Participants: Adam B. Levine (ABL) Host Andreas M. Antonopoulos (AA) Co-host Stephanie Murph (SM) Co-host !

t !avid Sch"art# (!S) Chie$ Cr pto%rapher at &pen Coin

Music plays. ABL: Coming upon todays show *Cold wallets. What are they? How do you use them? *Hidden eatures o Bitcoin. *! tal" #ipple with $a%id &chwart'( chie cryptographer at )pen Coin( and a ter our con%ersation ! thin" ! get it and you might( too. **he power o e+changes and Bitcoins A)L moment. *!s Apple acting rationally or are they ,ust scared? We tal" moti%es( walled gardens( and the ama'ing eatures o the de lationary -usiness model. ABL: Hi( and welcome to Lets *al" Bitcoin( a show or anyone interested in cryptocurrencies and the uture o money. My name is Adam B. Levine. ' am a writer and spea"er who li"es to tal" a-out complicated topics in an understanda-le terms. Lets *al" Bitcoin is my attempt to do ,ust that and in doing so( impro%e the understanding o cryptocurrencies and why they represent the uture o money. .oining me in my ongoing /uest or clarity( Andreas M. Antonopoulos is an e+pert in secure systems and decentrali'ed networ"s. AA: Hi. ABL: $r. Stephanie Murph is a scientist and syndicated radio host. &M: Hello. ABL: *han"s or ,oining me again today( guys. We are recording this on *uesday( the 01th o May. *his is actually going to -e the content or two shows -ecause we are going to -e at the Bitcoin Con erence 2304 in &an .ose at the time o we would normally -e recording the show. Actually( we are recording the show there( too( ! ,ust am not going to ha%e a computer with me to

edit and release it( so we5re going to -e doing this all in ad%ance. 6ou guys e+cited a-out the show? &M: ! cant wait. ! am really e+cited and we are not e%en going to miss our normal recording time. *here are going to -e some e+tra -onus eatures will -e meeting each other in person or the irst time( also -e doing some listener meet ups( right? ABL: 6up. Listeners meet ups( and meeting each other or the irst time 7 -oth those things are in the agenda( and ran"ly( its pretty e+citing. ! got to say 7 a month ago( ! was not planning on going to the Bitcoin Con erence. 8ow( we are a-solutely -oo"ed or the entire time o%er there. &o( i you would li"e to meet us while( we all are actually at this con erence. We are ha%ing a meet up on 9riday in &an .ose at a :ordon Biersch. 6ou can ind all the details o the meet up at noon on letstal"-itcoin.com and then we are also planning to do a meet up on &aturday during the show itsel . We ha%e got ,ust a ton o listener mail. As we ha%e -een going through this( there are only so many shows in a wee". And a lot o these /uestions ta"e some time to answer. &o we wanted to ta"e some time today with this show to get through lot o these -ac"log /uestions. &o( irst /uestion come to us rom Wol gang says( ;hi adam( than"s or doing such an awesome ,o-.< 6ou are welcome. ;Could you e+plain cold wallets in your show?< 7 Wol gang. *his was a good /uestion. We ha%e tal"ed a-out cold storage -ut that5s a little -it o an a-stract concept or some-ody who is not necessarily used to using -itcoin and the cryptocurrencies yet. *he 437 seconds ele%ator pitch is = ;-eing a-le to put your -itcoins somewhere where they are simply inaccessi-le to anyone attempting to access them rom the !nternet( whether it -e you( or someone else doing it or malicious purposes.< ! ha%e a riend whose techni/ue or doing cold storage is /uite literally to ta"e the physical -itcoins that he purchased year ago and to "eep them in his ree'er -ecause( again( you "now it doesnt matter where you "eep them( it only matters that they are inaccessi-le unless someone in real li e goes there 7 you "now( accesses the in ormation which in this case is the coins and ta"es them( essentially redeems them through online inter ace. Lac"ing that( they are completely inaccessi-le and thus they are %ery sa e relati%e to "eeping -itcoins in an online presence( right? What do you guys thin" a-out it? &M: *hats unny a-out the ree'er story -ecause ! thin" a criminal 7 they are going to -ust in to your house and try to ta"e gold or physical -itcoins or whate%er( the irst place they are going to loo" is the sa e( -ut you "now( the o-%ious places. *he ree'er is not o-%ious and its also un( good or him. AA: :i%en the news o certain Congress people who put stac"s o cash in their ree'er. ! thin" its now on the list. *he ree'er( the pantry( %arious o the common hiding places are pro-a-ly going to -e loo"ed at. )ne way to thin" a-out the cold storage is to compare to the drop -o+es or cash that you see in stores( where a cashier can ta"e a -undle o cash( roll it up in a tu-e and to drop it down a chute and essentially thats a one7way in( no7way out system. Bottom o the chute there is a sa e and you can easily open it. Cold storage is essentially the same idea( only what you are trying to do there is ma"e sure that the only "eys( that are e%er online are the pu-lic "eys. 6ou want to ma"e sure pri%ate "eys are -oth generated securely and ne%er e%er go online( ne%er go on a computer( and stay permanently o line either on paper or porta-le media. *hat way( essentially you ha%e a one7way method o depositing money into cold storage and no way to withdraw unless you ha%e physical access to the pri%ate "ey. >art o the techni/ue or process

or maintaining that security is that the moment you -ring that money online( you destroy those "eys( so you essentially sweep all o it online and destroy those "eys. ! you e%er ta"e that pri%ate "ey online( it is no longer cold storage. 6ou ,ust made it hot. 6ou ha%e to ma"e sure you dont reuse that particular "ey com-ination. >aper wallets are pro-a-ly the -est e+ample o cold storage ! would certainly highly recommend that approach "eeping the %ast ma,ority o your money away rom computers. What we see is that most o the hac"s are really compromising peoples computers with tro,ans and "eyloggers( not compromises o the Bitcoin system. ABL: 8ow( another conte+t we hear a-out cold storage a lot o times is when e+changes are tal"ing a-out it. ?+changes are really any-ody who is holding -itcoin %alue or people. &ince( there ha%e -een hac"s that are resulted in %ery large amounts o %alue -eing remo%ed rom these ser%ices( now there is the claim that they "eep cold storage. Andreas( what is that loo" li"e i you are running an e+change or some other ser%ice that actually holding %alue are they doing the same process where they are "eeping them in completely o line wallets( and as soon they are redeeming any o them they destroy the "eys. How is that possi-le to do it while still ma"ing it accessi-le rom an online inter ace? AA: Well( it really isnt accessi-le rom an online inter ace. ?ssentially( what those companies should -e doing or what they are most li"ely doing@ rather than paper wallets( they are using a computer that is o line and that has a complete copy o so tware and is used to sign transactions or withdrawals. ?ssentially( what these organi'ations do is they ha%e a sweep eature. ! you ha%e used a -ro"erage account( you may -e amiliar with this idea. ?%ery day( any unused cash you ha%e in the account is swept into a sa%ings account to get more interest. !n this particular case( what these organi'ations do is they maintain a small -alance in the hot wallet and essentially( thats the operating cash low. *he rest o the money or as much as can is swept either continuously or( say( nightly into the o line wallet. *he pro-lem is such as i you are running an operation with lot o transactions you cannot do that with paper. ?ssentially( we are tal"ing a-out an o line computer. Whene%er they want to -ring -ac" the money online( they ha%e to sign transactions on that o line computer and then carry the sign transactions online( without e%er ta"ing the "eys online. *hats the di erent way o doing it. ?ssentially( you ha%e the signing mechanism that is o line( not ,ust the "eys. AMusicB ABL: 8e+t /uestion comes to us rom the listener .ah Lo%e. He says( ;so( ! was watching the old %ideo on 6ou*u-e a-out the Bitcoin protocol and alts distri-uted contract options -uilt in. ! remem-er when ! tried to send my music to copyright o ice a while -ac" the cost was C4D. 8ow( its C00D ! -elie%e. Most artists( -esides Mr. 8a"amoto = yes( he is an artist 7 want to -e recogni'ed and ha%e a way to manage sa ely their rights online. *he Creati%e Commons system is going in the right direction -ut things need to -e e+tended so it could -e easy or all type o art( digital or otherwise( to -e attached to its creator and recogni'ed worldwide plat orm. Licensing your creation and managing it should -e included.< *he /uestion here is( with the Bloc"chain or Bitcoin or any other Cryptocurrencies -eing essentially a distri-uted ledger o who owns what? With the time stamps set up( its possi-le to use it as a registery or all type o items . We ha%e tal"ed in the past a-out using as a registry or property and we tal"ed in the past a-out using in as a registry or $omain names through 8ame coin. But there is no limit a-out to how ar we can

