[00:02:25] Pierre Rochard: So inputs are the unlocking mechanism. Typically they have a digital signature in them that is from the same private. That generated the address that’s in the output. And so the script says, you know, whoever can prove that they control this address can unlock these bitcoin in the future. And then the way, the way you prove it is by putting a signature inside of an input.

[00:02:52] Pierre Rochard: Ordinals and inscriptions. What they’ve done is because the input in taproot, the pay to tap root input does not have a limit on its size or its the operations in it. , they’ve pushed lots of data in there, and then they have a way of interpreting that data to essentially be able to store arbitrary files in Bitcoin’s blockchain.

[00:03:16] Pierre Rochard: So in you know it, so far it’s been images, so they’ve put like JPEGs and PNGs in there, but they’ve also put actual software in the sense that you can put JavaScript in there and then when you extract it, you can run that code and play mind sweeper or whatever. From JavaScript that was encoded inside of Bitcoin’s blockchain.

[00:03:40] Pierre Rochard: Okay.

[00:03:41] Preston Pysh: So I think for anybody hearing that it, it sounds very concerning from on the surface without having any type of deep intellectual understanding of, of what all that means. So going back further than 2021, which you referenced, we have the Segway update prior to SegWit, and this was in what year are we talking?

[00:04:01] Preston Pysh: Is 2017 or.

[00:04:04] Pierre Rochard: No. 18. So SegWit activate at the end of 2017. Yeah.

[00:04:08] Preston Pysh: And August or something like that. Okay. So before SegWit, a transaction would have the input, it would have the scripts and the signature, and then it has the output. These were one megabit blocks prior to SegWit. SegWit comes along and we increased this to four megabytes with three megabytes being the witness data and one megabyte being the input and the.

[00:04:32] Preston Pysh: So in that one megabyte input output portion of, of every block, you’re saying that the input now has an unbound amount of, of data so you can exceed the one megabytes. Is that, is that correct?

[00:04:46] Pierre Rochard: At the block level, there’s still the block size limit. And so meaning that in practice, a tap root input can take up a whole block.

[00:04:57] Pierre Rochard: So up to four megabytes. And that’s something that we actually saw yesterday was that it, it was almost Oh, you know, just one, a one, one input script that was taking up, you know, it was like 98% of the whole block size limit, but the block size limit is still there. It’s just that there’s no limit at the input or transaction level, meaning that one of these JPEGs can crowd out any other kind of transaction from that lock.

[00:05:29] Pierre Rochard: If some, some way, somehow they are paying a fee in order. Take up that space.

[00:05:37] Preston Pysh: So you’re talking about, and let, let’s dig into the event that you’re talking about yesterday, because the picture of it is, I don’t want to say concerning, but it just kind of like, makes your eyebrows go up. Kind of like, okay, well that doesn’t seem good because it literally consumed that entire block, that four megabyte block.

[00:05:53] Preston Pysh: And this was Luxor Mining Pool that mined this. They included the block and it had no fee attached to it because they mined the block and they can pick which transaction they want in the block. Now, if you’re mi, if you’re a minor part of that mining pool, You would think that they would be looking to reallocate their resources somewhere else, because Luxor basically made the decision on behalf of everybody who was allocating resources to them to choose one transaction with no fee attached to it.

[00:06:24] Preston Pysh: So their, the amount of fees that were collected for from mining that block and doing all the work for that block wasn’t conducted. They didn’t, they chose to have a lower fee in the block. So walk us through some of.

[00:06:36] Pierre Rochard: Yeah, so in this particular case with Luxor, because of how their payout is structured to those who are providing hash rate to their pool, it’s actually Luxor that absorbed that absence of fee, so they absorbed that cost themselves.

[00:06:53] Preston Pysh: I think though that, which would’ve been about how much up here, sorry to interrupt you, but how much would that normally have have been that they would’ve made additionally for beyond the block?

[00:07:03] Pierre Rochard: B there is excess capacity in block space. Right now. The estimate I’ve seen was $2,000 worth of fees, and I think that it was a mistake on their part.

[00:07:18] Pierre Rochard: From the optics of it, yes. Would’ve just put a transaction fee in there anyway. Yeah. Even though they know they’re going to collect it back, at least it would’ve looked better than to just put it in a zero fee, unless their intent is to troll you know, that, that might be another possibility, but. I think that their intent was a, a good faith you know view of it would be that they are excited about inscriptions because it’s going to create more demand for block space and drive up transaction fees which ultimately get paid out to minors, which they’re a part of that ecosystem. Yeah.

[00:07:59] Preston Pysh: Does this, so this also gets into, when we talk about the ordinal. It’s about the ordering that the Satoshi’s wear mind. Talk to us about some of this, because this, I, I find this very confusing and I, and I think it’s concerning from the standpoint of fungibility.

[00:08:14] Preston Pysh: And I know this isn’t happening on the base layer, this is happening after this is somebody else on, like with her own side chain right? Or something like that?

[00:08:23] Pierre Rochard: I wouldn’t describe it as a side chain. I would describe it as kind of the Bitcoin equivalent of astrology. , right, of looking at the moons and the stars and, you know kind of fitting on some, some kind of story onto it.

