Episode 14 - In Search of Goldilocks Participants Adam B. Levine (ABL) - Host Andreas M.

Antonopoulos (AMA) - Co-Host Constance Choi (CC) - Legal Counsel at Payward ach Harvey ( H) - Lamassu Bitcoin !ending Machine ABL" Coming up on today#s show" listener mail$ micro-transaction powered social networ%$ Constance Choi$ Legal Counsel at Payward$ &rings us up to speed on 'C$ (inC)*$ and +reasury$ the retro-active paywall$ counter-intuitive - smaller amounts e,ual larger transactions$ -MB &loc% si.e - is this good or &ad$ my interview with ach Harvey o/ the Lamassu Bitcoin vending machine$ /ull node clients vs. lite clients - are /ederated servers the /uture0 All this and more on episode -1 o/ Let#s +al% Bitcoin. 2/ you li%e what we are doing and wanna support us with &itcoin or litecoin donations$ please visit letstal%&itcoin.com /or episode-speci/ic addresses. 2/ you got a ,uestion that you#d li%e answered on air$ call us at -344-5)-+AL6-B2+C72*. +hat#s --344-5)-+AL6-B2+C72*. Hi$ and welcome to Let#s +al% Bitcoin a twice-wee%ly show /ocused on the ideas$ pro8ects and people &uilding the new digital economy and the /uture o/ money. 2/ you are &rand new to Bitcoin and would li%e to learn more$ please visit letstal%&itcoin.com9learn to &e directed to the Bitcoin )ducation Pro8ect. My name is Adam B. Levine. 2 am a writer and spea%er who li%es to tal% a&out complicated topics in understanda&le terms. :oining me in our twice-wee%ly search /or clarity$ Andreas M. Antonopoulos is an e;pert in distri&uted systems and decentrali.ed networ%s. AMA: Hi there. ABL: 'r. <tephanie Murphy is a scientist and syndicated radio host. SM: Hey= ABL: <o we are going to 8ump right into listener emails today &ecause we got one$ and it is a pretty long discussion topic so let#s get right into it. >Hi Adam$ ?eally en8oy the show. 2 have a ,uestion that 2 hopes @sicA you could give some insight on. As 2 understand it micro-payments are not really /easi&le at the moment. 'o you see that as &eing resolved in the /uture0 2 wonder &ecause it seems there could &e a system o/ pay as you use we&sites and services that allows something li%e a social networ% without apps or any %ind o/ invasion o/ privacy. People could choose the option /or something li%e (ace&oo%ay or a separate networ% with this model. +he only pro&lem is that we#d need to involve such small payments that 2 don#t %now how such transactions could &e done. 2n the same vein$ would it &e /easi&le /or similar systems to e;ist &ut instead o/ payments the user provides &its o/ mining to the site0 May&e this has all &een covered &ut it 8ust seems li%e people could pay hal/ a penny or so each day they use (ace&oo%ay &ut eliminate all the ads and other intrusions. 2t#ll pro&a&ly &e worth it /or everyone involved. +han%s.B +his is where 2 see where 2 see the most potential /or Bitcoin. Cou %now$ when you tal% a&out large transactions. +hat side is$ %ind o/$ almost already ta%en care o/ &y the e;isting /inancial structures that we already have. <ure$ there are costs and /ees associated with it &ut it#s possi&le to do it. As opposed to these micro-transaction concepts where you are sending pennies worth o/ value or -D cents worth o/ value. +hat#s

pretty hard in the e;isting system. <o$ you %now$ 2 mean again$ this /alls on the topic that we spent a &it o/ time on last episode tal%ing a&out$ %ind o/$ the idea o/ neutrality and which transactions were o%ayay and which transactions aren#t o%ayay. At this point$ you %now$ do you guys thin% that micro-transactions in the penny range are /easi&le and$ you %now$ moving /orward what does that loo%ay li%e0 SM: 2 thin% there will &e a solution that#s created as long as people have an incentive$ li%e (ace&oo%ay or whoever$ to ma%e money o// o// this. 2 mean$ it#s a - it#s %ind o/ simple as that. <omething that 2 could vision would &e them$ %ind o/$ &undling these micro-payments so$ you %now$ you wait till you have a months# worth o/ penny payments or you pay in advance /or a month$ or something li%e that. Perhaps they su&sidi.e the transaction /ees and they &undle the payments together. 2t#s really up to them to get creative to %ind o/ solve that pro&lem. 2t also &rings up the ,uestion o/ what is a micro-payment$ you %now0 5e don#t really have a /irm amount under which we can say that$ >yes$ this is de/initely a micro-payment.B 2t#s %ind o/ a sliding scale and so$ as the natural disincentives that come with smaller payments &ecome evident$ li%e the transaction /ee potentially overshadowing the actual amount that#s &eing sent$ there#ll &e more incentives to &undle those payments into larger payments and avoid having these$ %ind o/$ dust transactions. AMA: 2 thin% this is more easily solva&le i/ we stop thin%ing o/ dust transactions in conte;t o/ 5estern9developed countries. +his is all a&out the other E &illion. +he un&an%ed$ the people who live around the world not in developed countries. <o$ the real micro-transaction is what it costs to &uy a cup o/ co//ee in the <udan or in small ca/e on a &each in the 2ndonesia. Couple o/ rupees. +en rupees. <omeone tal%ed a&out that at the con/erence$ in /act. +hey challenged the developers and said$ you %now$ what you thin% o/ a micro-transaction is not a microtransaction in my country. 5e would li%e to see -D rupee transactions. :ust /or conte;t$ the minimum /ee that#s set in the client and accepted &y most is D.DDD4 &itcoin$ or what is that$ hal/ a milli-&it$ and hal/ a milli-&it is si; and a ,uarter cents on the F< dollar$ i/ you do the translation$ 2 may have gotten that wrong. But the &ottom line is that puts a lower limit. At most$ i/ you consider it a micro-transaction one$ that is no less than twice the si.e o/ the /ee. <o you can really pay a&out -G cents hal/ o/ it going to the /ee and hal/ o/ it going to the transaction right now. +hat#s the lower limit. But the whole point o/ that change made recently was to allow miners to gradually reduce that limit while ena&ling mar%et mechanisms to properly compensate them /or including smaller and smaller transactions in the &loc%chain. ABL" Ceah$ 2 thin% the idea o/ de/ining micro-transactions is challenging. But it really - it#s very conte;tual. Because you %now$ you#re thin% a&out it /rom the other E &illion perspective &ut you %now my primary area o/ /ocus is content moneti.ation$ and so micro-transactions are a huge deal there. Cou %now$ when people use PayPal. the minimum that they are gonna send somewhere is you %now &etween HG.4D and H4. Below that. it doesn#t really ma%e any sense with the /ee structure and 8ust in general 2#ve never heard o/ anyone even as%ing /or payments much &elow that outside o/ /lat-out donations /or the /ees &eing waived &y the company. (or my purposes$ when 2 thin% o/ micro-transactions$ 2#m thin%ing o/ anything that is li%e a dollar or less. A dollar and &elow is something that is something that nearly any&ody has the a&ility$ in$ again$ the developed world - once you start tal%ing a&out the <udan$ then o&viously the e,uation changes - &ut in the developed world$ that#s a doa&le /igure /or 8ust a&out any&ody$ and /or even people who don#t want to &uy something that 8ust wanna support something those are the num&ers where it %inda ma%es sense. <o with that in mind$ that#s a E.4I transaction /ee on something that is ostensi&ly supposed to &e tailored towards these small

