Freedom Money Episode 20 Sziller CTO

Welcome to Freedom Money, where we explore Bitcoin, financial freedom, and building in the Bitcoin space. Before we get started, this podcast is for educational and informational purposes only. Uh, very special guest on the podcast this morning, we have Sylar, who is the Chief Technology Officer at Kanena Bitcoin. Welcome to the podcast.

Yeah. Thanks, thanks for having me, Kevin. It's really nice. It's an honor. Thanks.

It's, uh, it's like our normal 6:30 in the morning meeting.

Exactly, every day, same time, same exact topics.

So where I like to start with all guests is just to get a bit of background and understand what brought them to Bitcoin.

All right, okay. So I guess, yeah, I'm, uh I'm an old guy in the Bitcoin sphere. Like, my basic background is I'm an architect. I started out working as an architect in Germany quite a long time ago, and I also had some concerns about how to invest the little amount of money that architects earn in Germany. And at the very beginning, I was thinking about gold. So I'm the Bitcoin guy who started out as a gold investor, and after a point in time, because I'm also an energy advisor, I was starting to have concerns about putting all my eggs in one basket and was actively searching for another option. So it's not like the usual Bitcoiner story. In fact, it was actually me looking for a solution I never knew there was one, and I was then surprised that I figured out there was some guy back in 2008 who wrote something, and it looked promising to me. And because of having already been a Bitcoin advisor back then and realizing that this thing is actually quite similar to what gold offers, I started dealing with it. And it was just love at first sight. So, I mean, I was affected by the technology. I was really impressed by the deep solutions that Bitcoin provided, especially for me back then, but also in a broader sense. So I was captivated and it never let me go.

What year was this?

This was 2013. 2013, 2014-ish, I guess. I mean, Bitcoin was absolutely under the radar back then. Like, nobody was— you were lucky if— I mean, in fact, if somebody was laughing at you when you were talking about Bitcoin, it was already a positive sign because that meant that at least they have heard the expression Bitcoin before. Yeah, times changed. It's, uh, That was, I mean, it was before Ethereum ever started. There was no one else on the block. It was only Bitcoin and this weird internet money. So really, it was for geeks.

So now fast forwarding to today, you're Chief Technology Officer at Cadena Bitcoin and, you know, completed, I'm sure, a number of other projects in the space. Can you tell us about Kadena Bitcoin and your experience?

Like, I'm not a big product guy. I mean, I definitely not well in marketing and stuff. So whenever I develop something, my main point is that if it's good enough for me, It should be good enough for somebody with my expectations. And what caught me when we both started out talking about Kadena Bitcoin is how well, I mean, what I was hearing from you, from your expectations, from your ideas, how absolutely this thing resonated with me. I mean, you had self-sufficiency and self-sovereignty written all over the place. And for me, as an early Bitcoin guy, it was like, I mean, hearing the ideas that mattered the most to me was like, it was unbelievable. So Cadena Bitcoin, right from the beginning, meant that this is something that I can really devote to because there is nothing that I have to adapt to. It's, it's absolutely the ideas and concepts and basic values that Cardano Bitcoin represented back then already. And that's why I signed up to it. So it was amazing. And I mean, you know what, that was a chance. The way we met, it was by chance. But believing that somebody was coming and having the same ideas, the same values, was like amazing. So that's how I feel about Cadena Bitcoin.

So, I mean, should we go through some of the, you know, building challenges that we ran into from initially?

Yeah, I mean, let's. I remember right at the beginning, like, we were having discussions day and night about, like, I mean, your listeners probably know that you come from finance, like you have a very solid background in finance. Well, obviously I don't, like I'm really just a noob when it comes to money and finance. So this back and forth, figuring out what you need, then trying to bend the rules, trying to come up with ideas, how to realize your ideas, Because at the end of the day, we are talking about like Cadena Bitcoin is offering like loans. We are offering loans. And like the biggest challenge at the beginning for me was like figuring out how this collateral thing that you were all the time talking about, which I right now have quite a good understanding about, how this whole chain, this whole thing can be solved on chain. With the biggest concern of, for both of us, that, that we are not custodians. So whenever we have a user, it's theirs and only theirs decisions what they make with their money. So that was like the, the main, uh, issue that we had to solve.

Um, and yeah, then like, yeah, I, I, I remember we went back and forth for, I don't know, 3 to 6 months.

