James Viggiano - Lightning Network Disrupting Payments

JohnPaul: [00:00:00] Hey everyone, welcome to the podcast. I’m your host JohnPaul and this is Digital Gold. Known to many as the Bitcoin Kid, I started my own cryptocurrency out of my parents’ basement back in 2013. The goal of this show is to simplify the crypto world and explore how it changes the way the world thinks about money through conversations with thought leaders [00:00:15] in this space.

[00:00:16] JohnPaul is the founder and CEO of Orm Capital Ventures. All opinions expressed by JP and podcast guests are solely their own and do not reflect the opinions of Orm Capital Ventures. This podcast is intended for informational purposes only and should not be relied upon foreign investment decisions.

JohnPaul: [00:00:30] Welcome to another episode of the Digital Gold Podcast. Today I’m here with James, who is an avid cryptocurrency enthusiast and analyst who has written numerous articles and creative videos to help others understand the nuances of this ever evolving industry. He’s a founder of Unspent Capital and the co-founder of CryptoSaver. CryptoSaver was [00:00:58] previously an investment platform for Bitcoin, other cryptocurrencies and was designed to make it easy for users to purchase cryptocurrency and track gains on their investments. Welcome to the show James. I’m glad to have you here.

James: [00:01:08] Awesome. Thank you for having me.

JohnPaul: [00:01:09] James, can you talk to me a little bit more about how you got into crypto, what you were

James: [00:01:13] doing before and why you decided to drop everything and start CryptoSaver? Yeah, my story starts, I guess I got caught up in the 2013 bubble so you could call me a victim of that but I was working at the New Zealand Sovereign Wealth Fund at the time and the asset allocation team and so we were looking at all these alternative assets and [00:01:31] Bitcoin was on my radar and it was having that big run up to about a thousand dollars and I just couldn’t stop researching it every day. So that was when I really got hooked on Bitcoin and it wouldn’t have been until 2017 during the big run up to 20k where I really had the courage to just leave the traditional finance industry and to do something on my own within Bitcoin.

James: [00:01:51] And that’s when I joined up with my friends and created CryptoSaver. Now the name suggests that it supported a bunch of cryptocurrencies but really the whole plan was how to encourage people to approach Bitcoin with a dollar cost averaging mindset. So the entire premise was you scroll away, put away a little bit of money every week to Bitcoin and will help [00:02:11] you track that performance. And yeah, that’s really what I first did when I left traditional finance and then I’ve also spent time at a digital asset hedge fund and now I’m just doing my own thing. And when you mentioned doing your own thing is that trading, is that mining, is that building out PTFI apps, like where are you spending a majority of your time now?

James: [00:02:28] The majority of my time is doing independent research analysis. I use mainly for my own fund that I’m managing but also just to put the information out there to help bring more awareness to the people and projects that are really helping move Bitcoin forward because anything a Bitcoiner can do to help bring more attention to Bitcoin is good for Bitcoin and good for everyone. [00:02:46] And I also do some I guess you could call it consulting work for companies to help them with their Bitcoin with their approach to Bitcoin. So now is this a traditional hedge fund or is this

JohnPaul: [00:02:54] just managing your own funds or managing family and friends funds? Can you talk a little bit more

James: [00:02:57] about that and how you got into trading? Maybe any coins that you really have moved into that major portfolio explode in a good way? Yeah, so I’m doing things a bit differently. So Unspent Capital isn’t even a company. It’s really just a domain name that’s directing to my website. But I just wanted to have a word to capture my investment philosophy so I can start building [00:03:20] a track record. And so for me, I’m just defining Bitcoin as my Unspent Capital. And so that will be my default allocation. That’s where I store wealth. And that’s the amount of satoshis I have is kind of my score. And that’s the number I want to increase. And so I’ve been trying to keep it all with a very Bitcoin focus. I am really hesitant to actually do much at all at the moment in the

James: [00:03:42] altcoin space. Just because we’ve had such a long and big alt season ever since the halving, that it doesn’t feel to me like good value for money to be parting with any Bitcoin at the stage. But within the Bitcoin space, trying to maximize returns on Bitcoin, there’s opportunities to take very conservative leverage on the dips. And there’s also opportunities within the decentralized [00:04:03] finance space like HODL, where you can lend out your Bitcoin and things like that.

JohnPaul: [00:04:07] Can you talk a little bit more about HODL and how that works? Because I’m

James: [00:04:09] familiar with Badger Finance. I’m using them for myself and my company to gain interest on our Bitcoins. Yeah, HODL is really cool. It’s a pair-to-pair marketplace for lending. I think it’s also still for trading as well if you want to buy and sell. But it’ll set up a multi-signature contract where basically you can post an asset as collateral and then borrow against that. And so [00:04:30] you can go in on either side as being a borrower or lender. It’s completely pair-to-pair. And the platform just provides the market place for people to meet each other and to match off the borrowing and lending demand. So that’s quite interesting. That’s actually something I’m only recently looking at. Another aspect of earning a yield on Bitcoin would be the Lightning Network. That’s

James: [00:04:49] what’s really getting my attention. There’s so much demand for liquidity. And some of the yields people are getting through using a service like Lightning Pull is pretty insane when you think about the fact that you’re not actually taking a counterparty or credit risk because you’re keeping the Bitcoin in your own custody. So that’s really like a unique way to approach earning a yield. [00:05:08] That’s completely unique to Bitcoin. And for me, makes it stand out as being truly decentralized