transactions and ultimately that#s a pretty large num&er. Cou are still tal%ing a&out$ you %now$ that#s li%e D.DD3 o/ a &itcoin$ 2 thin%$ /or li%e a dollar transaction at current e;change rates. 2 thin% the solution in the long term here is to try not to screw it up &y putting rules in place and over the long term move to mechanisms so that it isn#t &eing set &y a person or group o/ people and so the rate can &e /loated and you can have people who have high-priority transactions su&sidi.ing people who have low-priority transactions and are essentially doing micro-payments. SM: Ceah$ 2 li%e that. AMA: )ven in your content moneti.ation scheme$ Adam$ i/ someone was paying$ say$ HG-J a month to /ollow their /avorite we&site and wanted to &e a&le to read a hundred pieces o/ content on that site$ and wanted to ma%e that up with micro-payments - essentially you#re loo%aying at ena&ling micro-payments o/ G-J cents per piece o/ content to get a hundred pieces o/ content to add up to a couple o/ dollars... ABL: ?ight. AMA" ...which most people would /eel com/orta&le with. <o even in your content moneti.ation scheme$ you#re loo%aying at that$ and in that case the /ee is JDDI. ABL: ?ight. (laughs all around) ABL: );actly. AMA: *ow let#s point out$ that#s the current /ee$ right0 <o there#s two issues here. 7ne is the minimum /ee was recently changed into a parameter rather than /i;ed in code so that over time$ it can &e set independently &y miners that create a mar%et. And$ there is no mar%et mechanism yet$ &ut that#s the goal. +he second thing is that to thin% a&out this &eing highly dependent on the current value o/ a &itcoin. )ssentially$ over time$ the de/lationary pressure causes increases in the percentage o/ the /ees. 2/ &itcoin was a H-DDD today$ suddenly that 4 milli-&it transaction /ee is E &uc%s and we#re PayPal again= ABL: +he setting o/ the parameters ultimately has to change$ and it loo%ays li%e we are moving in that direction. +he stop gap$ <tephanie$ 2 thin% is what you descri&ed$ where &asically$ you %now$ you have an entity li%e (ace&oo%ay$ again in the listener#s e;ample i/ (ace&oo%ay was going to$ instead o/ running apps$ charge every&ody - penny a day$ /or e;ample$ to have a (ace&oo%ay account active. And (ace&oo%ay could$ o/ course$ ta%e$ you %now$ JD pennies and say >o%ay well here#s$ you %now$ here#s your month#s worth o/ contri&ution$ rather than doing it as each daily$ we#ll 8ust do it as a month and then o/ course that#s @possi&leA.B <o one o/ the e;citing things a&out Bitcoin /rom a capa&ility standpoint is that &y ena&ling small stu// it ena&les you to &e really granular. Kranular and granularity are words that 2 li%e to use when tal%ing a&out this stu// &ecause it means you can ta%e something that#s very large$ li%e$ say$ a whole &itcoin$ and divide it into a hundred-thousand pieces and treat each piece as its own little entity that$ you %now$ put together as a whole ma%es up a whole$ &ut you can ta%e each you %now individual grain as its own entity unto itsel/ and you are still a&le to per/orm transactions with it in the same way as you can with this larger stu//.

2t#s the same thing here$ you are ta%ing a month$ and you are trying to shrin% it down into thirty days. And then you ta%e each o/ these days and shrin% it down into hours and so$ technically$ i/ we can wor% out this system where transaction /ees are &ased on utility and &ased on$ you %now$ speed o/ delivery rather than 8ust a /lat rate$ then you can do all o/ these really$ really small things and it pro&a&ly will &e o%ay /or the system overall. AMA: Adam$ you#re a&solutely right. But the issue here is that i/ you try to &undle these transactions$ you run into a couple o/ other pro&lems. +he /irst one is that you need to do some rather comple; accounting$ and the second pro&lem is that Bitcoin is a push mechanism$ not a pull mechanism. <o$ you can#t do recurring charges and de&it someone. Cou have to essentially have them pay in advance /or a month$ which means that you can#t really do that &ased on the content they consume$ &ecause they consume the content /irst and they &undle the payment later. 7r you#d have to @/irstA top up their account. 2t gets really$ really complicated. <o the solution essentially ends up messing up with the accounting o/ micro-transactions. 2t would &e much &etter i/$ /or ever piece o/ content you could charge individually i/ you want$ or not. And do the micro-transaction right there and then and not try to &undle these micro-transactions together. But$ you %now$ 2 thin% we#re getting there. +he point is that the minimum /ee as it is set now is simply a parameter. And over time the idea is that the minimum /ee is the correct price point at which the supply o/ space in the &loc% chain meets the demand /or transaction si.e. 5e have to thin% o/ that price e,uili&rium$ not as a point in space$ &ut essentially as a curve. And that curve e;ponentially decreases over time as the value o/ &itcoin increases$ as the si.e o/ the &loc% chain increases$ and as the num&er o/ transaction (sic) increases. <o$ the de/lationary spiral is re/lected directly in the transaction /ee and over time that curve drops it until you#re tal%ing a&out charging satoshis /or satoshis$ right0 *ot percentages o/ &itcoin or 4 milli-&its. 2t#s milli&its$ then nano &its$ then /emto &its$ all the way down to satoshis. +hat /ee is gonna have to move on a curve. ABL: 5e are 8oined &y Constance Choi$ the legal mind &ehind Payward and the in-&eta 6ra%en trading plat/orm. Constance$ you#ve &een traveling recently to discuss the possi&le regulatory issues overshadowing Bitcoin#s otherwise pretty &right /uture. Can you tell us a&out your e;perience0 CC: <ure$ and than%s /or having me on the show$ Adam. 5ell /irst$ it is a very complicated regulatory regime. But second$ 8ust how much &usinesses are now scram&ling in the light o/ the recent guidance to really understand how these regulations apply to their &usinesses. 5e 8ust came /rom the Bitcoin GD-J con/erence in <an :ose$ and the regulatory issues were on everyone#s lips. Cou see regulators struggling with where to put us. Cou see &usinesses understanding how regulators understand us$ and there#s 8ust a lot o/ uncertainty. +he one good thing a&out the guidance that came out now is that it actually does provide a good roadmap. And it also says @thatA /or right now$ you %now$ >this is what the state o/ the law is.B Cou %now$ 2 thin% that eventually the guidance and the scope o/ the guidance will have to &e clari/ied and it may&e challenged$ either under petition /or rule ma%ing or even a suit challenging the scope under the Administrative Protection Act. But$ /or right now$ (inC)* has said >this is how we understand Bitcoin to wor%.B +he /eds are de/initely paying attention$ now$ to how this applies to Bitcoin and they are actively en/orcing. <o$ at least /or Bitcoin &usiness$ it#s really$ really important now that they cannot operate under the shadow o/ the law anymore. +hat this is not something that is going to /ly under the radar &y regulators. 2 8ust came &ac% /rom a meeting in 5ashington with +reasury. +he reaction there was actually surprising. 7n the one hand$ they did toe the party line - they de/ended the guidance. And on

the other$ they were willing to listen. And it was very interesting &ecause one ,uestion that seemed to come up over and over again /rom +reasury was why are all these emerging payment systems now coming out$ and why is the e;isting system not su//icient0 And so$ there seems to &e actually genuine ,uestion over there a&out what#s Bitcoin into$ and 2 thin% that re/lects a %ind o/ a /undamental disconnect &etween the innovations that Bitcoin can o//er and the traditional guard in the +reasury. ABL: Cour conversation it seems li%e treasury 8ust genuinely didn#t understand why this was even an appealing option0 CC: +hey seem to ,uestion whether$ you %now$ what &ene/its it would o//er over e;isting technologies. Cou %now$ 2 see Bitcoin as having enormous potential. 2 mean we#re tal%ing a&out /rictionless transactions. 5e#re tal%ing a&out secure$ instantaneous glo&al e;change$ and this is technology that is in e;istence that can help right now and things 8ust don#t operate that way. Cou %now$ i/ you want to send a wire /rom here to a&road$ you have to ta%e your little paper 27F$ ta%e it to the &an%$ the &an% will enter it into its system$ then it hops through several intermediaries each o/ which ta%es a slice o/ your money along the way$ only to arrive days later in a di//erent &an% where they enter it into their system and release them as 27Fs on their end. <o$ you can see how$ with technology that Bitcoin o//ers$ the protocol o//ers$ you can instantly send it without any intermediaries. :ust /rom a technology perspective$ this is new very$ very new and very e;citing$ and 2 thin% that the regulators are struggling how to /it that within a traditional regulatory /ramewor% that didn#t really ta%e into account this %ind o/ technology. ABL: <o your impression is that$ genuinely$ they are trying to wor% with the community to$ 2 mean$ more than anything to understand what it is that they are loo%ing at so that then they can try to /it it into one o/ the &o;es they already have prescri&ed. 2 mean$ is that right0 CC: Cou %now$ 2 thin% that they tried to understand it in order to %now how to regulate it. 2 thin% that it#s really up to us at this point to ma%e this ecosystem survive. 5ashington is not going to ma%e special rules /or us$ and there#s a deep entrenchment there. +he laws /avor the incum&ents. <o$ it#s up to us to really to survive in this regulatory climate$ to prove to regulators that we can &e a legitimate part o/ the glo&al currency /low. 2/ we want widespread adoption which 2 thin% anyone who is a &eliever wants$ we are going to have to ta%e our &usinesses and our practices /rom outside the shadow o/ the law$ into the light. +he more that we can portray ourselves as legitimate &usiness partners and as responsi&le citi.ens$ the &etter o// that we#ll &e. ABL: Last month$ Mt. Ko; got in some trou&le with the 'epartment o/ Homeland <ecurity &ecause o/ a /orm that was /iled three years ago. At the time the /orm was /iled$ it doesn#t appear that they were actually out o/ compliance. 2t#s only a/ter this recent guidance has &een issued that then they were a&le to go &ac% and say >o%ay$ well this /orm that was su&mitted that said that they were not a money transmitter at this point three years ago - actually$ you %now$ now that has changedB and so they#re have &een actions that#ve &een ta%en that don#t seem to have had any warnings preceded them &e/ore those actions were ta%en. Payward is starting an e;change that is going to operate in the Fnited <tates$ in this %ind o/ uncertain regulatory environment that we have$ where we have guidance$ &ut we don#t have rules$ and the guidance is %ind o/ su&8ect to change. 5hy is that something that your company /elt important to ta%e on and what are$ %ind o/$ the ris%s and rewards o/ doing it0

