And it does not mean that you have to shove Bitcoin in there, saying that Bitcoin will solve it all. No, it is not a silver bullet. The same goes with blockchain. You mentioned previously that 80 percent of miners are in Guangzhou? – Quite a lot. But not 80 percent of miners it is where the main power source is hydroelectric power stations. This is, because historically and geographically there are a lot of rivers and in spring this is one of those times of the year when mining activity spikes and this includes old miners with low efficiency because there is over-supply of electricity as rivers are running high and the speed of the network is increasing but later on it eases back once again towards the end of the summer. – Many fear that centralization of mining is a realistic threat for Bitcoin. Do you agree with this view? Is it even possible currently? There is a relative geographical distribution. China, unlike Europe, the United States, Russia over the past 30-40 years has shown very serious economic growth. And this serious economic growth is fueled by growing manufacturing and accordingly they have a lot of electric energy and they are looking for ways how to increase the number of power plants.
They just have a lot of this energy. They just have such condition because of highly developed manufacturing and high level of industrialization, they simply have a lot of energy and these are natural circumstances. We complain because someone has more mountains, someone has more rivers, but someone has snow. These are natural circumstances and they are different for everyone initially. Iceland is lucky, because they have geothermal heat and this includes generation of electricity from geothermal sources while they also have low temperatures, which is good for mining because this is natural cooling and geothermal heating. One of the data centers of Bitfury is also located in Iceland. These are simply conditions. Centralization? I think that while politics stay out of this and there is no blackmailing of specific people, then it is not really a red flag.
We have very strong mining power distributed across the whole globe. At the moment there are some pools in China, which totally account for approximately 40 percent of the power. But these are pools and there are many American miners in them. There also many European miners It does not mean that all of this power, these 40 percent are located in China. They are spread across the whole world.
According to stats from a conference in Milan, which also featured Jihan Wu, had a discussion and I asked a question – how many of the clients in your pool are not located in China and back then, more than 36 percent of private customers and commercial customers approximately 24 percent are not located in China, they just use this pool. They also purchased equipment from Bitmain and they just use their pool. This is why the mining power is distributed way more in real world. In 2014, Bitfury was also approaching the 50 percent mining power level and we split them up intentionally in many different groups. This was done to avoid the 50 percent manipulation, 51 percent attack chances.
We created more pools and lent out our mining power Some of it was given to other users and investors. This was to maintain healthy environment for Bitcoin. – Can you please clarify what the 51 percent attach is, how it is related to mining and its centralization? – It's almost like a monopoly, as a right of first hand, when the majority of people can go into an agreement to start manipulating information that that they have.
– Is this irreversibility of transactions? – This is more like a social aspect. If you have the Byzantine generals problem, when you cannot trust one separate entity but you trust the whole group. This is something similar. As a good example, Bitcoin decided to Bitcoin was created initially like a financial system, but somehow along the way, it solved some of the social issues in an entirely unexpected way. For example, time stamping. It is the possibility to set a time stamp for a document and then it is proof that it was created exactly at this time. This is because blocks are consecutive and there is use of some sort of energy, if you take a certain document and count a control sum and place it as a transaction on the Bitcoin blockchain then you cannot change it with a backwards date even if you change just two letters in the document the total control sum will be completely different. This way you do not post the whole document publicly but you have a certain control sum and within the document you can specifically write that – I, Alexey, being fully sane and sober, give a share of my company in the case of my death to this or that person.
I do not make this document public. No-one knows about this document, but I calculated a control sum within this document and published it on blockchain. If you give this document to the notary, they can manipulate this document. But we trust notaries, because it is a chosen person that goes through a certain certification. We talk about this service as a trusted third party that we can actually trust. For example, in Russia if you have a total of 100 notaries, but 10 of them are not honest, then the system does not work anymore, you cannot trust it. It is approximately the same for Bitcoin with the 51% attack. While all of the miners do their job, it is all good, but if one miner manipulates 10% or 20% the system will continue working and this is not critical for it to work properly.