[00:08:39] Pierre Rochard: Yeah. And so basically saying that, look, there’s, there’s going to be less than 2.1 quadrillion Satoshis, so each satoshi, technically you could attach a serial number to that satos. and then you can have a methodology by which that serial number follows, that satoshi through transactions. Despite the fact that with every transaction at, on a technical level, there’s no concept of like a satoshi that was unlocked in this input, went to Satoshi in this.

[00:09:16] Pierre Rochard: Rather they get pulled together when they get unlocked and then they get locked back up into new outputs and, you know, there’s, there’s no concept of serial numbers or anything like that on, on chain. But they’ve, you know, created an, an arbitrary methodology of saying, okay, here’s how the serial number follows the Satoshi through transactions.

[00:09:37] Pierre Rochard: Go ahead. No. What were you going to. Oh, well, I mean, I, I think it’s a, it’s a harmless hobby, you know, like numerology or anything like that. But you know, I think a concern would be, well, I don’t have to get into the concerns right now. We can continue the conversation. No, look, let’s, yeah, let’s cover it.

[00:09:54] Pierre Rochard: Let’s hear it. Yeah. If, if, if this becomes a popular pastime, right? If this becomes like you know, football , world Cup. And people really start to take this seriously, then it, it does make it just where new fungibility could be impacted. But also that if then the inscriptions associated with these ordinals, with these serial numbers if these inscriptions develop kind of a, a market value that is significant, then you could see a significant crowding out of Bitcoin transactions with inscriptions.

[00:10:33] Pierre Rochard: and you know, somebody who wants to open a Lightning channel has to pay, you know, a hundred times more than they otherwise would have, because society in general has decided to value you know, issuing JPEGs on the Bitcoin blockchain. You know, a tr a tremendous amount. And that’s kind of a, a social layer type thing of you know, people, we could talk about kind of the psychology of nft.

[00:10:58] Pierre Rochard: are they a status game of people, you know, trying to show off their art or their patronage of art, or their art collection? And with a social phenomenon, it’s, yeah, it, it, it, I don’t know. I don’t know if it’ll take off. Right. If inscriptions and Ordinals will become popular. But I think that it would be to the detriment of other use cases for Bitcoin, namely moving, you know, Bitcoin back and forth for payments of goods and services or for any other kind of really monetary transaction rather than symbolic, you know, inscription.

[00:11:37] Preston Pysh: It’s interesting, so you work with a mining company riot platform as a Vice p. And I would think that from the mining side of the house, they might actually be a little excited about something like this.

[00:11:51] Pierre Rochard: Yeah. So without a doubt, the fact that the transaction fees you know, accrue to the miners, I think has created kind of some excitement in the mining community around ordinals and inscriptions.

[00:12:05] Pierre Rochard: I think that from a business perspective, the main question. Will, other sources of transaction fees, namely just normal transactions, let’s call them don’t want to, I don’t want to describe them, you know, too normatively of like good transactions or bad transactions, but transactions that are, are monetary in nature where the script is really about unlocking the Satoshis.

[00:12:31] Pierre Rochard: It’s not about putting data onto the blockchain. You know, my expectation would be that demand, those monetary transactions would be so great in the future that it really does price out JPEGs and that there’s just JPEGs might be a fad. That fad NFTs on Solana and Ethereum. You know, they are down big time if you look at kind of the volumes and their value.

[00:13:01] Pierre Rochard: But you know, maybe in the next bull market they’ll come back maybe. , whereas I think that monetary transaction demand will continue to increase as bitcoin, you know, as a store of value, as a medium of exchange continues to increase in adoption. Further, I think that if there is, you know, in, in Ryan Ryan’s case we’re not just mining Bitcoin, we’re also putting Bitcoin on our balance sheet, and so there’s kind of the question.

[00:13:35] Pierre Rochard: How does this impact the accrual of value to btc the asset? If people are using block space to store JPEGs and it becomes really expensive to transact on chain, to move BTC around, maybe that would actually decrease the value of BTC and decrease the adoption rate of Bitcoin as a monetary. because that is being crowded out by the adoption rate of Bitcoin as an art gallery.

[00:14:09] Pierre Rochard: So, you know, there’s kind of an open business question there. I don’t think that it’s necessarily the case that every use of block space should be celebrated because ultimately there is a kind of a cannibalism or a crowding out. In the long term. In the short term, it is true that over the past 18 months, blocks have been at 75 to 80% utilization.

[00:14:37] Pierre Rochard: Meaning that any kind of marginal increase in block space demand from a JPEG is not actually impacting monetary transactions. The reason that we’re at 75 to 80% utilization is because of seg adoption. In 2020 2021. And so my view is that we should be looking to use block space more and more efficiently in order to have kind of a margin of safety where meaning that, you know, if, if Bitcoin goes to a hundred K this year without a doubt we go to a hundred percent utilization of block space from monetary transactions.

[00:15:20] Pierre Rochard: And then the only question. How much do people want JPEGs? Right? And if the answer is a lot then we could see that even though there’s a massive backlog of monetary transactions in the ME pool that the, the, there might still be a significant amount of block space consumption coming from JPEGs.

[00:15:41] Preston Pysh: You know, for me, when I’m thinking about the jpeg. And, and I think everything you said, you also have to keep in the back of your mind, you have these other quote unquote decentralized blockchains. And you and I kind of smirk when we, when we hear that competing for the fee and the, the quote unquote minting of these JPEGs being on the, and so maybe it’s just a function of where we’re at with the, the blocks being so empty, right?

