Oct. 14, 2022
Bitcoin Amsterdam 2022: FATF is a Threat to Bitcoin Privacy with Matt Odell, Patrick Hansen, Kevin Murcko and Sjors Provoost
Conversation on regulations and privacy at Bitcoin Amsterdam 2022, moderated by Stephan Livera.
Video Version
Other Panelists:
Patrick Hansen
Kevin Murcko
Sjors Provoost
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01:03 - Introduction to FATF and its impact on Bitcoin privacy
04:49 - Issues with FATF from a human rights perspective
05:53 - Impact of FATF regulations on the crypto ecosystem
10:42 - The importance of engaging with regulators and policymakers
19:29 - The need for a better narrative in dealing with regulators
26:06 - The need to challenge the normalization of financial surveillance
37:13 - Proposing better alternatives to combat money laundering
40:40 - The solution of personal responsibility and opting out of the system
41:17 - The current state of financial surveillance and the need for privacy
41:59 - The role of technology in improving privacy, such as the Lightning Network
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Created: 3/17/2024 4:22:12 PM
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Alright. Thanks for joining us. So we've got the FATF and the Threat to Bitcoin Privacy Panel. So my name is Stefan Lovera. I host a Bitcoin podcast. I also work as part of Swan Bitcoin. I'm just gonna quickly introduce our panelists today and then we're going to get into the discussion. So firstly, we've got Patrick Hansen from Circle, recently joined and he's, done a lot to talk about,
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the impact of various regulation
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on Bitcoin privacy.
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We've got Kevin Merkur from CoinMetro
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joining us.
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We've got Shaw's Provost.
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He's
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a bitcoin core developer and also a bitcoin podcaster, also
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hosting the bitcoin explained
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podcast.
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And, finally, we have Matt O'Dell. He's a bitcoin privacy advocate,
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and an educator and a podcaster hosting,
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the rabbit hole recap and also Citadel dispatch. So first of all, thanks for joining us today. We're gonna start with some background and some introduction.
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For a lot of people, they may not really be clear. Firstly,
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who is fat f and who made them king?
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Do you wanna start, Patrick?
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Yeah. That's quite a task, and and and first of all, thanks for having me, Stefan. It's super cool to have a bitcoin conference
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of that size here in europe.
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Yeah. So F. A. T. F. The F. A. T. F. Is the financial action task force.
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It has been launched in 1989,
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by the G7 actually,
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and it has been launched by the G7 member countries together with the EU
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commission and a couple of other countries
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and has grown quite a lot since. So I think it has by now 4 d member countries
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and through some regional associations
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it covers
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almost every country on earth.
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And what the FATF was launched
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for in 1989
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was basically
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to streamline,
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to streamline
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activities and initiatives
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around,
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the fight
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against money laundering.
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And so it basically started I think in 1990
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90
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so 1 year after.
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After it was founded, it created its first recommendations,
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to all the member countries on how to fight money laundering
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later on. I think 10 years later or so. Also recommendations on how to fight terrorism financing were added. So those recommendations
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were basically updated every couple of years.
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And why is that relevant for bitcoin and crypto
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in 2019?
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So basically 3 years ago, the FATF
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for the first time,
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published
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a guidance
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on how to treat virtual assets. That's how the FATF treats Bitcoin and and other crypto assets On how to treat those from a money laundering perspective.
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And,
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without going too much into the details
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part of those guidelines included to basically add the travel rule
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for crypto as well. The travel rule is a rule that says whenever funds are transmitted between service providers, financial institutions,
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the personal
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information that belongs
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to the customers of those institutions
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has to be passed along from one institution to the other. And this travel rule has basically been expanded to crypto assets like bitcoin.
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So nowadays,
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according to the FATF travel rule, if one crypto asset company, an exchange or a custodian,
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if a customer of that custodian sends Bitcoin
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to another custodian,
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what has to happen in the background is that personal
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identifiable information like the name, the address,
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the wallet address, for example, has to be passed along from that custodian to the other.
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And obviously the FATF, so last sentence,
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those are recommendations.
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But if you don't follow those recommendations
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as a country, you end up on the FATF gray list or blacklist,
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which has severe consequences on, you know, the economic
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and financial system of that country because banks, financial institutions, companies
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will basically stop
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working and collaborating
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with the companies in those blacklisted
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countries. So, yeah, it it has quite some implications.
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It's quite a heavy
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penalty and punishment and it puts us into this world of financial surveillance.
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Now I actually wrote an article on FATF
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recently and for Bitcoin Magazine talking about this as a as an issue.
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What are some of the issues from a human rights, perspective here? Well, I mean, I want to jump in here because I feel like
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I feel like FATF
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has the advantage that when when you talk about them, it just seems extremely boring.
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But but but at the core, you know, at the core, the these regulations
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and and and
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the burdensome compliance measures
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that
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they result in,
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do not stop criminals from from using Bitcoin or using dollars in a criminal way. They get around it. They figure out how to get around it. What it does do is it puts
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law abiding, honest people at risk.
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It stops them from interacting with the financial system, and pretty much as far as I'm concerned, this panel can be summed up with they can go fuck themselves.
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Right on. Got
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it. So
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when it comes to
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building products and services then,
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what impact does this have on the ecosystem?
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Perhaps, Kevin, do you wanna chat a bit about the impact? You know, so
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I share a similar sentiment, but I take I I look at it from another angle. So I come from traditional finance, so I've been dealing with FADF,
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not maybe not since 1989, but, you know, 2,000, 2,001.
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You know, the the issue with this is what regulation in general is. It exists,
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unfortunately,
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and I guess it meant some small case, fortunately,
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but it does exist. And so
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my outlook is always the same. I wanna change it. I think we have all the tools. If you talk about the Bitcoin network, you talk about blockchain in general, we have all the tools we need to actually get rid of most of the cumbersome regulation
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about sharing of data, about public data, about, semi anonymous or pseudo anonymous data. It's all there. The issue is it's just like they didn't understand crypto in the beginning. They don't understand the technology.
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Every I used to go into regulators' offices, and they would say I'd say, you know, crypto exchange. And they'd say,
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crypto. No. Well, blockchain, you know, good. Crypto, bad. But they still don't understand how those two things work. You know? And unfortunately for us, our big thing that we push all the time is access. And, yeah, FATF and and many other things with regulatory bird burdens kill access. I gotta be honest with you guys. The difference between traditional finance and crypto,
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you'd be hard set to find 1. You name any product in crypto, DeFi, doesn't matter. I can name you the equivalent in traditional finance.
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The big difference
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is access. And the way we lose that difference
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is that we sit on the outside and complain about it, you know. Fuck FADF.
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But saying fuck FADF doesn't stop FADF. In fact, there's gonna be some guy with glasses behind the keyboard somewhere that's super pissed off hearing that. He's gonna try and drive additional change inside FADF that actually doesn't help us. It hurts us. And so the for me, the way I look at change is I try to do it from the inside. So I talk to those guys. I tell them what I like about it, what I don't like about it, what's bad, what's good, why it's gonna work, why it won't work, how it doesn't work in traditional, how it works, and how it's not gonna work in any nuanced,
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finance product either.
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So I think we're in agreement, but, yeah, I unfortunately, I can't walk into the you know, talk to regular and say, oh, before we start,
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you know, fuck Fattif and fuck what you guys do and, you know, that doesn't necessarily work. You know? Part part of part of their effectiveness
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is that people who run regulated businesses
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have to censor themselves when they talk publicly about it because they're afraid that their
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livelihood is gonna be put at risk. They essentially have guns to their head. So what what does that mean? What that means is
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we have tons of money in this space.
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We have all these, you know,
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massive companies that have grown up in the Bitcoin industry,
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and most of them cannot publicly talk about this at all. That's why it's very rare you see any conversations about FATF publicly. Yeah. I I mean, I I talk about I think, you know, there's a way to talk about things. I think, like anything in life, man, when you have a conversation, you have to understand who you're talking to. The the thing is is that most regulators actually well, not most. Let's say many
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regulators wanna understand. They actually there are regulators that do wanna understand. There's legislators that wanna understand.
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But a lot of the biggest people with the biggest soapboxes in our industry, they run away from those people
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or, you know, they they try to publicly defame them. And the issue is we're all humans, so if I want something from someone, I'm gonna do everything I can to make that person do what I want them to do. And doing that from the outside in in kind of a, you know, in a certain type of narrative
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has never really worked. I mean, you have anybody ever heard of Egold?
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Not the new Egold, but Egold back in the day. The doctor from Florida created Egold. Yeah. Well, where the fuck is Egold now?
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Gone. Now one reason big reason for that, it was decentralized. If it was decentralized, it might still exist. The other reason is is that everybody that used it basically ran away from any type of rules that would that would potentially have allowed eGold to still exist.
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And it's you know, Bitcoin wouldn't be here if it wasn't decentralized. That's for sure. But you gotta remember that, you know, financial landscapes are made regulated ones are made with gatekeepers. Banks are gatekeepers into traditional finance, and guess who the gatekeeper is into crypto? Well, it's wallet providers, it's exchanges,
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etcetera. Those are the gatekeepers. So no matter how great we build these really cool infrastructures and how we, you know, build layer twos and we do all these great things, there's still a a a a way that, you know, regulation can hurt, maybe not kill, but hurt our industry. And so I for me, I I don't
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see, you know, public we can I mean, I I can get I can say anything to a regulator? I'll just put it in a different vernacular. Let's put it that way. And I have no problem talking about it publicly. If there's a regular in the audience, you guys wanna talk about how ridiculous FATF is and how it's not gonna work and how the the the travel rule doesn't work in traditional finance either, that it's caught less than, like, a nano percent of actual criminal money, we can talk about that over some coffee. Absolutely. Raise your hand if you're a regulator.
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They could be on the live stream. Don't get don't be embarrassed.
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Sure. We haven't heard from you. So let's, hear from you a little bit, your perspective,
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in terms of
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how, you know, building up,
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software in the space as well looks like
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under this FADF and AML regime.
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Well, so far it's pretty peaceful.
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Just like to put it in this way, you know, if you look at something like Bitcoin Core,
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I don't see pull requests coming in that say, you know, we're going to implement a travel rule or
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such things. But you want to make sure it stays that way. So I think,
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it is important for the software to remain completely neutral and to be
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good for the privacy. And so far
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that's not a problem. Although, you know, we have seen recently with Ethereum,
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their mixing service where a developer was arrested. We still don't know exactly why. So there may be more going on. But at least the the public Well, I'm not here. But Yeah. He's in Amsterdam. Somewhere around here. Probably not not a nice building like this. He's actually probably not in Amsterdam. Anyway,
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I mean, the public prosecutor on their website and in the press releases as well as the police are communicating that they are opposed to his development work. At least that's the way I interpret it.