JohnPaul: [00:05:13] finance. So you mentioned Lightning Pull and checking out the website right now. Can you talk a little

James: [00:05:16] bit more about your experience with using that and maybe a high-level review of the Lightning Network? People who are not aware of that technology stack? Yeah. So the Lightning Network is what we would describe as a second layer on top of Bitcoin. And at its foundation is some smart contracts, these multi-signature contracts that form bi-directional payment channels. One analogy you could say is [00:05:37] that it’s like a Visa network on top of the US dollar, except we’re all able to be the bank that’s providing liquidity to the network. And if there’s no centralized Visa that’s surveilling the network and censoring it, it’s completely decentralized. And Lightning Pull is an example of a service provided by Lightning Labs. That’s like a marketplace that helps people who want liquidity to find

James: [00:05:57] people who have it available to offer. Because when you’re running a Lightning Network node, it’s really important to manage your channel liquidity. So what we’re seeing now is some of these larger companies that run Lightning stores or the exchanges that allow Lightning deposits and withdrawals, they need to manage their inbound and Lightning liquidity. And it’s like just providing [00:06:17] a place for them to meet each other. But at the same time, this can also always be negotiated directly. There’s never ever a need to use a service that’s centralized or anything like that. And so regarding liquidity and how much, if you put a one Bitcoin in there for a year, how many stats are you going to generate an interest on that point versus doing traditional

James: [00:06:33] lending, either in the DeFi space or with BlockFi or other Celsius or other partners like that? Do you have any estimates or ideas? That’s a really good question because it’s a little bit different than traditional lending. It really comes down to the active management of the investor, the person who’s providing liquidity. Because your yield isn’t just a result of you putting up the Bitcoin [00:06:54] once as liquidity and getting a yield on that. It’s actually you’ve got to calculate it based on the sum of all the inbound and outbound channels that you’re managing and the kind of yield you’re getting off of those. So there’s an active role that has to be played. So it’s going to differ per person. It’s going to differ based on strategy of how you actually build up your channels and

James: [00:07:15] create the liquidity parts through the network yourself. It’s going to differ based on quite a lot of things per person. But someone that’s really worth following in this space would be Alex Bosworth of Lightning Labs. He every now and then shares a little bit of his alpha when he tells people what kind of yield he’s earning because he’s at the forefront of this stuff where he understands [00:07:32] exactly how it works. So he’s been able to take the risk worth putting quite a bit of money and a whole lot to do this. Because that raises another point because that while there’s no credit risk lending your Bitcoin through the Lightning network, there’s a huge amount of operational risk. I’m not as tech savvy at all as any of these other developers. So for me, the big roadblock is what if I

James: [00:07:54] muck up and lose my Bitcoin and the other aspect would be in order for it to be in a Lightning channel. It has to be in a Lightning wallet which is online. So it’s a bit hotter, they say, so it makes it a bit more of a security risk. So there’s lots of factors that go into it. I’ve seen, for example, on Lightning Pool, which is where just for a single channel where people are demanding [00:08:14] liquidity, I’ve seen a yield as high as about 10% per annum. But in terms of someone managing their own channel for about a year, I think I saw Alex Bosworth, this could be totally wrong, but I think it was somewhere in the one to two percent area. But anything, anything above zero is pretty good when it’s kind of risk-free. In terms of a credit market sense, it’s not like

James: [00:08:32] you’re lending money to an actual bank or like a centralized platform like BlockFi. No 100% get that on the credit risk side. And I think that’s super important when it comes to BTC maximalists or people that believe in holding their own coins and keys. And I’m 100% supportive of that. And you mentioned you said one or two percent, was that per month or per year [00:08:51] for people? Because you mentioned managing the channels. I still don’t understand what that

JohnPaul: [00:08:55] looks like. Is that choosing who you want to work with? Can you explain what that looks like when

James: [00:08:59] it comes to managing a Lightning liquidity channel? So I’m still in the research phase for this, because I don’t want to put too much capital at risk. But my understanding from what I’ve been reading and what I’ve been experimenting with is there’s a lot of work to be done in rebalancing the channels. You can open up a channel. So first of all, you need to open up channels [00:09:16] across the network so that people actually will flow through your Bitcoin. I like to think of it like you’re creating a right-of-way of your land and people will pay you every time they walk through it. But you want to make your land useful and to link up all the different parties, the people who need capital and the people who are spending capital want to help them meet each other.

James: [00:09:33] So there’s a strategy to who you pair with or who you open your channel with. And then it’s also the strategy to how you keep your node balanced. Because if people are walking all in one direction that could move the shift of satoshis from one side to the other side from your inbound to your outbound or vice versa, the direction of your payment channel. So there is at the moment kind of hands [00:09:54] on management, active management of your channels. But I do think there’s a lot of projects probably tackling this and there probably is going to be ways to make it even simpler. I think lightning pool is one way that makes it simpler where you don’t have to go out and find the people who actually need liquidity. The marketplace is there where you can see where you could provide it.

