Episode 33 Live From New York!

Participants:Adam B. Levine (AL) Host Andreas M. Antonopolous (AA) Co-host Stephany Murphy (SM) Co-host Jonathan Mohan (JM) BitcoinNYC Special Guest

(music) Hi folks, Adam E. Livine here for LetsTalkBitcoin. Continuing our August trend, today's episode, is a two-parter. The second portion of today's episode was recorded in Manhattan. The day after the Inside Bitcoins event with Stephanie Murphy and special guest host Jonathan Mohan of Bitcoin NYC. We talk about the conference, the attendees, ripple, ASIC mining panels, and also bacon. Big thanks to Jonathan Mohan who did a great job with this segment and who you'll be hearing more from in the weeks to come. But first, there's some important news for users of Android wallets. When news breaks in the bitcoin world often times it's hard to understand. This week a vulnerability was revealed in the Android operating system that put a real fear in the bitcoin community. LTB Host Andreas Amantonopolis spoke with Andreas Peterson of the Mycelium wallet project about exactly what happened. But before we get to that, Andreas, I had some questions for you. First off, in the interview that follows, you talk a lot about entropy. Can you explain to me what that is in sort of simple terms?

AA Sure, Entropy is a measure of how much information there is in a message. If you look at it the other way around how much randomness there is in a message in computer science terms. In physics terms it's essentially how much disorder there is in a system or how much energy in the form of heat there is in a system. But in the case of information systems really you can say entropy is saying the same as randomness. So the problem we're discussing in this particular bug is that something that should be random - that means it should have high entropy - is not random. It doesn't have the necessary entropy. In fact, it's a rather predictable sequence.

AL

So when we talk about randomness that can also be characterized as noise compared to the signal, right?

AA Well, effectively yes. If you have a random stream, especially if it's a secure random number generator where you expect it to have certain characteristics of randomness then there should be no signal - that's the definition. So every bit that comes out of that should be noise - you should have no signal.

AL So it's all noise then. Ok, so if it's all noise, then is there a difference between a lot of noise in a system versus a little noise in a system? Just not necessarily talking about random number generators just broadly speaking. If you're trying to encrypt something or secure something, is it better to have more randomness than less randomness?

AA You need absolute randomness. Let me give you an example. Let's say that there's a function within the system where you're taking a random number and you're multiplying it with your secret key. So for simplicity sake, let's say I have a secret key and my secret key is 3. So give me a random number between 1 and 50.

AL 35

AA Fantastic, so, I'm going to multiply that by 3 and I've got my digital signature. So if I ask you in my next transaction, give me a number between 1 and 50.

AL 17

AA Ok, great, so you gave me a different one. But what if you had said 35 again and I had then multiplied that by 3 and broadcast it to the network. And people knew that they could guess that if you'd said 35 once you were likely to say 35 again. Well, then they could just divide by 35 and figure out what my private key is. They wouldn't be able to do that if you actually came up with a random number. So that's the problem. The problem is you should say something different, but, you say the same number again.

AL And so that's more likely to happen in a system that has less entropy than one that has more entropy, is that right? Because there are fewer possible numbers?

AA So the way it works is when you have a secure cryptographic random number generator, you can only pull out bits for the amount of entropy it has. So let's say for example it has currently 128 random bits to give you. If you get 128 random bits those will be random. If you tried to pull out 200 bits, you know, the first 128 will be random but after that, the system doesn't yet have enough entropy. You have to wait a bit for random processes to occur. The basic concept behind it here is this was not a problem of running out of entropy, This was simply a broken algorithm, so, it was supposed to give out 256 bits of entropy and instead it gave out on average 9. So the difference there is instead of having more choices or probabilities than there are atoms in the universe it came down to 500 combinations. That's 9 bits of entropy. So you can very easily test all 500 combinations and pretty much figure out what the next random number that's supposed to be random is and if you can guess the next number - well, it's not random.

AL So what should have taken all the super computers that are currently in existence in order to crack this one particular 256 degrees of randomness basically-

AA -You could do on a wide board with a pen.

AL Right okay, well that makes a lot of sense. Ok great. Well I really appreciate you providing some clarity for us on this issue. Let's jump right into the interview with the other Andreas.

Hi everyone, this has been a rather exciting week in the bitcoin space with the announcement of a very critical android bug that has widespread repercussions all across the mobile wallet space. To discuss this in a bit more detail I'm very pleased to be joined today by Andreas Peterson who is one of the owners/authors of the Mycelium Mobile Wallet and he's here to talk to us a bit about this recent breach.

AP Hello everyone.

AL Hello Andreas, thank you so much for joining us. Can you tell me a bit about what exactly the problem is - where did this start?

AP To see the source of the problem we have to go back in time a little bit to 2012 when there was an announcement of a randomness failure in the Android implementation of Java. Basically in the harmony system. This was presented in the RSA conference in 2013 - I think it was March. This was mainly an academic problem. Because nobody could really see the practical problem behind it except for this weird randomness behavior on Android.

AL Yeah, so it would only really apply if you had some kind of bizarre digital currency that could somehow be stolen, right?

AP Yes, yeah, so most people don't really notice if let's say their SSL connections aren't really that secure or if they encounter some other kind of problem. So, bitcoin really

puts the system under test here and reveals these kinds of problems. To be precise I think this is not a single problem - there are two very distinct problems that we have seen here. The first problem is you know there's a so called random device in most Linux systems or in all Linux systems, and from that there is a U-Random device. These seem to be working fine as far as we know.

AL So the operating system random device generator that creates random numbers that's working ok on Android.

AP Yeah, yeah - so to actually use random numbers on Android using Java language you need to instantiate a so-called secure random object and that secure random object is just a wrapper for a system library and that is commonly implemented using OpenSL. And that implements the randomness by talking to the device and so there are many layers involved here. Wallet Alphas did nothing wrong. They stuck to the documentation and applied the best practices to not rewrite your cryptography and so on. So that was not the problem. The problem was between all these layers, entropy was removed from the original entropy source that is the random device.

AL So basically you're getting numbers that are less random than they should be from the source so gradually they're getting less and less random, ok.

AP Yeah, but from that bug directly nobody really lost money. I have talked to another guy who is cracking private keys as a hobby, and he generated lots and lots of random numbers. 2.6 million random numbers and he never got the collision using Android. He never got the collision so there was no private key compromised as far as we know. We don't know really, but what we do know is that there is a second issue. That is, when signing transactions there is also a random number needed to generate a valid signature. And those signatures are definitely not as random as we think they are.

AL

So let me just clarify there Andreas for a second. So the issue is not with the key generation per se, the issue is that when you try to sign a transaction especially to spend it, you are in a situation where you are seeding that signature with a random number which is not random and if you do that more than twice, that can reveal the private key. Is that correct?

AP Yes, exactly. So there is an equation, it is described very nicely in a bitcoin magazine article. If you have this random number and you use it twice, then using this equation you can trivially, simply, calculate the private key that was used. This means that if you have a weak random number generator that can potentially expose your private key to everyone. That has happened a number of times in the past. Most of the time where it was when people were playing around with toy implementations, prototype implementations of clients. But it also happened on Android directly when signing transactions. The issue is that you create a new secure random instance and then you query it twice. Under very weird circumstances there are fallback scenarios where the entropy goes down to a level where it has a very high chance of repeating the same value. Basically I think that in some cases the randomness can go down to 9 bits of entropy instead of 256 bits of entropy.

AL Given all of those circumstances I would assume that means whether you've generated the key on an Android wallet or not, if you have an Android wallet that is using this Java secure random number generator, and you use that to spend money at any time you have a chance of having revealed a private key for that particular wallet?

AP Right now I would assume - of course you should migrate your keys because of the general entropy issues - but, right now, if you haven't lost your money yet, it's not extremely likely that you will lose it in the future because of this second vulnerability. Because that would mean if you continue using the old software and generate these weak transactions yes, then you could potentially expose that. But that's very unlikely.

AL

So one thing that was rather interesting with this was that the bug itself expresses itself on the block chain in a way that anyone can go and find these suspect transactions. Presumably you're looking at a transaction, or rather you're looking at two consecutive transactions done by a same key where the same random parameter R was used for both, and presumably you can just write software that trackless through the block chain to find these, right?

AP Yeah, and people were doing this and you will lose your money rather quickly if you generate such a transaction.

AL If you'd already done it you would have lost your money already so there's nothing to worry about. Just don't make any new transactions.

AP Yeah, and of course all the change of keys. There are many properties of this stack, MSSL, and the Android API that are kind of shady in my opinion because it certainly isn't impossible to implement that in a way that it would simply work. And it's kind of shady that it fails in such a way, so I would say if somebody used secure random on Android for any purpose that you should change your keys because there might be a vulnerability that we don't know exactly about yet.

AL So Andreas, would you say that this bitcoin demonstration makes the 2013 announcement at RSA much more critical and concrete now and should therefore lead other developers on Android doing software that's not directly related to bitcoin but to other secure implementations. This will kind of wake them up, you know, this is now in the wild and usable.

AP I don't really think it's a very big coincidence that all these bugs happened together. A kind of conspiracy theory here, but of course, this bug makes it potentially much easier for anyone with massive computing resources to crack encrypted communication. And therefore everyone who is the author of any cryptographically

interesting application on Android should definitely cease to use secure random and rather look for an alternative. So, the most obvious alternative would be to access DAFU random device. DAFU random file directly and read from that as we do now in the Mycelium wallet. The other thing is that I'm currently looking into an implementation proposal by Bruce Schneier, if that would provide a very good alternative that we could combine multiple entropy sources.

AL Ah, right, yes. As a developer of the popular and very function Mycelium wallet, you've taken steps now to fix this problem I'm assuming all of the Android bitcoin wallet developers are doing so. What would the users experience? Would they experience simply an update coming through their play store?

AP Yes, so first of all I have to really give credit to Jan Mechler, and as far as I know all popular Android wallets have been updated so that they are four wallets out there that keep your own private keys on the device. That's bitcoin wallet from (inaudible 14:30), that's Mycelium wallet, Blockchain.info, and also the now kind of deprecated Bitcoin Spinner - that was the previous application from Jan - was also updated. So on some of these wallets you need to manually do the key rotation, but on others for example on the Mycelium wallet there's a wizard that detects old keys and automatically moves them to new keys. And in the process what I really want to emphasize here, please do make a backup of all your old keys and your new keys. You don't know if you're going to need them in the future. In the wizard it also gives you the opportunity to make a backup. So please do that and get those private keys onto a piece of paper please.

AL Okay, yes, very good advice. Get it onto paper wallets as backups. So let me just clarify a tiny bit. You talked about the rotating keys, if you were to break down this process: you download the new code from the software developers who have updated the code. You make a backup of the keys as you very rightly just said. Then you create a new wallet, and then you essentially send all the money from the old wallet to the new wallet? Is that it pretty much?

AP

You will send money from one address to another address and your wallet software now has maybe both addresses in it or just one address in it depending on the implementation used. It's not a very complex problem, you're essentially just sending money to yourself and it's a new address.

AL And very critically I would say this has to happen after the software has been fixed because if you just generate a new address and tried to send your money, you will be creating exactly the kinds of transactions that could compromise your private key, right?

AP Yeah, so updates for all the wallets have been pushed out so the play store and the two other channels, that shouldn't be a problem. Can I ask you something in return regarding this topic. You were involved in the paper wallet project, yeah? How is the situation there, do you have any inside information about... what kind of randomness does the paper wallet provide?

AL The original paper wallet is derived from the bitaddress.org version 2.4. That's the same software we use for open paper wallets, safe paper wallets, and as far as I know the bitcoin paper wallets which is another version. All of those use the operating system devurandom from within a JavaScript wrapper library. That does not run on Android so that would be inside the desktop browser as far as I know there's no vulnerabilities there.

AP It would rely on the JavaScript implementation of the browser used. So it could be Chrome or Internet Explorer or something.

AL Well it's cross-browser so it operates on all of them, but certainly yes, one of the considerations here - and I think a good security practice - and one of the reasons I was not as worried about this even though I use a mobile wallet is simply that I only had 2-3% of my funds online on the wallets that were doing transactions from my

mobile client. The rest was all in paper wallets and that's a good way to be restassured essentially - to be relaxed about it.

AP Yeah, yeah, absolutely. So also I mean on paper wallet you rely on having a good entropy for the key of course but the main problem the duplicated random values in the transaction doesn't even show up in paper wallets because they don't do any transactions of course.

AL That is correct although we do have in our latest version of Safe Paper Wallets software we do have a way to completely sweep and redeem and it will create a transaction so I would have to look at the random number generator. But in general I think this is really a sign of things to come because vulnerabilities in the past had time between going from theoretical to practical and in the wild, but what bitcoin does is it provides immediate incentive to take that theoretical exploit practical and make some money off of it. So we're going to see this happen more and more, would you say?

AP Absolutely. So this is really showing the weaknesses on some systems and also in computer security it's not surprising that a lot of file hosts, server hosts, have been hacked and attackers specifically only went for the bitcoin customers and left everyone else alone. So this really shows the security status of the system if you have some bitcoins up for grabs for an attacker.

AL Most systems are not quite ready yet for storing digital money but we're going to learn and develop as time goes by. I would like to thank you so much Andreas Peterson, co-author of the Mycelium mobile wallet for giving us some excellent information today on what exactly is happening with Android random number generator, how to solve it, so what to account for, and thank you so much for all this useful information.

AP

You're welcome.

Easy DNS is the Swiss-army knife for your domain names - helping meet their customer's individual needs since 1998. Easy DNS has been an outspoken critic of SOPA and CISPA. Easy DNS was an early supporter of bitcoin and now they are proud to sponsor this show. Do business with a business that shares your values. Get a 13% discount when you pay with bitcoin. Go to bitcoin.easydns.com and be sure to use discount code LTB.