For quite a long time, for quite a long time.

And sometimes there would be, you know, months, weeks at least, where there was no interaction. It was like, oh well, this is over, we've got this problem, back to the drawing board.

Yeah, I mean, we had to. I mean, several times we had to go back to the drawing board and reimagine the entire thing because, I mean, you had the ideas, you had the needs, you had the wishes, and Yeah, it was hard to figure out how to make them come true. And yeah, that—

I can't even tell you how many people I spoke to during that time period who just suggested some type of bridge or vault or second layer. It was just nobody wanted to build this on Bitcoin.

I mean, your idea is— it was groundbreaking. I mean, I can imagine that somebody listening to the first time said, oh God, I mean, how can we make this? I mean, this is— I mean, I, I, and ever since, whenever I, I'm listening to podcasts from big guys like Michael Saylor and, and, and, and all the OGs, this whole loan thing, that's a big issue. That's something that, that screamed out for a solution a long time ago. And probably this is why— I mean, that's why I can absolutely imagine that people listening to your ideas said, I mean, God, I mean, if, if Michael Saylor couldn't I can solve it, then how could anyone else?

How could this guy?

It's a challenge, but let's take the challenge then.

So yeah, yeah, um, I mean, so there's a few different pieces with Kadena Bitcoin. I think we might as well dig into the technology, uh, you know, the discrete log contracts, the oracle. I mean, I guess we've talked a bit about the Bitcoin blockchain. Maybe we should start there actually, because The security model is Bitcoin native. It's the same security.

Exactly, exactly.

And so, um, maybe you can talk through what that means to the users losing their keys, backups, and, and that type of—

I mean, uh, as a starter, uh, we at Cadena Bitcoin, we are really humble people. We are not pretending to be more experts in security than Bitcoin already is. So we're not trying to solve a problem that wasn't there or that wouldn't be there if somebody deviated from Bitcoin's security proposition. So what we do is we build on top of Bitcoin security, but the most basic things, namely private keys or keys, addresses, so the basic security proposition of Bitcoin stays in place. With the extra, with the, with the cherry on top, that Kadena really cannot possibly ever interfere with the user's wish or idea if he wishes something different than Kadena proposes. So that was, that was, that was the main point. So we are, we are talking about blockchain as the absolute truth, and we're not pretending that we are better in any kind of a solution than Bitcoin blockchain is.

Yeah, the, the funny thing is I had a transaction settle, I don't know, a few days ago, maybe on the weekend, right? And the confirmation is a link to a couple different block explorers showing the exact same information. And to me, it's kind of mind-blowing that we have this possibility is where everyone's just interfacing. It's like the bank account that everybody has is just interfacing with this blockchain. I think we're going to get to that.

Yeah, that's— yeah, I mean, this is— if I want to go deep and be philosophical and philosophical stuff, that's what Satoshi solved. I mean, this is the magic. This really is the magic, namely consensus. Like, there is consensus in this. Whatever you do on the Bitcoin blockchain, there is consensus, and everybody on Earth takes a look at it and sees the same exact thing. So if you have some money and if you own the keys, then that's yours, and no one can take it away from you. And this very proposition is at the very core. Of Bitcoin and of what we are building as well. Yeah, so I see it.

And, and so I, I guess the next piece is I think we realized pretty early that we needed to use the discrete log contract protocol.

Yes.

And so I'll leave that to you, you know. And I just— to what you said earlier on the finance side, I, you know, I'm very comfortable with the knowledge I have on the finance side, and I'm not, you know, on the technical side. And so it's been great that we've been able to balance this out and communicate pretty effectively.

Exactly.

But sorry to interrupt, uh, Discreet Law Contract Protocol.

