BTC242: Bitcoin Core Vs. Knots w/ NVK (BItcoin Podcast)

0:00You're listening to TIP.

0:30and the promise and limitations of NOSTER, and why institutional custody is more about legal architecture than technical constraints. All right, so with all of that said, let's jump right into this interview with the one and only Mr. NVK.

0:48Celebrating 10 years, you are listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pysh.

1:06Hey, everyone. Welcome to the show. I'm here with the one and only NVK repeat guest, super technical and smart individual with anything to do with Bitcoin. Welcome to the show, NVK. Hey, Preston. Thanks for having me back. So here's where I want to start. And I think it's in an area that many probably aren't expecting. And it's just really kind of talking about the mempool. It's talking about fees and it's talking about the long-term viability of fees taking over and really kind of providing the revenue for miners long-term in the face of so much happening on call it layer twos or ETFs and basically everybody choosing these surrogate holding entities for how they get exposure to Bitcoin.

1:54What are your thoughts on this? Is it something we should be concerned with? What are your thoughts here? I mean, you know, like most things in life, number go up, fixes almost everything. That's true. Okay. Keep going. Because think about it this way. If you look at the block reward, not the fees, just the block reward today, it's going to half again in what, three and a half or three years from now? Yeah. Kind of lost track. So if the price is double in three years, miners are essentially making the same thing, right? just block reward. I think it's safe to say that Bitcoin will probably be double in three, four years from now.

2:31So they'll be making about the same. So there is that on the block reward. I mean, like, there is enough there, at least for a while, where we're going to have enough in block reward. Now, the fee space is super tricky, right? Because I think it's always going to be completely sort of like random in terms of fee spikes. Because you're always going to have new sort of technology out there that leverages Bitcoin in ways that we may not want or want or whatever you go on the monetary, non-monetary use of Bitcoin, right? It's still a database out there in the network that is like its great majority use is for monetary purposes, which should be really.

3:14But anyways, so let's say that we do have some fee spikes here and there. I mean, that does help feed miners as well, but I don't think they can plan for that. I do believe, though, that the trend is very clear. We're not going to see Bayes' layer being packed again. You know, it's still going to be probably more than what we have right now. Right now, it can practically do one set V by eight again. Yeah. And I still think we're going to have moments like this throughout, like, ever in Bitcoin. But the reality is, you know, like, a UTXO is just going to continually be more, And it's going to be less necessary to move the ownership of that UTXO on chain as people realize that Bitcoin is a great store of value and they can use other layers to settle or quasi settle, right?

4:05And save on fees. So for example, Lightning, right? Like you can do a lot of back and forth on Lightning before you decide to settle. The same is true for ARK, what's coming. And the same is true for Coinbacked equities, right? I mean, like you can almost think that's another layer in Bitcoin. I want to get to the ARK comment. But before we do that, I'm just, I'm trying to think 20 years from now, are we still going to see mempoles that are one sat per VB? And if so, is that an issue? I guess is really the question. I don't think it's an issue because if the price goes up, the reward that is a lot less in terms of Bitcoin units is still going to be a lot more in dollar units.

4:48So you're saying the block reward alone, because you're getting this doubling, and let's just say you take Saylor's model as far as the price action and the appreciation over the next 10 to 20 years, you're saying that even though that block reward is still minuscule, it is enough because of the really quick math that you explained is all it has to do is go up by double every four years as far as the price. I mean, yes. And there is more to this, right? Because, you know, the fees, Bitcoin fees are also Bitcoin unit based. They are not dollar based. Right. So even if people are transacting a lot last on chain, right, because they don't want to spend those very expensive UTXOs in fees, those fees might still economically suffice because mining is USD denominated.

5:36Right. Because mining users has to pay electricity in dollars. It has to pay rent in dollars. It has to pay for hardware gear in dollars. Employee salaries are still denominated in dollars. So I think there is a case for that. I mean, I can't predict the future. I know for a fact that like, I mean, not for a fact, but I have a very strong belief that we're not going to be changing the Bitcoin cap to inflate so that we can pay miners. that's very likely to happen. And if that didn't happen, I'd dump my Bitcoin, which I have not. But I would dump it if I had any. You got a smile out of me on that one.

