121. Is bitcoin dark money? with Giacomo Zucco

Bitcoin educator and investor Giacomo Zucco joins us to explain why he thinks bitcoin cannot be hard money unless it is dark money. We discuss: How dark is bitcoin given that its ledger of transactions is public, and given the recent identification of several hackers through chain analysis? Is bitcoin’s privacy overestimated by bitcoiners? What chance does the average user have at remaining anonymous? Does bitcoin need to be anonymous to remain secure? Can bitcoin survive government attack if most coins’ owners are known to governments?


  • Giacomo on Twitter
  • Giacomo’s article on the history of bitcoin as a privacy-focussed project.
  • Giacomo’s article on common misconceptions about bitcoin privacy, and why privacy matters.
  • For further discussion of the relationship between hard and dark money, see Giacomo’s conversation with Stephan Livera.
  • Interview where Giacomo rates the top 20 cryptocurrencies and makes the case that every project that isn’t bitcoin is a scam.
  • Saifedean’s first book, The Bitcoin Standard.
  • Saifedean’s second book, The Fiat Standard.

Enjoyed this episode? You can take part in podcast seminars, access Saifedean’s courses – including his ongoing course ECO22: The Fiat Standard – and read chapters of his forthcoming books by becoming a Saifedean.com member. Find out more here.


Saifedean Ammous: [00:02:51] Hello and welcome to another episode of The Bitcoin Standard Podcast seminar! In today’s seminar our guest is going to be Giacomo Zucco, the famous Italian Bitcoin maximalist. If you’ve been on Bitcoin Twitter, you’ve definitely come across him in one of his many guises and identities that he chooses to identify with every other day.

But in the real most common identity, he is an Italian technology entrepreneur and a Bitcoin advocate. Who’s launched a number of Bitcoin startups. He’s a very toxic Bitcoin maximalist, in the most positive way you could imagine. And he has contributed a lot of work to the analysis of altcoins.

And in particular I credit Giacomo with playing a large role in inspiring the writing [00:03:51] of The Fiat Standard because at Baltic Honeybadger in Riga in 2019, his presentation was steelmanning the case for altcoins. He was trying to present, what is the best case for altcoins, if he wanted to make the best case in defense of altcoins, what would it be?

At that time, when I was thinking about Bitcoin and fiat and all the questions raised in The Bitcoin Standard and thinking about a next book, that struck me as a great thing to apply to fiat. Let me just do the same thing with fiat. Let’s try and think about how fiat works, and let’s make the steelman case for why fiat is good.

And from that basically came The Fiat Standard. From trying to approach fiat as just another altcoin, which effectively it is. All of them is just digital, easy money that a small group of corrupt devs can control, and pump and dump and rug-pull. As we see happen with national shit [00:04:51] coins and the private sector shitcoins, particularly this year and every year really.

Giacomo thank you for joining us!

Giacomo Zucco: Thank you for inviting me, and I’m honored for this introduction! I really loved The Bitcoin Standard and I was thrilled to know that The Fiat Standard was partially inspired by my presentation. Actually the first one to tell me was a friend that probably heard it in some podcast that you previously mentioned.

So it was really an emotion for me!

Saifedean Ammous: I’m glad to hear that. Thank you thank you for the inspiration! I spent three years slaving away at a book and self-publishing, but I’m not blaming you for that! But today we’re not here to talk about altcoins much as that would be fun.

What we wanted to discuss is the concept of Bitcoin as “dark money”. And so Giacomo had [00:05:51] written an article and given a presentation, explaining his perspective for why Bitcoin needs to be dark money on top of hard money in order for it to work. So in The Bitcoin Standard and in this podcast, we’ve repeatedly mentioned and discussed the aspect of Bitcoin as hard money.

And basically that refers to the fact that the supply of Bitcoin cannot grow beyond the predetermined algorithm. There’s only gonna be 21 million Bitcoin and the supply growth rate continues to decline with time as the as the production of the coins increases – the supply growth rate declines.

Nobody has been able to change this over the last 12 years. And that’s really the key point in The Bitcoin Standard, which is that ultimately this is what makes Bitcoin the hardest form of money ever. All other forms of money are gonna be inflated and they’re gonna have their supply increased at an increasing rate most likely over time. Because [00:06:51] our technology for digging copper and oil and gold and all other kind of raw materials continues to improve.

So we’re always making more gold and silver and copper and everything. And our technology for fiat inflation seems to also continuously improve. Governments seem to always come up with new and amazing technologies for fleecing and destroying the lives of their populations and impoverishing them and putting them into generations of abject destructive cruel murderous poverty.

They just keep getting better at it. And there’s always new explanations. The weather is now a very strong one, and winter illnesses are another one. All of these things necessitate money printing. It’s amazing! The technology has advanced so much that central banks will find an excuse for inflation in pretty much anything that happens. [00:07:51] The Sun rose today, we need to print money. The Sun set today, we need to print money.

So Bitcoin resists that because it is hard money, but Giacomo argues Bitcoin is also “dark money” and it needs to be dark money for it to be hard and for it to work. Why do you think that is the case?

Giacomo Zucco: So I think that is the case mainly for three orders of reasons. I will just tell you briefly that all the three of them, and then we can just discuss each of them. They are in increasing order of being controversial with you, probably. I think the last one I will have a hard time to convince you, but I do have to convince you. Why? Because I gave a presentation in Las Vegas where I basically confront the people in Bitcoin with different cultures. And I used you as an example of somebody that is little bit on the front of hard money, but can still understand dark money. If you are not convinced by the end of the podcast, I will have to change my presentation, and I hate that. I hate changing the slides! So I need to convince you.

Saifedean Ammous: So you’re counting on my open mind in this. Is [00:08:51] basically,

Giacomo Zucco: Yeah, your famous open mindedness!

But anyway, the first one is not controversial I think, but it’s a weak argument I think. The third one is controversial, but it’s stronger. The first one goes like this, Bitcoin was actually born for privacy in a context of privacy seeking people.

Most of its technology makes sense if you assume that it was trying to protect darkness in the sense of strong anonymity of people using it. And every lack of anonymity you get is more a bug than a feature in the mind of its creator, which is by the way a pseudonym guy or group of people that we don’t know. So the first argument is historical. Bitcoin was born out of the search for darkness.