go with that concept? !s this something that can seen in the near uture as a "iller app or -itcoin? How -ig o a deal do you thin" potential is? &M: ! guess you are tal"ing a-out the idea o sort o smart property and determining who owns what? ! dont thin" most people understand it or perhaps ready or that. !m not sure how ar that goanna go( -ut ! "now people will igure it out( thats the whole thing is a-out -itcoin is( its decentrali'ed. AA: We got two mechanisms essentially or doing this. ! you thin" a-out Bitcoin more -roadly( there are really two parts o this( that help us deal with digital asserts. *he irst one is the distri-uted ledger. ?ssentially that gi%es you the proo o record( a glo-al distri-uted record that allows you to say at this point in time( e%eryone agrees that ! was the owner o this particular asset and you can do that with the digital signatures. *he other -ig ad%antage is the act that( e%eryone has the pu-lic "ey in rastructure -uilt into -itcoin with their addresses. *hrough the client( you can sign a speci ic message so one thing you can do or e+ample lets say you ha%e music or you ha%e written an article you want to copyright( or you want to pro%e that you ha%e( say( so tware code de%elopment created at certain time. 6ou could sign the digital assets and then simply put ,ust the signature( ,ust the num-er in the -loc"chain signed -y your pu-lic "ey and then you could not only pro%e this asset e+isted at a speci ic time -ut also that you had ownership o it and then pro%e that again -y signing something else same pu-lic "ey to show that you own that "ey. !t does ha%e some tremendous opportunities or showing ownership o digital assets. ?ssentially( this is the proo o sta"e( not a proo o sta"e in Bitcoin -ut a proo o sta"e in digital intellectual property. ! dont "now you guys remem-er ! thin" in the genesis -loc" there is a headline rom *he 8ew 6or" *imes( which is used to anchor it in time. ABL: ! was not amiliar with that. AA: !ts li"e holding up a newspaper in a photo to show that this photo was ta"en on or -e ore a speci ic date. ABL: #ight( its li"e a decentrali'ed notary system almost( in that way. AA: ?+actly. B!> 00 which is the -itcoin impro%ement proposal 00( which allows or m7o 7n signatures. What you can do there is ha%e 2 out o 4 signature structure where not only do you ha%e the original asset owner signing the asset( -ut then you ha%e third party certi ying that asset was say displayed( which is a true notary system as we "now it. &M: 6ou orgot to say that .ah Lo%e said that ! ha%e the se+iest %oice in the Bitcoin world and it was scienti ic act. ABL: Stephanie Murph is a%aila-le or %oice o%er wor". 6ou can ind more in ormation letstal"-itcoin.com in the ;host -io< section.

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$&: My name is $a%id &chwart'.( ! am the chie cryptographer at )pen Coin( the company -ehind the #ipple payment networ". Eery similar to when people were irst introduced to -itcoin. ?%erything connects to e%erything else( so you start tal"ing a-out what a Bitcoin is and you mentioned mining( and the person doesn5t "now what mining is( so all o the sudden( you ha%e piled con usion on top o con usion( -ut there comes a point where the person ,ust suddenly gets it. Because( ,ust li"e the concept( i you dont understand them( then con use each other and i you do understand them( then you rein orce. 6ou reach a certain threshold( ,ust li"e a critical mass( when you hit that 7 all o a sudden( the person starts to get it( li"e ;oh( thats why this and thats why that(< and then all o a sudden( they "ind o had this coherent %iew. !t is harder to get that with ripple than -itcoin -ut once you get it then e%erything ,ust sort o starts to ma"e sense. ABL: Fsually there is li"e a 437second ele%ator speech. ! igure( or ripple( its got to -e a G3 second one. 6ou want to gi%e me that? $&: .ed Mccale- put it as ;9#?? >A6>AL< as a shortest possi-le ele%ator speech. ! dont "now that ! can do -etter than that. ) course( its not e+actly >aypal and its not e+actly ree either. *o some e+tent( o course( as with any ele%ator speeches( its going to -e 7 its misleading. 7But the idea was create the open payment networ"( and -y payment( ! mean the a-ility to send money -etween people. ABL: *he way that ! understand the ripple system as wor"ing is that there are hu-s and there are spo"es( and at the end o the spo"es you ha%e( essentially( people( and those people can connect to other people( -ut ultimately( most o the transactions ha%e to run through the a hu- in order to get to those people. !s that right? $&: We e+pect so( initially. !ts "ind o the way to -ootstrap to a uture world. Bitcoin has the same pro-lem@ i e%ery-ody used Bitcoin( then Bitcoin would -e great. 7But e%ery-ody doesnt use -itcoin( yet( so its li"e ;how do you get rom here to there?< We ha%e a similar issue( which is i e%ery-ody used the networ"( paying them would -e %ery easy( -ut they dont( yet. We ha%e a -ootstrapping method called gateways( the way gateway wor"s is pretty simple. 6ou hand money to a gateway 7 so you gi%e them( lets say( F& dollars or you gi%e them any currency and then they create a -alance in the ripple networ" that essentially says( this gateway owes Adam Le%ine CD33. 8ow( the gateway ma"es its -usiness practice to enter into what we call a redemption agreement. *his essentially means i you ha%e the -alance at the gateway and you said the gateway( ;! want to redeem this -alance(< then they gi%e you the actual currency. What that means is i a gateway is a relia-le -usiness then its -alances will ha%e %alue appro+imately e/ual to their ace %alue. )ne o our gateways right now is Bitstamp. ! #ipple says( ;Bitstamp owes you a C033.< #ipple will put F&C033 in your Bitstamp account. Which you could use to -uy Bitcoins or you can withdraw as cash. &o Bitstamp -alances are essentially as good as cash. ! you use Bitstamp as your gateway and ! want to pay you a C 033 on the ripple networ"( ! ma"e Bitstamp owe you a C033 and you consider that as payment. !ts sounds complicated -ut its really the same way as the chec"s and credit cards wor". When you mail me a CD3 chec"( what you are doing is you are ma"ing my -an" owe me CD3( and ! consider you to ha%e paid me CD3. ABL: *hat ma"es sense to me. 8ow( ripple has its own currency( the H#>. But thats not what you5re actually transacting. !n general( li"e you said( you5re transacting F&$ %alue or transacting

-itcoin %alue. ! was aware o ripple -e ore it went through its rein%ention and there didnt used to -e a currency associated with it. Can you e+plain to me what the H#> actually does? AA: *he networ" can only accommodate a inite num-er o transactions in a inite amount o time( so i there is a particularly hea%y usage o the networ"( where someone is intentionally looding with meaningless transactions 7 lets ,ust say passing -alances -ac" and orth -etween the same groups o accounts 7 you need some way to limit their a-ility to pre%ent illegitimate transactions ta"ing place. H#> was created to pay transaction ees. *he transaction ee normally is e+tremely small( in the amount o penny( -ut i the networ" is little( the transaction ee will rise until the le%el o transactions reach something networ" can accommodate. 7&o( let5s say someone is trying to attac" the networ" with non sense transactions they ha%e to put more H#> -ehind each transaction that legitimate users willing to put -ehind single transaction. )therwise( the legitimate users win . &omeone wants to attac" networ" and sustain an attac" or a period o time( then they will -urn through H#>. And o course they ha%e an only inite amount. ABL: $o you -uy H#>? !s there an e+change H#> where they are going to -e sold? !s there an e+change rate? $&: )ne o the things ripple needs in order or the gateway scheme to wor" is it needs a ro-ust system o e+changes. Because( i you only accept F& dollars at a gateway( lets say( near where you li%e ! li"e to transact in !sraeli &he"els at a gateway in Hei er or something( we need some way to ma"e payment -etween us wor". #ipple has -uilt in a ro-ust system o e+changes -etween ar-itrary pair o assets. 6ou can e+change F& dollars at Bitstamp or !sraeli &he"els or whate%er( and that includes H#> as well. *here are mar"ets inside ripple to e+change H#> or -itcoin( or F& dollars( or any other currencies. *he rates are purely set -y supply and demand. ABL: 6ou said that( right now( it5s relying on couple o speci ic hu-s. !s it one speci ic hu- or se%eral other? $&: *here are i%e right now. ABL: 6ou call them gateways( right? $&: We call them gateways. Lots o people are loo"ing to start them. ABL: Another pro,ect that !m tangentially aware o is )pen *ransactions. )pen *ransactions is -uilt on a system o ederated se%ers( where e%ery-ody is "ind o e/ual and there is no superior ser%er. *hey5re all running alongside o each other and you can participate in any one that you want. What are the comparisons here with )pen *ransactions and ripple( i any? $&: Well( irst let me say that( inside the system( there is nothing magic a-out the gateway. What ma"es a gateway special is what it does outside the ripple networ". !ts -alances will tend to ha%e more %alue to more people -ecause they ma"e it their -usiness@ o ering to redeem -alances or anyone( -ut anyone who has a -alance 7 that has some %alue. As long as it has %alue( it can -e transacted. 7But to answer your your /uestion a-out )pen *ransactions( there are lot o di erences -etween )pen *ransactions and ripple. We loo"ed it )pen *ransactions in

