102: Bitcoin Clarity: A Guide to Understanding with Kiara Bickers

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It is my pleasure to welcome someone who is a complete bitcoin expert. Like every question you ever wanted the answer to about bitcoin, Kiara Bickers has it and she's the author of Bitcoin Clarity. She's coming to us from Austin, Texas today. She's a consultant, she is a developer, I believe, or at least works with developers on developing all sorts of bitcoin related products and so forth. And it's just fantastic to have her here. Welcome. How are you?

Hey, thank you so much for having me. I'm doing great.

It's good to have you. So you know the first thing I want to ask you and thank you for what we already have discussed off air. That was fascinating. Maybe we'll get into that here on the interview. But the first thing I want to ask you is are you a bitcoin maximalist? Are you bitcoin only or do you have an interest in or deal with other cryptocurrencies?

I think that bitcoin is the most technically interesting long term, but I do think that there's value in some stuff that have more interesting properties in the realm of privacy.

Can you drop a name or two on some others that really.

Yeah. So bitcoin, because it's a public blockchain, you can see all the transactions there. And most people, when they go to buy bitcoin, they do it, they kyc themselves, which is just. You go to an exchange and then you give them all your identity information. Like that's not great, right? So what Cypherpunks really would like is to have money that's like a digital cash, right? So you would want more privacy than cash if you could achieve it, or at least as much privacy as cash. There's, there's a technology called MimbleWimble which is pretty interesting and that's implemented in a number of different cryptocurrencies. That's, that's one that I think is cool. But yeah, mostly, mostly bitcoin focus, wouldn't say a Maximalist, though.

Okay, so tell everybody what is a cypherpunk?

So what is a cypherpunk? So cypherpunk is kind of like a ideological movement to some degree, which is about instead of doing activism through, say protesting or, you know, political activism, you, you, you do activism through writing code. Right. And you can do that with cryptography. So like, if you have a problem with the way the government is doing a particular thing, which we could, you know, maybe inflation or something like that, instead of educating people about the concept of inflation, you just build a monetary system that simply doesn't have that property, that cyber. That would be a philosophy of the cyberpunks.

Yeah, right. So then Satoshi would be one of those, right?

Most definitely. Yeah, most definitely.

All right, great, great. So in the beginning of your book, which by the way has excellent reviews, you talk about finding a signal in the noise and a lot of experts in technology and then they use this, they bring it over to other fields like economics. You know, they talk about the signal to noise ratio and things like this. Right. So tell us about problem number one. Finding the signal and the noise. What does that mean?

So when I wanted to learn more about Bitcoin, everyone taught me to learn how to code. Then I learned to code. And then I look at the bitcoin source code and I still didn't understand Bitcoin. So like, that was my first data point of like, people who think they understood Bitcoin were not giving me good advice. It was not useful to learn two years of C and then read the bitcoin source code. That did not help me understand the properties of the system. Right. Like what I wanted to know was much more complex than that. So the secondary issue in terms of like single signal and noise here is when you are trying to learn about Bitcoin or say another cryptocurrency, if you don't understand the underlying technical details, you completely default to appeals to authority. Right. It's like, which influencer did do trust and for myself included, right? Like, I'm not a cryptographer. I think I understand some properties of cryptography, but I'm not a cryptographer. So if a cryptographer tells me something is insecure, well, how do I go verify that? Right. I have to take his word for it. So there's this huge problem in the crypto space where there's all these buzzwords, like even just blockchain. What does blockchain mean? Why are there blocks? Why is there a chain? Very simple, overused words in this space. People have no idea what they mean. And so.

My goal in writing Bitcoin clarity was really to say, let's take a step back, let's get all the properties of the system understood so that you can independently verify Bitcoin in particular. But if you're, if, if you're interested other blockchains as well, because you'll understand, you'll understand how they work at a deeper level without having to learn how to learn how to code or without having to be a cryptographer for that matter. Yeah.

Knowing what you know, does it amaze you? I mean, to your perspective, is Bitcoin a miracle? It seems like a pretty big amazing.

