Bitcoin in an old gunhole: The currency system works because people want it to work

This is a dialogue interview with Peter McCormack and Hashcash's inventor, Blockstream co-founder and CEO Adam Back in November last year. Adam Back is an old gun for the encryption of punk circles. He joined many cryptography discussions in the mailing group as early as 1997. When Bitcoin was born, he was one of the people who had recently published a paper from Nakamoto. Through his remarks, it might give us a glimpse of the impact of Bitcoin on the circle.


The viability of Bitcoin is never seen before in other cryptocurrencies.

Peter McCormack: Recently I was digging into the history of Bitcoin, flipping through the forum records, and mailing between different people. It’s been ten years since the birth of Bitcoin. What do you think now?

Adam Back: The earliest password punks were actually interested in privacy protection technologies, such as Tor, re-mailer for anonymous mail, and other cryptographic applications. The hardest part of this, the Holy Grail in these applications, is to create an electronic cash system that has a certain level of privacy and can perform anonymous real-time settlements like cash. This ideal can be traced back to 20 years ago? Everyone tried to make it run, and the attempts to look at several systems failed for different reasons, such as centralization or interface problems… This was very exciting for the researchers at the time.

Wei Dai's B-money is an interesting proposal, and he came up with an electronic cash system that doesn't have to deal with banks. Previously David Chaum's system had a well-conceived centralized electronic cash server, but if you put the money in or take it out, you have to go through the bank account, it will send you the money, and then you can save it to the bank account. In the end… his company went bankrupt, and the database seemed to be sold through channels like eBay at the time.

I think the most interesting thing about Bitcoin is that it is decentralized, although privacy security is less. Bitcoin's survivability is very strong. Companies and users come and go as long as the miners have incentives to mine, which means that as long as it has any form of market value, the system will always operate. The hash rate will fluctuate, new devices will be purchased, and different services will come out, but that survivability is not available before.

Peter McCormack: Do you think Bitcoin is a successful project now? Or do you think it has gone further and passed a beta-like phase?

Adam Back: There is a phenomenon called the Lindy effect. It is probably that the longer a thing lasts and the longer it survives, the more people believe that this state will continue. Bitcoin did go a long way on this curve. I used to imagine a point in time like bootstrap. Once this point is passed, Bitcoin will continue to exist even if all governments explicitly ban it, just like the gray market products that never interrupt supply—or like MP3 Sharing, the general government does not agree with it but it is difficult to stop.

If an electronic currency like Bitcoin goes through the assumed bootstrap phase, basically everyone will know someone who is willing to make a cash banknote OTC transaction. Now that the market for OTC e-cash has been relatively stable, there are millions of users, and sometimes this interesting phenomenon can be seen: in some countries that are more concerned about bitcoin, although the official ban is issued, users on the OTC platform have proliferated. This means that the bootstrap just mentioned has happened, and it is time to relax the restrictions. In fact, supervision is more visible than prohibition: it will still exist in the gray market after the ban, and the official can't control it.

Peter McCormack: So do you think this is the biggest achievement of Bitcoin in a sense? Is it sustainable no matter what the government wants to do?

Adam Back: Well, it has several different uses, but I think the anti-censorship is one, there is no rule that limits who you send to. Bitcoin doesn't need identity either – although it's still a pseudonym, privacy protection isn't perfect, and many can be traced, but it's still very difficult to stop you from transferring money to others. It is also not subject to geographical location, and has the property of instant settlement. It is difficult to freeze the collection, which may be safer than the real gold bars in the safe. The latter is physical after all and can always be found. In contrast, Bitcoin is still very difficult to check if you have a snack.

But for the user is still more concerned about the concept of "true name" (true name). There is a sci-fi work "True Names" by Vernor Vinge, which probably has such a meaning. If someone knows your name, he has the upper hand. If you are in the dark, no one knows your identity, such as participating in bitcoin transactions or making comments on online forums, others are more difficult to intervene.

Peter McCormack: It sounds like Jameson Locke.

Adam Back: Well, there are so many ways people get Bitcoin. Some people just send money to the exchange in exchange for bitcoin, the exchange must basically KYC, what you want to scan your passport, these bitcoins are closely related to you. Some people may have multiple minds, or when the exchange has not appeared in the early years, they may trade Bitcoin at different times and in different places, a few hundred dollars in cash. These bitcoins do not seem to have a clear connection with who, and are more valuable from the perspective of assets and identity protection.