CC: :ust to go &ac% to your ,uestion a&out Mt. Ko;. +he law imputes responsi&ility$ regardless o/ whether you %new you had to /ollow the law or not. <o$ (inC)*#s position is that the guidance is a clari/ication o/ laws that were already in e;istence. And you %now$ we#ve heard /rom our contacts on the ground that$ you %now$ (inC)* regulators are saying >5e don#t understand why everyone is so up in arms over this guidance. +he statute itsel/ says this.B +heir position is that the guidance is not new$ &ut rather clari/ication o/ e;isting laws. And in terms o/ Mt. Ko;$ the moment they started doing currency e;change and money transmission$ it was upon them$ especially a/ter the (inC)* guidance came out$ to go &ac% to their &an%s and clari/y e;actly what their services are doing under the law. ABL: Fh huh. CC: 2n terms o/ the challenges that we#re e;periencing now$ you %now$ we#re at a very critical moment. Bitcoin is gaining traction$ you %now @amongA ordinary people$ you %now$ in the past$ Bitcoin has &een more a /ringe or technologist outlier$ and now it is entering the mainstream. Cou %now$ you have articles in the 5all <treet :ournal$ and (or&es$ and +he Atlantic a&out Bitcoin. People are tal%ing a&out it on C**. 2 thin% that there is a real need here to have a legitimate eco-system. Cou %now$ in the Fnited <tates$ it#s one o/ the &iggest mar%ets right now. A great ma8ority o/ the users are here in the Fnited <tates at this time. +here is a need /or a /ully compliant$ secure$ F<-&ased e;change. And it is$ you#re right - it is very di//icult to do it in this climate. And you are right that (inC)* can come &ac% later and say >no$ we actually meant this.B +hey#re going to have to come &ac% &ecause the guidance is rather over&road. But in the meantime$ we actually have /ar more /i;ed signals /rom (inC)*. 5e %now that they understand &itcoin to &e li%e cash or li%e money. 5e %now that they are starting en/orcement actions. <o$ we %now right now that i/ you want to operate in the Fnited <tates not only that$ i/ you want to service F< customers$ you have to &e /ollowing the B<A. And what that means is that you need to register as a money services &usiness. 2t means$ i/ you are accepting F<' /or &itcoins$ i/ you are trans/erring &itcoins to other people#s accounts$ you#re a money transmitter under the current state o/ the law$ and that re,uires you to register with (inC)* as a money services &usiness. And also to register in all 4D states - in each state that you do &usiness. And this is whether you are a F< &ased company or you#re a /oreign company. A /oreign e;change who directs their activities and services to F< customers also needs to &e /ollowing this law. <o$ at least /or now$ we %now now we#re in this money transmitter &uc%et. And$ in the /uture that might change. But$ the re,uirements are actually very clear on what you need to do now. ABL: <o$ it actually seems li%e it#s easier to &e %ind o/ &ig in this situation and to have all the resources$ you %now$ have legal counsel things li%e that. *ow$ /rom your interpretation$ this is something we#ve &een going &ac% and /orth on on this show. 'o you thin% these guidelines apply to small person-to-person transactions$ too0 2 mean$ i/ those could &e detected$ would those /all under money transmitter guidelines0 CC: +he guidance was care/ul to say that an individual user who transacts in &itcoins is not a money transmitter /or the purposes o/ the B<A. And they#re right. +his B<A - Ban% <ecrecy Act - is meant to apply to /inancial institutions$ li%e &an%s and other non-&an% /inancial institution$s not the individual end-user. 2t#s not meant to reach that /ar into private lives. *ow$ the pro&lem is that in their de/inition o/ an e;changer. +hat language is &road enough to potentially cover individual users. And so$ it#s clear that on one hand they didn#t intend to

cover the users. 7n the other$ the guidance is$ you %now$ in terms o/ how they de/ine e;changer and those activities$ it could &e read to read upon a user#s actions. <o$ they#re going to have to come &ac% and e;plain that. But$ 2 thin% that it#s clear /rom the guidance that they really didn#t intend person to person transactions to &e regulated at the institutional level. ABL: <o$ now$ we#ve tal%ed a&out regulation in general &ut there are two %inds o/ camps when it comes to Bitcoin &usiness on this particular topic. +here are companies li%e Payward who thin%$ you %now$ this is good we should engage in this process &ecause$ &y participating in the process$ we can help ma%e it less onerous and$ /ran%ly$ &etter /or everyone involved. And then on other side there are groups that &asically /eel any sort o/ participation in this system as validating the system or$ 2 mean.. CC: Mmm... ABL: By participating you ac%nowledge that they actually have the right to &e regulating this when previously$ people$ you %now$ there is an understanding among some parts o/ the community that this was not something that would really &e regulated &y any national government. How do you reconcile those two sides0 2 mean$ is that even a tena&le position to ta%e$ that this is something that won#t &e regulated$ can#t &e regulated$ we shouldn#t participate in regulation0 CC: 2 am a&solutely sympathetic to the principle o/ privacy and anonymity /or that sa%e. +o remain anonymous as a matter o/ principle rather than &ecause you are trying to hide illicit activities. Cou %now$ 2 am an alum o/ the )lectronic (rontier (oundation. 2 come /rom a deep privacy &ac%ground$ and on a personal level$ that#s incredi&ly important to me. But$ 2 thin% that it is a &it naive to thin% that you can run a legitimate &usiness that handles millions or possi&ly &illions o/ dollars that enter the glo&al currency /low without some sort o/ oversight. 2 understand on the government#s side$ there was a company operating that too% millions and &illions o/ dollars /rom people$ 2 would want some&ody to &e en/orcing some sort o/ reasona&le rule on how they should operate and what %ind o/ duty they owe to their own customers - to the pu&lic. 2t#s a &alancing act. +he law is di//icult &ecause it has to do that &alancing act$ and it de/initely doesn#t do it per/ectly. 7ne small com/ort we can ta%e out o/ the regulation is that +reasury and (inC)* have legitimi.ed Bitcoin as a medium o/ e;change. +hey#re saying$ wBe recogni.e that this has value. And we#re recogni.ing that this can &e used as a glo&al medium o/ e;change.B *ow$ they#re saying >i/ you wanna &e a partner in glo&al e;change$ you need to have a certain %ind o/ responsi&ility to ma%e sure you are not /inancing terrorists and you are not allowing illicit /inancial crimes.B 2 thin% that i/ you want the ecosystem to survive$ again$ you need to ta%e this &usiness /rom outside o/ the shadow o/ the law$ /rom outside o/ sil%road activities$ into merchants who ta%e &itcoins$ to users who are a&le spend &itcoins at their local stores$ to &an%s and institutions who accept payments and accounts that hold &itcoins. <o$ in order to do that$ in order to &e a player$ you do need to /ollow the law. +he law#s reactionary. 2t doesn#t prescri&e what innovations and how the world should loo% li%e. 5hat it does is that it reacts to what the world is. 2 thin% that everyone would &e &etter o// i/ Bitcoin is adopted - i/ the ecosystem grows. And$ when it grows &ig enough$ it may ma%e sense /or the government to loo%ay &ac% at this and say LHey$ here are all these di//erent &uc%ets we could have put it in. 5e could have said it was money. 5e could have said it was a commodity. 5e could have said it was 8ust a di//erent %ind o/ /oreign currency i.e. a national currency.B And it may&e time once this ecosystem is &ig enough /or them to say LMay&e we need to set a whole new set o/ rules &ecause the e;isting