Miracle to me when I think about it. I kind of laugh because I'm like, it's not quite a miracle, but it's kind of like a dirt moment. It's sort of one of those things where it's like nobody saw that it was possible to do until one person saw it was possible to do. I think, I don't know if you've seen the concept of this like five minute mile where everyone thought it was like impossible to run by Roger Bannister.

The four minute mile actually.

Okay, see, I'm, I'm, I'm outdated already. But yeah, from what I remember, it was like nobody could run the five minute mile until someone did and then a bunch of people did. And it's exactly the same thing in cryptography. Every cryptographer thought that it was impossible to create a decentralized system for, for value exchange. And that was kind of like the holy Grail. And it took them, which, you know, I, I include a larger explanation in the book, but basically they low. What, what Satoshi was able to do is he lowered the standard for what it meant to be decentralized because all the cryptographers were thinking about it as like ideological perfect decentralization. And then it's like if you can't have perfect decentralization because time and space and like we wouldn't be able to have a, like we wouldn't be able to have a cryptocurrency that worked between here and Mars because they're physically too far and that time and space would, would not be able to settle on one blockchain. Right. So that there was a problem.

The speed of light isn't fast enough for the signal.

That's exactly right. Right. Like the speed of light because of the speed of light. And this was like this theoretical thing that all cryptographers generally agreed that this was not possible. And then what Satoshi did was Just like, well, it doesn't really need to go very far. Like it only needs to go to the next node. Right. So it's like. And that's actually why trans grouped together in blocks is because you can't know the time of a particular transaction, but you can know that all these transactions had happened in roughly the last 10 minutes. So everyone was trying to timestamp individual transactions, but in a distributed network that's not possible. So what Satoshi did is group them together in blocks, which was like the aha moment. Would you call it a miracle? It's ingenious. It was so obvious after the fact.

So he was practical then when everybody else was being too idealistic and expected too much from the network. Right?

Yeah. I mean there's definitely trade offs because that means that they're not quite instant transactions. Right. They take as long as they take, as long as it takes for the block time. So that's about 10 minutes on average.

Okay, so what do you want people to know about Bitcoin and cryptocurrency? You know, just take us through maybe some of the, the big things that people really fail to understand or grasp about it.

I think the biggest thing which touches on the first problem of just signal over noise is that there's so much noise in this space. You could be an extremely educated investor. But if you don't understand how these systems work, there's absolutely no way for you to evaluate one system from the next. It's just so easy for someone to say, my blockchain has twice the transaction throughput as Bitcoin or 100 times more. And if you don't actually understand how that maps how that's working all you, there's no way for you to know if that's legitimate or not. And there's like, it doesn't take much technical knowledge to move the needle in terms of how you see these things. But that's what I try to give people is like what's the minimum amount of technical knowledge that you need in order to, to be able to understand. Right. And not just like regurgitate buzzwords.

Yeah, right. Okay. Okay, good. You know, I kind of look at Bitcoin and I think is. And by the way, I just want to state where I'm coming from. I've stated this before, but for you and other listeners who maybe haven't heard me say this, I would love nothing more than to see a decentralized currency that is run by the people rather than central planners take over the world. I would love that. Okay? Because I think it's just good for human liberty and democratic ideals and so forth. Sadly though, I think that the central banks and governments are going to try not to let that happen because it displaces their major product, which is their currency, the dollar, the yen, the euro, whatever it is. Right. You know, maybe you can speak to that. And I have a feel you might say, well, Jason, they can't stop it and you might be right about that, but they can't stop illegal drugs either. And people do trade in them, but not much because it's illegal and nobody wants to risk their freedom. Right. I, I just have, you know, a lot of concerns about the future and, and the way governments are becoming so tyrannical, especially with the COVID you know, world we're living in. It's, it's just sort of checked all the boxes for the authoritarians, if you ask me. But what do you think?