James: [00:10:11] Interesting. Yeah, I’m looking into just looking into more as we’re speaking. This is really an interesting concept that the lightning space that I haven’t really touched into. You mentioned that stacking sats and not all coins and wanting to grow your Bitcoin portfolio and dollar cost

JohnPaul: [00:10:23] average. Can you explain how you’ve been approaching buying bitcoins and growing your Bitcoin allocation

James: [00:10:28] in the space previously and how you think the best way other people can do it? Yeah, the reason for crypto saver was I think a lot of people in YouTube Bitcoin, it takes them a cycle like it takes them a bull market before they truly get the value of Bitcoin. And so I’m trying to help people get that mindset really early on that it’s not about buying Bitcoin [00:10:46] and then taking profit on it in the future. Once you really get into understanding Bitcoin, you’ll appreciate that it is the profit. It is the asset that you’re going to want to fall back on to when you take profit from things that are riskier. And so one way to develop that mindset is why not work for Bitcoin? Why not ask for a party of salary to be in Bitcoin? Why not start

James: [00:11:08] working directly for Bitcoin online? And so for people right now who don’t have that offer from their employer, it makes sense to just dollar cost average where every paycheck you take a small percentage of it and you convert it into Bitcoin. You lock it in, you save it as sats because the longer you’re in Bitcoin, the more you develop a relationship with fiat. That is, [00:11:29] I guess you could say hyper inflation expectations. So for me, the velocity of fiat is very high. Fiat comes into my bank account. I spend it very quickly. I think a lot of Bitcoin is would say the same. I don’t actually even consider it spent when I buy Bitcoin. I consider it. That’s where I’m just storing my capital. Part of the reason I decided to call my personal track record

James: [00:11:48] unspent capital and my investment philosophy unspent capital is because first of all, technically, every Satoshi is the unspent output of a previous transaction. So it’s money that hasn’t been spent yet. It’s just there in the blockchain, part of the 2,100 trillion Satoshi’s that will ever exist. It’s your percentage that will never get diluted that you own your score, I like to say. But then [00:12:11] when I look to invest in other things, I have to appreciate that my opportunity cost. The thing that I’m actually giving up is Satoshi’s because whatever you buy, the alternative that you could have bought is Satoshi’s. So with Bitcoin being the opportunity cost, that makes investing a little bit different. You start to price everything in cents. Since about 2017,

James: [00:12:31] I’ve only looked at the old BTC pairs when trading. I’ve never actually looked at the US dollar price because it doesn’t matter to me to make US dollars if it means I’m actually losing Satoshi’s because if I’m diversifying out of Bitcoin, I’m taking a higher risk. So I deserve to have a higher reward. I should be making sex, not losing sex. That’s one of the ways I look at it. [00:12:52] No, 100%. That makes sense. And I think the stacking of stats is the mindset that I’m looking to move into before we jump into stacking of stats and what I want to coin is stacking watts. Like when it comes to mining and stacking miners, do you think there’ll be a leaderboard or people wanting to share how many bitcoins they have ever? Or do you think that’ll become a socially acceptable thing?

James: [00:13:12] Or is when people are going to want to brag about or share similar to likes for Instagram followers? That’s interesting to think about. I think a lot of Bitcoin is like to keep it private, but I think there’s still advantages to having transparency where it’s needed. So for public companies, there’s definitely a massive leaderboard happening right now. And micro-strategy is way [00:13:32] well ahead of everyone else. And having that publicly known can be useful if you’re a public company and you want to do things with that wealth if you want to borrow against it or do things. I think like a central bank, for example, when they start getting into Bitcoin, they’ll probably be quite public how much they own. I started by saying, did you say stacking watts like energy

James: [00:13:50] for Bitcoin miners? Exactly. Yeah, I think I’m really excited about the idea that any electricity, any energy that the world is able to produce is now able to be monetized because you can just fire up the ASIC miner and just convert it into satoshis. So all of a sudden renewable energy is suddenly extremely viable and it’s going to expand at a rapid pace, the generation of it. So there’s [00:14:16] going to be a lot more renewable generators being developed because they have that variable supply problem where sometimes they produce too much electricity that they can’t put onto the grid, they’re overloaded and there’s a huge cost of what’s called curtailment where they have to find a way to expand their electricity without overloading the grid. So they threw negative pricing where they

James: [00:14:35] pay people to take it off their hands. They pay to pump it up a hill, that’s called pump-tiger. They do a whole variety of things to get rid of it. But now you can just convert it into sats and store it as wealth for later. And then there’s also the ability for if demand for electricity from regular consumers is high, regular consumers are paying 10 times as much as a Bitcoin miner [00:14:54] anyway. And so the Bitcoin miners are able to have these agreements with the generator, if the Bitcoin miners themselves aren’t the generator, for example, they’re able to have these agreements where they can pull or turn off their miners at the flick of a switch to suddenly have that power that’s been consumed by them available for the grid. And so renewable energy

James: [00:15:10] is just so totally viable now as a green strategy. So I don’t know, it just gets me real excited because when you said like sets per watt hour and stuff like that, it is very much like electricity energy that’s pretty much what’s backing Bitcoin. That’s what makes it really exciting. I 100% agree with you on that. The fact that energy usage is the core fundamental [00:15:30] aspect to Bitcoin usage and Bitcoin backing. And that’s what drives the overall value and adoption in my opinion. So it’s interesting to hear you’ve had the same type of those feelings and thoughts. And just like you said about starting to dominate your life and holding SATs and not fiat, that comes with time. It comes with an understanding of the technology,

