Transcript 0:00 I, I'm not on like the, the, the view that, you know, w-we absolutely need changes or Bitcoin's gonna fail by next year. Like, there's, there's very kind of aggressive changes. 0:08 And then there's people say that, like, they're, they're basically not in favor of any change ever again. 0:13 I'm not on either end of the spectrum, but I'm-- I tend to be a little bit more on the, on the conservative side, and basically rule number one, don't break anything. Number two, don't break anything. 0:21 Number three, let's see how we can optimize things. One of the things I generally think about is, you know, not introducing centralizing types of, of MEV, uh, on the network, um, as well as any sort of... 0:33 Like, I don't really have the ability to judge a technical bug or not, so I have to rely on the majority of others for that. 0:37 But I look for, do the majority of technical people I follow agree that something is safe, uh, in a, in a absolute technical sense, but then also do they think it can cause or, or incentivize, uh, types of, of MEV that could be centralizing for, for mining? 0:52 I think, uh, there's still a lot of untapped design potential in the current consensus, but I, I do find I, I am interested in some of the more, you know, cautious changes. 1:02 [upbeat music] Welcome back to Bitcoin Season Two. I'm Charlie Spears of Blockspace Media. Today, we've got Lyn Alden. 1:15 You may know her for her insights on macro trends as they relate to Bitcoin, but today we're talking about a paper she co-authored on how the Bitcoin network itself works. 1:25 Before we get started, I wanna shout out our sponsor, Arch Network, and welcome all of the new CoinDesk listeners. Thanks for showing up, y'all. 1:33 As for the title of the show, Bitcoin Season Two, well, I'm also figuring it out myself. 1:37 We're kind of talking about all the new things happening on Bitcoin, um, from high cultural stuff like ordinals to deep Bitcoin technical discussion, layer twos, um, basically a lot of the topics that I feel that are not covered across other Bitcoin discourse, new faces and new ideas on the oldest blockchain. 1:57 But I'm gonna bring up Lyn here. Lyn, welcome to Bitcoin Season Two. Glad to have you. Happy to be here. Thanks for having me. 2:04 Um, so, like, maybe to set the stage a bit, you've been, like, an expert historically on, like, macro investment strategies turned Bitcoiner and recently co-authored a report with Steve Lee, Aspire and Ran of Electric Capital, but this is like a new lane for you, I think. 2:19 What's the context or background on your participation in this report? Yeah, the context-- I mean, when we back up for a second, Bitcoin is interesting because it's inherently so multi, uh, discipline. 2:31 Uh, it's technology, it's economics, uh, it's, it's even politics to some extent. It, it, it's, you know, all sorts of things combined. 2:38 Um, and so, so Steve, uh, was very interested i-in having this type of analysis put together, um, and, and my approach there was to try to bring, uh, somewhat of an economic lens, uh, to what is, what is otherwise a pretty technical discussion. 2:52 So, um, while I rely on, you know, people like Steve and Ran and others, uh, for technical insights, um, I do my best to see how that, that connects to it from an economic perspective, because any change to Bitcoin generally has both technical and economic implications, uh, good or bad. 3:09 Um, and this, this paper was, uh, it's, it's descriptive rather than prescriptive, meaning that, uh, it basically, you know, says, okay, given that a lot of years have passed since, say, the block size war or since other events, um, what can we say about how Bitcoin works and how Bitcoin has changed? 3:27 And what are some of the risks or, um, you know, the, the processes that that can happen? 3:32 'Cause I think, you know, a, a lot of people, including myself, um, were, were pretty heavily influenced by the block size war, um, and people learned lessons from that. 3:41 And then some of the questions are, are those lessons still valid or has, have, has the structure of the industry changed enough, uh, that maybe though that's not the full picture anymore? 3:51 So I, I think it was just a really interesting paper to work on. I certainly learned a lot from it. 3:55 And then the spirit that we did it in is to say, okay, we, we put together the first draft of this paper, um, but then we also open-sourced it, um, and we invite people to contribute to it, uh, and otherwise build it from here 'cause it's, it's a living document, just like Bitcoin is a living network. 4:11 I like that idea of a living document because consensus is kind of this moving, fluid, evolving target. And it's interesting because, you know, I think back to myself, the... 4:20 I, I remember the, the block size war, the Bitcoin cash fork, and a lot of people were like, "Okay, um, we're done. We solved it. We figured it out. Everything's pit pat. We're done. 4:29 Nodes do-- nodes fit in this narrow category. Here's whatever." But, um, like, it appears this is just-- this is going to be an ongoing study and, as you say, multi-discipline. 4:41 So the name of the paper is Analyzing Bitcoin Consensus: Risks in Protocol Upgrades. 4:45 And for any of the listeners who wanna get more technical, we did a presentation, Steve and Ran did a presentation at our last conference, Op Next in Boston, that is available on the YouTube channel here. 4:56 And then, um, we had Steve and Ran on our sister podcast, The Gork Show. But I've got Lyn here. 5:02 So, um, Lyn, I think one of the interesting things that you guys do is you actually define the stakeholder groups in this paper. And I think a lot of Bitcoiners don't think about stakeholder groups. 5:15 They just kinda think about nodes and miners maybe. But you guys really flesh out, like, the different stakeholder groups, and, um, let's go into that. What is a stakeholder group as it pertains to Bitcoin consensus? 5:29 And maybe describe these for me. Right. 