It was used first in the dark web. When I say “dark money” I don’t mean necessarily the money that goes to politician for lobbying, that’s just one use case you can have. But dark money as something that basically is protected, is [00:09:51] confidential if you don’t want to reveal it. So the first argument is Bitcoin was born for that.

Of course, there is an easy counter argument. Even if you agree with this, you can just say – Okay, it was born for that, but many things can be invented for one reason and then pivot to something completely different, and then the design characteristic born for the first reason, they just remain there as a relic, but they’re not really useful.

The second argument is that you individually do need darkness in your use of Bitcoin. So we’ll try to argue that it’s better for you if you maximize the privacy of your Bitcoin usage in general, and you will reduce security risk for you and your loved ones. So it’s a very local thing. The third argument, which I think will be the most the most controversial between us will be that Bitcoin in general, in order to succeed as hard money will actually need general widespread darkness, which is probably a harder [00:10:51] sell, but let’s try.

So I think that the first one is again, is uncontroversial. Bitcoin was born inside the cypherpunk culture. The main point was to search for electronic cash, and unlike Roger Ver’s idiocy – cash in this context doesn’t mean cheap and fast to send across distance.

It’s the other way around. Cash is very slow and expensive to send over distance. The advantage you have with cash is basically that it’s not tied to your identity. So it’s really not depending on your good relationship with the third party, you cannot be censored, you cannot be easily charged back.

Saifedean Ammous: It’s final settlement. It’s money that speaks for itself that doesn’t require any more behavior on your part for it to continue to work. And that’s really the correct definition of cash, which as you said, is not the one that the Bcashers used.

Giacomo Zucco: Exactly, it’s other way around.

It’s very cheap to send credit [00:11:51] across countries, but it’s very expensive and slow to send cash. And it was searched for in the context of the general crypto anarchist and cypherpunk ideal, where the point went basically like this – in the physical world we don’t have any hope to just improve our freedom because it’s just too screwed up, but in the cyber space we can detach our physical identity from our, basically cyber space identity. And if we do it like that, the amount of pain that the government can inflict onto us is reduced because they don’t know who we are. We can use several identities, one for each meaningful exchange. And so we can basically reduce the attack surface to us personally, and we can increase privacy, increase freedom and increase free market interaction among individuals.

It’s very difficult to hurt people. Also, it was the [00:12:51] 90’s and people were not easily hurt by online comments and words, they were thinking about actually hurting people back then! This was the initial concept.

And if you don’t want that, if you don’t want anonymity of the participants, many of the security assumption of Bitcoin will be simpler and you will end up with a completely different system. So I guess you do concede this point already, right? It was the original point in the White Paper there is an entire chapter about privacy and Satoshi says something like this – unfortunately, Bitcoin being a global consensus system, we cannot easily detach information about the linking of many public keys. What we can do is just completely cut off the linking between one public key and one individual. And if we do that, we can recreate [00:13:51] some sort of privacy, which is still better than the online payment means we have today where we have continuous leaks of private information or sensitive information and stuff like that.

So this first argument is very plain. You can say, for example, anonymity was important for Satoshi himself, because he would have been persecuted like gold creators have been, or basically liberty reserve, liberty dollar…

Saifedean Ammous: You can’t keep making all the counter arguments! Like,

Giacomo Zucco: Oh, sorry! Let’s stop here.

Saifedean Ammous: You’re really going out of your way to prove the maximalist haters wrong by taking every position possible on the debate and expressing it, showing you know them all! Yeah, but I I agree on this one. I don’t think we disagree on this, on the first point of the fact that it is the origin and the intention.

But yeah, go ahead. [00:14:51]

Giacomo Zucco: Okay. The second is a little bit tricker. The second is if you really disregard privacy and darkness in Bitcoin, so if you don’t use it with at least a strong awareness and a strong focus on the characteristic of darkness, you will have problem. Not you, but probabilistically everybody, every single user.

For example, let’s think about, let’s think about buying Bitcoin and putting it in a hardware wallet, ledger hardware wallet. And so you put your home address in the ledger website for the delivery, and then there is a leak and this list of hardware wallet purchases, it just goes public – actually just goes in the darknet. And from there, people will use this information to target specifically people buying these other wallets, and this will increase the efficiency of a text.

And these attacks can be of different different orders of magnitude. [00:15:51] The basic one, the most lucky ones, they just got phishing attacks, which is just your hardware wallet is broken, put here your 12 words in order to restore it and they fall for it. And the second one is blackmail – I know where you live, and if you don’t pay this address, something bad will happen to your car or to you.

The third one is actual attack where actually somebody will visit you in order to get your Bitcoins. And these attacks are facilitated by the knowledge of private information that you basically give them entering in this list. Of course, that doesn’t mean that people with fiat did not have this problem.

But the difference with Bitcoin is that it’s a bearer instrument, it’s cash in the sense that if somebody comes to you and steals your Amazon shares, they’re not bearer instruments anymore. They’re just name based, they can be easily censored. And basically since they can be [00:16:51] easily censored, they can not be easily stolen.

It’s very hard to basically use Amazon shares as a blackmail loot. It’s very easy to get away with stolen Bitcoin. It’s very easy to torture people to get their Bitcoins, to kidnap people, to blackmail people or just to phish people online. So if this basic mistake of ending up in a ledger marketing list was already dangerous to several people, what about entering a KYC list?

So what a KYC list in an exchange is, is a similar list that can get leaked, but instead of just being shared among 10 people in ledger marketing department, it is shared every week by hundreds of people across tax agencies all around the world.

And it includes your proven residency, your actual valid documents and every amount you purchased and withdrew, [00:17:51] and the on-chain address of withdrawal so they can even check your future spending or your past spending. So my point would be that even if systemically globally, and we will discuss that later, your darkness may not be important for money itself, for a bearer instrument like Bitcoin, which is very portable, very saleable across space, so the thief, the blackmailer, the kidnapper can easily escape with that.

It’s very important that you don’t connect too many personal information to that. So the culture of darkness in Bitcoin will in this case not be strictly related to its monetary functions, but mostly a cautionary awareness that we need to strongly support and teach because holding a very easy to port bearer instrument is dangerous.

It’s more dangerous than with fiat. That would be the point. [00:18:51]

Saifedean Ammous: Obviously I agree entirely on the idea that privacy is definitely, of course I don’t believe in the notion that privacy is a right, and I think you agree with me because nothing is a right that involves positive actions on others.