Hi, this is Jason King, for Bitcoin100.org, and you're listening to LetsTalkBitcoin. Bitcoin100 is old school bitcoin philanthropy. We've brought further awareness to bitcoin by having charities and non-profits add a bitcoin donation option to their sites. Then we will award them with a $1,000 endowment for their efforts. Please help support us by either donating to our cause at Bitcoin100.org or by helping us find worthy non-profits that are willing to accept bitcoins for donations. Thanks.

AL Hi and welcome to episode 30 of LetsTalkBitcoin, we are on the 38th floor of the New Yorker Hotel in New York, New York! Yesterday we attended the Inside Bitcoins Conference, and this morning it's a little after 10 AM East Coast time which means about 7 AM West Coast time. The time that my brain is still on. Joining us today we've got my normal co-host Stephanie Murphy.

SM Hello, we're in the same room again!

AL Yes, we're in the same room again. Second time! Sweet. And then also special guest host Mr. Jonathan Mohan.

JM Hey, I have some big shoes to fill but I hope to them quite ((inaudible, 21:00)

AL So Jon Mohan again has been on the show before and is the founder and whirlwind of activity that constitutes the planning behind the Bitcoin NYC group and various events. We went to a cocktail party the night before last?

JM Yes, on Monday.

AL Second market that you helped put together and it was a combination group event for LetsTalkBitcoin and for a couple of other - I think Coinsetter was there?

SM Yeah.

AL Yeah, Coinsetter, and then the other one was of course Second Market.

JM Yeah, I heard that 140 people RSVP'd, they had to kick people out.

AL Yeah, that was a funny thing. Apologies to listeners if anybody didn't get in, feel free to email complaints to Adam at LetsTalkBitcoin.com. But yeah, so this was an incredible event! I gotta say even for a one day event, a lot of stuff happens, you know the talks again, we had this thing where the talks were good but it was more about the attendees than really about the speakers.

JM

Some feedback I got was there were way more amazing people in the audience than sometimes as a panelist I'm gonna say-

AL Right, we all spoke there I feel comfortable saying- (all laugh)

JM I would talk like, "What do you do? Why weren't you on that? Oh my god!"

SM It's true. You'd walk around and everyone has CEO on their name tag. I wanted to say I'm like the CEO of Ork Therapy or something. (all laugh) But yeah I mean everybody had a project, they all had things to say. At one point I was doing some interviews out in the hallway and I realized that several hours had gone by and I had missed Adam's talk actually and I wanted to see it but I was like just one interview after the other, so...

AL Yeah yeah, no, you were quite the machine out there,. So how many interviews did you get this time, Stephanie?

SM Oh, at least a dozen.

AL Okay, so you got, I think it was, was it 20 last time? I think it was about 25 last time? Okay, so the ratio is about keeping up, it's about 12-15 a day.

SM Well hopefully it's quality too and not just quantity. But honestly I thought they were great. I talked to some people that I had been wanting to talk to and it was

really interesting. Especially to hear more about what's going on in the mining scene. Those were probably my favorite interviews. I talked to Sam from KNC Miner and Josh from Butterfly Labs. I also found out about Feathercoin, that was interesting too.

AL Yeah, yeah, did you meet the CIO there?

SM Yes, that was Peter.

AL Was that his name? I thought his name was John. I'm terrible with names.

SM It was Peter John.

AL Peter John! There you go, okay, that makes sense.

JM My mother says to never trust people with two first names. Maybe that's a sign. I had no idea he was there.

SM Yeah it was cool, I learned some things I didn't know about Feathercoin before and I kind of wanted to get Feathercoins last night when I got home.

JM

I joke with Jonathan Worhan the BitMessage guy that we should make our own crypto currency and call it breath like air. And what it will do is there will only ever be 21 quadrillion units in circulation and it will be the heir to Feathercoin's copper. (all laugh) It's so (inaudible 24:00) it's unmeterable. It's just you don't care because it's so many. I think it's gonna go places, I think this is the time to announce it.

SM There is so much more going on too. There were a lot of big media there. Adam, you know, I don't know if they're going to do anything with it but you and I were both on camera for CBS national.

AL Yeah, no, she was excited, we spoke with the producer there, I actually - walking out on the talks on the way to lunch, you know I actually didn't eat breakfast yesterday and so I was heading to lunch. But then I was walking by and I saw this bewildered looking woman who had a nametag that said producer CBS and I like reversed, came back, and was like, "Hey, I'm Adam B. Levine of LetsTalkBitcoin! Do you need any help finding anyone?" So that's what I try to do at these events most of all is just to be helpful and to-

SM Oh you were great with that! You lined up a bunch of interviews. I think she learned a lot about bitcoins because she was totally new to it and I'm glad they decided to come. CNN was there in the morning.

AL Well they weren't necessarily- CBS wasn't- she was just there to see if they should cover it. And so after I told her that I could get her like 10 interviews she's like Ok, I'm calling the crew. Then they showed up about a half hour later. But no, it was great, it's terrific. Again, bitcoin and crypto currencies in general are hard to understand if you don't have the basis to understand them and so when especially journalists come into play - a lot of times these people don't have a real monetary background and so it's hard to appreciate it. But you know, if you can get out there and give them good analogies they can understand and they can take back to their listeners and their viewers - because that of course is the other thing is that if they can't understand it how in hell are they supposed to present it to an audience who is

even less informed than they are. So, you know, I think we actually did some good work yesterday and I know PBS was there too.

SM Reuters, TechCrunch. A lot of big names, honestly. It was great.

JM You know, at DefCon, they have something called spot the fed where it's a game where you have to spot who's a federal agent. And actually I don't know in the San Jose conference if you had any, but, did you

SM Andreas claimed that he identified an FBI agent.

JM Were you able to meet the special agent who was here from the Cyber Crimes Division?

SM I didn't meet him but I heard you're having lunch with him.

JM Yeah, next week I want to do that. He seems really interesting.

SM Wow, so you didn't have to spot him he was obvious.

JM

Yeah, he was wearing a name tag that read FBI. He didn't look like a Fed. He was wearing a t-shirt and just hanging out.

SM Well then the question becomes who was incognito.

JM Right, right. I had a really fun moment where someone had given me his card. And I went, oh my god I talked to this Fed you have to talk to him. So when I went to speak to him, I said hey I'm Jonathan we should grab lunch some time. And he said, "Oh, let me give you my card." And I was like, "that's alright I already have all of your information." (laughs) And he was like, "What?"

AL Ahead of the game! (laughs) Yeah no, in addition to the FBI - I did not meet the agent there, but. I did see someone from treasury there and I got a card from them and we're gonna speak to them because again you know they're... Really what it seemed like again - and this might not be true of everyone in these agencies but certainly the people who are there at the very least seemed like they were curious and just didn't really know what was going on. So that could be an act-

SM That would not surprise me..

AL Right, exactly but it seems actually fairly likely that given all the things to pay attention to, this is just simply not something that the majority of them are paying attention to.

JM

Right. And you'd mentioned PBS. So I was speaking with them and at the end of the interview the producer had mentioned, "You know, we were talking about potentially thinking about accepting bitcoin." And I said, "Oh my god, that's amazing! Oh, wait! I'm gonna do as much as I possibly can to make this a reality..." And that's what's so amazing about the conference is when you have 300, 400 entrepreneurs in a room it's really easy to start doing things. So I just got- I immediately ran to Tony Gileppe of BitPay. And so I was like, "Alright you and I. We're gonna meet with PBS and we're gonna make this happen." And I got out three sheets of paper, and I just ran around the conference and during that time we actually got 200 bitcoins pledged towards going t PBS should they accept bitcoin. So actually Josh from Butterfly Labs pledged 50. And then EFU pledged 50. And Sam from KNC Miner? Yeah, he pledged 50 as well. and then Tradehill pledged 10. And then we have Bitcoin100, which is always available for 10 bitcoin. And then about 20 people also pitched in about 1 bitcoin. So it was kind of a communal effort. Just a shock by how much demand there is to see someone like PBS get behind bitcoin.

AL That actually exceeds the number you going for, right? Because at the end of the conference we ended a little bit early because one of the speakers didn't show up. Christian Dumont I believe....

SM Oh... from Foodler!

AL Yeah

SM You wanted to talk to him.

AL I know! We've been trying to schedule with him. Because again they have a really interesting use case and that's what he was supposed to be speaking about there but as far as I understand it sounds like he missed two flights by coming here and did not make it in.

SM Yeah, I can understand that it's easy to get lost in New York and it's easy to...

AL It's easy to not get to New York too apparently.

SM Yeah, totally. Well hopefully we'll be able to catch up with him later.

AL You know, again, it seems like they're having a lot of success with the space so there's no incentive for them to leave.

SM I just saw something saying that their bitcoin orders. So it's a thing where you can order take-out. And they take out bitcoin. So you can take out locally with bitcoin and I just saw an article about it and apparently the bitcoin orders have grown and tripled over the last month or something.

AL So of course the question with that always is what were they to begin with? Because tripling...

SM Yeah, we had 1 bitcoin order last month, now we have 3. (laughter)

AL

So it's all kind of relative when you're talkin' about abstract numbers like that. So, let's talk about the conference. I mean that was certainly something is that we did see a lot of ASICs there. I don't think anybody spoke about ASICs. This was not really a technical event, this was more on the regulatory side of things.

SM Yeah, or just um, like an intro, like. They really did try to make it friendly to people who had no idea what bitcoin was. The keynote speaker was Charlie Shrem so he spoke first thing in the morning and actually I was seated right in front of his parents and so that was cool because I got to meet his parents. He was saying that he founded BitInsant , just a young guy. He's only 23 years old. Just amazing what he's done with BitInstant in that time. But he was saying he got laughed out of every venture capital firm that he tried to pitch the idea to back several years ago. 3 years ago I think. When he was trying to start BitInstant. So, he had to actually get the startup funding from his Mom. And so she was standing up and she was like woohoo!

AL The number though - that was the thing that surprised me. I assumed that there was more cost behind BitInstant but he said that

SM 10,000 dollars.

AL yeah, $10,000 to start BitInstant.

SM Yeah. I'm sure he didn't have an office in Manhattan at first.

AL I mean obviously, but it just goes to show the barrier to entry on these properties even so even with something like that where you're actually interfacing with the

monetary side of it is not that expensive until you get to regulatory compliance. And once you get to regulatory compliance the cost goes through the roof and you suddenly need millions of dollars in order to pay the bonds, just endless things.

SM I think that's really important to point out because it's really... already we don't really have regulation- is much about bitcoin but just the thought that there could be regulations about bitcoin is stifling a lot of bitcoin business. And we saw on thethere was a venture capitalist panel actually of several investors who were either had invested in bitcoin businesses or had invested in bitcoin personally or were planning on it. And one of the things they said that they would avoid that was like a red flag for bitcoin businesses that they would not want to fund a business was if they had basically like regulations hanging over their head or like regulatory liabilities. So basically exchanges and things that could be potentially considered money services businesses or anything like that.

JM And so at one of my weekly entrepreneurship meetings regulation is the talk of the town. Because there is this tremendous incentive for (inaudible 31:58) to not want to invest in something for which you can't quantify the risk for. And if you don't have your regulation down you're just a risky bet.

SM Yeah it doesn't matter how great your business is and that just struck me as so unfair. You could have an amazing idea for a business and these bureaucrats are just gonna get in your way . And you won't be able to get funding.

AL Hang on a second. It's not fair, Stephanie. It's not fair? No, of course it's not fair. It's not supposed to be fair.

JM And you know, there's reason why finance hasn't changed that much in America. And it's because of what's happening here.

SM Yeah, with the regulations. Exactly. Everybody says the US is the least friendly environment for any business that involves money.

JM And I actually think that bitcoin might be the canary in the mind to say that, "This might be the point where progress and innovation needs to leave America in order to succeed." Because I've been having weeks and weeks of discussions with regulators and I myself was scared away from starting a company just because I would be a money transmitter and would need hundreds of thousands of dollars to start my idea when really the costs were under 10 grand to get it started.

SM Well how many people have the same experience.

JM And so many I'm talking to them and the answer is always, "Well you know Eric and Gabe and the bunch, down in Panama, totally, they'll hook you up. They'll give you a place to crash for a bit until you find somewhere and Panama is right there, 0% income tax, we could do it guys."

SM And you know about Coinapult.

JM Yes Coinapult.

SM That's the company Eric Vorhees... Yeah that really stood out to me, I mean just the focus on where is this gonna go from a regulatory standpoint and I feel really sad

about that. I love to see these businesses growing. And we have such an amazing technology that could do so much for freedom in the world, for convenience. It just opens up so many possibilities it really is the future of money for a reason because it's so much better than what we've got right now. Credit cards were great, they were an innovation but that was 40 or 30 years ago, right? At this point? And so, you know, it's time for something new and I would like it to be able to just go and see what happens with it. But it seems like there's a storm cloud that may be holding a lot of people back.

AL Yeah, you know, I mean, I think that- Ok, so in addition to the VC, in addition to the miners that we saw, the miner manufacturers that we saw: we also saw a whole bunch of lawyers. This was really, I was surprised by how well represented they were. And you know we saw the firm that did the..

SM Oh really, the lawyers were actually well represented?

AL We were actually sitting in front of a gentleman who represents the online BAR I think is his project. It's out of South Africa but they have 3,000 lawyers who he speaks to and you know, he was there just learning about bitcoins. So we talked to him for a really long time. He was very interested. They're also into permaculture. Crystal and his wife. Yeah, Crystal spoke to them about permaculture, my wife personally. She's the engineer`

SM She's awesome. She's our producer.

AL She's our producer. Um, but yeah they were well represented. In the talks it seemed like there was a theme that I was a little bit disturbed by. Which is that bitcoin fundamentally has to change in order to work in the long term.

SM Yeah, I saw that, and I think that I totally think that's inspired by the regulations that people fear are coming. And so they're like, "Well, you know it's not so bad if we don't make it anonymous and we if we don't cause chargebacks and if we build chargebacks into bitcoin what's the big deal? What's the big deal is it's not bitcoin any more.

JM Well I think it's easy to confuse a business opportunity to fundamental changes to bitcoin itself. So these people that's what businesses are for. You see a little gap and you fill that niche. So I think that a lot of these are just going to be a bitcoin back in business that are going to fill the capacity to facilitate chargebacks.