5:31 So the stakeholder groups basically represent different powers, uh, that are involved, uh, as well as, you know, different just participants, uh, in the network and the powers they can exercise while choosing to participate in it. 5:43 Um, and this was a core piece of the paper, but it was interesting because, um, you-- there are multiple-- there's no, like, single right answer to say, okay, these, these are the number of stakeholder groups and here's what they are. 5:54 Um, there are certain, uh, segments that could be combined because they're close enough that they're effectively the same stakeholder group, and then there are others that you say, well, these may be different enough that they deserve their own stakeholder group. 6:05 So the question is, uh, kinda like the phrase, like, all models are wrong, but some are useful. 6:10 Uh, that, that's kinda the spirit that we approach this in which to say, um, can we get a pretty good framework for what the different stakeholder groups are, and what types of power do they wield?Um, especially because as you go through, say, a soft fork process, their powers are not static. 6:26 Sometimes they have more-- Some of them have more power in the beginning, other ones have more power by the end or in the aftermath, uh, of that process. 6:34 Um, and so we-- the framework we use to decide how many stakeholder groups there would be, uh, is basically to look at the, the powers and the incentives of different groups. 6:43 Um, if two groups that are otherwise somewhat dissimilar effectively have, uh, very close types of power and then incentives to where they would wield that power, then for all intents and purposes, they're, they're treated as the same stakeholder group. 6:57 Um, so that, that prevents it from getting too big, uh, and it also tells us when maybe, maybe one bucket is, is, you know, should be split. 7:04 Um, and so we ended up identifying six stakeholder groups, and that was after some, uh, back and forth and analysis on five or seven or eight or... Ended up at six. 7:13 Um, and most of them people will be familiar with, but we can go into why we separated them. So, uh, some of the main ones to start off with are, uh, economic nodes. 7:22 Um, so that in-- technically, you know, nodes are anyone that runs a node, but economic nodes basically refers to any node that actually does significant volume. 7:30 So an exchange node matters more than someone who runs a node and hasn't done a Bitcoin transaction in, in, in a year. Um, and, and that's, you know, a b-big spectrum there. 7:39 Uh, so merchants that accept Bitcoin, uh, either, either by running their own node or using a service that, that does that for them, uh, brokers, exchanges, uh, anything doing significant volume, uh, they certainly play a big role because they choose what version of the code to run. 7:55 Um, uh, another big group is miners, obviously. Uh, and, and back during the block size war, one of the biggest discussions was nodes versus miners. 8:03 Uh, miners are of course very important for determining what, um, uh, transactions are gonna make it into blocks. They have the power technically in aggregate to censor the network. 8:12 Um, and they can also do miner-activated forks that, you know, have, have certain, um, trade-offs compared to other types of, of fork activations. 8:22 Um, and then there's investors, which is basically any-anyone who holds Bitcoin, um, uh, but especially refers to, like, larger investors or, you know, kinda like it-- the, the pe-the, the eighty/twenty rule. 8:35 Like, you know, when, when, you know, in any given, like, holding, usually the, the bigger holders have a quite big share of the network, uh, whether that's real estate, whether that's stocks, whether that's Bitcoin. 8:45 Uh, so basically entities that have a, a, a lot of decision power, uh, to, to move coins and to choose between hard forks or to decide they don't wanna participate in this network at all, they wanna go to another network or leave the space. 8:58 Um, and then some of the, the maybe lesser-known ones, uh, would be, um, uh, we split two types of developers, uh, just because developers are a very broad category, and they're, they're super important to the network, and sometimes they're in conflict, and sometimes they're on the same. 9:13 And, you know, so we did protocol developers, uh, whi-which basically refers to, you know, people focusing on the base layer, people focusing on open, you know, open source, uh, L2s, people focusing a lot on maintaining existing things, security, um, all that kind of stuff. 9:28 Uh, their incentives tend to be aligned more toward, uh, robustness, resilience, security. Um, and then we s- we also looked at, uh, application developers, uh, and their, their app users. 9:42 Um, so those refer to people that might not be working, for example, on Bitcoin Core, might not be working on, uh, Lightning directly or, or things like that, but maybe they're developing applications, uh, for Bitcoin. 9:53 Could be a wallet, could be another type of L2, could be, um, all sorts of different things that they can be doing. 9:59 And, you know, while they have a similar skill set as, say, protocol developers, uh, their incentives are a little bit different because they tend to benefit from having more expressivity on Bitcoin. 10:09 So the more, the more hooks that Bitcoin has, the, the better, the more flexible the script Bitcoin has or basically the more things it can do, that, that gives them a bigger surface area of design. 10:19 Um, and so they, they're, they're focusing on different aspects of the network. Um, and then lastly, we focused on media influencers. We can't forget those. Don't forget the podcasters. [laughs] Yes, can't forget those. 10:29 Uh, and they, you know, they basically have an audience. 