6:17Go ahead. Yeah, I know. I think people worry too much about these issues that are resolvable by number go up. Yeah. And seriously, if Bitcoin is not double in 20 years, today's price, I mean, the experiment likely failed. I mean, Saylor talks about this from time to time where he's like, the bigger concern that I have is people really campaigning for this idea of adjusting anything and not just letting the fundamental he describes it almost like physics you know if we change how much gravity there was that we were experiencing here on earth like you're going to wreck havoc in yeah i mean it's a very how they call it it's a very sensitive formula right like we have a literal formula for how black coin work and if you change one variable everything the system changes right with the problem.

7:05Segwit changed a little bit of that formula with the discount for the data that's prunable. And that did change Bitcoin economics a bit. When or not, it did. If we had not increased the block size, you know, miners would be making more now in fees. Maybe. Yeah. Maybe not. It's hard to know. You can't apply central planning. This is the cards that we were dealt. Now let's just use the cards that we were dealt in the best way we can. I do like his analogy where it is not moral or ethical to change the rules when the game already started. I think that's a very good way of framing some of these issues.

7:46That's not to say that we can't upgrade Bitcoin with other technical necessities. For example, covenants, right? Aside from making maybe people lose more Bitcoin in case they do it wrong, because then they'll have proof of birth, which is great for everybody, really. There is no economical change to the Bitcoin model, right? It just means that now Bitcoin is, if we do it right, we can now create vaults that are protected by the Bitcoin the same way that the Bitcoin units are protected by Bitcoin. I want to come back to this one as well, but we need to frame it up a little bit more for the listener before we do that.

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11:45That's S-C-R-I-B-E dot how slash WSB. All right, back to the show. Okay. So on this idea of not changing the fundamental units or incentives inside of Bitcoin, there is a massive debate for people that are really dialed into this stuff. I think for people on the fringe, they have no idea that this debate's even happening. But for people that are really dialed in, this debate between Bitcoin Core and Bitcoin Noughts is just somewhat crazy right now as far as the conversations online. And I think for casual observers or people that own Bitcoin as an ETF or whatever, they don't even realize that this discussion is taking place.

12:29can you put good things, which is probably a good thing. Well, help explain this in a really, really basic level. First of all, explain what Bitcoin Core is and what they do. And then let's talk about just what has materialized as far as the debate. And then third, I really want to try to talk about, is there risks here from a consensus standpoint? Is there a risk that we have two competing software versions cropping up? Let's first just frame it for the audience. You're very good at framing things and making it simple for the casual listener. So frame this up for them. Okay. So what is Bitcoin, right?

13:10Like in terms of technically ruleset, Bitcoin was never defined in a spec document. Like most standard, they have a spec document. You're saying in the white paper. Yeah, the white paper doesn't define Bitcoin minutia, right? When you build technology, especially protocol technology, you go out there and you write a huge spec book. It's like a literal book that if you go from spec to software, you can rebuild the protocol, right? You don't need software to begin with, you just need the spec book, right? In Bitcoin, we didn't have that. What we had was the Satoshi client, which is the original Bitcoin client.

13:49He got renamed to Bitcoin Core, but it really is the Satoshi client, the original Bitcoin client. It was the software that Satoshi put up. And it was a bit macaroni code. It's like a single guy just getting at it. There was no real spec for it. And I've heard, I heard Jeff Garzik say this many years ago, people have their opinion on Jeff, but he said, he said many years ago that when he first saw the code, he was like, wow, this is a disaster. It seems like you kind of have a similar, and I see this. We saw the code the first time. We're like, no man, like this is brutal. Really? So that was your same opinion?

