Bitcoin Adoption Is Going Mainstream | Max Guise

0:02There are some great existing tools out there, but to really get a complete solution to safely hold Bitcoin, you got to combine a lot of them. By the time you actually put together a full solution to keep Bitcoin safe long term, you've kind of designed your own wallet at some level by putting these things together. And you sort of have to trade off amongst safety, usability and privacy. We believe that Bitcoin will be the native currency of the Internet. We believe that its openness and its permissionlessness is what will make that true. That's what we're focused on, making Bitcoin everyday money.

0:36Max, good to meet you, man. I'm excited for this show. You guys over at Block have just been shipping relentlessly for the last few months. Was it just maybe three or four months ago you relaunched Proto? Then Square have just announced that they're allowing Bitcoin payments to all the merchants in the US. Bitkey have had a big security upgrade, which we're going to talk a bit about today. A big privacy upgrade, I should say. But I want to get into this in detail. But before we do, this is the first time you've been on the show. The listeners might not know exactly who you are. Do you want to start with just a bit of an introduction?

1:08Who you are, what you do? Sure. Yeah, and thanks for having me. Excited to be on. So I'm Max, guys. I'm leading Bitkey and helping to develop Proto. And also just generally excited about all the things we're shipping at Block. And can't wait to talk about more of them. Uh, and, uh, I've been at Block since 2013 and helped work on, you know, early Square hardware, uh, helped, you know, some of the development of Cash App when we launched Bitcoin buying and selling capability. And then, uh, in 2021 started leading and developing BitKey and now contributing to Proto as well. That's awesome. So you got into, you were working at Square way before Bitcoin was like an integral part of that business.

1:49When did Bitcoin actually become something that you were focusing on there? It's an interesting question because I think, honestly, from as long as I can remember at Block the whole time, we've had an interest in Bitcoin. I think the fact that we started off disrupting the payments industry with making it possible for small sellers to never miss a sale, that came from frustration with the existing system. that came from hidden fees, that came from crazy Byzantine processes that people had to go through to sign up for merchant accounts. And that came from a desire to help enable people who were basically being left out of the financial system.

2:32And that's really what Square was born out of. And so I think we've attracted people and talent across the company that has been interested in it for a long time. And we also have a history of making bets early on that we think can be disruptive long term. And, you know, sometimes we're early with those. And so we actually did have some very, very early Bitcoin experiments where we were probably a little early. And I think where we really, really took off is when we introduced buying and selling a Bitcoin and cash app that was, you know, timed incredibly well with people's interest and also part of creating that interest.

3:05And so I think it helped take, put Bitcoin in front of a lot of people in 2018. And inside Square or inside Block maybe, is it Jack driving all the Bitcoin stuff? Or have you got a load of people internally that are also sort of very keen to push Bitcoin as far as possible? Jack's been a visionary for this for sure. I think he got lots and lots more people interested in Bitcoin who maybe hadn't heard of it originally. And once they discovered it, started to understand you know, how it can help. And so I think there's been a massive enablement from Jack at the company to sort of point the way. And then there's a, there are a ton of folks that have helped build all the things we're going to talk about.

3:48And I think, you know, some of those folks started off as Bitcoiners who came here specifically to build those features. And some of those were folks who are incredible electrical engineers, incredible software developers, and incredible marketing folks that started to learn more and more about, you know, what we could do with Bitcoin and, you know, now have sort of joined the ranks, so to speak. And just in the last week or so, you've announced that all Square terminals in the US at the moment can now accept Bitcoin as payment. This is really cool because like everything previously has been Bitcoiners going into their local butcher or wherever and just nagging the owner to accept Bitcoin.

4:27And then when they finally do, like they're the only person paying in Bitcoin. So They forget how to do it in between sales. It's always been a very clunky experience. And you guys have just basically turned this on on their normal payment terminal, making it really easy. Do you want to explain what you've done there? Yeah, this is huge. I'm really excited about this. And just a huge hat tip to Miles Suter and the whole team who's driven this. And I love seeing it go live. So we launched Acceptance on Square. And so what that means is that Square merchants can accept Bitcoin. Now they can actually receive it as Bitcoin or they can receive it as dollars.