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But maybe that eventually goes to court and turns out there was something else going on.
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But that is quite concerning, of course, if you're not allowed to work on on software.
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But then I would still say, well, okay then I guess you move to America or someplace that has stronger free speech protections and you're still okay. So as a software developer I'm not immediately worried.
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But
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you know, where you see some things creeping in is, for example, this this protocol that was designed to verify your address to an exchange. A O P P. Yeah. Do you wanna just explain for people who don't know what is A0 p p and what was the,
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response in that? I think the gist of it is, some exchanges require you to prove that the address you're showing them where you want them to send the money, that it is your address and not some random guy on the Internet's address.
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And so the way you approve that in the Netherlands, the rule was eventually you just send them a screenshot of your wallet.
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Now that's actually quite bad because that reveals exactly what wallet you have,
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which some hacker will then eventually be able to, you know, they get the data from the exchange and they know where you keep your bitcoin.
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So this protocol would get would avoid that problem and it would also be more user friendly. What it would do is it would basically
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have your wallet sign a message using the private keys of your wallet, and then it would send that message back to the exchange.
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And there were some technical issues with that but mostly there was a lot of,
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debate around it. More from a philosophical or slippery slope kind of view. Like, do we want the feature like this in wallets?
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Should Bitcoin
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application developers be helping in this thing that impinges
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arguably on the user's privacy.
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But in this case, there was a lot of community debate there because I think on one hand, people were saying, well, it helps them self custody but at the cost of reduced privacy.
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And so I think that was where certain
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wallets,
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put that feature into
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their wallet and some of them actually walked it back.
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Yeah. But what I would say is that the general feature of signing messages with your wallet should be, in my opinion, uncontroversial.
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So I wouldn't go as far as saying let's remove all message signing functionality from wallets. Although some people have suggested that. So
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I'm You can you can have the argument that you wanna make things so technically impossible that that's the way you resist regulation. But then you're removing functionality that people might need for very reasonable things. For example, you may wanna test that your cold storage actually works.
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And for that, message signing is useful. Things like that.
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So option. We definitely I mean, there's
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trying to create you know, I remember back, like, the the ICO days. Right? The the most complicated white paper got the most money. Not because it made any sense, but for some reason, people equated, like, complicated things to mean good things.
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And, you know, we still have a learning curve in a learning curve issue in crypto.
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That that's just that's just a good people in the room. Maybe not. Maybe some. Yes. I don't know.
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But around the world, man, crypto is not it's it's the learning curve in some way, because the way we market crypto,
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we make it seem like it's so nuanced and amazing and innovative,
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and those things are great from a from a selling standpoint. But then people are like, well, I don't I can't even, you know, I can't even turn my blender on without blowing a fuse. I'm not I'm not going I'm not gonna do this. And so I think, you know, signing signing is definitely fundamental and there's no reason we should get rid of signing. And you made a joke actually via I think it was via email about Craig Wright. You tell Craig Wright about, you know, signing wallets. He probably needs that information more than anybody else.
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So Yes. Signing doesn't matter. Right? It's about witnesses.
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That might be a bit bit too much inside baseball.
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So like I said, this is not happening yet, but I think in the very long term, what I'm worried about is something along the lines of you have white bitcoin and black bitcoin
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and
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exchanges will only touch the white bitcoin and they will not touch the black bitcoin.
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And this white and black is defined by, you know, is it fully compliant with all every regulation on the book? You know, is is your Bitcoin now just registered with the European Union? That sort of stuff. Yeah. That's the key point. And then that would still happen at the exchange level, but at some point maybe they start putting pressure on miners to say, well, you shouldn't mine transactions containing any of that. Then they find out that it makes no sense because if you don't mine a transaction, it just goes into the next block because some other miner will do it. So then they'll push for well you cannot build blocks on top of all the blocks. So eventually you might get regulators pushing for a fork in that direction. That's sort of my worst case scenario
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that I would like to not happen.
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I I would just echo that while, you know, maybe trying to change things in a more regulatory perspective, that's more about about finance and services. When it comes to the technology,
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God forbid that they try to regulate the technology.
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I mean, obviously, there was a push to regulate the Internet at one point. That would have been comical.
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Maybe not now. It wouldn't be so comical now, but at the time, it would have been funny.
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And and that's that that is definitely a road nobody in this room anybody forget about private if you're a privacy advocate, if you just simply like,
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to be able to, you know, own your own bank, all these great things that exist, decentralization, etcetera, you do not want the last resort for regulators to try and go and regulate the technology. Yeah. But then China has regulated the internet quite successfully so it's not physically impossible. If you look at the phone network, you know, the Netherlands is I believe world champion in phone, phone wiretapping. Like the most wiretaps
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in the world per capita. Maybe not anymore because it's pointless with signal and WhatsApp.
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But it's not not every technology cannot be captured by regulators. So just saying like, okay, Bitcoin is impervious to harm. Nobody can destroy it. Let's just sit back and chill and and let them try. Go down that road. I e we don't want them to try and regulate the technology. Well, there's 2 things. You want them. Yeah, you can have people lobby so that they don't even try
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which, you know, is nice. And you also wanna make sure that if they do try that you have some way to make sure they don't succeed,
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right? Because you can make a completely centralized currency like I don't know, ripple or something like that. And you can say well, just pretend we're bitcoin. Just treat us like we're decentralized and neutral and don't detect the protocol.
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And then maybe they won't because, you know, I haven't seen any attacks on on protocols from regulators. Even protocols that will be very easy to attack. But I mean you you've mentioned it earlier and it it bears repeating since we're in the Netherlands. Like Alexey
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created
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one of the best privacy tools on Ethereum. It had massive volume,
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and they threw him in jail, and they won't let him out of jail. They call him a flight risk because he owns he owns Ethereum, and we can't prove how much Ethereum he owns, which they could say to any single person in this room. He also owns a Russian passport.
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But Yeah. But if he goes back to Russia, he gets drafted in a war.
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Maybe. I don't know. Well, politics saying is that's how that's how, you know, you can go down these deep,
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you know, theoreticals
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about
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how they could try and make some kind of
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protocol level censorship. But but in the end, all you really need to do
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is what we're seeing happen, which is you put guns to certain people's heads, you make an example out of them, and the majority will over comply as a result.
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And we already see we see exchanges
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blacklist collaborative
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transactions right now. There's no law that says it.
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There's no absolute regulation that says they have to do it, but they over comply as a result. Yeah. I mean, that's that's
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also a business decision. But we had That's business risk. We had we had, you know, Circle has USDC,
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and as soon as the tornado cash thing happened I mean, I know it's Ethereum, but at the same time, like, it's it should be a learning experience for all of us. As soon as the tornado cash sanctions came out,
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they froze all the they froze all the USDC that was connected to tornado cash. But So what exactly are we doing in this industry? What is what is the goal here? Is the goal actually freedom,
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or is the goal just, you know, rebuild a TD Ameritrade and put crypto on top? I think there's a bigger I think the bigger question to me is we build all this really cool stuff. Let's say we get to the day.
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We take a canoe. We go up a river of shit, which is basically regulatory. We get them to finally figure out that they we don't need them anymore. We and it's all functioning great.
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You still have, you know, power grids. You still have the Internet. You still have pieces of the infrastructure we need because we're not building the underlying infrastructure. We're building on top of it. All this is a layer 2, 3, 4, 5, 6, 7. You know, this isn't a true layer 1. So
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in in that sense, no matter what we do, we are still at risk. I mean, that risk doesn't go away
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because if they can you know, they power grids can be controlled. Access to power grids at some point will go it can be controlled now, but more and more as they get more digital, they will be controllable,
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Internet as in China, etcetera. So,
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you know, at the end of the I mean, it's it's it's like the gold bug, the whole Peter Schiff thing, like gold is better than Bitcoin. It's not.
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Right? But, you know, if shit hit the fan and all your power went out,
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well, you know, good luck with your paper wallet,
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you know, running around. So we we always have that risk. That risk doesn't go away. And so how do you get around that risk? How do you show
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that this can actually function, reduce crime,
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reduce the illicit movement of funds? How do you do that
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by just kinda saying, you know, well, yeah, we're not gonna deal with you guys and everything you do is wrong? Most of the stuff they do is wrong. I'll agree with that. And and and it's usually proven wrong after 5 years, 10 years, 15 years. The goal of everybody in this room should be to help prove that wrong now. How do you prove it wrong? So what's the best way then? What's the best is it, you know, I guess, is it regulatory appeasement? Is it ideologically
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just making that case? Is it lobbying? Is it lawsuits? Like, what are some ideas? What are things open source tools that are holding your own source development. Your own node and opting out of the system.
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Yeah. You can also live in the woods in Montana. I mean, but, you know, everybody can't
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bullshit. That's like stuff is you're gaslighting me on that. That's a straw man argument. At the base of the discussion is really the separation
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of, you know, what has been mentioned here, the technological
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base layer, open source software protocols.
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And then on the other hand side, you have just, you know, financial institutions
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that offer centralized financial applications to, to customers all around the world. And I think I feel like we have to clearly separate between those 2. And it's important to note here that we're talking about the F. A. T. F. For example, and its recommendations like the travel
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rule. Those recommendations
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only apply
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to financial institutions. They don't apply if I as an individual
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individual,
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want to transfer
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some Bitcoin
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to another self custody wallet,
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the travel route doesn't apply
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to me. And I think it's super important that we keep that distinction.
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And I think we all agree that the technological base layer shouldn't be regulated.
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It should be open source and the market should decide freely on on on what about choice. Right? But, you know, it was a joke. But, you know, people move it. So you move to Montana a little off the grid. That's You should have that choice. But this separation between custodial and non custodial is a political choice and is the result of some very good lobbying by people in the industry to say, oh, wait a minute. Before you regulate all of crypto, please make the distinction between custodial and non custodial. Try to understand. And that distinction was pushed into at least the European level in 2015
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ish.
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But that distinction could disappear tomorrow if Macron says, you know, no. Okay. We don't like this Bitcoin. We also wanna regulate
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unwholesal
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wallets. So then and then, you know, if you took at the Amsterdam situation, again, I I don't know how to interpret what happened. I only know what they're saying in press releases.
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That idea that you can, you know,
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build whatever code you want and share whatever code you want, that may hold or it may not hold. Well, I mean, I don't know if you if it was accidental or not, but you said the word unhosted wallet.
