EB70 – Chainalysis, Surveillance And The Path To Mass Panic

Transcript

hello welcome to epicenter Bitcoin the show which talks about the technology projects and startups driving decentralization and the global cryptocurrency Revolution my name is Sebastian Cur and my name is Brian faan crane we're here today with Michael grager he is the CEO of chainalysis and previously he was the COO of of Kraken which is one of their main Bitcoin exchanges I I actually I know Michael from a while ago I think we met in Amsterdam two years ago almost and he's been in a bit uh on Reddit and there's been a lot of controversy and news about uh his service and and something that happened there so thanks very much for coming on

today Michael sure you're welcome so we're also meant to have Peter Todd on uh he was gonna ask a lot of very critical questions of Michael but he's in San franisco and it it seems like he didn't manage to make it in time so we'll have to take on that role uh but of course we're more than happy to do so so yeah I look for I look forward to the discussion today so um to get started can you just run us through briefly what happened there yeah sure I can yes so so essentially uh a few months ago we decided to to set up this uh this experiment where we essentially

wanted to see how easy it is to get um from transactions to countries what we wanted to do was essentially to do a a map of what's what what's the movement of Bitcoin around the world uh so so what funds are moving from country to country in terms of Bitcoin it's kind of an interesting exercise uh but also of course in the long run if you're doing compliance in different ways what's interesting is of course original fund because that would be a question that you get so where did they come from from which country they originate and also you should should acknowledge that there's some laws where there's actually in some countries you're not allowed to trade with other countries and so on so that's a question we would get at some point from from customers so that's why

we did a check up on this and first we meant to do a blog post and the later one essentially before we're doing anything kind announce announce that that what we were doing so we set up a a carefully drafted experiment where we chose to do one uh Class C Network so that would never uh conflict with a normal Bitcoin decline because that that is protected against that and then we kept it running for a couple of months and see what data it could collect and also it becomes of course at some point a Honeypot so uh notes would would always connect to that one and this means that we could get a pretty high uh pretty high estimate pretty good estimate on from what country a Bitcoin trans transaction

originated uh also what what happened and that's really what what was the cause of the cont controversy was that red wallet apparently don't have this protection and this meant that bread wallet were some of the bread wallet instances were connect in directly to our servers and we had well as your a startup you're not always doing everything as good as you wanted to so you uh you you build in the way that we could monitor for transactions but we didn't forward transaction uh it should be said that all SPV clients have the same behavior they don't forward transactions either and you will find tons of different uh behaviors different clients around there

but it our clients uh NES caused uh bread wallet some bread wallet users to experience issues that's it's highly unfortunate and we only learned about that uh Friday I think where uh where we saw the posts on um and Bitcoin talk and uh some of the friends I know say hey you're you're being mentioned here and there and then we looked into the issue and shut down our service because we thought it was better to shut it down before we we caused anyone else's issue and why weren't you forwarding transactions I'm curious why simply because the way that we set it up was that it's much easier to have uh it requires a channel back to forward the transaction so it re requires some extra

code writing and us to forward it uh the way we set it up now we are we are serving blocks and Merle blocks so we are only uh requesting data from from uh one local super instance so to speak and then we are not uh we're only sending back uh the the digest the country to to transaction mapping once in a while or that that get is getting pulled so we don't really need to to connect back and send the transaction forward and it's not well it's not a demand that you do that but of course it will annoy someone especially if you're on on a breit on breit wallet so um I mean the main the main sort of meat I think of today's question is also going to be uh kind of looking Beyond when we think about what

does that mean when you have this transaction monitoring I mean you were talk about for example enforcing Capital controls which is obviously going to be something governments want and it's obviously something that many people in the Bitcoin space are very much opposed to because the very idea of Bitcoin for them and for many people is that it liberates one from that right so I think there's an interesting discussion there of very different views of what Bitcoin should do yeah um but it's also yeah sorry so just coming back to what happen here I'm I'm curious how you found out about the sort of controversy that was happening on bitcoin talk form and on Reddit and uh how you responded to it yeah so I think I got

a I got a text I got a message on Skype uh Monday morning at some point sitting and reading emails and uh someone sent me a link to to the discussion there on on bitcoin talk and then I went in there discussed it with my CD CTO and then we essentially tried to find out what what's actually heads and tails in this what what is ups and downs is it uh is it well what are you being accused for and what is actually the the problems here first of all it was not clear whether it was causing real issues for the Bitcoin Network or not so we needed to do some problem analysis before we uh started to give back any feedback and then from there I chose to say okay the

the proper Source here is is I got in contact with two two journalist one from inside Bitcoins I think and the other one from from uh coindesk and then I took the discussion with them because that would be related to to the highest number of people and then I later on after we shut down the servers and so and started answering questions on on bitcoin talk so um dig a bit deeper in here now bread wallet connects to does it just connect to some random node and it was unlucky that in this case uh it was a note that wasn't forwarding transactions people would try to send transactions but they whenever we broadcast the network is that what happened here essentially yes however the Bitcoin protocol works this way or