AL Well I think that's the hope is that you wind up with something like that. Is that you wind up with like an insurance type of system where merchants subscribe and pay a fee. And then there's the ability to do voluntary chargebacks and then you have a third-party arbitrator who can essentially come in and mediate that.

SM It can happen with escrow services now though. There are some, I mean that are starting...

AL Yes, that's true, that's true, but again. You add layers of cost to this thing every time you do stuff.

JM Right.

AL

And I mean, and that again is the problem. That over the long term the question is, are we throwing the baby out with the bath water by trying to fix these problems are we in fact ruining the system as a whole.

SM Yeah, this revolutionary technology that is completely different from the Legacy Banking System is so great! We just need to make it a little more like the Legacy Banking System to make it better. Yeah, and I was disturbed by the way it was presented in a lot of the talks that I saw. We need to do this. You know, like it's not so bad. Let's just tie our identities to all of our bitcoin addresses and put a social security number on it. Let's like, you know get rid of the irreversibility of transactions! And we need to do this, or else bitcoin will never get mainstreamed up. And I disagree with that. And I was sad to see that sort of, I guess they would probably say, well we're being pragmatic. Because this is gonna have to happen anyway if bitcoin is gonna succeed. Well I'm gonna take the idealist position as I always do. And I just want to put it out there and say, I don't think that has to happen. And we can use bitcoin as it was initially intended and there are certainly uses for bitcoin that don't involve sacrificing some of those great things about bitcoin.

AL Right, and you know the option is always there if you want to create comply coin. I think that that

SM (laughs) Comply Coin! Yeah, that would be a great market idea.

AL There's a huge niche for that I think.

SM Sadly I think there are lots of people who would hear it and they'd say, "Oh, oh goody, I can do everything the regulators want me to do."

AL Because I thought... it does exist it's called Ripple.

JM Ah, there you go. Well even Ripple has some problems because it is still not anonymous, because it has entry points and exit points where there's identification that asks..

SM What do people criticize Ripple for? Can you just give us overview on that? Because I think a lot of our listeners don't even know what Ripple is let alone understand the criticisms of it so let's talk about that.

JM So, I'm assuming they're great entrepreneurs. I'm not disparaging them. All the power to them for trying to better the ecosystem. But when it comes to looking at alternative crypto currencies there are a couple of key identifiers as to whether or not this is a scam. And when you apply it to something like Ripple it kind of has some warning signals. So one of them is pre-mining. So if you're

SM Are you talking about XRP which is the currency that Ripple uses?

JM Yes.

SM Okay, so let's say what Ripple is first, I mean.

JM

Sorry.

SM So, Ripple is like, um... (laughs) so I don't completely understand it either so correct me if I'm wrong. But, basically it's a network where you can easily convert different currencies. Let's say you need to borrow $50 to get some groceries or something. Like, you could trust somebody who trusts somebody else in China and they could basically send - loan you bitcoins or loan you Ripples or loan you Wans or whatever and you could get your $50. And like Ripple is just like the medium of exchange all the lending takes place outside of Ripple I guess. But it's basically a system that's built on trust, networks between people and it's a way to convert currencies and exchange credit peer-to-peer.

AL Right, and of course all those things you say basically translate to its debt transmission network. Where essentially you're not. And this is why you can send dollars through it so fast. Again, you can send dollars as fast as you can send bitcoin because you're not really sending the dollars. You're transferring a debt from something that you own and you're applying it to somebody else.

JM And I think when you look at Ripple it's an amazing iterative step on our current banking/financial system.

AL This is, this is important.

JM And I look at it, and I'm like, I know five years from now or three years from now when congress is gonna start looking at this space they're gonna be like, "Well why can't you be like your brother? Ripple's able to do it how come you guys can't do it? C'mon bitcoin, get with it." So I think that ripple is a great transitory, you know, transition into bitcoin.

SM But that tool, the debt transfer network exists outside of the crypto currency Ripples. The crypto currency is somewhat similar to bitcoin. You know, right? And that's what you were talking about before when you said there's a red flag because they pre-mined XRP and then were giving them away, is that right?

JM Yeah.

SM So yeah, go on, continue with that.

JM So, I mean there are a couple of red flags when you are looking at crypto-currencies that just get started and one of them is: has the owner pre-mined it? And if you look at the distribution of Ripple that are in existence. Like 50 people own a significant portion of the Ripple.

AL They pre-mined all of them, didn't they.

JM Yeah. It's 100% pre-mined.

AL But it's a little bit mis-leading because in the Ripple network you're not really, it's not like I'm gonna send 20 ripples to you and then you're gonna cash the ripples. It's more like Ripples are stamps. Where it's like an anti-spam mechanism more than it is a value transfer mechanic.

JM

But I remember reading somewhere that if you looked at the current market price of a Ripple and then you multiplied it by the 100-billion Ripples they have or whatever it is, that it was equal to the value of the market cap of the bitcoin network.

AL So they gave themselves an impressive pre-market evaluation.

JM Yeah (laughs). So I don't know how that works, but it kind of looks like they're able to print money in my opinion.

Break

AL You're listening to LetsTalkBitcoin. The premier audiocast providing news and insights that cover the rapidly evolving world of digital money. Our twice weekly show include analysis of late breaking news, updates on key, technical, business and regulatory issues - and in-depth interviews with the key people driving the new digital economy. LetsTalkBitcoin offers sponsors an attractive way to reach a targeted and savvy audience. For more information email sponsors at LetsTalkBitcoin.com.

Advertisement More than 300,000 users and counting trust blockchain.info. It's a bitcoin wallet service and a wealth of bitcoin information and is completely free to use. With the Blockchain.info wallet, you'll get the convenience of a web wallet, and the security of a desktop client. Blockchain.info is also a block explorer. You can use it to see bitcoin transactions in real time, check the balance of any bitcoin address, and do many handy bitcoin charts, all for free. See what they have to offer today. At Blockchain.info.

AL

I think that what you said there about Ripple being an iterative step is really important because that's the thing. Is that, ,if Ripple had come out- and to a certain degree I think this extends to open transactions too, because it also is a debt transition mechanism because. You can't - bitcoin and crypto-currencies are so fluid because they don't exist in real life. So when you're talking about assets that have real life presence you simply can't cram those down and shove them through an internet connection. So it has to be a debt transition mechanism in order to do that. But the thing is that with bitcoin and with crypto-currencies you don't need to do that at all. It's unnecessary. And especially when we move to a more digital economy where the need to do that at all goes away basically. So you know, again, it's one of those things where if the Ripple system had come out before bitcoin we'd be having a very different conversation now. And now it'd probably be LetsTalkRipple. Because I mean and again, compared to the banking system we have now it's so much more efficient compared to crypto currencies. It's less compelling.

JM I just think that if the thing that bitcoin does is force the current baking paradigm to move to Ripple and then the conversation is Ripple vs. bitcoin. I think that's a fantastic world to live in.

SM Yeah, I completely agree.

AL And you know, that's an interesting point, because you know that certainly could be - Ripple has gotten a lot of high-profile investors. And that certainly could be the play they have in mind is that okay, so you've got these crypto-currencies but theyre kind of flatly incompatible with the existing financial system so if we're gonna move towards something that's more like that then this is an intermediary step that we can take that we know already complies and can be easily integrated in. And so then we just sell it essentially software as a service to all these banking institutions around the world. Bob's your uncle, you know we're the defacto center of it all again. It's a very interesting space for them to operate in right now I think.

JM

Was there someone from Ripple at the conference?

AL Yes. I'm not sure if I talked to anyone from Ripple. The coin thing and the open thing, very very difficult. So many companies there have those in the names. It's like when I used to work in the green space and everybody used to have like green or bio or all those other nonsense. And it's like again, the first couple companies that do it. That's great. And then the next 400 companies that do it - it's confusing!

SM So if you meet someone new and you forget what company they're with you're like, "Oh yeah, you're from coin..." I'm like, "Yeah, Coin Peg, Yeah."

JM I saw 3 different accountants who had a play on bitcoin accountant in the name. And I just couldn't remember them because they were so similar in the name.

SM I got some people remembering variations of LetsTalkBitcoin actually like. Someone goes, "Oh, yeah. You're from BitccoinTalk." And then someone goes, "You're from BitTalkLive.". (laughs) LetsTalkBitcoin? Oh real quick. What's the difference between Ripple and Open Coin or Open transactions?

AL Open transactions. So Ripple is the product of a company called Open Coin. And Open transactions is a product of a company called MonoToss. And we've interviewed Chris Odom before,, he goes by Fellow Traveler. He's a podgener of that technology. I think he's more of a marketer than a code guy. But he managed to put it together to the point where he's really been able to attract some attention. I know that they either have just funded or they are in the process of funding right now and are raising a pretty decent amount of capital because again. There's a lot of... you know again, when you're talking about these systems it's so much easier to comply with these various debt transfer mechanisms because they integrate so much better so you know again that's where a lot of the money seems like it's going. That and altcoins too, there are some altcoins that are getting some traction.

SM I talk to a litecoin developer yesterday, and there were some litecoin people there, and they were so cool and pleasant to talk to. And I was like I can't wait to see where they're going. I think we're gonna have an interview with Worm who is one of the litecoin dev's to talk about the new release and what they're going to do with litecoin in the future. And I'm just impressed with like... there's more infrastructure that's coming out. Not just with litecoins but with all these different altcoins. A lot of these coins are where bitcoin was a couple of years ago. And I think people see that and maybe feel like they missed the boat or whatever. They got in too late and they want to get in. I think we're still very early in the adoption curve of even bitcoin. But it's tempting, you see an alt coin and it looks like it has potential, you know, you wanna get in on the ground floor and see what it does.

AL Exactly, you know the multiplier is just so enormous. Again, you look at bitcoin, certainly a multiplier. It could be enormous assuming you have a whole bunch of hundred dollars to throw at buying some bitcoin. But you know, with the alts, the buy in, you're talking about pennies,. And the potential is still there for that price increase. We don't talk about the price but from a speculative standpoint, it seems like if you could identify the right alts that actually have the right characteristics to give us a chance of making it big, that is really where the exponential potential is for a very small investment to convert into a big one.

SM Yeah, and I remember one of our first episodes of LetsTalkBitcoin, I want to say it was like 3 or 4. We talked about altcoins and we gave a rundown of some of the most popular ones. Well even now just a few months later, there are hundreds of altcoins. And nobody can keep them straight. I was talking to somebody yesterday, and I said so what are they other script-based altcoins? And he said oh! There are at least 40 I can name off the top of my head. I said 40? I only know of like 2!

JM Y'know, it's a testament to the space that I'm kind of eating my words. Several months ago I'd kind of make fun of litecoin, and now the discussion is, maybe because of mining centralization bitcoin needs to become more like litecoin. So you know you're seeing the free market at work because when you allow people to do

whatever it is they want to do in the space, the market leader has to learn from the trail.

SM I think it's really important to keep an open mind. If you like the concept of bitcoin, or if you just like the concept of crypto-currency in general, if you like anything about it. Realize that there's the potential - like, we're still figuring this out and maybe it's bitcoin, maybe it's litecoin, maybe it's some other coin, or maybe it's gonna be a bunch of different coins. That's gonna predominate. Coming up.

AL over the last 2 months I've really gone from there can be only one camp to realizing that's probably actually not going to be the case. And it's because (beep) happens, and stuff changes, and when things change. And you know, that's the thing, is that like, when things change it's gonna happen fast. So now what I have kind of over the last few weeks come to believe is that right now we're in essentially a belief bubble. Where everybody looks at the crypto currency space. And because it's so new they look and they say, okay, bitcoin is the one. And then there's all these other ones. They don't matter. And they don't matter right now. But it's because people only look at bitcoin. What's gonna happen is they're gonna see some destructive changes coming in bitcoin's future whether or not the developing team likes it and I think that we're probably going to wind up seeing that illusion to that bubble get popped. The illusion dispelled and at that point suddenly it will be a whole new ball game if you start an alt. And itll be much more about the merits of your currency rather than about whether or not you've already achieved an (inaudible (50:21). Again, because there's that potential for the exponential multiplier of very small investments to convert into very large ones.

SM There is something to be said for achieving the network effect though.

AL Certainly. It's no small barrier I don't mean to say that.

JM

Essentially what you're saying is we're waiting for bitcoin to have its Mt. Gox event.

AL Right, exactly, but you can think about it like this. When bitcoin has its Mt. Gox event instead of all the money in Mt. Gox being locked down, bitcoin is totally liquid. So it's very very easy to just (beep) slip into the next one. I have to edit that. I've been swearing for the last couple of days...

JM It's New York it does it to you. (laugh) I mean but yeah, you had a company that had everything going for it. It had 90-something percent of the space and through a series of unfortunate events, that would have happened to anyone who - the point about a trailblazer.

SM It took a lot of unfortunate events though, I mean once it got to the critical point it was hard to knock it down off the pedestal, right?

JM Right, and I mean the same could be said about bitcoin for example, people like to forget that bitcoin is 0.8 version right now. It is still a beta. It is a multi-billion dollar beta. And, what's to stop some random error that no one has seen just wrecking the whole thing?

AL Oh, so we should talk about that. On that note, so we had some conversation from some miners, Stephanie I know that you interviewed. I had some conversations off the record with some people about this kind of question. Specifically about, we talked about HOPEC was it?

SM OHEC

AL Oh heck, oh heck, that was it.

SM Organization Hasing Power Exporters

AL Yeah, that's right, so some people didn't understand what we were talking about. It was kind of a joke, because, the oh heck was kind of a joke. Because in order for that... in case you haven't listened to the last episode where we talked about this, basically KNC miner released a statement saying that they were going to stop shipping ASIC units from November through Q1 of 2014 with the idea being that this would protect the investment of the people who have purchased equipment coming before because in Q2 they're going to release, and they could in Q1 but they're gonna hold it until Q2... um, are going to release hardware that is orders of magnitude cheaper and faster than what people have previously ordered. And so if they were to release it at the pace of technology then the people who were getting this mining hardware would be almost instantly obsolete and have no opportunity to earn their money back. And of course that's bad if you're a business that tries to have customers that buy your product if you're iterating so fast with the technology that people can't even have a chance to make back their investment.