14:27Yeah. You know, the beauty of Bitcoin is that the concept of it, right? Like the economical formula and the game adjustment, the game, and all this little sort of the game theory, everything that defines a Bitcoin is just conceptually, right? It is absolutely beautiful and brilliant, right? That Dell is Satoshi's through brilliancy, right? His actual code implementation. I mean, it's pretty brutal. I've heard this. The original Satoshi client had poker in it. Like the beginning stubs for a poker client, for example. Is this why we have 21? Who knows, right? But maybe, right? So like we have this brilliant concept.

15:12Yeah. You know, I'm sure if you got Einstein, right, like after he figured out the concept of EMC Square, right, like if he tried to write a program that then goes and make like atomic model simulations, it would be code. Like it's okay. We already done enough. It's amazing. Do you think, NVK, do you think that this points more to this being an individual as opposed to a group because of the code looking like this? No, I mean, like you can also make the case that the group decided to call this extremely poorly with Windows just to make a point by design. Yeah, I mean, like it's one of those rabbit holes.

15:49If you ask me, I believe Satoshi was probably a person who lived outside of the law, maybe had its bumps with the deep state so like he was somebody who deeply understood what they were doing how the world really works yeah yeah right it's a great way to put it yeah and remember right like when you get into like the very lower levels and layers of society and state actors and things like lawlessness is a lot more prevalent you know what i mean how things are done than people think that they are right like it's from a global point of view you're saying yeah no but even government i mean i remember like the navy worked on tor and they funded tor but that's where the dark markets are right like when you get to peak engineering there's a lot of like people who do illegal because they understand the world there's a lot of people who are just geniuses it's like a big mess that's just a tangent there but then the point is the software was not ideal and And it was like extremely redone through the years.

16:55Refactored. Right. From a lot of different engineers that were provided. Oh yeah. Like thousands. Thousands of people have worked on Bitcoin Core. There were different sort of like quote unquote leaders. There were a lot of leaders that were played heroes. Like the drama is plentiful and it's an amazing story of 16 years of turnover. Right. But at one point, I can't remember, it was just before Gavin maybe. which was the guy that satoshi essentially like he did a bit of like a role of leadership too this is gavin that you're referring to for people listening yeah it might have been mike herne which was a spook allegedly well mike was out of google right yes i think the story goes that he was the guy who allegedly put the back door on google but that's a different story i don't want to let people go dive into that one but anyways the point is around that time it was suggested that we split Bitcoin core Bitcoin into two parts, the wallet part, right?

17:55And the consensus code part. And the consensus code part was going to be called Bitcoin core. It is very common to have the core part of software being the part that's transportable between different clients. And it didn't transpire much that way, just because it's the monumental task. We're still working on it. There is a few different initiatives on working on that. And it became one of those things is like the software is the spec and the spec is the software right it's very hard to move away from that the bitcoin although simple is extremely complicated and there is a lot of nuance to tiny little things and things affect each other so anyways so we got to this name called bitcoin core and instead of just bitcoin and bitcoin core just meant to be the main sort of implementation of bitcoin which is really the direct the standard derivative of the satoshi coin and i mean not even derivative really direct it's just it was the same cold base just being worked on now at what point did luke come into the timeline because this is important he was around extremely extremely early i can't remember like 2010 early i mean leegis was the name of his mining pool which was the first was it the first mining pool was that right for people listening We're talking about Luke Dasher.

19:12And the reason that I bring up Luke and why it's important is because he's the one that's really spearheading the whole Bitcoin nots, which is the competition. I remember this funny. He has a history of wanting to do filters. Luke went for sook. Let's actually fork Bitcoin for the remain. He kept it in consensus with Bitcoin, right? So if you ran not, you don't fall off consensus, at least for now. You never know. And I remember he had blacklisting for Satoshi Dai. There was a bunch of stuff. But NVK, I really want to footstomp that comment right there, because that's where we're really kind of going with the third part of the question, which is, is there a risk in there being two competing?