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Oops. Which that alone Sorry. You may cancel me. No. No. I'm not gonna cancel you over that. I love you, Sures. But the the thing is, like,
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that's a perfect example. So
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unhosted wallet was not a term a year and a half ago probably or 2 years ago. They implemented that term. They pushed that term forward
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to essentially start this narrative that a a regular Bitcoin wallet is a is is is different,
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is is is hosted. A regular Bitcoin wallet is hosted when really it should be you have a Bitcoin wallet, and then you have an account at a financial institution. Those are the two distinctions. I think that was my main point. Narrative. I don't think that was a conspiracy to change the narrative. I think there was a lot of confusion in terminology
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and they just
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Instead of
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saying wallet, which means
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your own keys, they say no let's make it free. A custodial, honey. So
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the yeah. Yeah. But the term custodial is confusing and when it's translated into other languages because remember in Europe, these laws are translated in 20 different languages. So the Dutch word is like,
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which is like savings wallet, which is an even stupider name.
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I even wrote to those people, like, the regulators, like, please use a different term. They did not listen to me, which whatever.
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My point is is it starts with the narrative shift. Right? Like,
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so if you've been in Bitcoin for any period of time, it used to be that no exchanges had
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KYC.
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Right?
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And then around, like, 2016 ish, we basically saw it, like, sweep through sweep through the whole industry. And previously before that, it was, oh, I'm using a Bitcoin exchange. Your normal thought was it's not gonna require personal identifiable information. I'm not gonna have to give all this intimate info to the exchange.
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And some exchanges did, and those were the KYC exchanges. That was not my first experience. Yeah. Okay. Fair enough. But now when someone new comes into the space,
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it's the exact opposite. When someone new comes into the space, they assume that they're gonna scan their face and give their blood of their firstborn.
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But
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if if you're doing something other than that, then you're going out of your way. It's no KYC. Right? I'm I'm like it's almost
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implicitly
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law breaking is is the insinuation there. Well this gets you into the level playing field discussion, right? Where people would say well the the legacy financial system has this too. It and I think it has seen an increase in k y c also over the decades.
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But then the question is at what level should the playing field be? And you could say well maybe banks should be, you know, should protect the privacy of their users better
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instead of crypto companies
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protecting it less. So you can have that discussion too. I think that's that should be had but it's not had. I guess that comes back to FATF as well. Right? Because arguably, what we have seen over the decades is each crisis comes, there's an opportunity now to take some more control. The new recommendation,
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oh, look at this area that could be unclean.
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We need new recommendations,
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therefore new regulations.
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So then FATF will then push these things. And maybe in some cases it happens at the country Right? Despite the conversation about ineffectiveness of a lot
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of these, Right? Despite the conversation about ineffectiveness
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of a lot of these things.
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Effectively, what happens is that have pushed
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more and more and more
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both in the fiat world and in the bitcoin,
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exchanges and bitcoin businesses world. So
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it just comes back to
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that I think that that's like a root cause thing. And I think ultimately,
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would there has to be some kind of pushback about the idea of
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it's
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not that not everything should be surveilled. Yeah. I I think I should be able I always use this example. Like if I go to the bathroom at a train station,
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right now if I pay with my, card, debit card, these records are kept for at least a decade.
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So the bank can look up 10 years from now exactly at what time I went to the bathroom. I think that is ridiculous. I think everybody would agree that's ridiculous.
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So you know, I don't, you know, I think we should change the financial system to to not do that. And with normal banks, it's very different difficult to not keep records
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because they actually need to know, you know, what what your,
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how much money you received, how much you spend and where you spent it. So it makes kind of it makes almost necessary for them to track it. But with, say a lightning wallet,
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you don't have to track that information.
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So if I could just use a lightning wallet to pay for the bathroom,
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then nobody needs to know who I am. They because there's no fraud risk for them.
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Not that anybody commits fraud when entering a toilet.
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But maybe guys jumped a turnstile, you know. Yeah.
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So the technology is inherently more private, I would say, than at least legacy electronic money. Yeah. And while we're on I'm sorry. Go on. No. I just I just wanted to add that, you know, compared to the traditional financial system where basically if I move funds from one financial institution to the other,
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if we didn't have those kind of rules, AML rules like the Trevor rule from from the FATF,
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It would be kind of a black box where those funds are coming from, where those funds are going. If those funds were commingled with
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whatever kind
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of criminalized,
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activity in the past.
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The difference with crypto assets, Bitcoin and others is that
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we can basically use the native tools that are inherent to the blockchain
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in order to to combat
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money laundering terrorism financing way more effectively
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than with some of these more traditional rules. And I think
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if we are able as as an industry to to communicate and educate,
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you know, the policymakers and the regulators on those issues and
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my strategy wouldn't
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be to go in the room and say, you know, fuck fuck FADF, but, you know, go in and try to educate and and and and discuss and really try to to get a good grasp of of of what the reason is for those roots and how
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there might be better alternatives with this better with this newer technology.
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I think we have seen also some better results. I mean, in Germany, in the EU
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now,
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the policymakers have moved to a more risk based approach for transactions
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with self custody wallets, for example,
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we
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where they prescribe that those,
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centralized companies have to use blockchain analytics, for example, when they transact with self custody wallets.
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And only if those blockchain native analytics tool flag a high risk, high ML risk, for example, those companies have to move forward with more,
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yep. I think many of us still have issues with the surveillance companies.
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So Yeah. Yeah. Because what you're really doing here, not you, but this this way of thinking is we have this this black box called the surveillance company or called the, you know, the analytics company if you wanna use a euphemism.
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They will do things
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and then only give a signal if there's a if there's something bad and then it a human will look at it. But it but the thing is you're already being surveilled. So whether or not you get flagged just means you get more surveillance on you, but you're already being surveilled.
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And this is the same with banks. Right? They have all these systems that monitor transactions that that look for irregular patterns.
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And so the narrative
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would be, oh, we're not really surveilling you. We're only checking suspicious transactions.
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But you had to look at the transactions to decide whether they are suspicious or not. So the surveillance is already happening at that level. It's pseudo anonymous
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surveillance.
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Not Not with banks. They just have you backing on Well, I'm not with these companies like you mentioned that are these black boxes. It's pseudonymous
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when they're doing it, but they I keep getting all the data and it's just one click of a button to make it not Sudan, and I think And don't forget there's all this data sharing as well. Right? There's an there's an interesting point to be made in that. So I I live on both sides like fiat and crypto. Right? Because, obviously, running exchange, I come from traditional finance.
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And what I'm seeing now is scary in the sense that when you look at sanctions as they come out now we just had a sanction that came out, I think, last Friday, an additional sanction about Russia.
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There's one rule for banks
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and there's a very much more stringent rule for crypto exchanges.
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And the re that's it's a there's a very clear reason, and it's not a rational one. It's not because there's some inherent, heightened risk with crypto. It's not because crypto can be laundered easily than fiat money because it can't.
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The reason is is because the narrative.
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So
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not only do we need to control the narrative to spread adoption.
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We need to control the narrative to make sure that you know, if the if the end goal is that,
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the travel rule and all these things become automated, and I agree that
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not I'm not even generally agreeing with the travel rule. But at the end of the day, those things can absolutely be done with technology we already have. The problem is is we have to get there. And if we if we continue on the same path where our narrative,
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like, when when if I go to a regulator and I talk to a regulator, I always hear about the same 3 or 4 things. Obviously,
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whatever. There's, like, criminal the money on on the blockchain. They look at the Chainalysis report that says it was 15,000,000,000
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worth of, criminal money.
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But but they don't pay attention that the the market grew 560%
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in the same year
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because they only focus on 80% more more criminal money supposedly going through the blockchain.
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And the reason and so that that narrative gets to the regulator, and the regulator points out kind of the memeable aspects of our industry. What about this guy? Did you see what this person did? What about this guy in South Korea? Did you see what the fuck what was that? What about this?
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And so we we we need to not only be drafting a narrative or creating a narrative about how to get more people in and create adoption and and and and make make a more powerful group so we can combat these things. We need a better narrative
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about how we deal with, you know, regulators and how we deal with legislators. That and and that that's it. We have a terrible narrative right now. Like, how many times somebody's coming and and and everything they have in their mind about Bitcoin is or or crypto in general, but even just Bitcoin is gonna be like, you know, El Salvador.
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I don't know everybody's opinion in El Salvador. I think it's great that somebody stepped forward and did something, but it's a meme.
356
00:34:01.455 --> 00:34:05.075
It's a meme, and it doesn't help that that narrative of trying to get regulatory
357
00:34:05.615 --> 00:34:12.220
kind of oversight out of Bitcoin. All they wanna do is jump in after that because it's memeable. Well, I think the thing
358
00:34:12.680 --> 00:34:20.785
is people are always looking for opportunities, and if it's an opportunity for them to take more power or control because it's a crisis, they will. Yeah. So I think part of it comes down
359
00:34:21.085 --> 00:34:30.309
to have to like, actually fighting that ideological point, like, the principle point of financial surveillance. It shouldn't be we shouldn't be putting people innocent people at risk. Look at the Celsius doxing,
360
00:34:30.769 --> 00:34:40.635
and now okay. That could be debatable because it's part of a bankruptcy proceeding, etcetera, rabbit. Nevertheless, those customers had to be k y seed and their real first name and
361
00:34:40.935 --> 00:34:45.069
their the amount of how much, you know, coin they had, and the transaction
362
00:34:45.450 --> 00:34:46.509
history was doxed.
363
00:34:46.890 --> 00:34:51.414
Yeah. Which in this case wasn't too bad because now you know exactly who doesn't have any money. But,
364
00:34:51.974 --> 00:34:53.895
you know, it's the same to the on chain
365
00:34:54.295 --> 00:34:58.474
They wouldn't. History and then see if they still have money. No. They wouldn't.
366
00:34:59.040 --> 00:35:13.825
Anybody I mean, because you have they they had withdrawal times and deposit times and exact amount, so you could connect that with the chain surveillance companies. You connect that with that, and then can see on chain activity. And, presumably, not everyone at Celsius was using it with all of their money,
367
00:35:14.525 --> 00:35:16.224
so they only got partially rugged
368
00:35:16.930 --> 00:35:19.510
and fully doxed, but partially rugged. That's true.
369
00:35:19.970 --> 00:35:25.270
So the point is why should all these innocent people be put at risk? And there's another example in Australia,
370
00:35:25.575 --> 00:35:27.275
Optus, the 2nd largest telecommunications
371
00:35:27.735 --> 00:35:29.835
company, had 10,000,000 customers
372
00:35:30.215 --> 00:35:31.435
with their name,
373
00:35:31.975 --> 00:35:46.224
and address in many cases was doxed. And for 2,800,000 of those customers had their passport or driver's licence number doxed, meaning they are now at risk of identity theft. So and that wasn't even a hack. They just had it on open API.