5:04And I'll talk in a minute about why that's important. And we've also launched the ability in Cash App when paying with Bitcoin to fulfill that either by debiting your dollars balance or debiting your Bitcoin balance. And so what this means is when transactions happen at a Square Merchant and with Cash App on the other side, basically any combination of sending dollars and receiving Bitcoin, sending Bitcoin, receiving dollars, all of those combinations can happen. and this is really interesting because it means that square merchants can accept bitcoin but if it doesn't make sense for them or for their business to receive in bitcoin right now they don't have to they can still accept make the sale and receive in dollars and on the cash app side you know if i'm paying at a merchant and i want to you know avoid a taxable event given the current status of of you know where i live in the laws i can debit my dollar balance and one one of of things that's really interesting about this is that, you know, in the background, what we're really targeting here is 3 % fees that everybody has accepted we need to pay on every transaction.

6:07And to small businesses, 3 % is a lot more than it sounds like. So you might, you know, see a credit card fee, be annoyed by it. You know, but for most transactions might not matter that much. But when you look at the books for small businesses and the actual profit they're making, these are businesses that they're not, they have thin margins. Like they're really, and a lot of especially right now a lot of small businesses are actually really struggling and so the fees that they don't have to pay because of transactions like this that can be really really meaningful and so i think this is really exciting i think it's a really big deal for small businesses and you know you mentioned bitcoiners uh nagging folks to to take payment we also added the bitcoin map in cash app uh which makes that even more possible and we're actually uh if if you follow miles on twitter you can see we're paying bounties for folks who uh you know help Square sellers get started with this.

6:58So definitely check it out if you haven't already in Cash App. If you go to the Bitcoin tab, you can see a map in the spend Bitcoin option. You can see a map of local Square merchants that are accepting Bitcoin and local merchants that are accepting Bitcoin, even if they're not using Square. Do you know how many people are actually accepting Bitcoin as of right now? I'm probably not the right person to ask about the stats, so I don't have anything to share right now. But I think one thing that I've found really inspiring is that there are an incredible number of videos of folks going around to businesses that are on the map and patronizing them and also supporting their businesses and also folks who have shared some videos of convincing merchants to turn it on because it's opt-in for right now.

7:45And I think it's really neat to see. Yeah, it's really cool. I've seen Parker Lewis has been posting a load of videos around Austin, going to different places, buying with Bitcoin. And so on the merchant side of that, how do they actually accept it? Does it work in the exact same way it would for just a fiat payment or do they have to do something else? Do they have to actually select Bitcoin payments? You have to tell them you're paying in Bitcoin. Today, you do need to tell them you're paying in Bitcoin and they need to opt into doing that. We're starting small, but you should expect to see that expand.

8:16Yeah, because if that got to the point where there was no noticeable difference in how like the UX of that flow works and you could just pay in Bitcoin, the merchant doesn't even need to know you're paying in Bitcoin. That's, that would be huge. With this though, like obviously one of the challenges is the merchants understanding why they would want to accept Bitcoin. Like, is there a kind of an educational thing that goes along with this? Are you sending out like care packages of Bitcoin information to these people? There's actually a, there's a page that I should, should point folks to. It's a bitcoinmerchantcommunity.org that talks about it.

8:47And, you know, credit with Steve Lee, who leads Spiral here, I think is a great champion of highlighting when we need to speak in terms that aren't purely drawn from the Bitcoin community. So, you know, showing up in a merchant and talking only about Bitcoin without the why or kind of putting things in the terms that that makes sense to them in their business today. That can be a miss. And it's much stronger if we can explain why this is important and where this is going to take us. And really the central theme here is fees going to third parties that we rely on for most transactions. And when this is an open network and you can pay not even just with Cash App, you can pay with any Bitcoin wallet at Square terminals, like there aren't 3 % fees.

9:31And, you know, this is really about that. And the openness of the network, I think, is going to support that and make this very, I think, make it really widespread long term. And I think, you know, the path we're on, where we're headed is all the signs we've seen in the past that are like there's a 3 % surcharge for credit cards. I think this is going to turn into, you know, there's a 3 % discount for paying Bitcoin. What if you could lower your tax bill and stack Bitcoin at the same time? Well, by mining Bitcoin with blockware, you can. New tax guidelines from the Big Beautiful Bill allow American miners to write off 100 % of the cost of their mining hardware in a single tax year.

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12:20So last question on the Square stuff. Obviously, this is US only at moment. I don't live in the US, although I spend a lot of time there. And when I do, I'll be searching out these places. But is this going to expand globally or is it at the moment just focused on the US? It's a good question. Bitcoin's an open global permissionless network. We started with the US. We have the strongest network there and a large base of merchants, large base of cash app users. So we're starting there, but you should expect to see if it's tensions beyond that over time it's very exciting um i think it's one of the like the coolest things we've seen in a long time because this has always just been a mess trying to get merchants to accept bitcoin trying to do the education it's just like bitcoin is going around to their their local shops and doing it like having this from like i don't know how many people use square but an insane number of businesses particularly small businesses are using square like having that just enabled on everyone's machine like that's that's very cool um but we should talk a little bit about bitkey because you guys have had a huge privacy upgrade there.

