🎙 Eric Wall of Arcane Assets: "Bitcoiners Protect BTC Against 'Shitcoinism' But They're Also Keeping it From Valid Technical Ideas"

In this week’s episode I speak with Eric Wall, chief investment officer at Arcane Assets. Eric has many claims to fame. One is the now renowned Bitcoin rainbow chart which overlays the color scheme over the bitcoin price in a way that would imply it helps predict future prices. But that’s exactly what he wanted to debunk. After diving into the math and statistics of technical analysis he has become resolutely against it as an investment tool.

His other claim to fame is that he used to be known as the Altcoin Slayer, thanks to his brutal takedowns of non-bitcoin tokens in the 2017 ICO era, which made him popular among Bitcoin maximalists. But he’s not a maximalist anymore, and sees value in other blockchains as he has recognized they can fulfill use cases that Bitcoin can’t. He even argues Bitcoin risks being overtaken by Ethereum if it doesn’t adopt some ETH’s own features and developments, such as a fee-burning mechanism and a more expressive scripting language.

In any case, he believes that even if Bitcoin doesn’t become more programmable, it could remain the sector’s “digital gold” while Ethereum continues to develop as the settlement layer for financial applications. Still, there’s a little bit of maximalism left in him as he believes Ethereum flippening over Bitcoin, or any coin overtaking Bitcoin, would be a disaster for crypto as a whole, as it would prove that the sector doesn’t have a viable store of value.

Finally, something that isn’t really a claim to fame but maybe should be, is that when Eric had to choose between his comfy job at Nasdaq or Crypto Twitter, he chose Crypto Twitter. Hang tight for a fascinating interview.

The podcast was led by Camila Russo, and edited by Alp Gasimov. Transcript was edited by Owen Fernau.

🎙Listen to the interview in this week’s podcast episode here:

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👀 Only paid subscribers have access to the full interview transcript below.

Eric Wall: I was a computer science student at Lund University in Sweden. I discovered Bitcoin, I heard about it in 2011, and then I made my first investment in 2012. And at my university, we were covering the Tor network, figuring out how the Tor network works, and that led me to the dark web and discovering Bitcoin, and finally made an investment in 2012.

If I hadn't gone into computer science, I would probably have gone into finance. And with Bitcoin, I think I found an element that had overlaps from both. It had both the computer science and the financial element. And also, for me, it was like this was an asset class with a clean slate. So if I went into this asset and started to develop my experience and expertise within that domain, I assumed I could quite rapidly become one of the more knowledgeable people in the domain. So that was the first reaction and my initial thoughts on why I got into it.

“If I hadn't gone into computer science, I would probably have gone into finance. And with Bitcoin, I think I found an element that had overlaps from both.”

And I also wanted to understand how financial markets work and how trading works. So that sort of led me astray, actually, for a couple of years. Between 2012 and 2014, I was heavily involved in the technical analysis domain. Those are the types of people that you see that publish the charts with lines and the MACD indicators and the RSI indicators. And I was trying to use the same indicators that I saw that other prominent traders were using. And what happened was, I got far enough into my computer science studies and had learned to program sufficiently well that I was able to back test my trading strategies that I had developed and learned from other traders.

And that was a point of disillusionment for me because I discovered from a statistical perspective, there wasn't an empirical basis for the trading activities that I was doing were actually statistically profitable. So I started to ask other traders, do you have an empirical basis for using these indicators, and most of them did not. And it made me start to question the entire technical analysis domain when it comes to charting.

“I started to ask other traders, do you have an empirical basis for using these indicators, and most of them did not.”

And for some reason, I still somehow remain profitable. But what I understood was that there was always a discretionary element that I brought into my trades, like there was something going on in the industry. For example, I could see that there was some momentum building up around the Lightning Network that was finally going to solve the scalability issues for the Bitcoin network and I read the whitepaper of the Lightning Network. And those types of signals in the market, items that are connected to reality, were something that I could trade on. So I eventually eliminated all the indicators, chart-based, pattern-based trading, and now I try to distance myself from everything that has to do with technical analysis and focus on fundamental analysis and sentiment-driven analysis.

“...now I try to distance myself from everything that has to do with technical analysis and focus on fundamental analysis and sentiment-driven analysis.”

So I kind of started off as a trader. But also around 2014, and I was a computer science student, and I had the ability at Lund University to choose which subjects were most interesting to me. So I started to develop an understanding, and seek out courses that would give me an understanding, for the cryptographic primitives that underpin Bitcoin and blockchain technology in general.

By the end of my studies in 2015, I wrote a master’s thesis about blockchain technology in general. It was about how to create a blockchain-based ledger for securities settlement infrastructure. So there's a specific component in stock settlement called the central securities depository. This depository is where all the ownerships of stocks are registered all over the world. There's different ones depending on which region you are in. And I wrote the master’s thesis for a company that wanted to understand if they could make a blockchain-based central securities depository as a way to track the ownership of stocks using blockchain technology.

Blockchain-based Ledger for Securities

CR: And do you think it can be done?

EW: Oh, in my master’s thesis my angle into the question was that I wanted to make a public blockchain to address this problem, but there were regulatory requirements that I had to cater to. In the end, what I was able to propose at that point in time was a sort of a sidechain to Bitcoin. And the only reason that you would want to “blockchainify” the securities depository in the first place is to build a larger network effect globally so that you could have central securities depositories from all over the world collaborating on the same database. So I wanted it to be as permissive as possible, but there will still be elements of permission.

“...the only reason that you would want to “blockchainify” the securities depository in the first place is to build a larger network effect globally so that you could have central securities depositories from all over the world collaborating on the same database.”

For example, one of the requirements that was put on the ledger that I was supposed to design was that you needed a way to fix errors, basically. So they didn't want the immutability aspect. They wanted a collaborative database, but they also wanted a form of mutability to remain in the ledger system. But it was a very interesting master’s thesis because it led me to dig into the scripting language of Bitcoin sidechains, drivechains, also how you facilitate decentralized derivatives trading using Ethereum as the underlying platform, and how you solve the oracle problem.

So many of the sub-chapters in the thesis are multibillion dollar ideas right now. The centralized derivatives exchanges are, if you look at DYDX, for example, on Ethereum, that's exactly the concept that I was very early on discovering and mapping out in the thesis. And then with the oracle problem, that's basically Chainlink today, except that I didn't want to create an oracle solution that needed a token. In my opinion, you don't necessarily need a token to be involved in paying for the data from the oracles. And that's been one of the reasons why the Chainlink army, the Link Marines, and I don't get along very well.

Blockchain Strategy for TradFi

CR: You’re not very good friends.