I think you're right about that. There is definitely some concern about regulation. I think that the bitcoiners as like a community are so tight knit about, about being bitcoin. First, before, I would say the identity of being a bitcoiner probably comes before being an American for a lot of bitcoiners or, you know, whatever their national identity is, almost certainly, because that cypherpunk mentality is almost like anarchistic. You know, it's like it's more about your individual liberty than about this national identity that you have. So if that were ever to happen a particular country, I think people would leave. And I, I don't, I don't see a world that everyone, you know, attacks bitcoin simultaneously. Like the world is just too large for that. And like, maybe that's the goal. Right. Because we are seeing the centralization pressures that's happening with COVID and like, you know, all the vaccine passports and stuff like this. So the fear is definitely there that there is some sort of agenda that is pushing that direction. I won't say, oh, they can't stop it because, you know, there's people, developers like to say code is law, but code is only law on in the blockchain.

Right.

It's like we have self executing contracts, but the government doesn't care about self executing. Yeah, no, they have prisoners, they have guns. Right. So I personally like America because it's a nice place where you could like own bitcoin and own guns, but that's not true all over the world. So to answer your question, I think it's a legitimate concern, but I think People will move to a geography that is favorable to bitcoin.

What do you think about El Salvador specifically? And, you know, Portugal also very crypto friendly. And Puerto Rico, but namely El Salvador. I mean, do you think that experiment is going to work? Do you think it's going to expand to another country?

This experiment is sort of happening in parallel to the CBDC stuff, which is like, will central banks create a digital currency that competes with Bitcoin, or will bitcoin get adopted faster? Right. I think there is certain difficulties with sending bitcoin on chain, which is what the lightning network tries to solve. And the people in El Salvador are primarily using that lightning network. So, you know.

I think it's very interesting that the things that people find the most interesting is when a country adopts bitcoin, they tend to find that more interesting than, like, if a country implements a cbdc, like, nobody hears about that. Right. The Vatican could very well do that and nobody would really care. So, like, there's way more collective consciousness around adoption of bitcoin than there is about these digital central bank currencies that nobody other than the central bankers and the people building the currency seems to care about. So I'm hopeful that this will continue. And it seems like Portugal is not in the best economic shape and there's an incentive for these countries to do something. We see something similar in the United States with the state of Wyoming, which I think lost some oil business, and now they're trying to be the. At the forefront of the legislative work when it comes to bitcoin, and they're doing a great job of that. You can incorporate a dao out there. Like, I don't know anything about it, but, you know, it's. I know that it exists and that people are trying to make this their niche because they know this is where the money is.

Yep, yep. No, they're. They're being smart about that. No question about it. So tell us what some of these buzzwords are that we hear about, you know, defy dao, all of these things. What. What are those things really mean? I mean, decentralized finance. Is bitcoin defi or what's defi?

So I have my opinion of defi, but I'll take a step back and say what I try to do is get exactly, very clear about what things are at a technical level. So before we started this podcast, we were talking about UTXOs and what those were and what bitcoin was at, like, the lowest level of actual data. To remove all the mysticism I Think in Bitcoin, it's very easy to get concrete about terms because in comparison to other blockchains is actually a very simple system. So like, when we talk about Bitcoin, we can say like what a smart contract means in Bitcoin is the ability to lock and unlock data and then send it over. Like send Bitcoin to send value securely over the insecure Internet. That's what Bitcoin is designed to do. Now when we start to get into more complex concepts like decentralized or decentralized organizations or, or DEXs, which are like these decentralized exchanges, it's harder to map the technical details exactly. But I could talk a little bit about one of the big buzzwords is smart contracts and smart contracts. Originally, the goal of a smart contract before Bitcoin existed was how do we send value securely over the secure Internet. And Bitcoin was the smart contract that solved that problem. And then once Bitcoin existed, everyone kind of. Because Bitcoin was such a small community of people, like I'm talking like 2012 era, right? Like most of them were developers. Smart contract as a term hadn't hit peak hype. So once Ethereum came onto the scene and they said, hey, we have this new thing called smart contracts, they sort of redefined what smart contract meant in the collective consciousness. Because nowadays when people say smart contracts, they do not mean Bitcoin, right? Like they usually mean Ethereum or some other, you know, similar, comparable like a Solana or something like that, or Cardano. They mean a layer two development language to program other types of contracts. So the problem with this is that people like smart contract doesn't mean anything in and of itself, right? Like you can't. Nobody knows what that means just by hearing those two words. It's not obvious. So to. When you say smart contract to someone, how do you unpack that term? Well, it's sort of like saying like, do you believe in God? Right? It's like everyone has a different version of what God is in their head and there's no way for you to know exactly that you guys have the same definition. So my definition is sort of the Bitcoin thing. But I understand that most people mean the second layer for Ethereum and for Solana. When you program smart contracts, it's a very limited set of things that you can actually technically do. And what people who are not in the blockchain space think they can do is any human readable contract. So it's like if you were to, if you were to think of a human readable contract and then try and map that onto a blockchain like, that just wouldn't work. Right. These are two. The idea of a legal contract and a smart contract in the digital sense, just two totally different things. So that's one of the biggest buzzwords that's sort of hard to dissect, I think. Okay, you asked another one about daos, which is like an even larger concept, right?