indirectly this way that if you are on the network for a long time and you become popular uh then you you grow and your ranking kind of grows indirectly this means that a lot of other notes are connected to you and they would send your IP to other ones they would just forward it and that would essentially in the in the long run that would mean that a lot of nodes would connect to you so this means also Al that bread wallet would in the long run connect to us that's okay but it's not okay if they only connect to us because then they wouldn't be able to forward that transaction so normally they're pretty well connected but for some reason some of them it could also be purely coincidential that they only got uh had one of our our notes there we did some

uh some um code around that so we we'd never connect to we simply drop a connection if the same nodes tried to connect more than two times to us so then we drop them so if they had two connections and they were only to us then they would be be affected so so normally you would expect an SPV wallet to be connected to multiple nodes uh broadcast a transaction of multiple nodes and then you know hopefully even if one of them doesn't forward it it doesn't matter because some one other one does but for some reason here bread wallet only connected to one yeah yeah okay that's very interesting I mean one of the things we wanted to ask but I think I'm sure it's also something uh

you can address here um like you guys weren't malicious here right you weren't trying to stop bread wallet users from buying their coffee or something uh but what if are there some kind of dangerous scenarios we see here that if somebody actually does want to do something malicious uh and does I don't know instead of a few hundred notes get a few thousand notes and what what are the kind of risks here and dangers what could someone do I think definitely you could do that and I if you ask me I would say that the Bitcoin Network as it is today is probably too vulnerable against these these kind of things so we we have been into Bitcoin

for a long time and we did best effort to do any everything in the right way and as it is a very H henus Network today we didn't do all the implementations and all the details in all the wallets so it meant that we we unfortunately caused issues for some other people other notes are causing issues from other people again and that's just how it works it means that we need to build clients in the future expecting that stuff like this would happen expecting all kind of attacks and as I see today my main worry is as the the trading grows and as you see reactions and different things let's say you want to earn some money in Bitcoin so what do you do you buy a few a few uh let's say a few thousand notes you set

up a network similar to ours uh and then at at the right time you say now I buy a lot of Bitcoins uh no you don't now you sell you sell a lot of Bitcoin you go short on them and then you switch them off or switch them on essentially so they don't don't forward transaction anymore they cause a lot of problems on the network you would see a lot of issues because you might even have have U coins split forks for a while other other kind of of ugly things because they were essentially the became the new backbone of the Bitcoin Network and then the price will drop because people usually react to it that that way you go in there you buy some coins and you go back again and then you have earned some

money on that one You definitely you could definitely do stuff like that and it's not it's not good because it it's just the way things are today yeah no it's interesting because uh just two episodes ago three we talked about the idea of shorting Bitcoin especially in the long run and what kind of risks will there be especially if you're able to take a very large short position and then some Financial players can come in with large resources uh and and what's interesting is that we sort of assumed in all that discussion uh kind of a best case scenario of Bitcoin assume you know what are the risks if somebody actually has to like acquire control of a majority of the hashing

power right but that of course is a absolute um best case scenario for the security of Bitcoin and even then there are risks but an attack group probably doesn't even have to do that can have there many many way cheaper attacks cheaper ways to C would be to a butet that's obvious it could be to a butet setup and and the normal mitigation that that exchanges users if someone try to manipulate price they actually have compliance offs that go through all trades and and they that would also happen in for example there was this case on on Wall Street a few years ago where someone hacked a Twitter account from from a prominent source and manag to make some indexes go down one or two%

that's a lot of money and what you look at there is that who earned from this and then you scrutinize every single person and figure out who could it be that was the of the cause of the problem that would never happen in Bitcoin there's no Central organization any control anything there so you're home free doing it you can essentially do it as a happy hacker and then you can just uh uh go there get up your buttet running and and earn some money the exchanges and the normal mitigations looking into each transaction and figure out or each trade and figure out who earned a lot from this who actually had the magic bill that knew when the when the price would go down that that kind of of things would never happen and I think it should before it it's something

that that we need to to that exchanges would need to do at some point I mean one one related point to that also is the question to what extent is it illegal right so when you when you hack a Twitter account uh and make some fake tweet impersonate someone yeah obviously that's illegal but when you uh hire a lot of nodes and don't forward transactions and stuff well that may be against the sort of expected behavior of Bitcoin it may be against what people want to do maybe against some sort of Standards but it's hardly illegal or probably not I mean it's it's hard to know but uh it's it should be very

possible there to do attacks that are perfectly legal so you can't even I think even if you identify the people there may be no recourse you can take I think the only recourse you can take is if they do it for Price manipulation is illegal and it's illegal in in almost all jurisdictions so so as long as you can pinpoint that and clearly make the case that this person uh deliberately tried to do price manipulation and he earlin one million bucks on that one then then you can definitely do take legal actions on that part if someone is doing whatever experiment doing even just trying to to just for the fun of it because they like Litecoin better than