In other words, I don’t have a right to demand that a website that I buy something from deletes my information. It’s not a right, it’s something that I could ask from them, and it’s something that I could decide to not buy from them if they won’t respect it, and I will go to their competitors who will offer it. Likely I think in a free market, we would get a lot more respect for people’s privacy, just because if people want it there is no coercive authority that’ll have to force them to disclose it.

So I think in a free market world in which government didn’t try to interfere with all of those things, we’d have a lot of margin for people to gain [00:19:51] their privacy. In other words, you will just buy things without wanting to disclose your information.

And if people want that, then sellers will provide that thing. I think the problem with the second point, and let’s first go back to the first point. I agree in terms of the origin, it makes sense. And I obviously agree with the motivation that yes, it’s good that we have a digital tool that allows people to have this money that isn’t surveilled by their government and that isn’t trackable.

Clearly there’s nothing wrong with the goals. What I’m struggling to see is what you take as an assumption in the second point. And I’m not entirely sure is correct. So you’re saying that it is important for security that your information about your Bitcoin is not disclosed.

But you’re saying that is the case because the person who can attack you can get away with your Bitcoins. But in a sense, that’s [00:20:51] the point that we’re trying to see whether is true or not. If privacy is not easy on Bitcoin, then the attacker cannot get away with it. Therefore the dynamic changes a little bit.

This is I think the point that is more interesting at this point from a technical perspective. And it’s a point that I think is extremely sophisticated and there are no clear answers to it.

There’s no reliable button you can click on Bitcoin that will make this private. There’s no way to just remove the history of your coins from the blockchain. The coins were mined on a certain day, they’ve moved around and there’s just no way that you can completely offer users – just click a button and you will have privacy and nobody will ever be able to detect it.

It’s always an adversarial game. So it depends on who’s looking and it [00:21:51] depends on who’s hiding and how good you are at hiding and how good they are at looking. What the tools that are available for you are and what the tools that are available for them are. So you might be able to hide your Bitcoin, say from your husband or from your parents but you won’t be able to hide them from maybe your government. Different kinds of levels of scrutiny, different levels of technical capabilities at the disposal of the CIA versus your parents or your wife or whatever.

This is really the question. And I’m thinking in particular, I think a couple of cases recently suggest to me that maybe people overestimate the likelihood of getting away with stolen Bitcoin. Because two particular cases that were [00:22:51] busted recently, one is the Bitfinex hack, which we were discussing with Paolo Ardoino last week on this seminar, he was our guest.

And this was a significant sum. In that time, it was in the tens of millions of dollars I believe, or maybe hundreds, I think tens. And now it’s probably in the billions of dollars or more than a billion dollars, something like that, the sum that was hacked. So the people who were able to hack that were clearly highly sophisticated and technically competent people. They managed to hack one of the biggest exchanges at that time.

These are not your average computer users. These are, in terms of their competence with coding and cryptography and encryption, you would imagine they would be at the very least in the top one percentile, if not in the top milionth of the general population, to be able to get to that kind of level.

That’s a [00:23:51] very high technical bar. And yet what is it? Five years later, six years later they were tracked down.

Similarly in Laura Shin’s book on the Ethereum shit coin. In help of some chain analysis companies, she claims that they have managed to uncover the person who was behind the Ethereum DAO hack.

And that’s also, at that time it was a hundred million or something. And now it’s probably in the billions. But again they managed to track down his identity. And it seems the guy hasn’t been persecuted, I don’t think it is a crime what he did because they said that this is just software and the code is law and you just run the software and he ran the software.

So I don’t think there was anything criminal that he did. A [00:24:51] bunch of children put their parents’ money in the middle of the street and surrounded it with magic magic tape and said, this magic tape will kill anybody who touches it. And we challenge you to try and then you go and you take it, you’re not a criminal.

Giacomo Zucco: I’d like to say that he was not the DAO hacker, it was the DAO lawyer because the code is law and he just read the code and he just followed the code and enforced it. And they are the hacker that tried to take it back.

Saifedean Ammous: Exactly. Yeah, they are the hackers. It basically destroyed, and really this is what I’ve said before, the real hack was not the money that was taken, the real hack was to destroy Ethereum’s claim for imutability. They had to pivot to all these new stupid buzzwords that they’ve pivoted to, they went to CryptoKitties and NFTs and Ponzi schemes and DeFi and Yield and all of that stuff. All of that is because they had to break their original narrative, which is build unstoppable [00:25:51] applications and code is law and blah, blah, blah.

In any case, we said we’re not gonna talk about shitcoins today, so let’s not get distracted. But the point is the guy who liberated the funds from the contract also seems to clearly know a thing or two about how to use computers, clearly. So he is obviously very technically competent, and yet there seems to be pretty decent evidence, I’m not a lawyer, so allegedly there seems to be some evidence that he may have been identified. So I agree with you on everything, but I think the idea is that realistically, it seems to be that the longer time goes by, the more the likelihood of stolen Bitcoin being identified.

And I think the really different thing about it is that even though you might [00:26:51] be able to get away with them without being identified, you’ll never be sure. You can never really be entirely sure because you’ll never know what data might be uncovered from what machine, at what point, and how identity identities might be linked.

So I think the prospect of criminals being able to get away with stolen Bitcoin is probably, I don’t know, what do you think? It’s probably overstated. Let me put it this way, perhaps because we want it to be like that, in a sense, similar to the kind of Bcasher narrative, where initially a lot of the early Bitcoiners thought that Bitcoin was just going to be, all of their personal banking problems are going to be solved.

It was a very parochial narrow, [00:27:51] basically very local view of what the problem of banking is. I get charged overdraft fees on my credit card and sometimes the fees are high and I can’t send money easily. And it’s just obviously that software is gonna come and it’s gonna solve this.

So there was an overstating of the fact that many of the early Bitcoin evangelists and personalities did say things like – bitcoin is going to offer us instant free transactions. This was I think something that Andreas said many times. Instant and free transactions. And many people came in with this idea that this was magical software that is just gonna allow us infinite transactions for free every minute with this magical thing called blockchain.

And then you dig a little bit under the surface and realize, oh no wait, there’s a block size limit, and there’s a limit to transactions, and there’s a block every 10 minutes, and it’s a little bit more complicated than that. There’s not enough transactions to do commercial transactions of a small town, let alone the whole world. So [00:28:51] clearly this is going to have to scale differently.