Yeah. I'm just looking for you to demystify any of these things that people are always hearing about, you know, and so feel free to pick your own. It doesn't need. So let's.

Let's talk about dexs real quick. Okay, so. So in the early days of cryptocurrency, it was. Let's just say it was like bitcoin, litecoin, and then a series of other altcoins. Right. The biggest problem with all these altcoins was nobody knew how to value them. So what people would do is they looked at. They looked at bitcoin and they said, okay, bitcoin is divisible up until 9 points, and it has a 21 supply. Let's increase the supply and let's increase its divisibility and see if those attributes make things more or less valuable. And that's. That's basically what litecoin is, right? Is it's a higher supply, and I think it's more divisible. I can't. I can't remember. But, you know, people don't really. Didn't really move the needle. So what was happening was, is people were just creating tons of these altcoins and nobody knew how to value them, and it was really difficult to get them listed on exchanges. So these were just some of the problems. So dex is. The concept of a. Dex is invented, which is basically like. I don't mean to use the term smart contract, because we already said that's an overloaded term. But basically what this allowed people to do is let's say you have some sort of altcoin. You put that in the decks, and it's kind of weird to say put it in the decks, right? But basically the way that the dexes work is because instead of using an exchange to buy and sell, you use this. You use a smart contract that doesn't have a third party. It's just a. It's just a decentralized contract. And the way that you have value between the way that you make your altcoin valuable is that you stake up another side of the contract being like bitcoin or Ethereum, something with a lot of liquidity. And now people can trade from your new coin to Bitcoin. Right? And that, that what that did is meant that if you were going to launch an altcoin, the only way to actually know that it had value was someone was willing to stake to basically give up liquidity on the other side of the swap. Not sure if that makes total sense, but.

Well, it's, it's not going to make sense if people don't understand staking. You know, I was going to ask you about proof of work, proof of stake.

You know, we can talk about proof work. That's a much easier concept to grapple with. Right?

And so Bitcoin is based on a proof of work concept where some others are based on a proof of stake, right?

Yes, but, so when I use the word staking, I just mean, I just mean putting up liquidity and locking it up in this case.

Okay, but what's proof of work?

So let's talk about proof of work. Let's do that. Much simpler. So, so the way that people talk about proof of work is they say that, you know, the computers are solving these arbitrary computer problems. Which doesn't make any sense. Right? It doesn't make any sense. So there's, there's two ways that we can think about this. We could think about this as. There's, there's two goals for the individual miner. You want to make money, right? You want to mine Bitcoin and then, and then earn Bitcoin as a result. You want to spend electricity to earn Bitcoin.

Okay? So let's just, let's just for, you know, we don't know who's listening. And they all understand different things. So basically what people do is they buy a miner, which is a computer, okay. And maybe it costs $3,000, okay. And they plug one of these in, they connect it to the Internet, it goes out there and solves these complex math questions. And as it solves them, it earns Bitcoin for solving them, right?

Correct. And the only, the only mystery to, to, to, to reveal here is that all a miner does is it's, it's a particular type of hardware that's designed to only solve that problem in the most efficient way possible.

Understood? So in, in solving that math problem to earn the Bitcoin, that is proof of work, right?

That is generating, that is doing work and then generating a proof.

Okay, There's a distinction. Yeah.