10:33 And when you're, when you're talking about consensus, uh, it's basically what do a lot of people think, both influential people, uh, you know, the head of a big exchange, the head of a miner, the head of, um, you know, maj-major, uh, you know, core contributors or maintainers or what, you know, what, what do those people think? 10:51 But also, what are all the u- what are, like, a lot, like, millions of users thinking, uh, and investors a-and all that? 10:57 And so influencers can play a role both in shaping a narrative, uh, defending a narrative, uh, or, uh, even potentially inserting false narratives. 11:04 Like, you can, you can drum up and make it look like there's more support for something than there is. You can make it look like something has less support than it really does. 11:11 There, there's all sorts of honest and dishonest things that can be done in the public realm. 11:16 And then the, the last thing I would point out there before I, I turn it back is to say that many entities can be more than one stakeholder group. Like, you can, you can run an economic node and be a miner. 11:25 You can be an influencer that is also running a miner. You know, you could be an investor that is, you know, also a developer. Um, there's any number of groups that someone can be in. 11:35 Often they have a primary group, um, but, you know, the-these, these represent n-not every one person is just in one category. Not every one company is just in one category. 11:44 And, um, a-as, you know, Bitcoin, as Bitcoin is considered to be changed 11:50 or when some sort of updates are proposed to it, these stakeholder groups have different incentives, uh, for what kind of upgrades they would like or not like. 11:58 And then they have different powers to either, uh, accelerate a change or to, you know, put resistance against that change. 12:06 And then that, that tends to, to shift throughout the course of the update, depending on, on what upgrade path it's going through, what kind of update it is. Uh, so it's not, like, a static process. 12:16 Y-you, you touched on all of them, which is great. And I, I think I wanna kinda circle around a couple of them. Um, maybe go back to the beginning. 12:23 You mentioned, um, economic nodes, and I think this is an interesting conceptMaybe people who are, who don't study and immerse themselves in Bitcoin consensus discussion, like, aren't aware of this. 12:34 Um, you know, Bitcoiners advocate for running a node. That is your way to access directly the network. But it's not necessarily... Not all nodes are created equal from a consensus participation standpoint. 12:46 I feel this may be a, um, a common misconception or a lit-- maybe painted a little bit misleadingly. Dig into this a little bit more. Um, what, what is an economic node and, 12:59 uh, where do you think, what do you think the economic nodes of today look like? Well, so an economic node would basically be any node that's, uh, being used to verify a lot of volume that's happening. 13:11 Um, you know, like my node is not, not a particularly economic node just because it, it's not like representing a million, uh, exchange users or, or ten million exchange users or, um, you know, a, a big ETF or anything like that. 13:26 It-it's, you know, it, not to say that nodes aren't important for individual users. They absolutely are. 13:31 Uh, that's actually one of the biggest differences that Bitcoin has compared to almost any other cryptocurrency is that, um, running a node is very accessible for most types of people, and it allows basically an individual to audit the blockchain, uh, to use the pri-- use the blo-blockchain in a fairly private manner, uh, in many cases. 13:50 Uh, basically it removes the barriers that they have to go through to, to access the network, uh, should they choose to. It tends to be power users, uh, but having that option is really important. 13:59 Um, economic nodes refer to those bigger volume ones. Uh, and when it comes to a, a node choosing to upgrade to a new fork and recognize that that's Bitcoin now, uh, tends to, you know... 14:10 It's more important when a major exchange makes that decision than, say, if just me running a node makes that decision. Um, and it's not to say that, that, you know, tons of smaller node runners don't matter. 14:23 Um, they absolutely do 'cause they're, I mean, they're, they're choosing to say what network are they participating in, and they're, they are in some way contributing to the network effect, uh, of, of the whole network. 14:32 Um, uh, but, um, i-in terms of kinda like how these things process, the economic nodes a-are particularly important. 14:39 So it's, it's one of those things where there's a little bit of debate there because every, you know, we, we'd like to think that, you know, without our node's agreement, you know, Bitcoin can't change for better or worse, uh, or, or we can force a change that's maybe being resisted by big entities. 14:54 And while there, there is some truth to that, there is, there is like, there's, um, activity there, uh, you know, generally speaking, there, there's always a risk that you could be, you could be stranded from the broader network if, you know, you're, you're running a certain piece of software that the, the majority of the network has generally moved away from. 15:11 Uh, so, so it still, it still makes sense to be-- to follow what is actually happening at scale in volume. 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We can try to evaluate like volumes and aggregate, you know, economic interest that it represents, but it is kind of a subjective, ambiguous definition. 16:08 But, um, one which is, uh, two other categories which, of stakeholders which are less ambiguous are miners and then protocol developers. But these are also, um, you know, this can get into a spicy conversation. 16:22 Like, um, you know, I hear often people say, uh, and reflecting on the block size war, well, that de- that demonstrated that miners are subservient to node operators, and I feel that that is not a fair characterization. 16:37 Do you think that that narrative is useful as a mental model, or would you probably clarify that idea that miners are subservient to, like, the nodes? 