James: [00:15:46] understanding of what inflation does to society, what poor monetary policy does to a country and the lack of infrastructure there. I think looking forward in the future calling Bitcoin mining is almost like virtual infrastructure, the ability to deploy this infrastructure that can be monetized by anyone. And just the simple usage of electricity is life changing and has the opportunity to [00:16:07] democratize that type of passive income strategy across society or just in general using energy and getting clean energy, keeping energy available for societies that don’t have the type of infrastructure. Bitcoin kind of hacks the whole system by saying, we’ll buy your energy no matter where you produce it. And that’s crucial for developing countries and for developed countries. The energy production

James: [00:16:28] process and how cheaply you can distribute and produce energy is massively affects a global economy. Yeah, like the Tesla strategy of having a solar panel on everyone’s house and then having a battery in the garage, the power wall to power your electric car, like it makes total sense to chuck an a-sick miner in there as well. Because what’s the point? And if you’re over it, if the sun’s [00:16:48] still shining and your battery packs full, it’s not that easy to just build out more battery packs. It’s good to just use that extra electricity, convert it into satoshis. I think that’s going to be a huge trend. As more and more people start doing more renewable stuff on their own, like solar panels on their roof, their mining at home makes a lot of sense too.

James: [00:17:04] And also, I think when I come back to stacking watts, the mining, being able to access low-cost power comes at building out of these large renewable facilities, the 100 megawatt wind farms, 20 megawatt wind farms. You can’t get that in your house, just the nature of the market and electric industry is preventing that. So exciting to see where it goes. Yeah, on that particular note, [00:17:22] it’s really exciting to see companies like Iris Energy, who have just raised $120 million Australian this year towards renewable only Bitcoin mining. And they also have commitments in place where they’re trying to enter markets that already have supply issues, like oversupply a renewable, where they can actually help make the grid better and more efficient and have those

James: [00:17:42] agreements where they can reduce their demand. It’s interesting to see the capital that’s being directed towards this at the moment. It’s really ramping up. And they’re seeing the same thing on our side. And I have a very similar approach, which is go find strand over the wind that has no tax credits and deploy facilities there. So it’s really exciting to hear Iris, [00:17:59] obviously, Iris Energy is growing in the space and has been in it for a couple of years now, that the, like you mentioned, the capitals finally here for this industry, which didn’t have insurance or private lenders really before. And it wasn’t very accessible.

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JohnPaul: [00:18:35] James, can you talk a little bit more about why you believe Bitcoin is the best store of wealth

James: [00:18:40] and maybe how you have that conversation with people that are just coming into this space and trying to understand why Bitcoin is going to be around for as long as it is and why you hold that strong conviction? It’s the question that everyone wants to know the answer to. And I guess it does take time to build up the level of conviction that I have. I think there’s, [00:18:56] I can give the sales pitch that everyone hears about Bitcoin. But right now, I think the important point of difference is really coming to a head when you compare Bitcoin to the rest of the alternative cryptocurrency space. It’s really the decentralization that is what’s keeping Bitcoin special and what’s making the promise that it will be finite believable. Because myself and

James: [00:19:18] any other Bitcoin is able to verify it for ourselves by running our node and we’re able to keep enforcing the rules that we want to enforce. We’re not going to allow someone to hijack the network and hard fork it in a direction that we don’t like. So it really is. It’s this ultimate democratizing force that has empowered everyone to have a voice through their node and it’s empowered everyone [00:19:39] to have the full picture of how this new economy is going to be built. Like what the base agreement is that everyone agrees on. And we’re basically all agreeing that there’s only one Bitcoin. You can divide it by 21 million to get a unit called BTC, which is also called Bitcoin, which makes things confusing. You can divide it by 2100 trillion to get a unit called SENSE. And we can

James: [00:20:01] definitely divide it more in the future. I don’t know the technical, whether we could do it technically. Sure, through second layers and derivatives, it’s going to get sliced and diced a lot finer in the future. But having such a simple foundational rule has made this economy that is just so vibrant and so free market where anyone is building anything on top of it. Everyone’s leaning towards open [00:20:22] source because open source just eats the world and it just absorbs all the best things the world and gets better. An example recently would be BTC pay server. BTC pay server is the most Bitcoin thing ever. Basically started as like a revolt against bit pay because they were actually trying to, I don’t want to say this, accuse them of something, I don’t know, full details on, but they

James: [00:20:43] were definitely on the camp that was spreading misinformation about Segward. And one of their tweets when they were trying to fud Segward, Nicholas Doria replied saying, this is lies, my trust and you was broken, I will make you obsolete. And he launched an open source project called BTC pay server. And now that is free for anyone to use and it basically provides all the point of sale, [00:21:04] the technical side of doing point of sale that anyone would need. So it’s this awesome application on top of Bitcoin. And the recent example would be when Tesla got into Bitcoin, they didn’t have to create their own like from scratch point of sale system, they use BTC pay server. They didn’t have to be beholden to some payment provider and give someone some fees. They were able to use BTC

James: [00:21:25] pay server. And then the thing that makes it really special is that they then contributed to BTC pay server to make it better. They found things that were lacking that could have been improved. And so their engineers getting paid money by Elon Musk were actually making an application on top of Bitcoin better for the whole ecosystem. And that kind of feedback loop [00:21:44] that just keeps on making everything on Bitcoin better. It’s just why it’s just like growing so rapidly and why there’s such little barrier to entry and why the disruption happening on there is so like amazing and profound. Do you have any thoughts on Taproot and that being activated or any other protocol upgrades in the near future? I think it’s really interesting to follow because