/ramewor% is too clun%y$ and it doesn#t really address what this technology can do$ and what it does.L. But the plain truth is$ right now$ it#s up to us to survive in this climate and prove ourselves in this regulatory /ramewor%. ABL: Let#s put on our /orecaster hats /or a second and wildly speculate a&out what various scenarios are that could happen. Broadly spea%ing$ let#s assume that things don#t go well$ and that we get regulations that don#t ma%e things easier - ma%e things harder. 5hat do you thin% that loo%s li%e a year /rom now or so0 CC: 2t#s very hard to tell. 2t#s hard to tell how the regulators will react. 2 thin% that we are going to see a lot o/ &usinesses$ who are operating illegally$ get shut down. 5e are going to see /unds getting sei.ed. 2 thin% that#s the people who will survive this process and &usiness that will survive this process are the ones that are a&le to &e a&le to comply with the re,uirements. Cou %now$ they might come &ac%. +hey might come &ac% and say$ you %now$ Bitcoin is too disruptive to the glo&al currency /low. +hey may try to shut it down. But that#s the &eauty o/ this system. 2t#s a totally decentrali.ed networ%. And$ you %now$ unless they the 2nternet down$ they really couldn#t shut Bitcoin down. <o$ 2 thin% it is important to note that a lot o/ the regulatory climate$ the issues that we#ve &een tal%ing a&out$ are limited to the Fnited <tates. <o$ as we#ve tal%ed to regulators in )urope$ as we#ve tal%ed to our contacts a&road$ the perception there is much di//erent. 2 thin% it#s right when (or&es writes that )urope is a&out 4 years ahead o/ the Fnited <tates in payments innovations. 2 thin% that#s - you %now$ may&e Bitcoin will /lourish elsewhere i/ the Fnited <tates starts suppressing it here$ i/ they outlawed it here. *ow 2 thin% Bitcoin as a technology$ &itcoin as a medium o/ e;change will survive. 2t will &e very interesting to see what happens in a year. 2 thin%$ worst-case scenario$ countries start outlawing it outright$ they try to suppress it. But it will survive in poc%ets. ABL: 'o you thin% that#s a legitimate thing that could &e tried0 2 mean$ 2 %now you 8ust said that it wouldn#t wor% necessarily. But$ do you thin%$ you %now$ that &ased on the conversations that you#ve had so /ar$ which 2 reali.e are totally preliminary$ that#s something that is even on the ta&le at this point$ or are we 8ust more it#s a ,uestion o/ how we regulate it0 CC: 2 don#t thin% anyone is discussing totally outlawing Bitcoin right now. 2 mean i/ that#s the /ear that#s going around the community$ then 2 thin% that is un/ounded. Cou %now$ our signals /rom +reasury have &een Lwe are neutral on Bitcoin.B And$ you %now$ clearly$ they want to regulate it. Clearly$ they want to /it it in one o/ their &o;es so that they can say Lthis is how we thin%$ you %now$ it should &e governed under the e;isting law.L But$ 2 thin% this goes &ac% to should we wor% within the system or wor% without the system. 2 thin% that i/ we wor% in the shadow o/ the system$ i/ we continue to /ly in the /ace o/ regulators$ i/ we continue to open up$ you %now$ illegal e;changes$ close down shop$ open up another illegal e;change$ 2 thin% that#s where you will see push-&ac%. 2 thin% i/ we are not /ollowing Anti Money Laundering laws$ i/ we are not ma%ing sure that our customers are not persons who are well-%nown terrorists$ that will &e a reason to shut us down. 2 thin% that the more we allow our ecosystem to grow while engaging the law ma%ers in dialogue$ in ma%ing sure that sensi&le policies come out o/ 5ashington as we grow as an industry$ that#s going to &e the &est way to ensure survival. ABL: Let#s assume /or a second that all o/ your e//orts over$ you %now$ the ne;t year wor%$ and that you get everything you want /rom the regulatory side o/ it$ and they &asically are help/ul. <o$ what does that loo% li%e in this scenario0 5hat is a help/ul regulatory

environment$ /rom your perspective0 CC: 2t#s all speculation at this point. But$ in the /uture 2 thin% that this technology o//ers &ene/its that even people /rom the old guard recogni.e. Cou %now$ when 2 went into that room and a woman said Lyou %now$ everything isL - this is a representative /rom (inC)* - she said Lyou %now$ 2 do all my &an%ing online and 2#m pretty happy with it. 2 don#t see what the pro&lem isL. 2 descri&ed all the di//erent hops that money would ta%e to get /rom one end o/ the glo&e to another and 2 8ust said that >8ust imagine you have a wallet on your phone. 2 have a wallet on my phone. 2 can send you money and it will &e in your account instantaneously$ and no&ody will have ta%en a cut along the wayL. And$ you %now$ their eyes popped open when they 8ust reali.ed that in simple terms - this is 8ust a much more e//icient way o/ e;changing money across the glo&e. <o$ you %now$ 2 thin% that i/ we were to prove ourselves in this space$ i/ we are a&le to ensure the integrity o/ our system$ and ma%e sure that we %now where our /unds are coming /rom$ we %now where they are going$ we %now who our customers are$ 2 thin% that the regulators will &e much more amena&le to tal%ing with us a&out how we can shape our industry to &e a &igger part o/ the economy - &ecause they are interested in growing$ you %now$ the economy. 7nce we &ecome &ig enough players /or +reasury to pay attention to$ and /or these di//erent regulatory &odies to really$ you %now$ wa%e up and consider us as players in the /inancial services mar%et$ the more they are going to &e willing to wor% with us to ma%e new laws that ma%e sense /or what our services do. Cou %now$ again$ 2 am tal%ing a&out the Fnited <tates. 2 thin% that in )urope and elsewhere$ they are already em&racing Bitcoin and virtual currencies as carrying a great potential. +hey#re not as reactionary. <o$ we may see very di//erent developments outside the Fnited <tates than we see in the Fnited <tates. 5e see$ in the F<$ they#re a &it more entrenched. +hey are very heavy handed in their regulations. 2 thin% you will see innovations and new$ more sensi&le laws happening elsewhere /irst. ABL: 6ra%en is a centrali.ed e;change. +here#s &een a lot o/ tal% recently going around the community a&out the idea o/ these decentrali.ed PGP e;changes$ that don#t have a central structure$ are a way to automate almost the over the counter mar%et that is developed /or &itcoin in the last J or 1 years. 2 don#t really see a way something li%e that can /it into the regulatory structure$ and so 2 am curious /or your thoughts a&out it &oth /rom that perspective and competing against something li%e that. CC: Anyone who handles &itcoin or any other virtual currency right now$ %ind that you are tal%ing a&out$ it is decentrali.ed. <o$ you %now$ &itcoin doesn#t e;ist on any one system. 2 thin% that e;changes need to ma%e sure that the partners they are wor%ing with are also compliant &ecause$ no matter how good your controls are$ no matter how good your gateways are$ a point o/ vulnera&ility is the wea%est lin%. <o$ i/ you are partnering up with e;changes that are not &eing responsi&le gate%eepers then it really has the a&ility to taint the entire system. And again$ 2 thin% that$ you are right$ it is going to &e very$ very di//icult to regulate a /ully decentrali.ed networ%$ and 2 thin% the government recogni.es that. 2 thin% that$ right now$ the peer-to-peer model is not inconsistent with what we can o//er. 2 thin% that the ecosystem needs a lot o/ players. 2t needs diversity. And so$ 2 encourage other models. Hope/ully$ the mar%et will decide which one is most e//icient and the governments will &e a&le to regulate that practically. ABL: Constance$ than% you very much /or your time.

CC: +han% you$ Adam. 2t was a pleasure. @AdvertisementA ABL: )asy'*< is a '*< provider and domain registrar that shares your values. (le;i&ility$ /ree speech$ and control without loc%-in. )asy'*< helps you meet your individual needs - is the swiss army %ni/e /or domain names since -MM3. 7utspo%en critics o/ <7PA and C2<PA$ )asy'*< was an early supporter o/ Bitcoin which /its well with our values and those o/ our customers. Please support our sponsor and get a -JI discount when you pay with &itcoin. Learn more at easycoin.com. @9AdvertisementA @AdvertisementA SM: Cou#re listening to Let#s +al% Bitcoin$ the premier audiocast providing news and insights that cover the rapidly evolving world o/ digital money. 7ur twice-wee%ly shows include analysis o/ late &rea%ing news$ updates on %ey technical$ &usiness and regulatory issues$ and in-depth interviews with the %ey people driving the new digital economy. Let#s +al% Bitcoin o//ers sponsors an attractive way to reach a targeted and savvy audience. (or more in/ormation$ email sponsorsNletstal%&itcoin.com. @9AdvertisementA ABL: +al%ing a&out the &undling pro&lem and how you have to get people to pay &e/ore they... 7ne o/ the other pieces that 2 li%e to thin% my /ocus on this moneti.ation topic has spawned is actually a paywall application that won hac%athon at the Bitcoin GD-J con/erence. And$ you %now$ when 2 /irst loo%ed at this$ 2 was li%e >Aah$ you %now$ well that... that... that#s not really going to wor% &ecause 2#m not a &ig /an o/ paywalls.B 2 thin% that they haven#t ever really &een implemented success/ully and you wind up sacri/icing more o/ your audience than you$ you %now$ gain /rom moneti.ing them &ecause you essentially say you can#t read our content$ you can#t loo% at our content until you#ve paid us. <o that ma%es it so a lot o/ people will 8ust will say >o%ay$ well$ nevermind your content then.B <o anyways... 2 met yesterday with one o/ the guys who#s developing this plat/orm$ and they#ve come up with a really innovative way to do it. Basically$ what it is$ is it#s not a paywall$ it#s a retroactive$ essentially$ donation re,uest$ where it %eeps trac% o/ the articles you#ve viewed and a/ter you#ve viewed a certain num&er o/ articles it pops them up and says >would you li%e to$ you %now$ give value to any o/ these things0B And so$ they have a way that you can on-&oard$ you %now$ an amount and then they do their$ li%e$ micro-transaction thing to get around the transaction /ee. But 2 thought that was really interesting is it#s li%e a retroactive paywall$ where it doesn#t actually restrict you$ it 8ust does a proactive re,uest /or /inancing. <o they are going to try to push this out to the 5all <treet :ournal or something. AMA: Ceah$ i/ you thin% a&out it$ pu&lishing is essentially dying &ecause o/ an ina&ility to charge /or content at a level that ma%es sense /or people who are used to /ree. +hat model could really &e revitali.ed i/ you 8ust have the /le;i&ility to get micro-transactions. SM: 2 thin% that#s a really neat solution$ and 2 thin% we#re gonna see more solutions &y people who are motivated to implement easy ways to do value-/or-value. And 2 thin% that#s something that de/initely content producers are demanding$ and that there#s a real use /or$ so it#ll happen may&e we don#t %now e;actly how$ &ut it#ll happen i/ it ma%es sense. AMA: And i/ you ta%e the the lower end o/ the micro-transaction and move it down it creates