People call it proof of work, but what does that mean? Right? So what is it Means that the miners are doing work, which are they're basically burning electricity and they're distributing a proof that they've done that.

Okay, got it. So that's proof of work.

That's the first part of proof of work.

Okay, what's the next part?

The second part of proof of work is there's the. So that's the miner wants to earn Bitcoin, but what the network wants, and this is where you have to kind of put on a hat and think I'm. As if you were designing this system. It's like what the network wants is to be able to confirm transactions in a set amount of time. And it wants to like lock those transactions, like confirm them with like, so that they can't be undone. Right.

So as people transact it, post their transaction to the blockchain chain so that.

Everybody actually requires computing power. So.

There'S the altruistic want of the system and then there's the selfish desire of the miner. And what proof of work does is it balances those two to work symbiotically. So the miner is doing work for the whole network by confirming transactions so they can't be undone and they're earning bitcoin as a result. And at a technical level, they're doing work, they're distributing a proof and then all of the full nodes, which are like another node in the network, they're seeing that proof and going, yes, you did do the work, you did earn the bitcoins, validating that so that on the blockchain those bitcoins get allocated to that miner as a reward.

Okay, yeah. So there's proof of work for mining and proof of work for transacting.

It's one concept, but there's two sort of parts to it.

Yeah, yeah, okay, got it. So compare that to proof of stake, if you would.

Well, I can't really do that because we're not really sure if proof stake is. Is actually feasible. But so.

Oh, but other. But other coins operate on proof of stake, right?

Yes, yes, but it's. This is that kind of a myth challenge for me to advertising. It's a challenge for me to bring clarity to this topic.

Okay. Yeah, got it. Okay. All right, well, you can pass on it if you want, but any comments or any, you know, it's up to you.

Well, I mean, Ethereum is said that they're going to do proof of stake. Other claim that they do proof of stake, but it's not exactly clear to me that this is a workable system.

I can't Parse it out too much more than that.

Okay, so it might not be foolproof. Like, like the proof of work concept is. Right. And, but the claim by those folks that like proof of stake is that it takes less electricity, it's faster, blah, blah, blah. Right.

So, okay, when we were talking about like old coins and how like people would change the divisibility and they would change the total supply, another thing that people try to change to add value is the consensus mechanism. And like, so this consecutive consensus mechanism we talked about proof of work, I'm sort of punting on proof of stake. But there's many, many different types like intel designed proof of elapsed time, which basically if you trust Intel's hardware then you then, then they can prove that time has elapsed and then they say that's secure. There's also proof of storage that's been designed by Bram co of Geocoin, which is another concept of just like if you, if you have storage you can prove that you, you know, are, are allocating it for the network. And they call that farming instead of mining. And then some of these are sold as like green alternatives. But that's kind of a questionable thing. Like is it really, is it really green if you, if it requires all this hardware still. So also, do we want something that's green? Because anyway, yeah, we could go into that, but.

Well, I'd love you to address that one. You just opened a door that probably don't leave us hanging on. Do we want something on screen? Is there a reason we don't?

Well, the whole point of having this currency that is scarce, right? It's like something that has a cap supply and that represents some sort of sound monetary policy. Right, monetary. I'm referring to Bitcoin in this case. The only way that you can really achieve that, that we're aware of is you have to. How do you make digital space scarce? Like you can have a database and you can cap the number of entries in the database to 100 and now you've artificially made it scarce. But with Bitcoin, what Bitcoin does is because you're actually burning real world resources with a known value. Now I'm referring to proof of work in this case because you're burning electricity. That is what is giving Bitcoin value through mining. And I call that. There's a chapter in the book called the Alchemy of Mining and it's. If you're not doing that process, if you're not taking some sort of valuable thing offline and then it's very difficult to make something valuable unless you've, you've proven that it's requiring resources.

Yeah, fair enough. That's why it needs to take electricity, right?

That's why it needs to take electricity. Right. So with proof of stake, you're just like holding the coins and then that proves that they're valuable. Like that doesn't from an economic level that really just like it does. I can't fully make sense of that. And maybe, maybe I'm also holding an artificial standard that. But I don't know. I don't know. Time will tell on that one.