13:20Before we get into the details of that, do you want to just explain like where BitKey came from and like what it is trying to, you know, where it's trying to fit in the hardware wallet market? Yeah, so we started BitKey, we want to make it safe and easy for people to truly own their Bitcoin. And you could probably guess based on, you know, me talking about an open network earlier that what's driving that is that, you know, the strength of Bitcoin is it's permissionless. Anyone can use it. And part of what's behind that is the decentralization of the network and the fact that, you know, we don't have centralized entities controlling it.

13:52And so, you know, if we ultimately have coins stored on, you know, a couple of exchanges worldwide, then that's not particularly permissionless in the end. And so we want to make it, you know, easy for people to safely own their coins and not to sit there with them on an exchange subject to hacks and mismanagement like we've seen with exchange collapses. and also just in charge of their Bitcoin instead of listening to somebody else about when they can move their money, who they can send it to and how much they can send. And so that's why we built BitKey. And when we started this off, one of our observations was that, you know, there are some great existing tools out there, but to really get a complete solution to safely hold Bitcoin, you got to combine a lot of them.

14:38Quite a few of them are hard to use for most folks and like really capable tools, but things that are just by the time you actually put together a full solution to keep Bitcoin safe long term, like you've kind of designed your own wallet at some level by putting these things together. And, you know, for some people, that's an awesome exercise. It is for me. That's literally what I do, you know, every day. But not everybody is, you know, wants to take on that odyssey. And so our intent with BitKey was to make it easy for folks. and historically what that's meant is you know you sort of have to trade off amongst safety usability and privacy and so you know in in sort of the basic case or the most vanilla case somebody might use a hardware wallet single signature they have one key they have a seed phrase backup and you probably heard my opinions many times on this but that often leads to a situation that isn't as safe as people think it is um you know things like storing a seed phrase improperly and having someone see it and be able to steal your funds, or in some cases, accidentally being tricked into, you know, revealing part of the seed phrase and getting funds stolen or having the seed phrase back up and the hardware wallet in the same place and suffering a house fire and being out, you know, completely out of luck.

15:50These sorts of things just for long-term safe storage of Bitcoin, like they're a problem. And so, you know, another alternative is people gluing these things together, using something, you know, doing a sort of DIY multi-sig. It turns out you can build something that's really safe and really private it's just really hard um and it's really hard to maintain it and keep it in a safe state over time and so what people have often gone to is something we'll refer to as collaborative custody services and that's where you you know ask a third party to help keep your bitcoin safe not by handing it over like a custodian where they have unilateral control and can move it without you but where they're holding on to maybe one key or a backup or some combination of those where they can help you when you start to lose things, but the default state is you can unilaterally exit at any time.

16:34So to me, that's part of the definition of self-custody, that you can unilaterally move your funds at any time. And collaborative custodians have historically been able to help you more safely store Bitcoin while retaining control. And the problem is exactly what you said, which is the trade-off in that case is privacy. When you give that third key, for example, in BitKey's case prior to this upgrade to a custodian, we had what's called a wallet descriptor. which meant that we could see, you know, your balance and we could see your transactions on the blockchain. Like we could pick out on the blockchain, which activity is associated with that wallet.

17:09And that's true of every other collaborative custody service out there. And this is highly unfortunate because as you and I both know, and I think as most of the Bitcoin community knows and values, like we don't want that. We don't want people to know, you know, which coins are ours. We don't want people to know how much we have. Like there's a, there's a a fundamental need for privacy that we want to be able to fulfill. And we found ourselves torn between how do we get that if we have to trade off safety? And so the really interesting thing about this upgrade is we've figured out how to do both.

17:42So the big key product didn't change at all with this upgrade. It's the same great recovery features, the same safety that comes from that, the same ease of use. And suddenly we can't see your balance and we're not sitting there with a descriptor where we can pick out which transactions are yours. So it's a really, really exciting upgrade because it kind of takes away one of those fundamental trade-offs that comes between safety and privacy. Yeah, I think it's really cool. And any of these security solutions, like you say, is always trade-offs. You can go and use five cold cards to a three of five multi-sig.