Yeah, like when you came up with this idea of loans and stuff and I tried to distill it out, what, what, what the core idea behind it should be. We, we both came to a conclusion that there must be some other collateral that contract refers to. And to do that, Bitcoin actually needs an outside information source. And this outside information source, it was— is what— it's not just what we call oracle, that's what people in technology call oracle. So that's an external source of truth that you definitely will have to trust on some level. Now, this trust is layered. There are different ways an oracle could go rogue or behave badly or just go down. But there is a solution, quite a well-thought-out solution by the guy— the name will probably not surprise Bitcoiners out there— Tadge. Troy Cha, who was actually responsible for lots of jobs in Bitcoin. I mean, he's the one who gave us jobs here. He was the one who realized the Lightning Network. He and, and Poon, I guess, is the other guy's name, who came out with the Lightning proposition. And this DSC is at the very core— I mean, it's obviously their, like, Troy Cha's idea as well. But it's basically an upside-down Lightning transaction that enables an external oracle to give you information on something that the two peers in advance agreed upon. Which means if there is an oracle who can give you a signature for a given price and who is granting you this access to this future signature by announcing something in advance, then you can build a transaction, just the two of you, just the two peers. You guys can build a transaction that will be executed in a future point of time without any interaction from somebody else, not even the oracle's interaction. All you need to do is grab Set signed information from the oracle, use it in your contract, and your contract gets executed. So now this whole— I mean, honestly, the way it sounds is complex. Under the hood, it's even more complex. And our job was to make it happen for the everyday person because no one can handle— like, what I just explained is probably it's so technical for everyone else that we had to put it in a shape and a form that A, it doesn't lose its core value proposition, but B, it's still understandable to people.

I think that's the big— my biggest challenge with everything, but yeah, we're getting there.

Yes, yes, exactly. Yeah, I mean, it is a huge challenge, and it is, it's generally a challenge in Bitcoin because, I mean, To be honest, I mean, you know this, Bitcoin people are not the ones who you want to sit next to on an airplane, because if they start talking about Bitcoin, you lose your head. These people are crazy. So whenever they come up with a solution, that's not for normal people, and we have to put it in a way that somebody understands it and is ready to use it. And we also have to kind of tell the people that this is actually what they need. It just looks a bit complicated, but that's what we want to, uh, come across.

So discrete. And, and so you talked a bit about the Oracle, and I'll, I'll be clear, and I try to always be clear, that Kadena is trust minimized, but there is potentially— there's trust in the Oracle. And so initially, I, you know, read a lot of stuff from Nick Szabo, and the distinction between trustless and trust-minimized is a real one. So I want to be clear with people, but maybe you can talk a bit about the oracle. Like, I see a big future for the oracle.

Okay, so once again, for our listeners, the oracle is on a meta level is just somebody who gives you an information into a system from an outside source. Now we are dealing with Bitcoin. Bitcoin obviously doesn't know about a Bitcoin or USD exchange rates or not even the weather, for instance, because the weather is some example that people usually use to explain what an oracle is. If you make a bet on the weather, then you need someone who can tell you what the weather is, obviously, who in fact shouldn't be one of the peers, one of the parties. And as you said, it's— I mean, this connection is, is, uh, trust minimized because, I mean, it's quite obvious that there could be ways that the oracle— I mean, even the way what truth means can be ambiguous sometimes. But provided, assuming there was an absolute truth, even then there could be some deviation from the truth and what the oracle A measures, B tells you. So yes, an oracle solution, and for that matter, any solution that handles in a system with an outside information is all the time going to be trust minimized. So according to these standards, there is a trust minimization, obviously. But then there are some very, uh, real issues. Like, if you are relying on someone who would tell you a price of a good, then obviously someone could be bribed, it could be blackmailed, or even more harmless, it could just be down and unreachable. Obviously, we need solutions for these situations, and this is what DRCs, what TouchTires DRC model, solves a lot of under the hood. By an unknown oracle, by the oracle not being able to attest to different outcomes because of cryptographic solutions, because an oracle has skin in the game. So whenever we talk about Bitcoin, we all, all the time need to know that Bitcoin is not just mathematics. Bitcoin is— as a lot of it is mathematics, there is a whole lot of game theory on it, plus there is physics and real-life human behavior. And this oracle thing kind of comes up with solutions for this human behavior and, uh, game theoretical parts.