Okay, interesting. You know, I could talk to you for two and a half days. Okay. And we don't have two and a half and a half days. You know, wrap it up with any comment you have, anything you want to share with people. Question I didn't ask you. You know, there's obviously way more in the book. I mean, I, I just downloaded the book. I can't wait to dive into it. The reviews are excellent, but just what else do you want people to know?

So, I mean, your audience is probably looking at like the financial aspect of this. Right. And, and I can sound at times probably more on the technical side of things. And what I would say to a more financial audience is it's absolutely crucial that you understand some of the underlying technical details.

So that you're not relying on calls to authority every time you're evaluating a new blockchain. I'm very bullish on bitcoin long term, but there are going to be avenues for other use cases outside of just bitcoin. Bitcoin created an entire asset class. And the bitcoin maximalist advocating for bitcoin, I think what will happen is bitcoin will become, you know, maybe there's only a 10% chance of this or something like that, but if this becomes some sort of dominant currency, there's going to be other blockchains that settle bitcoin. Right. It's going to become very complex in the blockchain space. And if you're, if you're an investor in this space, I think it's important to be able to understand some of the technical details. And I'm not talking about cryptography here. I'm just talking about, like enough to be dangerous and be able to evaluate what's going on without just, just listening to what my opinion is. Right. So what I try to do in the book is I try to give readers and viewers on my YouTube channel the mental models to be Able to see these systems and evaluate these systems for themselves so that they're not relying on other people's opinions to make those decisions.

That's a great thing that you're doing that. And, you know, I guess I just want to close with the idea that most people are attracted to this kind of thing. I. I do think it's very, very speculative, but most people are attracted because, hey, it's just greed. They want to make money. Right. Which is fine. But once you dig into this and get. Get around it a bit, you really realize how important the money is. And when you fix the money, you fix almost everything in society. It's truly incredible. I had Safedine Amos on my show. He's. He wrote the Bitcoin Standard. Great book. And, you know, when you look at history and you look at how you really get to see how money debases culture, you know, his. His new book is interesting on that too. The fiat Standard. And there's a lot more to this than just the idea of investing, making money or speculating, even whatever, or replacing the monetary system. Yeah. There is a mission here. Right. You know, if. If you fix this really corrupt monetary system we have, the likelihood of wars will decline. I mean, it could really lead to.

Talking about going green for a while. And it's like, you know, money is a measure of scarcity to some degree of things in the economy. And of course, beyond money, it's like nothing is being measured properly. This is the hugest waste of resources. Right, Right. So you. That's an angle that's not always taken. When people talk about proof of work is like, well, if we had sound money, then we could actually allocate resources properly. How much would that save? Yeah, so.

So about a third of all food produced in the world goes to waste. And that's a resource allocation problem. Right. And a lot of this.

Because of.

Fiat with the subsidies and everything, there's no accurate way to price things.

Right, Exactly. So the reason there is waste in the system, whatever it is, food, whatever, doesn't matter, is because of all these distortions created because the measuring stick is so flawed. Right. And that's, you know, this solves the problem. Yeah, it really does.

It absolutely does. And I think what people are having some trepidations about right now is that they're all. They're. Everyone's focused on how to evaluate Bitcoin. But in the future, if Bitcoin ends up being successful, like more successful than it already is, then it'll be the reverse. Right. It's like bitcoin will be used to evaluate the value of other things. But because nobody understands this concept is just too meta, very few people actually understand the blockchain understand bitcoin. So they view it as speculation. And certainly the future of bitcoin is not inevitable at this stage. Right. But I'm more cautious than probably safety would be. But this is my more balanced view on the issue. But yeah, that would be what I'd say about bitcoin right now. Very, very interesting. This is the best industry to work in. Yeah, it's great. I'm going to write a second book that's going to talk more about the economic side of things and stuff like that.

It's a fascinating pursuit, fascinating discussion.

Give out your website, that is get.

Bitcoinclarity.Com get bitcoinclarity.com Excellent. People should check out the book. It's got great reviews and it's available in all the usual places. Thank you so much for joining us and teaching us about these very important concepts.

Yeah, thank you for having me.

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