If it is more than 50% then it becomes critical, because this group of miners gets a chance to manipulate with some transactions including the option to do double spending and attempting to block some transactions and this disrupts the logic of work and can potentially harm the logic of Bitcoin's blockchain. – We already have previously seen that with active participation from some miners, there have been attempts to somehow influence infrastructure, system and Bitcoin as a whole, like Segwit2x, which is notorious. As I understand, you were involved in New York, when the "so-called" New York Agreement took place. Also, I know that your company has a good reputation from the point that you listen to the community. But maybe you can clarify for a wider audience what was the strategic and tactical move and why you participated in this, well let's say so controversial event? – Controversy arises from the fact that there are always people who do not agree.
The more people, the more opinions and someone will also have their understanding. To really understand what is Segwit2x, you have to go back in history by approximately two years. Before Segwit2x, there was Hong Kong agreement. Signing of which took 21 hours. There were 58 representatives, including manufacturers, businesses and miners and core developers. We tried to agree on how to least painfully activate Segwit and increase throughput of Bitcoin network, but all agreements are usually steps towards each other and you meet somewhere in between. You cannot agree if you are walking away and I am trying to catch up with you. This way we will not meet at any point.
I take a step towards you, you make a step towards me. The more sides, the more difficult it is to agree. Before Hong Kong, there was Miami agreement. This round table was to discuss what issues we have, how to proceed and it was also discussed and explained that you cannot roll out a soft fork a software update in three months and then in a month, roll out another one. For most of the businesses, for most of the exchanges it is a very complicated business process. You have a working software version, they need to test out the new version they need to create a plan how they will roll out the new update. This roll out plan takes some time. You need to move from the old system to the new one without breaking transactions. If it is also a business that operates 24/7, then it becomes way more difficult. Even the mobile wallet example, that I told you about earlier. It is a complicated process – you offer the update to the users but you cannot force them they can stay on the old version and continue using it for some time.
This is why there is a certain chain of these factors that make it more difficult to quickly come out with updates. Also, you have the social part. What I said previously that Bitcoin consists of the social part, economic and technical parts. Here it is the social part. We have to agree what changes we are going to accept. And also how we will implement them. Everyone has a different understand on how it will be implemented and how it will work. You can vote on what color to paint the rocket, but it is not likely that you can vote how to build the rocket. There is always the engineer who takes the responsibility as a leader.
He agrees on certain aims that he is ready to reach. As an expert engineer he builds the rocket to make sure that it really flies and can reach its target. Here, we rely on the core developers, because they have the expertise and they know all of the correlations, they know how to build it and we can only accept this product and understand how it works. Segwit is a system that is difficult to understand, there is no single word to describe what it solves and what it does it is a huge platform, that allows users to build services on top of this platform, for example, lightning, atomic swaps, even Merkelized Abstract Syntax Tree – it is in essence smart contracts on Bitcoin.
It was also done and moved with Segwit. Back then a lot of people simply did not conceptually understand what is lightning and why it needed, they go the feeling that these are off-chain transactions, this will kill Bitcoin and harm it – Also, that miners will not make money on this? – This is simply because people were not reading the documentation fully to understand how it will work in real life.
Lightning cannot live alone without blockchain, it does not hang somewhere in the air. It stands on top of something. To make transactions, it actually needs blockchain. it captures intermediate statuses in a chronological order. These are not off-chain transactions, they are on-chain transactions if we use a more precise terminology. And to reach an agreement when people do not understand is extremely difficult. Chinese miners just wanted to increase block size and these were negotiations to win some more favorable condition for them, which were not OK for the rest of the community, coming up with an agreement was extremely difficult. At some points these attempts to agree were heading into a dead-end.
For example, we want blocks to be four megabytes. OK, guys, maybe we cannot increase four times right away. We can do three or three and a half. No, if that does not work, then we want block size 8. And this is a step back. You are trying to find a compromise, make some kind of concession. People instead raise the bar even higher, so it was extremely difficult. And all of these arrangements are like small-scale trade, because I want to gain something and to try something. And even Segwit2x was the result of a complicated agreement when I had to run around and to the Consensus conference, where I had to seek for business representatives, show them the text of the agreement – they said everything is fine, but here I would like to change this one word. You go find the previous man who implemented that word with his hard work and start to negotiate one more time. So, basically, I had to take take this role of a person running these negotiation function, diplomacy. Yes, we didn’t push anything of our own just helped all of the people to agree.