The system with good privacy before failed, and the bitcoin with weak privacy protection succeeded.

Peter McCormack: Right. Whenever someone asks me about Bitcoin, I will recommend some Podcast podcasts to them, one of which is your previous interview with Epicenter. I will next ask you the question you answered in the show: What exactly is Bitcoin?

Adam Back: What is Bitcoin? This… It is rich in content, it is a kind of virtual currency. For those who have never heard of it and have no computer science background, the electronic gold that can be settled instantly is probably the simplest explanation. Scarcity is a similarity to gold: there is an overall quantitative limit and mining costs increase over time. Bitcoin has many uses. Some people think it is a low-cost payment method. Others pay more attention to the characteristics that it is difficult to trace and control. Some people also look at the development potential of these two properties and regard it as an investment. Object. Because of this, people have different opinions on how to optimize bitcoin. I think the past debate about scalability is like this. To make more people fully enjoy these characteristics of Bitcoin at a reasonable cost, scalability is of course a top priority. These technologies of Lightning Network will take us one step closer to it.

Lightning network research has been done for a few years and is becoming more and more useful. Now there are more channels, more users, and new products are being adopted at a faster rate. There are many people working on protocol layers, application layers, wallet development and integration. This is another slightly different use case. I estimate that in the next six months to a year, most mobile wallets will support both lightning and non-lightning networks. And the wallet on the smartphone is likely to be the lightning network. The physical wallet, you don't usually have so much cash on it. This kind of small transaction is suitable for lightning network, and the security is reasonable.

Peter McCormack: I'm going to dig some historical scraps, because I am very curious, and other people who are late to enter may want to know. When you first saw the Bitcoin white paper, did you think it was a different project at first glance, or did it think it was just another attempt at a digital currency?

Adam Back: I think the decentralized part is very interesting, and you can see the shadow of Wei Dai's B-Money and Nick Szabo's bit gold. In addition, there are several ideas. One is that it feels that privacy is not very good compared to the electronic cash system that appeared before. However, those systems with extremely strong encryption protection rely on a single server and have a single point of failure.

The second idea is that Bitcoin's ultimate security is unusual. The model of a general cryptosystem is asymmetrical. For example, PGP encryption, the encryption process is not needed for one second, and without the key directly cracked, the supercomputer must count for hundreds of years. Bitcoin is more like a well-balanced two parties: one wants the system to work properly, and the other wants to disrupt the current state. There is no enhancement mechanism for defending that side. I still took some time to adapt. But I think the final monetary system works because people want it to work. And Bitcoin even benefited from the attackers. Some people who tried to break the agreement and black out the system found that Bitcoin was super interesting, and then not only did not use it, but reported the bug. This is of course in the early years. The system is now quite solid.

The third idea is mentioned earlier, I want to see if bitcoin is bootstrap. To know that the value of Bitcoin is zero at the beginning, the market does not exist, there is no real transaction, just "pay" each other to play. After the situation became clearer, I thought about how to take advantage of some of the skills I developed in my cryptography career, including those for electronic payment encryption protocols. The system with good privacy protection didn't have bootstrap. This privacy protection is a little weak, but the bootstrap is up. Maybe we can improve a little. It is challenging to do the same privacy protection in a distributed system, but there are still different directions and ideas. This is probably the reason for the confidential transaction and other ideas. This secret transaction is used in Blockstream's bitcoin sidechain Liquid, based on the open source project Elements, which is a transaction clearing network.

Peter McCormack: I have a few questions related to this. When do you think the turning point from "Well, this is a fun project" to "Well, this is too exciting, we may really find the right direction"?

Adam Back: I think this concept is very exciting, because you know that I spent a lot of energy in my spare time on the issue of electronic cash. In the late 1990s and early 00s, I started to make a series of attempts with other people. Or study past systems and add other properties such as peer-to-peer, repeatable spending. You see Wei Dai's B-money and Nick Szabo's bit gold. In fact, the idea of ​​using hash cash and workload to prove mining and then getting a decentralized system is the same as the concept of workload proof. It appeared within the year. Ideas are always there, but there are technical bottlenecks, or bottlenecks in economic incentives and game theory. Bitcoin broke through these limits. It is the intersection of encryption technology and social influence. I think this kind of thing that can change the balance of power is particularly interesting, such as PGP and Torrent, and the Internet itself.