So maybe we’re seeing something similar with with privacy, in the sense that the intention perhaps was there and the desire is there that maybe we want to have something that is completely private. But in order to make the technology work, it doesn’t seem to have matured in this way.

And it might be because, this is where I think perhaps the driver for this is just a lot of people went in through KYC. I think this is perhaps something that early Bitcoiners and probably Satoshi did not anticipate. I think they thought it would grow organically, that people will start trading Bitcoin with one another.

But I think realistically, what has happened is that people acquired Bitcoin from KYC services rather than through trade. And so therefore [00:29:51] most Bitcoin in reality is linked to KYC’d identities or is held on exchanges for people, or is one hop off of an exchange with an identity that is known.

So that makes hiding a lot more complicated. What do you think?

Giacomo Zucco: So I think that your counterpoint is obviously good. It makes sense. If darkness is low for you and so you can be attacked because people know more about your private information, then it’s also lower for the same tool for the…

Saifedean Ammous: Yeah, that’s a great way of putting it.

Giacomo Zucco: Yeah. But I think that even if it’s true on an absolute level, there are still very important relative differences. Especially the first one is that privacy in Bitcoin and darkness in Bitcoin is pretty loosey with very high volumes, with very big sums.

For example, the sum that you mentioned at the about Bitfinex is a very huge sum. There is no way, there is no [00:30:51] liquidity actually for any kind of tool, including privacy oriented shit coin, so we introduce another shit coin off-topic, including even if the Bitfinex hacker did use Zcash or Monero, whatever, there is not enough liquidity to just eliminate obvious links between any kind of market activity in any kind of tool.

But the point is that among the alternatives if the Bitfinex hack used, the only alternative that I will be more effective than Bitcoin for the same amount would have been a bank transfer with a corrupt bank that the hacker would have actually enjoyed a very strict political connection.

Saifedean Ammous: Exactly. And I think realistically, Bitcoiners need to understand that if you wanna do crime, your competition is not the people in Hollywood that smuggling drugs between Mexico and The U.S. your competition is HSBC

Giacomo Zucco: Yes, [00:31:51] but at that scale. So I think that kind of criminal tools, like banks, they are very effective, more effective Bitcoin at that scale.

Saifedean Ammous: I’m sorry to interrupt again, but a point that I’ve made before is that in a fiat system, banks can create money. They decide that they’re gonna issue a loan to you to sell your house or start a business. They are making new money.

So imagine how useful that is for criminals, because like you’re Deutsche Bank and you wanna move money around, you just create a bunch of money in one country and destroy a bunch of money in another country and play the games in the back end with you and you can move money around the world without anybody knowing about it, just by creating and destroying money here and there.

And Bitcoin has nothing like that capability. If you really wanna play at the high levels of crime, you can’t compete with that. Bitcoin, there’s a proof of work. You can’t just go and do a Deutsche Bank because you got paid by a bunch of criminals and you got taken over by a [00:32:51] board of alleged nefarious characters, as we allegedly hear about some banks.

It’s very difficult with Bitcoin every node is watching every transaction. You can’t have that in fiat in the same way.

Giacomo Zucco: Agreed. Fiat is the perfect mono laundry for very big sums, but the entry barriers to use these money laundry tools, the political entry barriers are very high.

In Bitcoin you have basically the same threshold, but in the opposite direction. When you go over a certain amount, it becomes very hard to basically delete connections and to mix up into the crowd because there is not enough crowd and not enough liquidity yet. I think the situation will change a little bit in the future because after hyperbitcoinization to launder with a simple coin swap and coinjoin a few billion dollars will not be impossible in my opinion, but we are talking about [00:33:51] decades in the future.

Right now for big scale thieves, Bitcoin is just not a good tool as proved by this point. Let’s say just a minor correction, or a minor objection – the Bitfinex hack, unlike the DAO lawyer, the Bitfinex hacker was not, as far as I know, not super advanced from the point of view of privacy. Indeed they actually, what they did was using part of the money into a KYC service that was basically not really KYC, Bitrefill connected with their own name and credit card.

They basically passed the other sum through AlphaBay market that was owned by the Feds. So I think that any other tool that they would have used instead of Bitcoin with that kind of security model would have got them busted anyway.

Saifedean Ammous: Yeah. So what you’re saying is that it wasn’t real privacy. It’s like when the [00:34:51] socialist…

Giacomo Zucco: Yeah, this was really, it wasn’t real.

Saifedean Ammous: It wasn’t real Bitcoin.

Giacomo Zucco: I admit this is very weak.

Saifedean Ammous: I admit I had this in mind, I’ve been waiting to use this in this podcast for weeks now. Point

Giacomo Zucco: It wasn’t real darkness! Okay. this is just an obnoxious nerd point.

Saifedean Ammous: No but more seriously I think the counterpoint here is that okay sure, they did make a mistake, but realistically, when you think about the average Bitcoin user, when Bitcoin is growing, I think Bitcoin is gonna just continue to grow in adoption more. Look at all the alternatives, all the alternatives are being destroyed by inflation.

Value is going to be destroyed in the alternatives, and value is gonna grow in Bitcoin. So more and more people are gonna be in Bitcoin. And sure, they made a mistake, but even after making their mistake, they’re still in the top [00:35:51] 0.0001% in terms of technical competence.

There are people who don’t know how to use a smartphone in the world that are gonna have to use Bitcoin at some point.

Giacomo Zucco: Absolutely.

Saifedean Ammous: There are people

Giacomo Zucco: There’s a second asymmetry. I think that people who don’t know how to use the tools are more likely to be on the side of the victim than on the side of the attacker.

The attacker is more likely to be sophisticated. So if you just have the same level of darkness, so the same probability of identifying mistakes, it’s easier that the victim will make one and the attacker will just be more cautious. Because for the simple reason that the victim is not expecting an attack while the attacker is expecting that he has to be careful with the money.

So there are two asymmetries basically. Darkness is basically very bad on Bitcoin for huge amounts and very good for small amounts. I think that eventually stuff like, we already see that with CryptoLockers, and with very [00:36:51] small level kidnappings or home invasions, there is a list of Bitcoin related physical attacks. It’s not a giant list, but it’s an important list. That stuff is happening.