EW: We're not very good friends. And they actually laugh at me. They're like, Eric, look at your master’s thesis from six years ago, you discovered the oracle problem, you had everything mapped out, and you didn't do anything about it. Now, it's a $20 billion idea, and you didn't cash in on that idea at all. And that was because I don't want to build it in a token-based way. For me having a token to pay for oracle data, it just adds additional friction, anyway.

So to avoid getting too deep into the specifics of the master’s thesis, what later happened was, I got hired by the firm that I wrote a master’s thesis for. That firm was called Cinnober. And not a lot of people know about this, but in the market technology domain, and when I'm talking about market technology, I'm talking about technology vendors that provide the infrastructure for tier one exchanges and clearinghouses around the world. So the most well-known player in that domain is NASDAQ.

And NASDAQ actually has their market technology division here in Stockholm and their longest running competitor in the market technology domain was another company called Cinnober, and they had been competing with each other from the basis of Sweden and Stockholm for 20 years. So I was working for Cinnober and I was hired there initially as someone to lead the enterprise blockchain vision at the company and how to participate in what everyone thought would be a revolution for the financial world. Well, not everyone, my job was sort of to convince and to lead the efforts at the company towards that direction.

“...I was hired there initially as someone to lead the enterprise blockchain vision at the company and how to participate in what everyone thought would be a revolution for the financial world.”

However, in my opinion, having worked with many of the enterprise blockchain consortiums, I quickly noticed two things. One of the things that I noticed was that it's very hard to build enterprise blockchain for a large group of participants in the financial sector. Because if you start with a very, very large network like R3, for instance, then you have these very big players that have very large demands, and they want to decide on the direction of the evolution of the system. And all of them have to agree, right? All of them have to make the decisions together, which makes this a very slow process.

And if you start smaller, if you look at something like what IBM they did with supply chain companies like Maersk, then they were very much faster moving, but with the end product that they delivered, it was very difficult to get buy-in from other participants later because they looked at it like, this is IBM’s solution. It's not something that's collaborative or decentralized or built for the entirety of an industry. So it was this problem like how do you bootstrap these types of enterprise networks.

And the second thing that I realized when I was working on this was that I got attracted to the cryptocurrency domain because I was very inspired by the fact that we were able to create entirely new asset classes, cryptocurrencies as a store of value, cryptocurrencies, as a medium of exchange, new assets with very, very interesting properties.

“...I got attracted to the cryptocurrency domain because I was very inspired by the fact that we were able to create entirely new asset classes…”

And through my master’s thesis, I sort of got sidetracked into starting to build synchronization layers for traditional enterprises which wasn't at all the thing that I was passionate about. When I had that realization that I sort of got duped into this industry that didn't really appeal to my passions, and at that point in time, I had sort of gotten full autonomy over the blockchain strategy at Cinnober, so I pivoted to the strategy of the company.

Instead of trying to participate in the blockchain, not Bitcoin world, we published an article that said, well, really it's Bitcoin not blockchain, like Bitcoin is the interesting thing. And there were tons of centralized exchanges like Binance and Coinbase, all of them struggling with capacity problems, throughput problems. They didn't have the capacity to process the transactional loads that were put on them in 2017.

And we had very, very fast matching engines. And we had the fastest map matching engine in the world at Cinnober at the time. So I thought, well, why don't we instead take the technology that we have and we deliver it to the cryptocurrency industry? And we did that, we did sell a matching engine to Bitstamp. Bitstamp now runs on the technology that we sold them today.

And sort of parallel to that, I was still managing my own cryptocurrency portfolio that I had been doing since 2012. This was a big deal for me. Managing this portfolio and discovering, when we went into the ICO era, there were tons of projects they were making outrageous claims about having solved the scalability trilemma, that they had infinite scalability, they were fully decentralized, and the user experience was impeccable, and they had zero fees. Like IOTA, for example, was one of those projects. Actually it was the head of the research department at my firm that dropped the IOTA white paper on my table and said, look at this. And he was sort of a cryptocurrency skeptic. But he put the IOTA white paper on my desk, and he said, this to me looks like some type of new innovation. This looks interesting.

So I started to read about it. And in my mind, if there's a project that can promise infinite scalability, zero fees and 100% decentralization, then I have to run home and sell my Bitcoin and buy this other asset. Right? So this led me to do the nitty-gritty investigation into these protocols. And I have the computer science background and I have been doing research in the blockchain technology domain for a sufficient amount of time that I was able to pinpoint the fundamental problems and flaws and the differences in marketing and the reality.

“I have the computer science background and I have been doing research in the blockchain technology domain for a sufficient amount of time that I was able to pinpoint the fundamental problems and flaws and the differences in marketing and the reality.”

So, this made me become a very angry person when I saw how IOTA became the fifth most valued cryptocurrency in the entire market. And the entire system was controlled by a single node. So in the marketing material it was 100% decentralized, but in reality there was one node that controlled the entire project. So this was when I started to publish articles about the flaws that I would discover with different projects.

And you mentioned that the rainbow chart was the thing that made me rise to fame, but from my perspective, they give me the moniker like the Altcoin Slayer because I used to publish these pieces where I was slaying altcoins. And I was, at the time also very much a Bitcoin maximalist in the sense that I did believe that all the features and functionalities that you could build in altcoins, you could emulate the same, you could build in the same type of functionality in Bitcoin using second layers likes drivechains and Lightning Network, for instance.

Bitcoin’s Limits

CR: Do you still believe that?

EW: No, I don't. And that's been one of the reasons why I'm no longer a Bitcoin maximalist because I understand that the Bitcoin scripting language is not expressive enough to have these layer two solutions that would be able to do all the smart contract logic. For instance, if you have a second layer to Bitcoin, and you're running smart contracts on there, and you want the robustness and the strength of the consensus engine of the Bitcoin network to resolve disputes in the second layer, the Bitcoin scripting language is not expressive enough to detect and understand the syntax and the semantics of what's going on in these expressive second layers. So it fundamentally cannot act as this arbiter, this judge, to settle those disputes.

“...the Bitcoin scripting language is not expressive enough to have these layer two solutions that would be able to do all the smart contract logic.”

Whereas in Ethereum, where you have this expressive base layer, you actually can identify, you can find invalid state transitions in very complex expressive second layers, which sort of invalidated my thesis that you could build any type of expressiveness on top of Bitcoin. You cannot today build any type of expressiveness on Bitcoin and still inherit all the strength from the consensus mechanism of Bitcoin. That's just not how the protocol works.

“You cannot today build any type of expressiveness on Bitcoin and still inherit all the strength from the consensus mechanism of Bitcoin.”

So that's why I became altcoin curious in the sense that if I wanted to see a scalable DeFi platform emerge, you would need some type of expressiveness embedded into the base layer of the protocol, which is why Bitcoin maximalists now call me a shitcoiner. But they can call me a shitcoiner, but the question that I have for Bitcoin maximalists is show me a second layer to Bitcoin that inherits all of the trust assumptions, the security guarantees, the strength of the consensus mechanism to expressive second layers for Bitcoin that also maintain a good user experience and a great deal of privacy.