I certainly hope that Bitcoin can boottrap, but at first it is not certain. Previously David Chaum moved to the Netherlands to open a company called DigiCash. He set up a model of the e-cash server himself, and then the company promised that they would run the server all the time, and the number of digital coins issued would never exceed one million. If you want to get these coins, just send an email and they will send it to you, just as you can open the tap to get water. In that system, if I give you a coin, you should immediately go to the bank to deposit it, or I can carry it to you and take it somewhere else. I had some DigiCash at the time, some password punks, and they wanted to take this opportunity to bootstrap the digital currency. So they use this coin to sell low-value items such as T-shirts, and it is estimated that thousands of users can maintain a stable value because the total amount is only one million. They call this coin Beta Bucks, and people think that it should be similar to a dollar, so it is usually used directly for the exchange rate. I used it to sell things, and it may have been used by hundreds of people. Later, DigiCash went bankrupt, the database of accounting was stopped, and the coins in hand could not be proved. When I saw bitcoin develop a little bit, I remembered this precedent, so I didn’t have a bottom.

Peter McCormack: What do you feel when the price of Bitcoin reaches $20,000?

Adam Back: That price is already very good. And I personally expect Bitcoin to have enough utility and value to return to that height. Bitcoin has always had such a very volatile cycle. The market price in my eyes is mainly driven by future potential. Investors are investing in future potential, or some people are more interested in asset protection. They are worthy of their value preservation and non-freezing. They are a kind of resistance to cyclical fluctuations or geopolitics. A measure of instability. Gold is also the case to a certain extent, but gold also has ETF inflation and there are also frauds. But you can pass a bitcoin far away at a low cost. It is very convenient to verify it. You can use a mobile phone, so it is a strong competitor of gold. If you look at various estimates of the distribution of gold private rights, it is not difficult to come up with a very optimistic bitcoin price. Like many people say, there are 21 million in total…

Peter McCormack: A lot has been lost.

Adam Back: The global population is billions, and many of them may want to hold some. Some countries have retained their own practices of gold, as an investment or savings, or because local currency inflation is too serious, Bitcoin has potential in those areas. Many people talk about the volatility of Bitcoin. I think this volatility will decrease in the long run, and may wait until the peak of the curve is used – like the Internet and mobile phones, basically everyone has heard of it and is using it. That point should be stabilized. Of course, the price of gold is still somewhat volatile, but I can imagine that Bitcoin will move closer to it in the future and have more stable value.

Peter McCormack: Yes, I heard this interview from Murad in Pomp (Anthony Pompliano) this week. He said: "The need for Bitcoin to become a global digital asset requires volatility. The only way is to have huge fluctuations. So this Fluctuations don't make me too worried."


The spiritual support of miners has no market support, and economic power and technological vitality are more important.

Peter McCormack: Ok, finally, ask a question about old things: Have you changed your views or ideas about Bitcoin over the past decade?

Adam Back: You can understand Bitcoin from many different levels, but I feel that even those who set out to study encryption protocols, incentives, and game theory have been in the process of learning. Some people may find it very unexpected. For example, last year UASF soft fork. Yesterday happened to be the first anniversary of the cancellation of the Bitcoin 2x fork. I think there can be a guiding role played by game theory among the people with different opinions. Bitcoin really abandons a large group of trades and miners. This does not seem to be what the user wants. But economic incentives basically force this event to happen, and its positive drive to long-term value storage, non-tamperability, and so on are key factors. You can't let any lobbying group or special interest group come to the ground: "Your network protocol looks good, but we want to modify it and do some optimization for xx applications."

In fact, the Internet had such a similar bridge in the early 1990s. The main members of the IETF (International Internet Engineering Task Force) are universities, academics and protocol developers. When Internet companies made browsers and various applications, they became more and more influential. Some of them began to want to control Internet protocols, so they tried to modify the Internet governance model of IETF so that the company also officially The ballot papers, several large companies to discuss and vote for a vote can make the proposal to amend the agreement. Similar to the situation of the UASF, those who have been working on Internet protocols in the end have rejected this idea. I think this is a good thing, because the value of the Internet is precisely due to its openness, too commercial management will limit this value, and finally return to a centralized control of closed gardens.