James: [00:22:04] it’s nowhere near as controversial as 2017 because it hasn’t there’s no parties trying to centralize Bitcoin at the moment publicly that I’m aware of. I’m sure they always are. But for this particular upgrade, I think it’s really cool to see the consensus and how it developed. The nuances of Bitcoin consensus. It’s not clear. There’s no dictator telling people they have to upgrade. [00:22:25] There’s not even a clear path for how this upgrade’s going to happen. And also it’s not even correct to call that an upgrade. It’s a backwards compatible kind of activation that you can choose to activate or not. But I again am not the developer. And that’s where I guess an element of relying on the people in the Bitcoin community, the out of Alpiers to be reviewing the code for me. And that’s a

James: [00:22:47] process that I do look at. And I do see the amount of effort that goes into all these peer reviews. So I don’t think it’s controversial at all. I think it’s awesome that it actually is providing a more privacy to Bitcoin. I think there’s a lot of people with a lot of plans on how they’re going to leverage that. And if we get this done smoothly and it happens even [00:23:05] faster than expected, like if it actually gets activated this year, that to me is faster than expected because there was all this talk of being a bit contentious and maybe having to do a user activate its soft fork at the end of 2022. But if it happens fast and it’s an improvement, it could open the door to a process that did help it continue to do soft forks that are going to

JohnPaul: [00:23:26] get in lots of good upgrades. I’m excited. Definitely excited as well. I’ve been watching it at taproot.watch.com.

James: [00:23:32] I think it will signal eventually have 200 blocks left till we get to the point where we have now had 900 blocks since they pushed it. It’s not going to signal immediately. But it looks like it will more pools are starting to signal appropriately. You see anything with similar DeFi projects on Ethereum. Do you see that coming over to Bitcoin and people starting to build on [00:23:49] top of Bitcoin more as a native chain compared to Ethereum? Yeah, I think that’s a really good question because I think my definition of DeFi, I hold the word decentralized to a much higher standard than what a lot of the projects on Ethereum are holding it to. For example, if you’re decentralized finance product relies on an Oracle, like a centralized Oracle, I don’t see that as

James: [00:24:10] being DeFi, which draws out a vast majority of what’s happening on Ethereum. And if they have these long term plans to become more decentralized, but in reality, there’s still these central committees or these still this kind of governance process, things like Pre-Fistake kind of annoy me. I think that decentralized finance, the first and best example of it is Bitcoin. And then the [00:24:31] application of it could be seen as what’s happening with lightning. And then for something that’s comparable to the DeFi space, there’s actually a lot of different projects that are doing things, like I mentioned, HODL. Because I guess DeFi for Ethereum has been, I guess it can mean a lot of things, people are looking at the way that earn a yield, which I would just caution anyone right

James: [00:24:51] now that has their money earning a yield with all these random crypto tokens, altcoins, that if you’re earning your yield in that token, it’s paid and kind and it’s diluting the total supply of the token and effectively creates a race to be the first one to liquidate it to actually lock in the return. And so don’t assume that the value of the token will be there in the future. So don’t [00:25:11] assume that the US dollars you might be ringing in now always be there. The only reason I bring this up is that I just saw on TikTok today a guy with a brand new car that he bought yesterday, and he was using the interest he was earning on his DeFi to pay off the lease or whatever on the car. The reality is that random token that’s only in interest on DeFi can overnight lose its yield

James: [00:25:32] quite quickly or its yield becomes worthless because the token becomes worthless that suddenly they’ve got this liability in the car that they can’t afford to meet. So I think it’s a bit risky what’s happening there at the moment. I think that makes it hard to gain yield on Uniswap pools or other pools that have these tokens. Have you heard of interest bearing Bitcoin wrapped by Badger Finance [00:25:52] and are created by Badger Finance in DeFi Dollar? And those are not native Bitcoins but they are on chain Ethereum Bitcoins but there isn’t another coin in the pool. Have you looked at that? I know they just launched pretty recently. Badger Finance rings a bell because I think I looked at them in the space of five minutes and in their documents. I saw a

James: [00:26:08] couple of words that really just scared me away. I think they have a very kind of centralized government process. I think they had words in their documents about like emergency modes, committees. Let me have a look. Here we go. It’s a Badger Finance. Permission changes. The Dow can elect trusted parties have various permissions for activities. [00:26:27] They can enter emergency withdrawal mode. So all these things with the Dow’s and committees, especially when the influence over that is determined by how much of the coin people have. They’re really just trusting the hedge funds and VC funds that funded it in the first place. I’m not sure about the specific token how it was funded but I just don’t like seeing the word

James: [00:26:44] committee and that would stay away from any protocol. Those get scary and consensus protocols. I think that’s why I think understanding the lightning labs, the unified liquidity between the lightning channel is huge. Have you heard of Thor Chain? Yeah, I just read an article. I believe by Eric, the guy who created ShapeShift.io and they’re using Thor Chain to provide on-chain [00:27:04] liquidity. The biggest difference for that protocol is that each vault is only, there’s only one token per vault. You have Bitcoin and Ethereum and then you have their currency or they’re like rune token for the Thor Chain. Have you looked at any of those new type of ways to provide the liquidity to these exchanges? That ShapeShift is building on top of so the goal is to really