Even in Miami, Bitfury covered all of the expenses for this conference. For the conference, for microphones just so people could gather and discuss. Hong Kong, OK, there was Pieter Wuille, who was very good at organizing a location for everyone, created a comfortable environment, where everyone could come to negotiate. It was also more difficult in New York because there were more parties involved. These parties also tried to negotiate some changes like let's make a change to Bitcoin Core which they consider that will be better and maybe other improvements. And, if you say no, then you cannot negotiate at all and this means you are not achieving none of the targets, and the first target, which was agreed by all of the parties was activation of Segwit, but then separate negotiations started and it was a trade-off when you understood that second or third suggestions will not work and chances of a technical assessment that someone write a decent code of hard fork in good quality and implement it within a half a year was not very likely.
But this is something we had to agree with If they could do the impossible and create something like that and prove to the community that it will actually work, maybe it would have worked. But, in fact if you put bets like in roulette for the second part, I was very skeptical in the beginning that it will work. – So the main task was to sign the agreement to approve Segwit, but the rest was not likely? – The target was to form an agreement.
There were no requirements like – we want only this. Again, consensus, just like consensus in Bitcoin, it is full agreement without disagreement from any sides. Here it was absolutely the same thing – people wanted to realize and wanted to make more additional changes Even though there were a lot of people who said that it’s not realistic that it can't be done in such short deadlines. There were also people who said no, we will write this code anyway. Believe us, we will do this one time. They tried, but they did no succeed. Our luck was that there was a process in place where we had a certain procedure on voting on certain flags that are compatible with Segwit, the whole process is more or less logical we move, only if everyone agrees. Again, this is a social factor – if everyone does not agree, we do not make the changes we agreed that we move if we agree. According to the agreement, we move in case of agreement which did not really happen in the community.
This is why I think that the Hong Kong agreement is not an ideal ideal solution and there are a lot of moments that are very far from being ideal. The same with New York agreement – not idea, but this is what all sides want. You cannot move forward until all of the parties involved agree. Everyone is tied together with one rope. If three want to go and 15 want to stay then you will not go very far. – Tell me please, without naming any companies.
Naming any companies. The active spamming of the network was one of the instruments to influence the decision that would suit the people who were advertising the block size increase concept? Is this a real fact? Is this something that miners can do and stop the transactions and occupy the mempool with empty blocks? – Miners were not spamming. Transaction spam is done by those who generate transactions – hodlers of assets.
Approximately 70 percent of these transactions that were in huge numbers they were generated by businesses who did not understand the essence and how Bitcoin works. Here is an easy example, This is something that was discussed in Hong Kong and was actively discussed in New York, that people did not understand for a long time. Instead of sending a pile of small transactions on withdrawals, you can make one transaction and pay two thousand recipients at once. It takes a lot less space, it takes a lot lower transaction fee and we return once again to where I said that the old monetary system is a one dimensional system, not two. But here you have three dimensional system. If we talk about payments – one who sends the payment, one recipient, one transaction per second for Visa and MasterCard. There is one person who is paying and one person who receives one transaction per second. Bitcoin is multidimensional – you can take 15,000 entries 20,000 exits and at the same time pay 5,000 employees, pay 10,000 invoices taking them from different accounts or your wallets and this will still be just one single transaction.
And this spam that we saw earlier was because, for example, Coinbase was sending withdrawals to each user separately – one sender, one receiver and the worst thing they chose a model, where they were covering the fees as well. From their own pocket – this is how they initially built their business. They just needed to change the logic of understanding in their head and when this happened after multiple times of explanation this spam dropped significantly. Especially Coinbase was generating more than 30% and there were multiple companies like that. What is strange is that these were the companies that were mostly pushing the Segwit2x, insisted on increasing block size which is actually not a solution. They had a way easier solution right in front of their eyes. They just had to understand and realize that. – What an amazing coincidence. – Real world – Tell me, please, these agreements that are established behind closed doors – in real world they would call this like cartel agreement. Isn't this against the general ideology of Bitcoin? Because, yes, we do have businesses, but still this is a decentralized cryptocurrency that is largely built on a community, but here you have companies gathering, big companies most likely with good intentions, at least most of them.