So Lightning doesn't have a great user experience in mind, because it's channel-based, you have to have liquidity in your channels, and you can only interact with nodes that are also online. And privacy is also lacking in the Lightning Network. And if we could build expressive, privacy-focused, UX-friendly, second layers on top of Bitcoin, then I would return to my original thesis that we don't need altcoins, we can build everything as a second layer to Bitcoin. But as it currently stands, that doesn't look like it's going to become the most likely scenario and that's what caused me to become a controversial figure within the Bitcoin community.

“...if we could build expressive, privacy-focused, UX-friendly, second layers on top of Bitcoin, then I would return to my original thesis that we don't need altcoins…”

There's both good and bad with that. I enjoy being part of both communities. I’m trying to be a bridge between them. It doesn't always work out. In the end, it usually ends up with me getting hate from both Ethereum and the Bitcoin community instead of trying to become a bridge.

Leaving NASDAQ for Crypto Twitter

CR: I see you in a very unique space where you have the capacity of speaking with a lot of knowledge about many different cryptocurrencies. And very objectively, or at least in my perception, pretty objectively about them. So you look at Ethereum and you can describe the good and the bad on Ethereum and same with Bitcoin, you can say positive things about Cardano, you can talk about different cryptocurrencies.

What I'm finding more and more in this space, and I think it’s maybe because people tend to become specialized, is if people find a niche that they're interested in, and they start going down that rabbit hole, and then it's very hard for them to talk about anything else because they don't know enough about the outside world to do it. So you start seeing all of these maximalists across all these different cryptocurrencies.

So I think it's great that you can just talk about many different blockchains in a more or less objective way. Okay. So you're in the part of your story just before going into Arcane Assets. I’d imagine that was your own portfolio that you turned into a hedge fund and a research company.

EW: Yeah, so during my time at Cinnober, there was a lot of interest from people within my surroundings and from other corners of the world that basically asked if they could just copy the portfolio that I have so that I could manage the capital for them in the cryptocurrency space. So that led me down the track of trying to set up a structure for it so that I could just trade with their capital as if it was my own portfolio. And naturally, that translates into a hedge fund, is the most natural construction for that.

So I had been working on setting up a hedge fund as a side project throughout 2017-2018. So what basically happened was, right after we delivered the matching engine to Bitstamp, the stock price of Cinnober fell and it didn't have anything to do with us delivering a matching engine to Bitstamp. It was because Cinnober was trying to invest in many different verticals at the same time, many different business lines at the same time. And there were some insecurities in the market, about whether or not Cinnober would be able to fund all these initiatives with the cash flow of the company relative to its expenditures getting too strenuous.

So the stock price of Cinnober fell as a result of people not being sure that we were going to be around five years from now because of this over-investment in these other verticals. So what NASDAQ did, Cinnober had been the largest competitor to NASDAQ in providing market technology to exchanges and clearing houses like the London Metal Exchange, the Australian Securities Exchange, so on and so forth.

So they saw an opportunity to just outright acquire the entirety of Cinnober. But when they did that, I was brought into the NASDAQ blockchain team. And then the transition that I had been working on internally at Cinnober for a long time, which was Bitcoin not blockchain, in NASDAQ, it was back at blockchain not Bitcoin. They were more interested in building enterprise blockchain solutions again. And I don't want to speak negatively about my past employer, but I didn't really find any elements of decentralization inherent in the products that NASDAQ was building.

And one of the guarantees that NASDAQ gave us when they acquired Cinnober was that at NASDAQ you're never going to have more than six bosses above you. And I was very used to just working with one or two bosses above me that I had very good communication with so that I could lead the strategy. So I wasn't comfortable being put into this massive organization with six bosses over me.

“So I wasn't comfortable being put into this massive organization with six bosses over me.”

And NASDAQ would also be looking at my tweets because I was now part of the NASDAQ blockchain team. And they would be looking at my tweets, and they would be saying Eric, what is this thing that you're doing on Twitter? Why are you fighting with these people? And I'm trying to tell them that this has been a two year argument with the IOTA people and I'm finally going to be able to put the dagger and twist it around because I've finally been able to prove the things that I've been saying critically about the protocol. And they were like, no, no, no, you cannot be aggressive towards people. And I tried to explain that this is Crypto Twitter, this is how it works.

“...they were like, no, no, no, you cannot be aggressive towards people. And I tried to explain that this is Crypto Twitter, this is how it works.”

People understand and learn a lot from these back-and-forths between critics in the space, and the founders. Tons of more information gets revealed through this process. And this is something that I'm very passionate about. My goals are to help the cryptocurrency industry flourish as much as it can. And I wasn't willing to step down from that point and stop tweeting. And I couldn't accept having my tweets go through a review board so they would want to review every single tweet that I wrote, and I would just keep tweeting, keeping on with Twitter banter.

And that didn't sit too well with the NASDAQ team, so they gave me a severance package and said, Eric, do you want the severance package so instead you can go on and tweet as ever you like. And that was actually a great opportunity for me to go back to actually launching this hedge fund that I had been wanting to launch. So I said, I took the severance package, and kept tweeting the way that I wanted.

The first thing that I said to my new employer, Arcane, which was the company that I launched a hedge fund with, is that I said that my number one rule is do not interfere with the Twitter battles that I'm having in the cryptocurrency domain. That's where I live, that's my home, and as long as you don't take me out of that, we're going to be good friends.

“The first thing that I said to my new employer, Arcane, which was the company that I launched a hedge fund with, is that I said that my number one rule is do not interfere with the Twitter battles that I'm having in the cryptocurrency domain…”

CR: That’s an amazing story. Okay. Here's the guy who chose Crypto Twitter over NASDAQ. I think it was a very good decision.

EW: Yeah, I don't regret the decision at all. I mean, just imagining having been at NASDAQ for the past three years during all of this. I wouldn't have been able to tweet the rainbow chart, for instance, right?

Problems with the Stock-to-Flow Model

CR: I mean, it would have been a great loss to the world. Okay. So now explain what this rainbow chart is?

EW: So the rainbow chart, do you know about the stock-to-flow model for Bitcoin?

CR: Can you explain that for everyone?

EW: So the stock-to-flow model for Bitcoin is a theory that was popularized and actually created by a guy called PlanB. His Twitter handle is 100trillionUSD. And he made this theory by looking at the issuance rate of Bitcoin, so how many Bitcoins are getting issued in each time period.