374
00:35:46.605 --> 00:35:51.505
So there there there's there's a debate there as well. I think the Optus CEO came on that. But anyway, the point is
375
00:35:52.050 --> 00:35:58.230
they're storing all these data. We've created this culture and normalized it. Should we not be pushing back on the normalization
376
00:35:58.530 --> 00:36:00.470
here? Should we not be trying to,
377
00:36:01.545 --> 00:36:02.045
create
378
00:36:02.745 --> 00:36:04.285
a better system that doesn't
379
00:36:05.465 --> 00:36:13.070
put so many innocent people at risk? And the risk is different for for people. Oh sorry. Yeah. No go for it. Yeah I was gonna say the risk is different for the people,
380
00:36:13.530 --> 00:36:18.349
in the legacy financial system than for crypto holders, right? Because if you're holding bitcoin,
381
00:36:18.845 --> 00:36:28.225
you know, that's a physical attack potential. Whereas if you have a bank account, it's it's a little bit more difficult. You have to kidnap somebody's kids or something like that to to extract that money.
382
00:36:29.490 --> 00:36:36.790
So the level playing field argument there doesn't really hold. But on the other hand, if it does hold, I would say it's also bad when a bank leaks.
383
00:36:37.185 --> 00:36:48.560
Because if say, ing with millions of customers leaks 10 years of transaction history, you can see everybody's salary, everybody's spending habits, everybody's tax payments. That sort of stuff would be pretty bad too.
384
00:36:49.020 --> 00:37:00.224
Yeah. But you were saying? No. I was just going to say, as you mentioned, I think we just have to propose and suggest better better alternatives. And the, the alternative cannot be, you know, we just don't do anything,
385
00:37:01.085 --> 00:37:06.349
because that's not going to happen. We won't have, you know, globally connected financial system,
386
00:37:07.290 --> 00:37:09.470
without any form of political
387
00:37:09.930 --> 00:37:13.549
or regulatory oversight and supervision. And that's what I'm saying.
388
00:37:13.885 --> 00:37:18.945
We should try to, to, to change the narrative and, and try to use those
389
00:37:19.485 --> 00:37:21.645
blockchain native tools to better combat,
390
00:37:21.965 --> 00:37:25.350
anti money laundering. And I think we have we have quite
391
00:37:25.970 --> 00:37:31.990
a good amount of arguments on our side. If you look at, you know, how effective is AML under the current frameworks,
392
00:37:32.565 --> 00:37:35.785
There's even the United Nations office on on drugs
393
00:37:36.085 --> 00:37:41.385
and crime that I think 2 2 years ago or so, published data saying only 0.2%
394
00:37:42.550 --> 00:37:54.815
of basically laundered funds are seized by law enforcement. So I I think the data is on our side. The technology is on our side, but we have to move forward as an industry and propose and suggest those alternatives.
395
00:37:55.515 --> 00:37:56.015
Otherwise,
396
00:37:57.914 --> 00:37:58.414
otherwise,
397
00:37:58.954 --> 00:38:01.055
in my opinion, we're we're not
398
00:38:01.490 --> 00:38:06.789
going in the right direction. Let me tell you one more time. I mean and you make a good point that we haven't discussed. Right? I mean,
399
00:38:07.170 --> 00:38:13.154
I I I like I like having financial privacy, You know? And and I don't think money laundering is generally
400
00:38:13.694 --> 00:38:23.920
the biggest thing that I'm worried about. But, you know, I have 3 daughters, and there's human trafficking, and there's shit that it does get paid for. Now how much how much we wanna say it doesn't. It's a very small percentage,
401
00:38:24.485 --> 00:38:29.945
but it happens. And so, you know, you you you either live in a rule with rules or you live in a rule with no rules.
402
00:38:30.245 --> 00:38:54.170
The thing is is that you people, you know, wanna be in the room, so to speak, virtually, when those rules are drafted. Right? I don't I don't wanna be on the outside and have them make a rule that destroys my life without having a say. You know? Democracy sounds really good on paper. Doesn't really work in real life. There's only a few people in that room. And so being outside of that room doesn't doesn't put us on an advantage at all. And there are really bad shit there's really bad shit that happens in the world that is financed
403
00:38:54.950 --> 00:39:02.015
via money and digital money as well. I mean, it it happens. The only reason we're sitting in this room, to be honest, is because the initial adoption of Bitcoin
404
00:39:02.395 --> 00:39:08.180
was tied to a lot of criminal activity. Not anymore. The percentage is real low now. It's some it's, you know, it's a decimal point.
405
00:39:08.660 --> 00:39:12.839
But in the beginning, it was not a decimal point. It was a whole number and a pretty big one.
406
00:39:13.300 --> 00:39:30.270
And so, you know, at at the end of the day, if I mean, I don't know if anybody in the audience like, does anybody give a care about human trafficking and, you know, I don't know, illegal arm sales, all these things? Just somebody's gotta care about it. Right? I mean, we all want our financial privacy, but at the end of the day, you're gonna give up something, unfortunately,
407
00:39:30.704 --> 00:39:39.204
because, you know, that's the world we live in. And human human beings are great, and generally, I think most humans, you can trust them. But if there's no rules, even good people do bad things.
408
00:39:39.670 --> 00:39:43.690
I I think for me, it's not saying there's no rules. I think it's more just about the right
409
00:39:44.630 --> 00:39:54.555
way that the policing and the law enforcement should be carried out. Absolutely. You know, I think there's there's this conversation of, you know, get a warrant as opposed to this kind of mass surveillance,
410
00:39:55.815 --> 00:39:56.315
without
411
00:39:56.615 --> 00:39:59.840
where we are all just perpetually being doxxed
412
00:40:00.220 --> 00:40:03.920
whether it's companies leaking our stuff or whatever. What about the Cloud Act?
413
00:40:04.619 --> 00:40:12.935
You might know about the Cloud Act? No. So the Cloud Act allows the US government to go and get information out of any server that's tied to a US company.
414
00:40:13.240 --> 00:40:16.460
So that means that all you everybody running their nodes or whatever on AWS,
415
00:40:17.000 --> 00:40:19.660
even if you're running them out of Amsterdam, the UK, whatever,
416
00:40:20.125 --> 00:40:23.744
the US can roll in and grab that data. No warrant. Nothing. Anytime they want.
417
00:40:24.125 --> 00:40:25.505
That's what I'm talking about, infrastructure.
418
00:40:26.045 --> 00:40:31.090
Well, that's why it's important to be able to use your own node and make it as successful as possible
419
00:40:31.390 --> 00:40:39.375
rather than running on the cloud server. Yeah. Yeah. Yeah. But most people Most people I mean, I think you accidentally made a very important point, which is It wasn't accidental.
420
00:40:39.675 --> 00:40:46.415
Is that is is the solution here the solution here is and look, I I respect all you guys, and,
421
00:40:46.859 --> 00:40:49.520
you know, this is a a movement of personal responsibility,
422
00:40:49.900 --> 00:40:53.599
personal choice. You guys can choose whatever path you wanna choose.
423
00:40:54.865 --> 00:40:57.125
I have zero faith in regulators
424
00:40:57.745 --> 00:41:03.045
pulling back on financial surveillance. I think it only gets worse and worse from here. And I think
425
00:41:04.930 --> 00:41:06.710
I think the solution is
426
00:41:07.810 --> 00:41:11.830
open source tools that allow people to take back their sovereignty,
427
00:41:12.695 --> 00:41:14.235
choose that personal responsibility
428
00:41:14.615 --> 00:41:15.115
path,
429
00:41:15.655 --> 00:41:18.235
and opt out of the system. Because, otherwise,
430
00:41:18.535 --> 00:41:24.450
we're just gonna end up in a fully cap we're already basically in a fully captured system through the collaboration
431
00:41:24.750 --> 00:41:30.105
of of industry leaders. Burmesh, if you have to actively opt out of it, that's only gonna be 1%.
432
00:41:30.485 --> 00:41:34.245
A 100%. Be nice be nice for more people, but I guess the the other way is the,
433
00:41:35.760 --> 00:41:42.900
you know, the touching the stove, I guess argument that you make. Like eventually something really bad will happen because of this financial surveillance,
434
00:41:44.005 --> 00:41:46.265
Stasi like event, and then maybe
435
00:41:46.645 --> 00:41:50.345
people will realize privacy is a little bit more important and then you get reform.
436
00:41:50.725 --> 00:42:02.755
So I think everything's cyclical. I mean, we we will get to a point where it reduces. We're not there yet. So on that, I think this is another area. So we've only got about 4 and a half minutes left. But in terms
437
00:42:03.454 --> 00:42:07.635
of technology because people talk about this idea of a cat and mouse game. Right? So sometimes,
438
00:42:09.670 --> 00:42:20.725
people will find more ways to surveil but then there'll be more ways to make things more private. So and we're seeing this now with the Lightning Network. For example, there's work on bolt 12 and blinded paths,
439
00:42:21.345 --> 00:42:24.645
some of the tap root stuff, which may improve the privacy
440
00:42:25.340 --> 00:42:30.400
available to Bitcoin users. So I'm curious, Shaws, have you got any comments on what that does?
441
00:42:30.860 --> 00:42:33.120
That will will that meaningfully move the needle
442
00:42:33.494 --> 00:42:46.710
such that the surveillance becomes less effective? So what I like about lightning in principle is that you're not sharing every transaction with the whole world. Right? You're only sharing it between you and and the people you're paying. And it goes even further than that.
443
00:42:47.170 --> 00:42:47.990
With lightning,
444
00:42:48.690 --> 00:42:58.440
at least you know, there's some caveats but we don't have time for those. If you pay somebody, they cannot see who where the payment comes from. So if if I buy coffee here, they cannot
445
00:42:58.920 --> 00:43:02.460
see that, you know, I have â¬10 worth of bitcoin somewhere else.
446
00:43:02.839 --> 00:43:13.095
Whereas if you pay if you pay coffee from like some giant wallet with on chain transactions, they can see where it's coming from that there's more money there. So it's good to have privacy for the person who pays.
447
00:43:13.474 --> 00:43:16.215
And vice versa, it's nice for the merchant
448
00:43:16.580 --> 00:43:17.480
to have some privacy too
449
00:43:17.780 --> 00:43:18.260
so,
450
00:43:18.580 --> 00:43:21.620
their competitors can see how much money they have. But that's not yet
451
00:43:22.260 --> 00:43:25.320
well, that also happens a little bit with lightning, but then you can see
452
00:43:25.965 --> 00:43:27.425
which node you're paying to.