an environment$ opens up this green/ield opportunity$ this never-seen-&e/ore opportunity. +hin% thin% a&out it this way. 5e have never had micro-transactions on this scale in the history o/ humanity. 5hen we were &artering /or physical stu//$ there is a limit to to how small you can shape a chun% o/ gold$ or a seashell$ or a &ag o/ salt. <o we#re opening up the possi&ility /or completely novel ways o/ payment and moneti.ation that have never e;isted &e/ore simply &ecause in the history o/ humanity the si.e o/ micro-transactions has never had the possi&ility o/ &eing this small. But 2#d also li%e to 8ust very ,uic%ly point something else out. 5e %eep tal%ing a&out low-end. 2 thin% what#s really e;citing a&out Bitcoin as a neutral plat/orm - unli%e all other payment systems it actually spans an enormous range. <o$ 8ust the /or the listeners# in/ormation$ the largest transaction 2 see in the last /ew wee%s here on the &loc% chain is G.E million dollars$ right. <o$ let#s put that into perspective. 5hen we tal% a&out Bitcoin$ we need to thin% a&out a range /rom /emto transactions to giga transactions. And this is &rilliant &ecause there has never &een a payment system that can span that %ind o/ range. <o$ it#s not 8ust a&out the low-end. 2t#s a&out the entire range and how we widen that to encompass areas o/ innovation that have never e;isted &e/ore. SM: 5hat was the transaction /ee on that HG.E million trans/er0 AMA: 4 milli-&its. SM: Ceah. (laughs) AMA: 2 mean... SM: <o that#s.. AMA: 2t was a very.. it was actually.. two inputs$ two outputs O very$ very small transaction. SM: Ceah.. that#s really interesting. 2t does &ring up the point that$ potentially$ what you#ll seen in the /uture is miners speciali.ing in processing certain %inds o/ transactions &y setting their own minimum transaction /ees. <o$ you#ll have a sort o/ a division o/ la&our$ 2 guess$ among miners where some process sort o/ micro-transactions and some process giga transactions. ABL: Cou %now$ 2 was wondering a&out this$ actually. 5hen we#re tal%ing a&out speciali.ed miners$ as you said that incredi&ly large transaction was actually a very small transaction$ as /ar as the &loc% chain was concerned$ &ecause it only involved two inputs. *ow$ we are on the complete other end o/ that spectrum with our show wallet &ecause we get all %inds o/ donations in the$ you %now$ D.DDP num&er o/ &itcoins. 2t#s a lot o/ the donations are ,uite small. <o$ when 2 wind up ma%ing a payment$ usually it tells me that my payment$ you %now$ that my transaction is too large /or the amount o/ /ee that 2#ve put on$ and that tends to &e the standard$ you %now$ the standard /ee that 2 use. 2s there a use scenario here where you have miners who speciali.e in ta%ing all o/ these little transactions and essentially optimi.ing them into a larger transaction themselves or is that not something that#s possi&le0 AMA: )ssentially$ what you#re seeing$ Adam$ is dust. 5hat you#re seeing is that$ /or the current price o/ &itcoin$ and that#s a very critical ,uali/ier$ /or the current price o/ &itcoin$ these transactions need to &e added up in their hundreds - the transaction outputs the unspent transaction outputs. +hey need to &e added up in their hundreds in order to create a meaning/ul amount that you can then trans/er to someone else. 2/ you want to pay H-D and

you have a thousand transactions o/ a penny each$ you need to ma%e a transaction set that has a thousand inputs and two outputs. Ceah$ that creates a pro&lem. *ot >it creates a pro&lem$B it#s &asically 8ust e;pensive to do &ecause you are ta%ing up a lot o/ space in the &loc% chain. But the weird thing is that the HG.E million transaction 2 8ust tal%ed a&out is only G43 &ytes$ pays a 49-D o/ a milli-&it /ee$ and your transaction with a thousand inputs would pay -D times that &ecause it#s at least -D times the si.e. +hat#s the weird thing a&out the way transaction /ees wor% in Bitcoin. 5eird and wonder/ul is that they#re not dependent on the si.e o/ the payment &ut rather on how small the inputs are. ABL: Loo%s li%e we pic%ed the wrong end o/ the spectrum. AMA: (laughs) Ceah$ so you need /ind a content moneti.ation scheme where people pay you HG.4 million dollars per piece o/ content in one transaction. ABL: (laughs) AMA: 2 thin% that would &e &rilliant$ Adam. ABL: (laughs) o%ay$ 2#ll wor% on that. SM: All we need is one patron. (laughs) AMA: 7r one very special piece o/ content= SM: (laughs) ABL: <o$ there#s a /ollow up part o/ this ,uestion /rom a (ace&oo%ay user. L2 want to hear your opinion a&out the &loc% chain si.e limit o/ -MB per &loc% - Q transactions a second. How should we deal with the coming pro&lem0 5hat are the options$ the pros and cons o/ each0L SM: 2#ve &een sort o/ /ollowing it and trying my &est to understand it so$ you %now$ e;cuse me in advance i/ 2 get anything incorrect$ &ut the &loc%s that ma%e up the Bitcoin &loc% chain are limited in si.e to -MB each. +hey are generated every -D minutes appro;imately. <o what that means is that per unit o/ time$ there are only so many transactions that can /it in a -MB &loc%. +his is the Q transactions per second num&er that the listener#s re/erencing here. )//ectively$ there is a limit o/ how many transactions can go across the Bitcoin networ% per unit o/ time. And some people say$ even though we are not hitting a wall with that right now$ as Bitcoin gets &igger adoption$ that is going to &ecome a pro&lem and a hard limit that prevents people /rom using Bitcoin$ or prevents as many people /rom using Bitcoin as may want to. Cou could say$ >o%ay$ why don#t they 8ust increase the si.e o/ each &loc% so more transactions can /it within it0B 7%ay$ well there is a pro&lem with that. 2t may stress out some o/ the nodes$ which are o/ten 8ust home PCs &asically$ and it may stress their 2nternet connections$ and their storage and processing capacity. <o there is clearly a Koldiloc%s .one /or the si.e o/ how &ig each &loc% should &e. And people are de&ating e;actly what that is. 2s it -MB0 5ell$ a lot o/ people are saying that#s pro&a&ly too small. 2s it -D@MBA0 May&e. (laughs) But currently the limit is set in the Bitcoin code as one. <o there is a &ig de&ate a&out this$ and it also %ind o/ goes into the idea o/ centrali.ation$ &ecause there are some people who are suggesting in this de&ate that well$ you %now$ we don#t have to change the &loc% si.e$ all we have to do is have$ li%e$ &asically third parties that do o//-chain transactions that