And in those cases it’s clear that the attacker will just get away with it almost certainly. Because there are small amount of sums that you can use. Plenty of tools and you really need to do stupid mistakes.

And even if you do, the amount of effort that it takes to uncover the mistake is a targeted budget on you. So if you are the Bitfinex hacker, there is like a huge effort to find you. If you are just the average Russian basically bandit taking a few hundred thousand dollars from a trader, there is no way that, in Bitcoin there is not an equivalent of the erga omnes censorship, where you just reverse [00:37:51] transaction and you just know everybody and everything in advance. You have to do ex-post targeted detective work, which is possible but expensive. So I think that small kind of attackers, they will have a very good time getting away with it.

And it’s important for the victim to protect using their own asymmetry. What is the asymmetry of the victim? This I think is true for Bitcoin, but I would argue is probably true for many kind of money through history. In this case, you are the expert so maybe you can basically debunk this, but I have the feeling that among the several features of goods that selected for good money, there is also this fundamental symmetry.

So in the economy we basically have two kind of of value acquisition. One are economical means, so we just exchange, and the other are political means so I just come and just beat you up and take [00:38:51] your money. For the second kind of interaction you have two ways to defend yourself. One is just to be stronger than me.

So you have to be bigger, to have more weapons, to have more men defending you. And in this case we just have a very symmetrical fight because I come to take your stuff and you just want to defend your stuff, but if you can hide your stuff, if your form of money is so portable and hideable that I cannot easily know that you have it or where it is, then you have basically an symmetrical advantage as a defender against me as an attacker. In this case, even if I’m stronger, I don’t know for certain how much you have, where do you have it and what it takes to force you to give it to me.

I don’t know how many decoy wallets you have, how many plausible deniability devices. And I think that the user in Bitcoin should basically take advantage of these huge asymmetry. For example, in [00:39:51] Bitcoin we just start with privacy at a very simple level, which is your private key. I think this is the first level of darkness in Bitcoin.

The first level is that you only know your private key. If you don’t have this minimum level of darkness, the attacker will have a huge advantage over you because they just have to use your private key and they can just move the Bitcoin.

The second level of darkness would be to detach as much as possible, is not always possible, your public key from your physical identity in the very cypherpunk kind of mentality. You have as many online addresses as you can and you try to not leak your IP to not leak your stuff. This is more difficult than defend your private key, but I think this is the second level of darkness. If this fails, so if I can connect you with your public key, I can come to your home and convince you to give me your private key.

The third level will be to just to just delete or reduce the [00:40:51] connection among your different public keys. Because if that fails, then one single mistake, identifying mistake with one public key, it just expands and infects all the others, so I know all your stuff.

But the user that use the darkness first has an advantage against the attacker. Because the attacker cannot really know, even right now, if I go to the DAO lawyer, I cannot even know for sure, when you just do one blockchain hop, just one, there is no mathematical certainty that the money has gone to somewhere.

It could be just a burn address. You don’t know, it could be just a coin swap with a new teleport protocol by Chris Belcher. It could be a Lightning channel, opened and not closed, all on your side, on the other person’s side. So you can make heuristics, you can make probabilistic estimations. Usually they work because people are still very dumb [00:41:51] about Bitcoin darkness, but you cannot know for certain, and especially for small amounts, I’m quite sure that, this will be my last famous words, but I’m quite sure that, of course I don’t have Bitcoins. I preach Bitcoin,

Saifedean Ammous: It’s an intellectual interest.

Giacomo Zucco: It’s just intellectual interest. And my religion forbids me from having Bitcoins. When I need to pay fiat stuff, I just very luckily receive a donation or a job from Obama’s company. This is my life, I’m poor and just occasionally I just trust Providence and money arrives.

But I think that if I don’t get any kind of it Edward Snowden level of of attention, at the present level of technology and tools, I feel very confident that it’ll be very hard to disprove this sentence without waterboarding me at Guantanamo for at least two days. I think I [00:42:51] can resist two days before giving it away.

Saifedean Ammous: Okay. Obviously I agree with you on the importance of an individual taking their privacy seriously, and I think obviously you benefit from it. But I’m wondering whether you think that horse is out of the barn? Even at small scale transactions because of KYC. This is the question that I struggle with myself, which is that – so yes, there are these attacks, and the newspaper will report about the attack that gets reported to the police, but I doubt we would hear the follow up of if the victim hired someone to go after the coins and try and figure out where the coins are and then figured out who the person was and then went after them. Or if it’s gonna be reported, it’s gonna be reported as just another crime.

So I wonder how much of the people who we think got away with it [00:43:51] didn’t really get away with it because of these detection tools. Because I think when I say the horse has left the barn because the vast majority of coins are being held on regulated exchanges with KYC, if you have Bitcoin and you want to spend it, it’s very hard to find a liquid market. That’s not KYC’d.

In other words, you might be able to get out of your coins without KYC to somebody who will buy them from you without KYC, without asking you for an identity and proof, but they are gonna go and turn around and then use these same coins most likely in something that is KYC.

Because they wanna buy a house, so they wanna sell the coins on an exchange to get the cash to the bank so that they can pay for the house. Or they want to use some Bitcoin service or they want to go on an exchange to margin trade, whatever it is, the most [00:44:51] likely purpose that they’re going to be using their coins for is something KYC.

They’re gonna take the coins and put them in somewhere where their identity can be linked. And then you are counting on them not being able to identify you. Well how did you get in touch with them? So I think with time, as KYC services proliferate, and as coins links to KYC Bitcoin proliferate, maybe it becomes harder to hide even for smaller and smaller sums.

Maybe some of these victims jsut think, I think perhaps we might be in a position right now where some of those criminals and the victims think that Bitcoin is much darker than it actually is. And the criminals are negligent and could get caught and the victims are essentially negligent because if they would hire somebody who understands how to work things around, how to look at the data, they might be able to uncover the person who stole their [00:45:51] coins.

Because ultimately I think really the point is the fact that because of the proliferation of KYC services, it just keeps getting harder with time to hide because it keeps getting harder to find coins that can continue to circulate without touching KYC services. Because as soon as it touches KYC services, you could potentially at least investigate with people.

And I think here when you say attack, obviously when Bitcoiners are thinking about attack scenarios, there are a lot of dangerous attack scenarios. But I think there is one extra level, which is that the governments might start making it so that if you turn up at an exchange with coins that are [00:46:51] linked to criminal activity initially, then you are liable for that criminal activity.