They make some sort of decisions and take responsibility for implementation of this decision as in representing the whole community? I have a return question for you – have you seen in real world that a large number of people take a decision and moved forward with a purpose, like for example, manifestation on the square turned left and went straight to the mount to grab some kind of flag? No, it usually does not happen like that. There have to be some groups within that are making decisions and, yes, there are always some sort of leaders, who evaluate the situation and a leader is the opposite of a dictator and also the opposite of a boss or a master who said do this or that. A leader is someone who takes full responsibility for all of his decisions.
Like the main engineer who is working on a rocket, yes, he is responsible for results. If it doesn't work, then you have someone responsible. Within any group there is an agreement that you trust a certain leader, the person who makes the decisions to reach the target of the team. It is like seals – all of them take care of their tasks, but there is someone who can even temporarily is chosen as the leader who makes the decision. He decides and tells all – let's go right, let's go to the left, let's split up we split up, arrive together reach our target. If you do not have these roles, nothing good can happen. If you imagine that 10,000 people speak in a conference room on phone how fast will they reach an agreement? It will be just a lot of noise, everyone will be complaining, swearing and it will be tough to negotiate. And all of these agreements, they usually happen within a company departments, people decide to develop something, a position or a strategy what kind of a result they want to achieve and only then chosen representatives go to agree on a level between companies between groups of people and here it is something similar.
In social groups, there is always someone who represents the interests of this group. A group of social rights. Yes. A group of LGBT, we always have representatives who are representing a certain group, represent the opinion. They are competent enough to negotiate with everyone. This just happens… You could say that it is just natural. It is a part of social decision making. decision making. If you want to make a decision fast, then between two people it will always happen fast. If you have three people – it will take more time. If it is five people it will take more, it is 25 then it is exponentially more time. Even when you do conference calls, the more people you have, the longer these calls will be on even relatively simple topics. If someone is not taking the role to handle this or organize a vote with three options A, B and C this is the leadership – is he a dictator? No, he offered solutions how to optimize the process.
Here it is approximately the same. Those companies who take part are leaders in a certain industry. They usually have wealth of experience and understanding how this will develop further. Yes, there are companies that are trying to set up monopoly rights. But this differs from a system where you can establish some sort of dictatorship with certain rules like this is the decision of the government and our central bank everything will be working on wooden tokens and everyone must be paying with them. This is dictatorship, but Bitcoin is more or less open. If you do not like it, do not use it. Why was there a hard fork? This is a great social process. – Someone did not like it and they created their coin? – Yes, this is a completely open agreement and when everyone agrees you can reach results faster, but if you have a group that cannot agree on something they will be slow and putting obstacles in front.
Great! Hard fork is a social mechanism how to start moving faster. A group creates a copy of the project, if they decide that they can build it better and it will be a greater instrument – good luck! – The market will decide. – The flag is in your hands. The market will decide. And the remaining community gets rid of this crisis. The people who are conflicting leave, people who are causing negative background, creating a lot of conflicts and unnecessary discussions, these resources move towards progress. It is always also a question of resources – you use your time on communication you waste it on communication if there is a conflict within the team, instead of development of the project a lot of resources are being wasted on the internal conflict. Within the Bitcoin community, it is exactly the same. When you have disagreements, when you have conflicts, instead of working on developing a product, a lot of resources go to the search of compromises for these disagreements.
Forks are a great indicator in this sense. [Music] – Tell me please, Forbes recently published a list of the largest in terms of market capitalization blockchain companies. Bitfury was also one of the companies in this list, near Coinbase if I am not mistaken, your capitalization was close to 1 billion or even more. How many projects are within the company? As you said previously, apart from mining you have a lot of other software solutions, chip manufacturing engineering – a lot of segments. And how many people are employed in the company, approximately? Towards the end of last year and beginning of this year, precise number was 760 people. The company grew quite fast and when this happens there is a natural process, where you hire a lot of people, who do not find their place, do not show themselves effectively, and when you hire hire people rapidly, you have to squeeze and additionally crypto winter is a re-optimization of the service optimization of costs.
Towards the end of last year we have 760 employees, but now we have significantly cut this number, but the number of our projects has not declined – it has increased. As you already said correctly – it is not just mining or software. Bitfury acquired Allied Control a company that develops liquid cooling and it has been on the market for more than five years previously.