The experience of Bitcoin is exactly the same as this one. Everyone decided to have an open agreement. In the decision-making process, a technical consensus should be reached. That is to say, the technical community must agree that the improvement plan has no major defects, and there is no better alternative. Then there must be a user or investor. Consensus and so on. Some people really think that the miners are going to make an agreement by going out of the block, and they are convinced that the influence of the miners proved to be completely wrong. And the evidence is so strong and powerful that those ideas fall apart so quickly, they are really interesting and inspiring, like…

Peter McCormack: Is BIP148 a testimony?

Adam Back: Well, I think it is, there is the kind of game that caused the 2x program to cancel. Finally they realized that the support of the miners was only conceptual. It is like a miner digging a gold mine, just next to a large copper mine. Some businessmen have suggested that it is best to dig copper mines. The miner thought: It makes sense. Oh, the water tower is the first month. But the miners found that the market price of "copper mines" was 1% of bitcoin. Assuming the mining costs are similar, they will soon go bankrupt, right? So they will stop after a long time. The spiritual support of the miners is less useful than the support of the market.

Peter McCormack: It's very interesting. I am still looking at the history of the expansion battle, looking at different people and various viewpoints from the beginning. Inside, I saw Barry Silbert saying that there are three main parties in this debate: miners, companies and developers. When the developer is not present, it is easy for companies and miners to agree. I think, indeed, they are essentially driven by interests, and developers are more concerned with the long-term use of users, or thinking from the perspective of ideas.

Adam Back: Yeah, I think the starting point for the expansion is still good. In addition to commercial interests, they also want to see more people using this technology. This is what everyone wants. The question is what is the cost?

Peter McCormack: How long does it take?

Adam Back: Yes, a lot of very practical things. Also, in addition to the three parties you just mentioned, companies, miners and developers, there is another important but often overlooked group of users. The basics that play a decisive role are them. In the early years, developers were very careful not to have too much control. The real imaginary didn't want it, because the risk was too great. We must know that Bitcoin just came out and everyone didn't know if it would be troubled and banned. In fact, UASF and BIP148 are not supported by most developers. Only a handful of developers support it verbally, and one uses the pseudonym Shaolin Fry. Most of them are users, plus a few small and medium-sized companies, as well as the Bitcoin embassy, ​​the same city group (meetup), etc. In addition, you can preview the market reaction. Some companies claim to represent the voice of millions of users. In reality, it is difficult to judge whether this is true or not, right? Maybe just the second day of execution, there is no one left. Bitfinex has made futures, which allows you to see the market price. Once this price is much lower than those predicted by the companies and miners, those who were originally spiritual support will immediately fall. You can learn a lot from it. I think some 2x people have doubts about this program. They just want to see some progress in expansion. They may not agree with the technical consensus process in ITF history, so it is reasonable to argue. However, I think the block size of 128 MB is really too much.

Peter McCormack: The new expansion battle?

Adam Back: Yeah. I haven't paid much attention to it before, but if there are two or three forks in Bitcoin cash, there may be some interesting things coming out…

Peter McCormack: Bcash-cash.

Adam Back: What is this?

Peter McCormack: SV…

Adam Back: SV? Not sure…

Peter McCormack: ABC

Adam Back: Ok, they should have a better name than ABC. Looking at how this is going to happen, it may be a bit instructive, because some participants have different attitudes. For example, the miners were more radical, saying that they planned to burn money for a while. In general, this matter only accounts for a small portion of the bitcoin hash rate, about 5%, 6% or 7%, so that is 2%, 3% and another part 2%, 3% are in the opposite direction. . However, it seems that there are a number of people who hold resources to come to the field to fight. Even so, it depends on the user and the market reaction.

Peter McCormack: I saw an interesting thing yesterday, and Roger Ver paid tribute to Core for his split-fork, because he himself had experienced it. I think he may also be reflecting.