James: [00:27:25] decentralize the liquidity compared to like Uniswap or something where you do have that impermanent loss or the two tokens that match up and can provide price risk there. I saw Eric Voorhees talking about Thor Chain and how ShapeShift are going to use it. I guess I haven’t really looked too much into it to see how it works and I wouldn’t want to use [00:27:43] it until I knew exactly how it worked. The main advantage I’d see of that would be the promise of being able to get easily convert Satoshi’s into another asset. But really I see that happening in very smart ways on top of Bitcoin too. It can even happen in I think they call it like atomic swaps. There’s ways it can happen especially between lightning networks where it just feels

James: [00:28:04] like it could be executed even better on Bitcoin but it’s not actually a subject I’m that clued up on to provide too much of an opinion on it. I haven’t looked at all that for a chain. I think that’s kind of what I’m realizing as well. It seems like all this technology can be on Bitcoin in the way of you. Bitcoin is like it’s a big ocean and people build on top of it like [00:28:20] layer one is shipping vessels through the ocean, container ships and then inside that container ships you have layer two applications. It seems like a lot of this stuff can be done on VTC but it just hasn’t because of the maybe the slow development process or the fact that it does take a while to get consensus through the network as we’re seeing with Taproot. But you mentioned that

James: [00:28:37] after Taproot it should be easier to add some of these changes or features and why is that? One of the things that will be easier after Taproot will be the privacy gains from an on-chain transaction that’s used to do things other than just transfer a UTXO from one public key to another. So a more complicated on-train transaction like the ones that are used to start a lightning channel [00:28:59] or the ones that might be used to have a bit of more of a smart feature built into it where I don’t know too much of how it works but I think there’s, I don’t know if this is directly comparable but some smart contracts, they’re called discrete log contracts or something. It just seems like by making it more private where it’s indistinguishable to an outside observer

James: [00:29:16] what’s happening on-chain that would make the ability for people to do a bunch of stuff on-chain. It’s just going to grow. I think a lot of this stuff is a bit underground and even though the ideas are all conceptualized by Bitcoin as many years ago, for example NFTs, the really old concepts in Bitcoin. The reason they might get more traction in the altcoin space is because first of all [00:29:36] the venture capital funding and a lot of that just goes to marketing. The attraction for the developers of becoming their own kings of the governance and having a token and having a return. It’s just been like in a big experiment, the altcoin space in my mind, where throw everything at the wall and then what sticks? What kind of ideas or use cases that people actually demanding stick

James: [00:29:57] is what someone in their own time will put the effort into building the open source version of it that doesn’t have its own token and that just operates within the Bitcoin economy seamlessly. The ability to extract fees seems to be where we’re sitting in this blockchain 2.0 space. Everyone’s building on top of the technology so they can have their governance tokens, [00:30:16] they can have their LP tokens. So they’re not necessarily just trying to build feature sets. If everyone had the goal of just gaining more interest on their bitcoins and providing an open source way to do that, that might change it. James, this has been an amazing talking through

JohnPaul: [00:30:30] all of this. What advice do you have for someone new coming into this space? Do you have any resources

James: [00:30:36] you usually recommend they check out? Because it seems like we’re both very similarly to very Bitcoin, Maxillos, both got around 2013 and really understand the true value of Bitcoin and that’s kind of where I’ve been sitting. That’s why I’m into mining, that’s why we’re growing mining operations. It’s just for me, it’s how do you gain yield on your Bitcoin? How do you continue to grow [00:30:55] that that sat stack that you have without selling it? So any places you like to point people when it comes to learning and educating themselves about Bitcoin? It’s the hardest thing, right? Because it depends on where the person is in their own journey. And I guess I overestimate, I feel like people are further ahead than they actually are. So sometimes my advice is tailored

James: [00:31:16] wrong. And I would say to the average person, there is no official Bitcoin website. There is no official Bitcoin resource. Anything you Google about Bitcoin, you’re going to find a fake piece of news that says the opposite of what’s true. But if you actually are willing to learn more about Bitcoin, you can find the truth. It’s all out there for you to verify yourself. If you’re [00:31:35] technically minded in a developer, it’s actually quite easy for you to verify this yourself. If you’re not technically minded like me, maybe you’ve got an economics background like me in game theory, that’s able to be verified for yourself too. So I encourage people to just keep going down the rabbit hole. There’s lots of resources from Bitcoiners that you can look for, lots of writing that

James: [00:31:53] people are putting out. This one’s a hard one to say, but it pains me, I keep on trying to help people understand Bitcoin. But when I just blanket tell them to stick to Bitcoin only, it almost pushes them away. And then they go lose all their money on altcoins. So I guess I could be saying, if you’re going to do anything other than Bitcoin, at least limit it to a very small percentage of your portfolio, [00:32:13] and at least have the courage to measure your performance in sets. Know exactly how many sets you’re spending on that alternative investment and make sure you get those sets back. Otherwise, you’re losing money. And I guess a lot of people are going to have to learn through mistakes and they’re going to have to learn through getting burned in the market. You learn quickly. It probably

