. Which I think most of us, like there should be at least some reasonable level of trust with the people that you plan to leave your Bitcoin to that they’re not gonna take your money.

They become a threat attack as itself. My favorite example is like my mom, for instance. If I told my mom how to access my Bitcoin, like she’d probably put on a post-it note on her computer. Just write on the screen, just throw it right on the screen there. So she doesn’t even wanna steal my money, but she would be a attack vector for the family’s Bitcoin holding.

So you have to think these things through and hopefully we have better solutions particularly on the Multisig front in the near future. But right now the unfortunate reality is there’s no real clear, clean answer. You have to work these things out yourself.

Saifedean Ammous: Yeah. With so many questions [02:02:51] in Bitcoin, it’s that way, you first get the question and then you start thinking about it and then it’s just, you realize there’s so many layers to it and it’s just an endless rabbit hole.

Just why you love it.

Matt Odell: Yeah. Just to be clear here just to frame the perspective a little bit, I’ve been thinking about this since 2017, so it’s been five years now, and if I was gonna run it in my head, Saif like earthquakes. So if there was an earthquake here right now and I just got swallowed by the earth hole, there’s probably like a 90% chance that my Bitcoin’s gone.

Like I’m not that confident in because I picked my trade off balance that I wanted it to be as resistant to theft as possible. And as a result, as you enter other people into that scenario, you’re making it more vulnerable.

Saifedean Ammous: I see. Yeah, there are no things that have no trade [02:03:51] offs.

That’s one of the powerful things that economics teaches you. Everything has an opportunity cost. And something also that engineering teaches you. You can’t have the most luxurious car perform as well as the Lamborghini. You gotta choose. You can either have the Rolls Royce or the Lamborghini.

You’re not gonna be able to get the best performance out of the, yeah. You’re not gonna be able to sit relaxed in a Rolls Royce and get the performance of the Lamborghini, just doesn’t work. I’m sure some people, someone is gonna write in and say their car can do that. But generally most of us know mortal people have trade offs to deal with.

Yeah. And then there’s another question from David.

David: Yeah. Thank you very much first of all, for the answer to my other Lightning question, this one is also around Lightning. My question is if in case an individual is running a node with a fair amount of channels and transactions being root [02:04:51] rooted through it every day, if there is any way to use this in a smart way to also achieve some level of anonymity in your, that is to some extent close to what the coinjoin can produce. What I mean is when you, to my understanding, when you do a cooperative transaction or a coinjoin, you may achieve a high level of privacy, but it’s very obvious you have done this to anyone that tracks you.

They may not know where it went out, but it, there it’s very obvious it went in. Whereas with Lightning I was wondering if, for example, by opening a big or not so big Lightning channel with this Bitcoin you have on chain and then either looping out these funds, or just transferring them through a rebalance to another of your channels.

And then closing that other channel then effectively a near to identical amount of Bitcoin comes back to your on chain [02:05:51] wallet, but in terms of the UTXO’s that got completely shuffled because it’s another multisig that got closed by closing the channel that is not going

Matt Odell: Yeah. I followed David. Look, there’s something there. If you do it perfectly, you will achieve pretty strong privacy. Just to go back to the BitFinex hacker, like it usually comes down to some mistake someone made. So like, when we talk about these processes, you want to have the most simple process as possible.

So it’s less likely for people to shoot themselves in the foot. And there are people working on, there’s two wallets in development right now, one called vortex, and one, at least last time I heard called private lightning wallet. I think they’re changing the name now, that attempt to automate those [02:06:51] kind of situations and do it in a way that preserves privacy best practices.

And does it default, so like you don’t have these areas where you can shoot yourself on the foot. I would say the one key thing though, is if you’re talking about using Lightning privately, it usually is you wanna have many nodes that you’re constantly basically deleting and starting new nodes over and over again.

So on the routing node side, like if you have one node with a lot of large channels you have to just assume you have to operate under the assumption that notice is completely gone from a privacy perspective, pardon my language. But you can use that hand in hand with other nodes that you spin up, right?

So you can have. A node that you spin up and you use it for a month or so, and then, [02:07:51] but it’s connected back to your main routing node through a large Lightning channel. And then you get rid of that node and you open up a new node. But I would say yeah I would say if privacy is your goal, when using Lightning, essentially you’re sending the nodes you’re using to send transactions should be different than the nodes you’re using for routing transactions, your main constant routing node that’s gonna last there for years, is probably like an easy rubric to think of in your head.

But once again, Lightning is so new, like one of the issues I have with Lightning is it is such a clear privacy improvement for Bitcoin because your transactions just aren’t on chain, right? Like you have your Lightning open and your Lightning closed transaction, at its core what Lightning is, is a protocol for collaborative Bitcoin transactions, right? Because you’re locking up this Bitcoin into a lightning channel, [02:08:51] essentially into a two of two multisig. And you’re able to make thousands of payments off of this one on chain transaction. So as a result, you don’t have that transaction graph on the on chain ledger, on this ledger that lasts forever.

So it’s strictly improves a privacy situation on Bitcoin because you’re not recording all those transactions down to this forever ledger. There’s so many different nuances and areas where you can shoot yourself in the foot, that as Saif said earlier, particularly when I talk to activists, like I’m very careful about talking about Lightning as a privacy tool, because there’s just so many areas where you can screw yourself.

And if you have a relatively sophisticated actor, they can use that to unwind your transactions. It’s a hell of a rabbit hole, Lightning privacy. As I said, we did talk about it at length on Citadel Dispatch multiple times particularly episode 21, 3 hours, it was like [02:09:51] three hours of Lightning foot gun situations.

But it is definitely a privacy tool to keep in mind. And I would say that talking about Bitcoin narratives as we talked about earlier, me and Saif about like coffee transactions, stuff like that. I’m more, a previous Bitcoin narrative we had was merchant adoption mattered a shitton in 2013 to 2015, and it completely fell on its head.

And I think part of the reason was that the merchant processors were like BitPay. They were the centralized processors that were immediately converting it to fiat and were fully KYC’d, and those processors were on chain Bitcoin. And when you pay a merchant with on chain Bitcoin, you’re essentially handing them this massive liability of data, of private data, this transaction history on the UTXO.

And one of the reasons I’m bullish on the merchant adoption narrative of today [02:10:51] is first of all, we’re later in the Bitcoin adoption cycle. So it’s more realistic that people will actually wanna spend Bitcoin because they’re earning Bitcoin or the majority of their savings is in Bitcoin. But the second thing is these merchant processors tend to go Lightning only.

So if you go to an Ibex terminal and you buy a taco in Miami at, with an Ibex terminal and you pay them with Lightning, unless they’ve used sophisticated attacks, it is hard for that. For IBEX or that merchant to tell which UTXO funded that transaction, all of a sudden they don’t have all that additional data liability.

The spender doesn’t have all this mental headache of, am I leaking all this information to the merchant, and it just reduces, it reduces that friction significantly.

Saifedean Ammous: All right this is been going on for quite a while now. We’ve had you for quite a bit, really appreciate your time, Matt. This has been a tour de force.

I think a lot of people will benefit from this cause we don’t usually discuss those [02:11:51] things. And it’s opened up a lot of a lot of doors and rabbit holes for future discussions. Hopefully we’ll have you on again and we’ll get more and more people to discuss all of those things and find more ways to inform and confuse people and get them hooked on listening to more podcasts!

So they need to stay more informed.

David: Thank you. It was my pleasure, it was my pleasure. And thanks for having me Saif. I look forward to kicking it again with you in person pretty soon.


Saifedean Ammous: Yeah, likewise. Take care man, cheers.