Along with the specialists from Allied Control, we built a large scale data center with liquid cooling in Georgia. It amounts to 60-Megawatts. We changed and re-invented a lot of things during the process when we built this data center, thus changing the technology and the approach that was used previously. Naturally, Allied Control, as an independent company is working on liquid cooling. There is Bitfury Capital, which is involved in the investment space and investing in various projects.
The same Exonum, is now morphing into a giant layer with very diverse projects which are used by both companies and on government level to accomplish a number of things. It is very possible that Exonum will be a large product, which will strongly contribute towards the potential of the company with projects, resources and revenue. This could make up a significant share of turnover. Alongside, there is also the direction, which we are still preparing and at this point I cannot talk about them yet I cannot tell, because this is also a part of the Bitfury philosophy. Do first and then tell. – This is a very good philosophy. Instead of an announcement about an announcement etc. There have been a lot of things we have done. I can't really call them clearly monetary, but they were being done for the benefit of the community by developing the technology and creating useful tools. For example, lightning, its creating an initial implementation – we spent a lot of time on this.
When Elizabeth Stark just has whitepaper for Lightning and there was no real and good working stable implementations We took the team of developers and Elizabeth Stark to Kiev they worked together with our developers we hired five developers that were working exclusively on
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development of Lightning. This is simply a technology that will change payments significantly. As a promising technology it is likely to change all of the services that we currently have. It is a social input fo the future of the ecosystem, as a gift to the whole community and the humanity. We also worked a lot on Segwit, explained the technology and ngaged in educational activities, including coordination of all the meetings, this also takes up a lot of resources. This is a useful technology and we believe we we should create such services for the community. Of course, the company also has to pay salaries for their employees and make money. This is something Bitfury does as well.
– Two follow up questions based on your answer. About crypto winter – it was a heavy hit for a lot of companies. Let's say wrongly set up businesses. But for mining businesses it was probably substantial, because mining costs are growing and the price of bitcoin dropped significantly at some point. How did you manage to survive this crypto winter? Let's hope that it is over now. This is not the first crypt winter for Bitfury, this was the third one for us. Naturally, we now have experience in surviving these bear markets. We are cutting strongly those directions like research and also investments with no returns these, unfortunately, have to be squeezed if you don't do this, then the company will most likely not survive. Crypto winter is a normal and natural process in development and we have a wave development the price shows significant volatility this is a new, growing and developing technology. It is a developing market.
And, because it is a new market, its growth is justified by innovative growth innovation that causes this growth in significant numbers. Every innovation causes significant growth. This is why this efficiency surges, like the conveyor assembly which was invented Ford, it allowed to sharply reduce production costs, dramatically increase the quality of production sharply increase production quantity while workers who worked on assembly lines, they earned more when you compare with other sectors and this is where the efficiency comes. This efficiency, which allows to change the conditions on the markets significantly and technology provides this opportunity. Growth of Bitcoin is essentially this technology and this efficiency. Efficiency like for Lightning Payments if we say that normal payments like Visa or MasterCard promise to improve to 3-5 seconds, then for Lightning it is milliseconds. This difference is in thousands. But if we speak about costs, then it is even more.
And this is the efficiency and the difference. This is why we have such a rapid growth. At the same time, it is not a balanced market. It grows with rapid surges. We have some sort of an innovation and it jumps higher. Then it drops significantly. There are a lot of traders – it is not very balanced and they work as a as a damper and in the market when we have cross-border deals conversions from one direction to another they are the ones who fill this market balance, which there is not enough of. In normal proportions, traders take the risk on them to fulfill deals, while compensating the price filling up the volume.
Currently, we have too many traders, it swells and shrinks because of this. And it is fluctuating in waves. Everything else is a normal and natural process. This crypto winter also helps to shake of the ballast of miners that are not efficient and this only improves conditions this is just normal competition in a normal market. This is not an issue, these are normal circumstances that you need to learn how to react to. – You are often using as an example land registers in Georgia. I know that you are working with the government of Ukraine. As far as I know, you worked with them. At the same time, for a lot of people Bitcoin is something like anti-government theme. Also, Crystal, which a lot of people probably consider as tool that is used for tracking.