453
00:43:28.445 --> 00:43:36.550
So if I paid if I pay a merchant, I can see what their node is. Then I can go on chain with some tools and see that node, how many channels it has or at least
454
00:43:36.930 --> 00:43:57.265
some of how many channels they have. And so there are technologies in the works called blinded paths that you referred to, I believe, that will make it so that when you pay a merchant, you don't actually see what their note is. You get an intermediate hop, and then it goes from the intermediate hop to the merchant through some route that you don't know. It's very much like how Tor works where
455
00:43:57.645 --> 00:44:06.545
the the person using a Tor browser cannot see where the end server is, and the end server cannot see where the actual user is. That's where we wanna go
456
00:44:06.880 --> 00:44:15.620
and and that's, you know, that routing stuff is a pure privacy argument. There's no financial benefit to doing that. But the lack of on chain transactions,
457
00:44:16.265 --> 00:44:48.660
there is a financial argument for that because it's cheaper to pay that way. So you're because you're not sharing information with the whole world, you're not burdening the whole world with lots of stuff they need to store. And so that's one of the reasons why it can inherently be cheaper to pay that way. And that's a nice argument to have when a government says why are you, you know, not showing all your transactions on the Internet for the whole world? It's like, well, because I care about privacy. It's like, well, that's not an argument. You must be a criminal. Well, because it's cheaper. Oh, of course. That's perfectly valid.
458
00:44:49.125 --> 00:44:51.625
So it's it's nice that the cheapest option Well,
459
00:44:52.484 --> 00:44:57.065
so that's that's sort of the the big term trend that I hope to see that the fact that it's cheaper
460
00:44:57.500 --> 00:45:02.560
and more private will get you there. But there's a ton of caveats, right? If you have a lightning node,
461
00:45:03.420 --> 00:45:17.350
you put your own coins into that lightning node and with some, you know, some investigation somebody might still be able to see where your coins are. That's that's you know, lightning is technically more difficult. All sorts of stuff. But that's for a different panel. But I I think that makes me optimistic
462
00:45:18.290 --> 00:45:19.750
more so than using mixers,
463
00:45:20.850 --> 00:45:23.190
that makes on chain coins because
464
00:45:23.995 --> 00:45:29.455
with on chain First of all, it's more expensive to use those on chain mixers and it will get even more expensive if fees goes up.
465
00:45:30.235 --> 00:45:30.735
And
466
00:45:31.630 --> 00:45:34.290
secondly, because if you make even the slightest mistake,
467
00:45:34.830 --> 00:45:37.970
you might still be able to look through what the mixer is doing.
468
00:45:38.645 --> 00:45:42.665
So I think but but, you know, I I encourage people to keep building those mixers.
469
00:45:42.965 --> 00:45:54.734
Don't get discouraged by by random people getting arrested. I mean, at the end of the day, it's gonna win. Well, which technology? The Freedom 1 or the Surveillance? No. No. To be clear here, I expect in 5 years, over 90%,
470
00:45:55.195 --> 00:45:55.695
95%
471
00:45:56.075 --> 00:46:02.655
of people that are using Bitcoin in the greater crypto ecosystem will be using it in custodial regulated wallets,
472
00:46:03.570 --> 00:46:05.750
that are fully surveilled and fully compliant.
473
00:46:06.370 --> 00:46:06.870
And
474
00:46:07.250 --> 00:46:12.230
I'm happy to focus my time on the 5% that aren't using that because that's where the real movement is.
475
00:46:12.625 --> 00:46:15.684
That's that's probably right, but I hope not. Yeah.
476
00:46:16.305 --> 00:46:22.460
But yeah, I mean, we'll Yeah. We'll have to see how that goes. If you wanna have a very pessimistic long term picture,
477
00:46:23.240 --> 00:46:45.480
right now we need the Lightning Network because we cannot have super large blocks. But perhaps in 200 years, we can have super large blocks, and there would be no argument to use Lightning anymore. And then everything would be on chain and there would be no privacy and everything, every address would be on file. So that's something to look forward to. That's 20 years from now. Yeah. Well, I think that's pretty much all we've got time for. So, can everyone please thank our panelists
478
00:46:45.845 --> 00:46:46.345
today?
479
00:46:46.885 --> 00:46:48.184
So Patrick, Kevin,
480
00:46:48.484 --> 00:46:51.065
Shaws, and Matt. Thank you. Thanks, Stefan.
481
00:46:51.365 --> 00:46:51.865
Yeah.
482
00:46:52.565 --> 00:46:53.385
Thank you.
483
00:46:57.640 --> 00:46:59.180
Thank you so much, guys.
NOTE
Transcription provided by Podhome.fm
Created: 3/17/2024 4:22:12 PM
Duration: 2820.023
Channels: 1
1
00:00:00.880 --> 00:00:24.440
2
00:00:25.064 --> 00:00:27.484
the impact of various regulation
3
00:00:27.865 --> 00:00:29.164
on Bitcoin privacy.
4
00:00:29.785 --> 00:00:31.884
We've got Kevin Merkur from CoinMetro
5
00:00:32.425 --> 00:00:33.245
joining us.
6
00:00:33.980 --> 00:00:35.440
We've got Shaw's Provost.
7
00:00:36.220 --> 00:00:36.720
He's
8
00:00:37.100 --> 00:00:41.360
a bitcoin core developer and also a bitcoin podcaster, also
9
00:00:41.735 --> 00:00:43.434
hosting the bitcoin explained
10
00:00:43.895 --> 00:00:44.395
podcast.
11
00:00:44.855 --> 00:00:49.835
And, finally, we have Matt O'Dell. He's a bitcoin privacy advocate,
12
00:00:50.570 --> 00:00:53.070
and an educator and a podcaster hosting,
13
00:00:53.609 --> 00:01:03.045
the rabbit hole recap and also Citadel dispatch. So first of all, thanks for joining us today. We're gonna start with some background and some introduction.
14
00:01:03.665 --> 00:01:06.244
For a lot of people, they may not really be clear. Firstly,
15
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who is fat f and who made them king?
16
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Do you wanna start, Patrick?
17
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18
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of that size here in europe.
19
00:01:22.365 --> 00:01:27.025
Yeah. So F. A. T. F. The F. A. T. F. Is the financial action task force.
20
00:01:27.490 --> 00:01:29.430
It has been launched in 1989,
21
00:01:30.050 --> 00:01:31.670
by the G7 actually,
22
00:01:32.610 --> 00:01:36.710
and it has been launched by the G7 member countries together with the EU
23
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commission and a couple of other countries
24
00:01:39.924 --> 00:01:45.225
and has grown quite a lot since. So I think it has by now 4 d member countries
25
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and through some regional associations
26
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it covers
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almost every country on earth.
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And what the FATF was launched
29
00:01:53.815 --> 00:01:55.034
for in 1989
30
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was basically
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to streamline,
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to streamline
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activities and initiatives
34
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around,
35
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the fight
36
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against money laundering.
37
00:02:06.189 --> 00:02:09.010
And so it basically started I think in 1990
38
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90
39
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so 1 year after.
40
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After it was founded, it created its first recommendations,
41
00:02:16.975 --> 00:02:20.819
to all the member countries on how to fight money laundering
42
00:02:21.280 --> 00:02:28.165
later on. I think 10 years later or so. Also recommendations on how to fight terrorism financing were added. So those recommendations
43
00:02:28.465 --> 00:02:30.805
were basically updated every couple of years.
44
00:02:32.224 --> 00:02:35.285
And why is that relevant for bitcoin and crypto
45
00:02:36.030 --> 00:02:36.769
in 2019?
46
00:02:37.549 --> 00:02:39.650
So basically 3 years ago, the FATF
47
00:02:40.510 --> 00:02:41.650
for the first time,
48
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published
49
00:02:43.935 --> 00:02:44.675
a guidance
50
00:02:44.975 --> 00:02:53.630
on how to treat virtual assets. That's how the FATF treats Bitcoin and and other crypto assets On how to treat those from a money laundering perspective.
51
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And,
52
00:02:55.690 --> 00:02:57.870
without going too much into the details
53
00:02:58.694 --> 00:03:03.995
part of those guidelines included to basically add the travel rule
54
00:03:04.535 --> 00:03:12.890
for crypto as well. The travel rule is a rule that says whenever funds are transmitted between service providers, financial institutions,
55
00:03:13.750 --> 00:03:14.489
the personal
56
00:03:15.224 --> 00:03:16.605
information that belongs
57
00:03:16.905 --> 00:03:19.004
to the customers of those institutions
58
00:03:19.625 --> 00:03:28.020
has to be passed along from one institution to the other. And this travel rule has basically been expanded to crypto assets like bitcoin.
59
00:03:28.400 --> 00:03:29.140
So nowadays,
60
00:03:30.855 --> 00:03:36.555
according to the FATF travel rule, if one crypto asset company, an exchange or a custodian,
61
00:03:38.260 --> 00:03:41.159
if a customer of that custodian sends Bitcoin
62
00:03:41.459 --> 00:03:42.519
to another custodian,
63
00:03:43.620 --> 00:03:46.894
what has to happen in the background is that personal
64
00:03:47.995 --> 00:03:50.974
identifiable information like the name, the address,
65
00:03:51.510 --> 00:03:56.489
the wallet address, for example, has to be passed along from that custodian to the other.
66
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And obviously the FATF, so last sentence,
67
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those are recommendations.
68
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But if you don't follow those recommendations
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as a country, you end up on the FATF gray list or blacklist,
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which has severe consequences on, you know, the economic
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and financial system of that country because banks, financial institutions, companies
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will basically stop
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working and collaborating
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with the companies in those blacklisted
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countries. So, yeah, it it has quite some implications.
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penalty and punishment and it puts us into this world of financial surveillance.
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Now I actually wrote an article on FATF
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recently and for Bitcoin Magazine talking about this as a as an issue.
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I feel like FATF
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has the advantage that when when you talk about them, it just seems extremely boring.
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But but but at the core, you know, at the core, the these regulations
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and and and
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the burdensome compliance measures
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that
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they result in,
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do not stop criminals from from using Bitcoin or using dollars in a criminal way. They get around it. They figure out how to get around it. What it does do is it puts
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law abiding, honest people at risk.
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It stops them from interacting with the financial system, and pretty much as far as I'm concerned, this panel can be summed up with they can go fuck themselves.
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when it comes to
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building products and services then,
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what impact does this have on the ecosystem?
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Perhaps, Kevin, do you wanna chat a bit about the impact? You know, so
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not maybe not since 1989, but, you know, 2,000, 2,001.
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You know, the the issue with this is what regulation in general is. It exists,
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unfortunately,
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and I guess it meant some small case, fortunately,
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but it does exist. And so
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my outlook is always the same. I wanna change it. I think we have all the tools. If you talk about the Bitcoin network, you talk about blockchain in general, we have all the tools we need to actually get rid of most of the cumbersome regulation
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about sharing of data, about public data, about, semi anonymous or pseudo anonymous data. It's all there. The issue is it's just like they didn't understand crypto in the beginning. They don't understand the technology.