[00:16:08] Preston Pysh: Right now at this exact moment in time. And they’re just, people were just trying to demonstrate the technology and, and put it out there. But as those fees would potentially go higher with global use for monetary reasons, you would think that people that are quote unquote minting JPEGs are going to go find somewhere else to go do that because they clearly don’t understand the, the difference between truly decentralized protocols and, and ones that are not.

[00:16:37] Preston Pysh: So they’re just going to go where.

[00:16:39] Pierre Rochard: That’s my hope. But if it really ingrains itself in kind of the, the culture at the social level, then the, you know, the, the, that might not be the case. And it might really be something that sticks around on Bitcoin well, for a while.

[00:16:57] Preston Pysh: It’s where I would push back, Pierre, and I think you will totally agree with the thing that’s going to really set this thing off in the.

[00:17:06] Preston Pysh: Is fixed income, the, the inability to, to handle the credit markets and them being inverted to inflation rates because supply chains are breaking down. So when that flood of interest for sound money eventually comes and it’s coming, I just think that it just dwarfs the stupidity that’s behind some of these actions and it just, it just withers.

[00:17:31] Pierre Rochard: Agree. So ultimately that’s why, you know, I, my view is let’s wait and see and that the other argument for let’s wait and see is that there might actually be legitimate use cases for very large taproot inputs that would be monetary in nature, you know, in order to enable a very large monetary transaction.

[00:17:55] Pierre Rochard: We don’t know exactly what that use case is yet. If we acted too soon and closed that off by limiting the size of tap root inputs, then maybe we would never see that very useful and valuable use case emerge. But yeah, I, I think that when we think about the lines of defense for Bitcoin block space, I think the first line of defense is the social layer of, you know, when blockchain.com was dragging their feet on implementing seg.

[00:18:29] Pierre Rochard: For their wallets, they would constantly get ratioed on tweets from Bitcoiners saying, when SegWit today, you know, with Coinbase, we, we always roast them about when lightning and so on and so forth. It, there was also transaction batching. That was a big efficiency gain. So I think on the social layer, it is good to be lobbying against inefficient use of black.

[00:18:54] Pierre Rochard: The second line of defense is the economic layer of the transaction fees. So ultimately, I think that’s what got through to blockchain.com was during the 2021 bull market that their transaction fees for the users of their wallets became really high because they didn’t have seg. Mm-hmm. , and that pressured them into implementing seg.

[00:19:16] Pierre Rochard: So I think economic pressure is the second line of defense and it is highly effecti. The third is really the peer-to-peer node level of setting policies about the me pool acceptance and relay. You see this, for example, with I believe the dust limit. So if you try to send like one satoshi as a transaction nodes just won’t relay that because it’s just a waste of block space.

[00:19:47] Pierre Rochard: but I don’t believe that’s a consensus layer rule. That’s the fourth line of defense is consensus layer rules. So there you see the block size limit is one of those. There’s also a signature operations limit, I believe it’s 20,000 signature operations per block. There are also per transaction limits. So you’re limited in the number of inputs, the number of outputs you can have in a transaction.

[00:20:12] Pierre Rochard: And you know, there’s, there’s other limits that are all sorts of specifics related to scripts and to other parts of the transaction and of the block. So I think right now, as far as ordinals and inscriptions are, , we’re at that first layer, the social layer, and I agree that, you know, we, we don’t need to immediately jump to the consensus layer to fix this problem.

[00:20:39] Pierre Rochard: It probably is something that we could wait and watch for. five years, 10 years, see how things play out through a couple more bull markets and maybe hyper colonization. What I, I didn’t what I reacted really strongly to in the dialogue around ordinals and inscriptions was this view that there’s nothing we can do, there’s nothing we can do about it.

[00:21:03] Pierre Rochard: Because Beck Bitcoin is censorship resistant and code is law, and that there’s. There’s, there’s, there’s no opportunity here to change the rules. And I just think that’s false. That actually is a misunderstanding of the Bitcoin protocol. You know, the Bitcoin protocol does change over time. I mean, as we saw with the taproot soft fork.

[00:21:26] Pierre Rochard: And there’s also no reason to say, oh, we should not have done the tap root, soft fork. I think that’s also a mistake. This kind of view that, oh, we have to have ossification. No, I think. We can look at data, we can use reason, and we can look at the code and our, you know, our knowledge of software engineering and protocol research to make amendments as needed in order to, you know, help Bitcoin.

[00:21:56] Pierre Rochard: Now, the other part of the di dialogue that I reacted strongly to was this view that Bitcoin block space. A neutral data layer that we should be agnostic as to what data goes into block space. Mm-hmm. , and that we should let it be a free market. And I think that you, you iterated that view earlier in the episode, and I just think that’s outright false.

[00:22:21] Pierre Rochard: I think that bitcoin block space should be and, and is currently already and has been for the entire existence of Bitcoin regulated. Zoned for monetary transactions. Bitcoin as a system is ordered towards the end of being peer-to-peer electronic cash. and the cash transactions are what this ledger is for, and that treating it as a neutral data layer is like saying, oh, I, I should be able to go onto my bank website and upload JPEGs to my transaction history at jp.

