Saifedean Ammous on Bitcoin Hype



It turns out the best book on Bitcoin was written by someone who thinks the cryptocurrency is not a particularly good form of payment, not particularly anonymous …

25 Comments

  1. This is a crap book that peddles the false mantra that Bitcoin Core (BTC) is a settlement layer. It's completely wrong as the original design and creation was for Bitcoin to be an electronic currency, just read the white paper and see for yourself. This guy is a fraud and the book is garbage.

  2. 30:30 you are talking about Angola. The people there want bitcoin, because the government makes it impossible to send money out of the country, and importers are forced to pay in the local currency, not USD for imports…and Angola does not produce much fruit and veg etc, so it all has to be imported. Bitcoin would help them, but nobody wants the Angolan currency. You can go sell Bitcoin there for a massive profit, but then you need to live there or have expenses in their currency, because you will struggle to get money out of the country.

  3. What stood out to me is that Saifedean seems to be making the case that the Bitcoin Lightning network is not Bitcoin, or is not using bitcoin, and that it therefore would be correct to state that Bitcoin would never be used for day to day transactions, if the bulk of those transactions are happening on the Lightning network instead of on the base layer of the Bitcoin blockchain.
    I'm not sure if I agree with that view, but let's explore the issue.

    First, what is a bitcoin.
    There is no such thing as "a bitcoin", it is not a physical thing, it is not a file, it is merely an accounting entry on the blockchain.
    A bitcoin "existing" means there is an address with a balance of 1, or multiple addresses with balances adding up to 1.

    What does it mean to own bitcoin.
    Owning bitcoin means having an address that holds x amount of bitcoin, and having the ability to sign a transaction to move that bitcoin.
    In short, owning bitcoin means being able to move (spend) said bitcoin.

    Now a normal Bitcoin transaction, simplified.
    Address A holds some bitcoin, the wallet the address belongs to broadcasts a message that the bitcoin is moving form address A to address B, and includes a signature to prove ownership of address A.
    Every node in the network accepts the transaction as valid, shares it with other nodes, and puts it in the mempool.
    If the transaction includes a sufficient fee, miners will put the transaction in the next block.
    When the next block gets mined all the nodes in the network agree that the bitcoin has moved from A to B in their own copy of the blockchain.
    The transaction will be in every block following the first one it was included in and can be considered immutable after 6 blocks.

    The owner of address B got paid, but at what point can we say he got paid? was it when a valid transaction was broadcast, or was it when the transaction was put in a block and accepted as valid by the entire network?
    Why this is important I will expand on below.

    You could argue that after broadcasting the valid transaction with a sufficient fee it was inevitable that every node would accept it eventually, and thus the broadcasting meant getting paid.
    You could also argue that address B got paid only when the transaction was included in a block and accepted by the entire network.
    You could even argue that address B got paid only when the transaction was included in 6 blocks and was immutable.
    In all three cases it would have been possible for address B to spend the newly received bitcoin, what differs is what the receiving party considers to be "having been paid" before it hands over traded goods.

    Now a Lightning network transaction, simplified.
    Address A1 holds some bitcoin, it is used to open a payment channel to a random Lightning node.
    Opening a payment channel means both parties create a special Bitcoin transaction that transfers all the bitcoin in address A1 to address A2 owned by the same person, and transfers zero bitcoin to Address B1 owned by the second party, this transaction is signed by both parties and broadcast to the Bitcoin network.
    This special transaction includes a mechanism that allows it to be superseded by later transactions.
    Once the transaction is in 6 blocks the payment channel is considered to be opened.

    To pay each other both parties create a second transaction, this transaction transfers not all but 75% of the bitcoin in address A1 to address A2, and transfers 25% to address B1.
    Unlike the first transaction, this one is signed by both parties but not broadcast to the network, instead the transaction is known only to both parties/nodes.
    Because the transaction is signed, either party can at any time decide to broadcast the transaction on the Bitcoin network, at which point the process I describe for a normal Bitcoin transaction goes into effect.
    If the transaction were to be broadcast to the bitcoin network it would supersede the channel-opening transaction, close the payment channel, and include the transfer in the blockchain.
    Either participant could do so if they choose, but for now they don't.