Bitcoin try to do a a DS attack on the Bitcoin Network you couldn't do anything about it not as I see it it wouldn't be it would be impossible to to to uh to run that case in a in il legal way now but you talk about price manipulation but I mean uh price manipulation on unregulated assets I mean I don't think bit Bitcoin falls into the category of something that would uh fall under uh price regul price manipulation uh you might be right yeah today's magic word is Duality d a l t y head over to Let's bitcoin.com to sign in enter the magic word and claim

your part of the listener reward um so taking a step back you mentioned a little bit about the the kind of goals you are pursuing of chain analysis you know that for example you gave the example of the capital controls uh but can you expand a little bit on what's the what are the objectives of the company so essentially I talked to uh to Bankers uh in different countries for a few years well last year essentially and to to regulat as well and so on and uh also in trying to obtain bank accounts and having these discussions coindesk

ran a long feature around the why it's so hard for Bitcoin companies to um to get a bank account and also uh I've been running lately been running compliance courses as well and uh I get approach by by compliance officers from from Banks and they say well we actually would like to for Bitcoin but we don't have any measures to we don't have any tools to to do our do our customer due diligence we don't know uh you don't have any way to to actually obl to the law follow the law uh regarding anti-money laundering or other things so essentially what the only thing would would able to do would be either keep an extremely low amount

of Bitcoin but even that would would cause a liability if they accepted that so they don't really know how to treat Bitcoin and not cause cost liabilities for themselves so that's why there was definitely a requirement for different tools to help them doing that uh so one thing for example if you look to to us um there are the the OAC list of individuals you're not allowed to to trade with there's also companies you're not allowed to to to do transactions with and there even countries you're not allowed to do that and the the reper cautions if you do it anyway are pretty hard uh and the and this means that if you for example accepted a Bitcoin

transaction from uh say North Korea or Afghanistan or wherever one of the countries on that list uh and that was used for some kind of Terror uh attack you're pretty certain that you would go probably go to jail for for doing so unless you could State a story where you could say I actually did my best to check that that was not the case and then the question is how do we establish what is the best and the best is the best by industry standards and early on when we had discussions with Regulators in us there was a lot of people developers all the core developers and so on claimed well we shouldn't be regulated as hard as cash because Bitcoins are actually

traceable they're much more traceable than cash and that was the expectation from Regulators from early on I also talked to to NAA from from uh csff in in Luxemburg the regulator there and she you also heard the same story and approached me last year and say hey but you always claimed that Bitcoins were were much easier to trace than cash I heard that from all people so so this also means that we need some tools we actually need to be able to utilize this uh this uh feature of Bitcoin if we are not to regulate them as cash and if they were to be regulated completely 100% as cash it would be impossible to know what's the origin of of funds and you would Le a lot of statement from users

the utility of of Bitcoin in that scenario would be awful because you wouldn't be able to use them in in it would be very hard to integrate them in the existing banking system of course you could use them for other purposes but but that would be mainly for for for medium of bar and they can be used for that as well you raised another question just before uh around uh would you still well if if you have this uh kind of of knowledge around the region of funds and other things would you suddenly um be locked out some people couldn't use certain exchanges or you could state that if you use the T could you use an exchange or whatever whatever you useing Bitcoin I don't see

that you can still trade Bitcoins with everyone in in the Bitcoin environment but if you want to go to Fiat land and if you actually want to to go to one of the exit and entry points in in of Bitcoin then they are under a lot of of regulations they they have to follow a lot of rules and if you don't want to accept that they are they have to follow these rules you're essentially just asking them to take your risk just saying well I don't care I just expect you to take to to run that risk and and don't check anything on me because I don't want to to do that and they will just end up in jail at some point because at some point some some money launder guy would actually end up there and they would get a case against it

yeah I don't think I I don't think that you you're only concerned when you're interacting with Fe I mean you could also be concerned when interacting in the Bitcoin uh payment system itself and so the question that we had for you is like does this sort of labeling of clean and dirty coins uh threaten the fungibility of Bitcoin where we now have a situation where some coins are uh coins non grata and are not accepted by uh major exchanges or perhaps even Merchants yeah so what I see is that that uh at least in our view in our way of implementing uh solutions for for uh compliance Solutions we don't like the idea at all of of uh Red List Black List white list of of coins we see uh and

that's how compliance works you need to to look at the story around a transaction so I have this favorite example let's say you go into a bank and you have a million dollars with you you're a new customer they never seen you before and you say I just want to deposit this million dollar in cash they prob we say no we can't do that or if they do would they would definitely file a suspicious activity report on you and uh because they would they would feel that we don't know the origal fund it's not clear in any way that this guy should should pop up with $1 billion the the the dollars are still fible even though you couldn't put them in there you would still be able to take the dollars one by one and buy grocery or whatever for them that would be

totally okay but moving $1 million into a bank account would be impossible the other scenario would be that you have been you're the the head of Red Cross you're doing a collection in your community and you're getting a lot of uh you are out in the streets and getting a lot of money for as donations your bank knows that he knows your history you still you come in with a million dollar again then you could still put the million dollar in there so it's not the dollars and and the the the coins in Bitcoin land that became tainted it would be the story around them so so uh I don't see scenario where if you end up with certain coins you can't get rid of them again but if you end up with