[00:23:08] Pierre Rochard: and that’s like, sure, but that doesn’t make any sense, . That doesn’t make any sense from a rational perspective of we have different systems that are oriented towards different ends and that we should optimize those systems to achieve those ends. And if we treat block space that way, then we should try to find ways to make space for monetary transac.

[00:23:37] Pierre Rochard: and not subsidize or enable, you know, art galleries, medical records, supply chain management, like all these things where people have said like, oh, we need to use Bitcoin’s blockchain technology for all of these different ends. I, I disagree with, I think there, there are four monetary purposes.

[00:23:57] Preston Pysh: It, it seems like when SegWit rolled out that, that was kind of a general consensus thought that you just shared there, because the sender, the input and the output was limited to one megabyte and the, the, the witness data was at three megabytes.

[00:24:14] Preston Pysh: So you basically had this situation where, call it three fourths of the, of the data that somebody would write into their transaction was for whatever they wanted to put in there as far as the witness data. And then the other part was reserved specifically for transactions so that you don’t fuel the block with nonsense.

[00:24:33] Preston Pysh: Right? Like that, the transactions are always going to be a core part of it, but it’s only going to be a percentage of it. And it seems. With taproot, we get away from this because of maybe a lack of limitation that needs to be built into the input portion.

[00:24:49] Pierre Rochard: So with SegWit, there was a limit on what you can put in the witness.

[00:24:54] Pierre Rochard: and that limit was not part of the taproot proposal. So in the taproot proposal, all they have is a limit on the number of signatures you can have in the witness.

[00:25:07] Preston Pysh: And it seems like that’s the soft fork that’s needed is that you have to bound that well.

[00:25:12] Pierre Rochard: So they have to bound another operation, which is the push operation, which is what’s pushing.

[00:25:18] Pierre Rochard: Into the, the witness stack. And so the problem with that, or one of the counter-arguments against having a limit on pushes is that there might be really great scripts that are monetary transactions that would use that push. Yeah. You know, a significant number of times. And so, you know, there’s lot of, but, but if it’s a soft, if, if it’s a soft fork.

[00:25:41] Preston Pysh: Pierre, sorry to interrupt you. If it’s a soft for. You can choose to run that or not run it right as a node

[00:25:47] Pierre Rochard: operator. There’s a lot of nuance there. I mean, I think that you would not want to run a soft fork that is not rough consensus, meaning that the, you know, the wider ecosystem is on board with you.

[00:26:00] Pierre Rochard: So if you try to fly solo, then you would start rejecting blocks that others see as valid and that, you know, you’re not in consensus there. So I definit. But you could change your, your me pool policy, for example, to not relay transactions that have these big inputs. I don’t know how much of an impact that would have because, What we saw with Luxor is that they sent that transaction out of band, so it’s not like they had to go through the peer-to-peer network and rely on third party me pools to relay that.

[00:26:32] Pierre Rochard: I think that there’s lots of research work that could be done on specifically how we would structure a software for countering these inscriptions, but again, I think that we’re very far from having to get to that fourth. of a consensus level change given where we’re at today. But what, what I wanted to push back on was this idea that there’s nothing we can do.

[00:26:59] Pierre Rochard: Yeah. We, we have a wide range of tools at our disposal that we can use. Now we have to use ’em very carefully. Some of them are very sharp. Some of them, you know, are blunt. For example, you know, nagging people on Twitter, . But the, the sharp ones of changing the consensus. , we have to be extremely cautious around that.

[00:27:19] Pierre Rochard: Right. We don’t, we don’t want to cause more problems than we’re solving for sure. And there’s an extensive process of review that goes into any software, including the tapered software, but it’s on the table. Mm-hmm. and that you know, we shouldn’t pretend otherwise. I think that folks who are pretending otherwise, like inscriptions, right?

[00:27:41] Pierre Rochard: And that’s fine. But I, I don’t want any kind of gaslighting of like, there’s nothing we can do about, It’s the, the better argument would be inscriptions are good. We should not contemplate a soft fork to, you know, essentially put them as invalid. And then we can get into arguments about why. And, and that’s, that’s fine as well.

[00:28:01] Pierre Rochard: And I think to me, the most interesting argument is really about what are the other opportunities that we can use large tap root inputs. and let’s develop those. Right? I, I think that that’s a really great direction to go in rather than in saying, Hey, let’s do more research on how to do lots of inscriptions and build a whole economy of e NFTs on top of the Bitcoin blockchain.

[00:28:29] Pierre Rochard: I think that that’s, that would be a bad outcome, a good outcome. , Hey, let’s figure out how to get zero knowledge proofs that are very large on, in taproot inputs and things, things of of that nature that are related to monetary transactions rather than really inefficient use of block space.

[00:28:51] Preston Pysh: So when we look at the when we look at the block, the, the, the full block size of four Omega, And how one megabyte of that is supposed to be just the input and output.

[00:29:03] Preston Pysh: When we look at what recently happened with Luxor Mining Pool, whenever they wrote that block and it was completely full, almost the full four megabytes was, was that all from just the input with the, the scripts that they were running from the input? Almost all four megabytes because my understanding is that, that it’s supposed to be bound to only one megabyte at that point.