    To make further payments the parties can agree to keep updating the transaction, for example, A1 now transfers 60% of the bitcoin to address A2, and transfers 40% of the bitcoin to address B1.
    Both parties sign the new transaction but again do not broadcast it.
    If they did, the transaction would again be processed like I describe a normal Bitcoin transaction happening.
    A mechanism is in place to prevent abuse through broadcasting an earlier more advantageous transaction.
    Only the most recent transaction both parties have agreed to and thus signed may be broadcast.

    The parties can agree to keep updating the balance to pay each other back and forth.

    Now, at which point can you say that the owner of address B1 got paid?
    You could argue that address B1 got paid as soon as the owner of address A1 signed a transaction where x% of bitcoin was transferred to address B1, because the owner of B1 could at any point broadcast the signed transaction and have it be made immutable in the Bitcoin blockchain, but has simply chosen not to do so yet.
    You could argue that address B1 got paid only when the payment channel closes and the final transaction is included in 6 blocks and immutably recorded on the blockchain.

    To expand on using the Lightning network.
    If the owner of address B1 wants to send some bitcoin to address C1 owned by a third person, he can do so by routing a payment through the network to C1.
    The transaction does not have to be included in a block if the party you want to pay is already on the Lightning network and accepts Lightning payments.
    The bitcoin you put in a payment channel can roam the Lightning network indefinitely, it does not actually need to leave the Lightning network to pay the next person.

    I would argue that, If the bitcoin is spendable by B1 through the Lightning network without a transaction ever having to touch the blockchain, then that means B1 got paid when a transaction was signed transferring x% of the bitcoin from address A1 to address B1, putting in on the blockchain, was not necessary.
    The lightning network is a system that transfers unbreakable promises to pay bitcoin back and forth, because the promise is unbreakable, I would argue the Lightning network is using actual bitcoin.
    Finally, I argue the ability to spend bitcoin, equals owning bitcoin, thus the Lightning network uses bitcoin because it transfers ownership of bitcoin, and receiving bitcoin through the Lightning network means owning bitcoin.

    Concluding, the main difference between the base layer of the Bitcoin blockchain, and the second layer Lightning network, is in HOW they transfer ownership of bitcoin from one party to another on a technical level.

    Your thoughts?

  4. Working for a public university isn't 'productive' ….. this guy isn't a Bitcoin, Austrian, or blockchain guru. He doesn't understand that it's the network of the blockchains that provide utility. One could put 21 million decorated toothpicks into supply and cap it at that, that doesn't make those toothpicks money because they are capped at 21 mil.

  5. The problem here that Ammous doesn't see is that there is a difference between Bitcoin used as a backing currency with very limited direct transact-ability vs actual gold coins which are still highly transact-able relatively speaking. Bitcoin peer to peer beats both, but that isn't the path that the current developers of Core are on at this point and not the path that Ammous encourages.

  6. This channel needs an interview with Roger Ver. You should all know by now the cryptospace has been infiltrated. Go to the original Bitcoin Jesus if you want to know what has taken place.

  7. A BC is like a poker chip. Its only value is in its dollar exchange rate. It has no value on its own. Dollars have value because the govt forces it to have value. You have to have dollars to pay taxes and buy oil.

  8. finally a more balanced discussion on bitcoin. i am so sick of people talking about how anonymous and great it is. good that he mentioned the high transaction fees and traceability of all transactions. although his claim of transactions being under ten cents is kind of misleading. there is no way it is staying under ten cents. it was over ten dollars not a long time ago.

  9. There are many ways how to improve privacy and how to scale. This interview is a little bit incomplete because you guys don't fully understand what is possible with cryptocurrencies. In economic perspective it was OK. But problems you mentioned are mostly solved in theory. But it takes time. Bitcoin is now like internet in 1993.

    I recommend you Andreas Antonopoulos. He can explain what is possible.

  10. I think the biggest lesson we learned from this experiment with the "gold standard" and central banking is that if you don't hold it, you don't own it. Even a "good" bank will eventually become co-opted and corrupted, so the people need full custody of the underlying asset if we are to move forward and learn from history. Thankfully now with Bitcoin and Litecoin, we have the building blocks in place to realize the full potential of money the way it was meant to be, in a free market.

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