JM Although I would like to say in this space that I personally think that's a great marketing pitch for their company but that if you look at what happened in the past with EFU of Avalon. He had said hey look, we're the market leader just because I had no idea that every single other company wouldn't ship. When you're talking about how successful you're gonna be at executing in this space it's a space that has a lot of people not executing. So I just think that if they could do what they say they're gonna do they should just do it. Because executing in this space is so rare that I think the market needs that more than it needs someone being it's Batman. The protector it may not need but it needs... it doesn't know but it wants.

AL

You know I agree with you there, but that's the thing. When talking with these guys I spoke with the guy Sam from.. was that his name?

SM Sam.

AL Sam from KNC. And also there were one or two other ASIC manufacturers whose names I didn't catch in this little conversation we were having. You know that you're gonna have to get together with all the other players out there and you guys are all gonna have to stop shipping,

SM Yeah, like a cartel.

AL Yeah, exactly exactly. And he was like, yeah I know. Then we started talking about how, he started telling me how it was good for bitcoin and how they were just going to get together and they'd fight for three months and then they'd be like ok guys, let's go back and re-work our technology. Then we'll come back three months later. We'll fight again. So we'll have these on and off again release schedule that's coordinated throughout the space. And so again, he felt - we thought it was a joke. We thought it was a marketing play. At least I certainly did when we were talking about it before. Speaking with these guys, they were dead serious about it. That is their plan. I mean, do you think they can pull it off?

SM Oh, gosh. I mean, a lot of the other companies were saying, yeah I think we'll play. I think we'll do that.

AL Yeah, Josh from Butterfly Labs, yeah said something. Basically, so I was like you know, so these guys are gonna try to do this, I spoke to them separately.

SM But I guess the question is, is there some other company out there who is being completely quiet, and is totally off the radar is a wild card and is going to come up with some powerful ASIC during that time frame. And that could throw a wrench in everybody's work. KNC said that if somebody does that they're gonna continue to releae their devices as best they can.

AL Right, exactly, exactly, so that's the thing, if the cartel fails, then everybody is just free for all wild west again, everybody releases as fast as they can. And of course then the question becomes what's the balance between releasing so that you're the first one out and you're the first. Because otherw- if you're the last man out the door, then chance are pretty good. People who are excited about buying that especially with as fast as the tech is moving are not going to have any reason to buy your product. Unless there's a material advantage. And it doesn't really seem like anyone is going out of their way. What I've been waiting for is a truly plug-n-play ASIC solution. And as far as I'm concerned we still have yet to see anything like that.

JM You know the Avalon at BitInstant has been not operable in the past couple of weeks just because it broke and no one knows how to fix it. So the one bitcoin per day that it could be making for the foundation.

SM Is that why (Ifu) is here to fix it?

JM Yeah, that's why he came back from China. So they're just like ahhh, they clearly have other things that they have to deal with.

AL Right, well.

JM These things are complicated.

AL They are!

SM I've seen a picture of that thing and it's funny because like you see ASICs advertised online and it's like a sleek little black box with you know a USD cable coming off of it. This thing looks like... I don't know, it looks like a printing press. It's big, it's like open, it doesn't have a nice case or anything but it works. Or at least it did work until just a couple weeks ago. But, yeah, that was a while ago that the first batch of Avalon ASICs shipped, so it's been operable for a while.

JM Yeah, they had a good run.

SM Yeah, definitely. They were in a great position. But I mean Sam was saying from KNC miner that this is actually good for bitcoin. It's not centralizing it's actually that they're trying to get ASICs into the hands of as many people as possible. The average person, and he was saying that ASICs are a reality, everyone's going to be having them at some point, and we're gonna try and get them into as many hands as possible so that the mining power is distributed.

JM So you guys were on one of what I would say one of the most interesting panels. Jonathan and Stephanie, you guys were both on the Bitcoin & Free Speech, moderated by our good friend Mark Hoshtein from American Banker.

SM

Yeah, he was so cool. I got to know him the other night, yeah he was really fun to talk to.

JM Marks' the man. I'll tell you that.

SM That was a fun panel. We got a lot of positive feedback on it. It was sort of a nice counter-balance to all the people saying yeah we need more regulation. And we were like no, bitcoin is free speech!

JM Yeah, well I think any panel that in 45 minutes talks about prostitution, drugs and guns is doing the right thing to bitcoin.

SM Well Adam got some audio of it so I think you'll be able to hear that pretty soon.

AL Yeah yeah yeah, it turns out they weren't filming any of the talks there. So I took the H4M, that's what we're recording on right now, and I got a direct feed out of the board. And then of course for about half of them I forgot to press the button twice. You had to press the button twice on this thing otherwise it doesn't work. And I was running around the entire time, but I only caught maybe 3 or 4 of the talks. But the ones that we did get we are going to be releasing.

SM That's great, yeah. I'm really glad you did that. I wasn't expecting them not to be filming. But maybe, yeah maybe the next event they will.

AL

Well, what I- so again, so this event was really cool. I actually thought the event was pretty interesting, put on pretty well. It was a little bit more expensive than I would have liked. I know some people couldn't attend because the cost was simply pretty high relative to the- you know, the San Jose conference was like $180 for a two day event. This one if you got the early bird price it was $299. If you used our 20% coupon it's less than that.

SM For one day.

AL For one day. And at the door it was $599.

JM Wow.

SM Really? It was packed though.

AL Yeah. It was packed. It was packed. And again, over time people more drifted out of the talks and more into the networking area and that's what happened with both you and I.

JM But the thing about these conferences is it kind of is about the price that they charge just because the price is an indicator of how bad you want it.

AL well it determines the type of audience that you get.

JM That's what I'm saying, so you know that the other person wanted it bad enough to either scam their way into the conference as I happened to have done. Or to actually have paid the fee.

SM It's not scamming we gave them something of value.

JM True. That's true.

SM So yeah, back to the panel. So I thought it was really cool because we got to talk about wikileaks and some of the potential bitcoin has to help organizations that might be marginalized. And the idea of bitcoin neutrality which is something I know is really interesting to Andreas so I'm curious to hear his thoughts about that. But the idea of neutrality being- you know, if you have a technology like bitcoin that anybody can use,, that's just it! Anybody can use it, right? So some people, they're gonna be people you don't like, that use it. And they're gonna use it for things that you don't like. But there are also gonna be people who are great who use it, and who use it for things that you do like. And you can't get rid of the so called bad people without getting rid of everybody's privacy and freedom. So...

AL Right, this is the theme that comes up over and over and over again. And it was talked about in your panel pretty extensively. The idea being that if the point is to protect us from crime, and to protect the world from certain types of things like terrorism, human trafficking and things like that. Then that's all well and good. And that's a noble goal. But Stephanie, you had a great point. You said it's all about differentiating the transaction from the actual crime. And the differentiating factor there is that a crime has a victim whereas a financial transaction has a recipient. That might be something that enables the crime. But it's the crime-

SM Oh please, victimize me by sending me money.

AL But it's all about establishing that harm is actually done not that somebody paid for something that might have potentially caused a problem down the road. Because once you start doing that it gives you the rationale to start listening to everybody to start tracking everything. And that might make sense in some sort of weird Alice In Wonderland, through the looking glass world. But I think in the world we live in most people would agree that if 99.99% of people aren't doing stuff like that. And you know that small percentage is - it probably doesn't make sense, is inconvenient and essentially remove the privacy of that 99.99% that aren't doing those bad things just to try and stop or at least detect. Because that's the other thing of course is that we're not even talking about stopping these things from happening. We're talking about punishing them. Punishing them after the fact so I mean it makes no sense. Except of course in this Alice In Wonderland world we live in.

JM You know when the CEO of Discovery was interviewed and they go what do you owe your success to? He said. You know, sharks and Nazis. And I kind of feel like when it comes to bitcoins and when it comes to security, it's always the terrorists and the pedophiles. And that's always the discussion of everything always comes down to the .01% of bad actors that need to dictate the rest of the 99.99% of the market. And it just drives me insane because when you're talking about bitcoin it's, nothing exists in the vacuum. It's always in compared to what. And when the gentleman asked that question of..

SM Yeah, right, how many cash transactions are used in activities that potentially hurt people and do have victims and... I mean, I would argue that buying drugs for personal consumption is a victimless crime.

JM Right you weren't going to win that argument there.

SM I don't know, I think some people were sympathetic to us. Especially the guy who asked that question. But, um, but yeah. When you're talking about things that actually are crimes, that actually have a victim, that are causing harm to people. Orders of magnitude more of those are done in cash or are done through the legacy banking system. I mean, I think I brought up the point on the panel that drug dealers, loan sharks, they have bank accounts.

AL And you know, Allen Safonte, oh gosh, I'm probably mispronouncing the name. Asfahe? Ok, yeah, um, from ZipZap. You know, he's an Iranian and has been living in this country for a long time. And one of the things that he talked about was how right now you can go into any store and buy essentially $500 of free paid Visa cards or prepaid debit cards and there's no KYC processors, no identity processors whatsoever. You can go in and you can buy a shoebox full and they are just as good as cash...

SM Take 'em across the boarder.

AL Exactly so it's like, so the idea here is that on the internet it's different. I mean, you think about it, and it's not different. It's not different at all, there's nothing different about it.

JM Well, I mean, the internets different. Just because granddad doesn't know how the tubes work...I mean you look at punishment in terms of the internet and you graffiti a place and you'll get some community service. But you DDoS a restaurant or a website and now you get years. And it's a comprable act of writing graffiti or taking a site down for a few minutes. Especially if there are no damages if it's a noncommerce site. And it's just the prosecutions of things that are computer related are...

SM

That's why.. ok, so it sounds like what you're saying basically is that the regulations or like the legal system hasn't caught up with the fact that we have the internet and there are analogies to like real world physical things that happen in the world including so-called crimes and stuff like that. And so, what I wonder is, there must have been people... and people compare bitcoin to the internet in 1992, bitcoin right now. So there must have been people in the early days of the internet who were trying to educate the legislators and were trying to tell the government this is what the internet does and here's how you can regulate it in a way that makes it friendly to us. There had to have been people trying to do that but it still hasn't caught up. I mean, 20 years later we still don't have modern laws that understand the internet in a way. It's still sort of back in the.. comparing it to phones and faxes and things like that.

JM Kevin Mitnik has an amazing auto-biography. And in it he writes about how he would hack all of these establishments but he wasn't doing anything illegal because there were no laws on the books on it. So they were like, alright well let ya go this time. And that was just an amazing time to experience and where the internet was so new that there were no laws on it just like bitcoin is right now.

AL So what's the 60-second biography as you know it on Kevin Bitnik for those who don't know?

JM So it's called a Ghost in the Machine. And essentially it's what taught me that Kevin Bitnik is chaotic neutral. Because he had the power to take down billion dollar establishments and he could have been the Julian Assange a hundred times over but just wanted to do it so that he could be a phone phreak and just like prank call people. He once got cut off in traffic and got the guy's license plate number, got his cell phone number, called him a few minutes later and then said that if you're ever on the road again I will take your license away from you. That's the power that he had. And he didn't use it for good, he didn't use it for evil, he used it for Kevin Bitnik.

AL He used it for Kevin Bitnik. Chaotic neutral.

JM Chaotic neutral. But it's a fantastic book. That and We Are Anonymous kind of really give you a good understanding of what it's like in the hacker space especially when it comes to dealing with the law.

SM Yeah. I guess the point on that was that if we don't have internet regulations that aren't modern and caught up with the times so-called. What makes people think who are arguing now think oh we need to regulate bitcoin? What makes people think that they're gonna pass laws that are modern and what thee people want for bitcoins?

JM But I don't think it's about that when it comes to the regulation. I look at regulation as a thing that's needed because when businesses need investment, when businesses need a bank account, there needs to be some risk mitigation there and you can't invest in an unknown unknown. And until theres some precedent set in the legal space bitcoin businesses are so toxic that banks don't even want to give you an account. There was an entrepreneurship...

SM It's okay you don't need an account.

AL Sometimes you do.

JM Right. There was a business, there was an entrepreneurship pitch contest earlier this month and the woman who won, won because she had 3 separate bank accounts in 3 separate places that gave her an account.

AL So anyways, we're just about out of time here. Guys, this has been great. Jonathan, you did real well.

JM Thank you, it was a pleasure.

AL This is good, this is good.

SM Yeah, this was fun.

AL So yeah, this was a fun conference, so there's another one. So I know you've been invited to speak at the one in Las Vegas that's happening in December, yeah?

JM Yeah, that'll be a lot of fun.

AL Yeah, it sounds like they're going to have a lot of the same speakers. I've also been invited back.

SM Invited back?

AL

They're doing another event. They're doing another one of these events in December. Yeah, Media Bistro, the same company that put this on.

JM Although it'll be in an even funner context. It's the social gaming and gambling conference.

AL Well my understanding is actually that there are two going on at the same time, the bitcoin one and the social gaming one.

JM So it is the social gaming and gambling conference and they have multiple tracks. And he is going to add a bitcoin track to that conference. So he really wants to get that Eric Vorhees on that panel. So if anyone has a gambling company and they wish to have a place to promote it I would certainly talk to Media Bistro right now.

AL So guys, thanks again, once again thank you for joining me this was episode 30, I guess that's another milestone we don't really celebrate milestones because they come by so fast. I don't know, we had bacon today so

JM Any time you have bacon it's a celebration.

AL (laughs) Fair enough. Alright guys. We'll see you next time on another episode of LetsTalkBitcoin.