That really changes things a lot. Then people are gonna be extremely far more careful about where they get their coins from. So therefore, let’s say you meet somebody to buy coins for cash, and then you take the coins and you use them in something, and then you get identified and they said, Hey, where did you get those coins from?

You better be able to provide KYC information on the person who gave you the coins, or they’re just going to assume that you are the person who stole the coins. It just takes one government to implement something like this. Obviously there can be legal challenges, but remember 2020, they locked the entire planet in home because a bunch of postmenopausal men got their knickers in a twist over a virus that scared them.

If they really start getting angry at Bitcoin and Bitcoiners, I think this is an entirely plausible [00:47:51] angle of attack. And in this case, you are going to really limit the ability of criminals to be able to get away with this activity. So maybe that would truly undermine the darkness even further.

I think in other words, what I’m trying to get at is could we be getting to a point where people can keep their privacy, particularly old time Bitcoiners who’ve managed to acquire Bitcoin KYC free when it was low value, and then the value goes up. You might be able to maintain the privacy of your coins to get away with them, but like for the vast majority of people they’re entering now when KYC is dominant and their ability to hide is I would say – but ultimately I think the point is your ability to hide for a victimless crime, this is the thing I say in The Bitcoin Standard and I continue stick for, [00:48:51] it’s possible to hide with victimless crimes, which is essentially not criminal activity.

There’s no such thing as a victimless crime, but Bitcoin really is, and maybe it’s like poetic justice, it’s digital justice and that you can commit victimless crimes on Bitcoin because there is no victim. So there’s nobody to go and track your coins on chain and get police to come and arrest you for it. But you can’t get away with victimfull crime – with actual crime because there’s a victim. Because there’s somebody looking after the coins, the coins were here and now they’re there.

Where is that address? Let’s go find the place. If it has a victim, it’s difficult for you to get away with it. But if it doesn’t have a victim, then as long as nobody cares, I don’t think we’re gonna reach a point where it’s Bitcoin is a complete panopticon in which every single transaction is linked to an identity, but I think there [00:49:51] is an increasing likelihood that even smaller crime is not gonna fly.

So nobody is going out and linking every transaction and finding, nobody’s keeping a report on all of the Bitcoin that an individual is sending and where they’re sending it, but in case there’s a stolen Bitcoin, then you can go and spend time and money and use specialized software and manage to track down the source of these criminal Bitcoin.

I think perhaps that’s the that’s where we’re going. Do you think this is plausible? And of course, the second question which we’re gonna get to is the one – to go back to your third point, whether this threatens the network on a security level, but putting aside whether it is a threat to the network, do you think this is plausible as a way in which Bitcoin unfolds over the coming few years?

Giacomo Zucco: So I think it’s plausible only as a very [00:50:51] high level approximation connected with two things that are the stolen amount, not really victimless versus victimfull, but small versus huge transfer. So even if it’s a victimfull crime, but it’s very small, you probably get away with it.

If it’s very huge, even if it’s victimless, for example, you get your money and you just don’t pay protection money to the government. This is victimless because it’s your money, not their money, but if it’s 4 billion of taxes, probably even if it’s victimless, you will not get away easily with it.

So I think it’s more related to the amount than to the level of victimless/victimful. The point that you make about this distinction actually makes some sense if there is not a committed party. On Bitcoin the demonization effort must be active, not just passive.[00:51:51]

It is ex-post at individual, it is not ex-ante and erga omnes. So you have to, after the fact, follow the guys and try to intercept and try to do detective work. This basically already funnels the episodes of demonization. They just basically filter out all the crimes where nobody cares. Because if nobody cares, nobody will do any kind of expensive investigation job.

And on Bitcoin, you need at least that in order to demonize people, because it’s not a panopticon as fiat is. So I think that the interesting point of your question, because it does intersect with my third point, which is what will happen to Bitcoin if darkness was gone completely or almost completely, and what governments will globally do to Bitcoin?

So the we start to see the intersection with my third point here. So to get back to the second for [00:52:51] a second, for my experience, when I did assist my clients and it happened not for kidnappings or assault, it mostly happened for scams. People have been scammed in mining schemes or in exchange with with fiat money.

I had a client that actually was scammed 1.8 million euros with a cash Bitcoin purchase. And we never found anything. And the guys immediately coinjoin, the sum was not high enough to leave traces like it was for the possible DAO lawyer. These were sums that were easier to hide and they’re gone completely.

So right now this is not the case, your scenario is not really the present. May it be the future? I think not for a simple reason. I think that the trend we are seeing goes in the other direction. So basically the first direction that I see [00:53:51] is that KYC services are not stable.

They’re becoming more and more restrictive. I think it’s eerily unrealistic right now to assume that as long as you’re not a thief, people will just leave you alone with your money. I think that increasingly KYC services and filters and funnels and restriction will start to intertwine with your vaccination status, with your political status, with the cancel culture, with Russia war and whatever.

So I think that there is evidence that most people today are buying KYC, are interacting with KYC. But I think that’s because we still live in some kind of honeymoon phase that is going to, is not going to end at a certain point, it’s continuously basically deteriorating day by day.

Right now, you just don’t have to identify yourself. You have to identify yourself [00:54:51] and to explain your purchases and your donation and everything. And if you follow some political leader or some wrong thing, you may be restricted in your use. That kind of government action will have the obvious result to push more people into dark market money.

So if you think of example, like the Soviet Union, in that case you have basically US dollars used every day in every market. Everybody was accepting us dollars, even if it was highly illegal to do that, and basically easy to be discovered, especially for huge amounts of dollars cash because they’re harder to hide than Bitcoin.

Even if they’re easier to hide in person to person transaction, because there is physical proximity, but if you want to send them at distance or to hide them, it’s harder with cash. And still now in Venezuela, there are very strict law against accepting [00:55:51] US dollars, and that happens all the time.

And if you go to Cuba with some dollars, it’s strictly forbidden and it’s very serious and still every kind of merchant will accept your dollars, maybe even at a premium. Of course that’s because it’s harder money and that’s sure. But in Cuba used dollars has to be dark money because they’re strictly illegal, and people just don’t care.