process these smaller transactions$ li%e sending a /ew milli-&its to the Co%e machine$ and then &undle that together and send it to the &loc% chain at some point. +here are some people who have a real pro&lem with having mandatory points that every&ody has to trust mandatory trusted third parties. <ome people may choose to trust a third party /or opt-in transactions i/ they want to. But it shouldn#t &e mandatory that#s really not what Bitcoin was originally a&out. <o$ it really goes a lot deeper than 8ust the si.e o/ the &loc%. And$ 2 apologi.e in advance i/ 2 got any o/ that incorrect - you can email me at stephanieNletstal%&itcoin.com i/ you have comments a&out that$ or i/ anything 2 said was not accurate$ &ut that#s what 2 understand o/ the de&ate$ and that was %inda hard to get. AMA: 2#d li%e to put my de&un%ing hat on. 2 don#t actually have a de&un%ing hat &ut i/ anyone who wants to send me one - that#s great. (light laughing all around) AMA: )verything you said <tephanie is a&solutely technically correct. However$ 2 thin% this discussion is missing a couple o/ issues. All o/ these are moving targets. (irst o/ all$ the current &loc% limit o/ -MB was introduced 8ust recently with the latest version... in /act$ it was D.3.- then we had a little o/ a &ug pro&lem$ and now it#s D.3.G. 2t was only introduced recently$ it was lower &e/ore$ and sort o/ e;panding to the &loc% level was part o/ the goal. (rom what 2 understand o/ the roadmap$ the goal is to %eep e;panding the &loc% si.e to ad8ust /or scala&ility and growth in the num&er o/ transactions. 2 don#t see a pro&lem with that$ honestly. Because here#s a couple o/ other things that are at play here. +he si.e o/ dis%s is growing /aster than Moore#s law. 5e#ve seen this e;plosion o/ storage capa&ility over the last decade and a hal/ to the point where e//ectively$ the marginal price o/ a mega&yte has dropped to .ero$ and the cost o/ storage drops even /aster than the cost o/ computing. 2n terms o/ &andwidth$ there is a lot o/ things that you can do with Mer%le trees and these &asically allow you$ instead o/ sending the entire set o/ transactions$ to &asically prune parts o/ the &loc% chain$ essentially summari.e them as a higher-level hash. And i/ you thin% a&out it$ when you put a client on the &loc% chain /or the /irst time$ yeah$ it#s going to spend several days downloading 3$ MKB or whatever the &loc% si.e &loc% chain si.e is today. But once it#s up to date$ all its doing is trans/erring additional &loc%s and those come every -D minutes$ and i/ you have to download a meg or two or ten once every ten minutes$ that#s /ar less than the demands we put on our systems /or video. (short pause with music playing) Z : 2 thin% 2#m most e;cited a&out the potential o/ Bitcoin and 8ust /inding the solutions and our Bitcoin machine is one o/ the solutions. ABL: +hat#s ach /rom Lamassu. +hey#re ma%ing one o/ Bitcoin vending machines that loo%s and acts %inda o/ li%e an A+M machine$ &ut isn#t. Z : Ban%s already see A+Ms as %ind o/ replacing their &usiness model o/ &an% &ranches$ and 2 /eel it#s %ind o/ setting up Bitcoin /or 8ust saying$ >o%ay$ than% you$ it#s a great idea$ &ut we don#t need &an%s anymore.B <o$ people are going to do most o/ their &an%ing through %ios%s$ &ut they don#t really need &an%s /or that anymore. +o me$ that#s one o/ the &ig points. And it wor%s 8ust as well here in Manchester$ *ew Hampshire$ in *ew Cor% City$ or in <outh A/rica$ where people don#t even have &an% accounts which$ again$ ma%es it easier /or Bitcoin

to ta%e over. AMA: 5hen you tal% a&out moving away /rom &an%ing and towards a %ios% approach$ you descri&ed what you#ve got as a Bitcoin machine rather than an A+M. Z : ?ight. Correct. ABL: <o there#s clearly a distinction there. How come that.. why is that distinction important and what does it mean0 Z : +o me it#s not important. 2.. /or me it#s.. we call it the &itcoin machine &ecause that#s 8ust what we called it /or now. 2 guess$ /rom a technical point o/ view$ what what A+Ms do is they dispense o/ cash$ and ours doesn#t. 2t dispenses &itcoin. <o$ there are certain regulatory issues regarding A+Ms. 2n a sense$ it#s important /or us to say$ well$ this isn#t a standard A+M - it#s not a traditional A+M. Cou put into one machine li%e you would with any vending machine whether it#s &uying a Co%e or a chocolate &ar$ and instead you get &itcoin. Cou see it as a %ios% or vending maching &ut an A+M usually dispenses cash and that#s how people usually understand them$ so it#s more o/ a con/usion thing. But every&ody has &een calling it the Bitcoin A+M and it#s not something we can do a&out that anyway$ so it#s not li%e 2 won#t understand what people mean i/ they tal% a&out our Bitcoin A+M. ABL: Clearly$ one o/ the &iggest pro&lems that has &een present in the Bitcoin ecosystem has &een this di//iculty o/ moving F< dollars$ or whatever someone#s local currency is$ into &itcoin. <o$ 2 mean$ ultimately you#re right - an A+M is a two way street. Cou can put in a chec%$ you %now$ or you can put in cash a lot o/ times$ and it can go into your &an% account$ that sort o/ thing$ and it also goes the other way. Z : Fh huh. ABL: <o as a vending machine$ this is really more o/ a one way transit system where you#re ta%ing F< dollars and moving into &itcoin. <o$ 2 mean$ do you thin% that this is how that pro&lem gets solved0 'o you thin% these machines$ this type o/ machine$ whether yours or something else or whatever - what#s going to the the pervasive solution0 Z : 2 thin% it#s one o/ the solutions. 2 thin% a lot o/ people that have &een interested in Bitcoin /or a while. (or them$ there was always the &ig deal /or how do we simpli/y this technology. Bitcoin is an ama.ing idea. How do we ma%e it easy /or people to get in and out$ and using Bitcoin. <o$ this is 8ust one solution o/ many that are out there right now /or &itcoin solutions. 2 mean$ Bitpay$ 2 thin%$ is doing an ama.ing 8o& /or retailers - /or ma%ing it easy /or retailers to accept &itcoin. 5here they can say >well$ yeah$ we can pay$ you %now$ you can have people paying you with &itcoin and you don#t have to worry a&out what to do with those &itcoin.B <o$ 2 thin% that#s one great solution$ and hope/ully ours is another ,uality solution /or o&taining &itcoin. And /or getting people into &itcoin that don#t want to have to go through online e;changes$ and may&e they 8ust want to put in$ you %now$ J &uc%s to try to see what#s going on and how it wor%s. Cou can#t really do that with an online e;change$ so you gotta commit. Cou gotta say o%ay 2 want &itcoin and 2#m going to put in H4DD$ and 2#m going to sign up$ and 2 am going to wait JD days and hoo% up my account$ and$ you %now$ then it#ll &e a little easier. 5ith this i/ you have our machine at a convenience store you go in$ get a &ag o/ potato chips$ and put in a dollar$ and you have &itcoin.

ABL: <o the person who owns the convenience store do they also own this machine0 +ell me a&out the model. How do these things wor% in actual implementation0 Z : 2t would really depend on where these are &eing placed and and the rules and regulations o/ the area. 2 mean$ in my opinion$ it would &e great i/ some convenience store owner would 8ust say LCeah$ 2 thin% this is a great idea. 2 am going to &uy one unit connected$ to my e;change or 8ust use the coins 2#ve &een mining. And 2 am going to run this machine and it wor%s /or me$ &ecause 2 wanna accept &itcon$ &ecause 2 don#t li%e cash or credit cards and 2 thin% &itcoin is a &etter /orm o/ transaction.B 2 thin% that would &e a great solution. +hat may not &e a great &usiness model in countries where there is a lot o/ regulation. <o$ that guy may not have anywhere &etween H-D$DDD to H-D million to put aside to handle all the regulation. And$ in a case li%e that$ it would &e pro&a&ly &est to have a middle man that would deal with those things and$ %ind o/$ um&rella regulatory status /or all these convenience stores. ABL: <o$ now$ when you tal% a&out highly regulated countries where that happens are we tal%ing a&out the Fnited <tates0 Z : Ceah$ 2 thin% the Fnited <tates is pro&a&ly the most over-regulated country as /ar Bitcoin as it seem right now. 2 thin% it#s going to &e easier pretty much anywhere in the world to 8ust go ahead and run Bitcoin &usiness$ or accept &itcoin$ or e;change &itcoin in$ /or small &usiness or even large as it seems now. 2 thin% the F< will &e an issue.. 2t#s interesting$ &ecause o&viously Americans are great entrepreneurs and always have &een$ and /rom the di//erent re,uests we#re receiving$ we don#t get a lot o/ re,uests /or distri&utors in the F<. 5e get re,uests /rom a lot o/ &usiness owners - the guy who owns a ca/e or has a /riend who owns$ you %now$ a couple o/ ca/es$ and they#re really interested. And then we get re,uests /rom Canada and it#s li%e L2 want to represent 5estern Canada /or your machineL. 2t#s %ind o/ a di//erent approach$ &ut in a way$ it#s opposite o/ what#s needed. 5hat we %inda need in the F< are a /ew guys$ you %now$ some&ody in Cali/ornia to say L2 am going to &e handling all the regulatory issues and 2 will lease these machines to ca/es in <an (rancisco$ and handle all the regulations.L But$ it#s a shame$ &ecause there are all these cool small &usinesses that 8ust wanna have these machines and 2 &asically have to tell them this pro&a&ly isn#t a good idea /or you. ABL: <o$ i/ some&ody is listening to this and they are li%e$ >wow$ you %now$ 2 could totally handle that regulatory side.B 2 mean$ so it sounds li%e you#re actively loo%ing /or partners at this point$ yeah0 Z : 5ell$ we are. And when 2 say partners$ it#s it#s a little di//erent than than$ perhaps$ other &usinesses. 5e#re 8ust - we#re 8ust selling the machines right out. <o we#re not actually going to &e providing any services. But 2 do thin% that would ma%e more sense so$ yes$ we would &e interested in distri&utors who#d &e interested in in &uying a certain amount o/ the units &ut$ more importantly$ handling all the regulatory issues that have to &e handled here in the F<. ABL: <o$ are you pu&lic with what the machines cost or are going to cost0 'o you have a release date /or when$ you %now$ someone 8ust anyone can &uy #em0 5hat#s the plan /or the roll-out0