comparison to ripple. *he -ig di erence is this 7 in )pen *ransactions( nodes ha%e to acti%ely per ormed transactions. &o you cant as easily ha%e the pu-lic state o the networ". &o( -ecause o the state o the networ" is pu-lic( i ! want to ma"e a payment to you( ! can loo" at the e+change o ers( ! can loo" at the a%aila-le li/uidity in the networ"( and ! can %ery easily ind the cheapest path to ma"e a payment to you. !n )pen *ransactions( ! would ha%e to go around to di erent ser%ers and get /uotes( and then the transactions can really -e ;atomic< 7 they are wor"ing on it -ut they are not /uite there( yet. &o( i part o transaction succeeds in the second hal ails( ! can wind up with something that ! was going to trade to pay you( -ut now ! cant trade it( so now ! wind up some asset that may -e completely %alueless. ABL: *ying this -ac" in to where this meets to cryptocurrency. *he system as it stands right now is one that allows transaction -etween %arious people( -ecause essentially e%ery-ody is participating in the same system 7 e%ery-ody trusts e%ery-ody else -ecause there is a path o trust leading. !ts "ind o similar way to Hauula. #ight? $&: &imilar. ! should point out that this pathway only e+ists instantaneously when payment is made( payments are atomic in ripple. ABL: When you say payments are atomic in ripple( what does that mean? $&: !t means entire payment either succeeds or ails. ! ! am going to pay you CD3( either ! pay you CD3 or nothing happens( and that means there is no way ! can wind up getting stuc" with some asset that ! shouldnt choose to hold. !n other words( when you choose to create an account in ripple( one o the irst things that you will typically do is( youll say( or e+ample( ! want Bitstamp to hold you F& dollar -alances or me. *he only way someone can pay you F& dollars( unless you change something is -y ma"ing Bitstamp owe them to you( so you are ne%er trusting someone you didnt choose to trust. ABL: &o( the person who is transacting with you has to sends the %alue o something that you ha%e already appro%ed. $&: *hey ha%e to -uy something( or trade or something that you want. ! ! only trust Bitstamp to hold F& dollar -alances or me and you want to pay me F& dollars( you ha%e to ind some-ody who will o er you a -alance at Bitstamp in F& dollars that you can then gi%e to me in an atomic operation. 8ow( or that to wor" that means -alances ha%e to -e li/uid( otherwise payments will re/uently ail. *o pre%ent these transactions to -e ailing( we e+pect people pro%ide li/uidity( at some cost( -etween di erent pairs o currencies or -etween currencies in H#>. #ight now( there is the ro-ust e+change or e+ample( -etween -itcoin and Bitstamp( and F& dollars and Bitstamp or -etween F&$ and Bitstamp and H#>. &o people want to ma"e a payment the system inds the path through these e+changes so you can hold the asset that you trust and ! can hold the asset that ! trust( and ne%ertheless( we can ma"e payments to each other. ABL: $o we "now each other in this scenario? Li"e 7 i ! am trying to -uy H#> rom Bitstamp( then ha%e we arranged in ad%ance or am ! ,ust going and saying ! would li"e to -uy H#> in the system is matching me up with you -ecause you would li"e to sell H#>?

$&: *hats a separate case. ! was tal"ing a-out the payment case. But in e+change( i you ha%e an asset and you want some other asset( you can actually ma"e payment to yoursel and the system will ind a payment path through whate%er e+changes pro%ide the -est rate at that time. *hats another important thing to understand a-out #ipple 7 it is also a sort o path7 inding or match7 ma"ing system. >eople can say ! ha%e this -ut !d rather ha%e this. ! ha%e F&$ -ut !d rather ha%e -itcoins. ! ha%e -itcoins and !d rather really ha%e !sraeli she"els. *hen( you can wait or some-ody else who need to ma"e a payment to( then use that o er to ma"e their payment( and -ecause the ledger data is pu-lic( anyone can ind anyone elses o er and ta"e it automatically without any need to arrange anything with that person or or that person to -e online at that time. ABL: Basically you ,ust need to trust ripple networ" right. !s that what you are saying? $&: 6ou only need to trust gateways that you chosen to trust to hold -alances or you( and you need to trust the ripple networ" itsel will operate as it supposed to( there are o-%iously lot o sa eties on the ripple networ" operating( so it wor"s as it supposed to. 9or e+ample( e%ery %alidator that operates on the ripple networ" signs e%ery ledger and that is pu-licly disclosed( and what we also do is( when a transaction supplied to the ledger( we create something called transaction metadata( which is the record o e%ery changed to the ledger that the transaction made. 6ou can always tell i there is a change to the ledger 7 there should -e a signed transaction ,ust to ind that change and whose metadata documents e+actly how it changed the ledger. ABL: Bitcoins and cryptocurrencies: one o the things that they o er most o time is the a-ility to -e pseudonymous@ to ha%e some sort o identity -ut not necessarily to ha%e your real identity. !s that still present in ripple or is that is sacri iced in order to ena-le this trust system? $&: !t depends what you want -e a-le to do. *here are necessary tradeo s. 6ou can hide your identity -ut then you dont -uild the reputation( so i you are trying to participate in things li"e community credit( where people actually e+tend credit to each other( its %ery hard to -e anonymous -ecause you5re not going to want to lend money to someone i you dont "now who they are. 7But i you are ,ust trying to ma"e payments there are num-er o ways that you can operate as anonymously as Bitcoin. ABL: Well( ! guess !5m not really as"ing a-out anonymity. ! thin" thats = o-%iously( that doesnt wor" in a trust scenario. What ! am tal"ing a-out is persistent identity( where you ha%e the a-ility 7 li"e )*C is the good e+ample o this. >eople o ten times do not use their real name there -ut through conducting trades and conducting commerce they -uild up reputation which is then tied to that speci ic a"e name( -ut its got real reputation -ehind it( so when you say anonymous( do you mean thats is that your real name or anonymous as in you ha%e to -uild reputation on a name. $&: ! you e+pect people to e+tend trust to you then you ha%e to -uild reputation on some name that people willing to trust. >eople are more li"ely to trust( on a real name then on a non7real 8ame. But you dont need any trust to transact in ripple( thats the "ind o pro-lem that the gateways sol%e. ?%ery-ody can trust the gateway( which e%er gateway they choose to trust and they dont ha%e to trust each other.

ABL: Who runs the gateway in this scenario? Whats the prototypical type o -usiness or indi%idual whos going to -e running one o these things? $&: !t goes rom the smallest indi%iduals to the largest companies. We are hoping( in the uture( that people will -e ha%e as many choices as possi-le( including inancial institutions( possi-ly regulated assured -y the ederal deposit insurance 7 will -e nice. !ts going to -e the whole range o things( my a%orite gateway we ha%e one guy( he uses the pseudoname **B!*( so he runs a gateway semi anonymously and he has a -unch o sil%er dimes( thousands o them and he is introduces sil%er dimes as currency on ripple. .ust -ecause he issues -alances in sil%er dimes which are -ought and sold on the ripple networ" 7 and then you can redeem your -alances in sil%er dimes -y trans erring it to him and he will mail you a -o+ o sil%er dimes. ABL: What happens i he doesnt? $&: *hats e+actly the thing( the gateway can ail and i you choose to trust a gateway that ails( you may wind up with a -alance that you cant redeem. *hats the responsi-ility that you ha%e when you use ripple the people you choose to trust can -etray you. 6ou cant -e -etrayed -y someone you didnt choose to trust( -ut i you choose to trust some-ody and they dont ollow through commitment outside the ripple system( then you can wind up losing money. *he ripple system can en orce commitments inside the ripple system( so i you ha%e a commitment to redeem inside the ripple networ"( it can -e orced. ! its a commitment outside the ripple networ" where they actually send you a chec" or sil%er dimes( o-%iously nothing the networ" can do to compel them. *hats the trade7o to allow ordinary currencies li"e dollars to -eha%e li"e -itcoins. 6ou get these irre%ersi-le transaction( you get pseudonymous transactions( you get instantaneous con irmations( you get a distri-uted networ"( -ut the trade o is that it cant mo%e the actual dollars li"e it can mo%e actual -itcoins. ABL: Why do thin" this is -etter than Bitcoin? )r ,ust a pure cryptocurrency( lac"ing one o these systems? $&: ! dont thin" thats really a particularly good comparison. ABL: What is a good comparison? !s there a good comparison? $&: *he comparison that ! really li"e is pre7!nternet email to !nternet email( and thats not going to compare #ipple to Bitcoin. !ts going to compare #ipple to things li"e E!&A and >ay>al. !n current payment networ"s( you ha%e what you had in the email in the G3s. ! you are on A)L( you could easily email other people who are in A)L( -ut you couldnt easily email people who are on Compu&er%e. *here are %arious di erent ways that you could get -etween one system and another( -ut you ha%e to "now what the other person was on and you had to ind these paths. *oday email is purely ederated. 6ou dont e%en ha%e to care what system some-ody uses@ you dont care i they use :mail or i they use some other pro%ider. *hey all wor" together -ecause there is a protocol or mo%ing email rom one system to another. We see ripple as -eing a glue to hold payment systems together and what that means is that the payment system will decide what gateway to use or -e their own gateway and the payment and the e+change will ta"e place inside ripple. Lets say >ay>al decides to ederate with ripple and some other payment networ" are

