December 27, 2020
Samson Mow on Bitcoin’s Tech and Future Growth | The Investor’s Podcast
Check out The Investor’s Podcast Episode Page & Show Notes
Key Takeaways
- Node operators and users are the economic might behind Bitcoin; they dictate where Bitcoin goes
- Miners extend the blockchain and get the block and fee rewards. They get no reward if they disregard the node consensus
- Bitcoin processes $500K/ sec, compared to $2K/ sec for popular high Transactions Per Second (TPS) altcoins
- Lightning network is a second layer solution meant for small retail payments and has a theoretical TPS in the millions
- Bitcoin dominance is a misleading metric, akin to having a nuclear proof fortress surrounded by cardboard boxes
- That said, expect another alt-coin frenzy as Bitcoin continues appreciating, more so with low liquidity altcoins
- It’s difficult to run an Ethereum full node so most node operators just use Infura full node as a service. This exposes Ethereum to outages and other centralization risks
- Additionally, Bitcoin has a defined hard cap of 21 million coins whereas Ethereum has no identifiable hard cap
- Security tokens democratize capital formation and financing, with 3 drivers accelerating adoption:
- The technology infrastructure is growing
- More exchanges and venues support the issuing and trading of tokenized stocks
- The regulatory environment is now more favorable compared to 2017
Intro
- Samson Mow (@Excellion) is the Chief Strategy Officer (CSO) of Blockstream, and founder and CEO of Pixelmatic
- Check out his website
- Host: Preston Pysh (@PrestonPysh)
Founding Blockstream
- Blockstream was founded in 2014 to advance sidechain technology and scale Bitcoin in a privacy-centric way
- At a time when there was no support of Bitcoin development, Blockstream secured a total funding of $91MM from various investors, including Reid Hoffman
The Fork Wars
- Bitcoin’s on-chain transaction capacity is limited to 7-10 transactions per second (TPS), compared to over 30K TPS on the Visa or MasterCard networks
- Under the notion of an upgrade, several prominent developers pushed to hard fork bitcoin and increase the block size
- However, big blocks require more disk space and powerful hardware, which eventually centralizes the network into server farms
- Moreover, the ability of a few people to change the code (e.g. bigger blocks) compromises Bitcoin’s main value proposition- it’s immutability
- There is always a good reason to do something, and it becomes a slippery slope
- For instance, “There aren’t enough bitcoins for everyone in the world to have 1 full bitcoin”
- There is always a good reason to do something, and it becomes a slippery slope
- The scaling war culminated in 2017 with major companies (Coinbase, Bitgo, etc..) forming a coalition to support Segwit2X
- In essence, this was the first attempt to control Bitcoin at the protocol level
Who Controls Bitcoin
- Node operators and users are the economic might behind Bitcoin; they dictate where bitcoin goes
- Think of running a bitcoin full node as akin to corporate governance and voting rights in traditional investing
- Miners provide the service of extending the blockchain and in return, they collect the block and fee rewards, they get no reward if they disregard the node consensus
- Case in point, miners failing to fork off to maintain a 50 bitcoins block reward after the first halving
- Around 50% of the hash rate is in China, with rapid global expansion especially in Russia and North America
- “Mining is not as China-centric as people will make it out to be” – Samson Mow
The Evolution of Money
- A monetary good starts off as a collectible, becomes a store of value, then a medium of exchange, and finally a unit of account
- Moreover, a currency can go from a store of value to a medium of exchange, but not the reverse (e.g. hyper-inflating currencies)
- Bitcoin has no peg to any currency; it stores value better
- Put simply, the fundamental issue it solves is the race to debase the currency, not payment at Starbucks
Value Transacted on Bitcoin
- Bitcoin is often misleadingly evaluated based on TPS, with higher TPS altcoins claiming technical superiority
- However, Samson illustrates how Bitcoin processes $500K per second, compared to $2K/ sec for popular high TPS altcoins
- The valuable properties of Bitcoin are multiplicative and add up together to put Bitcoin in a league of its own
- E.g. hash rate, security, value, liquidity, lightning network, liquid network, and satellites
Ethereum is Centralized
- It’s difficult to run an Ethereum full node so most node operators just use Infura full node as a service
- As a result, the Ethereum network is subject to outages and other centralization risks
- Ethereum Ice Age mechanism was meant to ensure the network transitions to proof-of-stake by stopping all transactions at a certain block height