certain coins in huge amount it will definitely be hard to do it so let's say that you for some reason chose uh to uh switch Litecoin with Bitcoin for the everything that the latest hacker at bitstamp got out there then you might have some issues getting getting rid of them afterwards because it would be a huge amount but if you had smaller amounts from the Bitcoin coin hacker at at bitstamp last latest time you probably not see any issues some some institutions might raise a flag because they they found out that there was this Trail of the money but if it was only smaller amounts and you had a good history and a good record otherwise I don't see that they would be any reason

for them to to think that there was anything dodgy going on yeah I mean I think there's it's a it's an interesting question that you brought up S it's kind of a it's hard to wrap your head around this sometimes right so on on what kind of level does the monitoring and and and this happen does it happen on a user level on a transaction level or on a coin level and and I mean I think it's it's definitely the case in my view at least and I think in the view of most people almost everyone in the Bitcoin community that the idea to have it on the coin level it just makes no sense right I mean that would be total

disaster yeah um yeah also awful because it would essentially mean if you had a a sensory repository of of different colors of coins then you would for each transaction even even smaller transaction you would need to go Central to in order to to maintain it and it's just not in the spirit of Bitcoin and and it's not the things you want you just want to to uh to be able to well like with normal dollars you can turn them over from between two different people and that's okay so uh can you explain a bit how you would conduct these analysis so to to

say like this is uh you know this is okay maybe a bank can take on uh this money and exchange can't take on this money accept this deposit versus U there is some sort of some flager does that mean you would for example as a company you would keep a track of let's say stolen coins and things like that or or how would that work so essentially we we don't like to have the liability as a company of of uh claiming what is good or bad uh that's essentially up to the user to upload that to us and then they can reuse what they got afterwards uh if they wanted to collaborate somehow on on Shar between them they could do that as well but

that's really something they they choose to do and we don't choose to do uh if you would it would definitely be good to to have a list of stolen coins and also what we have in in h at many exchanges and so on a lot of people are doing fraud there so they would show up with a a credit card that's false or stolen or whatever and go Bitcoin and then run away and I think there's a definitely a exchange sh would like to avoid that and if they if it happens to them they see it as people stealing money from them and that's actually what happened so they would like this money not to be easily laed on other exchanges so they

probably tell other exchanges and everyone that this was the case you see it all the time with big Bitcoins Bitcoin hacks everyone are Keen to tell these are actually stolen please don't take them or please tell me where they are so so that's uh that's part of it what we are doing uh in terms of of uh of of for the for our customers you need to to look at compliance as a bigger thing so essentially you have a customer and around that customers a lot of different data so what they need to to have to to have a customer today would probably be to have a passport it could be Reddit it could also it could might even be only a

Bitcoin address they definitely have your IP address they would do that all the time today any any company into Financial Services also the Bitcoin companies would check your IP address they would check where you loog in from do you log in from different sources and depending on the pattern of use what you do uh and so on uh if you for example only go from from uh Bitcoin to Fiat they might not be that worried if you go from Fiat to bitcoin they would worry more because uh Fiat land is known for for easy fraud so they might actually try to exit with Bitcoin so different things would apply there and that would be the whole picture of that that would weigh in on them to figure out whether this was risky or not so what we can

provide extra there is essentially to see on the Bitcoin side of things so if they receive some Bitcoin or if they're sending Bitcoin somewhere then they we can help them see okay is this the same wallet that is being that were being used at an earlier fraud case on our exchange because we don't want the same guy to pull the same number at us twice and the only thing they can do to today in in the simple way is just to look for the same address and uh that doesn't help much what we can help them with is the clustering part uh to Cluster things together into wallets I'm not saying that this can't be tricked or whatever I'm just saying that what you need to do to do your compliance is to do the best stuff available and best stuff available today is not to just look at single

addresses it's probably to look at at the at at wallet level and at least ensure that's a part of it you could also look at the the specific user what's kind of their pattern and other things so different things in that that uh that scenario would be what we are we providing uh well let's uh let's come back to this and just a second I want to talk about user protection as well I mean um come back to this attack scenario because I think there's some other topics that that uh that would be interesting to talk about uh before we do that let's talk about uh shape shift so shape shift is the fast an easy way to buy and sell altcoins uh if you ever tried to buy altcoins on an exchange you

we've been talking about exchange you know that that is somewhat complicated you have to create an account there send them a bunch of personal information uh and um you know that just takes a lot of time and it's it's sort of a hassle shape shifts makes it easy with their currency conversion tool looks a lot like Google Translate for cryptocurrencies um so basically uh you go to shapeshift.io you choose the currency you want to deposit and you choose the currency you want to deposit too if you have a look here uh for those of you watching on YouTube you'll see that they support about about two dozen different currencies including Dogecoin feathercoin nuits potcoin if you're into that Ripple

and recently Anup tanium um still not sure what that is but they do support it's finally obtainable they do support itanium uh so basically you go to shapeshift.io you enter the uh address of the currency you want to convert to so in this case for instance we want to buy some Litecoin from Bitcoin you put your Litecoin address uh you hit start you will uh be shown a QR code to which you will send your Bitcoin and in just a few seconds you'll get Litecoin on your account or could be someone else's account could be um could be a merchant that you're sending it to could be someone you're tipping you know there's really lots of possibilities here and what's really great as well as they adding some interesting tools to their um to their toolkit so one tool that uh