Thanks for listening to this portion of our special LetsTalkBitcoin conference coverage. Big thanks to Media Bistro for putting on a wonderful even at Inside

Bitcoins. Stay tuned for more to come over the course of August. If you have any comments or questions for me directly you can email Adam at LetsTalkBitcoin.com. If you have questions, comments, or suggestions directed at the show broadly, please visit letstalkbitcoin.com/reddit. See ya next time! (music) Hi folks, Adam E. Livine here for LetsTalkBitcoin. Continuing our August trend, today's episode, is a two-parter. The second portion of today's episode was recorded in Manhattan. The day after the Inside Bitcoins event with Stephanie Murphy and special guest host Jonathan Mohan of Bittcoin NYC. We talk about the conference, the attendees, ripple, ASIC mining panels, and also bacon. Big thanks to Jonathan Mohan who did a great job with this segment and who you'll be hearing more from in the weeks to come. But first, there's some important news news for users of Android wallets. When news breaks in the bitcoin world often times it's hard to understand. This week a vulnerability was revealed in the Android operating system that put a real fear in the bitcoin community. LTB Host Andreas Amantonopolis spoke with Andreas Peterson of the Mycelium wallet project about exactly what happened. But before we get to that, Andreas, I had some questions for you. First off, in the interview that follows, you talk a lot about entropy. Can you explain to me what that is in sort of simple terms?

AA Sure, Entropy is a measure of how much information there is in a message. If you look at it the other way around how much randomness there is in a message in computer science terms. In physics terms it's essentially how much disorder there is in a system or how much energy in the form of heat there is in a system. But in the case of information systems really you can say entropy is saying the same as randomness. So the problem we're discussing in this particular bug is that something that should be random - that means it should have high entropy - is not random. It doesn't have the necessary entropy. In fact, it's a rather predictable sequence.

AL So when we talk about randomness that can also be characterized as noise compared to the signal, right?

AA Well, effectively yes. If you have a random stream, especially if it's a secure random number generator where you expect it to have certain characteristics of

randomness then there should be no signal - that's the definition. So every bit that comes out of that should be noise - you should have no signal.

AL So it's all noise then. Ok, so if it's all noise, then is there a difference between a lot of noise in a system versus a little noise in a system? Just not necessarily talking about random number generators just broadly speaking. If you're trying to encrypt something or secure something, is it better to have more randomness than less randomness?

AA You need absolute randomness. Let me give you an example. Let's say that there's a function within the system where you're taking a random number and you're multiplying it with your secret key. So for simplicity sake, let's say I have a secret key and my secret key is 3. So give me a random number between 1 and 50.

AL 35

AA Fantastic, so, I'm going to multiply that by 3 and I've got my digital signature. So if I ask you in my next transaction, give me a number between 1 and 50.

AL 17

AA Ok, great, so you gave me a different one. But what if you had said 35 again and I had then multiplied that by 3 and broadcast it to the network. And people knew that they could guess that if you'd said 35 once you were likely to say 35 again. Well, then they could just divide by 35 and figure out what my private key is. They wouldn't be able to do that if you actually came up with a random number. So that's

the problem. The problem is you should say something different, but, you say the same number again.

AL And so that's more likely to happen in a system that has less entropy than one that has more entropy, is that right? Because there are fewer possible numbers?

AA So the way it works is when you have a secure cryptographic random number generator, you can only pull out bits for the amount of entropy it has. So let's say for example it has currently 128 random bits to give you. If you get 128 random bits those will be random. If you tried to pull out 200 bits, you know, the first 128 will be random but after that, the system doesn't yet have enough entropy. You have to wait a bit for random processes to occur. The basic concept behind it here is this was not a problem of running out of entropy, This was simply a broken algorithm, so, it was supposed to give out 256 bits of entropy and instead it gave out on average 9. So the difference there is instead of having more choices or probabilities than there are atoms in the universe it came down to 500 combinations. That's 9 bits of entropy. So you can very easily test all 500 combinations and pretty much figure out what the next random number that's supposed to be random is and if you can guess the next number - well, it's not random.

AL So what should have taken all the super computers that are currently in existence in order to crack this one particular 256 degrees of randomness basically-

AA -You could do on a wide board with a pen.

AL Right okay, well that makes a lot of sense. Ok great. Well I really appreciate you providing some clarity for us on this issue. Let's jump right into the interview with the other Andreas.

Hi everyone, this has been a rather exciting week in the bitcoin space with the announcement of a very critical android bug that has widespread repercussions all across the mobile wallet space. To discuss this in a bit more detail I'm very pleased to be joined today by Andreas Peterson who is one of the owners/authors of the Mycelium Mobile Wallet and he's here to talk to us a bit about this recent breach.

AP Hello everyone.

AL Hello Andreas, thank you so much for joining us. Can you tell me a bit about what exactly the problem is - where did this start?

AP To see the source of the problem we have to go back in time a little bit to 2012 when there was an announcement of a randomness failure in the Android implementation of Java. Basically in the harmony system. This was presented in the RSA conference in 2013 - I think it was March. This was mainly an academic problem. Because nobody could really see the practical problem behind it except for this weird randomness behavior on Android.

AL Yeah, so it would only really apply if you had some kind of bizarre digital currency that could somehow be stolen, right?

AP Yes, yeah, so most people don't really notice if let's say their SSL connections aren't really that secure or if they encounter some other kind of problem. So, bitcoin really puts the system under test here and reveals these kinds of problems. To be precise I think this is not a single problem - there are two very distinct problems that we have seen here. The first problem is you know there's a so called random device in most Linux systems or in all Linux systems, and from that there is a U-Random device. These seem to be working fine as far as we know.

AL So the operating system random device generator that creates random numbers that's working ok on Android.

AP Yeah, yeah - so to actually use random numbers on Android using Java language you need to instantiate a so-called secure random object and that secure random object is just a wrapper for a system library and that is commonly implemented using OpenSL. And that implements the randomness by talking to the device and so there are many layers involved here. Wallet Alphas did nothing wrong. They stuck to the documentation and applied the best practices to not rewrite your cryptography and so on. So that was not the problem. The problem was between all these layers, entropy was removed from the original entropy source that is the random device.

AL So basically you're getting numbers that are less random than they should be from the source so gradually they're getting less and less random, ok.

AP Yeah, but from that bug directly nobody really lost money. I have talked to another guy who is cracking private keys as a hobby, and he generated lots and lots of random numbers. 2.6 million random numbers and he never got the collision using Android. He never got the collision so there was no private key compromised as far as we know. We don't know really, but what we do know is that there is a second issue. That is, when signing transactions there is also a random number needed to generate a valid signature. And those signatures are definitely not as random as we think they are.

AL So let me just clarify there Andreas for a second. So the issue is not with the key generation per se, the issue is that when you try to sign a transaction especially to spend it, you are in a situation where you are seeding that signature with a random number which is not random and if you do that more than twice, that can reveal the private key. Is that correct?

AP Yes, exactly. So there is an equation, it is described very nicely in a bitcoin magazine article. If you have this random number and you use it twice, then using this equation you can trivially, simply, calculate the private key that was used. This means that if you have a weak random number generator that can potentially expose your private key to everyone. That has happened a number of times in the past. Most of the time where it was when people were playing around with toy implementations, prototype implementations of clients. But it also happened on Android directly when signing transactions. The issue is that you create a new secure random instance and then you query it twice. Under very weird circumstances there are fallback scenarios where the entropy goes down to a level where it has a very high chance of repeating the same value. Basically I think that in some cases the randomness can go down to 9 bits of entropy instead of 256 bits of entropy.

AL Given all of those circumstances I would assume that means whether you've generated the key on an Android wallet or not, if you have an Android wallet that is using this Java secure random number generator, and you use that to spend money at any time you have a chance of having revealed a private key for that particular wallet?

AP Right now I would assume - of course you should migrate your keys because of the general entropy issues - but, right now, if you haven't lost your money yet, it's not extremely likely that you will lose it in the future because of this second vulnerability. Because that would mean if you continue using the old software and generate these weak transactions yes, then you could potentially expose that. But that's very unlikely.

AL So one thing that was rather interesting with this was that the bug itself expresses itself on the block chain in a way that anyone can go and find these suspect transactions. Presumably you're looking at a transaction, or rather you're looking at two consecutive transactions done by a same key where the same random parameter R was used for both, and presumably you can just write software that trachles through the block chain to find these, right?

AP Yeah, and people were doing this and you will lose your money rather quickly if you generate such a transaction.

AL If you'd already done it you would have lost your money already so there's nothing to worry about. Just don't make any new transactions.

AP Yeah, and of course all the change of keys. There are many properties of this stack, MSSL, and the Android API that are kind of shady in my opinion because it certainly isn't impossible to implement that in a way that it would simply work. And it's kind of shady that it fails in such a way, so I would say if somebody used secure random on Android for any purpose that you should change your keys because there might be a vulnerability that we don't know exactly about yet.

AL So Andreas, would you say that this bitcoin demonstration makes the 2013 announcement at RSA much more critical and concrete now and should therefore lead other developers on Android doing software that's not directly related to bitcoin but to other secure implementations. This will kind of wake them up, you know, this is now in the wild and usable.

AP I don't really think it's a very big coincidence that all these bugs happened together. A kind of conspiracy theory here, but of course, this bug makes it potentially much easier for anyone with massive computing resources to crack encrypted communication. And therefore everyone who is the author of any cryptographically interesting application on Android should definitely cease to use secure random and rather look for an alternative. So, the most obvious alternative would be to access DAFU random device. DAFU random file directly and read from that as we do now in the Mycelium wallet. The other thing is that I'm currently looking into an implementation proposal by Bruce Schneier, if that would provide a very good alternative that we could combine multiple entropy sources.

AL Ah, right, yes. As a developer of the popular and very function Mycelium wallet, you've taken steps now to fix this problem I'm assuming all of the Android bitcoin wallet developers are doing so. What would the users experience? Would they experience simply an update coming through their play store?

AP Yes, so first of all I have to really give credit to Jan Mechler, and as far as I know all popular Android wallets have been updated so that they are four wallets out there that keep your own private keys on the device. That's bitcoin wallet from (inaudible 14:30), that's Mycelium wallet, Blockchain.info, and also the now kind of deprecated Bitcoin Spinner - that was the previous application from Jan - was also updated. So on some of these wallets you need to manually do the key rotation, but on others for example on the Mycelium wallet there's a wizard that detects old keys and automatically moves them to new keys. And in the process what I really want to emphasize here, please do make a backup of all your old keys and your new keys. You don't know if you're going to need them in the future. In the wizard it also gives you the opportunity to make a backup. So please do that and get those private keys onto a piece of paper please.

AL Okay, yes, very good advice. Get it onto paper wallets as backups. So let me just clarify a tiny bit. You talked about the rotating keys, if you were to break down this process: you download the new code from the software developers who have updated the code. You make a backup of the keys as you very rightly just said. Then you create a new wallet, and then you essentially send all the money from the old wallet to the new wallet? Is that it pretty much?

AP You will send money from one address to another address and your wallet software now has maybe both addresses in it or just one address in it depending on the implementation used. It's not a very complex problem, you're essentially just sending money to yourself and it's a new address.

AL

And very critically I would say this has to happen after the software has been fixed because if you just generate a new address and tried to send your money, you will be creating exactly the kinds of transactions that could compromise your private key, right?

AP Yeah, so updates for all the wallets have been pushed out so the play store and the two other channels, that shouldn't be a problem. Can I ask you something in return regarding this topic. You were involved in the paper wallet project, yeah? How is the situation there, do you have any inside information about... what kind of randomness does the paper wallet provide?

AL The original paper wallet is derived from the bitaddress.org version 2.4. That's the same software we use for open paper wallets, safe paper wallets, and as far as I know the bitcoin paper wallets which is another version. All of those use the operating system devurandom from within a JavaScript wrapper library. That does not run on Android so that would be inside the desktop browser as far as I know there's no vulnerabilities there.

AP It would rely on the JavaScript implementation of the browser used. So it could be Chrome or Internet Explorer or something.

AL Well it's cross-browser so it operates on all of them, but certainly yes, one of the considerations here - and I think a good security practice - and one of the reasons I was not as worried about this even though I use a mobile wallet is simply that I only had 2-3% of my funds online on the wallets that were doing transactions from my mobile client. The rest was all in paper wallets and that's a good way to be restassured essentially - to be relaxed about it.

AP Yeah, yeah, absolutely. So also I mean on paper wallet you rely on having a good entropy for the key of course but the main problem the duplicated random values in

the transaction doesn't even show up in paper wallets because they don't do any transactions of course.

AL That is correct although we do have in our latest version of Safe Paper Wallets software we do have a way to completely sweep and redeem and it will create a transaction so I would have to look at the random number generator. But in general I think this is really a sign of things to come because vulnerabilities in the past had time between going from theoretical to practical and in the wild, but what bitcoin does is it provides immediate incentive to take that theoretical exploit practical and make some money off of it. So we're going to see this happen more and more, would you say?

AP Absolutely. So this is really showing the weaknesses on some systems and also in computer security it's not surprising that a lot of file hosts, server hosts, have been hacked and attackers specifically only went for the bitcoin customers and left everyone else alone. So this really shows the security status of the system if you have some bitcoins up for grabs for an attacker.

AL Most systems are not quite ready yet for storing digital money but we're going to learn and develop as time goes by. I would like to thank you so much Andreas Peterson, co-author of the Mycelium mobile wallet for giving us some excellent information today on what exactly is happening with Android random number generator, how to solve it, so what to account for, and thank you so much for all this useful information.

AP You're welcome.

Easy DNS is the army-army knife for your domain names - helping meet their customer's individual needs since 1998. Easy DNS has been an outspoken critic of SOPA and CISPA. Easy DNS was an early supporter of bitcoin and now they are proud to sponsor this show. Do business with a business that shares your values.

Get a 13% discount when you pay with bitcoin. Go to bitcoin.easydns.com and be sure to use discount code LTB.

Hi, this is Jason King, for Bitcoin100.org, and you're listening to LetsTalkBitcoin. Bitcoin100 is old school bitcoin philanthropy. We've brought further awareness to bitcoin by having charities and non-profits add a bitcoin donation option to their sites. Then we will award them with a $1,000 endowment for their efforts. Please help support us by either donating to our cause at Bitcoin100.org or by helping us find worthy non-profits that are willing to accept bitcoins for donations. Thanks.