decides to ederate with ripple. ! you are a user o one o those networ"s( you can say that you want to pay that say CD3 to someone on another payment networ" entirely and that two payment networ"s will negotiate the payment o%er the ripple networ"( you push the -utton and you can ma"e the payment ,ust as easily( as i you are paying someone else inside the same networ". ABL: !ts not a person7to7person7to7person7to7person trust system( its person7to7trusted7node system and then e%ery-ody else to trust that node also participates in that system in the same way. $&: #ight now( we see gateways as the way to get rom here to there( -ecause e%ery-ody is not going to trust e%ery-ody else immediately. 6ou dont ha%e these person to person trust networ"s. But ! am hope ul that in the uture people will -e more open a-out the inances. !t wont -e li"e a dirty secret. Lets say you need to -uy some groceries and you dont ha%e the money to pay or them right now 7 what you would normally do is you would put that on the credit card and then you ha%e to pay interest and you ha%e all this downsides. *here are pro-a-ly people who would happily lend you the money to pay or groceries i they "new you needed it( -ut there is no social way or you to go to all your riends and say ;hey( ! am a little short o money right now. Can you lend me D3 -uc"s or a wee"?< !ts e+tremely aw"ward to do that. But people could pre7 e+tend you that credit and you could draw in that credit a%aila-le and settle it completely electronically without ha%e to go to that person and then hand them CD3 and hand you CD3 -ill. !t is possi-le we might see community inancing( we must see person7to7person inancing. ! would lo%e to see ripple change the way people thin" a-out money in that way( as a social resource or people to draw in each other and -ecause there is a counting o the -alances -etween people( its air. !nstead o me landing you CD3 and you gi%ing me nothing until you pay me -ac" the CD3( ! lend you CD3 and you gi%e me CD3 sort o !)F( and ! consider that !)F e/ual in %alue to what ! ga%e you( so it is an e%en e+change. *hen( ! can settle that !)F inside the ripple networ"( so ! can use it to ta"e an !)F that you ha%e and that ! can gi%e that -ac" to its owner. !t essentially allows interpersonal credit to operate as a currency. ! dont see people doing that in the short7 term( -ut ! am hoping that( i ripple catches on it payment networ"( that this person7to7person credit relationships to which #ipple ma"e possi-le( will ta"e o%er. ABL: What happens i someone( or whate%er reason( pays that !)F? $idnt you essentially create money that is now loating around in the system that unctionally doesnt ha%e any e+it? $&: Lets say !%e e+tend CD3 credits to you and you draw on all that credit to you so what happens right now is( ! ha%e internally in ripple CD3 -alance. 8ow( you can no longer draw in that credit line -ecause you ma+ed it out( -ut ! can draw on that !)F you ha%e essentially gi%en to me. ! can trade that or any !)F that you hold. ! can use that as a payment to some-ody else. Meanwhile you ha%e no access to people who trust me -ecause our credit limit is ma+ed. 8ow( i ! am going to trust you or CD3 and you want to ma+ out that credit line and there-y ha%e no more credit with me and ! ha%e ull access to spend those !)Fs in your networ" and you ha%e no access to mine( then thats essentially what ! ha%e decided ! am willing to settle or when ! e+tended that credit to you. ABL: But doesnt the system ha%e to settle e%entually?

$&: !t can settle automatically within the system. ! you ha%e any asset that ! want( ! can trade the !)F or it. ABL: Basically( these personal credit limits are a-out unctionally limiting the potential loss and lia-ility. !s that right? $&: ?+actly. ABL: )"( &o then the idea is that ! pay you -ac" the CD3 and you say( ;oh( that was a success ul transaction and your new limit is CID< 7 something li"e that ? $&: ! could e+tend it i it ma"es sense or me...77 ABL: )"( i it ma"e sense. $&: 6es( e+actly. ABL: )"( -ut you could limit or downside. 7But again( ! dont understand how the networ" reacts i ! disappear rom the networ" and that CD3 !)F is loating around -ut there really not much hope that its going to -e paid. $oes it disappear rom the networ"? $oes it -ecome in%alidated? $oes it sit there and "ind o add to the pool and not to -e rec"oned or? $&: &o the scenario what ha%e to -e is going to -e you dont ha%e any asset thats o any %alue to me. ?ssentially( ! ha%e gi%en you CD3 credit and you -orrowed up to that limit( so now you owe me CD3. 6ou dont ha%e anything o any %alue that ! can trade that or( so at that point the ! !)F will essentially 7 the -alance will sit there ore%er. !t will sit in the system inde initely -ut ! can write it o ( and the way ! would write it o is essentially -y paying you CD3 which would cancel out that -ac". A lot o people are e+cessi%ely concerned a-out people winding up with -alance that has no %alue and there-y losing some money( and that o course can happen( -ut thin" a-out this. ! a riend called you up on the phone and told you that they need some help mo%ing( you5d pro-a-ly go and help them mo%e. *here is a cost associated with that( they ha%e to pay some-ody to mo%e and that would pro-a-ly cost some CD3. *hin" a-out e+tending credit as another way to help that riend. ABL: #ight( ! get that argument or it( -ut the thing that comes -ac" to me is that we ocus on the cryptocurrencies 7 a lot o these trust related systems dont really e+ist. !ts all a-out reality. 7And so when we start getting into this room o !)F and things li"e that@ it "ind o ma"es me little -it curious. !t seems li"e the !)F is to acilitate ast transaction. !s that right? !t5s to acilitate ast trans ers o money -ecause( essentially( you can send dollars through the con%entional system in a ast and secure way( -ut you can through this as long as theres a certain amount o trust in%ol%ed. $&: #ight and thats how all payment systems or iat currencies li"e dollars wor". When ! mail you a chec"( an !)F gets trans erred rom my -an" to your -an". ! ! send money -y Western Fnion or >ay>al( the phase o the trans er that mo%es money -etween you and me is the shi t o an !)F.

ABL: &o #ipple doesnt care what it is you are transacting is and( in act( its -etter i there are more people transacting more things( -ecause it -roadens the pool o assert a%aila-le. #ight? $&: A-solutely. ABL: &o then really( its a currency7agnostic plat orm thats -asically ,ust a-out -eing a-le to route %alue or whate%er "ind you want into whate%er "ind you want to where%er you want. $&: ! thin" you ound the ele%ator pitch. *hats e+actly right. !ts a-out currency choice and currency reedom 7 so you can get paid in dollars and you can hold gold. When you need to -uy groceries or dollars( you can sell your gold immediately or dollars 7 ,ust when you need to ma"e that grocery payment. ABL: ! ! gi%e you an !)F or CD3 and ! ha%e a couple o C033 worth o -itcoins sitting in my account( then that !)F isnt ,ust claim to me or dollars( its a claim or whate%er the relati%e %alue o that !)F is( in whate%er it is that ! am holding. $&: Well( it cannot redeem across currencies automatically -ecause someone has to set an e+change rate and ! wont orce you to accept some-ody else e+change rate. ABL: But ! mean in these circumstances you said that the situation when an !)F goes unpaid ore%er( is one way there are on no assets. &o does that mean that as someone holding the !)F( you would ha%e the control to -e a-le to say that( ;you ha%ent paid me -ac" in this amount o time( &o( ! am going to ta"e payment in orm o -itcoin?< 6ou are saying its manual( so how manual is this process? $&: 6ou cant ta"e a across currencies -ecause you cant orce a person to accept the e+change rate they ha%ent agreed to accept. 6ou can orce a claim within the same currency. )ne o the in%ariance in the system is that you always ha%e to accept your own -alances at ace %alue( so i you owe me C03( you ha%e to accept that as worth C03 and ! can claim in some asset worth C03 rom you. But it wont operate across currencies unless you are willing to transact across currencies. ABL: !s that a setting or a per7transaction setting? $&: !ts a setting that you ha%e to ma"e and lea%e. ABL: )". $&: And ! dont thin" people would want to maintain e+change rates on a regular -asis -ecause the e+change rate -etween currencies change( so unless you are a person who acti%ely li"es to do speci ic cross currency transaction. !ts not reasona-le or you to maintain a particular e+change rate. *he more li"ely scenario( i you owed me CD3 and ! want to claim it( then ! would claim some asset worth CD3 which ! would then e+change in the process o ma"ing a payment to mysel . ! ! wanted to get -itcoins or that( ! would gi%e you -ac" the CD3 that you owe me in e+change or some CD3 asset which ! would then e+change or -itcoins or something else that