[00:29:26] Pierre Rochard: Right, because called the stripped size, that does not include the witness. That just has to be less than one megabyte. Okay. Then the witness can be up to four megabytes.

[00:29:39] Preston Pysh: Okay. Is kind of the, they’re three. The witness data can be up to three and then be up to four because it can.

[00:29:47] Pierre Rochard: Oh, I see what you’re, the limit, right.

[00:29:50] Preston Pysh: Because the input was under the, the one it barely used it, so then I guess the, the witness data can consume the remainder to for less than four.

[00:29:58] Preston Pysh: Okay. I gotcha. You know, this is, this is where I get a little frustrated with just the JPEG thing in general. And I just want to kind of paint a, an example for people. So anybody can mint a JPEG on whatever blockchain they quote unquote, blockchain. They want to use, obviously Bitcoin because it’s truly decentralized as a place that a person would want to store whatever, or memorializes, I think a better word, an event that it actually took place.

[00:30:27] Preston Pysh: That makes sense to me that people want to do that. But to store the actual full data of a JPEG on the blockchain doesn’t make sense to me from just a legal standpoint. So think about it. So like, let’s say beep, he’s super famous for selling these JPEGs for 50 million or whatever. If he would sell you one of his JPEGs that you’re now the owner of it and you can basically do whatever you want with it, you can license it or, or whatever, and you want to memorialize that event, that sale, that proof of sale into the Bitcoin blockchain.

[00:31:03] Preston Pysh: I guess I’m of the opinion that a person should be able to do that to memorialize that event and, and it does not take much data to do that because you could hash the contract or whatever and then stick. That public key into the, into the ha, into the blockchain to prove that it took place. So at the end of the day, like when a person would, let’s say that I would, or another person would argue, well, he sold it to me versus the person that supposedly has this thing written into the blockchain.

[00:31:32] Preston Pysh: The way that’s actually going to get adjudicated is in a court system, no matter what. That’s how that gets adjudicated, whether it’s in the blockchain or not. , the blockchain’s just a, a really great way of prove it’s, it’s oh. What do you go when you get the stamp from the government person? Oh, geez.

[00:31:50] Preston Pysh: Notarized getting it notarized, right? It’s, it’s the best form of notarization that that’s ever existed. So I guess when, when I see the current setup where people are completely jamming data into an entire block, With just one or five transactions in it. To me, there’s, there’s a major inefficiency that’s taking place in the existing setup because it’s not accounting for the first principles.

[00:32:23] Preston Pysh: Thinking of your, the, the best thing that you can use beyond money is for the notarization piece which does not require a lot of data at.

[00:32:35] Pierre Rochard: Yeah, so I think the, that’s one way of conceiving of this data layer. Another, perhaps one that would make more sense than what you just described is, , you know, the, there are 3D CAD designs for 3D printing firearms.

[00:32:57] Pierre Rochard: Mm-hmm. that are often difficult to download in foreign countries that have strict controls over that, and that this is a way of creating a censorship resistant way of disseminating information. , you know, the government wants to to to ban essentially. And so that to me makes a lot more sense than the people, you know, intellectual property situation and that, you know, I have a lot of sympathy for because I am pro Second Amendment and it’s like, okay, well on some level, if you’re willing to pay the transaction fee, then it is what it is.

[00:33:41] Pierre Rochard: Yeah. Because further. Even. Even with the soft fork that I described of somehow limiting the number of op push or limiting the size of inputs, there would still be it. All that would do is make it more expensive to put data on the blockchain. It would not stop people from doing it. , there’s no way to stop people from doing it.

[00:34:02] Pierre Rochard: Yeah. All we’re talking about here is how do we, like, how do we tax it? How do we disincentivize it? And so people would still be able to put, you know, 3D gun diagrams on the Bitcoin blockchain. They would just have to pay a much higher transaction fee, total transaction fee. And also it would be less.

[00:34:24] Pierre Rochard: because now they would have to say, let’s say they would have to use up three megabytes instead of one megabyte because we have created an artificial constraint on the input size. Now they’ve gotta create lots of inputs in lots of transactions to add up to that data. So there’s lots of trade-offs here and to, to consider.

[00:34:46] Pierre Rochard: But that, that was the use case that that tug of my hearts.

[00:34:50] Preston Pysh: Well, and I think that that’s a great counter to what I was saying. I guess the, the, the response I have for you is, is why does it have to happen on layer one? Can’t we push some of these activities up onto the second layer or, or higher?

[00:35:03] Pierre Rochard: Because it’s Bitcoin being layer one, being a global broadcast system means that it makes it censorship resistant in a way that any other layer would not.

[00:35:17] Pierre Rochard: So for example, with Lightning, the data storage would happen on specific lightning nodes, not on all lightning nodes. So in order to use the Lightning Network, you would not need to download this data. Whereas in order to use the Bitcoin network, you have to download this. And so that’s really the, the difference between a global broadcast system and what you could describe as kind of a local point to point system.

[00:35:48] Preston Pysh: Yeah. It really, it really seems like people like there, there needs to be a deep conversation at, at a global level on just use cases outside of money and basically notarization on layer one. And then really kind of get at the heart at what you’re saying here, which is this op push within the, the input of each transaction.