16:50 Probably the takeaway I have from the block size war is that, um, before that whole occurrence, uh, the, the power of miners was often stressed. 16:59 Uh, e-even when Satoshi would talk about the network, he would talk about, you know, the, having the majority of, of, of miners be honest, um, a-and all this. 17:07 And of course, proof of work is a, is a core piece of Bitcoin. 17:10 Um, and I think what the block size war did was show that it's, it's not quite that simple, um, and, and that basically even if the majority of miners are in favor of a change, uh, if it's very unpopular among users and, and node runners, um, then, uh, they're not necessarily gonna be successful at that change, and there's, there's pushback that can be done or can be threatened against miners that are, that are acting against the will of the broader network. 17:35 Um, and what was also interesting about the, the whole block size war is that that was a case where many of the major economic nodes, uh, and the major miners were, were on a similar side, um, a-and other entities were on the other side. 17:48 Uh, many smaller node runners, uh, many developers, um, were, were on the other side. Um, and, um, you know, it kinda just showed that, that power is a little bit more distributed than maybe we thought. So I wouldn't... 18:03 You know, I think that one of the views I have is that the, the biggest single stakeholder at the end of the day would probably be investors, um, uh, that they, you know, they, they can ultimately decide between the success of a hard fork or not, um, especially when it comes to kind of ha- a network becoming large and successful. 18:20 Um, but nodes are a, a huge piece of the puzzle, uh, in terms of how, you know, it's a network that's the network effect in place. That's the, that's the whole verification. 18:30 That's kind of why we're here, uh, at the end of the day is, is the fact that instead ofMoney systems operating on one big central node like they do today. 18:38 You know, Fedwire is basically one big node, uh, and there's, you know, any other big settlement or any sort of-- is just one giant node. 18:45 Any sort of central bank is a big node, and then banks serve as, like, smaller sub-nodes on them that is entirely permissioned asset. 18:53 Uh, and the cool thing about Bitcoin is that it's open source and multiple people can run nodes. 18:59 And so there's, there's multiple sources of power for economic nodes, but then there's also direct participation, uh, from smaller node runners. 19:08 And then the last, um, [clears throat] stakeholder group I think is interesting to touch on, um, as you say, protocol developers. 19:14 So not like the application devs, maybe not necessarily people who are building wallets or, um, maybe exchange infrastructure, but people working and, and on the development side of, of, like, Bitcoin clients and Bitcoin consensus and Bitcoin, the network itself. 19:31 A lot of people, you know, the best example of this is the loosely affiliation, loose affiliation of Bitcoin core contributors, and, um, that's also been, you know, a, a spicy subject and the subject of a lot of accusation and conspiracy over the years. 19:48 Um, but I'll, I'll quote, um, Rusty Russell of Blockstream, who spoke at our conference last, uh, November. And he said, "Protocol devs, specifically like Bitcoin Core, 20:00 does have, um, kind of like a, a veto power o-of, of sorts to, like, you know, there's certain proposals and they-- it's a soft veto." Um, what are, what are your thoughts on this topic? 20:15 Or how do you, how do you prefer to kinda characterize or flesh this idea out? 20:19 Yeah, I think that, um, one of the things covered in our paper, and I agree with that view, is that, um, one of their biggest powers is the veto. 20:26 Uh, it's not an absolute veto, uh, but that's basically where they have, um, their biggest input power. 20:31 That simply by not looking at something or choosing not to, um, merge something, um, the avenues for going around that are, are tough. They're possible, but they're tough. 20:43 Um, and one thing that I tend to notice is that Bitcoin detractors, they-- when they criticize its level of decentralization, they'll focus on any one thing that they happen to have learned about or that they can point to as critically and say, you know, "Look at how centralized mining pools are. 20:59 The whole network is trash," uh, without realizing that there are pushbacks from other stakeholder groups against that should that actually become a problem in practice rather than just, uh, in, in, you know, c-in, you know, practical theory, but in, in actually it happening. 21:14 Uh, and the same thing is generally true for the, the core maintainers, which is there'll be, there'll be critics that say, "Look, I mean, there are, like, five people to det-to determine what goes into Bitcoin." 21:23 And it's like, well, that doesn't take into account that they, they can only, they can only, um, make updates available. They can't push updates to users. Uh, they can't, um, you know... 21:32 Th-there's, there's mult-multiple ways that they're limited, um, but probably their biggest source of power is that if they just-- if, if they're just not prioritizing a certain change that's maybe becoming popular by some part of the network, then they have significant power to delay or, or prevent, uh, that update from occurring, either by conscious choice or just because their, their priorities are elsewhere. 21:53 Maybe they d-they don't have the same incentives as those that are, that are pushing for another change. Um, now, the, the fact that's important is that you, it-- you could do, you could go around them. 22:03 You could do an activation client that's non-core, um, and in the paper, we cover risks of that. So that's not like a, you know, not something that should be done lightly. 