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Every I used to go into regulators' offices, and they would say I'd say, you know, crypto exchange. And they'd say,
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crypto. No. Well, blockchain, you know, good. Crypto, bad. But they still don't understand how those two things work. You know? And unfortunately for us, our big thing that we push all the time is access. And, yeah, FATF and and many other things with regulatory bird burdens kill access. I gotta be honest with you guys. The difference between traditional finance and crypto,
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you'd be hard set to find 1. You name any product in crypto, DeFi, doesn't matter. I can name you the equivalent in traditional finance.
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The big difference
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is access. And the way we lose that difference
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is that we sit on the outside and complain about it, you know. Fuck FADF.
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But saying fuck FADF doesn't stop FADF. In fact, there's gonna be some guy with glasses behind the keyboard somewhere that's super pissed off hearing that. He's gonna try and drive additional change inside FADF that actually doesn't help us. It hurts us. And so the for me, the way I look at change is I try to do it from the inside. So I talk to those guys. I tell them what I like about it, what I don't like about it, what's bad, what's good, why it's gonna work, why it won't work, how it doesn't work in traditional, how it works, and how it's not gonna work in any nuanced,
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finance product either.
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So I think we're in agreement, but, yeah, I unfortunately, I can't walk into the you know, talk to regular and say, oh, before we start,
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you know, fuck Fattif and fuck what you guys do and, you know, that doesn't necessarily work. You know? Part part of part of their effectiveness
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have to censor themselves when they talk publicly about it because they're afraid that their
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livelihood is gonna be put at risk. They essentially have guns to their head. So what what does that mean? What that means is
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we have tons of money in this space.
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We have all these, you know,
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massive companies that have grown up in the Bitcoin industry,
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regulators wanna understand. They actually there are regulators that do wanna understand. There's legislators that wanna understand.
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But a lot of the biggest people with the biggest soapboxes in our industry, they run away from those people
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or, you know, they they try to publicly defame them. And the issue is we're all humans, so if I want something from someone, I'm gonna do everything I can to make that person do what I want them to do. And doing that from the outside in in kind of a, you know, in a certain type of narrative
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has never really worked. I mean, you have anybody ever heard of Egold?
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Not the new Egold, but Egold back in the day. The doctor from Florida created Egold. Yeah. Well, where the fuck is Egold now?
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Gone. Now one reason big reason for that, it was decentralized. If it was decentralized, it might still exist. The other reason is is that everybody that used it basically ran away from any type of rules that would that would potentially have allowed eGold to still exist.
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And it's you know, Bitcoin wouldn't be here if it wasn't decentralized. That's for sure. But you gotta remember that, you know, financial landscapes are made regulated ones are made with gatekeepers. Banks are gatekeepers into traditional finance, and guess who the gatekeeper is into crypto? Well, it's wallet providers, it's exchanges,
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etcetera. Those are the gatekeepers. So no matter how great we build these really cool infrastructures and how we, you know, build layer twos and we do all these great things, there's still a a a a way that, you know, regulation can hurt, maybe not kill, but hurt our industry. And so I for me, I I don't
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see, you know, public we can I mean, I I can get I can say anything to a regulator? I'll just put it in a different vernacular. Let's put it that way. And I have no problem talking about it publicly. If there's a regular in the audience, you guys wanna talk about how ridiculous FATF is and how it's not gonna work and how the the the travel rule doesn't work in traditional finance either, that it's caught less than, like, a nano percent of actual criminal money, we can talk about that over some coffee. Absolutely. Raise your hand if you're a regulator.
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Sure. We haven't heard from you. So let's, hear from you a little bit, your perspective,
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in terms of
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how, you know, building up,
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software in the space as well looks like
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under this FADF and AML regime.
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Just like to put it in this way, you know, if you look at something like Bitcoin Core,
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I don't see pull requests coming in that say, you know, we're going to implement a travel rule or
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such things. But you want to make sure it stays that way. So I think,
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it is important for the software to remain completely neutral and to be
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good for the privacy. And so far
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that's not a problem. Although, you know, we have seen recently with Ethereum,
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their mixing service where a developer was arrested. We still don't know exactly why. So there may be more going on. But at least the the public Well, I'm not here. But Yeah. He's in Amsterdam. Somewhere around here. Probably not not a nice building like this. He's actually probably not in Amsterdam. Anyway,
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I mean, the public prosecutor on their website and in the press releases as well as the police are communicating that they are opposed to his development work. At least that's the way I interpret it.
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But maybe that eventually goes to court and turns out there was something else going on.
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But that is quite concerning, of course, if you're not allowed to work on on software.
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But then I would still say, well, okay then I guess you move to America or someplace that has stronger free speech protections and you're still okay. So as a software developer I'm not immediately worried.
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But
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you know, where you see some things creeping in is, for example, this this protocol that was designed to verify your address to an exchange. A O P P. Yeah. Do you wanna just explain for people who don't know what is A0 p p and what was the,
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response in that? I think the gist of it is, some exchanges require you to prove that the address you're showing them where you want them to send the money, that it is your address and not some random guy on the Internet's address.
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And so the way you approve that in the Netherlands, the rule was eventually you just send them a screenshot of your wallet.
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Now that's actually quite bad because that reveals exactly what wallet you have,
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which some hacker will then eventually be able to, you know, they get the data from the exchange and they know where you keep your bitcoin.
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So this protocol would get would avoid that problem and it would also be more user friendly. What it would do is it would basically
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have your wallet sign a message using the private keys of your wallet, and then it would send that message back to the exchange.
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And there were some technical issues with that but mostly there was a lot of,
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debate around it. More from a philosophical or slippery slope kind of view. Like, do we want the feature like this in wallets?
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application developers be helping in this thing that impinges
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arguably on the user's privacy.
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But in this case, there was a lot of community debate there because I think on one hand, people were saying, well, it helps them self custody but at the cost of reduced privacy.
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And so I think that was where certain
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wallets,
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put that feature into
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their wallet and some of them actually walked it back.
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So I wouldn't go as far as saying let's remove all message signing functionality from wallets. Although some people have suggested that. So
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I'm You can you can have the argument that you wanna make things so technically impossible that that's the way you resist regulation. But then you're removing functionality that people might need for very reasonable things. For example, you may wanna test that your cold storage actually works.
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And for that, message signing is useful. Things like that.
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trying to create you know, I remember back, like, the the ICO days. Right? The the most complicated white paper got the most money. Not because it made any sense, but for some reason, people equated, like, complicated things to mean good things.
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And, you know, we still have a learning curve in a learning curve issue in crypto.
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That that's just that's just a good people in the room. Maybe not. Maybe some. Yes. I don't know.
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But around the world, man, crypto is not it's it's the learning curve in some way, because the way we market crypto,
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we make it seem like it's so nuanced and amazing and innovative,
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and those things are great from a from a selling standpoint. But then people are like, well, I don't I can't even, you know, I can't even turn my blender on without blowing a fuse. I'm not I'm not going I'm not gonna do this. And so I think, you know, signing signing is definitely fundamental and there's no reason we should get rid of signing. And you made a joke actually via I think it was via email about Craig Wright. You tell Craig Wright about, you know, signing wallets. He probably needs that information more than anybody else.
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That might be a bit bit too much inside baseball.
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So like I said, this is not happening yet, but I think in the very long term, what I'm worried about is something along the lines of you have white bitcoin and black bitcoin
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and
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exchanges will only touch the white bitcoin and they will not touch the black bitcoin.
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And this white and black is defined by, you know, is it fully compliant with all every regulation on the book? You know, is is your Bitcoin now just registered with the European Union? That sort of stuff. Yeah. That's the key point. And then that would still happen at the exchange level, but at some point maybe they start putting pressure on miners to say, well, you shouldn't mine transactions containing any of that. Then they find out that it makes no sense because if you don't mine a transaction, it just goes into the next block because some other miner will do it. So then they'll push for well you cannot build blocks on top of all the blocks. So eventually you might get regulators pushing for a fork in that direction. That's sort of my worst case scenario
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that I would like to not happen.
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God forbid that they try to regulate the technology.
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I mean, obviously, there was a push to regulate the Internet at one point. That would have been comical.
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Maybe not now. It wouldn't be so comical now, but at the time, it would have been funny.
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And and that's that that is definitely a road nobody in this room anybody forget about private if you're a privacy advocate, if you just simply like,
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in the world per capita. Maybe not anymore because it's pointless with signal and WhatsApp.
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But it's not not every technology cannot be captured by regulators. So just saying like, okay, Bitcoin is impervious to harm. Nobody can destroy it. Let's just sit back and chill and and let them try. Go down that road. I e we don't want them to try and regulate the technology. Well, there's 2 things. You want them. Yeah, you can have people lobby so that they don't even try
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which, you know, is nice. And you also wanna make sure that if they do try that you have some way to make sure they don't succeed,
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right? Because you can make a completely centralized currency like I don't know, ripple or something like that. And you can say well, just pretend we're bitcoin. Just treat us like we're decentralized and neutral and don't detect the protocol.
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And then maybe they won't because, you know, I haven't seen any attacks on on protocols from regulators. Even protocols that will be very easy to attack. But I mean you you've mentioned it earlier and it it bears repeating since we're in the Netherlands. Like Alexey
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one of the best privacy tools on Ethereum. It had massive volume,
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and they threw him in jail, and they won't let him out of jail. They call him a flight risk because he owns he owns Ethereum, and we can't prove how much Ethereum he owns, which they could say to any single person in this room. He also owns a Russian passport.
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But Yeah. But if he goes back to Russia, he gets drafted in a war.
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Maybe. I don't know. Well, politics saying is that's how that's how, you know, you can go down these deep,
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you know, theoreticals
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about
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how they could try and make some kind of
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protocol level censorship. But but in the end, all you really need to do
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is what we're seeing happen, which is you put guns to certain people's heads, you make an example out of them, and the majority will over comply as a result.
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And we already see we see exchanges
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blacklist collaborative
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transactions right now. There's no law that says it.
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There's no absolute regulation that says they have to do it, but they over comply as a result. Yeah. I mean, that's that's
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also a business decision. But we had That's business risk. We had we had, you know, Circle has USDC,
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and as soon as the tornado cash thing happened I mean, I know it's Ethereum, but at the same time, like, it's it should be a learning experience for all of us. As soon as the tornado cash sanctions came out,
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they froze all the they froze all the USDC that was connected to tornado cash. But So what exactly are we doing in this industry? What is what is the goal here? Is the goal actually freedom,
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We take a canoe. We go up a river of shit, which is basically regulatory. We get them to finally figure out that they we don't need them anymore. We and it's all functioning great.