19:58No, there is always a risk. Yeah. Because remember, the SPAC of Bitcoin is the software. as long as if you don't change anything that is consensus you don't fork even if you decided to make your software pink blue it doesn't matter right as long as the transactions are valid and you're validating transactions that get mined you should be good so i doubt that they would choose to make changes that could make them fork out because like reality is the majority of economic actors in Bitcoin, economic nodes, really. So large nodes that are validating transactions and have lots of coins and, you know, they are all running a version of core.

20:42A lot of miners do run patched core versions because they have different needs, especially around mempool policy. So that's not something I was aware of. Okay. Explain that a little bit more. Well, you can go even from basics, right? Like, I mean, Bitcoin core has a limit on the size of the men pool that show, right? Right. And if you're a miner, you might want to expand them and pull even more stuff in it. Okay. You just have more competition of power. So they're running like basically their own version of core, but just allows them to kind of see the mem pool at a larger level. Okay. And you know, from time to time, people will create a transaction that it's not really valid on the core men pool, but it is valid in a block.

21:24Things happen. I don't have the examples in front of me, but. The point is, as long as the transactions are valid on a block, you're pretty much good, even if you deviate on how you do little things. Yeah. And that's sort of like where it goes. I mean, and then you have all the soft policies, right? Like all the standardliness, as they call it. And that's where there is a lot of disagreement. And you know, it's funny that like the disagreement can happen because these are not consensus, hard consensus rules. Which goes back to your original comment that there was never a spec sheet that went out with the protocol.

22:03Yes. Okay. But like there's been a lot of people who are very smart who made the software a lot better where from your memo, we have a better view of the, that's by the way, the argument that core has for some of the removal of the operator. limit things like that is that like their argument is that you get a better view of all the transactions in the mempool so you can calculate fees better for example and you need disincentivized centralization right but then the other side of the argument is that you would incentivize people to make non-monetary transactions of bitcoin and incentivize them to bloat the network with large op returns but op returns are prunable on the other side like it's a bit of a waste of time to fight too much over the minutia on this i think the biggest problem right now is and this is more like a metal comment is that like see like the people who work on bitcoin core are volunteers right and you know they're humans people humans love to create groups and people group themselves based on their preferences.

23:19And then they tend to go in a certain orthodoxy together, right? Like, I mean, that's the most human behavior. And BigQuery core is mostly managed from a software management perspective on GitHub. And GitHub, bought by Microsoft, it is a terrible place for you to manage software that is contentious, right? And mind you, like the more valuable Bitcoin becomes, the more contention there's going to be even the smallest changes, right? Because it affects everybody's bank. So everybody might have an opinion. But the thing is, like core, Bitcoin core, Satoshi client, does not have automatic update on purpose.

24:05And if there ever is, that is when you stop updating is before you have auto updates. That's when you break out the pitchfork. The auto-updates is a form of user management in a way. Now, if we had software updates, Quora could make changes that the network would take up without being fully agent around it. Agency in the software you choose in Bitcoin or the update you choose in Bitcoin is very important because then people cannot take you without your sort of explicit approval or knowledge into forks that may not be good. Like, say, for example, inflation or something, right? The point, I guess, is that core, this group, the current version of the group, because the group changes all the time too, and it's a lot of people.

24:54And, you know, there's like the main maintainer, sub maintainers, that relationship also changes all the time. It does have a monopoly on the distribution of the Bitcoin code, right? Like the majority of the Bitcoin code is core. especially when it comes to economic actors. And when they choose to deploy a change, even if it's a standard in this, so non-hard consensus rules, even if they don't push updates as automatic updates, it still causes the network to probably adopt their version. So they do have power, and with power comes a lot from attention. So personally, I think we're starting to get to a point where maybe expediting the division of the wallet software from the consensus part of core may be extra important and then incentivizing people to maybe have their own versions like more versions of core that try to not touch the consensus code important this is really so basically you're getting back to the spec sheet is like let's break this out let's all agree on what those specs are and then on the areas that aren't risked to consensus long term then let people build their own versions of exactly and then if you over filter it just means you're going to have a very poor view of the mempool yeah but then you know maybe you're just have a lot of social pool then you can sort of incentivize people to run some filters that may be better for the bitcoin you know block bloat or whatever like these things become very loosey-goosey because again they're not hard consensus right and if you overdo something then you just fall off in a way you can think about it do you think that we could get agreement on what those technical specs are to put in a nice neat order and then allow because it seems like right now that wouldn't be the case it's just it's just too big like the the consensus part is just too big so yes anything is possible but it's it's completely unrealistic so there is a project called lib consensus and who is working on the i think it's the charlatan is working like like lib like you would put a lead on it Okay.