Z : 5ell$ we e;pect a retail price to &e around H4$DDD. +he wholesale price will &e lower. +hose aren#t a&solutely /inal &ut those are very close$ in in my opinion$ to what the /inal price will &e. 5e are still wor%ing on the last %in%s o/ the design$ so it#s impossi&le to tell at this point$ e;actly. And then we start... the second we %now the /inal price$ we will start accepting pre-orders and we e;pect that to &e 8ust in a /ew wee%s &ecause we are intent on moving very /ast with this. 5e e;pect to have a short production run around end o/ summer$ 2 would say$ late August$ may&e &eginning o/ <eptem&er. All goes well$ pro&a&ly within a month a/ter that we#ll have our /irst production run o/$ say$ 4D or more. ABL: +a%ing a step &ac% /rom this pro8ect /or a second on the %inda the &roader picture o/ Bitcoin$ you#re throwing your time &ehind the Bitcoin vending machine li%e this$ 2#m really curious to %now$ %inda$ where you thin% we#re going$ you %now$ not super-/ar$ let#s not do that$ &ut you %now over the ne;t may&e eighteen months0 2 mean$ do you have any sort o/ predictions /or what /or things that are gonna happen0 Z : 2 thin% we can e;pect to see$ in a sense$ more o/ the same$ which is the &itcoin price will %eep &eing cra.y - it#ll go up$ it#ll go down. But 2 thin% that#s less important$ and what 2 do thin% is that more and more people will start to understand and use Bitcoin. 2 e;pect to see a lot more retail services e;pecting &itcoin directly$ instead @o/A necessarily having third party services that act as a middleman. And$ 2 e;pect other countries to really start getting into it. );actly where 2 e;pect Bitcoin to &e in eighteen months$ 2 don#t really have a prediction$ &ut 2 de/initely do e;pect it to &e &oth$ 2 guess$ more widespread @inA actual use and pro&a&ly$ due to the services that are starting to come out now and will come out - and there#ll &e more e;changes$ o/ course. +hat#s pretty much all 2 have in my head right now. 2 e;pect things to &e clearer /rom a regulatory stand point as well. Pro&a&ly even more so in the rest o/ the world such as )urope$ and Australia$ and *ew ealand$ and Canada$ and such. And here$ it#s hard to tell. 2 would say that it#s o// to a sha%y start as /ar as regulation is concerned in the F<. ABL: Cou %now$ getting /urther outside the F<$ you mentioned that there are more &arriers here than there are in other parts o/ the world$ have you had speci/ic contact with people /rom other parts o/ the world$ you %now$ tal%ing a&out models that they want to setup$ or ways they want to use your machine$ 8ust in general$ 2#m curious what the outside the Fnited <tate perspective is0 Z : Ceah$ we#ve had pro&a&ly the most interest /rom Canada and their all loo%ing into the regulatory status. <ome o/ them thin% that they don#t have to do anything at all /or our machine a/ter spea%ing to lawyers. <ome 8ust want to loo% into it a &it more. 2n general$ they#re 8ust$ you %now$ a good amount o/ distri&utors that are interested in putting these machines all around the large cities and in retail spaces$ mostly. Be it ca/es or convenience stores$ &oo% stores etc. And the same is true - we#ve had re,uests /rom all over the world including places li%e Malaysia$ +hailand$ Pa%istan$ Li&ya$ 2srael and$ o/ course$ all o/ )urope$ Australia$ *ew ealand$ really all around the world$ it#s &een pretty e;citing. ABL: And so your machine is capa&le o/ ta%ing with minimal modi/ications$ you %now$ any o/ these local currencies0 Z : ?ight$ e;actly. +hat#s one o/ the reason we choose the e;act hardware that we#re wor%ing with is we wanted one that we would &e a&le to 8ust ship anywhere in the world. <o some small country in A/rica needs two machines we can 8ust$ you %now$ send it FP<$ or even put it

into the post o//ice$ and 8ust ship them the machines. And that#s %ind o/ the idea. 5e wanted them to &e small$ we wanted them to &e glo&al$ we wanted them to &e a//orda&le /or a small &usiness anywhere in the world. ABL: And i/ people want to get involved$ or want to purchase a unit$ or %inda get into touch with you a&out that$ what#s the &est way to do that0 Z : 7ur we&site and my email. 2t#s www.lamassu&tc.com. Lamassu is L-A-M-A-<-<-F-B-+-C dot com. ABL: lamassu&tc.com. ach$ than% you very much /or your time. Z : +han% you$ Adam. (short pause with music playing) @AdvertisementA SM: 5anna set up an online store that accepts &itcoins0 Ko to open&itcoinstore.com and you can have a store up and running &e/ore the end o/ this message. :ust enter your email address and the store name$ and in less than JD seconds$ you#ll have a secure 5ordPress ecommerce site up and running that accepts &itcoins and pays you in cash within G1 hours. And &est o/ all$ it#s completely /ree. Ko to open&itcoinstore.com today and open /or &usiness now. @9AdvertisementA @AdvertisementA ABL: Let#s +al% Bitcoin is heard each wee% &y thousands o/ people who are participating in the new digital economy. 7ur listener &ase o/ &itcoin owners$ miners$ investors$ technologists$ and merchants is growing /ast. 5e o//er a limited num&er o/ short advertising slots in each show to %eep our listeners engaged and to provide ma;imum impact /or our sponsors. 2/ you#d li%e to tal% to us a&out Let#s +al% Bitcoin$ send us an email at sponsorsNletstal%&itcoin.com. @9AdvertisementA SM: <ome&ody &rought up the issue o/ mining on +or and how would a larger &loc% si.e a//ect that0 Because there are some people who want to &e nodes or even mine &itcoin with privacy using the +or networ%. AMA: 5ell$ /irst o/ all$ you would only need to necessarily transmit on +or. Cou could receive and listen and receive the other &loc%s outside the +or$ then &roadcast in pu&lic on the networ%. <o$ you could create %ind o/ an asymmetric system where you listen /or the &ig &loc%s coming in$ and when you /ind a &loc%$ well you %now$ at that point you got a G4 &itcoin reward ma%ing it worth sending out on the +or networ%$ even i/ it is a /ew megs. But$ 2#m not really sure how you resolve that$ and it may cause some pro&lems /or the +or networ%. But we do have other layers o/ solutions here. Cou have potentially thin clients li%e )lectrum to wor% on an overlay protocol li%e <tratum. +hey don#t need to &e /ull nodes. +hey don#t need to have the entire &loc% chain. )ssentially$ they have a summary o/ past transactions &ased on a hash and they only &uild things incrementally with the assistance o/ trusted servers. And these are not the o//-&loc%chain transactions that we were tal%ing a&out &e/ore$ <tephanie. +hese are essentially 8ust act as /ull nodes and store a trusted inventory o/ past &loc%s. But..