- In reality, the deadline was simply delayed and the network hard forked multiple times
- “Hard fork is basically rebooting the whole network, so it’s not decentralized at all” – Samson Mow
- Bitcoin has a defined hard cap of 21 million coins. By contrast, Ethereum has no identifiable hard cap
Altcoins don’t Matter
- Bitcoin dominance is a misleading metric, akin to having a nuclear proof fortress surrounded by cardboard boxes
- Put Simply, “Bitcoin is the only one that matters” – Samson Mow
- That said, expect another alt-coin frenzy as Bitcoin continues appreciating, more so with low liquidity altcoins
- Additionally, many newcomers think of a coin price as cheap without considering the coin supply
The Lightning Network and Scaling Bitcoin
- Unlike Segwit2X, Segwit upgrade increased block capacity without changing its size. It also fixed a malleability bug and enabled the Lighting Network
- Lightning network is a second layer solution meant for small retail payments and has a theoretical TPS in the millions
- Think of it as opening a bar tab, with all transactions recorded and charged at the end of the night, instead of paying every time you have a drink
- “Basically, anyone selling something that is not very expensive should be able to use Lighting” – Samson Mow
- Lighting network still has limited capacity and larger payments can face issues. That said, expect increased channel capacity and bigger channel as bitcoin becomes more valuable
- Keep in mind, Bitcoin holders can earn satoshis by opening channels to users
Liquid Network
- Blockstream’s Liquid Network is a side chain anchored to the Bitcoin blockchain by a federation, it’s not decentralized
- However, the federation is geographically and geopolitically dispersed, so it’s more decentralized compared to Ethereum
- Liquid provides a way to privately move bitcoin quickly with 1 minute block time and full settlement in 2 minutes and to issue assets such as USDt
- It allows traders and market makers to keep coins off the exchange, to avoid fees on the main chain, and to move between exchanges quickly and privately
- Unlike most alt projects, Liquid doesn’t have a token, its native currency is Bitcoin
- The user creates a bitcoin pegging transaction to the liquid wallet, the network then issues the same amount on the liquid side to transact with
- By contrast, wrapped bitcoins are subject to the risk of token debasement and manipulation
- The government of Bermuda is using the Liquid network to issue a stimulus token spendable at certain merchants
Future Bitcoin Technologies
- Security tokens democratize capital formation and financing, with 3 drivers accelerating adoption:
- The technology infrastructure is growing
- Second layer and sidechain technologies enable confidential transactions
- Additionally, you can build a lighting network on top of stable coins and side chains, with enough TPS to service the world
- More exchanges and venues are supporting issuing and trading tokenized stocks
- The regulatory environment is now more favorable compared to 2017
- Lawmakers would rather have regulated trading and funding than have unregistered ICOs
- Blockstream AMP allows issuing digital assets with flexible rules to comply with changing regulations
- Lawmakers would rather have regulated trading and funding than have unregistered ICOs
- The technology infrastructure is growing
- Simplicity is a low-level smart contracting language that enables smart contracts on Bitcoin (vaults, lending, limit orders, asset-based lending, etc.)
- However, mainstream adoption is still far away
Blockstream Satellites
- Blockstream has 6 satellites broadcasting bitcoin’s blockchain with global coverage, here is why
- To prevent network splits in case of an undersea cable cut and major internet outages, one connected node can keep the whole area in sync
- This becomes even more vital as the network expands into trading securities and tokens
- Satellites allow mining in remote areas with no internet connection
- To prevent network splits in case of an undersea cable cut and major internet outages, one connected node can keep the whole area in sync
- Blockstream recently updated to satellite version 2.0, which enables the entire blockchain download over satellite connection with no internet
Gaming and Bitcoin
- Infinite Fleet is an MMO (massive-multiplayer-online) strategy game that runs on a dual token model
- A security token for raising capital, the game raised $3.1MM and expects $12MM in future funding
- Infinite Fleet is filing for Regulation-A offering in the US and working with stocker.io for non-US investors
- A utility token as an in-game currency, which players can swap for satoshis when they exit the game
- A security token for raising capital, the game raised $3.1MM and expects $12MM in future funding