Doesn't this go against each other? We all know and understand that Bitfury is a Bitcoin company. As far as I know, you are mining mainly Bitcoin. I think you said there were some other cryptocurrencies? Yes, we actually did research and there were moments when we mined other altcoins, but in very low proportions, more for research purposes. There is also a moment that not many people know is that we developed a lightning chip, but we did not start selling it. This was because the market research and the situation on the market was so, that Litecoin surged sharply and it was understood that it will drop back and if we are selling this equipment then we will be in a situation where our customers will simply lose money and have no profits. To save our image, we decided not to go down this route, even though we lost money. We did no start manufacturing this equipment and and we did not start to do this. According to the facts, it seems that Bitfury is somewhat like a Bitcoin maximalist company in a good sense.
At the same time, it plays with governments, it plays with Crystal isn't there some sort of controversy? With Crystal, you pointed it our clearly. Some consider it as a tool for spying, Like George Orwell, 1984… With Crystal, This is an instrument that goes the other way Initially, it was a tool and a statistics machine for analysis and understanding of what is happening, including being used for optimization of transactions in blocks, for understanding of what transactions are happening. As people were coming and asking for us to create a visualization, asking for help with hack investigations, this is how this product came to be people started using this product, visualization of transactions and this product was created. There is no play with governments, here we have a normal commercial product and if you want to see adoption of Bitcoin, you need to create the bridge between the old fiat systems and the current systems.
You cannot create any solutions, cannot bring new solutions to this world if you lock yourself away and say this works in my village and I am not leaving and not speaking to anyone. It does not work like this. This is psychological locking away within and denial of the big world. These systems are and they are needed. To try to catch and trace every transaction – it is not real. This is a paranoia of the majority of the people. This is something they fear, but technologically this is not something that is real to do for Bitcoin. Every time you create a report like this, it is just probability that this money perhaps came from there and maybe it's like these look like these, there is always approximately. And in this sense it is more fair if we speak about AML reports, it is more fair, because it is pure mathematics, which gives you with probability of 80 percent that money is clean.
This is basically all you need, you do not need to know how the money was spent, why it was spent, you do not collect their data you are just getting a conclusion from a robot – Crystal Data lets you create these reports it creates comfortable circumstances for exchanges, because without this instrument they cannot work, no certification and no completion of compliance processes and this means no adoption. This why it is an instrument that is needed and even apart from Bitfury, on the market there are dozens of other companies providing this data. The only difference is that some of them are more and some are less successful. This market will fill up eventually, no matter what and what you can do is fill it up with a high quality and reasonable instrument. And when we talk about Bitcoin as an independent system, I believe that it is just more fair, move more efficient, cheaper and more functional system when compared with systems that existed previously.
I am not saying that banks or fiat currencies are bad. Can we say that bicycles are bad, but fast trains are good? This is evolution, there are systems that we used before that and these systems have certain negative factors, they have shown certain disadvantages. We saw situations when these systems behaved in a bad way. They can be controlled, or as an example, cutting off accounts in Cyprus, you understand that you do not control your money it is taken away from you, because the local government decided and you do not control them. This is a violation. Accordingly, we see a different solution where you can gain control over your money. They cannot be taken away from you, there are no issues like in the 30s, when gold was confiscated with the decision of government – You most likely do not remember the crisis of 30s? – I was not born back then yet Yes, I was not born . back then as well. The crisis of the 1930s, if you take a look at the history, gold was taken away violently, you had to give it to the government, The rights of a property, this same right was violated back then.
And essentially all of the human rights, are documented clearly and Bitcoin allows to create a more efficient system, which actually works more in line with these ideals. Do you think that all of these programs for tracing and I do not talk about Bitfury, we know there are other companies who work on tracking programs, regulation and licensing. Again, I do not say that this is bad. We will just come back again to what we are trying to leave – this legacy financial system and simply saying bankers in suits will be replaced by bankers in jeans and hoodies? – You don't like jeans and hoodies? – No, I like, and I am on this side, but you know like in that saying – a certain thing but for a different angle? – There are still people who remain the question is more that the system is built on the principle of trust in people. It always carries a large number of mistakes, the same story that I told you with notaries, if among 100 of them, you have 10 unfair ones, then the whole system does not work.