18:17And that's great. And it's incredibly secure as long as you know how to deal with your backups. And I think the risk kind of changes from going from single-sig to multi-sig where it's like with a single SIG, it's like how well have you, it's always how well have you secured your backup, but like what is your risk profile of that? And like probably the highest probability of you actually losing funds isn't going to be someone stealing it. It's going to be you messing up in the process and actually just locking yourself out. And so BitKey obviously has taken that away. And then the trade-offs there have always been like, what if, like you're basically giving up the privacy, BitKey can see every transaction that you make on that.

18:55But then this BIP has just come out written by, was it Jesse Posner and Jervis Tan? Is that how you say it? Yeah. So maybe it's worth explaining what this BIP is and how, can you explain how it works? Yeah. So what this BIP, so first of all, really exciting and really proud of the team that we're working on things like this and also sharing it with the community so that it doesn't have to be just Bicky that implements this. It can be others as well. and we can get more private collaborative custody throughout all of Bitcoin and not just with one team that adopts it first. And so super excited about this.

19:31And basically what the BIP does is it, so it has a pretty technical sounding name, Chain Code Delegation. What's underneath the hood there is that every UTXO on every unspent transaction output on the blockchain is locked with a script, that script and essentially locked with an individual key and to derive that key one there are a couple of inputs one is a seed which is you know often represented as a seed phrase and another is something called the chain code and what the bit proposes is keeping the chain code private from what's called a collaborator in the in the bit so for example a collaborative custody service uh you know something you might be familiar with um you know from some of the services that were out there before bitkey or bitkey for example holding the third key for you and by keeping the chain code private from that third party um the bit basically specifies how to do co-signing so you have a collaborator because sometimes you need them to sign maybe you lost stuff and you need to do a recovery transaction or for example bitkey has you know a mobile pay feature sorry it's a hardwareless transactions feature where you know you can configure a limit and spend you know underneath that limit without using the hardware.

20:47There are reasons why you might want to do either of those things, especially recovery and lean on a collaborative custodian to do that. And the BIP basically makes it possible to share only the information necessary to sign an individual transaction when there's a need for recovery. It also specifies a way to do that completely blindly, which is actually not what we've implemented up front. But most of the BIP, what it provides for is you can send up partial information effectively about the chain code so that the collaborator can sign one recovery transaction underneath the head there's the pip is full of some cryptographic equations which i will try not to recite here and also i'm probably not the right person on the team to to where you would go over my head anyway yeah really interesting though and basically by sending up that partial information we can still get the greatness of you know recovery transactions when we need them, but not have to have the collaborative custodian sitting there with a wallet descriptor that reveals everything.

21:46So just for the actual users, I want to go through what this actually means for them. Because at the moment, the way BitKey works is you have your keystone, you have a key on your phone, which is encrypted, and then block hold one of the keys on your servers. So if you want to send a transaction now, you use your encrypted key on your phone and use this. unless you lose this or unless you can't actually use this key, and then you have to contact Block and they sign a transaction. So with this update, what this will mean is that every time that you sign a transaction with your actual hardware and with your phone, Block can't see what's going on.

22:24But if you end up having to rely on the key on Block servers, then you can see what's happening. Is that correct? Yeah. So there are basically two paths in the BIP, and one of them requires implementing something called Schnorr signatures. We haven't done that yet. When anyone who adopts that portion of the BIP, it means that even at signing time, there's no information revealed. Short of doing that, when the collaborative custodian signs a transaction, they see the UTXOs involved in that transaction. If that's a recovery transaction, that might be all of your UTXOs. And what we do is when that happens for BitKey, we don't log anything.

23:05We don't store anything about the UTXOs that we saw and we're working on a feature that we call server verifiability that will allow people outside of bitkey to see that that's true we use something called aws nitro or something called nitro enclaves on aws which is basically a secure computing environment that has what's called an attestation capability it's a way for that environment to basically provide a cryptographic attestation of what code it's running that can be checked from outside of the system and so this is And this is not like that's not a block thing. That's like an AWS wide thing.

23:40And we're working on a feature that basically will allow people to verify that this is true. And even in the interim, I'm really excited about this because like we're truly blind to balances and transactions. Like we don't save this stuff. And so we don't know. So just as an example, like I've been really excited by since we have been able to see like I'm aware that there's a lot of money that has been moved on to Bickey and like a ton of momentum around that and folks getting a ton of value out of storing it. and then I'm simultaneously sad because you know now that we have folks migrating to our newest newest privacy upgrade like I don't know what's on it anymore and I think that's awesome and you know I think the whole team actually has just been really excited about this because it's been one of the things that for us was like a pretty sharp trade-off as we designed BitKey up front and finally able to remove it.