[00:36:13] Preston Pysh: I don’t, I don’t know that you’re going to get consensus built because this is a highly technical conversation and it, and it’s, it seems like the consensus could get really quite, Confused like the, the general population could get quite confused as to what, to, to side with or what. Right. How, how do you see that kind of taking place moving forward?

[00:36:35] Pierre Rochard: Yeah, so the, the, I think we’re already there in terms of the confusion. There’s lots of confusion and I think that it, it will crystallize when, if inscriptions continue to, if, if it’s not a fan that fizzles. If they continue to be used and that they drive up transaction fees materially for other participants in the system, then I think that we’ll see the conversation around it evolve.

[00:37:08] Pierre Rochard: Beyond its current state. Now whether that will evolve into a soft fork, I don’t know that will probably take decades of you. Evolution and maybe, you know, we’ll, we’ll see. But the. My hope is that we can just snuff this out at the first line of defense, which is the social layer of saying like, Hey guys, like not cool.

[00:37:36] Pierre Rochard: We’re not into this. Stop doing it. Find something else to do.

[00:37:41] Preston Pysh: I don’t, I don’t think that’s going to, I don’t think that that’s going to work. Pier. I think that the thing that works is just economic incentive and maybe we just, maybe we just need the world and, and credit markets to start reflecting reality and.

[00:37:56] Preston Pysh: You know, use on the base layer from, you know, all the, all the pen up fiat that’s been stuffed into just worthless things around the world.

[00:38:05] Pierre Rochard: I agree. I think ultimately it’ll be a combination of that first and second line of the ec economic incentives of transaction fees going up combined with at the social layer saying, Hey, this, this isn’t worth it.

[00:38:18] Pierre Rochard: Nobody’s going to buy your worthless mint, so don’t waste your money, you know, on these high transaction fees. And then that combination because yeah, that’s, I, I hope that that’s enough and that we won’t have to continue this debate. That already is, I think, very, very muddled and you know, there’s just a lot of conflicting incentives as well, where really, The, the developers, they don’t want to do a soft fork that limits the size of inputs because they’re interested in opportunities to use that for valid transactions.

[00:38:58] Pierre Rochard: Right. Or, sorry, wrong terminology there for legitimate monetary transactions. So they are opposed to having that conversation. I totally get Folks in the mining industry are opposed to such a soft fork because they want to drive up transaction. Again, I totally understand where they’re coming from. And then you have Bitcoin people who maybe see this as like, hey, let’s get the NFT narrative going in Bitcoin and that that will bu pump the Bitcoin price up and kind of reduce demand for Ethereum and Solana again.

[00:39:34] Pierre Rochard: You know, that’s a perspective and the only people that are really in a way by, this is one node operators who are resource constrained so that, you know, they, they, they have limited bandwidth. They have you know, they’re living in a country that does not have fiber optic internet, whatnot. That’s not me.

[00:39:54] Pierre Rochard: But I’m happy to be their representative, and people who are trying to. Small value transactions that are monetary in nature over the Bitcoin network, whether it’s a but PI channel or sending a payment.

[00:40:09] Preston Pysh: But the block, the block size as a whole is not larger. So you’re just saying that the, the cost to rebalance channels is going up because you’re cluttering the chain?

[00:40:20] Pierre Rochard: Yep. Okay. I gotcha. And then it’s like, well, if I wanted, if I wanted to send $50 worth of Bitcoin as remittances from El Salvador to the US or vice versa, you know, if there’s no JPEGs, that might cost 2 cents. Mm-hmm. , if there are JPEGs, it might cost $5. right? So you’re talking about a, a 10% fee instead of a fraction of a percentage.

[00:40:45] Pierre Rochard: And so, you know, the JPEG people would say, So sad. Too bad, you know use Lightning instead. And then they go and use a custodial lightning wallet instead, and, you know, pay.

[00:40:57] Preston Pysh: Yeah. That’s where you really see it, is the custodians. You’re going to push people into a custodian situation where they’re not holding their own keys because it’s, they’re, you’re using their services that have been, it’s cheaper for them to consolidate it all.

[00:41:11] Preston Pysh: Right? And so that’s, that’s maybe where that pushes it.

[00:41:14] Pierre Rochard: Interesting. You got, that’s, that’s one argument. And yeah, so I think there, there’s, there’s so many different, different people benefit from inscriptions and different people incur the cost of inscriptions. Mm. And it’s hard to tell where that net’s out of like, oh, on net inscriptions are good for Bitcoin or bad for bitcoin.

[00:41:37] Pierre Rochard: And to, to prove that. I just, I, I, I have my, my gut instinct on it, but I, I think that it is an open area of debate. I don’t like that there’s folks on social media who are trying to say that there is no debate or that, you know, it’s bad to argue against inscriptions and like their morality, policing the, the conversation around.

[00:41:59] Pierre Rochard: No, I think that let’s, let’s air out the arguments pro and con and it’s, it’s good to talk about it even if we’re not, you know, contemplating a soft fork to fix it immediately. That, that might be in the future in several years or decades. But in the meantime, I think it’s good to have a conversation about it.

[00:42:20] Preston Pysh: People have raised the concern of illegal imagery being written into the block. And then this potentially being an attack vector from the state is saying, Hey, you’re running a full node and you have blocked whatever. And there is, there is a very concerning picture that’s been written into that block and you’re distributing that, that information and that data.