we've talked about recently is the shape shift the shape the Shifty button uh rather which um is kind of cool so it allows you to just basically add a button to your website so if you got a Bitcoin address in our case on our tipping page we've got a Bitcoin address we used to have a bunch of different wallet addresses there for Litecoin and Dogecoin Etc but we got rid of all those and we just added the Shifty button and with one uh single button people can now tip us with with up to 25 different altcoins whatever the amount of coins they support is so uh go to ship shift. give it a try uh tell us what you think it's really fast and easy and it doesn't require any personal information to be given to them you don't even need to create an account and uh so we'd like to

thank ship shift. for the support of EP Center Bitcoin so coming back to is that a commercial I just need to ask yes yes okay probably should have mentioned that beforehand um uh yes we we do have sponsors we' like to choose them wisely we work with sponsors that uh that uh we believe in and so shapes shift is one of those companies that we think is providing real value to the community and to the Bitcoin ecosystem as a whole so we we like them and so we advertise for them uh so yeah coming back to uh to just briefly to the Civil attack so we we

mentioned The Who affected by this so in one instance bread wallet users were affected by this uh now a lot so we've been talking about SPV wallets recently we had Tom off from electrum on um electrum is an SPV wallet but uses a different scham so there's servers that are somewhat centralized and the transactions go through there it's not like I guess what you would call a true implementation of SPV where it connects directly to bitcoin nodes um like what percentage would you uh would you say uh Bitcoin users would be directly affected by this um if someone were to try to implement like a large scale attack Vector where they had

maybe like 10,000 nodes on the network and to what extent would the Bitcoin Network be paralyzed if that were to happen uh so I mean what would what would be the so say we had 10,000 fake nodes on the network how would that uh uh affect the network uh in a practical sense it's actually a good question I think that that what would be affected would be people trying to buy beer and cafes uh and uh whatever Ed of of smaller SPV wallets I think that would be prime the prime uh victims in the first place the question is how bad it would be for the real Bitcoin network if you would get some nodes that would

effectively become disconnected and be well falling behind for question is then so that that's it then so it's only those SPV wallets that would be affected or would could we expect the network to just generally be slow and sluggish and transactions not making it to the miners for some reason I think actually do the L I think that could happen if you really do a a full u a real Cil attack on on the Bitcoin Network that would definitely be something you could do um it's not good but that would be the case so then my next question is how do you think uh the Bitcoin Network as a whole can protect itself from this sort of

attack um oh there's one thing the one way it's protected already today is that miners connect directly to each other so so the mining would still go on uh the other thing is that I might ass I might guess that some of the bigger players would also connect directly to the mining Network and this means this is a kind of a centralization you could say because that that's a a not a peer-to-peer thing is someone agreeing that we do it this way because we are important and we do it we want quality of of of service so they would not be affected either uh the ones being affected would be well people on a normal client and and other ones running running that scenario there and they

would most likely be either they would get see that they didn't get blocks fast enough they would have problems getting their transactions confirmed and then at some point I guess that they would see that something was wrong and try to restart and once restart notes they would go to the to the to these seed sites and some of them actually are ran by Bitcoin core and other centralization part uh and this means that they would get some of the the notes that would would actually give them the the right connection to the network and they would be back again so it would cause some annoyance definitely uh the core part of the network being the miners would probably not be affected at all okay and uh how can so on so that's

I guess on the network security uh side the secur the security of the network as a whole uh as far as users go how so what what your what your research is doing is is U aggregating uh IP and location data from users if I'm if I'm a user of the Bitcoin Network and I and I want to protect myself against this type of uh what some may consider to be invasion of my privacy not saying that's particularly my case but uh how could one protect uh oneself against this type of uh I think that what you should you should do you

should go through the tour Network that would be the right way to do it if you really want Anonymous I think that has been a well-known fact in in uh among Bitcoin call people at least for a while that that the only way you can protect you against stuff like that would be going to tour uh and run your transaction and send them to tour you could say that in our setup the only thing that we would G gain there that would be that this is a tour transaction so that's a big country of tour which is good enough we don't we don't uh we definitely have no intention what soever to try to to look into where where things come from inside the tour Network and that would be I think that that's uh what appli to everyone so so um I presume you would have for example

an exchange and Bank Etc they would say oh uh a transaction coming from Tor then is suspicious probably perhaps perhaps it's hard to tell today a lot of transactions come from T Network as well a tour exit notes uh and that doesn't mean that they're they're suspicious uh either but you could say if they see that this is from the tour Network again it all adds up to to uh to the entire uh entire picture of this customer and this uh specific transaction so it's not just either all so if you have one customer that only send you money as a bank through tour you would probably say I

need to ensure that this guy is actually who he claims he is before you accepted that in the long run because you would feel that I don't have this extra kind of info telling me that he is telling the truth so you would probably say okay is he really from is he really the guy who thinks so you look at an extra time as his passport you might call him and say hey it's you we just saw you send all everything to T it's perfectly okay with us but well we just want to know that you're there you pick up the phone when when when we call you they say yeah it's me I just like privacy you say okay cool I think that would be be the the normal scenario around that the other setup is some may consider that to be some sort of an intrusion uh and