22:13 Uh, but the fact that you could do that is important for network health. If there's no option to do that, then obviously Bitcoin would be a very centralized project. 22:21 And so the fact that that's always, like, a, one of the nuclear options that exists, uh, you know, against any, any one stakeholder group, if they do become a problem that is, is, you know, that they're resisting something that the majority of the network wants, um, then they're-- each one has ways to go around them, and that's, that's their case. 22:39 We can come back to some of those, but I wanna get into the, one of the other more interesting, um, like, uh, parts, sections of the report. 22:47 You introduce a concept called state of mind, which I think is really, really interesting, um, and I think it helps maybe unders-- you know, for the person who goes, "Why aren't miners, you know, chiming in on the consensus discussion?" 23:01 And this gets into, like, the, this concept of state of mind. What is state of mind? And maybe flesh it out for the Coindesk listener, if you will. 23:13 So state of mind is a way of looking at, at the incentives to some extent and how they're wielded. 23:18 Um, and we again use six groups, um, to kinda t-talk about, you know, what are the different, um, perspectives that people can have. 23:25 And so let's say there's a given change being proposed, say a soft fork's being, being proposed. 23:30 Um, and at any given time, most people will generally fall into one of six categories about how they look at that potential change. So, uh, on one hand, you have the, the, the pro side, 23:43 and the far end of the spectrum is, uh, you're super in favor of it. 23:47 You might even be-- have created that update, but y-whether you created it or not, you're a super fan of that change, and you're willing to even use your own resources to promote it. 23:55 You're willing to talk about it, like your time, your attention, and potentially even your capital, uh, to support that change. 24:03 Um, the next one would be that you're generally supportive, but in a more passive sense, that, you know, when asked, uh, you would say, "Yes, I think that's a good change," but you're not willing to put your, your time, attention, or capital behind making that change happen. 24:16 You're a more passive supporter. Um, and then there's, uh, on the opposite end of the spectrum, you have the same things in reverse. 24:21 You have people that are absolutely opposed to a change, uh, and will commit time, attention, c-- and/or capital to resisting that change. 24:30 Um, then you have people that are generally, um, uh, not in favor of a change, but they're in the more passive role. 24:37 So they're saying, "I don't, I don't particularly agree with that changeI'm not really losing, losing sleep over it, so I'm not gonna like, you know, put my time, attention, and capital into resisting that change, but I'd prefer that that change didn't happen. 24:48 And then there's two in the middle, um, that are, that are different. One is, um, you're aware of the change, and you, you just don't have an opinion. Maybe it's a very technical thing, and you're just not... 24:59 you don't feel like you're technical enough to have a decision o-on that. You're just like, "I don't know. A-as long as the network doesn't break, I don't care. It's not my wheelhouse." 25:06 Um, and other times people may say, "Yeah, there's good arguments on both sides. I don't really have a view," or, "This seems small enough that I, I just... you know, it, it's not really affecting me." 25:15 And then the, the final category in the middle is someone who's neutral, uh, because they don't... they're not even paying attention. They're not even aware. Maybe they're just not even aware of the change. 25:25 Maybe they heard it, but they don't know what it is. Um, and it's possible that they actually would have a strong opinion in favor or against if they knew more about it, but they... 25:34 but what-what's preventing them is, is ignorance. 25:36 They just don't know about that because, um, you know, while, while some of us might be terminally online and in the space and either working in the space or just, like, actively participating in the space, you know, the vast majority of people are not, you know, just actively participating, uh, in this. 25:52 Kinda like how most people who use the dollar cannot tell you what the, what is the reverse repo facility, what is the repo facility, what are the mechanisms of dollar creation precisely. Like th-those... 26:01 it's just not how people interact with money. Um, and so one of the goals with the paper, again, was to be descriptive rather than prescriptive. So it's... 26:09 one of our goals was there are a lot of people in that group, um, that are not even aware of potential changes and that might want to be, and that probably should be. 26:19 Uh, not to say that everybody should be, but basically everyone who's kinda tendentially interested in this space, any-anyone who's interested in Bitcoin, uh, to a pretty high degree, um, we wanna, we wanna get them to more informed categories, whether it's in favor of change, against change. 26:34 You know, we don't really talk about specific changes. 26:36 But just kind of helping them understand the incentive structure, the power structure, the history of changes, uh, and being aware of kinda what some of the popular proposed changes are, uh, to see if they would have an opinion one way or another. 26:50 Hey, this is Will with Blockspace Media, and I don't know if you heard, but we just announced the second edition of our conference series, OpNext, now to be held at the MicroStrategy HQ in Tysons, Virginia. That's right. 27:03 After the success of our first scaling conference at Fidelity last fall, we're doing it again this spring, April 11th and 12th, at the MicroStrategy HQ. I'm really excited for the programming. 27:13 We have various stakeholders, industry, developers, and Bitcoin miners present. 