[00:42:45] Preston Pysh: What are your thoughts around this one?

[00:42:48] Pierre Rochard: My understanding is that in the existing Bitcoin blockchain in op returns, there’s already illegal image. And so I think that that’s already the case without inscriptions. That then I’ll leave it to the lawyers on, you know, what the specifics are there. But so far it hasn’t really been an issue despite that imagery being on the Bitcoin blockchain for several years now.

[00:43:16] Pierre Rochard: Now, then there might be a question of quantity, right? Mm-hmm. , what happens? Mm-hmm. , if there’s a lot of. on the Bitcoin blockchain, you know, and that’s where, that’s an open question going forward.

[00:43:29] Preston Pysh: So yeah, my immediate thought on this is you could, you could run a pruned node. You never download it, so you still have to download it to prove that you, that, that all your transactions are valid.

[00:43:41] Preston Pysh: But I could, you could say, you could send me, and let’s say I trust you that this. If I start my node right here, all the illicit images or whatever are after that block height, right? And I could just run a prune node and then, and then I’m running a node and I’m not I’m not propagating and I’m not suggesting that this is, this is the solution.

[00:44:02] Preston Pysh: I’m just for maybe jurisdictions, let’s say you’re in a country and they are, they are cracking down on node, node runners, that people running nodes that because of this argument and it’s, it’s a localized state level attack for whatever that jurisdiction is. Is that the workaround for people in those types of jurisdiction?

[00:44:21] Pierre Rochard: It could be, I don’t know if software that exists that would enable, or that has that built in yet. Maybe that, that, you know, that that will get written. And I just think that it would be a shame if we had to change kind of the average Bitcoin node trust model. Around, you know, assuming validity for certain outputs because of this problem.

[00:44:50] Pierre Rochard: But there’s, yeah, there’s certainly ways that, you know, mitigate that, that issue.

[00:44:55] Preston Pysh: And, and, and most of it is just because the, the way that the blocks connect, you’re effectively hashing, get into some of the technical specs for people that would hear this and say, oh no, I’m concerned, what are they talking about as far as like a prune.

[00:45:10] Preston Pysh: A prune node. How does that work from a more of a technical sense, if you can explain it Pierre.

[00:45:17] Pierre Rochard: Yeah. So currently how a puneed node works is that you download all of the blocks when you’re doing initial block download, and every time you download one, you verify that the output that is being. and the input that is spending that output are valid.

[00:45:39] Pierre Rochard: And so the, you know, the signature in there gets verified and that way, you know, there’s no risk of an invalid input spending money that is not theirs, essentially. And so that does mean that you have to download the input and you have to process it. And then the pruning part is that the data after it has been verifi.

[00:46:04] Pierre Rochard: it gets deleted. And that’s the pruning part. Now, one nuance here is that in the Bitcoin core software, there is a configuration parameter called assume valid, that will not verify inputs and outputs, signatures, and thus, you know, running the, the script before a certain height. This allows people to download bitcoins and verify the blockchain more quickly than they otherwise would with a small trade off of, hey, you have to trust that the developers put in the valid hash at that height.

[00:46:44] Pierre Rochard: Mm-hmm. , and historically that hasn’t been an issue because it’s really easy to then verify that hash and turn off easy. Zoom valid. Yeah. Yeah. Like I always turn off as assume valid because I’m, you know, a psychopath purist. But in reality it’s a, a, it’s a legitimate way of accelerating initial block download.

[00:47:04] Pierre Rochard: Yeah. Yeah.

[00:47:05] Preston Pysh: And it is, it’s very simple to be able to, to validate that at whatever block height you want. Yeah. So, okay. Let’s just fast forward five years into the future, your highest probability conviction of what this conversation sounds like five years from now.

[00:47:25] Pierre Rochard: Remember when we were freaking out about inscriptions and people were trying to shill them on social media?

[00:47:31] Pierre Rochard: Yeah. It’s the same thing with Satoshi Dice. You know, now we say, oh, remember when you could gamble on the Bitcoin blockchain with Satoshi Dice? Or remember when colored coins were a thing? Or Omni Omni is like tethers on the Bitcoin blockchain USDT, that doesn’t exist anymore. It got priced.

[00:47:53] Pierre Rochard: and it migrated to other blockchains, and so I don’t think this is going to have staying power at all. But that’s actually, I think that’s a good thing because then. For those situations where you do want to use an inscription like your, your 3D gun file or whatever, like, there won’t be so much consternation about you doing that, and there won’t be a limit on, you know, op push stopping you from doing that.

[00:48:18] Pierre Rochard: So I hope that just at the social layer, people don’t start valuing inscriptions and the, you know, in five years, we’ll, we’ll just be laughing about how you know, we thought that it was a big problem. I did.

[00:48:32] Preston Pysh: Last question. Charlie Munger, he’s at it again. He was in the Wall Street Journal today. What are your thoughts?

[00:48:42] Preston Pysh: Tell people about the article and tell people your thoughts, Pierre.

[00:48:46] Pierre Rochard: Yeah. So I started reading the article with an open mind, as I always, you know, read everything with, with an open mind. And it was interesting. I actually agreed with him on the initial kind of framing, which is that there are corporations that are issuing unregistered securities and calling them cryptocurrencies, and they’re doing it in a way that avoids having to disclose.