Of Bitcoin? Yes, the Oracle, you know, I— to me it's a fancy way of saying Bitcoin's price for our purposes. But right, for, uh, you know, the purposes of other things, whether it's, you know, it's to settle bets— who won the football game, did it rain overnight— um, and some specific truth for that. And for us, I guess from a market's perspective, maybe I want to talk a bit about like the price of Bitcoin. Everybody just sees a number on the screen, but You know, are you buying? Are you selling? What price are you actually getting done at? Um, it's, it's a very, uh, you know, when there's multiple exchanges, multiple people buying and selling multiple amounts, and it's really unclear what Bitcoin's price is, it's a, you know, a very, very, uh, difficult question. How many angels dance on the head of a pin? It's, you know, and so to me, this is kind of a regulatory thing at some point, you know, in terms of, uh, you know, it's a much, much bigger problem. Um, but, you know, I think we're able to solve 99% of it by having a very, very reliable pricing source that's independent of us. And I think one of the limitations we have in the product today is we have a loan size of $1 million. We've been approached for other larger transactions, and, uh, you know, the idea that somebody could do something with the price is a concern, and that's one of the reasons we have this contract size. Um, do you, uh, and at one point we had the Oracle open source, so Maybe if you can touch a bit on kind of our open source ethos and, you know, that decision and what we have open source for generally.

Right. So, there are 3 different topics that we touched upon. Like, regarding the first one, the mental model that I would propose a user of ours is simply not think about what the Bitcoin price is at a given time in the future, but realize that if you are— if we are creating a DLC for you, you pick the oracle. So you are making a bet on not on the future Bitcoin price, but you are actually making a bet on what this oracle will tell you in the future, the Bitcoin price, is from its stand— from its point of view. That's a very important distinction. So we are not talking about Bitcoin's price, you're talking about the oracle's prediction. And you then— and I, I use the word you trust this oracle then, but that's the second point we want to talk about, which is this, this open source thing. To be clear, um, uh, the oracle that we built for the product that we're able to start with is the oracle itself is not open source, but the way the final information is set up is fully transparent. Because that is, at the end of the day, that's your problem as somebody who wants to make a deal, who wants to make a contract. Given you, you, you trust the oracle, that it does what it tells you, then the question is, what does it tell you? So we are transparent in the way the oracle gives you the price exactly. Like, we, for every time in the future we will have a price out there, we know in advance, thus you know in advance how exactly this price will be produced. So that's a very important distinction. So in fact, coming back to my first point, it's not just that you bet on the oracle, but to make it— to refine it a bit, to make a layer deeper— that the oracle will tell you the, the outcome of that exact function that he tells you he will run and then sign. So this is why being open source in a way, open sourcing the way of our calculation is absolutely crucial because this is at the end of the day that gives trust to our user. Plus, if our listeners are like— let me introduce the listeners to this very easy concept of the zero-knowledge proofs, which means that you have an information of something, you can prove something behaves in a way you expect, but not seeing under the hood, is basically, um, you ask the oracle question after question after question after question, to which questions you all the time know the answer in advance. And what you do is you compare. Every time you compare if what you thought the oracle would tell you and what the oracle told you, if it's the same. And that's, that's out there. We have this. Our oracle can be zero-knowledge-proofed as many times as you want to. We tell you how the price is produced, how we calculate the price. And if you don't trust us telling you that the oracle does it, then you don't have to do anything else but just Take history, take a look. 10 minutes ago, what did it say? Is it what I calculate? Well, yeah, okay, that's, that's quite a certainty. Let's go on. So do the zero-knowledge proofs, compare and compare and compare, and you can build trust as well in a decentralized way towards our oracle. Because you see, this oracle produced the same exact price based on the same exact calculation ever since. Whenever we— like, once we started Circle, it keeps executing the same function, so I can trust it.

Thank you for that. Um, I guess the last technology piece, I think, I think a couple things. We're kind of creeping up on the half hour. I think we can go past it, but maybe we want to do a second show about, uh, roadmap and other things rather than a deep dive into the technology. Right, we'll come back to that. But I guess the last technology piece to cover is the adapter signatures.

Okay, well, I mean, that will be a mouthful.

Um, you've got a whole show by itself.

I know, I wouldn't say that. I would just say, uh, the details of the adapter signatures are so really technical that I will even have problem to explain it in an understandable way. If I want to— okay, let's approach this adapter signature from the user's point of view. Why is this adapter signature even necessary? Or what do we solve with it? Maybe that's, that's the part that's easier to grab. When there is an oracle and I know that I will have an upcoming announcement in a year from now, then you and me, we are creating a contract. But this contract has to be created— I mean, we will set this contract into stone. Obviously, we will upload it to the blockchain, so this contract will not be able to be changed later. So we will have to take something from the oracle that kind of encodes the oracle's future signature, can't bring it in front, bring it in front in time, you know, once, so we can put it in into our DLC. And what the adapter signature enables is that in the future, we will be able— I mean, not we, but the Bitcoin blockchain will be able to see that the price that the oracle produces actually comes from the oracle who announced the future price at a station. In the past. So that's the way I would explain why we need those adapter signatures and honestly skip the technical part of it because I really have to also take a deep dive into it to be able to explain it on technical level.