can -e paid to me. *he "ey to ma"ing this usa-le or people is ma"ing it easy to do within the client( which is one o our -ig priorities. Anyone who has used our client can tell you its not the easiest thing in the world to use and these more ad%anced uses( while they are ully supported -y the networ"s and ser%ers( a client to allow the people to easily per orm these transactions is something we are acti%ely wor"ing on. We5re in an open -eta. ABL: 6ou are in open -eta( so i people want to get in%ol%ed( they can go to #ipple.com A$E?#&!*M?8* &M: ! ! showed you a we-site where you can easily purchase electronics rom the worlds largest distri-utors with -itcoins at 3J mar" up( would you thin" its too good to -e true? :ood news: its real and its at -itcoinstore.com. Choose rom hal a million items( sa%e money o%er Ama'on and 8ewegg( and con%ert your -itcoins to real world items. 6ou can e%en -uy with pri%acy: all they need is the shipping address 7 -ut dont ta"e my word or it( see or yoursel at -itcoinstore.com ABL: Lets *al" Bitcoin is unded -y your donations. ?pisode K total so ar is 0.DKG0D Bitcoins( rom a total o 0D donors plus G.D Litecoins which we started accepting this wee" at listener re/uest. *han" you %ery much. >lease remem-er that e%en i the amount you donate amount is small( with cryptocurrencies and a growing audience( it adds up ast. ! you are -rand new to Bitcoin and would li"e to "now learn more a-out how it wor"s in detail( please %isit letstal"-itcoin.comLlearn to -e directed to the Bitcoin ?ducation >ro,ect( which ! highly recommend. ! you wondering what we loo" li"e( or want to correspond directly( or want to learn more a-out either mysel ( Andreas( or &tephanie( chec" out the meet the host section o the site. Hosts ha%e indi%idual tip ,ars on there pages( so i youd li"e to ma"e sure you are rewarding the right indi%idual( thats your destination 77 e+cept or Andreas. He doesnt want your dirty money. And o course the show is nothing without "nowledge. >lease share Lets *al" Bitcoin to anyone you thin" should or would -e interested in the uture o money. Lets *al" Bitcoin is released under an open source license( that allows or non7commercial clipping( remi+ing and posting in any o the ormat or to any sites you want( so long as you include lin" to our site( letstal"-itcoin.com. We are also acti%ely recruiting -oth on7 and o 7air talent or this and other shows to come. )nce again( i you are interested please contact me at adamMletstal"-itcoin.com

ABL: *he ne+t piece o mail comes to us rom $a%id. He says( ;! possi-le( ! would lo%e you guys to discuss the topic o power o Bitcoin e+changes. *here seems to -e a herd mentality causing e%eryone to loc" to the -iggest Bitcoin e+change( Mt. :o+ *hese people are pro-a-ly assuming that doing -usiness or mar"et leaders is the sa e thing to do. *his is a -ad situation or the o-%ious reason that we are a-le to witness in the past ew wee"s. Most o the -itcoin tic"ers and e+changers are loc"ed on to the Mt.:o+ order -oo" or tic"er( which gi%e them tremendous weight in determining the -itcoin %alues and ma"es -itcoins %ery %ulnera-le to mar"et manipulations. Fntil newer and -etter players or systems arise( it would -e good to educate the pu-lic that they should choose other small e+changes( so that the %alue( e%en in the uture( should not -e determined -y the components o a single e+change.<

*his is a hard topic that we address honestly -ecause e%en though Mt. :o+ is not a really good option( ! dont "now i many others that are good( either. We ha%e seen a num-er o e+changes that ha%e -ecome %ulnera-le o%er the last ew wee"s that were thought to -e good players. Eicrore+ was thought to -e a pretty ma,or player and they were hac"ed. &M: ! used Eircure+ as well as B*C7e( -ecause those were the two e+changers that traded lot o crypto currencies -esides -itcoins and Eircure+ was -ac" up the ne+t day a ter that hac". ! didnt really hear too much a-out it . !t happens( you "now: e+changers get hac"ed and they also get $$)&ed and such is li e in the -itcoin world. 8one o them are %ery sta-le -ut they occasionally comeac" online and you "ind o ,ust roll with it. *hat5s where we are right now. ABL: $o you thin" there are -etter options out there i some-ody wants to 7 say you mo%e CD333 into the mar"et( is there a mar"et -eside Mt.:o+ where thats li"e a easi-le process in a meaning ul way? &M: 8o( its really di icult to do that. ! ! want to ma"e a large Bitcoin -uy ! would try to ind a riend or indi%idual to sell to me that ! trusted. But( ! reali'e e%ery-ody has access to that type o connections and may-e thats one o the reasons the Bitcoin community is so social. getting to "now each other 7 -ecause they want to ha%e people to trade Bitcoin with( and there arent lot o options or people who dont ha%e connections. AA: But thats the -est recommendation( &tephanie( a-solutely. ! thin" the answer to this listeners /uestion: there are no good e+changes@ we are operating in the ield where( one7eyed man rules the -lind( right? !n this particular case( there are no good e+changes. All o the e+changes are really suscepti-le to the same "ind o attac"s and any "ind o attac"s centrali'ation is -ad. *wo things: one( we wait until more and more e+changes arise and not trust any one o them. :ood security practices would mean "eeping as much cash o the e+changes as possi-le( only putting cash in when needed to trade and as soon as you are done( mo%ing it o the e+changes( using two7 actors authentication( trading only rom li%e C$ -ooted machines( or rom machines that are not used or day today or !nternet access -ecause those tend to get compromised /uite easily 7 all o those ideas. At the end o the day( our -est chance is ha%ing lots o e+changes( not one not two( -ut 033 or 233 distri-uted around the world and using local connections. When things get weird on these e+changes( either due to high %olume or high %olatility( those are the moments when you cant really trade and those are the moments when you really need to trade. ! there is a crisis o con idence in Bitcoin( local trading will only -e the option. ! there is a crisis o regulation in -itcoin( local trading will only -e the option. We need to also "eep the undamental ali%e( and that means participating in the Bitcoin We- ) *rust and )*C mar"ets( participating in the local -itcoin e+changes( something li"e what you descri-ed last wee"( which was the &atoshi )pen Mar"et? &M: *hat would -e &atoshi &/uare in 86C. *hey are saying they wanted to mimic -uttonwood( which is the start o the stoc" e+change in 86 or something. AA: ?+actly. &atoshi &/uare( code7word Buttonwood. *hat is the e+actly "ind o attitude we need going orward. Local distri-utor grassroots in rastructures or -itcoin and other

cryptocurrencies e+change is the most resilient( the hardest to a tamp down( to attac"( to steal rom( to $$os. >ro-a-ly the -est option we all ha%e. Ma"e contacts( get to "now people. &M: *hat doesnt sound so -ad. ABL: As you mo%e orward in this process( do you thin" that e+changes are the uture o how we are going to -e trading -itcoin = say( two years rom now( do you thin" that( ! am not e%en tal"ing a-out which e+changes 7 do you thin" there will -e any e+changes? 7 or do you thin" this is ,ust a pro-lem that has to -e sol%ed the same as cash is. >eople dont go to e+changes in order to -uy cash. >eople go to e+changes in order to trade currencies. What do you thin" the end game solution or this( i we can speculate? &M: *hats a great /uestion Adam. ! am "ind o wondering i there will -e some huge and entrenched mem-er o the legacy -an"ing system that somehow igures ;hmm... we can ma"e a lot o money i we get into Bitcoin trading.< and they ha%e already ha%e structure in place to comply with the anti7money laundering statutes in the F& or whate%er. *hey put up an e+change and it -ecomes the most power ul -ecause thats the only one -een le t alone. ! dont see that really meeting the need o the customers( either. *hat could -e a -ottlenec" in terms o reedom that comes with Bitcoin -ecause( in a way( that would tie it to the legacy -an"ing system. ! hope to continue that -e a lot o di erent e+changes and ! hope they can ind some way to -e le t alone -y this regulatory structure. *hats what ! really see as the limiting actor. AA: *he closer we get to the legacy -an"ing institutions( and the legacy -an"ing regulators( and the inancial regulators( the urther away we get rom some o the Bitcoin undamental -ene its and principles. *he pro-lem here is that i such a player arises 7 when such a player arises 7 theyll %ery /uic"ly start implementing practices that are odious to users. *heyll start ree'ing accounts( theyll start acting capriciously( theyll start -asically screwing their customers ,ust li"e legacy -an"s( which are really good at doing that. 6es( its going to happen( -ut ! thin" it will -e smart or people to also de%elop alternati%es. My desire is to see a massi%ely distri-uted e+change that allows distri-uted order matching on a glo-al -asis( so you ha%e hundred ront ends that are iat con%ersions -ut then -ehind the scenes you are doing order matching on a glo-al scale without a cetral point o ailure. *hat may not happen. !ts a matter o -oth de%elopment and process. 6ou "now( this really points to the le%el o maturity o Bitcoin in the stage we are and its history. ! compare this stage in history o -itcoin( really to the pre Blac" Monday( pre A)L stage o the !nternet. !n the early G3s( A)L and Compu&er%e igured out they couldnt resist the !nternet anymore 7 that Blac" Monday A)L dumped 00 million A)L users onto the !nternet and looded the !nternet with new-s. 9rom that moment( lot o things changed. 6ou saw the adoption o networ" address translation( no direct routing( a lot o peer7to7peer routing agreements started alling apart( lot o the net neutrality started alling apart. !t -rought a completely di erent type o user who wasnt interested in some o the -asic principles o neutrality and air routing. ! igure that we ha%ent had our A)L moment on -itcoin@ it will -oth -ring a lot o credi-ility and mass adoptions and lot o wealth( really( to -itcoin( -ut it will also change the undamentals. Ha%ing other outlets is %ery important.