So in the beginning of the Bitcoin system, you had 50 Bitcoins that were mined in each block. And then after the first halvening, which happens every four years, it drops down to 25 Bitcoins. And this translates into a concept called stock-to-flow. So you have a stock which is all the existing Bitcoins that are currently in circulation, and then you have the flow, which is the relative amount of new Bitcoins that are getting issued each year. So the relation between the existing stock and the new issuance, the flow, that's the stock-to-flow model.

“So you have a stock which is all the existing Bitcoins that are currently in circulation, and then you have the flow, which is the relative amount of new Bitcoins that are getting issued each year.”

And his argument was that just by looking at the stock-to-flow ratio that evolves over time, as the stock grows and the flow halfs every four years, then you have this mathematical pattern that gives you an outline of the stock-to-flow ratio that's predetermined. It's been predetermined in Bitcoin from the start.

And his thesis was that if you take the Bitcoin price history, and you take the stock-to-flow ratio and you do a logarithmic regression with these variables, so you make a regression, so you combine the variables, and you try to find a curve that fits both of these variables, then if you have a very high correlation between this mathematical formula that you get from this regression, the regression is the curve that describes the relationship between the price and the stock-to-flow, and if you have a very high correlation between these two variables, that if the stock-to-flow ratio goes up, and then the price goes up, if there's very high correlation between these two variables, then you can make the argument that the correlation is actually as called a causal property. So, it's actually the stock-to-flow…

CR: That's driving the price.

EW: That's driving the price. And, as I mentioned, I had been in the technical analysis domain between 2012 and 2014, I did not find…

CR: And you don’t believe in it anymore?

EW: I don't believe in it. And I backtested many models like that in the past. And this stock-to-flow model became immensely popular because people started to believe within the Bitcoin community that the price of Bitcoin was actually preprogrammed. Like we didn't have to have adoption or people using Bitcoin, like nothing really mattered. The only thing that really mattered was that the stock-to-flow ratio kept going up. Because if the stock-to-flow ratio keeps going up, then you have this regression formula that invites people to believe that it will cause the price to also go up.

But in my opinion, you cannot make a prediction just based on this predetermined supply dynamic, you also have to look at the demand side. How popular is Bitcoin as a phenomenon in the world? Are people getting more attracted to Bitcoin as a phenomenon? Or are they getting less attracted? And if you look at the amount of capital that Bitcoin attracts, demand can fluctuate with orders of magnitudes.

“...you cannot make a prediction just based on this predetermined supply dynamic, you also have to look at the demand side. How popular is Bitcoin as a phenomenon in the world?”

When we're in a bull market, the demand fluctuates by orders of magnitudes. Whereas the supply, the issuance rate shrinks from let's say, 3% a year to 1.5% a year to 0.75% a year. That's a very small issuance rate change that we're talking about in relative terms. Whereas on the demand side, we could have 20 times more demand. And I think you have to look at the combination of supply and demand to be able to forecast and understand the trajectory of the Bitcoin price.

So I tried to argue on Twitter with PlanB about arguments that he was making for his model. And at that point in time, he had a statistician that was backing his model by using a concept called cointegration. And cointegration is a sort of statistical test that you can apply that tries to identify if one variable has a causal effect on another variable. And the initial analysis that this statistician made was that there was a causal relationship between stock-to-flow and price. So he said that stock-to-flow is the thing that is driving the bitcoin price and you can prove this using the cointegration test. And this was something that I took a lot of issue with because…

CR: I mean because isn’t it true there can be different causes to the price? Like okay, so maybe the stock-to-flow does impact the price, but demand will also have an impact on the price, so it's not the only thing that predicts it?

EW: Well, it goes even further than that. So the person that wrote the code for the cointegration test that this statistician used, we brought him into the debate and we had him present at the conference called the Value of Bitcoin, and ask him the question if he saw any cointegration relationship between stock-to-flow and Bitcoin. And he said flat out that this test has been applied completely incorrectly because in cointegration, what you need to see is that if one variable moves, the other variable moves also; but the stock-to-flow variable is deterministic. It cannot change. Like, if the price of Bitcoin goes up, the stock-to-flow parameter doesn't change also.

So the cointegration test that everyone in the Bitcoin community was using, you have these very prominent Bitcoin figures like Pierre Rochard, Peter Pysh, all of these people that were trying to shove down people’s throats that the price of Bitcoin was a mathematical certainty. And I was getting very worried because you have all these retail people buying into this idea that the price of Bitcoin was predetermined, and I think you're just setting people up for a big disappointment and disaster. And how are we going to recover from this idea if it doesn't work out?

“I was getting very worried because you have all these retail people buying into this idea that the price of Bitcoin was predetermined, and I think you're just setting people up for a big disappointment and disaster.”

So we have the guy who wrote the command from the University of Exeter debunking the cointegration test. So what PlanB did was that he changed the model, so now it's not called the stock-to-flow model, it's called the stock-to-flow cross asset model now. So he changed it so that the criticisms that we had for the original model wouldn't apply to the new model that he made.

But for me, what I tried to highlight was that you can take a variable, any variable that is rising over time, and you can try to find a correlation between the rise in Bitcoin price over time. And you're looking at this correlation metric called the R-squared variable that measures the correlation between the time series. So what we were able to discover is that there are multiple time series that have just as high or nearly as high correlation between the bitcoin price as stock-to-flow does.

“....what we were able to discover is that there are multiple time series that have just as high or nearly as high correlation between the bitcoin price as stock-to-flow does.”

So for instance, the Bitcoin supply growth, if you just look at the number of Bitcoin in circulation, and you look at the bitcoin price, and you look at those time series, they have almost as high correlation as the stock-to-flow variable has. And everyone knows that you cannot predict the price of Bitcoin by the number of Bitcoins that have been issued, right? That's a very dumb argument to make. But you had similar R-squared properties for this correlation. And we made tons of ridiculous, other time series that are just arbitrary, and could show that just because you have a high R-squared variable doesn't mean that there's necessarily a causal element here.

The Bitcoin Rainbow Chart

CR: Could you try just random data sets? Number of babies born in the US?

EW: So, there's a guy called Marcel that was heavily involved in this debate, who also knows a lot about econometrics. And he made a test and this is a bit of childish humor, but what he did was he said, okay, let's imagine that Peter Griffin goes to the toilet between one or three times every day, and he takes a dump, and the cumulative amount of times that Peter Griffin goes to the toilet as time passes, you could build a time series from that. It will be growing every day between. You would add one or three dumps every day, and you took that time series, and he was able to find just as high a correlation between the bitcoin price, as the stock-to-flow time series did.

What's happening with all these price theories in Bitcoin, is that there's thousands of them, right? There's thousands of Bitcoin theories, statistical, price projections based on some type of math, some type of indicator, we see thousands of them. But there's a survivorship bias element here that statistically some of them are going to survive, some of them are going to get it right. But it doesn't mean that they're going to be right forever. It just means that they have been right, then they can be right for another year, they can be right for another two years.