In mathematics, when you have rules then you cannot break them and they work exactly as they are, the maximum you can maybe find some sort of compromises, to sort something out, but again this will be within certain limits In this sense, Bitcoin offers a more ballistic or if you would like utopian model of realization. You are saying Bitcoin maximalist and this is exactly Giacomo Zucco he is a maximalist.
In this sense I am more like a realist, because I consider that there is a huge global economy and it consists of smaller economies and these small economies are separate solutions that are built on their own systems. Our global system currently consists of Dollar, Ruble, Euro, Bitcoin and all of this is global economics and you cannot deny and say that we have just Bitcoin and only it is ideal and the same with altcoins. There are some solutions that actually have the rights to exist. If you have a discount card for steaks, then you do not need 100,000 transactions per second. It is enough for you if you transactions will be fixed once per day.
You come to the restaurant and eat a steak, you eat nine and then get the 10th one for free. Do you need the speed of transactions here? No, but if this system is cheap for the business, will it be good? Yes, and if this system is relatively safe to build this business, then yes. So, with some certain local requirements, with local economics, then you do not need to put Bitcoin in there and say that Bitcoin will solve everything. No, Bitcoin is not a silver bullet, just like blockchain, it does not solve everything. Samson Mow had a great joke on this topic – if you say blockchain loudly three times, then all of your data will become immutable, and you will become the teach leader in the market, in the tech industry. No, this is not how it works. An instrument gives efficiency only if it is used correctly. For different solutions, there are different tools, the same with Bitcoin.
It is a finacial system that is built for a certain type of financial transactions, but there is a plethora of different local economies that have different requirements where it is very much likely that different solutions will work. They will rely anyway on Bitcoin, there is always the dominating solution and then some smaller ones fill up the void, but they still make up the total global economy,
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because they always have certain interactions between them.
Here it is exactly the same, and for example, I do not think that Bitcoin will replace gold completely. If will influence and maybe decrease its market share, but there are strong sides for both gold and Bitcoin, but less for fiat currencies and the proportion will change. – Please, tell me can Bitfury become a node for Libra? Or participate in this in some way? Participate? I do not exclude such an option. Even with the technical solutions and plans of realization that I have seen, I am very skeptical that it will work like this. I think that a real working product will take much more time than they estimate. This is almost a classical mistake to consider that you can quickly build a reliable and well working solution with the method of a lot of money and a lot of people is a classical mistake of a manager – you cannot hire nine women to create a baby within a month. This is the same – you cannot create a reliable solution quickly, which will be the base for a multi-million industry, you cannot create the Libra concept quickly, on which we plan to put the economy of Facebook, economy of Facebook, put the economy of Uber, PayPal and many more.
and many more. There will tens of these mistakes. If you take any altcoin and look at their history, you will see how many mistakes they made even though their development direction was clear. The code was written slightly differently, someone made a mistake and this is why building Libra will be extremely difficult. Maybe they will build it and find some sort of a compromise. With the market that they have with the user base from Uber, PayPal, Facebook you can and you should create some sort of a monetary system and I think that in a certain way, they are already late.
Alipay and WeChat created gigantic economy in gigantic economy in China and they opened – But this is not cryptocurrency? – It is not entirely cryptocurency what Libra is building. I cannot say 100% that it is crypto. – They are claiming that it is a cryptocurrency. – We can call whatever we want a cryptocurrency just again, because it is a new industry and everything similar to a cryptocurrency we call a cryptocurrency. There is a difference concept and this is probably more a question for the scientific sector to define what is a cryptocurrency.
– Is this a threat for Bitcoin or will this be something that will help to boost the mass adoption? – At the moment, I consider this as a strong catalyst, which works in favor for Bitcoin. As soon as such big companies announce their support for crypto solutions, it is automatically for all of the institutions and businesses like a strong signal that Bitcoin has the rights to live, that it is an alive and working project and there is really money in this sector. If we return one more time to what you referred to as maximalist, in this sense I am a realist and I understand there could be other solutions, which may also press Bitcoin or change its role.