Adam Back: Yeah. People are willing to confess that their mistakes are still very positive and positive. In the technical field, everyone is happy to do so. Perhaps they have some technical insights and think that their agreement is better, and they have made a lot of slogans. Then someone pointed out something. If they feel reasonable, they immediately say, "Aha. You are right, forget what I just said, it’s all awkward." Everyone is trying to find the best solution, even if this It is proposed by others, and it will be used very excitedly. There is not much self-esteem and it will stop. This is not the case in the political arena? I think a lot of people are involved in the expansion of the dispute, is it as a political discussion? This is not a good direction, because this is the way of legal currency. It is fiddled by politicians and banks, and banks are easily manipulated by the central bank, and there is moral hazard behind them. I think some people have learned from the turmoil of the former fork, and some people are learning through the new fork. But everyone learns differently, some through data analysis and some through practice.

Peter McCormack: The immune system that Bitcoin has built over the past decade is really a bad thing. It went through civil war, Mt. Gox went bankrupt, Silk Road closed, China's ban… and many other twists and turns, it was a little unbelievable to survive. Why do you think it can be resisted? Lindy effect?

Adam Back: A little Lindy effect, but this resilience basically comes from those who are interested in it, its users, beneficiaries, and people who can see its social value. They will use BIP148 for the UASF to argue in the market (such as shorting, buying and selling certain coins). The power of the economy is important, and the source of technology is also important. If you find a technical flaw, people can modify it. A bit like the investigation after the crash, the improvements made will make the system a little bit more perfect.


Sidechain is another layering technique and an experimental place where people try new things.

Peter McCormack: I have already talked so much about the past, although I still have a lot to ask… Let's talk about the ongoing project Liquid. Some people may not know much about what is a side chain. Can you explain it briefly?

Adam Back: It's an auxiliary chain. The Bitcoin backbone is the safest and most robust, including network effects and infrastructure. And other ways, such as buying and selling transactions, and the connection of merchants have spawned a multi-layered architecture based on this. One is the lightning network on the Bitcoin backbone, which retains most of the bearer properties, the security model is a bit different, and eventually returns to the main chain automatically. Side chains are another layering technique. It creates another blockchain, but the chain and the bitcoin backbone are connected in some way so that the bitcoin can be moved to the sidechain, used on the sidechain, or moved back. The key is to have a firewall between the main chain and the side chain, so that if the side chain has technical problems, it will not affect the main chain, but those who choose to enter the side chain will take risks. So the side chain becomes the carrier for people to try new things, which is exactly what we are doing.

We use secret transactions and confidential assets on the Liquid sidechain. They are all very interesting cryptographic objects. The cryptographic security guarantees are quite good, using security assumptions similar to the electronic signatures in Bitcoin. The technical risk is much smaller than the SNARKs and other things used in the altcoin. However, the side chain is still new, and there are different costs.

The side chain we made is a federated sidechain. The way out is not mining, but is issued by more than two-thirds of the members. These members can be units such as exchanges and institutions that have sufficient facilities to maintain data center security. We provide them with a box with hardware for block issuing. So Liquid is a peer-to-peer network that users can join, and you can receive or verify blocks on it, just like on the Bitcoin backbone. Bitcoin miners can join and quit at will, you don't even have to know who they are, which is also an interesting place. There are no miners in the side chain, but there is a fixed number of block issuers at the cost of not providing the same level of assurance. I mean that these issuers may be changed by the program, or the user's consent to transfer the status of the sidechain to another group of issuers.

Peter McCormack: So is it more central? It sounds like the clearing and delivery layer of the exchange, enabling more transactions to be executed faster, but can still return to the main chain?

Adam Back: Yes. You can send L-BTC (an anchored bitcoin) back to the main chain, and you have to be safe and cold storage. Liquid provides another way to leave the main chain outside of a centralized exchange, thus eliminating the security risks of handing over assets to a single exchange. Of course, you will consider the situation where the issuer colludes to steal your money, but this requires more than two-thirds of the members to collude, and there are currently 11 of the 15 nodes. Some centralized trading users have been stolen, or they have taken away their own money and claimed to have been hacked. Such incidents are not uncommon, and they are more in the early years. Holding money in the form of Liquid will not have such a risk, and how the exchange can make it bad will not move your money. So the main idea is that the network does not have to rely on exchange trading when it is fast. For example, the inter-period arbitrage fund turnover is very fast. Now the legal currency is a bottleneck. It usually takes a few days for the money to go to the exchange, so there is no profit.