ABL: )ne o the ways that !%e -een really enthusiastic a-out( and "ind o disappointed to see hasn5t -een de%eloped more is to hasnt -een de%eloped more( is the idea that you could sell -itcoins in a %ery similar way at a retail location that people sell gi t cards now. 9unctionally( its the same thing@ you dont ha%e to preload them. ! thin" its that sort o retail a%aila-ility thats going to ena-le most people to get in%ol%ed. 8o matter what you do( no matter how the e+changes are( as we get closer to that compliance goal( it ,ust -ecomes the higher -arrier to entry. ! mean( how many people in the world are in%esting in stoc"s relati%e to how many people in%esting you "now something they can -uy at the store? ! -et you that the num-ers are pretty su-stantially di erent( and a lot o it is that -arrier to entry. &o( ultimately thats what ! would li"e to see. ! would li"e see e+changes ser%e the purpose ! eel li"e they do good ,o- at( which is e+changing currencies or other currencies and -itcoins. 9or ,ust this straight7up purchase o -itcoin( we5re going to need retail solution at the end o the day. ABL: )ne o our a%orite authors is here on Let5s *al" Bitcoin. .on Matonis wrote a story or 9or-es titled NWhy Apple was a raid o -itcoin. and -asically. his premise is that when Apple rolls out a new solution 7 lets tal" a-out Maps( or e+ample 7 when they roll out Maps( what they li"e to do is they li"e to remo%e any competition which they thin" is %ia-le competition rom their mar"etplace( -ecause really( theyd rather let you use their app and pay them or e%en not pay them ,ust use it( rather than using someone elses. We ha%e now seen this -asically happen in Bitcoin( where Apple come out with a payment solution called >ass-oo"@ they at the same time throw out the Bloc"chain wallet and there was another wallet that was on there. *he thought here is that Apple really has no incenti%e to want to gi%e a plat orm to Bitcoin( -ut is it actually a concern? $o we thin" that Apple o%er reacting to this or logic mo%e on their part? &M: *o me it seems li"e a ,ealous( scared mo%e. ! thin" it was really accurate o .on Matonis to say that they are scared -ecause clearly they are trying to "ind o cut out the competition( and ultimately( ! dont agree with that strategy. ! thin" there are lots o di erent payment solutions that can wor" or di erent people they are all gonna ha%e ad%antages and disad%antages. Bitcoin( o-%iously( i you are listening to this show( it has a lot o ad%antages( and you pro-a-ly would want to use Bitcoin apps on your Apple phone. ! ,ust thin" this is going to hurt Apple to -e not riendly and not say( ;the more the merrier.< as ar as their Apps that are on their phone. AA: ! dont thin" they are really scared( honestly ! thin" this is simply a matter o control and pro it. Apple is the walled7garden en%ironment and they "eep their gardens walled or two primary reasons: one is -ecause it "eep all the money on the inside and the other is -ecause( as part o controlling the user e+perience rom the hardware all the way through the so tware. *hey can ensure a relati%e le%el o standardi'ation and homogeneity in the user e+perience. 8ow( /uite honestly( ! thin" Apple will the last o the large company to adopt -itcoin( only a ter they will -e ena-le to Apple7i'e it. $esign out some o the /uir"s and add a nice user e+perience around it( and theyll only do that when its ine%ita-le. ! you loo" at Apples strategy and its o%er7all appearance p -eha%ior. ! thin" its as li"ely to adopt Linu+ as it is to adopt Bitcoin. !ts not really in its personality to ha%e something li"e Linu+ underneath the terminal window and too" all the power and wrap the nice inter ace around it. )ne day( thats going to happen with Bitcoin( too( -ut right now Bitcoins goal are antithetical to Apple( Bitcoin is a-out empowerment and distri-ution( Apple is a-out centrali'ation and control( and ma"e e%erything pretty and easy to use.

&M: 6eah( may-e its not li"e an a%ert ear that Bitcoin is going to -ring down Apple or anything li"e that. ! dont "now( ! ,ust get this sense o ( li"e( ,ealousy 7 its li"e a ,ealous lo%er. Li"e( ;i ! cant ha%e you then no one can.< AA: .ealous lo%ers are control rea"s( right? &M: 6eah( a-solutely. ! thin" thats a good enough analogy to use. What do you guys thin" o the e+planation gi%en -y Apple? *hey send these noti ications to app de%elopers saying( ;apps must comply with any legal re/uirements in any location they are made a%aila-le to users and its the de%elopers5 o-ligation to understand and con orm to all local laws.< 8ow do you guys thin" e%ery app con orms to all local laws which are on Apple phones as it is? $o you guys thin" any local laws prohi-it -itcoin on your phone? ! mean thats sounds li"e B& to me. AA: !ts complete B& to me. *he -ottom line is that Apple will apply the rules ar-itrarily and capriciously to get the result they want. *he result they want is control o%er the en%ironment( and this is true across the entire en%ironment o the Apple store. ! you loo" at the way they control the apps( the things you see a-out the security o the apps( etc. ?ssentially( they are applying control o%er "eeping us secure en%ironments and an en%ironmental /uality or the users( -ut the decisions are made transparently to promote Apples -usiness model( Apples own applications( and Apples partners. *his is %ery di erent en%ironment rom Android. ?ssentially( you ha%e a choice: you can go to the close walled garden( which is all %ery controlled. 6ou can pretend to -elie%e that they are doing or security and perhaps -ene it rom the control( -ut i you really want to ta"e ad%antage o something li"e -itcoin( then you are pro-a-ly the "ind o user who already use Android or i not( you should -e. ABL: &tephanie( the ear metaphor is not actually a -ad one here( -ut ! am not sure that its or the same reason. ! dont "now that its necessarily ,ealousy so as long as it is an in%alidation o the -usiness model( -ecause part o the reason why it is important or the payment system entirely enclosed is -ecause Apple ta"es 43J o e%ery transactions happen on their networ". Whether it -e processing an application( -uying in7game content within or in7app content through that ser%ice( Apple has a means to collect it -ecause all the transactions pass through their system. Bitcoin doesnt do that. !t doesnt really ena-le that( so unless they set up some sort o ,erry7rigged system( where you werent sending it straight to the content pro%ider -ut instead( you are sending it to an address generated -y Apple( who then sends on some proportions to the pro%ider( then you can see this pro-lem is real pro-lem or them( -ecause it turns right now a %ery pro ita-le re%enue stream or them( to one where( i an app de%eloper wants to collect additional 43J( then they would otherwise( they ,ust integrate Bitcoin instead o Apples payment system. !t seems to me that Apple cant let this happen( until it -ecomes so per%asi%e that they are missing out on a su-stantial portion o -usiness. &M: $o you guys thin" this is going to hurt -itcoin? ABL: 8o. AA: 8o( not at all. !ts going to hurt Apple in the long run -ecause theyre going to -e late in adopting it( -ut ! would agree with Adam. At the end o the day( Apple is also applying