James: [00:32:31] happens to everyone. And I guess you haven’t really been in Bitcoin long enough until you’ve seen the value of your wealth for 80%, which has happened twice since 2013. And since 2013, and I agree that you completely about the Bitcoin and telling people to jump in this space and very small amounts of money, you should say, like, put only amount of money in Bitcoin, you’re willing to lose. Now, [00:32:49] I’m saying any dollars you don’t have in Bitcoin are getting killed by inflation, you just don’t realize it yet. And you should put all of your cash in Bitcoin and as much capital as you’re willing to not really invest. Because like you said, it’s not really like you’re investing, you’re just transferring that out, you have liquidity in Bitcoin whenever you need it. It’s more about like changing

James: [00:33:07] your mindset and belief structure. But I guess where I was going with that question was, is, have you got into Bitcoin mining? Do you ever have a mining rig, either GPUs or Bitcoin mining back in the day? Or have you not experienced or played around with that? No, I haven’t played around with that. The electricity price in New Zealand is insane. And even the price of getting [00:33:26] any kind of hardware here is insane. But no, I haven’t played around with mining. But I am one company I’m talking to at the moment is a miner, which I’m helping a little bit with their message out there about being a green miner. So I’m learning a lot more about mining this year. I learned a lot about mining from reading Satoshi Energy’s paper about energy-backed money that helped me

James: [00:33:45] change my view on how to think about energy and mining. I’m quickly on your point about telling people that their fiat is inflating away and melting away like an ice cube. I definitely do that too. But I guess the way I like to, I don’t want to cause people too much fear about fiat because they now start to speculate on a bunch of things, which is what we’re seeing [00:34:07] across all asset classes right now. People piling into Dogecoin or GameStop, for example. I guess one way we could word it is if you’re just a regular person and you’re trying to build your wealth, you want to buy assets and most people want to buy property and that’s great. I like property as scarce as well. Not as scarce as Bitcoin, but it is scarce. But the barrier to

James: [00:34:26] entry for property is really high. The deposit required to buy a house in New Zealand to the average house price in Auckland got to $1 million. 25% growth in the last 12 months. If you’re saving up cash for a deposit, basically the inflation that’s happened here for those people, it’s already being 25% because now you can’t afford the house you wanted to afford. You need more cash. So what [00:34:45] I say to people is within your investment portfolio, the amount of money that you’re actually saving is cash because you’re trying to build a cash stack for a larger investment in the future. Think about allocating that 5050 between fiat cash and then Bitcoin because then you’re neutral on whether fiat or Bitcoin wins because I do see it as Bitcoin really challenging fiat and fiat going through

James: [00:35:08] a bit of an inflationary or hyperinflationary period. So yeah, I don’t tell everyone to put 100% of the cash into Bitcoin. Although once they get to my level, they won’t even need to think about cash because they’ll be just assuming that every income they earn is Satoshi’s. That’s a default allocation for me. I think it’s a bit of a bridge too far for people. No, it’s a hundred [00:35:25] percent of bridge too far. I was saying I think the number one regret of the world might be not buying Bitcoin early enough as we continue to see it grow and grow and just the price go up. It’s going to be detrimental as people always say, oh, it’s too high now or I don’t want to put capital into it. And moving to my one of my farther points here is do you view Bitcoin almost as a

James: [00:35:43] credit default swap on sovereign wealth debt and sovereign wealth bonds and potentially defaulting on government debt? Like we saw with Turkey earlier this year. That’s really interesting. I hadn’t thought of that. I used to trade the Aussie sovereign CDS. It was like a five year contract, which was an insurance on the Australian government debt. Absolutely. Now that you mention it, [00:36:03] if you’re a large institutional player and you have a lot of risk in a country, Bitcoin is people at the moment before Bitcoin came along. They would just rotate between the countries and then when it’s time to go to a safe haven because everything’s risk off in the world and everyone’s panicking, they all flock back into the US dollar or into the Japanese yen. But now during that

James: [00:36:23] scenario, Bitcoin is going to do really well. So it does absolutely act as a hedge against fiat going through a tough time. A very tough time of money printing as we’ve been seeing over the past couple of years and just the amount of asset purchases by central banks has been really scary, honestly. And I don’t think most people understand that. I realize how big of a factor that’s playing [00:36:42] in how much capital and cash being printed and the long term effects of what it’s doing. And we’ve seen that in asset prices in lumber going up Forex and copper going up two to three X and metal. And everything. How do you not see the writing on the wall that inflation is no longer 2% and it’s just a being lied to? Yeah, I think I’ve come to the realization that anyone that’s actually

James: [00:37:03] intellectually curious into economics and investing is probably now coming to the realization of what’s really happening in the world right now. But for the average person who has no interest in investing, they don’t understand and they don’t necessarily care. And I guess I feel a little bit like I’m causing panic when I scare them too much about fear inflating away. So what I would say is [00:37:25] it would be great if everyone was earning a real asset with their time. They’re earning a hard asset like Bitcoin, but we won’t have these problems of worrying about having just spend it to be inflation. And I hope that people can learn that the easy way. But it does feel like it’s happening the hard way for a lot of countries and it could happen in developed markets too, the hard way.