AL Hi and welcome to episode 30 of LetsTalkBitcoin, we are on the 38th floor of the New Yorker Hotel in New York, New York! Yesterday we attended the Inside Bitcoins Conference, and this morning it's a little after 10 AM East Coast time which means about 7 AM West Coast time. The time that my brain is still on. Joining us today we've got my normal co-host Stephanie Murphy.

SM Hello, we're in the same room again!

AL Yes, we're in the same room again. Second time! Sweet. And then also special guest host Mr. Jonathan Mohan.

JM Hey, I have some big shoes to fill but I hope to them quite ((inaudible, 21:00)

AL So Jon Mohan again has been on the show before and is the founder and whirlwind of activity that constitutes the planning behind the Bitcoin NYC group and various events. We went to a cocktail party the night before last?

JM Yes, on Monday.

AL Second market that you helped put together and it was a combination group event for LetsTalkBitcoin and for a couple of other - I think Coinsetter was there?

SM Yeah.

AL Yeah, Coinsetter, and then the other one was of course Second Market.

JM Yeah, I heard that 140 people RSVP'd, they had to kick people out.

AL Yeah, that was a funny thing. Apologies to listeners if anybody didn't get in, feel free to email complaints to Adam at LetsTalkBitcoin.com. But yeah, so this was an incredible event! I gotta say even for a one day event, a lot of stuff happens, you know the talks again, we had this thing where the talks were good but it was more about the attendees than really about the speakers.

JM Some feedback I got was there were way more amazing people in the audience than sometimes as a panelist I'm gonna say-

AL

Right, we all spoke there I feel comfortable saying- (all laugh)

JM I would talk like, "What do you do? Why weren't you on that? Oh my god!"

SM It's true. You'd walk around and everyone has CEO on their name tag. I wanted to say I'm like the CEO of Ork Therapy or something. (all laugh) But yeah I mean everybody had a project, they all had things to say. At one point I was doing some interviews out in the hallway and I realized that several hours had gone by and I had missed Adam's talk actually and I wanted to see it but I was like just one interview after the other, so...

AL Yeah yeah, no, you were quite the machine out there,. So how many interviews did you get this time, Stephanie?

SM Oh, at least a dozen.

AL Okay, so you got, I think it was, was it 20 last time? I think it was about 25 last time? Okay, so the ratio is about keeping up, it's about 12-15 a day.

SM Well hopefully it's quality too and not just quantity. But honestly I thought they were great. I talked to some people that I had been wanting to talk to and it was really interesting. Especially to hear more about what's going on in the mining scene. Those were probably my favorite interviews. I talked to Sam from KNC Miner and Josh from Butterfly Labs. I also found out about Feathercoin, that was interesting too.

AL Yeah, yeah, did you meet the CIO there?

SM Yes, that was Peter.

AL Was that his name? I thought his name was John. I'm terrible with names.

SM It was Peter John.

AL Peter John! There you go, okay, that makes sense.

JM My mother says to never trust people with two first names. Maybe that's a sign. I had no idea he was there.

SM Yeah it was cool, I learned some things I didn't know about Feathercoin before and I kind of wanted to get Feathercoins last night when I got home.

JM I joke with Jonathan Worhan the BitMessage guy that we should make our own crypto currency and call it breath like air. And what it will do is there will only ever be 21 quadrillion units in circulation and it will be the heir to Feathercoin's copper. (all laugh) It's so (inaudible 24:00) it's unmeterable. It's just you don't care because it's so many. I think it's gonna go places, I think this is the time to announce it.

SM There is so much more going on too. There were a lot of big media there. Adam, you know, I don't know if they're going to do anything with it but you and I were both on camera for CBS national.

AL Yeah, no, she was excited, we spoke with the producer there, I actually - walking out on the talks on the way to lunch, you know I actually didn't eat breakfast yesterday and so I was heading to lunch. But then I was walking by and I saw this bewildered looking woman who had a nametag that said producer CBS and I like reversed, came back, and was like, "Hey, I'm Adam B. Levine of LetsTalkBitcoin! Do you need any help finding anyone?" So that's what I try to do at these events most of all is just to be helpful and to-

SM Oh you were great with that! You lined up a bunch of interviews. I think she learned a lot about bitcoins because she was totally new to it and I'm glad they decided to come. CNN was there in the morning.

AL Well they weren't necessarily- CBS wasn't- she was just there to see if they should cover it. And so after I told her that I could get her like 10 interviews she's like Ok, I'm calling the crew. Then they showed up about a half hour later. But no, it was great, it's terrific. Again, bitcoin and crypto currencies in general are hard to understand if you don't have the basis to understand them and so when especially journalists come into play - a lot of times these people don't have a real monetary background and so it's hard to appreciate it. But you know, if you can get out there and give them good analogies they can understand and they can take back to their listeners and their viewers - because that of course is the other thing is that if they can't understand it how in hell are they supposed to present it to an audience who is even less informed than they are. So, you know, I think we actually did some good work yesterday and I know PBS was there too.

SM Reuters, TechCrunch. A lot of big names, honestly. It was great.

JM You know, at DefCon, they have something called spot the fed where it's a game where you have to spot who's a federal agent. And actually I don't know in the San Jose conference if you had any, but, did you

SM Andreas claimed that he identified an FBI agent.

JM Were you able to meet the special agent who was here from the Cyber Crimes Division?

SM I didn't meet him but I heard you're having lunch with him.

JM Yeah, next week I want to do that. He seems really interesting.

SM Wow, so you didn't have to spot him he was obvious.

JM Yeah, he was wearing a name tag that read FBI. He didn't look like a Fed. He was wearing a t-shirt and just hanging out.

SM Well then the question becomes who was incognito.

JM Right, right. I had a really fun moment where someone had given me his card. And I went, oh my god I talked to this Fed you have to talk to him. So when I went to speak to him, I said hey I'm Jonathan we should grab lunch some time. And he said, "Oh, let me give you my card." And I was like, "that's alright I already have all of your information." (laughs) And he was like, "What?"

AL Ahead of the game! (laughs) Yeah no, in addition to the FBI - I did not meet the agent there, but. I did see someone from treasury there and I got a card from them and we're gonna speak to them because again you know they're... Really what it seemed like again - and this might not be true of everyone in these agencies but certainly the people who are there at the very least seemed like they were curious and just didn't really know what was going on. So that could be an act-

SM That would not surprise me..

AL Right, exactly but it seems actually fairly likely that given all the things to pay attention to, this is just simply not something that the majority of them are paying attention to.

JM Right. And you'd mentioned PBS. So I was speaking with them and at the end of the interview the producer had mentioned, "You know, we were talking about potentially thinking about accepting bitcoin." And I said, "Oh my god, that's amazing! Oh, wait! I'm gonna do as much as I possibly can to make this a reality..." And that's what's so amazing about the conference is when you have 300, 400 entrepreneurs in a room it's really easy to start doing things. So I just got- I immediately ran to Tony Gileppe of BitPay. And so I was like, "Alright you and I. We're gonna meet with PBS and we're gonna make this happen." And I got out three sheets of paper, and I just ran around the conference and during that time we actually got 200 bitcoins pledged towards going t PBS should they accept bitcoin. So actually Josh from Butterfly Labs pledged 50. And then EFU pledged 50. And Sam

from KNC Miner? Yeah, he pledged 50 as well. and then Tradehill pledged 10. And then we have Bitcoin100, which is always available for 10 bitcoin. And then about 20 people also pitched in about 1 bitcoin. So it was kind of a communal effort. Just a shock by how much demand there is to see someone like PBS get behind bitcoin.

AL That actually exceeds the number you going for, right? Because at the end of the conference we ended a little bit early because one of the speakers didn't show up. Christian Dumont I believe....

SM Oh... from Foodler!

AL Yeah

SM You wanted to talk to him.

AL I know! We've been trying to schedule with him. Because again they have a really interesting use case and that's what he was supposed to be speaking about there but as far as I understand it sounds like he missed two flights by coming here and did not make it in.

SM Yeah, I can understand that it's easy to get lost in New York and it's easy to...

AL It's easy to not get to New York too apparently.

SM Yeah, totally. Well hopefully we'll be able to catch up with him later.

AL You know, again, it seems like they're having a lot of success with the space so there's no incentive for them to leave.

SM I just saw something saying that their bitcoin orders. So it's a thing where you can order take-out. And they take out bitcoin. So you can take out locally with bitcoin and I just saw an article about it and apparently the bitcoin orders have grown and tripled over the last month or something.

AL So of course the question with that always is what were they to begin with? Because tripling...

SM Yeah, we had 1 bitcoin order last month, now we have 3. (laughter)

AL So it's all kind of relative when you're talkin' about abstract numbers like that. So, let's talk about the conference. I mean that was certainly something is that we did see a lot of ASICs there. I don't think anybody spoke about ASICs. This was not really a technical event, this was more on the regulatory side of things.

SM Yeah, or just um, like an intro, like. They really did try to make it friendly to people who had no idea what bitcoin was. The keynote speaker was Charlie Shrem so he spoke first thing in the morning and actually I was seated right in front of his

parents and so that was cool because I got to meet his parents. He was saying that he founded BitInsant , just a young guy. He's only 23 years old. Just amazing what he's done with BitInstant in that time. But he was saying he got laughed out of every venture capital firm that he tried to pitch the idea to back several years ago. 3 years ago I think. When he was trying to start BitInstant. So, he had to actually get the startup funding from his Mom. And so she was standing up and she was like woohoo!

AL The number though - that was the thing that surprised me. I assumed that there was more cost behind BitInstant but he said that

SM 10,000 dollars.

AL yeah, $10,000 to start BitInstant.

SM Yeah. I'm sure he didn't have an office in Manhattan at first.

AL I mean obviously, but it just goes to show the barrier to entry on these properties even so even with something like that where you're actually interfacing with the monetary side of it is not that expensive until you get to regulatory compliance. And once you get to regulatory compliance the cost goes through the roof and you suddenly need millions of dollars in order to pay the bonds, just endless things.

SM I think that's really important to point out because it's really... already we don't really have regulation- is much about bitcoin but just the thought that there could be regulations about bitcoin is stifling a lot of bitcoin business. And we saw on thethere was a venture capitalist panel actually of several investors who were either

had invested in bitcoin businesses or had invested in bitcoin personally or were planning on it. And one of the things they said that they would avoid that was like a red flag for bitcoin businesses that they would not want to fund a business was if they had basically like regulations hanging over their head or like regulatory liabilities. So basically exchanges and things that could be potentially considered money services businesses or anything like that.

JM And so at one of my weekly entrepreneurship meetings regulation is the talk of the town. Because there is this tremendous incentive for (inaudible 31:58) to not want to invest in something for which you can't quantify the risk for. And if you don't have your regulation down you're just a risky bet.

SM Yeah it doesn't matter how great your business is and that just struck me as so unfair. You could have an amazing idea for a business and these bureaucrats are just gonna get in your way . And you won't be able to get funding.

AL Hang on a second. It's not fair, Stephanie. It's not fair? No, of course it's not fair. It's not supposed to be fair.

JM And you know, there's reason why finance hasn't changed that much in America. And it's because of what's happening here.

SM Yeah, with the regulations. Exactly. Everybody says the US is the least friendly environment for any business that involves money.

JM And I actually think that bitcoin might be the canary in the mind to say that, "This might be the point where progress and innovation needs to leave America in order

to succeed." Because I've been having weeks and weeks of discussions with regulators and I myself was scared away from starting a company just because I would be a money transmitter and would need hundreds of thousands of dollars to start my idea when really the costs were under 10 grand to get it started.

SM Well how many people have the same experience.

JM And so many I'm talking to them and the answer is always, "Well you know Eric and Gabe and the bunch, down in Panama, totally, they'll hook you up. They'll give you a place to crash for a bit until you find somewhere and Panama is right there, 0% income tax, we could do it guys."

SM And you know about Coinapult.

JM Yes Coinapult.

SM That's the company Eric Vorhees... Yeah that really stood out to me, I mean just the focus on where is this gonna go from a regulatory standpoint and I feel really sad about that. I love to see these businesses growing. And we have such an amazing technology that could do so much for freedom in the world, for convenience. It just opens up so many possibilities it really is the future of money for a reason because it's so much better than what we've got right now. Credit cards were great, they were an innovation but that was 40 or 30 years ago, right? At this point? And so, you know, it's time for something new and I would like it to be able to just go and see what happens with it. But it seems like there's a storm cloud that may be holding a lot of people back.

AL

Yeah, you know, I mean, I think that- Ok, so in addition to the VC, in addition to the miners that we saw, the miner manufacturers that we saw: we also saw a whole bunch of lawyers. This was really, I was surprised by how well represented they were. And you know we saw the firm that did the..

SM Oh really, the lawyers were actually well represented?

AL We were actually sitting in front of a gentleman who represents the online BAR I think is his project. It's out of South Africa but they have 3,000 lawyers who he speaks to and you know, he was there just learning about bitcoins. So we talked to him for a really long time. He was very interested. They're also into permaculture. Crystal and his wife. Yeah, Crystal spoke to them about permaculture, my wife personally. She's the engineer`

SM She's awesome. She's our producer.

AL She's our producer. Um, but yeah they were well represented. In the talks it seemed like there was a theme that I was a little bit disturbed by. Which is that bitcoin fundamentally has to change in order to work in the long term.

SM Yeah, I saw that, and I think that I totally think that's inspired by the regulations that people fear are coming. And so they're like, "Well, you know it's not so bad if we don't make it anonymous and we if we don't cause chargebacks and if we build chargebacks into bitcoin what's the big deal? What's the big deal is it's not bitcoin any more.

JM

Well I think it's easy to confuse a business opportunity to fundamental changes to bitcoin itself. So these people that's what businesses are for. You see a little gap and you fill that niche. So I think that a lot of these are just going to be a bitcoin back in business that are going to fill the capacity to facilitate chargebacks.