27:18 So join us in April for open, neutral, and honest conversation about the leading proposals and technical solutions that will scale Bitcoin to the next billion users. 27:28 No booths, no tokens, no shills, just Bitcoin and honest conversation. You can find tickets and more information at opnext.dev or click below in the show notes. 27:42 Uh, I really appreciate the, like, neutral a-approach to the paper, the descriptive approach, and, um, I may ask you for your personal prescriptive opinion, but I'll, I'll characterize it like this. 27:56 So we spend a lot of time talking to Bitcoin miners. I, myself, am an operator at scale in the central US, and we do a lot of the primary research on the landscape of Bitcoin mining. 28:07 At the same time, we are immersed in the technical discussion of Bitcoin, and it's really funny because I talk to, like, the devs, the people who are close to the protocol, and they're like, "Well, miners, you know, with this perfectly rational decision-making process will do these things," and, like, "Miners would never support that," or miner... 28:25 They, they talk about miners as kind of this, like, way more cognizant participant. And yet, I talk to my Bitcoin miner friends and myself, and, um, I could not... I, [chuckles] I think this is... They are almost... 28:39 I would, I would say it is fair to characterize most Bitcoin miners, data center operators, and even people at mining pools as pretty, like, clueless about most of these conversations, with the exception of a handful of, like, maybe key decision-makers at a few pools or a few large data center operators. 28:56 But, like, miners as a monolith, I would say, are pretty divorced from the current Bitcoin technical discussion and really unaware of the consensus. So I'll throw it to you, like, you know, is this good? 29:13 Is this bad? I would ask for your prescriptive opinion on maybe is there... are there stakeholder groups which should be more active right now in the Bitcoin consensus discussion? Yeah, I think I... 29:27 Well, first of all, I generally agree with the observation, um, that miners are, uh, in aggregate are, are not as, you know, tied into what is, what, what is currently the most, you know, content... 29:37 like, consensus protocol change versus what was it six months ago versus what was it six months before that. Uh, what are the risks for each one? What are the opportunities for each one? 29:46 Um, that's generally not super high on miners' priorities in many cases 'cause, uh, mining is a super competitive business, so the vast majority of their employees and their attention tends to be focusing on else-uh, elsewhere. 29:57 Um, and, uh, in general, I think it's, it's always better for more entities to be invo-uh, knowledgeable and involved and paying attention. Um, and that's... 30:07 I mean, that's one of the reasons that media influence is a category is because when things start to actually get closer to maybe happening i-in some way or, or, or some, um, some group has reached a, a level of kind of, uh, loudness in the network, uh, where it's actually maybe spilling over and, and becoming more visible to other stakeholder groups, uh, media influence has become important for educating about that, um, and then less neutrally kinda shifting it one way or another if they ha- if they have a view on it. 30:35 Um, so I, I'm generally in favor of more entities, uh, whether it's investors, whether it's miners, uh, being involved, uh, in the change process, uh, just because there are, you know, there, there are some non-technical considerations. 30:49 There are economic considerations, and there are other... And some of the, some of the changes can affect miners.Uh, it can affect their fees, uh, one way or another. 30:57 It's not always clear how it'd affect them, but they can affect them. So miners might have different views on how it could affect them. 31:03 One miner might say, "Hey, this increases the scale of Bitcoin, and therefore might threaten my, my fees." 31:08 Another one might say, "Well, that'll make more people use Bitcoin, and therefore maybe it'll be good for my fees and good for price." Um, and so, you know, th-they can have different views once they've come to, um, 31:21 you know, learn more about it. But yeah, I'm always in favor of more, more information. So there's two more topics I wanna touch on. 31:27 One, you have a section called consent-- consensus ga-- consensus, um, change game theory, which is really interesting because I think a lot of, a lot of people just think, "Oh, well, we kinda reach consensus," and, like, it happens. 31:40 But there's a game theory. There's like, uh, there's mechanisms behind this. There's dy- there's power dynamics at play, 31:46 um, and it's really deep, so we can't get too far into it, but how would you explain the game theory of consensus change? 31:52 Yeah, so I mean, that, that where we-- it's where we go into all the different types of, um, activations that have happened in the past and all that. 31:58 I think probably the, the most interesting thing to highlight is that we have a chart there that we put together that kind of shows our estimate for, uh, the level of power or influence that different stakeholder groups have throughout the process, um, because, a-and this is something I said since the beginning of the interview, is that it's not really static. 32:17 And so, you know, looking at it now, like we basically, um, when you're, uh, starting a consensus change, uh, we, we've generally argued that investors have very low power, uh, even though they're arguably the biggest power in, in the grand scheme of things. 32:32 They've got very little early influence on, hey, this, this proposed soft fork is gaining in popularity. What are the actions investors can take? Uh, directly as investors, not a ton, um, because it's not a hard fork. 32:45 It's not a, it's not an outcome yet. It's just like a proposed soft fork. 32:49 Um, whereas the other hand, that's, that's gonna be where, uh, your influencers, your developers, um, they're playing a much bigger role over time, uh, in that earlier phase. 