“...there's a survivorship bias element here that statistically some of them are going to survive, some of them are going to get it right.”

But there's no element of truth from the universe that we can derive from this information. So the rainbow chart, in my opinion, like what the rainbow chart does is it just counts the number of days since the genesis block of Bitcoin and then it correlates the number of days with the rise of the Bitcoin price, and it creates a logarithmic regression in the act same way as the stock-to-flow model does. And it also has a very high R-squared variable. And this is the rainbow chart.

And the rainbow chart model was actually invented in 2014 on the Bitcoin talk for my user called Trolololo. So he made a model in 2014, and the model is still working now. Six years later, the model is still working. And I'm saying like if you're creating a logarithmic regression on two time series, and the only thing that you care about is how well it has functioned in the past, I mean the rainbow has a much longer history of being predictive and successful than the stock-to-flow model has.

“...the rainbow has a much longer history of being predictive and successful than the stock-to-flow model has.”

So if we reduce the theory down to its dumbest elements, then the rainbow chart is the superior model because it doesn't have this fluffy, fluffy, wishy washy, oh, that it actually is the change in the issuance rate that has a causal impact on the price, so it just dumps everything down. And it also has more colors than stock-to-flow. It's a very pretty chart.

And what I tried to prove was that if I start to champion an even prettier chart that has a very nice looking graph, like if you look at the rainbow chart, if you take a random person on the street, and you look at the rainbow chart, just look at it, it's very easy to get convinced like oh my God, like, why does this price move within the bounds of this rainbow? What's so magical about this rainbow? And of course, the rainbow is a curve fit. It's a curve that has been fitted on the Bitcoin price trajectory, and then just extrapolated from that.

CR: It’s not forward, like it's made to fit what's already happened. So it's like it makes you think, oh, this really has a predictive value but when it really doesn't.

EW: And the fantastic thing about the rainbow chart is that it's been working since 2014. But it is actually not fantastic because there were thousands of models that were created like this. The rainbow chart just happens to be one of those that ended up getting it right for another seven years.

So what I did was I just dug out the model that still worked and looked the prettiest and then I made it as a challenger to the stock-to-flow model. And now when I'm looking at TikTok influencers, there are just as many people who are equally convinced by the rainbow chart as they are by the stock-to-flow model. So in my opinion, like mission complete, I was able to show that all this craze and interest around the stock-to-flow model, you can just as easily dupe people into believing in the rainbow chart.

“...when I'm looking at TikTok influencers, there are just as many people who are equally convinced by the rainbow chart as they are by the stock-to-flow model.”

Then things kind of got out of hand, and I started to see the rainbow chart being quoted everywhere. Even in private banks’ research papers, they were starting to use the rainbow chart as something for their clients to base their Bitcoin forecasts on. And that's when I said I have to stop this because I'm now just contributing to misleading the world into this…

CR: The same thing you wanted to change.

EW: I wanted to defeat the stock-to-flow model by using a joke meme that made parody out of the stock model. But what happened was that people started to believe just as much in the parody as the original, and we ended up fooling more people instead of making anybody saner. There was just a small clique of people on Twitter that understood what I was doing.

“I wanted to defeat the stock-to-flow model by using a joke meme that made parody out of the stock model. But what happened was that people started to believe just as much in the parody as the original…”

CR: Have you just shut it down, when you see it are you out there saying don't use it, it doesn't actually predict anything?

EW: So there are so many people that love the rainbow chart just as a fun thing. So I get a lot of pressure to sometimes put up a picture. Like everyone's asking where are we in the rainbow chart right now? And sometimes I can't resist the urge of just showing them where we are in the rainbow chart. Because the rainbow chart is fun. It's inherently fun.

But every time that I do that now, I try to caveat it with very long disclaimers that you should not take this as financial fact. So I try to be a bit more responsible with that now. But now I'm not sure if it was the right decision because PlanB during this month, he has amassed another 350,000 followers to his stock-to-flow model. And so, I stopped leading people into the rainbow chart. But the only thing that happened now is that the stock-to-flow model is just getting massive traction, even though the rainbow chart has been equally correct as the stock-to-flow model has; even to this day, it's still the same accuracy for both of the models. So that’s the story.

“...the stock-to-flow model is just getting massive traction, even though the rainbow chart has been equally correct as the stock-to-flow model has...”

Adoption as the Key BTC Driver

CR: I guess, people just want to have an easy thing to look at that they can believe, oh, this will give me some sort of indication of where the price is going, when in reality, you can't have that sort of certainty in the market. So I guess it's just a natural thing that people will flock to. But I guess you can sleep with a cleaner conscience, and that maybe should somewhat outweigh the 300,000 followers that PlanB has.

But in general, do you still believe that technical analysis doesn't really work and you continue looking at fundamentals to drive your investment thesis?

EW: Yeah. I mean, the price of Bitcoin in the future is going to be determined by how many people and how much capital can we attract to this asset class. How does Bitcoin as a phenomenon throughout society propagate? Does it propagate very quickly, and we attract tons of people from all over the world, from all walks of life, from wealth managers to retail people adopting it? How powerful does the meme of Bitcoin become? That's really what's going to be the driver of the price of Bitcoin in the future.

“How powerful does the meme of Bitcoin become? That's really what's going to be the driver of the price of Bitcoin in the future.”

And also, of course, there's the regulatory side. How are countries going to react to this? Like if the G20, for instance, came together and made very aggressive regulation that made it very difficult to use Bitcoin in any fashion or eliminated the privacy or criminalized it, then that would impact the price.

When I think about the Bitcoin price for the future, I think about what adoption is looking like, what are the trends that are propelling the adoption for Bitcoin, and how violent is the regulatory backlash going to be and it’s a combination of those two things that really drives the price of Bitcoin. And also, of course, the aggressiveness of Central Banks printing dollars. If you look at the exchange rates between the Bitcoin and the dollar, also, you have to look at how much the dollar is inflating. That also, of course, impacts the price.

Crypto’s Biggest Innovation

CR: Sure. So you've said that you don't believe that Bitcoin’s scripting language is powerful or flexible enough to support layer two solutions, which will in turn support a vibrant DeFi ecosystem, Web 3.0 ecosystem. So what do you think Bitcoin’s main use case will be? How will it attract this adoption going forward?

EW: So I still believe that perhaps the biggest innovation that has come out of the cryptocurrency field is that we were able to create digital scarcity for an asset that acts as a bearer instrument, so a form of digital gold.

“I still believe that perhaps the biggest innovation that has come out of the cryptocurrency field is that we were able to create digital scarcity for an asset that acts as a bearer instrument, so a form of digital gold.”