:reshams law internally( that says the -ad money will crowd out good money in an en%ironment( and rom their perspecti%e( Bitcoin is the -ad money@ its the one they dont control. Ouite honestly( i you are an app de%eloper and you ha%e a choice -etween using Apple money and 43 J cheaper Bitcoin money thats much more a%aila-le and much easier to moneti'e = well( o course you are going to use -itcoin. And what that will do is that it will create a permanent and continuous suc" towards Bitcoin and away rom Apple money. *hey can see that@ they are not missing that point. !t is %ery much a de ensi%e mo%e to protect the -usiness model rather than ear. ABL: *his 43 J thing "eeps coming up. !ts not speci ically on the Apple topic( -ut ! thin" we should address this on the air at this point. Bitcoin( -y cutting out all o the intermediaries on it( and -ecause o its inherently7de lationary nature( has a really interesting e ect on how( i you5re going to run a -usiness( you want to run -usiness. Andreas( this is something that you ha%e -een tal"ing to us a-out internally in the show -ecause you sort o had an epiphany on it. !t too" me a wee" to understand what you are tal"ing a-out -ut now( as ! applied to my own -usiness model( !5m li"e ;holy ****.< *hat could -e the "iller app or Bitcoin( i stu was ,ust su-stantially cheaper in it( -ecause the currency is de lationary. &o( ! ha%e gi%en high le%el o%er%iew here. Why dont you gi%e us the details? AA: We traditionally operate -usiness in Bitcoin( the way we operate traditional -usinesses -ecause thats what we "now. *he pro-lem is that the -asic matri+ or e%aluating success o a -usiness( ! -elie%e is di erent in Bitcoin. !n traditional iat currency( that is in lationary( you want to ta"e pro its out and postpone cost through depreciation( so the most important things or a -usiness li"e that is your pro it margin( and o%erall cash low and -alance sheet. With Bitcoin( it5s %ery di erent. ! you loo" at a -usiness in -itcoin( ! consider it essentially a con%ersion engine that con%erts iat into -itcoins. ! you ha%e a -usiness that sells a product( and you -uy the materials in dollars( then sell the products in -itcoins... ?%en i you are ma"ing 3J pro it margin( 033J o the cost( e%en the sales ta+ and the shipping costs gets con%erted rom dollars into -itcoins through that -usiness. ! you do accept that its a de lationary currency( then( in act( the matri+ o the success ul Bitcoin -usiness might -e con%ersion rate and gross re%enue( not pro it margin. *hat leads to a di erent incenti%e. !n act( you might want to drop your pro it margin i that will generate %olume( -ecause %olume is what matters( not margin. ABL: My -ac"ground is in sales and -ro"ering( and one o the commonalities there is that the pro it margin that a -ro"er o ten sees( when they5re dealing with the speci ic item( is somewhere -etween 23 and 13J( most o the time. *hats or a situation when you are not really e%er touching the product( you dont really ha%e any meaning ul cost. )ne o the -usinesses which ! am wor"ing on( which is Bitcoin >ac"aging( which will e%entually -e a way or people who ha%e -usinesses they run primarily o o -itcoins to purchase pac"aging or their %arious -usiness needs with -itcoin. With that pro,ect( what we are loo"ing at is doing two parallel stores( one that o ers the F&$ price and one that o ers a Bitcoin price 7 and the di erence -etween the two is a-out going to -e 43J. What it lets you do is it lets you show the di erence in cost %s %alue o these two di erent products. 6ou say( ;o". 6ou can -uy this way( thats money that we ha%e to do something on an acti%e -asis -ecause i we ,ust lea%e it as money then it doesnt do anything.< 6ou "now( it gets to -e less %alua-le o%ertime( there is no real chance or appreciation. ! you put it in a -an"( there is not any sort o meaning ul gain rom that. )n the other hand( i you are

willing to pay ,ust as costs in -itcoin and we dont ha%e to sell those -itcoins -ecause we ha%e operating capital to allow that sort o loat 7 as time goes on and de lationary cur%e "ic"s in( e%ery Bitcoin that we ha%e earned earlier in the process rises in %alue along with rest o the currency( so you wind up with the situation where may-e or the irst year( you are -rea"ing e%en and you are not pro ita-le or whate%er. 7But o%er the course o that time( e%ery single one o your sales grows in %alues( you "now( retroacti%ely. !t lets you do it( while o ering the incredi-le discount that simply isnt achie%a-le under any sort o other scenario. !t gets around that pro-lem o people not wanting to -uy things now -ecause its not worth getting a D J discount i you ha%e to spend -itcoins that you thin" will -e worth more in a month( 2 months( or a year. ABL: *hats ,ust loo"ing at the -asic aspect o the de lation. 6ou ha%e to add another aspect to it. *he Bitcoin economy is only a-out 0.I -illion dollars( so its %aluation currently is really re lection o the si'e to the mar"et moreso that the %olume o the transactions that are occurring. What that means that i you rein%est your money into -itcoin adoption and promoting the success o Bitcoin( you e+ternali'e that into the community and then you reap the -ene it in the orm o higher %aluations or -itcoins. Because this is such a small economy( we can all reap the -ene its o the higher %aluations. At the early stages( it a-solutely ma"es sense to promote adoption o the currency as one o the main ways o ma"ing re%enue and pro its in this mar"et( and thats great( -ecause what it means is -itcoin is %iral. &M: ! really li"e that approach. ! thin" thats win7win or e%ery-ody. ! guess theres another actor( too( -ecause you are going to accept dollars and con%ert those into -itcoins( there must -e some cost or doing so( -ut what you really are doing when selling your ser%ices or -itcoins is( doing that con%ersion directly( i its something that you are going to do anyway. 6ou sa%e on any transaction cost to con%erting dollars to -itcoins in the irst place. ABL: 6es. !n act( e%en i you use a payment processor( as ! do in some o my -usinesses( the type o rate ! am paying is 3.GGJ and essentially what ! am doing is ! am con%erting dollars in to -itcoins with 3.GGJ transaction ee( and that5s lower than what ! get once you add up all o the cost mo%ing in and out o an e+change. &M: ! ha%e a little e+perience with this( too( i some-ody -uys a %oice o%er ser%ices rom me in -itcoin 7 a su-stantial one( too. *o me that transaction ma"es a ton o sense( ,ust li"e you are saying( Adam( or all those reasons that we ha%e ,ust tal"ed a-out. ABL: )ne o the -iggest e+changes in the -itcoin en%ironment( i you thin" a-out that way( is Bitpay( and they are not an e+change. *ony has de initely igured out a %ery good -usiness model -ecause Bitpay percei%es its re%enue in Bitcoin( and thats a antastic way to essentially generate an e+change through retail. AA: ! you ha%ent heard( the Hum-le $ou-le79ine Bundle now ta"es Bitcoin. What is the Hum-le Bundle? !ts a collection o games which are a%aila-le or whate%er price you want to pay on a donation -asis as part o the gi t economy. *he -eauty o it is that they now ta"e Bitcoin( and the secondary -eauty o it is that they unnel some o that money toward ?lectronic 9rontier 9oundation( a really use ul organi'ation or Bitcoin( in my opinion( and one that doesnt currently ta"e -itcoin( so you can -oth get some great games( you can support indie game

designers( and you can nudge ?99 into really seeing the %alue o Bitcoin donations( thats the Hum-le $ou-le79ine Bundle. ABL: But( its the Hum-le Bundle in general that started accepting. *his is the irst -undle to roll out( -ut what this ser%ice actually does is that they usual ta"e somewhere -etween D and I independent game titles that...7 they negotiate directly with the de%elopers that produce them and then they put them on here and let people pay whate%er they want. &o( one o the interesting things with this this is that( usually( the num-ers that you see high end o the -undle are C233( C433 or somewhere in there( -ut or this time( -ecause they accept Bitcoin( people threw all "inds o money at them. We5%e got at 7 the top contri-utor is satoshidice.com or the win C2D33( the ne+t one -elow that at magical tu+ which isP AA: 9ellows thats Mt. :o+ or you. ABL: !s that ;em tee< :o+ or Mount :o+? &M: >ronounced Mount :o+( -ut o course it comes rom ;Magic: the :athering online e+change.< AA: :ot a email rom someone a-out that( we should get our terminology right. ! thin" Mt. :o+( the way they ha%e put the dot in is what they are trying to ma"e it. ABL: &o( the top D are all a-o%e C0333 or this -undle that they attempt to sell or around C03 or CQ( is li"e the standard range that they get or something li"e this. *he a%erage purchase price right now is CI and 00 cents on Windows and C03 and 2Q cents or Mac users C01 and 14 cents or Linu+ users. 6ou ha%e got these larger donations coming in rom the -itcoin side. ! thin" thats great. !t shows these de%elopers that there is not only a -ac"log o users who want to -e a-le to spend -itcoin in ,ust any sort o %ariety o ways 7 certainly on games( and certainly in this sort o capacity. !t also lets them eliminate their cost( -ecause again -e ore this the primary way to pay them is with >ay>al( you got ees in there( so you cant do things that are too ine+pensi%e. !d li"e to see this model ta"en down to almost down to per7game -asis( -ecause you could do that with -itcoins. 6ou could ha%e game a%aila-le or D3 cents i you want to spend D3 cents and it5s not a -ig deal. 6ou can ta"e what has to -e a -undle -ecause o the payment processing element and instead turn into a la carte menu ,ust -ecause that you dont ha%e that cost. &M: *his -rings up a really important point or me when ! thin" a-out Bitcoin and how it relates to charities or nonpro it organi'ations. ! ha%e got this panel at the Bitcoin con erence a-out nonpro its. )ne o the /uestion that came up 7 ! am going to -e as"ing to the panel is ;do you thin" you got more support in general( -ecause you accepted Bitcoin? Are there people who would support a charity who wouldnt normally support it( -ut since they accepted -itcoin( they are go ahead and throw some support -ehind them?< $o you guys e%er ha%e that e+perience( -eing -itcoiners 7 ha%e you e%er supported an organi'ation or a cause that accepted -itcoins( simply -ecause they accepted -itcoin and that was enough to put you o%er the edge?