27:20Let no lib like library. Oh, okay. Lib. Yeah. Okay. So lib consensus. And the goal of that project is to separate the consensus code from which is the original core concept. Interesting. Hey, I want to try to frame this rule sim, because we talked about a lot of different things here. And I want you to correct me if I'm saying any of this wrong, but the debate, you know, if I was going to really break it down simply, you have this op return and today it's at 83 bytes. This is a policy rule. Bitcoin Core has been enforcing this limit of 83, and anything larger than that is considered spam or something that is being obtuse in a block.

28:05And Core has come out and says, we're just going to lift this. And if you want to create mammoth transaction, and there's probably a bunch of JPEGs or whatever in that block, but you're willing to pay the high fee then we're just going to let the fee market figure out what should go into the next block and what shouldn't and we're just going to lift this 83 limit am i did i say something wrong there no no no that's correct it's just i think there's just two little things that are important on that one is that all returns are prunable so that means you can remove them from your node so you don't have to store them you do have to process them but you don't have to store them okay which is important for and the reason why this is important is because if you don't want to store four megabytes of somebody's jpeg on your node you can basically extract that out and you don't have to store it and it's not going to take up all the memory and am i correct okay keep going what was the second point sorry i forgot oh man i messed you up i'm sorry when i start talking i guess it'll it'll pop in your head let me keep going so the thing that Luke is really getting behind with Bitcoin nots as he's saying, no, this 83 byte limit still needs to be in place.

29:15And this is here for a reason. And if people are running a node, like myself and many others that we have 20 ,000 plus people running their nodes, if they don't want to relay a transaction of a bunch of JPEGs, they don't have to relay it in this gossip network of, these are the transactions that are trying to get into the mempool. So if somebody is trying to put JPEGs in there and I'm running my own hardware, my own node that I paid for, and I'm spending electricity to run, if I don't want to relay these transactions that are over that, well, then now I have the ability to do that. And core is kind of removing, my understanding is that core is removing that ability for me to filter transactions that are over this 83-bit limit, which is a somewhat arbitrary limit, but it's the - Well, the limit came in way back then because there were issues with very unsavory things that could be put into Bitcoin blocks when Bitcoin was very small and that could have been an excuse to shut it down.

30:18And I think we know where you're going with that. Yeah. Yeah. So nowadays it doesn't really matter. I'm sure people put stuff that shouldn't be there anyways, but you can't turn it off anymore. It's like, no, it's the blockchain and the Bitcoin. Yeah. Like a strategy on sub. Yeah. You know, like it's a different environment. I'm not a huge fan of removing that limit. I'm not sure it's a great use of time. Well, this is my point on it, MVK, is why take that optionality away from me as a person who's running a node? If I want to limit it, I should be able to. If I want to open it up and allow whatever to be put in there, then you should have that option as a person who's choosing to run the hardware and the software that you paid for.

31:00I mean, the argument, as I understand, is that because they're the reference implementation, they're trying to optimize for maximum visibility of the mempool. And that includes transactions you may not like. So it's just like, okay, this is the reference. So let's make sure that if you're running the reference implementation, you can see all the transactions, including the ones that you don't want to see happen. Because like reality is for literally ever miners have taken out of bound or out of memful direct transactions from people to mine. It's like trying to change the master branch to like main branch on GitHub because it's like it's not woke to say master branch or something.