33:01 Uh, but then as you kinda enter more toward, okay, we're actually progressing toward the change is gonna happen, uh, that's where you start to get a shift. 33:10 And then once the change goes into effect, that's when investors become very powerful because they can say, "Hey, I don't like this change. I'm gonna leave the network." 33:17 Or, "Hey, uh, this change created a bounty claim, uh, and it resulted in a hard fork, uh, and now I get to choose which side wins, uh, the side with the change, without the change." 33:28 Um, and so the, the game theory kinda operates that there are, there are certain aggressive moves that some stakeholder groups can make, and then there are other kinda countermoves. 33:37 Uh, but the point is it's n- it's never static. That one is that almost every soft fork has been activated in a different way than the prior one. 33:44 Um, and then also, during an actual potential or actual soft fork change, those levels of power shift. They're not just like each one has a power that's static. 33:55 It's that they, they have, they kinda become the main character at different times in the process of a change, you know, going through its full process. 34:03 Another personal opinion question here, which is, so you've, you did, you did this kind of descriptive research trying to evaluate, like, the mechanisms and components of Bitcoin consensus. Um, and I would ask you, 34:19 in your research, did you discover or have you come to the opinion that there are certain weaker or more fragile components of the consensus process? 34:30 Um, or maybe what are, in your opinion, the highest risks, um, in the Bitcoin consensus process right now today in twenty twenty-five? 34:41 The one that we, we chose to highlight, and I agree with the decision to highlight it, was the risk of a bounty claim, um, which is, so we talked about how, uh, you know, maintainers have a lot of veto power, uh, but they're-- it's not absolute. 34:54 Uh, and so i-if s-if, if certain entities are u-unsatisfied with direction, there is the option to do alternative activation clients, uh, which then can begin targeting, um, other, other stakeholders. 35:07 And particularly, you know, with, with the level of miner pool concentration, um, you know, te- technically speaking, you could have an alternative activation client, a number of pools get on board, and then, you know, you can have basically pretty significant push for a soft fork, despite the fact that there's w- very little, um, economic node adoption. 35:28 Uh, and one of the risks that we went through was, okay, say that happens. People can judge the likelihood of that happening at any given year, but say that happens. 35:35 And so you have a change that miners are now enforcing, um, uh, and that, you know, maybe, maybe a couple exchanges are, uh, adapting, and o- the, the other ones, maybe the biggest ones, are, are not yet. 35:48 Um, you c-- and let's say that, for example, that change creates an L2, uh, that lets you do something. 35:53 Maybe it's a payment L2, maybe it's a DeFi L2, maybe, you know, whatever the case is, there's some sort of activity that that, that L2's popular among the exchanges that are, that are using it. 36:04 Uh, and let's say a billion dollars of value kinda builds on that. Well, then there's a, a, an issue where if not that many mi-- not that many economic nodes have adopted it, 36:14 meaning that if it's rolled back, most of the network is unaffected. Uh, only like the s- the handful of smaller exchanges that decided to use it, and then their users, um, they're the ones that are impacted. 36:26 And because there's a lot of value built up, there's technically an incentive for, uh, miners or those that can pay miners, uh, to say, "Hey, how about we roll back this change and just spend all the money on the L2?" 36:39 Um, and that would be a hard fork from the perspective of the minority of the network that made the update, the minority of nodes that made the update, uh, but it would just be business as usual for the majority of the network that didn't agree to that change. 36:53 And they say, "Well, I never, I never agreed to your new rules. Your, your rules were not widely accepted across the network," even though miners had, had for a period of time accepted it. 37:02 So when miners go back to not accepting it-You're out of luck. And, and that, that becomes, you know, that becomes a risk. That, that can be a destabilizing event. 37:10 Um, and so, uh, it's not to say that no one should ever do activation, uh, alternative activation clients, but it's to say these are the kind of identifiable risks if, if that approach ends up happening. 37:23 And then you can even use that knowledge whether you're against it or for it. 37:27 Like, if you're for it, you know, we talk about considerations, like if you're doing an al-alternative client, you'd wanna make sure that if you're trying to convince nodes to run it, you wanna have a firm plan in place for how this is gonna be maintained. 37:39 Uh, you know, what is the, the history of this? How many developers have you gotten on it? 37:43 Um, uh, uh, on the other hand, if you're against that change or against that client, you'd be like, "Well, look, I mean, this is, uh, how do you know you're gonna make this change, and then you're gonna be, uh, tied to a, a, a node that's, you know, a, a, a type of software that's not historically updated? 37:57 We don't know the update, um, process of this, the quality of this." Um, and so that-that's a reason why some large entities might be slow to make that change. 38:06 Um, so that's probably one of the, the more tangible risks that we see as there's maybe consent, uh, uh, contentious, uh, activity around soft forks. Um, but there's... 38:16 Generally, these things happen in surprising ways, so probably whatever happens next will be something that we didn't even discuss. 