So I think that KYC increasing and closing onto more rules, more restriction, more limited use cases, more arbitrary rules, ever-changing rules. The rules are changing all the time. This on one side will push gradually people that now stay on KYC because they have nothing to lose, to move away from KYC because now they will have something to lose.

Basically at the end, at equilibrium, I imagine what you can do with KYC Bitcoin being basically indifferent from what you can do with fiat. And one could say, [00:56:51] except for saving inflation-free, but we will get to that point eventually.

On the other hand, you have another phenomenon, which is the fact that every coin can easily be made dirty in this sense on the blockchain. So for example, assume that you are an exchange and you want to block my account if after my withdrawal, I do coinjoin in a very obvious way. I can do conjoin in a hidden way, but let’s assume I do a very obvious way.

What do you do? You block my account. Okay. Now I do that after one hop on chain. So I send Bitcoin to myself with the fake change, and now I coinjoin. It could be that I give the money to somebody else, do you still block my account? Okay. How many hops do you follow me for?

Saifedean Ammous: Because you can always do one more.

Giacomo Zucco: Yeah. I can always do one more. If your answer is infinite, then it’s just equal to ban Bitcoin. Basically we can just, you are just banning Bitcoin. Which is okay, just black market money. If your answer is six, I just do seven. Of course it’s expensive.

Saifedean Ammous: Not [00:57:51] as expensive as jail.

Giacomo Zucco: Yeah, exactly. Not as expensive as jail.

Another example is MARA mining. They wanted to do the block compliant with the financial task force. So they said – okay this block, the Coinbase will be the transaction were only compliant. What I did with, no I didn’t because I don’t have Bitcoin, but what my cousin did among some friends was to create a small campaign to send to the Coinbase addresses of MARA a lot of funds directly from coinjoin.

And those guys of course, did spend these funds in the next transaction without the distinguishes because they were not able. It’s very easy for us to just take funds from coinjoin and taint, or actually liberate from the KYC assumption, all the big addresses in the world.

So does that protect Bitcoin from the government? No, it doesn’t. I think that it does take away the distinction, the two tier Bitcoin. I think that the white [00:58:51] Bitcoin is going to be closer and closer to just fiat. You will be allowed to do with that only what to do with fiat. And then we have to tackle the point about saving an inflation and with the other Bitcoin, the black one, that will be just a over expanded network of taint that it will just send everywhere. Especially with new technologies like Lighting and Taproot.

You cannot know if your transaction is one transaction or if it’s just opening a channel that will route, for now hundreds of dollars, but maybe in a few years thousands of dollars worth of Bitcoin. So the technology is making every coin progressively more and more dirty, so to speak.

I would actually like to basically turn around this speech, I will say that the coin which is connected with your identity is dirty because it’s dangerous because it’s dirty with your unfungible identity information while the coin which is not easily connectable is the [00:59:51] clean coin.

It’s a clean, dark, black market coin. So I think that I disagree with the trend you see because I think that both forces in play, government becoming stricter and pushing out people, and on the other side technology making stuff more fungible, even if shitcoiners will like more, even more but Bitcoin is doing realistic stuff on the fungibility issue.

And I think it’s working pretty well. And it works well in theory because every transaction could be a coinjoin right now. Every transaction with more than one input and more than one output could be, for example a payjoin. And you cannot know from the outside, you can only guess based on common heuristics.

Long story short, I don’t think your final scenario where just the right amount of darkness is going to play out. I think we have to collapse onto a zero darkness [01:00:51] scenario, which I argue will mean the failure of Bitcoin, and then we can discuss that, and a pretty huge darkness scenario, not different from US dollar in Venezuela right now.

Saifedean Ammous: I’m sorry, I don’t get it. You’re saying that the scenarios are either that it is dark as in the dollar in Venezuela or

Giacomo Zucco: Yeah, basically extreme. Binary extreme. I don’t think trend is what is keeping the stable equilibrium in the middle. I think there’s a very strange phase in which the government as a general concept, doesn’t give any interest in Bitcoin at all.

And when it will, and now we will discuss why it may, I think that it will either restrict it so much that it will be become indistinguishable from fiat, and then the demand for something indistinguishable from fiat, I think will be very low. [01:01:51] And in the black market, the demand of something like Bitcoin, like pure Bitcoin will be higher the more censorship you have.

So if we lived in an age of decreasing censorship and confiscation and exclusion and cancellation, then I may think that you may be right, but like in the 90’s probably, I think that Bitcoin could have gone the same route of the internet. It’s born very decentralized, but then nobody cares for decentralization because nobody’s attacking it.

And so it gradually centralizes in big ISP, Google to manage your mail. And now we do have problems for that, but they are very long term problems. In the 90’s we didn’t see any problem with strong centralization of the internet because there were no attackers. Because it was the end of the history, there is no war.

Of course it was not true, but that was the main philosophy in the U.S. So I think that right now, we don’t even have the delusion phase of the [01:02:51] 90’s. The level of censorship and arbitrary censorship and limits is increasing and I think that the users of KYC Bitcoin will very soon be so much restricted, they will have to give up the certainty of legality in order to use an alternative to fear because KYC Bitcoin will be basically fiat.

Saifedean Ammous: This is a pretty coherent way of looking at it, and I generally tend to agree, but I still can’t dismiss the alternative case. Which I think we as Bitcoiners are biased against it because we don’t want it, but I try and question myself when I find myself concluding the thing that I want to happen is what is going to happen.

Because that’s a very easy way to make mistakes in life to just imagine that what you want is going to happen. And I think [01:03:51] realistically, I’ll give you some counter arguments for the trends that I see that are pushing us in the other direction.

Realistically I think the amount of demand on Bitcoin as a way of just, with KYC being able to own something that is not inflatable, that government can’t make more of that can’t be inflated in supply very quickly and continuously bleed value in the long term, the demand for that I think is, regardless of whether it’s KYC or not, I think the demand for this is so enormous, it’s so huge that I think it is literally the biggest market in the planet. I I’m sure of it. I mean there is no [01:04:51] other good that is held by as many people and is as valuable as money.

Like the market for money is bigger than everything. There’s about a hundred trillion dollars worth of money being held by people all over the world. There isn’t anything else that’s worth a hundred trillion dollars out there. So people hold a hundred trillion dollars of money because it’s the biggest market because they wanna save for the future.