uh you know some sort of mass surveillance of of what people do so the other side of that and what I think sort of the the spirit of Bitcoin is that we don't have to have that sort of um that sort of uh how Assumption of guilt uh in some might call I don't think it's it's an assumption of guilt that way it's more like I think essentially the Bitcoin Bitcoin a lot of at least what I've seen the last few days there is definitely an assumption of guilt up front so so that's what I have seen but but uh I I think that if we assume guil if you don't don't see that we

necessarily assume guilt here just by checking up on on people things also if you're a financial institution following the the law you need to do it and what you could choose to do is that you could either not check these things and just do extra uh extra kyc on your customers and do other things that in the normal space or you could take a higher risk and risk getting out of business business because you got a fine at some point that's essentially the three SC scenarios you have so you can either make it a very um very low low um low friction uh user path use different products to to make to make a good guess whether people actually good or bad and

for that purpose you need a lot of data points that's one way you could say you inviting PR invading PR privacy but you could also state that on your side that that that's your policy that's how you are checking up on people that's why you are so good at it the other version number two is that you say I just ensure totally upfront that I know who I'm dealing with so people can't get an account here unless they meet up in person uh and then you would also have done your due diligence in a good way and then afterwards you're not checking anything electronically the third third option is you just take the risk you just say okay I'm an exchange I'm perfectly okay with that I take the risk but again that would just be Market different Market forces choose and you as a user could choose different

different schemes there and different exchanges as as an exchange provider as a financial service it's up to you to choose what kind of of uh of risk profile or scenario you [Music] prefer so let's talk a little bit about um uh dark wallet or or mixers what kind of role do you see for that in the future and um I mean I also presume right when you when if you use those and you start interface with uh with banks or regulated companies that that would raise uh that would probably be a problematic way of using it right

or I guess it would would be one factor that yeah I well I could give her two Penny advice and that would probably be that use your mixer against the already legal services that you need to interact with and try to use something that looks more well okay if you're interacting with with banks that would probably be the best way so if you're dealing with if you want to buy something on Silk Road it's not there anymore but if you want to do stuff like that then it would be through a mixer or so you didn't get your your kind of of History to change it still you'll be able to see you use the mixer I think but again I would I would go for for that that scenario

otherwise I say what what would be the role of mixers well you could say that they're they're still there the problem is that you are you are definitely trying to upate something and depending on on the policy of a financial institution they can choose to say this is this is there's a good reason for that or they could say that we don't see a good reason for that so that's why we think it's suspicious that you're trying to upis skate what you're doing and then we choose to to do something about it whatever that can be uh it's hard to say what what will be the specific choices there so uh what's your personal view on this do you think mixers and and dark wallet in those kind of projects are a good thing for Bitcoin

or do you think it would be more desirable if those didn't exist because it would make it easier maybe to get accepted from any integration in existing Financial Services I think that I think you will see now we have this this era where we try to get Bitcoin kind of uh legal get get it well mainstream being Bitcoin to some extent I think that it will not Bitcoin being mainstream would not be mean at the same time that all the other cryptocurrencies will will go mainstream at the same time so it depends on on what what level of of uh of compliance tools and other things you can build around them and U if you build stuff like zero coin and other things I think

that would be even harder so so they don't have this story I referred to earlier saying that well we we are much more traceable than cash no they're really cash uh you can't trace them at all this means that you need lot more um in the in the banking sector you would need a lot more due diligence around customer uh taking onboarding customers and so so and that probably hinder that their acceptance of of stuff like that I I have to say that's a it's a really interesting perspective and and it's a perspective that I I don't think I've heard before right to to think of um of these Services right like like mixers or these anonymity Services uh if you think of those from

the perspective of the banks or of those sort of let's call them regulated entities that you know bridge between Fiat and and Bitcoin there they just create additional work right because they make they make the compliance harder and then that's that's very interesting right so of course my thinking on this has often been it's really important that people can stay very anonymous because uh to the extent that let's say law enforcement or or other entities are able to for example de anonymize uh all Bitcoin users or like Bitcoin

users to a large extent most Bitcoin users you know it's a threat on on a few levels right like you can uh if you don't like Bitcoin if a company wants to ban Bitcoin it can go against Bitcoin users directly uh and you know it can make make Bitcoin less attractive because potentially you know huge privacy risks um yeah I should add that that I definitely would see that as a nightmare scenario if you tried to De anonymize uh all Bitcoin users and all their transactions uh for example take there was a leak earlier this year there was one last year from mango and there was another leak just recently where someone

leak the the user database and if you take these new leaks and put them together you have the entire transaction history for for all the users that were ever signed up on GX that's kind of the leak that says something about privacy if you go in there you can find all transactions you need a bit of work to do it but you can do it and that's bad and and that's kind of the the that would be a horror scenario so imagine that you could do that with Bitcoin that it would be possible so Not only would it be done by by some weird government agencies it would also happen by that someone else would do it and suddenly it would be just out in the open and it would not the value of Bitcoin would disappear because well if anyone could see what everyone was buying I think