This is the core innovation, in my opinion. DeFi is super interesting, but being able to create a monetary instrument that emulates the properties of gold, but is internet-based, transferable around the internet, that is scarce and where the monetary supply is predictable and fixed, that is still one of the things that makes me the most excited about the entire cryptocurrency domain.

So that's why I still describe myself as a Bitcoiner because I think that this is one of the things that might have the most profound impact on society overall. I genuinely still believe that. And I think that the reason why it's important that Bitcoin doesn't become a failure, and this is a controversial point, and there's a lot of people that don't agree with me about this, is that, an asset class like gold maintains value over time. And it doesn't happen to gold that there's another precious metal that becomes Gold 2.0.

Gold has been the number one precious metal to preserve value for thousands of years. And this is why it's viewed as a storehold of wealth. And the idea with cryptocurrency was that with Bitcoin, we were also able to create this storehold of wealth. Now, what happens then if another asset replaces Bitcoin like Ethereum? Let's say that people prefer to use Ethereum as a store of value instead?

Well, for new people entering the space, are they really going to take the store of value proposition of cryptocurrencies seriously? Or are they going to ask themselves, well, Bitcoin got replaced by Ethereum, what's to say that in 10 years from now, Ethereum doesn't get replaced by Solana, and what's to say that 10 years from now Solana doesn't get replaced by Cosmos? So is there really a store of value thesis that can be made here if the original cryptocurrency innovation that enabled the concept of digital scarcity just gets replaced by something else?

“Are they going to ask themselves, well, Bitcoin got replaced by Ethereum, what's to say that in 10 years from now, Ethereum doesn't get replaced by Solana, and what's to say that 10 years from now Solana doesn't get replaced by Cosmos?”

That's why I think it's very important that we keep fighting for developing Bitcoin into the direction where it stays competitive. So I'm very much in the camp where I still want Bitcoin to have second layers that have these attributes of privacy, expressiveness, and user-friendliness so that Bitcoin can stay competitive as a monetary asset compared to other assets like Ethereum.

“...it's very important that we keep fighting for developing Bitcoin into the direction where it stays competitive.”

And I think that Bitcoin gets a lot of strength from being the first, from having this anonymous founder. The Bitcoin brand is very ethereal in the sense that it's just a commodity now. People don't think about where it actually came from. You could put Bitcoin on the periodic table, like an element. It's like a digital precious metal. And I think that keeping that brand intact, and keeping the story around Bitcoin and maintaining such that the monetary instrument of Bitcoin succeeds is very important if we want to be able to create a cohesive store value thesis or store value narrative for the cryptocurrency industry overall.

“You could put Bitcoin on the periodic table, like an element. It's like a digital precious metal.”

If the store of value thesis fails, then I do think that it also harms the monetary thesis also, because a monetary asset that doesn't have a good store of value thesis behind it... you kind of need both. It needs to be a good medium of exchange, and it needs to be a good store of value. That's how we can build universal hard money and that's how we can build the Austrian economists’ dream of a hard money asset.

And I don't think that we are going to be able to be successful in enabling that vision if we have cryptocurrencies that keep overtaking each other. So that's the reason why I'm still rooting and championing for Bitcoin. But I do also acknowledge that I think that Bitcoin needs to incorporate research advancements that we have made in other parts of the cryptocurrency industry. So I think that if you want to create a second layer to Bitcoin that has good user experience, and that has good scalability, and that has good privacy, then I think you're going to have to use zero knowledge proofs.

“...if you want to create a second layer to Bitcoin that has good user experience, and that has good scalability, and that has good privacy, then I think you're going to have to use zero-knowledge proofs.”

So a way to make that happen for Bitcoin then would be to add additional opcodes. So you would add opcodes to the Bitcoin scripting language that would be able to validate a historic proof, for instance. So I've actually been in conversations with the StarkWare team. If we could fork the Bitcoin code base, add a couple of opcodes that could validate Stark proofs, we could build something similar to ZK-Rollups on top of Bitcoin, and then we would get scalability and good user experience, and later on also possibly, very high degree of privacy if we keep developing that concept.

And this could be something that could be potentially more powerful than the Lightning Network. And that's what I'm trying to get other Bitcoiners to get excited about. And for a long time, I've been getting a lot of pushback because what the Bitcoin maximalists see is that I'm going around in the Ethereum community, I'm taking all this crap, all this vaporware back and I'm trying to push it into Bitcoin.

Like there's the Bitcoin maximalist high priests that are very vocal on Twitter, and some of them are relatively technical, some of them are not very technical at all, and they maintain some sort of philosophy of how they should safeguard the protocol against “shitcoinism”. They don't understand that they're sometimes also guarding Bitcoin against valid technical ideas.

“...they maintain some sort of philosophy of how they should safeguard the protocol against “shitcoinism”. They don't understand that they're sometimes also guarding Bitcoin against valid technical ideas.”

But one thing that has made me optimistic recently was that when I spoke with Eli from StarkWare about introducing this opcode to validate Stark proof Bitcoin, Laolu from the Lightning development team, he actually got very excited about this prospect, and he said that they would be willing to commit their resources to testing this thing out.

So now I'm seeing, for the people that do actually understand the technology, they are very much more inclined to experiment with these technologies. So I'm getting a little bit more positive now that, if we can get the core developer Bitcoin community and the core researchers to embrace these ideas, then we could later see integrations of those ideas into Bitcoin, and then Bitcoin wouldn't need to be in a situation where the second layers aren't on par with what other smart contract platforms can facilitate in their second layers.

“...if we can get the core developer Bitcoin community and the core researchers to embrace these ideas, then we could later see integrations of those ideas into Bitcoin…”

ETH and BTC Succeeding in Parallel

CR: Interesting. I understand your argument about Bitcoin’s use case as a store of value, and digital gold, and for that it's important that it's not overtaken by other coins because then that just proves that there is no reliable store of value in crypto, and it hurts the entire space. So I get that point. But do you think that Bitcoin needs to be competitive with smart contract platforms to succeed? Can't it just succeed at being a good store value, and then something like Ethereum can be a good smart contract platform and applications can be built there, and maybe they don't need to be built on Bitcoin at all?

EW: Exactly. So I think that's also a way that you can look at this so that Bitcoin can remain this very hard to change monetary asset with the branding and the immaculate conception and the immutability and the censorship resistant properties and reluctance to incorporate untested upgrades and it can remain a sound money. And then you can have Ethereum that's completely separate, that's just this wild, crazy cowboy town of DeFi that does financial innovation on a completely different scale than Bitcoin does. And those systems can exist in parallel.

“...then you can have Ethereum that's completely separate, that's just this wild, crazy cowboy town of DeFi that does financial innovation on a completely different scale than Bitcoin does. And those systems can exist in parallel.”