Something about an elliptical curve and—

We can go there, but I mean, these are quite advanced cryptographic stuff in there, like hashing and signatures and stuff.

So my understanding, and as somebody who came to the space in maybe 2023, early 2023 and 2022, it was only facilitated through a network improvement that took place prior to that. The ability to have adapter signatures on.

Yeah, that's— yes, that is true. And I now just don't want to tell you, uh, any kind of misinformation. I think, I think this adapter signature way of solving DRCs came with the, uh, I think it was, uh, with the same, uh, up update when Taproot— yeah, pretty much last one, because DSCs were— I mean, I listen, I even remember when we were talking, I mean, you, you may even recall that at the point in time, uh, I explained my technical crew how to solve it, and I remember back then there was an additional transaction necessary to settle this whole thing. Because I'm— back then I wasn't even aware of these adapter signatures already being part of Bitcoin. And then, because we have some other absolutely geeky people here working with us, my very good friend called my attention that, yeah, I mean, I know what you mean, buddy, but are you aware that this adapter signature actually makes the last transactional like obsolete. And I remember that we were partying because that was a huge value proposition again for the user.

Yeah.

So yes, uh, I mean, this is, this is in fact kind of proving ourselves that we are on the edge here. Like, we are, we are really working with, with technology that's just off the shelf, that just comes new to Bitcoin, and it, it really enables something very, uh, magnificent. Like a great user experience at the end of the day.

Yeah, I think it does. And I think it, uh, all of this speaks to how early, uh, Bitcoin is. I think that we're the, you know, involved in developing this technology. I think we're smart people, but, and we saw a need, um, but it's, uh, really interesting to see how this has not developed before. And for programmable money being sent to a third-party custodian, I still don't understand.

Yeah, it's hard to wrap your mind around. Once you executed actually some Bitcoin transaction, then you're asking yourself, so what are other people doing here? Why? Why not Bitcoin?

Yeah, it's better money. But I guess before, like, I have some kind of forward-looking questions. I want to put those on the next show.

But the next one.

You've obviously worked with a few projects, you know, with this and prior to this. Do you have any advice for builders in the space? And you've obviously built a lot in the space too.

If I had one, is if you yourself need it, then that's the first hurdle to jump. I mean, if Maybe you, you yourself should be your first and staunchest critic. Just make a product that is good for you and then find somebody who can help you bring it to the people. Because our problem, like Bitcoin developers' problem, is that it's really hard to think with someone else's head once you are orange-pilled. I mean, you swallow the orange pill and then it's everything is so obvious. Well, yes, it is, but not to everyone because not everyone was orange-pilled. And if our mission is to kind of spread the word, then we really need to talk everyday people's language. Yeah, otherwise they just won't crack it.

No, I, and I think, you know, I think we've spoken about this, but to me that, and I talked to Noel about this, it's really the user experience and how people can interact. And, you know, this is exactly when I look at November, we're, you know, explaining people how the car worked by talking about the pistons and the different things. And we talked about it again here, and I think it is important, you know, and there's certainly a niche of people who want this information. But at the end of the day, they just want to open the door and put their hands on the steering wheel.

Yes, yes.

For the most part. And so, yeah, I think we're continuing to make this more accessible and accessible. I really appreciate your time this morning. I don't know, I do want to do it again. I do think people are going to have interest in this.

Let's.

Again, really appreciate everything you've done.

So thank you, Kevin. Yeah, let's have another one. Yeah.

Do you have, I guess, any last words or are there places people can and should reach out to you if they have questions?

Well, in fact, yes. I mean, if anyone goes to Cadena Bitcoin, then I'm down there. I'm highlighted and I'm proudly, proudly shielded there as a CTO. I'm CTO. So yes, people can reach out. And obviously, like, just to link back to our open source thing, obviously our application is open source. So if you guys visit the open source sites on GitHub for the Kadena app, that's also a way to reach out and in fact help our response. Thank you.

Well, we'll cut it there and I'm sure we'll be talking soon.

Thanks, Kevin. See you.

Bye.

See you guys.