AL Well I think that's the hope is that you wind up with something like that. Is that you wind up with like an insurance type of system where merchants subscribe and pay a fee. And then there's the ability to do voluntary chargebacks and then you have a third-party arbitrator who can essentially come in and mediate that.

SM It can happen with escrow services now though. There are some, I mean that are starting...

AL Yes, that's true, that's true, but again. You add layers of cost to this thing every time you do stuff.

JM Right.

AL And I mean, and that again is the problem. That over the long term the question is, are we throwing the baby out with the bath water by trying to fix these problems are we in fact ruining the system as a whole.

SM Yeah, this revolutionary technology that is completely different from the Legacy Banking System is so great! We just need to make it a little more like the Legacy Banking System to make it better. Yeah, and I was disturbed by the way it was presented in a lot of the talks that I saw. We need to do this. You know, like it's not so bad. Let's just tie our identities to all of our bitcoin addresses and put a social

security number on it. Let's like, you know get rid of the irreversibility of transactions! And we need to do this, or else bitcoin will never get mainstreamed up. And I disagree with that. And I was sad to see that sort of, I guess they would probably say, well we're being pragmatic. Because this is gonna have to happen anyway if bitcoin is gonna succeed. Well I'm gonna take the idealist position as I always do. And I just want to put it out there and say, I don't think that has to happen. And we can use bitcoin as it was initially intended and there are certainly uses for bitcoin that don't involve sacrificing some of those great things about bitcoin.

AL Right, and you know the option is always there if you want to create comply coin. I think that that

SM (laughs) Comply Coin! Yeah, that would be a great market idea.

AL There's a huge niche for that I think.

SM Sadly I think there are lots of people who would hear it and they'd say, "Oh, oh goody, I can do everything the regulators want me to do."

AL Because I thought... it does exist it's called Ripple.

JM Ah, there you go. Well even Ripple has some problems because it is still not anonymous, because it has entry points and exit points where there's identification that asks..

SM What do people criticize Ripple for? Can you just give us overview on that? Because I think a lot of our listeners don't even know what Ripple is let alone understand the criticisms of it so let's talk about that.

JM So, I'm assuming they're great entrepreneurs. I'm not disparaging them. All the power to them for trying to better the ecosystem. But when it comes to looking at alternative crypto currencies there are a couple of key identifiers as to whether or not this is a scam. And when you apply it to something like Ripple it kind of has some warning signals. So one of them is pre-mining. So if you're

SM Are you talking about XRP which is the currency that Ripple uses?

JM Yes.

SM Okay, so let's say what Ripple is first, I mean.

JM Sorry.

SM So, Ripple is like, um... (laughs) so I don't completely understand it either so correct me if I'm wrong. But, basically it's a network where you can easily convert different currencies. Let's say you need to borrow $50 to get some groceries or something. Like, you could trust somebody who trusts somebody else in China and they could basically send - loan you bitcoins or loan you Ripples or loan you Wans or whatever and you could get your $50. And like Ripple is just like the medium of exchange all the lending takes place outside of Ripple I guess. But it's basically a system that's

built on trust, networks between people and it's a way to convert currencies and exchange credit peer-to-peer.

AL Right, and of course all those things you say basically translate to its debt transmission network. Where essentially you're not. And this is why you can sed dollars through it so fast. Again, you can send dollars as fast as you can send bitcoin because you're not really sending the dollars. You're transferring a debt from something that you own and you're applying it to somebody else.

JM And I think when you look at Ripple it's an amazing iterative step on our current banking/financial system.

AL This is, this is important.

JM And I look at it, and I'm like, I know five years from now or three years from now when congress is gonna start looking at this space they're gonna be like, "Well why can't you be like your brother? Ripple's able to do it how come you guys can't do it? C'mon bitcoin, get with it." So I think that ripple is a great transitory, you know, transition into bitcoin.

SM But that tool, the debt transfer network exists outside of the crypto currency Ripples. The crypto currency is somewhat similar to bitcoin. You know, right? And that's what you were talking about before when you said there's a red flag because they pre-mined XRP and then were giving them away, is that right?

JM Yeah.

SM So yeah, go on, continue with that.

JM So, I mean there are a couple of red flags when you are looking at crypto-currencies that just get started and one of them is: has the owner pre-mined it? And if you look at the distribution of Ripple that are in existence. Like 50 people own a significant portion of the Ripple.

AL They pre-mined all of them, didn't they.

JM Yeah. It's 100% pre-mined.

AL But it's a little bit mis-leading because in the Ripple network you're not really, it's not like I'm gonna send 20 ripples to you and then you're gonna cash the ripples. It's more like Ripples are stamps. Where it's like an anti-spam mechanism more than it is a value transfer mechanic.

JM But I remember reading somewhere that if you looked at the current market price of a Ripple and then you multiplied it by the 100-billion Ripples they have or whatever it is, that it was equal to the value of the market cap of the bitcoin network.

AL So they gave themselves an impressive pre-market evaluation.

JM Yeah (laughs). So I don't know how that works, but it kind of looks like they're able to print money in my opinion.

Break

AL You're listening to LetsTalkBitcoin. The premier audiocast providing news and insights that cover the rapidly evolving world of digital money. Our twice weekly show include analysis of late breaking news, updates on key, technical, business and regulatory issues - and in-depth interviews with the key people driving the new digital economy. LetsTalkBitcoin offers sponsors an attractive way to reach a targeted and savvy audience. For more information email sponsors at LetsTalkBitcoin.com.

Advertisement More than 300,000 users and counting trust blockchain.info. It's a bitcoin wallet service and a wealth of bitcoin information and is completely free to use. With the Blockchain.info wallet, you'll get the convenience of a web wallet, and the security of a desktop client. Blockchain.info is also a block explorer. You can use it to see bitcoin transactions in real time, check the balance of any bitcoin address, and do many handy bitcoin charts, all for free. See what they have to offer today. At Blockchain.info.

AL I think that what you said there about Ripple being an iterative step is really important because that's the thing. Is that, ,if Ripple had come out- and to a certain degree I think this extends to open transactions too, because it also is a debt transition mechanism because. You can't - bitcoin and crypto-currencies are so fluid because they don't exist in real life. So when you're talking about assets that have real life presence you simply can't cram those down and shove them through an internet connection. So it has to be a debt transition mechanism in order to do that. But the thing is that with bitcoin and with crypto-currencies you don't need to do that at all. It's unnecessary. And especially when we move to a more digital economy where the need to do that at all goes away basically. So you know, again, it's one of those things where if the Ripple system had come out before bitcoin we'd be having a very different conversation now. And now it'd probably be

LetsTalkRipple. Because I mean and again, compared to the banking system we have now it's so much more efficient compared to crypto currencies. It's less compelling.

JM I just think that if the thing that bitcoin does is force the current baking paradigm to move to Ripple and then the conversation is Ripple vs. bitcoin. I think that's a fantastic world to live in.

SM Yeah, I completely agree.

AL And you know, that's an interesting point, because you know that certainly could be - Ripple has gotten a lot of high-profile investors. And that certainly could be the play they have in mind is that okay, so you've got these crypto-currencies but theyre kind of flatly incompatible with the existing financial system so if we're gonna move towards something that's more like that then this is an intermediary step that we can take that we know already complies and can be easily integrated in. And so then we just sell it essentially software as a service to all these banking institutions around the world. Bob's your uncle, you know we're the defacto center of it all again. It's a very interesting space for them to operate in right now I think.

JM Was there someone from Ripple at the conference?

AL Yes. I'm not sure if I talked to anyone from Ripple. The coin thing and the open thing, very very difficult. So many companies there have those in the names. It's like when I used to work in the green space and everybody used to have like green or bio or all those other nonsense. And it's like again, the first couple companies that do it. That's great. And then the next 400 companies that do it - it's confusing!

SM So if you meet someone new and you forget what company they're with you're like, "Oh yeah, you're from coin..." I'm like, "Yeah, CoinPeg, Yeah."

JM I saw 3 different accountants who had a play on bitcoin accountant in the name. And I just couldn't remember them because they were so similar in the name.

SM I got some people remembering variations of LetsTalkBitcoin actually like. Someone goes, "Oh, yeah. You're from BitccoinTalk." And then someone goes, "You're from BitTalkLive.". (laughs) LetsTalkBitcoin? Oh real quick. What's the difference between Ripple and OpenCoin or Open transactions?

AL Open transactions. So Ripple is the product of a company called OpenCoin. And Open transactions is a product of a company called MonoToss. And we've interviewed Chris Odom before,, he goes by Fellow Traveler. He's a podgener of that technology. I think he's more of a marketer than a code guy. But he managed to put it together to the point where he's really been able to attract some attention. I know that they either have just funded or they are in the process of funding right now and are raising a pretty decent amount of capital because again. There's a lot of... you know again, when you're talking about these systems it's so much easier to comply with these various debt transfer mechanisms because they integrate so much better so you know again that's where a lot of the money seems like it's going. That and altcoins too, there are some altcoins that are getting some traction.

SM I talk to a litecoin developer yesterday, and there were some litecoin people there, and they were so cool and pleasant to talk to. And I was like I can't wait to see where they're going. I think we're gonna have an interview with Worm who is one of the litecoin dev's to talk about the new release and what they're going to do with litecoin in the future. And I'm just impressed with like... there's more infrastructure that's coming out. Not just with litecoins but with all these different altcoins. A lot of these coins are where bitcoin was a couple of years ago. And I think people see

that and maybe feel like they missed the boat or whatever. They got in too late and they want to get in. I think we're still very early in the adoption curve of even bitcoin. But it's tempting, you see an alt coin an dit looks like it has potential, you know, you wanna get in on the ground floor and see what it does.

AL Exactly, you know the multiplier is just so enormous. Again, you look at bitcoin, certainly a multiplier. It could be enormous assuming you have a whole bunch of hundred dollars to throw at buying some bitcoin. But you know, with the alts, the buy in, you're talking about pennies,. And the potential is still there for that price increase. We don't talk about the price but from a speculative standpoint, it seems like if you could identify the right alts that actually have the right characteristics to give us a chance of making it big, that is really where the exponential potential is for a very small investment to convert into a big one.

SM Yeah, and I remember one of our first episodes of LetsTalkBitcoin, I want to say it was like 3 or 4. We talked about altcoins and we gave a rundown of some of the most popular ones. Well even now just a few months later, there are hundreds of altcoins. And nobody can keep them straight. I was talking to somebody yesterday, and I said so what are they other script-based altcoins? And he said oh! There are at least 40 I can name off the top of my head. I said 40? I only know of like 2!

JM Yknow, it's a testament to the space that I'm kind of eating my words. Several months ago I'd kind of make fun of litecoin, and now the discussion is, maybe because of mining centralization bitcoin needs to become more like litecoin. So you know you're seeing the free market at work because when you allow people to do whatever it is they want to do in the space, the market leader has to learn from the trail.

SM I think it's really important to keep an open mind. If you like the concept of bitcoin, or if you just like the concept of crpyto currency in general, if you like anything about it. Realize that there's the potential - like, we're still figuring this out and maybe it's bitcoin, maybe it's litecoin, maybe it's some other coin, or maybe it's gonna be a bunch of different coins. That's gonna predominate. Coming up.

AL over the last 2 months I've really gone from there can be only one camp to realizing that's probably actually not going to be the case. And it's because (beep) happens, and stuff changes, and when things change. And you know, that's the thing, is that like, when things change it's gonna happen fast. So now what I have kind of over the last few weeks come to believe is that right now we're in essentially a belief bubble. Where everybody looks at the crypto currency space. And because it's so new they look and they say, okay, bitcoin is the one. And then there's all these other ones. They don't matter. And they don't matter right now. But it's because people only look at bitcoin. What's gonna happen is they're gonna see some destructive changes coming in bitcoin's future whether or not the developing team likes it and I think that we're probably going to wind up seeing that illusion to that bubble get popped. The illusion dispelled and at that point suddenly it will be a whole new ball game if you start an alt. And it'll be much more about the merits of your currency rather than about whether or not you've already achieved an (inaudible (50:21). Again, because there's that potential for the exponential multiplier of very small investments to convert into very large ones.

SM There is something to be said for achieving the network effect though.

AL Certainly. It's no small barrier I don't mean to say that.

JM Essentially what you're saying is we're waiting for bitcoin to have its Mt. Gox event.

AL Right, exactly, but you can think about it like this. When bitcoin has its Mt. Gox event instead of all the money in Mt. Gox being locked down, bitcoin is totally liquid. So it's very very easy to just (beep) slip into the next one. I have to edit that. I've been swearing for the last couple of days...

JM It's New York it does it to you. (laugh) I mean but yeah, you had a company that had everything going for it. It had 90-something percent of the space and through a series of unfortunate events, that would have happened to anyone who - the point about a trailblazer.

SM It took a lot of unfortunate events though, I mean once it got to the critical point it was hard to knock it down off the pedestal, right?

JM Right, and I mean the same could be said about bitcoin for example, people like to forget that bitcoin is 0.8 version right now. It is still a beta. It is a multi-billion dollar beta. And, what's to stop some random error that no one has seen just wrecking the whole thing?

AL Oh, so we should talk about that. On that note, so we had some conversation from some miners, Stephanie I know that you interviewed. I had some conversations off the record with some people about this kind of question. Specifically about, we talked about HOPEC was it?

SM OHEC

AL Oh heck, oh heck, that was it.

SM Organization Hasing Power Exporters

AL Yeah, that's right, so some people didn't understand what we were talking about. It was kind of a joke, because, the oh heck was kind of a joke. Because in order for that... in case you haven't listened to the last episode where we talked about this, basically KNC miner released a statement saying that they were going to stop shipping ASIC units from November through Q1 of 2014 with the idea being that this would protect the investment of the people who have purchased equipment coming before because in Q2 they're going to release, and they could in Q1 but they're gonna hold it until Q2... um, are going to release hardware that is orders of magnitude cheaper and faster than what people have previously ordered. And so if they were to release it at the pace of technology then the people who were getting this mining hardware would be almost instantly obsoleted and have no opportunity to earn their money back. And of course that's bad if you're a business that tries to have customers that buy your product if you're iterating so fast with the technology that people can't even have a chance to make back their investment.