And you can, actually, if you want to, you can create synthetic Bitcoin derivatives of Bitcoin inside the Ethereum landscape. So if you wanted to use Bitcoin in a relatively trustless way, you can still do that with instruments like tBTC like it stands for trustless BTC. So I think that these systems should be able to be mutualistic, not necessarily parasitic on each other. So I definitely see that.

But the reason that we got into this argument is that the Ethereans are saying that Ether is sounder money than Bitcoin.

CR: Yeah, I wanted to ask you that next. What are your thoughts on this ultrasound money meme that says that ETH is better sound money than Bitcoin because of the whole burning mechanism, and it becomes deflationary in the long term theoretically, what's your take on that?

EW: This goes back to one of the reasons that I did not want people in the cryptocurrency industry to believe that the stock-to-flow variable was the only thing that was driving the price. If you believe in that and then you compare Bitcoin and Ethereum, and now Ethereum is going to have a stock-to-flow ratio that goes to infinity and then it goes into the surreal number plane because the flow goes negative.

So if you are just a person that cares about stock-to-flow, and then it turns out that after Ethereum migrates to proof-of-stake, and we have this large MEV burn, where we have a large amount of the transaction fees, I think there's like $48 million of transaction fees in Ethereum every day, and a lot of those gets burned ever since EIP 1559, right? So if you do the simulations it’s probable, it could happen that the Ethereum supply shrinks with 2% every year.

So if you look at a 25 year timespan, like let's imagine that Bitcoin is a fixed supply asset, the supply stays fixed, and Ethereum is shrinking supply by 2% each year, now Bitcoin should grow in value over time at the rate of GDP, at the rate of society being more efficient and more productive than the value of currency. You should be able to buy more things when things get cheaper to be produced, right? So Bitcoin would sort of just increase with GDP, so 3% each year, whereas the dollar would decrease with 3% every year because the central bank has an inflation target for the dollar to decrease with 2-3% every year. And if you look at the historical numbers, it's around 3% on average that the dollar loses in purchasing power.

And so if you take these three currencies, Ethereum, Bitcoin, and the dollar, and you look at what the price evolution could be, and let's assume that there's no new demand, it's just the currency that all of us use, right, and there's no other factors here, if you just isolate this problem here. So the dollar would lose 50% of its value in less than 25 years, Bitcoin would double in value in less than 25 years. So the difference between the dollar and Bitcoin would be 4X. So we'd have four times as much wealth, if you had stored your wealth in Bitcoin instead of the dollar.

And if you compare it to Ethereum, which is not only working in the same way as Bitcoin with having a fixed supply, but it actually shrinks the supply also, then Ethereum would be worth 6X as much as the dollar. So if people would start to think about it this way that yeah, I can get 4X return in 25 years by just using a scarce monetary asset, and if they then think a bit further and say, okay, well, if I have the shrinking supply asset, I don't only get 4X as much wealth, I get 6X as much wealth, that's why I think that the ultrasound money meme has legs.

“...if they then think a bit further and say, okay, well, if I have the shrinking supply asset, I don't only get 4X as much wealth, I get 6X as much wealth, that's why I think that the ultrasound money meme has legs.”

I generally think that it is a meme that is going to resonate with a lot of people because not all people are going to care about when you say well, Satoshi Nakamoto was anonymous, and then he disappeared, and Bitcoin had zero value in the beginning, which allowed the currency to circulate, and Bitcoin didn't have any pre-mine, all of it was mined using proof-of-work. And I don't think those arguments are going to resonate with everybody in the population.

CR: 6X versus 4X is what is going to resonate.

EW: Yeah, maybe that's the key. And there's more parts too. There are some people that believe that proof-of-work is just a net negative for society in terms of the environment. Bitcoiners believe, and I do agree with a lot of what the Bitcoiners have to say, that Bitcoin naturally uses energy sources that couldn't be used for anything else, because that's the cheapest energy source. So it's not like Bitcoin is competing with the same energy sources as the things that are giving energy to cities and towns.

CR: And it's not fossil fuel driven either.

EW: Yeah, renewables are the main category of energy sources, where you have excess that you cannot do anything with, usually, you just let it go. You just have to throw it away basically. And Bitcoin can become the buyer of that energy. So when you are setting up a renewable energy farm, and you know sometimes we're going to have excess, what are we going to do about with that excess? Are we going to put it into batteries? Batteries cost a lot of money. If you run the numbers, it's going to be costly to try to store that electricity in batteries.

“...renewables are the main category of energy sources, where you have excess that you cannot do anything with, usually, you just let it go. You just have to throw it away basically. And Bitcoin can become the buyer of that energy.”

But if you just mined Bitcoin, then you now have an improved business model for your renewable extraction facility. So I do think that there's both good and bad things about Bitcoin mining, and I'm kind of leaning towards that it might actually be good. But I think that I'm one of the few people in the world, relatively speaking, that will understand those arguments. Maybe Greta Thunburg says that Bitcoin is this energy thief, and it's causing the oceans to boil, and Ethereum is a proof-of-stake based asset that doesn't consume electricity.

And the masses that don't have the time. So they get both the naive, ESG friendly narrative, and they also get the 6X instead of the 4X. I think that that might be a very powerful meme. So I think that Ethereum definitely can compete on that basis. Now the counter arguments will be, for people with a more sophisticated slant, like okay, but isn’t it very important that we have a lot of predictability in the monetary policy.

Now, Ethereans will say that the predictability of the monetary policy in Bitcoin is false, because Bitcoiners don't actually know whether or not the protocol will be secure after the subsidies run out. Like right now, for instance, the transaction fees in Bitcoin aren’t growing with the rate of adoption. Transaction fees are much lower now than they were a couple of months ago, even though that adoption is increasing. So can we even be sure that we're going to have very high transaction fees that are able to secure the protocol?

“...the transaction fees in Bitcoin aren’t growing with the rate of adoption. Transaction fees are much lower now than they were a couple of months ago, even though that adoption is increasing.”

So for that reason, Ethereans put criticism to the Bitcoiners and say that, yeah, you have this predetermined immutable monetary policy, but is it going to work? They don't believe in it. And I can understand why they take issues with it because it is one of the biggest complex questions for Bitcoin.

I personally think that Bitcoin could do something similar to what Ethereum does with EIP 1559 so that you would have constant inflation, but you would burn some of the transaction fees. And it is possible to net out the issuance with the burn so that you could end up with a 0% expanding net issuance. But that would require some more MEV to be inherent in the Bitcoin protocol so the people are paying a lot to use the Bitcoin system and MEV is one of the things that can drive up fee prices.

“I personally think that Bitcoin could do something similar to what Ethereum does with EIP 1559 so that you would have constant inflation, but you would burn some of the transaction fees.”