James: [00:37:43] So James, you mentioned like putting their time into a real asset and realizing that one asset is Bitcoin. I think I read an article a couple of weeks ago that Bitcoin is the best way to keep track of our time as a civilization because of the blocks. Every 10 minutes we have a block. And since the mind civilization, I was just in Mexico, they were not the same, they were in Mexico, they built [00:38:03] these pyramids to keep track of the seasons and keep track of the days and times. And they built these massive pyramids just to do that. And we’ve seen with Bitcoin, it is the best way to track time. Previously, we’ve used us dollars to track time to track how we allocate our time and put capital and how we live a lot of the governments to do that. But now with Bitcoin, it is the best

James: [00:38:20] way and it’s the most efficient way. How do you try to explain that to people that at the end of the day, this is where you want to value your life and your life currency, you want to think in SATs? How do we work on getting this message across better? Is there any good analogies that you’ve used in the past? And do you have any thoughts on the Bitcoin tracking time being the [00:38:37] best way to track time? It’s really interesting, isn’t it? One example of Bitcoin is the money that you can actually price things over time. For example, a can of Coke probably started out as a nickel way back in the 70s or whatever. It’s when we talk about the US dollar price of things, we have to always say what year we’re talking about because it totally matters what year you’re

James: [00:38:57] talking about. For example, a billionaire used to be a big thing, but now a billion is the value of every little private startup that has no revenue. So a trillion is the new thing. But before a billionaire, it was millionaire. So the numbers keep going up. One way to think about it is before COVID, at the start of 2020, there were about 15 billion US dollars as measured by M2 money supply. [00:39:18] So if you had one trillion, you had one 15th of the wealth, one 15th of the US dollar wealth. And now it’s 20 something. So you’ve got one 20 something of the wealth. If you have, since there’s only 21 million Bitcoin, if you have 1 million Bitcoin today or 1 million Bitcoin 10 years ago, 1 million Bitcoin 10 years in the future, you still have one divided by 21 of Bitcoin. You’re

James: [00:39:39] not getting diluted. Your asset, you still hold that asset. The price of something costs a million Bitcoin, we can appreciate over time what that really means. Whereas if something costs a million dollars, what is a million dollars going to be worth in a year? If it doesn’t make any sense. But yeah, it’s really hard to articulate to people what is so wrong about fiat. There was a really [00:39:58] good analogy about a measuring stick or a yardstick. It’s Bitcoin is this fixed length roller, this 2,100 trillion sets. And so now we can actually value things. Whereas if you’re using US dollars to value things, the roller changes its length every year. It gets longer every year. So what really does the measurement mean? That’s a really good way to look at it. What really does the

James: [00:40:17] measurement weigh? Because most people are evaluating their time in US dollars across the globe. And they should be really getting 20 or 30% pay increases every year to keep up with inflation, especially with this last bump. But you’re not seeing that across the board in any way. Most people are happy to get a 5% raise. Yeah, it is like the big screwing that’s happening in the world, [00:40:34] where they, I don’t want to do conspiracy theories like these people in charge. But it does always seem like this happens regularly and people get screwed. Yeah, I guess people just have to always be demanding higher wages to keep up with the cost of living. Yeah, cost of living is the thing that I think resonates with most people. And I think everyone would agree that that cost

James: [00:40:51] of living is going up every year. And so in order to be to have just the same quality of life, you do need to have a rising income. And that’s just the negative consequence of using a currency like fiat, where that’s required to keep up with inflation. 100% agree. James, is there anything else you wanted to touch on? I think this was a great conversation so far. But I definitely want to [00:41:11] give you the opportunity to bring up any other topics that you might have wanted to touch on today. I don’t really mind just glad to have a chat. I guess the one thing I’d say is Bitcoin is green money. It’s not bad for the environment. That news cycle this year has been pretty aggressive. They’ve come out swinging with all these accusations and a lot of fake news about Bitcoin and the

James: [00:41:31] environment. But I do think that narrative, the tide is turning. People are getting a bit more educated on what’s actually happening. And we are starting to see the massive build up and renewable generation as a result of having these Bitcoin miners who can actually consume the electricity. So when you see a third headline like that, or see something negative about Bitcoin [00:41:48] like that, I guess it is a learning opportunity to go out and understand why it might be wrong. And to not just trust what one person says, try and see what other Bitcoiners have written on it. And Bitcoiners are writing about it all the time. Maybe the easiest way to follow Bitcoiners would be on Twitter. So I’m trying to put together a Twitter list that has Bitcoiners that I’m tuned

James: [00:42:08] into and the thoughts that I read every day. And that might be a good starting point for people who want to hone in on Bitcoin. I don’t want to call it Bitcoin maximalism. It is what it is, Bitcoiners money. And I’m all about maximum decentralization. So if you’re into that, feel free to follow that list of people and learn from them. [00:42:23] That was great. James and I definitely agree with most people. We need to be sharing that message about the climate change and Bitcoin mining usage of energy sooner in the podcast. And almost for all my shows before this, before you came on, I had another individual named Karthik who works as an energy trader. We talked about just the minute details of renewable energy and energy

James: [00:42:40] consumption and production, how important it is to match those two and the crucial role that Bitcoin mining will play. So you got to listen to that episode guys, make sure to check that out. But James, this was an amazing time, amazing conversation to really talk about maximalism and

JohnPaul: [00:42:51] the interest opportunities for Bitcoin and then also your journey. I appreciate you coming on the podcast. And thanks again for jumping off. Awesome. Thank you for having me.

[00:43:00] Thanks again for listening to the end of the show. And remember to mine on.