SM: Can we e;plain /or the listeners who are un/amiliar - what is the di//erence &etween a /ull node and a hal/ node - a non-/ull node0 AMA: 7ne o/ the &eauties o/ Bitcoin and the &loc%chain model is that 2 don#t need to trust anyone. 2 can ta%e a client$ and in that client$ in he;$ right in the source code$ is the genesis &loc%. 2t#s written down as a he; num&er. 2 can send it to everyone$ it#s in the source code o/ every single client. 7n that$ you then can &uild the second &loc% is &asically got a hash o/ the genesis &loc%$ so with that genesis &loc%$ 2 can validate the second &loc%. 7nce 2 validate the second &loc%$ which 2 can as% the networ% to send me$ 2 can use that to validate the third &loc%$ and so on and so /orth. 7nce 2 get to G-Q$DDD &loc%s$ or whatever the current height o/ the &loc%chain is$ 2 have a completely independent perspective and veri/ication o/ every transaction on the networ%$ all the way &ac% to the genesis &loc% that 2 can trust intrinsically &ecause 2 veri/ied it and don#t need to chec% with any&ody else. +hat#s the &eauty o/ it. )ssentially$ every transaction that comes in 2 can tie it all the way &ac% to the &loc% where it was mined and 2 can tie that &loc% all the way &ac% to the /irst &loc%s <atoshi mined. <o$ we all have trust on our nodes. +hat#s a /ull node. A light node$ essentially$ will only validate &ac% in time up to a certain point and will only %eep the di//erence since then and$ essentially$ will as% other nodes well what was the hash o/ that &loc% and then &uild /rom there. Cou o&viously need the trusted answer &ecause i/ someone gives you the wrong hash then your... they can su&vert your veri/ication mechanism. And that#s what )lectrum does as /ar as 2 understand it$ and 2#m sure 2#ll get corrections &y email on this. )ssentially$ what you#re doing is you#re 8ust veri/ying a smaller num&er o/ &loc%s or transactions &ased on almost li%e a chec%point.. SM: Ceah. AMA: ..which is higher in the &loc%chain. <o$ the )lectrum servers chec%point the &loc%chain /or you and you essentially only loo% at the di//erence. SM: 2/ every&ody started using these light nodes could there &e potential pro&lems i/ no&ody wor%ed to veri/y the entire &loc%chain or act as a /ull node0 AMA: 5ell$ miners$ &y de/inition$ act as /ull nodes. <o$ as you can tal% to miners and as% them$ and you can$ o/ course$ &ecause you can /ind out what inventory they have$ then you can veri/y that you#re getting the correct in/ormation. And &ecause the highest &loc%chain always wins &y consensus on the networ%$ you can 8ust go out and as% randomly many$ many nodes and see what answer you get$ and persuade yoursel/ to a degree o/ pro&a&ility that what you#re hearing is$ in /act$ the highest &loc%chain. <o$ it#s not really a pro&lem. 2/ the vast ma8ority o/ nodes went into light mode$ then you would have a pro&lem$ &ut 2 thin% that /or the /oreseea&le /uture$ and perhaps with the increase in storage capacity /orever$ the a&ility to have a /ull node$ at least on your personal computer or personal server in the cloud$ is per/ectly /easi&le. +he num&er o/ transactions is growing slower than &oth storage capacity and &andwidth. And we %now what the upper limit is. +he upper limit today is a&out -D$DDD transactions per second which occur on the !isa networ% on Christmas eve. And$ even /or !isa$ that#s at least a hundred times their normal transaction load. But we really %now what the upper limits are today with e;isting payment networ%s$ and the developers are very clear that we can reach those without running into signi/icant pro&lems. ABL: But the thing that we don#t %now$ the thing that is still de/initely up /or de&ate is what the

networ% /or &itcoin is gonna loo% li%e once we have all these micro-transactions involved &ecause the !isa networ% that you mentioned$ yes$ it has -D$DDD transactions per second at pea% &ut that is a&ove a certain minimum limit. And /or most people$ places where they accept !isa$ you %now$ that limit is li%e H-D. <o$ i/ we#re going to ta%e that limit and ta%e it down to -D cents$ you#ve gotta imagine more transactions are gonna happen. AMA: 2 thin% this goes to a certain programming mentality and development mentality and principle$ which is a&solutely true$ which is don#t optimi.e a pro&lem until you have it. 5e don#t have a pro&lem. 5hen we have that pro&lem$ we can optimi.e it$ &ut right now$ there is no reason to start optimi.ing it in advance. 2 thin% a lot o/ this worry is misplaced. At least /rom what 2 hear /rom the core developers$ they#re not worried a&out the ultimate si.e o/ the &loc%chain or the ina&ility to process enough transactions. +hey are worried a&out stu// going into the &loc%chain that isn#t spenda&le and there/ore 8ust /ills it up with useless in/ormation$ &ut that#s a whole di//erent pro&lem. ABL: 5hen we tal%ed with Alan ?einer at Bitcoin GD-J$ this was a topic that came up &ecause with a /ull node client$ you have a lot o/ security$ &ecause you are doing all that veri/ication yoursel/ and so you can trust it &ecause you#ve$ essentially$ veri/ied the whole thing. 2t#s li%e having the whole ledger there and going through it yoursel/ and doing that e;cept you outsource it to your computer. +he pro&lem with that$ o/ course$ is /rom a usea&ility standpoint$ not every&ody has the a&ility to devote that to it or /ran%ly wants to wait the J days in order to hoo% up their wallet /or the /irst time. <o what they#re moving towards is a system o/$ essentially$ /ederated servers. 2t#s li%e when you set your cloc% on your computer. Cou can set it yoursel/ and then$ eventually$ it will /all out o/ timing &ecause it#s &ased on your computer#s internal cloc%$ which usually runs 8ust a little &it slower or /aster than the standard &ecause it#s &ased on how /ast your cycles are$ or you can sync up with a server online. And so the idea o/ a /ederated server is that any&ody who wants to run a /ull node client and ma%e it availa&le online can put it up and ma%e it availa&le /rom$ you %now$ a drop down list where you go through and select 4$ or -D$ or however many you wanna select$ and then your computer or your client doesn#t 8ust rely on one o/ them$ &ut rather chec%s them and is a&le to determine &ecause they are all run &y di//erent people and they all have$ you %now$ di//erent interests it is a sa/e &et that they are not all colluding against you to ma%e your client act in a wrong way. And so$ through distri&uting the trust and the in/ormation to these multiple places$ you#re a&le to get an accurate reading without e;posing yoursel/ to all o/ the trou&le o/ actually having to do the maintenance and maintain it yoursel/. AMA: Ceah$ 2 thin% you#ve hit on a really important point there. +rust itsel/ is a pro&a&ilistic thing. +here is no -DDI trust. +here is no a&solute trust. 2t#s really to what pro&a&ility do you trust the networ% to give you a correct answer and is that pro&a&ility greater or lesser than the cost to mess your transaction up$ right0 <o$ you#re willing to spend a certain amount o/ money or /ees on security and on trust up to the point where it#s more than the actual transaction you#re trying to protect. 5e see this in the real world. Cou %now$ we wal% around with these little green pieces o/ paper in our wallets$ and we %now ,uite well$ or at least most o/ us %now$ that pro&a&ly one in a hundred o/ those is /orged. 2t#s /a%e. 2t#s counter/eit. And we don#t chec% them all the time. 2 certainly don#t hold up every dollar &ill to chec% the watermar%. But what we do is we e;pect that$ you %now$ that one in /ive merchants or one in ten merchants will put a F! pencil on it or will loo% at the watermar%$ especially i/ the value o/ the &ill is higher$ and that#s enough. Because it gives us a level o/ certainty that there are some chec%s in the system$ and it also gives us some certainty that the ne;t person in the chain will trust our

transaction and our currency. Cou don#t need -DDI coverage to create trust. Cou only need %ind o/ this distri&uted$ selective chec%ing that gives you a level o/ certainty higher than what amount you#re spending. SM: 2 still have another ,uestion a&out this. +wo ,uestions actually. 7ne o/ them is - can a node &asically choose what ma;imum si.e &loc% it would relay or &roadcast0 Li%e$ could the &loc% si.e essentially &e determined in a %ind o/ a mar%et way0 AMA: 5ell$ 2 thin% that#s e;actly where it#s going. Cou create this e,uili&rium where &loc% si.e is the supply$ and num&er o/ transactions is the demand$ and the /ee represents the e,uili&rium point at this moment$ &ased on the F<' price o/ &itcoin$ the amount people are trying to transact$ the di//iculty mining$ and all o/ those other /actors. +hat e,uili&rium point is reached &y the /ee. +hat#s the &asic idea &ehind a mar%et mechanism /or /ees. 2t#s not implemented yet$ &ut 2 thin% it will create all %inds o/ opportunities$ &ecause &y setting that clearly$ then people can start innovating around that. Mar%ets will create new services$ new capa&ilities$ and new approaches to this that you won#t see in a$ %ind o/$ constrained$ centrali.ed approach to setting /ees or setting &loc% si.es. ABL: +han%s /or tuning in to this episode o/ Let#s +al% Bitcoin. 5hether you li%ed$ loved$ or hated this show we wanna %now what you thin%. Please send all listener mail to mailNletstal%&itcoin.com. Content /or this episode was provided &y <tephanie Murphy$ Andreas M. Antonopoulos$ Constance Choi$ and ach /rom Lamassu. Music /or this episode was provided &y :ared ?u&ens. (or lin%s to his wor% visit www.letstal%&itcoin.com9music. 2/ you are an opensource musician and thin% your wor% would /it well on the show please email adamNletstal%&itcoin.com to start that conversation. 2/ you li%e what we#re doing and want to support us with &itcoin and litecoin donations please visit letstal%&itcoin.com /or episode speci/ic addresses. 2/ you#ve got a ,uestion you#d li%e answered on air$ call us on --344-5)+AL6-B2+C72*. +he editorial calendar is still in the ma%ing$ so these ne;t show prediction wind up wrong some o/ the time. <tay tuned /or episode -4 releasing +uesday$ :une --th and /eaturing my interview with Peter$ lead developer (eathercoin and more. Have a great wee%end.

+his transcription is &y A&dussamad (https"99&itcointal%.org9inde;.php0actionRpro/ileSuR34M3-) and is released under the Creative Commons J.D Attri&ution (CC BC J.D) license" http"99creativecommons.org9licenses9&y9J.D9