ABL: Last wee"( we did an inter%iew with Michael Hill rom Cyprus. He was collecting Bitcoin donations( unctionally( or setting up a orum and he was going to use it or printing materials or liers and things li"e that. And you "now it was really easy or me to send him = ! thin" ! sent him 3.22 or 3.2D o a Bitcoin to the tip ,ar we had em-edded in the show post( and that was really really easy. *hats something that i ! was sending money o%er >ay>al ! couldnt really ha%e sent him that small o an amount. We dont ha%e to worry a-out the currency con%ersion. We tal"ed a-out this -e ore 7 it5s that low -arrier to entry thats ma"es it possi-le to do really whate%er you want( as ar as the small donations go. .ust rom the show5s perspecti%e( we got the donation 3.332 while we are doing the show and that is something where 7 this is the person you want to gi%e us the %alue or the %alue we are gi%ing( -ut wasnt a-le to or not willing to gi%e us 3.330 o a -itcoin -ut it doesnt matter -ecause there is no cost or us to accept it and there is no cost or him to send it. AA: *here are three e ects here that are com-ining to ma"e this incredi-ly en%ironment: the irst one is the %ery low riction or transactions and the a-ility to do micro7transactions. *he second one is the "ind o illusory e ect that you are paying less than you thin" you are. 3.D -itcoin doesnt loo" li"e much( -ut ! dont thin" most people CD3 -uc"s charity ,ust li"e that. *hey might gi%e 3.D -itcoin. *he third act is really that you ha%e the early adopters o -itcoin are a %ery sel 7 selected group. *hey are idealist( they -elie%e in the Bitcoin e+periments( and they ha%e -ecome the new patrons o -itcoin. ?ssentially( we are e+periencing the Bitcoin renaissance( and you ha%e a lot o sel selected millionaires and -illionaires in -itcoin who are a-le to -ecome patrons o -oth new %entures and inno%ations( -ut also the patrons o the art and patrons o the charity. &M: 6eah( that -rings up the point a-out the micro7transactions too. ! mean( that .332 -itcoin might not -e ;worth much< now( -ut i we hang on to it( perhaps that would -e a great way to grow organi'ations down the line i it appreciates. AA: *he de lationary e ect wor"s to the -ene it o the charity. ABL: ! thin" that its to our determent to try and say that this is happening -ecause o the early adopters. ! thin" that you are right that early adopters play a huge role in it( -ut ! thin" its more o a cultural role than anything else. By showing this generosity 7 -ecause we ha%e got donations rom people who -ought -itcoins a ter listening to the show 7 so clearly( they are -uying in these high prices. 9or them( 3.DRB*CS really is D3 -uc"s. AA: >erhaps ! should e+plain that ! -elie%e that we all are early adopters. ABL: *hat a good point. AA: 6es( a-solutely. ! would consider a late adopter is a people who ,oin Bitcoin 4 or 1 years rom today. At the moment( we are all early adopters and we are all magnanimous in our -itcoin ABL: *hats why its so important or people who are interested in right now and who do understand the system to really -e proacti%e and helping other people to understand it( -ecause i you are in it( you "now it ta"es a while to get it. !ts "ind o complicated and it5s counter7intuiti%e to a lot o the ways that to thin". >erusuant to our con%ersation in episode K( ! ha%e now started

the 8apa Ealley Lets *al" Bitcoin Meetp( where we are gonna try and ha%e.... R&M: WoohooTS 6ea( its gonna -e interesting. And pretty immediately ! was reached out to( -y a winery in Fnot 9ield. Hey( we ha%e heard a-out the Bitcoin thing and how can we help( and we5re pro-a-ly gonna wind up using the room o%er there at the winery or the irst meet up. 7But the point is that its that type o grassroots local connections ultimately going to -e the most %alua-le. *hat is where you not only ind riends and companions( -ut you will also ind -usiness partners( youll also -e a-le to -e educate yoursel that you really can5t otherwise 77 Because these interacti%e con%ersations that we ha%e during the host segments o the Lets *al" Bitcoin are almost more a-out learning rom each other -ecause we dont prepare or the show in the way that lets us "now what the other person might -e saying. !t5s a really natural -ac"7and7 orth( and as you hear the perspecti%es coming rom e%ery-ody else( it really helps you "ind o complete the mental ,igsaw pu''le that Bitcoin is and ill in the -lan"s. &M: 6eah. 9rom my perspecti%e( ! ,ust get such a "ic" out the eeling( o sharing %alue with some-ody else = li"e( i ! ind %alue in something that ! get or ree( ! really want a way to ind e+press my gratitude( so that5s one o the reasons that ! really lo%e not only charita-le gi%ing( -ut also gi%ing -itcoins( -ecause its so easy to do that. 8ot only that( -ut there is there a sur%ey that said that the most common use o -itcoins was or donations. $o you guys remem-er that( it was li"e an online sur%ey? *otally unscienti ic sur%ey( -ut people said that most common use was or donations( and ! actually really -elie%e that( -ecause ! dont thin" that ! am uni/ue in that regard. >eople want to gi%e -ac" %alue( when they get %alue and part o the %alue that ! get is ,ust also "nowing that there are people who use -itcoins or there are people who are sharing my e+citement a-out -itcoins. ! get another emotional pay7o rom doing a transaction with them that in%ol%es -itcoins( so its li"e circle o lo%e in a weird way. ABL: *otally agree. AA: !ts all a-out the community. ! got some -rea"ing news. U>roo reader5s note: Andreas immitates the sound o a a+ machine... or a monotone news theme... hard to say.V $wolla has ceased transactions with Mt. :o+ and the email is shoc"ing. ;6ou are recei%ing this notice -ecause our systems ha%e indicated that you ha%e processed and completed a the real time $wolla7to7$wolla payments to Mutum &igillum( LLC RMt. :o+S within the past 21 hours. $ue to recent court orders recei%ed rom the department o homeland security and F& court district court or the district o Maryland( $wolla is no longer legally a-le to ser%ice Mutum &igillum5s LLC account. *his is the courtesy email encouraging ollowing up on any uncompleted orders with Mutum &igillum as $wolla is una-le to mo%e money to and rom Mutum &igillum LLCs $wolla account. $wolla is not a party to this matter( nor does it ha%e any in ormation or uture insight into this situation( we strongly encourage those with /uestions to contact Mutum &igillum( LLC. 8ote: $wolla re/uires a court order -e ore honoring re/uests such as &ei'ing unds or re%o"ing access to an account. Apologies or this incon%enience. ABL: Huh. ! guess my response to that is( ;oh &8A>TT< &M: 6eah( thats a-out right.

AABL: ! guess thats what we are waiting or( right? *he other shoe ,ust dropped. &omeone more "nowledgea-le a-out the legal systems( perhaps( can gi%e some insight coming out o the F& district court or district o Maryland. ABL: 7And the department o Homeland &ecurity( more rele%antly. ! mean( that is unusual. &M: *hey are pro-a-ly trying to protect us rom those dirty -itcoin terrorists( right? AA: #ight. ABL: 7)r something. AA: By protect us( you mean :oldman &achs. &M: #ight( well( o course. *hey ha%e your -est interest at heart. ABL: *hats all the time we ha%e or today. *han"s or tuning into episode I o Lets *al" Bitcoin. Whether you li"ed( lo%ed( or hated the show. We want to hear what you thin". >lease send listener eed-ac"( comments or /uestions at adamMletstal"-itcoin.com . ! you are li"e me and ,ust cant get enough in ormation or perspecti%e on Bitcoin( chec" out our daily newspaper at daily-itcoin.com where youll ind the -est news presenting articles and argument rom all sides o the issue. *han"s to Andreas M. Antonopoulos( $r &tephanie Murphy and $a%id &chwart'( or pro%iding contents or the show. Music or this episode .ared #u-ens. 6ou can ind lin"s to the songs we use and open source artist to ma"e them at letstal"-itcoin.comLmusic . &tay tuned or ?pisode Q o Lets *al" Bitcoin( releasing early on 9riday( the 0Ith o May. 9eaturing a report rom our new correspondent Asi >un,wani and the ta+ /uestion. Are you a miner? $o you pay it? We tal" ideology and reality. U?ndV