24:28Yeah and I also just want to reiterate that this isn't like a bitkey specific thing if you use like a casa or an unchained you have the same problem in any of these collaborative custody models so the thing that you guys have focused on really heavily from the very start is making this as easy as possible making the ux as clean as possible and as as um you know user friendly so does this remove any of that ux or is it exactly the same it doesn't remove anything in fact actually this feature is pretty quiet relative to its power meaning like when you go through the upgrade flow like it's pretty simple it's a screen explaining what's going on and doing a wallet sweep uh to a you know new set of keys and you know underneath the hood really you're gaining something huge and you know new new customers who set up the key now they just get it by default uh and they're not going to have any different experience they're going to have the same five minute setup they're going to have the same immediate safety after that point, they're going to have the same, you know, easy recovery contact setup to protect them against losing, you know, both their hardware device and their phone.

25:32They're going to have the same easy setup for inheritance so that they can make sure that their Bitcoin gets passed on to their loved ones. All of that's still there. Oh, that's awesome. So that was going to be my next question because I was playing around with this over the last few days. And for me, because it was already set up, there's like a private option. And you just like click on that, move funds to a new multisig, and that's basically all you need to do. But for anyone new setting up a bitki now it's is that that's just a default that's a default oh that's awesome that's very cool and and like when it comes to the the trade-offs with something like bitki or really any collaborative custody is there anything else that you think is a sort of barrier that you need to improve on i think a couple of things so one is i think even though we've um made big strides on privacy, there's still more to come.

26:24So for example, with every hardware device, you have to get a hold of the hardware. You have to actually get it shipped to you somehow, or you need to go get it in a retail store. And I think historically, that's been a huge vulnerability for folks. There are folks who lost their addresses in the ledger hack many years ago that I know that have moved because of it. I mean, I've been very quiet on this because like I was, I was one of these people. Um, I don't mind saying it now because all the details who were released are now not my details. Um, apart from my name. Um, but like, it was a huge thing.

27:03And for a long time, like I've actually moved house relatively quickly after that unrelated. Um, but I had to like change my phone number. The amount of phishing scams I was getting was insane. Like that's a, That's a real problem. And there's people like CoinKite who will wipe your data from their servers after a certain amount of time. But what can you do to fix that problem? Yeah, that's one of the things. And we're actually working on a similar approach for BitKey. Another is retail store pickup can be helpful. We're actually working on implementing pickup at retail stores. don't think like big box retail stores are selling but more like pickup points we think that's an important thing to roll out so that folks have more options for actually getting a hold of a device without having to put a physical address that they're you know either even if it's work that they're at physically a lot and then we also introduce the ability to purchase biki with bitcoin one of the other aspect there's a lot of aspects to this but one of the other aspects is that you know when you pay with something that's not bitcoin you need to provide a billing address.

28:07And very often that's pretty problematic for folks. And so really trying to go systematically through where this type of information ends up in, you know, both our systems and potentially others. And I think, you know, that's something I'd love to see more focus on industry-wide because I think it's a real problem. I mean, the idea of being able to pick this up at retail, I can see all this coming together now, Max. The idea of being able to pick this up at a retail store where you can pay with like e-cash through the square terminal is kind of the perfect solution to this it's a good idea we need to push that forward um the the other thing that i really wanted to kind of hit on is like this is a huge privacy improvement for the individual using a bit key um but this isn't like a private bitcoin this doesn't give you private bitcoin transactions i want to make sure that that's not lost in kind of the the nuance of this um like people who are using bitcoin like your interaction is blocked from like block can no longer see that, but everyone else can see it on the network and block can still see transactions on the network.

29:08They just don't know they're associated with you. It's probably worth like just reiterating that point. Yeah, I think it's a, it's a, it's a really important one. Um, on chain privacy is a huge challenge. Uh, and I think, um, you know, this is one of those, those situations where things like lightning can help. Uh, I think most people don't realize that, you know, know if they pay somebody on l1 they're potentially revealing a lot to that person about their holdings uh and that's something that like there isn't really a direct analog prior to bitcoin for and i think it's it's like a very bitcoin specific thing it's not big key specific it's not really specific to any wallet vendor or anything like that but it is a difference in bitcoin relative to what people are used to like you know it's basically comes down to you know if i pay for something, you know, if I pay for a coffee with a$20 bill, they know I had at least$20, but they don't know all the other$20 bills that I've spent and who I might have given them to or, you know, how much it adds up to or anything like that.