38:22 Um, but hopefully, th-- laying out the different incentive structures, the different stakeholder groups, the different risks involved can at least provide some framework to how we might navigate that should we be surprised by something. 38:33 Yeah. 38:34 It seems like every knowledgeable guest who I've had on this podcast who I've asked, like, these types of questions to say some form of, "Well, we know how consensus has worked, and we can define, we can try to provide a framework for how it can work, but how-- what will a soft fork, if we get one in the future, what that will look like, we have no idea. 38:53 It could be something entirely new." So I guess I'll throw to you kind of a last question, and we-- I try to, I try to, you know... Our-- We at our media company tries to, like, lean in to the consensus discussion. 39:05 This is kind of the topic of our conference in a couple months. Um, so we're gonna, we're talking about proposals, scaling, everything. Um, I'll put you on the spot. 39:16 Do you have an opinion on any of the specific proposals? Or if you don't wish to give a specific opinion, what is your current take on the discussion of, uh, Bitcoin soft forks right now? 39:29 So in general, I would characterize, characterize myself in the slow and steady camp. So I, I'm not on, like, the, the, the view that, you know, w-we absolutely need changes or Bitcoin's gonna fail by next year. 39:40 Like, there's, there's very kind of aggressive changes. 39:42 And then there's people say that, like, they're, they're basically not in favor of any change ever again, um, other than, like, just critical bug fixes or something. 39:50 Um, and I, I'm, I'm not on either end of the spectrum, but I'm, I tend to be a little bit more on the, on the conservative side, and basically rule number one, don't break anything. Number two, don't break anything. 40:00 Number three, let's see how we can optimize things. 40:03 Um, and, uh, so I, I, you know, I, I generally find some of the, the, the less contentious soft, uh, forks, like the, the, some of the, uh, maybe less expressive, uh, covenant proposals, um, I'm, I'm in favor of. 40:17 I'd be kind of put myself in the neutral to maybe passive supporter, um, category for some of those. 40:23 Um, maybe for some of the more aggressive, uh, or contentious, uh, covenant changes, I'd be more in the neutral to passively, you know, hesitant phase, or at least until there's maybe more consensus among technical experts that I follow. 40:38 One of the things I generally think about is, you know, not introducing, uh, centralizing types of, of MEV, uh, on the network, um, as well as any sort of tech. 40:49 I don't really have the ability to judge a technical bug or not, so I have to rely on the majority of others for that. 40:54 But I look for, do the majority of technical people I follow agree that something is safe, uh, in a, in a absolute technical sense, but then also do they think it can cause or, or incentivize, uh, types of, of MEV that could be centralizing for, for mining? 41:09 Um, and so, um, I, I generally have the view that Bitcoin is pretty healthy at the current time, um, and I do actively follow the discussion. 41:18 Uh, I also generally hold the view that among the different covenant proposals, um, that they, they have to basically s- like solidify before it even kinda reaches a lot of the other stakeholder groups. 41:30 So there's already been, you know, there's been some media influence so- that, that have, you know, kind of had people on to discuss this. Um, you know, some miners of course have looked into it. 41:39 Uh, some investors of course have looked into it, but it's still generally in that area. 41:44 And I mean, I, I remember talking to, I, I, developers from a couple years ago when, you know, I would say that from my perspective back in kinda early 2023, that the main conference back then, uh, is where people got pretty excited about some of these covenant changes. 41:58 Um, uh, obviously, they've, they've been around for longer, but s- you know, they started I'd s- I'd say gain momentum and become like a, a, a really frequent, uh, topic of discussion on a broader scale. And generally, 42:09 developers were, that I spoke to were a lot more optimistic about changes happening in, say, in the next twelve to eighteen months, uh, whereas other entities I would talk to would say, "What is, what is that?" 42:19 Um, which goes to our prior point that, you know, like not, not every entity is as connected as you think. 42:26 Um, and of course, here we are in, in kinda early 2025, and no changes have been made or, or are seem- seemingly are not super close to being made. 42:34 Um, and even the, the, the covenants that are being kind of the, maybe the, the leading covenants for what might happen are maybe different than they were, uh, you know, a little under two years ago in early 2023. 42:46 Um, so I'm generally in the camp that I think Bitcoin's in a healthy space. I think, uh, there's still a lot of untapped design potential in the current consensus. 42:55 Um, uh, but I, I do find, I, I am interested in some of the more, you know, cautious changes, uh, to improve things, uh, including the, the consensus cleanup, uh, as well as, you know, potentially some of the more, um, scaling-oriented types of, of changes. 43:12 Well, Lynn, I really appreciate you coming on this podcast. Again, thank you for your work. 43:16 I think it's about dang time somebody puts together this type of report, because I'm kinda surprised nobody [chuckles] that I knew had, like, tried to actually go to bat and, and work on this type of, uh, research. 43:28 So I really appreciate you doing that. Really, uh, shout out to your, uh, co-authors, Steve and Ren. And, um, if anybody on CoinDesk has not heard of Lynn, where can they find you? 43:38 [chuckles] Uh, they can find me at lynnalden.com. Um, I'm active on Nostr, uh, or they can check out my book, Broken Money, on Amazon or elsewhere. Cool. Thank you so much, Lynn, and I'll talk to you later. 43:55 [outro music]