And that's another argument for why you would want for example, a ZK-Rollup, like what I was talking about previously with StarkWare. If you had something like that was also a very big medium of exchange use case for Bitcoin that required block space, then you could pay very cheaply in the second layers, but the base layer would be able to attract fees and get a security budget for itself. And then you could burn some of the transaction fees to spend, but still end up at net negative. These are some theories that I have.

I think that we Bitcoiners need to be a bit more realistic and cognizant of the challenges that are ahead if we want to stay on top. Bitcoiners believe that it's over. Bitcoin is going to win, all the altcoins are going to die. I think that in order for Bitcoin to stay competitive as a useful medium of exchange that doesn't rely on custodial solutions for transacting with it, then I think that we do need to take notes from the research that we're seeing on other sides.

“...we Bitcoiners need to be a bit more realistic and cognizant of the challenges that are ahead if we want to stay on top.”

So to get back to your questions, what do I think about the ultrasound money meme? I think it's a very good meme. In terms of being a meme, it's a very good one. It will resonate with a lot of people. I am though skeptical whether I think that it's a good idea that the meme succeeds. Because as I said, if the meme succeeds, Ethereum replaces Bitcoin as sound money, then we lose so much of the branding and the history and the mysticism around the Bitcoin’s inception, and it's going to be so much harder to get people to have the notion that we even got close to inventing digital scarcity and a store value asset in the cryptocurrency domain.

I ultimately want to challenge the fiat system. And I think that Bitcoin has way better odds at challenging the fiat system than Ethereum would, if Ethereum replaced Bitcoin and then tried to challenge. So what we're trying to do with Bitcoin is like it's trying to be the Austrian School of Economics alternative to the current Keynesian economic landscape that we have. But we can't really have an Austrian School of Economics led revolution when we have store of value monetary assets in the cryptocurrency domain that keep cannibalizing and replacing each other.

“I ultimately want to challenge the fiat system. And I think that Bitcoin has way better odds at challenging the fiat system than Ethereum would, if Ethereum replaced Bitcoin and then tried to challenge…”

So I'm much more looking to a future where Bitcoin remains the dominant store of value asset that remains in that number one top spot position. And I want to see the Ethereum ecosystem grow so that it can revolutionize other parts of the financial sector, so that we can invent new financial instruments. Like I'm super, super interested in what we can create with permissionless, open blockchains and expressiveness base layers in terms of creating an entirely new financial landscape that I think is going to flourish just in the same way that the internet flourished and changed how information flows around the world. I think that we can do the same thing with open permissionless blockchains, we can do the same thing for finance and bring finance to parity with the technical developments that we've seen overall in technology and in the internet domain specifically.

Spectrum of Centralization for Bitcoin

CR: For sure. And to wrap up, I just want to point out something that you said that I think is interesting, and maybe a bit ironic, that it looks like what you're saying is that for Bitcoin to remain the most viable store value in cryptocurrency, that it needs to adopt some of Ethereum’s research and implementations. Like you mentioned, Bitcoin maybe would consider something like EIP 1559 for burning some of the fees and it should consider something like a ZK-Rollup, like Ethereum has. So for Bitcoin to remain competitive as a store of value relative to Ethereum, it needs to learn from Ethereum to do that?

EW: Yeah. But the complex thing is here that I have multiple theories in parallel. Another theory that I have is that I personally feel completely fine with, let's say I'm invested in Bitcoin, and I use Bitcoin as my store value, and then to transact with it, I use centralized solutions, custodial solutions. You can build something which allows you to transact very quickly and with a very high degree of privacy, but it is centralized. It would be custodial and centralized. But the custodian would have no understanding of what you're doing and the throughput could be very high.

So I could keep 90% of my wealth inside of a cold wallet where I store my wealth, and then I just take some of those Bitcoins out into a base layer that isn’t a ZK-Rollup. It doesn't need to introduce these expressive elements into Bitcoin. It is custodial. I think that that would not be the most optimal way for Bitcoin to go forward because I would like Bitcoin, even in the transactional layer, to maintain the censorship-resistant properties. If we were able to get all of those properties, then we would be able to reach the maximum level of success that Bitcoin is capable of.

“I think that that would not be the most optimal way for Bitcoin to go forward because I would like Bitcoin, even in the transactional layer, to maintain the censorship resistant properties.”

But there's also a possibility that people are completely fine with just keeping the majority of their wealth in cold storage, and then they use various semi… And it doesn't have to be one party that is the custodian. You could have a multisig federation that operates the bank and you would have quasi-decentralization, quasi-censorship resistance, like the Liquid sidechain to Bitcoin has, for instance.

So I do think that there might be another path where Bitcoin doesn't do the things that I want it to do, it doesn't go for the perfect store of value, and the perfect medium of exchange with the perfect layer two solutions. But it goes for something a bit less, like it's a very good store value, and it uses custodial solutions to transact with that have very nice attributes too, that could also work.

So there's many different ways that this could pan out. And I think, for me, that's one of the reasons that this space is so interesting is because there are so many different ways that all of this can play out. And that's why I love my work so that I can study these trends and try to stay on top of them as they go. But I also do try to push the industry in the direction of what I think would be most beneficial and create the least number of risks for people.

“So I do think that there might be another path where Bitcoin […] is a very good store value, and it uses custodial solutions to transact.”

Like let's say everybody uses 10% of their wealth in custodial systems, and then 10% of that component, for regulatory reasons, gets shut down and frozen, that could still be a disaster for Bitcoin and for the industry and for humans that relied on that system to transact with. So I am trying to push the industry towards the direction that I think is going to eliminate the largest amount of risk.

Because I'm personally invested in the cryptocurrency field, from a professional and also from a personal angle, and I want to be in this industry, not 5 years, not 10 years, but I want to do this for the long haul. And in order to do this, I cannot maximize short term things. I have to think about what are the long term consequences and how sustainable is all of this. And I have to try to stay unbiased and realistic to the facts. And it’s a challenging thing to do in the very tribal community that’s cryptocurrency.

CR: Sure. Like I said earlier, I think you're doing a really good job in avoiding that tribalism. But I think it would be really disappointing if Bitcoin ended up relying on custodial and centralized services to transact and to remain as a store of value. So hopefully, more people listen to you and consider things like ZK-Rollup and other Ethereum innovations, even though that might hurt some Bitcoin maximalists.

EW: I mean, that's my idea anyway. I'm just trying to apply my understanding to the space and do the good that I can do. But I mean, I can be wrong, I'm just a student of this entire space like everyone else. I'm trying to learn and trying to evolve my understanding as things go. I don't want anyone to think that I think that I'm an authority of knowledge or like that my opinion is the right one. I'm allowed to form my own opinion and express it and see how things go.

CR:No, and it’s certainly valuable and super interesting. So we're way over time, but it's been such a fascinating conversation, Eric. So I really want to thank you for sharing all your insights with me. It's been a pleasure.

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