[00:49:14] Pierre Rochard: what they would normally have to disclose when raising financing from the general public through debt or equity. And then his conclusion is that we should ban all cryptocurrencies, including Bitcoin, which to me does not follow from the arguments that he’s making. So that was one. And, you know, we can talk about the merits of regulating token offerings and all that.

[00:49:42] Pierre Rochard: What I found to be really bizarre was his bringing up the Chinese Communist Party. Mm-hmm. and, and praising the Chinese Communist Party for banning Bitcoin in China. And, you know, that might work well to, for a certain audience. I don’t see that working very well with the Wall Street Journal audience of, hey, let’s emulate communism and I don’t see it working.

[00:50:11] Pierre Rochard: with the current house leadership because in order for Charlie Munger to get his way within the next two years, he would have to get this bill through Congress and the current house leadership is rather the, the Republican majority is rather hawkish on China and opposed to communism in. Currently what they’re working on is a statement that is you know, very anti-communism is like this week’s number one priority.

[00:50:45] Pierre Rochard: So for Munger to try to persuade them by pointing to the Chinese Communist Party as a role model, I think that he’s actually benefiting Bitcoin and severely undermining his. . So I guess I’m happy that he got this published in the Wall Street Journal and perhaps that’s why the Wall Street Journal allowed him to publish this as a giant cell phone, self-sabotaging move for the Antibi Cause where, you know, he’s saying like, okay, let’s have, you know, Elizabeth Warren and the Chinese Communist Party on one side, and then you know, Kevin McCarthy and every Honest American on the other side of this debate, which I think is great framing.

[00:51:31] Preston Pysh: Pierre, I can’t, I can’t disagree with anything you just said, and I, and I, I just find it so strange.

[00:51:36] Preston Pysh: This isn’t the first time he is brought up the the China thing and how he agrees with what they’re doing, and it’s just like, what in the world are you talking about? Right. It just does not make any way. I mean, it does. It does. It’s totally, especially the, the, the irony is this guy became a billionaire through free and open markets, or, you know, prior to them becoming completely manipulated here in the past decade.

[00:52:00] Preston Pysh: He’s a total beneficiary of this capitalistic system in this democracy. And for him on his final, you know, days to be out there trumpeting the idea of communism. Socialism is just, it literally takes, I have no words for it other than disgusted. So, and, and people who are listening to that, he has so many brilliant insights throughout his lifetime that it just seems completely incoherent with some of the other insights that he’s had outside of Bitcoin.

[00:52:32] Preston Pysh: Obviously, you know, on psych psychology and other things, it’s just crazy to.

[00:52:37] Pierre Rochard: I agree. And you know, I, I’m a fan of value investing. Benjamin Graham was one of the first investing books the Intelligent Investor that I read. And, you know, one way to look at it very cynically is that Berkshire Hathaway is lobbying the Texas legislature to enable them, to subsidize them, to pay them to build natural gas peaker.

[00:53:00] Pierre Rochard: that turn on when there’s a deficit of electricity supply in Ercot. And the Bitcoin miners who turn off when there’s a deficit like this that are through demand response are directly competing with peaker plants. . And so from Berkshire Hathaway’s perspective, Bitcoin mining in Texas is competing with their energy business.

[00:53:27] Pierre Rochard: And so any kind of policies that they can advance that are antibi Bitcoin are in the interests of Berkshire Hathaway’s business. So that’s kind of the cynical take on it. I don’t know if they’re connected or not. But that’s one way to maybe couch this in more capitalist terms. Fascinating. Any other highlights and things that are going on right now that you

[00:53:50] Pierre Rochard: wanted to bring up? Not right now. I think that, we’ll, you know, , we’ve covered a lot of ground in, in the past hour. There are things on the horizon though, but I’ll, I’ll come back.

[00:54:02] Preston Pysh: Please, please do, please do, sir.

[00:54:05] Preston Pysh: You are always welcome. Pierre Rochard Riot Platforms they got a name change, correct?

[00:54:12] Pierre Rochard: That’s right. Yeah. We were leaving the blockchain behind. Riot is really approaching Bitcoin mining in a vertically integrated way. We acquired an electrical equipment designer and manufacturer ESS Metron. And, you know, we’re, we build our own hosting facilities.

[00:54:28] Pierre Rochard: We’re a construction company, and that by vertically integrating we can control our supply chain and really be the lowest cost producer of Bitcoin out there. So that’s, that’s why we went with the name change. You know, platforms not block. Wow.

[00:54:45] Preston Pysh: That’s pretty exciting stuff. You guys moving upstream and I like it.

[00:54:49] Preston Pysh: Pierre, thank you so much for making time. I think we threw this together in just the last couple hours and I was very excited to be able to have this conversation because like so many out there I’m learning and you are an expert for sure in many of these areas. And it’s just such a breath of fresh air to talk to somebody that has so much common sense behind the way that they’re looking at things.

[00:55:09] Preston Pysh: So thanks for making time and coming.

[00:55:11] Pierre Rochard: Thanks for having me on Preston and looking forward to the next one. Cheers.

[00:55:15] Preston Pysh: If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener.

[00:55:28] Preston Pysh: If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it’s something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate.

[00:55:44] Preston Pysh: And with that, thanks for listening and I’ll catch you again next week.

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