Peter McCormack: But the speed is up, and some other types of arbitrage don't exist yet?

Adam Back: There is always something to lose. The liquidity is high, the spread is small, but the total will go up. This is still good because we have a more liquid and deeper market. The problem of poor liquidity is also a factor that regulators oppose ETFs. Another thing to consider is user trust, right? Users who need less trust in the transaction are more likely to complete the transaction. In addition to depositing money in exchanges, there is another possibility of doing "atomic trading." The assets of both parties to the transaction are still stored in their respective wallets. This is automatically anchored, but they can go to the exchange to place orders, use the exchange's entrusted ledger and matching services. For example, I want to sell a bitcoin with 6500 knives. I signed half of this transaction. You want to buy bitcoin with 6500 knives and sign the other half. Then you can put it together in the account book of the exchange. There are no user deposits on the exchange, only the partially signed transactions sent by each. The worst thing that can happen is to be forced to spend 6500 knives for a bitcoin, but this can be done in the market without blacking out the exchange.

Peter McCormack: So is L-BTC a bitcoin mortgage on the main chain?

Adam Back: Yes, there are automatic anchor hooks. If the user wants L-BTC to deposit money on the exchange, then the exchange will help you to change, and then let you pick up L-BTC. The Rock is an early adopter and user-friendly platform that allows you to deposit or withdraw L-BTC or Bitcoin. They manage a pool of L-BTCs, making these operations possible, just as they can help you redeem them.

Peter McCormack: So you can't create L-BTC out of thin air without real Bitcoin?

Adam Back: Right. All nodes will be verified. And the functionaries will verify that there are no full nodes of bitcoin on your entire node. If there is only the full node of Liquid, there is no Bitcoin full node for checking. If the whole node sees someone on the network saying that it is going to be anchored, it will go to the place where he said to confirm whether the funds are valid on the Bitcoin node, and also check the validity of the transaction itself, and then recognize the transaction, in your The L-BTC is displayed on the node. Running a full node on Liquid is a bit more expensive than on Bitcoin, because the transaction is bigger, there is more encryption information, and almost dozens of signatures per currency. Having said that, a typical desktop or a faster notebook with a normal network connection is enough. So basically you can confirm for yourself whether this happened really happened. Of course, you have to believe that the official nodes are not colluding and tricking. If it does happen, you can see it but you can't stop it. You can only tell them to steal your things through legal proceedings.

Peter McCormack: Is there any kind of containment like game theory?

Adam Back: Yeah, that's right. The operators of the network are not miners, they do not have the reward of mining, but they will get economic benefits from the increased transaction volume after the speed increase. So they also want to see the continuous operation of the system. This is another incentive to motivate them to not interfere with normal operations.

Peter McCormack: Ok. You may not like this comparison, but it sounds a bit like EOS…

Adam Back: I think the key difference is that…

Peter McCormack: I don't like EOS, but…

Adam Back: Well, I don't know too much, but I think the key difference is that Liquid has an automatic anchoring method for hardware modules. I understand that there are many people in EOS who can do things and make decisions. Not in Liquid, it has anchor hooks, but it is fully automated and executed in hardware.

Peter McCormack: Ok, understand. So is Liqid not creditable?

Adam Back: No. There was a discussion about this issue a few days ago. The key is whether you can verify what is really happening. Liquid has been running since the end of September, but we've been releasing different new features one after another, and there will be a lot in the future. One of the things we have released is the block browser, where you can check transactions on Liquid or Bitcoin networks. The whole node is also out. People can run their own full nodes, and the accuracy of what they see can be confirmed to a greater extent than using the block browser we run. And a slightly more complicated technique comes out, people can't quite understand: "What does this do? What security model is used? Who will use it?" I think some people think that only the exchange can be active on it. Or think it is a private chain, not visible outside. This is not the case. With the whole node, everyone sees that they can build assets and trade with other users. It is clear what it does.