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You still have, you know, power grids. You still have the Internet. You still have pieces of the infrastructure we need because we're not building the underlying infrastructure. We're building on top of it. All this is a layer 2, 3, 4, 5, 6, 7. You know, this isn't a true layer 1. So
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in in that sense, no matter what we do, we are still at risk. I mean, that risk doesn't go away
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because if they can you know, they power grids can be controlled. Access to power grids at some point will go it can be controlled now, but more and more as they get more digital, they will be controllable,
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Internet as in China, etcetera. So,
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you know, at the end of the I mean, it's it's it's like the gold bug, the whole Peter Schiff thing, like gold is better than Bitcoin. It's not.
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Right? But, you know, if shit hit the fan and all your power went out,
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well, you know, good luck with your paper wallet,
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you know, running around. So we we always have that risk. That risk doesn't go away. And so how do you get around that risk? How do you show
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that this can actually function, reduce crime,
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reduce the illicit movement of funds? How do you do that
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by just kinda saying, you know, well, yeah, we're not gonna deal with you guys and everything you do is wrong? Most of the stuff they do is wrong. I'll agree with that. And and and it's usually proven wrong after 5 years, 10 years, 15 years. The goal of everybody in this room should be to help prove that wrong now. How do you prove it wrong? So what's the best way then? What's the best is it, you know, I guess, is it regulatory appeasement? Is it ideologically
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base layer, open source software protocols.
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And then on the other hand side, you have just, you know, financial institutions
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that offer centralized financial applications to, to customers all around the world. And I think I feel like we have to clearly separate between those 2. And it's important to note here that we're talking about the F. A. T. F. For example, and its recommendations like the travel
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rule. Those recommendations
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only apply
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to financial institutions. They don't apply if I as an individual
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individual,
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want to transfer
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some Bitcoin
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to another self custody wallet,
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the travel route doesn't apply
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to me. And I think it's super important that we keep that distinction.
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And I think we all agree that the technological base layer shouldn't be regulated.
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ish.
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But that distinction could disappear tomorrow if Macron says, you know, no. Okay. We don't like this Bitcoin. We also wanna regulate
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unwholesal
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wallets. So then and then, you know, if you took at the Amsterdam situation, again, I I don't know how to interpret what happened. I only know what they're saying in press releases.
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That idea that you can, you know,
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Oops. Which that alone Sorry. You may cancel me. No. No. I'm not gonna cancel you over that. I love you, Sures. But the the thing is, like,
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that's a perfect example. So
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unhosted wallet was not a term a year and a half ago probably or 2 years ago. They implemented that term. They pushed that term forward
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to essentially start this narrative that a a regular Bitcoin wallet is a is is is different,
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is is is hosted. A regular Bitcoin wallet is hosted when really it should be you have a Bitcoin wallet, and then you have an account at a financial institution. Those are the two distinctions. I think that was my main point. Narrative. I don't think that was a conspiracy to change the narrative. I think there was a lot of confusion in terminology
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Instead of
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saying wallet, which means
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your own keys, they say no let's make it free. A custodial, honey. So
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the yeah. Yeah. But the term custodial is confusing and when it's translated into other languages because remember in Europe, these laws are translated in 20 different languages. So the Dutch word is like,
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which is like savings wallet, which is an even stupider name.
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I even wrote to those people, like, the regulators, like, please use a different term. They did not listen to me, which whatever.
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so if you've been in Bitcoin for any period of time, it used to be that no exchanges had
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KYC.
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Right?
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And then around, like, 2016 ish, we basically saw it, like, sweep through sweep through the whole industry. And previously before that, it was, oh, I'm using a Bitcoin exchange. Your normal thought was it's not gonna require personal identifiable information. I'm not gonna have to give all this intimate info to the exchange.
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And some exchanges did, and those were the KYC exchanges. That was not my first experience. Yeah. Okay. Fair enough. But now when someone new comes into the space,
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it's the exact opposite. When someone new comes into the space, they assume that they're gonna scan their face and give their blood of their firstborn.
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But
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if if you're doing something other than that, then you're going out of your way. It's no KYC. Right? I'm I'm like it's almost
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implicitly
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But then the question is at what level should the playing field be? And you could say well maybe banks should be, you know, should protect the privacy of their users better
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instead of crypto companies
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oh, look at this area that could be unclean.
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We need new recommendations,
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therefore new regulations.
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So then FATF will then push these things. And maybe in some cases it happens at the country Right? Despite the conversation about ineffectiveness of a lot
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of these, Right? Despite the conversation about ineffectiveness
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of a lot of these things.
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Effectively, what happens is that have pushed
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more and more and more
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both in the fiat world and in the bitcoin,
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exchanges and bitcoin businesses world. So
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it just comes back to
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that I think that that's like a root cause thing. And I think ultimately,
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would there has to be some kind of pushback about the idea of
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it's
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right now if I pay with my, card, debit card, these records are kept for at least a decade.
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So the bank can look up 10 years from now exactly at what time I went to the bathroom. I think that is ridiculous. I think everybody would agree that's ridiculous.
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So you know, I don't, you know, I think we should change the financial system to to not do that. And with normal banks, it's very different difficult to not keep records
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because they actually need to know, you know, what what your,
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how much money you received, how much you spend and where you spent it. So it makes kind of it makes almost necessary for them to track it. But with, say a lightning wallet,
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you don't have to track that information.
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So if I could just use a lightning wallet to pay for the bathroom,
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then nobody needs to know who I am. They because there's no fraud risk for them.
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Not that anybody commits fraud when entering a toilet.
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if we didn't have those kind of rules, AML rules like the Trevor rule from from the FATF,
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It would be kind of a black box where those funds are coming from, where those funds are going. If those funds were commingled with
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whatever kind
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of criminalized,
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activity in the past.
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The difference with crypto assets, Bitcoin and others is that
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we can basically use the native tools that are inherent to the blockchain
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in order to to combat
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money laundering terrorism financing way more effectively
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than with some of these more traditional rules. And I think
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if we are able as as an industry to to communicate and educate,
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you know, the policymakers and the regulators on those issues and
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my strategy wouldn't
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be to go in the room and say, you know, fuck fuck FADF, but, you know, go in and try to educate and and and and discuss and really try to to get a good grasp of of of what the reason is for those roots and how
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there might be better alternatives with this better with this newer technology.
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I think we have seen also some better results. I mean, in Germany, in the EU
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now,
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the policymakers have moved to a more risk based approach for transactions
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with self custody wallets, for example,
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we
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where they prescribe that those,
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centralized companies have to use blockchain analytics, for example, when they transact with self custody wallets.
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And only if those blockchain native analytics tool flag a high risk, high ML risk, for example, those companies have to move forward with more,
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They will do things
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and then only give a signal if there's a if there's something bad and then it a human will look at it. But it but the thing is you're already being surveilled. So whether or not you get flagged just means you get more surveillance on you, but you're already being surveilled.
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And this is the same with banks. Right? They have all these systems that monitor transactions that that look for irregular patterns.
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And so the narrative
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would be, oh, we're not really surveilling you. We're only checking suspicious transactions.
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But you had to look at the transactions to decide whether they are suspicious or not. So the surveillance is already happening at that level. It's pseudo anonymous
333
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334
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Not Not with banks. They just have you backing on Well, I'm not with these companies like you mentioned that are these black boxes. It's pseudonymous
335
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when they're doing it, but they I keep getting all the data and it's just one click of a button to make it not Sudan, and I think And don't forget there's all this data sharing as well. Right? There's an there's an interesting point to be made in that. So I I live on both sides like fiat and crypto. Right? Because, obviously, running exchange, I come from traditional finance.
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And what I'm seeing now is scary in the sense that when you look at sanctions as they come out now we just had a sanction that came out, I think, last Friday, an additional sanction about Russia.
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There's one rule for banks
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and there's a very much more stringent rule for crypto exchanges.
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And the re that's it's a there's a very clear reason, and it's not a rational one. It's not because there's some inherent, heightened risk with crypto. It's not because crypto can be laundered easily than fiat money because it can't.
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The reason is is because the narrative.
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So
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not only do we need to control the narrative to spread adoption.
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We need to control the narrative to make sure that you know, if the if the end goal is that,
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the travel rule and all these things become automated, and I agree that
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not I'm not even generally agreeing with the travel rule. But at the end of the day, those things can absolutely be done with technology we already have. The problem is is we have to get there. And if we if we continue on the same path where our narrative,
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like, when when if I go to a regulator and I talk to a regulator, I always hear about the same 3 or 4 things. Obviously,
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whatever. There's, like, criminal the money on on the blockchain. They look at the Chainalysis report that says it was 15,000,000,000
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worth of, criminal money.
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But but they don't pay attention that the the market grew 560%
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in the same year
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because they only focus on 80% more more criminal money supposedly going through the blockchain.
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And the reason and so that that narrative gets to the regulator, and the regulator points out kind of the memeable aspects of our industry. What about this guy? Did you see what this person did? What about this guy in South Korea? Did you see what the fuck what was that? What about this?
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And so we we we need to not only be drafting a narrative or creating a narrative about how to get more people in and create adoption and and and and make make a more powerful group so we can combat these things. We need a better narrative
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about how we deal with, you know, regulators and how we deal with legislators. That and and that that's it. We have a terrible narrative right now. Like, how many times somebody's coming and and and everything they have in their mind about Bitcoin is or or crypto in general, but even just Bitcoin is gonna be like, you know, El Salvador.
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I don't know everybody's opinion in El Salvador. I think it's great that somebody stepped forward and did something, but it's a meme.
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It's a meme, and it doesn't help that that narrative of trying to get regulatory
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kind of oversight out of Bitcoin. All they wanna do is jump in after that because it's memeable. Well, I think the thing
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to have to like, actually fighting that ideological point, like, the principle point of financial surveillance. It shouldn't be we shouldn't be putting people innocent people at risk. Look at the Celsius doxing,
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and now okay. That could be debatable because it's part of a bankruptcy proceeding, etcetera, rabbit. Nevertheless, those customers had to be k y seed and their real first name and
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their the amount of how much, you know, coin they had, and the transaction
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history was doxed.
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364
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you know, it's the same to the on chain
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366
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Anybody I mean, because you have they they had withdrawal times and deposit times and exact amount, so you could connect that with the chain surveillance companies. You connect that with that, and then can see on chain activity. And, presumably, not everyone at Celsius was using it with all of their money,
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so they only got partially rugged
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and fully doxed, but partially rugged. That's true.
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Optus, the 2nd largest telecommunications
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company, had 10,000,000 customers
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with their name,
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and address in many cases was doxed. And for 2,800,000 of those customers had their passport or driver's licence number doxed, meaning they are now at risk of identity theft. So and that wasn't even a hack. They just had it on open API.