JM Although I would like to say in this space that I personally think that's a great marketing pitch for their company but that if you look at what happened in the past with EFU of Avalon. He had said hey look, we're the market leader just because I had no idea that every single other company wouldn't ship. When you're talking about how successful you're gonna be at executing in this space it's a space that has a lot of people not executing. So I just think that if they could do what they say they're gonna do they should just do it. Because executing in this space is so rare that I think the market needs that more than it needs someone being it's Batman. The protector it may not need but it needs... it doesn't know but it wants.

AL You know I agree with you there, but that's the thing. When talking with these guys I spoke with the guy Sam from.. was that his name?

SM Sam.

AL

Sam from KNC. And also there were one or two other ASIC manufacturers whose names I didn't catch in this little conversation we were having. You know that you're gonna have to get together with all the other players out there and you guys are all gonna have to stop shipping,

SM Yeah, like a cartel.

AL Yeah, exactly exactly. And he was like, yeah I know. Then we started talking about how, he started telling me how it was good for bitcoin and how they were just going to get together and they'd fight for three months and then they'd be like ok guys, let's go back and re-work our technology. Then we'll come back three months later. We'll fight again. So we'll have these on and off again release schedule that's coordinated throughout the space. And so again, he felt - we thought it was a joke. We thought it was a marketing play. At least I certainly did when we were talking about it before. Speaking with these guys, they were dead serious about it. That is their plan. I mean, do you think they can pull it off?

SM Oh, gosh. I mean, a lot of the other companies were saying, yeah I think we'll play. I think we'll do that.

AL Yeah, Josh from Butterfly Labs, yeah said something. Basically, so I was like you know, so these guys are gonna try to do this, I spoke to them separately.

SM But I guess the question is, is there some other company out there who is being completely quiet, and is totally off the radar is a wild card and is going to come up with some powerful ASIC during that time frame. And that could throw a wrench in everybody's work. KNC said that if somebody does that they're gonna continue to release their devices as best they can.

AL Right, exactly, exactly, so that's the thing, if the cartel fails, then everybody is just free for all wild west again, everybody releases as fast as they can. And of course then the question becomes what's the balance between releasing so that you're the first one out and you're the first. Because otherw- if you're the last man out the door, then chance are pretty good. People who are excited about buying that especially with as fast as the tech is moving are not going to have any reason to buy your product. Unless there's a material advantage. And it doesn't really seem like anyone is going out of their way. What I've been waiting for is a truly plug-n-play ASIC solution. And as far as I'm concerned we still have yet to see anything like that.

JM You know the Avalon at BitInstant has been not operable in the past couple of weeks just because it broke and no one knows how to fix it. So the one bitcoin per day that it could be making for the foundation.

SM Is that why (Ifu) is here to fix it?

JM Yeah, that's why he came back from China. So they're just like ahhh, they clearly have other things that they have to deal with.

AL Right, well.

JM These things are complicated.

AL They are!

SM I've seen a picture of that thing and it's funny because like you see ASICs advertised online and it's like a sleek little black box with you know a USD cable coming off of it. This thing looks like... I don't know, it looks ilke a printing press. It's big, it's like open, it doesn't have a nice case or anything but it works. Or at least it did work until just a couple weeks ago. But, yeah, that was a while ago that the first batch of Avalon ASICs shipped, so it's been operable for a while.

JM Yeah, they had a good run.

SM Yeah, definitely. They were in a great position. But I mean Sam was saying from KNC miner that this is actually good for bitcoin. It's not centralizing it's actually that they're trying to get ASICs into the hands of as many people as possible. The average person, and he was saying that ASICs are a reality, everyone's going to be having them at some point, and we're gonna try and get them into as many hands as possible so that the mining power is distributed.

JM So you guys were on one of what I would say one of the most interesting panels. Jonathan and Stephanie, you guys were both on the Bitcoin & Free Speech, moderated by our good friend Mark Hoshtein from American Banker.

SM Yeah, he was so cool. I got to know him the other night, yeah he was really fun to talk to.

JM Marks' the man. I'll tell you that.

SM That was a fun panel. We got a lot of positive feedback on it. It was sort of a nice counter-balance to all the people saying yeah we need more regulation. And we were like no, bitcoin is free speech!

JM Yeah, well I think any panel that in 45 minutes talks about prostitution, drugs and guns is doing the right thing to bitcoin.

SM Well Adam got some audio of it so I think you'll be able to hear that pretty soon.

AL Yeah yeah yeah, it turns out they weren't filming any of the talks there. So I took the H4M, that's what we're recording on right now, and I got a direct feed out of the board. And then of course for about half of them I forgot to press the button twice. You had to press the button twice on this thing otherwise it doesn't work. And I was running around the entire time, but I only caught maybe 3 or 4 of the talks. But the ones that we did get we are going to be releasing.

SM That's great, yeah. I'm really glad you did that. I wasn't expecting them not to be filming. But maybe, yeah maybe the next event they will.

AL Well, what I- so again, so this event was really cool. I actually thought the event was pretty interesting, put on pretty well. It was a little bit more expensive than I would have liked. I know some people couldn't attend because the cost was simply pretty high relative to the- you know, the San Jose conference was like $180 for a two day event. This one if you got the early bird price it was $299. If you used our 20% coupon it's less than that.

SM

For one day.

AL For one day. And at the door it was $599.

JM Wow.

SM Really? It was packed though.

AL Yeah. It was packed. It was packed. And again, over time people more drifted out of the talks and more into the networking area and that's what happened with both you and I.

JM But the thing about these conferences is it kind of is about the price that they charge just because the price is an indicator of how bad you want it.

AL well it determines the type of audience that you get.

JM That's what I'm saying, so you know that the other person wanted it bad enough to either scam their way into the conference as I happened to have done. Or to actually have paid the fee.

SM

It's not scamming we gave them something of value.

JM True. That's true.

SM So yeah, back to the panel. So I thought it was really cool because we got to talk about wikileaks and some of the potential bitcoin has to help organizations that might be marginalized. And the idea of bitcoin neutrality which is something I know is really interesting to Andreas so I'm curious to hear his thoughts about that. But the idea of neutrality being- you know, if you have a technology like bitcoin that anybody can use,, that's just it! Anybody can use it, right? So some people, they're gonna be people you don't like, that use it. And they're gonna use it for things that you don't like. But there are also gonna be people who are great who use it, and who use it for things that you do like. And you can't get rid of the so called bad people without getting rid of everybody's privacy and freedom. So...

AL Right, this is the theme that comes up over and over and over again. And it was talked about in your panel pretty extensively. The idea being that if the point is to protect us from crime, and to protect the world from certain types of things like terrorism, human trafficking and things like that. Then that's all well and good. And that's a noble goal. But Stephanie, you had a great point. You said it's all about differentiating the transaction from the actual crime. And the differentiating factor there is that a crime has a victim whereas a financial transaction has a recipient. That might be something that enables the crime. But it's the crime-

SM Oh please, victimize me by sending me money.

AL But it's all about establishing that harm is actually done not that somebody paid for something that might have potentially caused a problem down the road. Because once you start doing that it gives you the rationale to start listening to everybody to start tracking everything. And that might make sense in some sort of weird Alice In

Wonderland, through the looking glass world. But I think in the world we live in most people would agree that if 99.99% of people aren't doing stuff like that. And you know that small percentage is - it probably doesn't make sense, is inconvenient and essentially remove the privacy of that 99.99% that aren't doing those bad things just to try and stop or at least detect. Because that's the other thing of course is that we're not even talking about stopping these things from happening. We're talking about punishing them. Punishing them after the fact so I mean it makes no sense. Except of course in this Alice In Wonderland world we live in.

JM You know when the CEO of Discovery was interviewed and they go what do you owe your success to? He said. You know, sharks and Nazis. And I kind of feel like when it comes to bitcoins and when it comes to security, it's always the terrorists and the pedophiles. And that's always the discussion of everything always comes down to the .01% of bad actors that need to dictate the rest of the 99.99% of the market. And it just drives me insane because when you're talking about bitcoin it's, nothing exists in the vacuum. It's always in compared to what. And when the gentleman asked that question of..

SM Yeah, right, how many cash transactions are used in activities that potentially hurt people and do have victims and... I mean, I would argue that buying drugs for personal consumption is a victimless crime.

JM Right you weren't going to win that argument there.

SM I don't know, I think some people were sympathetic to us. Especially the guy who asked that question. But, um, but yeah. When you're talking about things that actually are crimes, that actually have a victim, that are causing harm to people. Orders of magnitude more of those are done in cash or are done through the legacy banking system. I mean, I think I brought up the point on the panel that drug dealers, loan sharks, they have bank accounts.

AL

And you know, Allen Safonte, oh gosh, I'm probably mispronouncing the name. Asfahe? Ok, yeah, um, from ZipZap. You know, he's an Iranian and has been living in this country for a long time. And one of the things that he talked about was how right now you can go into any store and buy essentially $500 of free paid Visa cards or prepaid debit cards and there's no KYC processors, no identity processors whatsoever. You can go in and you can buy a shoebox full and they are just as good as cash...

SM Take 'em across the boarder.

AL Exactly so it's like, so the idea here is that on the internet it's different. I mean, you think about it, and it's not different. It's not different at all, there's nothing different about it.

JM Well, I mean, the internets different. Just because granddad doesn't know how the tubes work...I mean you look at punishment in terms of the internet and you graffiti a place and you'll get some community service. But you DDoS a restaurant or a website and now you get years. And it's a comprable act of writing graffiti or taking a site down for a few minutes. Especially if there are no damages if it's a noncommerce site. And it's just the prosecutions of things that are computer related are...

SM That's why.. ok, so it sounds like what you're saying basically is that the regulations or like the legal system hasn't caught up with the fact that we have the internet and there are analogies to like real world physical things that happen in the world including so-called crimes and stuff like that. And so, what I wonder is, there must have been people... and people compare bitcoin to the internet in 1992, bitcoin right now. So there must have been people in the early days of the internet who were trying to educate the legislators and were trying to tell the government this is what the internet does and here's how you can regulate it in a way that makes it friendly to us. There had to have been people trying to do that but it still hasn't caught up. I mean, 20 years later we still don't have modern laws that understand the internet in

a way. It's still sort of back in the.. comparing it to phones and faxes and things like that.

JM Kevin Mitnik has an amazing auto-biography. And in it he writes about how he would hack all of these establishments but he wasn't doing anything illegal because there were no laws on the books on it. So they were like, alright well let ya go this time. And that was just an amazing time to experience and where the internet was so new that there were no laws on it just like bitcoin is right now.

AL So what's the 60-second biography as you know it on Kevin Bitnik for those who don't know?

JM So it's called a Ghost in the Machine. And essentially it's what taught me that Kevin Bitnik is chaotic neutral. Because he had the power to take down billion dollar establishments and he could have been the Julian Assange a hundred times over but just wanted to do it so that he could be a phone phreak and just like prank call people. He once got cut off in traffic and got the guy's license plate number, got his cell phone number, called him a few minutes later and then said that if you're ever on the road again I will take your license away from you. That's the power that he had. And he didn't use it for good, he didn't use it for evil, he used it for Kevin Bitnik.

AL He used it for Kevin Bitnik. Chaotic neutral.

JM Chaotic neutral. But it's a fantastic book. That and We Are Anonymous kind of really give you a good understanding of what it's like in the hacker space especially when it comes to dealing with the law.

SM

Yeah. I guess the point on that was that if we don't have internet regulations that aren't modern and caught up with the times so-called. What makes people think who are arguing now think oh we need to regulate bitcoin? What makes people think that they're gonna pass laws that are modern and what thee people want for bitcoins?

JM But I don't think it's about that when it comes to the regulation. I look at regulation as a thing that's needed because when businesses need investment, when businesses need a bank account, there needs to be some risk mitigation there and you can't invest in an unknown unknown. And until there's some precedent set in the legal space bitcoin businesses are so toxic that banks don't even want to give you an account. There was an entrepreneurship...

SM It's okay you don't need an account.

AL Sometimes you do.

JM Right. There was a business, there was an entrepreneurship pitch contest earlier this month and the woman who won, won because she had 3 separate bank accounts in 3 separate places that gave her an account.

AL So anyways, we're just about out of time here. Guys, this has been great. Jonathan, you did real well.

JM Thank you, it was a pleasure.

AL This is good, this is good.

SM Yeah, this was fun.

AL So yeah, this was a fun conference, so there's another one. So I know you've been invited to speak at the one in Las Vegas that's happening in December, yeah?

JM Yeah, that'll be a lot of fun.

AL Yeah, it sounds like they're going to have a lot of the same speakers. I've also been invited back.

SM Invited back?

AL They're doing another event. They're doing another one of these events in December. Yeah, Media Bistro, the same company that put this on.

JM Although it'll be in an even funner context. It's the social gaming and gambling conference.

AL

Well my understanding is actually that there are two going on at the same time, the bitcoin one and the social gaming one.

JM So it is the social gaming and gambling conference and they have multiple tracks. And he is going to add a bitcoin track to that conference. So he really wants to get that Eric Vorhees on that panel. So if anyone has a gambling company and they wish to have a place to promote it I would certainly talk to Media Bistro right now.

AL So guys, thanks again, once again thank you for joining me this was episode 30, I guess that's another milestone we don't really celebrate milestones because they come by so fast. I don't know, we had bacon today so

JM Any time you have bacon it's a celebration.

AL (laughs) Fair enough. Alright guys. We'll see you next time on another episode of LetsTalkBitcoin.

Thanks for listening to this portion of our special LetsTalkBitcoin conference coverage. Big thakns to Media Bistro for putting on a wonderful even at Inside Bitcoins. Stay tuned for more to come over the course of August. If you have any comments or questions for me directly you can email Adam at LetsTalkBitcoin.com. If you ahve questions, comments, or suggestions directed at the show broadly, please visit letstalkbitcoin.com/reddit. See ya next time!