But no matter what the price, the credit model is one. Although it is an improvement over the pattern of user assets held by a single exchange, the assets on the chain are automatically anchored (IOU), especially L-BTC. If the automatic anchoring fails for some reason, the borrowing will go with the wind and the bitcoin will be lost. It is not a bearer itself. There is a problem with this indirectness. Even if there is control that does not require credit for the borrower, if the person who actually manages the asset does not accept the account, the loan is useless. This is a problem inherent in many kinds of assets. Bitcoin is very special and is directly carried, but assets in other blockchains, like USDT and Gemini Dollar, have custody risk. Will the bank that works with the company move the money? Will it freeze funds? These are very likely, and it is still difficult to maintain a stable relationship with banks in some places.

Looking at another kind of colored coin or other similar token used by people, it is basically equal to corporate revenue sharing. Whether it's profit sharing, ownership sharing or any other token, investors' money comes with a "trust" component. Can the company really make a product? Will you spend money without it? If they really make a successful product, will they really share the profits? Even if it's not a blockchain project, such as Kickstarter's Oculus Rift, the prototype made with the investor's money was quickly sold by the founder.

So be careful when buying things. If you buy this exaggerated token, it means "I am there too. I also paid for the project early on," but it doesn't necessarily mean that you can really get the benefit. And the so-called investment contracts of many early blockchain tokens are really flawed. If you read it carefully, the contract basically says that the money was donated to them.

Peter McCormack: Wow, it’s interesting. I interviewed Brendan Eich, who studied BAT token and said it was a donation. I don't think anyone who buys a BAT token will expect to be sending money. I have also experienced it. Can you distribute assets on Liquid?

Adam Back: Yes. Creating a new asset is just a special kind of transaction with a nominal 10 points and 20 points. You will then generate an asset issuer's key to control the release. The ownership of the newly issued asset is in your hands, and then you can transfer it to someone else's account. You can choose a one-time release, and you can only send so many at a time, and you don't want to send it again. You can also choose to have a second key for reissue. Traditional stocks can be like this, and then send some stocks to attract investment and “dilute” the rights of existing shareholders. So the second distribution model may also have requirements.

Peter McCormack: So you can send securities on it…

Adam Back: Well, since you can issue assets…

Peter McCormack: That can also make some garbage coins…

Adam Back: You can create new coins on it, announce what you want to do with these coins, what software to look for or what company to open. But it is another matter for the exchange to refuse to pay the currency. Moreover, some people are doing securities-type tokens, that is, cooperating with existing stock exchanges to issue tokens representing securities. So I think in the process they will take steps to ensure that the guests are eligible to buy securities in a certain country.

Peter McCormack: Well, it’s a qualified investor (accredited)…

Adam Back: Or have an investment broker or something. Many existing financial products are limited in different countries because each local rule is different, but not everyone is familiar with it. Many European products are written in the terms and conditions: they cannot be sold in the United States, and vice versa, because the tax payment policies are different, the rules of ownership are different, and the restrictions are different. So I think these projects generally work with stock exchanges.

Peter McCormack: So you can do private trading on Liquid and Elements?

Adam Back: Both are OK. In fact, you can compile Elements, put the correct settings in the appropriate documentation, and then run on Liquid. So they are compatible and somewhat open source. And Liquid itself is all open source. The main difference is the default settings and the correct parameters for automatic access to the Liquid network.

Peter McCormack: If Liquid offers private transactions, will you face pressure from regulators on KYC and AML? Do you have any concerns in this regard?

Adam Back: Actually, when we first planned to introduce a confidential transaction, we had the view that the complete transparency of Bitcoin would be the resistance of this technology to being adopted on a large scale. Many financial institutions interested in understanding or using blockchains may think: this looks very interesting and we can get value from it. However, it is too transparent and too public. We are worried about the disclosure of key information, such as the transaction price after private negotiation. Some open markets have market listings or delayed announcements, and some do not. So we think that confidential transactions may be an essential element of universal adoption. After the release, everyone's response validated the previous assumptions, because they could obtain value from the publicly auditable blockchain blockchain and basically retain trade secrets.

In Liquid, the user is also the customer of the exchange: to take the bitcoin out of Liquid, basically through the exchange, the hardware module will ensure that those anchors are stored in the cold wallet controlled by the exchange, which is extra Security mechanism. The exchange knows who their customers are and some of them are institutional investors, so they are also their own customers.