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So there there there's there's a debate there as well. I think the Optus CEO came on that. But anyway, the point is
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they're storing all these data. We've created this culture and normalized it. Should we not be pushing back on the normalization
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here? Should we not be trying to,
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create
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a better system that doesn't
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in the legacy financial system than for crypto holders, right? Because if you're holding bitcoin,
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you know, that's a physical attack potential. Whereas if you have a bank account, it's it's a little bit more difficult. You have to kidnap somebody's kids or something like that to to extract that money.
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So the level playing field argument there doesn't really hold. But on the other hand, if it does hold, I would say it's also bad when a bank leaks.
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Because if say, ing with millions of customers leaks 10 years of transaction history, you can see everybody's salary, everybody's spending habits, everybody's tax payments. That sort of stuff would be pretty bad too.
384
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385
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because that's not going to happen. We won't have, you know, globally connected financial system,
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without any form of political
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or regulatory oversight and supervision. And that's what I'm saying.
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We should try to, to, to change the narrative and, and try to use those
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blockchain native tools to better combat,
390
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anti money laundering. And I think we have we have quite
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a good amount of arguments on our side. If you look at, you know, how effective is AML under the current frameworks,
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There's even the United Nations office on on drugs
393
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and crime that I think 2 2 years ago or so, published data saying only 0.2%
394
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of basically laundered funds are seized by law enforcement. So I I think the data is on our side. The technology is on our side, but we have to move forward as an industry and propose and suggest those alternatives.
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Otherwise,
396
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otherwise,
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in my opinion, we're we're not
398
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399
00:38:07.170 --> 00:38:13.154
I I I like I like having financial privacy, You know? And and I don't think money laundering is generally
400
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the biggest thing that I'm worried about. But, you know, I have 3 daughters, and there's human trafficking, and there's shit that it does get paid for. Now how much how much we wanna say it doesn't. It's a very small percentage,
401
00:38:24.485 --> 00:38:29.945
but it happens. And so, you know, you you you either live in a rule with rules or you live in a rule with no rules.
402
00:38:30.245 --> 00:38:54.170
The thing is is that you people, you know, wanna be in the room, so to speak, virtually, when those rules are drafted. Right? I don't I don't wanna be on the outside and have them make a rule that destroys my life without having a say. You know? Democracy sounds really good on paper. Doesn't really work in real life. There's only a few people in that room. And so being outside of that room doesn't doesn't put us on an advantage at all. And there are really bad shit there's really bad shit that happens in the world that is financed
403
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via money and digital money as well. I mean, it it happens. The only reason we're sitting in this room, to be honest, is because the initial adoption of Bitcoin
404
00:39:02.395 --> 00:39:08.180
was tied to a lot of criminal activity. Not anymore. The percentage is real low now. It's some it's, you know, it's a decimal point.
405
00:39:08.660 --> 00:39:12.839
But in the beginning, it was not a decimal point. It was a whole number and a pretty big one.
406
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And so, you know, at at the end of the day, if I mean, I don't know if anybody in the audience like, does anybody give a care about human trafficking and, you know, I don't know, illegal arm sales, all these things? Just somebody's gotta care about it. Right? I mean, we all want our financial privacy, but at the end of the day, you're gonna give up something, unfortunately,
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because, you know, that's the world we live in. And human human beings are great, and generally, I think most humans, you can trust them. But if there's no rules, even good people do bad things.
408
00:39:39.670 --> 00:39:43.690
409
00:39:44.630 --> 00:39:54.555
way that the policing and the law enforcement should be carried out. Absolutely. You know, I think there's there's this conversation of, you know, get a warrant as opposed to this kind of mass surveillance,
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without
411
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where we are all just perpetually being doxxed
412
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whether it's companies leaking our stuff or whatever. What about the Cloud Act?
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414
00:40:13.240 --> 00:40:16.460
So that means that all you everybody running their nodes or whatever on AWS,
415
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even if you're running them out of Amsterdam, the UK, whatever,
416
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the US can roll in and grab that data. No warrant. Nothing. Anytime they want.
417
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That's what I'm talking about, infrastructure.
418
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419
00:40:31.390 --> 00:40:39.375
rather than running on the cloud server. Yeah. Yeah. Yeah. But most people Most people I mean, I think you accidentally made a very important point, which is It wasn't accidental.
420
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Is that is is the solution here the solution here is and look, I I respect all you guys, and,
421
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you know, this is a a movement of personal responsibility,
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personal choice. You guys can choose whatever path you wanna choose.
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I have zero faith in regulators
424
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pulling back on financial surveillance. I think it only gets worse and worse from here. And I think
425
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I think the solution is
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open source tools that allow people to take back their sovereignty,
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choose that personal responsibility
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path,
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and opt out of the system. Because, otherwise,
430
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we're just gonna end up in a fully cap we're already basically in a fully captured system through the collaboration
431
00:41:24.750 --> 00:41:30.105
432
00:41:30.485 --> 00:41:34.245
A 100%. Be nice be nice for more people, but I guess the the other way is the,
433
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you know, the touching the stove, I guess argument that you make. Like eventually something really bad will happen because of this financial surveillance,
434
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Stasi like event, and then maybe
435
00:41:46.645 --> 00:41:50.345
people will realize privacy is a little bit more important and then you get reform.
436
00:41:50.725 --> 00:42:02.755
437
00:42:03.454 --> 00:42:07.635
of technology because people talk about this idea of a cat and mouse game. Right? So sometimes,
438
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people will find more ways to surveil but then there'll be more ways to make things more private. So and we're seeing this now with the Lightning Network. For example, there's work on bolt 12 and blinded paths,
439
00:42:21.345 --> 00:42:24.645
some of the tap root stuff, which may improve the privacy
440
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available to Bitcoin users. So I'm curious, Shaws, have you got any comments on what that does?
441
00:42:30.860 --> 00:42:33.120
That will will that meaningfully move the needle
442
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443
00:42:47.170 --> 00:42:47.990
With lightning,
444
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at least you know, there's some caveats but we don't have time for those. If you pay somebody, they cannot see who where the payment comes from. So if if I buy coffee here, they cannot
445
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see that, you know, I have â¬10 worth of bitcoin somewhere else.
446
00:43:02.839 --> 00:43:13.095
Whereas if you pay if you pay coffee from like some giant wallet with on chain transactions, they can see where it's coming from that there's more money there. So it's good to have privacy for the person who pays.
447
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And vice versa, it's nice for the merchant
448
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to have some privacy too
449
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so,
450
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their competitors can see how much money they have. But that's not yet
451
00:43:22.260 --> 00:43:25.320
well, that also happens a little bit with lightning, but then you can see
452
00:43:25.965 --> 00:43:27.425
which node you're paying to.
453
00:43:28.445 --> 00:43:36.550
So if I paid if I pay a merchant, I can see what their node is. Then I can go on chain with some tools and see that node, how many channels it has or at least
454
00:43:36.930 --> 00:43:57.265
some of how many channels they have. And so there are technologies in the works called blinded paths that you referred to, I believe, that will make it so that when you pay a merchant, you don't actually see what their note is. You get an intermediate hop, and then it goes from the intermediate hop to the merchant through some route that you don't know. It's very much like how Tor works where
455
00:43:57.645 --> 00:44:06.545
the the person using a Tor browser cannot see where the end server is, and the end server cannot see where the actual user is. That's where we wanna go
456
00:44:06.880 --> 00:44:15.620
and and that's, you know, that routing stuff is a pure privacy argument. There's no financial benefit to doing that. But the lack of on chain transactions,
457
00:44:16.265 --> 00:44:48.660
there is a financial argument for that because it's cheaper to pay that way. So you're because you're not sharing information with the whole world, you're not burdening the whole world with lots of stuff they need to store. And so that's one of the reasons why it can inherently be cheaper to pay that way. And that's a nice argument to have when a government says why are you, you know, not showing all your transactions on the Internet for the whole world? It's like, well, because I care about privacy. It's like, well, that's not an argument. You must be a criminal. Well, because it's cheaper. Oh, of course. That's perfectly valid.
458
00:44:49.125 --> 00:44:51.625
So it's it's nice that the cheapest option Well,
459
00:44:52.484 --> 00:44:57.065
so that's that's sort of the the big term trend that I hope to see that the fact that it's cheaper
460
00:44:57.500 --> 00:45:02.560
and more private will get you there. But there's a ton of caveats, right? If you have a lightning node,
461
00:45:03.420 --> 00:45:17.350
you put your own coins into that lightning node and with some, you know, some investigation somebody might still be able to see where your coins are. That's that's you know, lightning is technically more difficult. All sorts of stuff. But that's for a different panel. But I I think that makes me optimistic
462
00:45:18.290 --> 00:45:19.750
more so than using mixers,
463
00:45:20.850 --> 00:45:23.190
that makes on chain coins because
464
00:45:23.995 --> 00:45:29.455
with on chain First of all, it's more expensive to use those on chain mixers and it will get even more expensive if fees goes up.
465
00:45:30.235 --> 00:45:30.735
And
466
00:45:31.630 --> 00:45:34.290
secondly, because if you make even the slightest mistake,
467
00:45:34.830 --> 00:45:37.970
you might still be able to look through what the mixer is doing.
468
00:45:38.645 --> 00:45:42.665
So I think but but, you know, I I encourage people to keep building those mixers.
469
00:45:42.965 --> 00:45:54.734
470
00:45:55.195 --> 00:45:55.695
95%
471
00:45:56.075 --> 00:46:02.655
of people that are using Bitcoin in the greater crypto ecosystem will be using it in custodial regulated wallets,
472
00:46:03.570 --> 00:46:05.750
that are fully surveilled and fully compliant.
473
00:46:06.370 --> 00:46:06.870
And
474
00:46:07.250 --> 00:46:12.230
I'm happy to focus my time on the 5% that aren't using that because that's where the real movement is.
475
00:46:12.625 --> 00:46:15.684
476
00:46:16.305 --> 00:46:22.460
But yeah, I mean, we'll Yeah. We'll have to see how that goes. If you wanna have a very pessimistic long term picture,
477
00:46:23.240 --> 00:46:45.480
right now we need the Lightning Network because we cannot have super large blocks. But perhaps in 200 years, we can have super large blocks, and there would be no argument to use Lightning anymore. And then everything would be on chain and there would be no privacy and everything, every address would be on file. So that's something to look forward to. That's 20 years from now. Yeah. Well, I think that's pretty much all we've got time for. So, can everyone please thank our panelists
478
00:46:45.845 --> 00:46:46.345
479
00:46:46.885 --> 00:46:48.184
So Patrick, Kevin,
480
00:46:48.484 --> 00:46:51.065
Shaws, and Matt. Thank you. Thanks, Stefan.
481
00:46:51.365 --> 00:46:51.865
Yeah.
482
00:46:52.565 --> 00:46:53.385
483
00:46:57.640 --> 00:46:59.180