Or also to replace it or there will be Bitcoin 2.0 and they will co-exist. I can definitely say that it won't be Bitcoin Cash or Bitcoin SV. Everything is bad for them, there are violations of logics again, because people do not understand how to build it. If we speak about a secure currency, then secure are only those currencies that have the highest hashrate among a certain algorithm.
All forks that do not change the algorithm are vulnerable because a large network can simply shift a small pool without losing anything for a day, they can capture all of this money and all of these resources this is why Bitcoin Cash hashrate is approximately one third of a pool. If you just shift this for a day, then this currency does not have any safety measures and there are many more like this, where daily turnover is higher than the cost of an attack. People just haven't gone that far yet.
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gone that far yet and not considered this, but this is incredibly dangerous. Just like we build extra layers, like ICO on Ethereum – this is a huge cost that where we make Ether, but is it safe enough? these are questions that should raise certain cautiousness, make us think about these risks. But currently we are all using it we have got a new instrument, but we do not know how to use it efficiently. ICO as a tool and as an instrument is good and efficient, it provides a way to raise funds easily, but unfortunately, even though it worked initially and there are statistics that were published, when during the first month most of the projects were in the green, they raised funds and achieved their targets, but in just four months this ratio shifted in the other direction.
80% raised funds and did not achieve any targets, because we came up with a new way to raise funds and at the same time, people who had previously never invested any funds, suddenly also got a chance to invest without knowing how it is done. This was without checking if the project can do, if the project has any team, is the plan any good that they created. The majority of the projects that were weeded out previously during the stage of investment attraction, when they came to the venture investors, and they were just looking at them, and they understood right away that these people cannot realize this project, that the project is not sustainable, the calculation is wrong. This was a way to weed them out. Then a new instrument appeared, and two of these "talented" groups of people met each other.
This was a phase of learning – we got a new instrument that allows raising funds. This was even without being physically there. You do not even see the the team, you just rely on the information on their website, a lot of funds were investment and yes, it does have a positive side – it gives a new and efficient instrument. To understand what is good, the the market first has to understand what is bad. This is why we went through this learning phase. We then understood that there are a lot of projects that use this platform to scam people. All they can actually do is just raise funds and then spend them on different expenses, people invest considering that they will be holding shares in the company, but the company uses these funds for research and then say thank you for funding this research, but it is now our IP. This is now our patent that has been registered on the technology, but thank you very much, [Music] I have to final answers, that I ask all of the guests…
Who is Satoshi Nakamoto? It is possible that these were 2-3 people, I think that from all of people that I have met so far, Hal Finney matches this description best. He made a lot of posts on Bitcoin talk and when I was figuring out the economy, I thought it was something new, but I then found that he posted about this three years ago, when Bitcoin was still very young and in its early phases. He saw and he calculated a lot of these aspects very far in advance. I cannot say that this is a 100% factor, but it is very much likely that it is him. A lot of circumstances in his life also match, but then again it could have been a group of people that created this concept. Of course, my opinion can change as time goes by as I can find new and interesting facts, but there are certain leaders that appear and I evaluate them. Craig is definitely not Satoshi. Sorry to day. I spoke with him and there are many aspects that he does not understand even conceptually.
These include theoretical mistakes. Let's not give him this coverage, not even a little bit. – The last question that I ask my guests towards the end of the episode to make a prediction that we will then later post on a prediction platform – estimate of the price of Bitcoin at a certain time in the future? For example, first of November, 2019 the price will be above or below a certain price level. Can you please make an estimate like this? – You are trying to get me to do something that I like to do the least.
When you are trying to make an attempt to predict something, the further away is the event, the lower the accuracy of this prediction. But for a segment that includes a technology that develops rapidly, which is also influenced by global economy, and many more factors, then factor of prediction, if we are constructing the possible scenarios is very wide. – Let's take September 1st of this year. The price of Bitcoin will be above or below a certain amount? Above 30-40 thousand. So, above 30,000? This does not exclude that it could also go to 50 or 70 thousand, there will be jumps like these in our history if there is no other technology and if the conditions do not change or some sort of catastrophy, then we will very likely see 100,000 and a million, but in September we will see growth and during summer we will see high volatility in the markets September, October and November will be the months when growth is more likely more likely and I think it will be stronger – OK, September 1st – more than 30,000.
Thank you very much, it was Great!.