that's for perhaps one of the issues with ripple that as soon as you transact with one guy once then you can see what he's buying all the time that's one of the issues and and you don't want that to happen with Bitcoin you essentially want to see that well don't mind you can see everything what happening on the network as a on a statistical level but you don't like to well share every s single purchase that you made but do do you think this is a a plausible scenario or is that a danger you worry about I don't think that we you will have no I don't think so I think it's too hard still it again if you're trying to to do the the deanonymization to to uh IP addresses it's hard to get a very a

complete coverage of things anyway you could probably pinpoint down to some to some level but then again you would have run into other problems you would see that people use different IP addresses they are different different in many ways so just example that you have IP addresses for different uh using a mobile phone then you would change IP address all the time so so you would have these kind of scenarios and that just it's not that easy again that we have tour so if you really need to be private then you would use that as well and if if it will be well a war on Tech so if you have more of of more tools of that degree people probably start to use tour more often I think but I think perhaps T would would

have the same issue you could probably de anonymize that as well if you really made a huge Jeffer and one simple attacks there we don't like that either it's it's it's uh I don't see any point in doing so well I think so we get into some sort of a scenario where people that have the technical ability to uh to use tour and to use anonymizers would have relatively good anonymity and privacy and people that don't um would would uh would be vulnerable to having their uh yeah their their identity in their anonymity be compromised I mean to some extent it's probably also true about General technology

yeah so can you talk a little bit about where where you see Bitcoin going what kind of role do you see Bitcoin taking in a few years from now how will this be integrated into existing systems or use on the side or like what's your vision for Bitcoin so essentially as I see it is that initially when I saw Bitcoin first time I saw this is just awesome because what you have here is is online cash and I never been a huge fan of of uh paying through watching different kind of commercial ads on the internet so I essentially always prefer to well pay for services in in smaller transactions and whatever way you need to do it so I

think that there's definitely a case in the future we need some different developments uh completely separate from from what we're doing on on micro payments and other things but I think we will use Bitcoin as cash online that will open up for the entire third world to be able to trade with us all the UN Banks suddenly become will be able to to be included in our economy that's kind of a revolution as I see it so just that part is a revolution by itself when we are there then we start we're moving into the completely speculative uh scene and for before getting there I think we need to have Bitcoin mainstream so it means that well your bank your everyone would just accept that Bitcoin is is another medium of exchange something you

can use for to pay with and that's perfectly okay that would include a lot of other players in our economy and that would be awesome so if you go from there and and ahead then you can only speculate but some people would would speculate that we will see an era where well you only have cryptocurrencies it would be no point in in in keeping fear currencies around that might be the case that would be all I think probably be cool but it's just to to find the future so I can't really dream that far I think that first step as I see it and the first goal is that if we have we have a technology at hand here by which we can include the UN Banks we can include the third world they can become part of our economy and we can also as individual we

can have an app store on the entire internet where we can choose to buy for smaller services and get rid of of all these strange subscriptions you need to do here and there and just well use Bitcoin instead cool that's yeah I mean I I I agree but I I also think that it's important that we try to as much as possible protect ourselves against the sort of things that you know the financial system has been uh um accused of in in in recent years and uh that we try to uh make sure that whatever this whatever happens in the future with Bitcoin or any other cryptocurrency uh is in the interest of just the people in general right I mean

um I totally agree I think one one of the best the worst scenario or the really bad scenario we had in banking I I whatever you you can say about banking they can earn as much as they want and they can do whatever they want but I think what we had the worst nightmare scenario we had the last few years had been too big to fail so it's not really bad that a bank does a lot of illegal things and in the end they go to jail and they go bankrupt so that's how the system should work it's not a big deal I wouldn't even get offended in any way by them doing it they probably do it but the bad thing is that if they do a lot of bad things and you get a scandal like HSBC that been participating in money laundering on the level of of several M

several billion euros and at the same time you end up saying wow they're too big to fail you can't put them in jail they get a fine and that's it it's not okay that's bad we don't want that to happen in Bitcoin I don't want a f future like that so I totally agree there so with this whole uh I guess you probably call it some some sort of a fiasco but with with this whole ordeal that you've been through uh these last couple of days um you know I was reading through the Bitcoin talk forum and we following on Reddit what whatever you learn from this experience from uh being sort of uh uh I guess a target of the Bitcoin

community so I think that I think there's two things I think um the M outcome what what we learn from is it that is that if you want to do surveillance you should probably do it uh even in more stealth mode still I think that was not really our purpose on things what we wanted to do was to to to build this uh this transaction the block around transfer fund between between countries and I think think we shaped our experiment pretty well unfortunately some users got hit on on bread wallet and that was bad uh but we perhaps also should do is to say that this is a legitimate use there is a use case in what we're doing there so perhaps you

should advertise it I suggested that on one of the Bitcoin talk post that you could for example just State out frankly in the link that this is the running the statistics that why we are here and then you could be able to see that in in some of the messages you post that this is the kind of node you are connecting to now um that's one of the discussion points takeway points from that beside from that I think we expected all all the time when we went from from doing a normal coding stuff and went into the compliance thing of Bitcoin we definitely expected to have discussions on whether that was a good idea for Bitcoin or not whether that was the way Bitcoin should move is it an idea is is it totally wrong are what we doing