Looking forward to more bitcoin privacy improvements or the emergence of confidential transactions

Peter McCormack: What do you personally think about the privacy of Bitcoin? Can we trigger another civil war?

Adam Back: My first impression of Bitcoin is that its privacy needs to be improved. There is also the associated fungibility. As people's confidence increases and they understand the technical costs more deeply, I am looking forward to seeing things like confidential transactions. There are also improvements in efficiency, such as the size of the transaction. Now a transaction is too big, it takes a few kb, ten times larger than an ordinary transaction.

But for me, if a plaintext transaction pays 1 cent, and a confidential transaction costs 10 cents, I will choose a confidential transaction because it is more powerful. It is also common for people to split bitcoin transactions into several pens to achieve certain confidentiality. For example, if someone has ten bitcoins and ten copies of cold storage, after he buys one of them, even if others can see that he has done a pen transaction, he can only see that there is only one bitcoin. The source. This also means that some users may have to do a lot of transactions in order to achieve similar goals. If a service with a confidential transaction can use a transaction to achieve the same level of security, then the previous multiple transactions will be replaced, and each transaction is not a big headache for you to imagine.

I think it's quite interesting to look at other people's ideas. Bitcoin basically accepts only optional changes that have no obvious harm, or a similar meaning. Some ideas just intersect with the expansion. I think the expansion is better on Lightning Layer2. The cost of expansion on the direct chain is too high. It is basically superimposed on the nth power, which is not practical. This protocol is not suitable for expansion, or lightning network can solve.

A few years ago I was involved in a Reddit forum discussion, and I asked a question—in fact, what Trace Mayer mentioned—in the eyes of users and investors, what qualities make Bitcoin unique? If Bitcoin loses something, people will no longer be interested in it. Users and investors have the same opinion, which is to look at the bitcoin's fungibility and privacy security… well, it's limited to the group of people on Reddit, but there may be millions of users on the forum. Alright? Of course, some people have doubts and concerns about this. Some investors may avoid it. Some policies may not support it, or some related financial products cannot be approved… But I still feel that these two features are very important to the core users. High value.

Peter McCormack: Well, I agree. Time seems to be almost the same, and finally come back to a question. It’s been ten years, what do you think of Bitcoin’s next decade? What are your expectations? What is important for Bitcoin? If we sit down and talk about bitcoin ten years later, what will we talk about?

Adam Back: I want Bitcoin to further develop the characteristics of fungibility and privacy security. Now update the agreement, and those BIPs have some improvements in anonymity. Dandelion is the one that is going on now. Schnorr signatures bring some benefits, as well as taproot and graftrootd, with little progress. But I also want to see some bolder attempts, like confidential transactions or such things.

As for what will happen in ten years… Ten years is a long time. It might be closer to the apex of the s curve. Bitcoin will be more stable, more widely used, and a wider user base will do different things with Bitcoin, and it will be more convenient to use. ETF products do not provide the same level of protection, but it is a window for users to access investment, and it is much easier for many people to have such services. I have friends who are always asking: "Where do you want to buy bitcoin?" Every year, people call to ask stockbrokers to find out how to buy them.

The other direction is to incorporate Bitcoin into the online investment brokerage service of asset allocation. Retail channels will also grow wider, and Square's cash app will buy Bitcoin, and I heard that Bitcoin sales are growing. They are listed and interested in seeing the quarterly data they give.

Peter McCormack: Finally, talk about how to get the latest information about Blockstream or Liquid and you. If you want to contact someone, you can also talk about it.

Adam Back: There is a blog on the website, we will post updates, and there are many more to be launched in addition to the blockchain browser and Liquid full node. We will release a version of Green Address that supports Liquid, making it easier to manage Liquid assets. We are also doing hardware wallet support with Trezor and Ledger, which improves security and is another way to handle Liquid funds.

To try it out, we have an IRC channel. Bitcoin's Slack group Bitcoin core community, slack has Elements channels, you can go and see. There is also some good information on on Element's open source website.

If you are an exchange, trader, OTC, etc., please contact Blockstream. We are happy to help you connect with existing exchanges or join us as a member of the network.



Compilation: Orange Book kyq

Source: Orange Book

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