unethical to do to to help Finance Cal Services being able to to uh administer the risk in dealing with Bitcoin is that wrong should we completely keep it uh pure crypto land or whatever I think that that kind of discussion will be ongoing and go for for a long time and will probably also get some some bashing bashing for that part so I think you said something quite interesting there and what I'd like to add so there's sort of an expectation of transparency uh in in the ecosystem and an expectation of of um I know the word in French but you know like uh uh showing showing your hands I mean um

yeah yeah not sure what what what I'm trying to say there but me yeah but uh yeah so showing your carts right um and perhaps one thing that one may want to consider doing it when doing analysis like this on the blockchain or any sort of large scale um operation is to you know put it out there beforehand it's like go the forums and say like we're going to do this by the way if you're trying to protect yourself against some sort of an attack you can block these IP addresses rather than letting people like talk about it for four or five days and then finding out that you know your IP addresses belong to your company and then uh and then finally coming out and saying yeah this is us so perhaps uh this is a one one of the lessons to be

learned and to other may want to engage future would have that behavior delicate I totally agree the only thing is that it's delicate because if you're building a business to some extent you also don't want competitors to pick up the same idea so you go in this kind of little stealth ball initially and you build your ideas and want to say okay when we're ready to present this for the world we'll do it but this specific case it's probably better to to go well show show clearly clearly what your your intent is up front I agree but I I I think you know this discussion has been very interesting and I think it is very interesting if we look at for example there was the the response of my helium on Reddit and you know they talked about how they are building all these tools

that you know are meant to really make Bitcoin more Anonymous by default so for example they say coin join will be implemented by default in the future I think they want to go through tour I guess also by default or something like that uh and and you know that's interesting and I think so you know on the one hand we have these these tools being built that you know will make will make this uh much more Anonymous much harder and then I think I can totally see why and I see a lot of value in that and and I can understand that and I think you know any one of us uh you know since the Snowden cases it's just uh it's it's become extremely abundantly clear that uh surveillance is a huge problem and uh it's it's a huge

threat I think to Liberty and all and then at the same time um you know companies like like what you are doing you know that's just uh there's just not not not going to be any way to integrate Bitcoin uh into the financial system or to have any kind of mass uh Mass use of cryptocurrencies without that thing either you know so I think this the sort of both are you know both in inevitable both are part of of uh what Bitcoin and cryptocurrencies are and and I don't think either is is going away I agree it's definitely it it's a we will have to fight that dualism a long time from now because we don't we don't want the the scenario of of of

surveillance and also we can't fight surveillance with regulation it doesn't work that way you need to fight it some somewh some other by some other means you need to ensure that you protect yourself against surveillance it's pretty hard to do that but uh and again as you say it will only be the Savvy ones that can protect themselves against surveillance and then they might end up become the the ones that people question what what their intentions are sometimes so it's so it's a it's really a a a strange scenario and again you need as you say you need you need tools for financial services for them to unboard bitcoin and and it's pry good that they on board it as I see it now I'm curious um so I believe it was

one of your co-founders who was involved with the melum project yeah uh in the past and so since this whole story broke out like they some sort of distance themselves uh uh from what you guys are doing even though your co-founder is still somewhat involved with the project as an advisor um what are your thoughts on them you know distancing themselves from uh what you guys are doing where you still have ties with them and such I think that well we both have uh good connections back to to our former companies and talk to them well on almost on a daily basis in many ways but but I think that definitely they should just distance themselves for this part you don't want

to to be subject of stuff like that you don't want to answer these questions I think but we we done we did as completely as as genalysis that's how we we we present ourself and any association of of our services towards melium or cron for that matter is not is not justified any way so um beside from that there was some speculations I think it wasn't read it or Bitcoin talk that what were Happening Here was was uh was my celium trying to uh to make it harder to use bread wallet to gain some customers from bread W I think that this thing about assuming well assuming that someone is doing things in

good phase first instead of assuming the opposite I think this is definitely an example of it's just well come on yeah that that does sound like a very absurd at least it's fun but but again it's just it's not the case and and uh no yeah well uh Michael thanks so much for coming on it was very interesting talk with you also very interesting to dive a bit deeper into that story because obviously reading the top read comments always doesn't always give you the most profound analysis uh and I think it's it's a very interesting topic we had a chance to cover here I mean I think as as we mentioned this this Duality between the need for privacy the desire

for privacy and anonymity uh is just so integral and so so much part of Bitcoin and then this need and desire to get integrated and acceptance and Bitcoin used in financial services is just as much part of Bitcoin it's just as much part of division and I think it's yeah thanks so much for that discussion I thought was very interesting and very enjoyable definitely likewise thanks for inviting me yes thank you very much and thank you for coming on such short notice sure um yeah and uh the listeners thanks very much for listening uh you can follow us on Twitter at EP Center BTC and uh can also leave us a tip if you want to and that's it with with any of your

unobtanium Litecoin or or Goos or potcoin uh and you can do that at end bitcoin.com tips yeah send us your pot coins yeah thanks so much and we'll be back next week