So this is what the Keynesians tell you is a completely sociopathic, meaningless idea, that you want to hold money for the future? They think that because their high time preference generally, not entirely human in their time preference, they are able to only think about the present.

But for members of the human species that have completed the evolution from Keynesian ape forms to humanity, we think further ahead. We think of the future. We care about tomorrow. We care about next week. Some of us even care about next year. Some of us even care about the world 10 years from now, some of us even care [01:05:51] about the world that is gonna be there for our children after we die.

I know it sounds insane, but that’s what most normal human beings who haven’t been brainwashed by Keynesian garbage think. So, this is enormous, this is a market of a hundred trillion dollars roughly in the world right now. Everybody wants to have money. Everybody needs to hold money for their future.

And this is a market that is arguably massively underserved now because all the competitors for it are extremely inconvenient in many ways, extremely problematic. So if you use government money, it’s losing value over time. If you use gold, it loses value over space. If you wanna move it anywhere, it’s very expensive to move it around.

If you’re trying to store commodities, you end up gambling on copper and nickel and zinc and oil and all of those things, and you’re just playing a shitcoin casino, and you lose. If you buy government bonds you’re also [01:06:51] getting robbed by, you’re taking on the risk of governments that are paying you a negative real return so that they can take your money and lock up their citizens and ban them from working. So good luck with that one.

And these are basically the options for people who care about their future. For people who wanna provide for their future selves or their children, 10, 20, 50, 100 years from now. And those really are your options. So Bitcoin, by offering us a better long term return than all of those things, more and more people are gonna learn about this.

The demand for this is so enormous. If we compare that demand in its magnitude to the demand for criminal transactions or illegal transactions or dark transactions, I don’t think there’s any comparison. It’s maybe a million times larger. In other words, there’s a hundred trillion dollar [01:07:51] USD demand for holding money for doing illegal activity and hiding away from your government, and all of these other things.

I think the demand is arguably, well yeah, but of course your good point is, and this is why I’m setting it up for your point to answer me, is that as repression goes up, the demand for criminal activity goes up. But as it currently stands, given that you can pretty much live and spend money and keep your Bitcoin in most of the world, the demand for doing criminal activities is less than maybe a million fold of the demand for holding money.

So maybe not a million fold, maybe a hundred fold. So maybe there’s a trillion dollars of demand for a hundred trillion. So in a sense, this is where [01:08:51] think of the Panama canal. There was a time in which the Panama canal, the area in the Panama canal was probably a small tiny little fishing village.

And I’m sure there was a lot of people who really enjoyed living there and they loved it and they had their families and they were dependent on this business. And it’s great that that part of the world was a fishing village, but you know what, there are many other ways of having fishing villages in the world.

And if you dig up a canal there, you will have a quarter of the world’s trade pass through it. I don’t know what number, but a very large percentage of the world’s trade is going to pass through this. And that’s going to be enormously more productive as a way of utilizing this. So could we perhaps be witnessing something similar happening with Bitcoin wherein the need for something that is similar to saving for a saving technology is just so enormous that it underwhelms the original purpose.

And we find that this idea [01:09:51] of having anonymity on the internet goes by the wayside, just like paying for your coffee on the internet. In other words, I’m not worried about breaking Bitcoin’s privacy because of government attacks in as much as it is because the demand for it is submerged with demand for hard Bitcoin.

In other words, the number of people that are buying Bitcoin in order to keep it anonymous, ends up being a tiny rounding error compared to the number of people that are buying Bitcoin just to escape inflation, and buying it with regular KYC. And I think this is what we’re seeing right now, ultimately one Michael Saylor probably holds more Bitcoin than all of the people that are using Bitcoin. Maybe not one Michael [01:10:51] Saylor, there’s a lot of demand being added every day.

People buying through KYC’d exchanges, institutions picking up coins. So much of the coins are ending up in KYC’d services that I think we need to at least consider the possibility that this is just going to end up being the network.

But I definitely see your point. It’s very difficult to make this a bitter disagreement because we just keep seeing each other’s point. But yeah, obviously the more desperate the inflation situation becomes and the more prices rise, the more Bitcoin goes up, the more they’re going to criminalize more uses of Bitcoin.

Then if you criminalize saving, then you’ve moved all of the demand for hard money into demand for dark money.

Giacomo Zucco: Precisely. Now you had your revenge in making my [01:11:51] point, it’s exactly what I meant to say. Your distinction is actually twofold. It’s a metric.

It’s a four part metric. There is a saving against transaction. I agree with you that the saving use cases, especially in the current state of the world, basically dwarfs transactional use cases, which is what most privacy proponents don’t understand. They think that one guy buying marijuana will matter to the economy just as one millionaire saving money for their future, it’s not the case.

Saving is a more impactful activity than just transacting, I agree with that. But then you are basically contrasting illegal saving – which is not criminal, against an illegal free transaction, which is in most cases, criminal if you are a Russian or if you are a Canadian tracker [01:12:51] or whatever.

And I think that this diagonal metric is not a guarantee and it’s not going to stay in that direction. And I think that the more Bitcoin does its job, and the more especially fiat does its job because even without Bitcoin, fiat will still collapse, the more we will go to a similar to a closer scenario to 1933 where actually saving in the United States of America and continental was illegal and you risked 5 to 10 years of jail if you were saving gold.

So first of all let me go back a minute again. You say that you cannot use fiat because it basically loses value across time and that’s true. That’s evident. You cannot use gold because it loses value across space every time you transact, but that’s not true.

For example, with the centralized e-gold, if you just use a centralized service which is just backing up with gold with some Luxembourg company doing [01:13:51] audit, just like Tether but without commercial paper or stuff, just with gold, that works fine across space. The problem is that the government, even in the 90’s. In the early 00’s which were not as bad as now as a macroeconomic situation, they were putting e-gold creator in jail for creating e-gold as an alternative.

So saving in gold in a more efficient way was illegal. And even with physical gold or paper gold people ended up in jail in America in the 30’s for just keeping and saving money in gold in that case. So I think that the assumption that saving will always be legal and that transaction will always be more illegal, I think it’s very realistically going to be turned around because right now the right now the impact of Bitcoin on government spending [01:14:51] is objectively still very low. If you are a guy in the United States Congress, and you’re deciding out that debt ceiling, that you can monetize any kind of debt with money printing, and what Bitcoin offers as an alternative to Cantillon tax is not really into the equation yet, because it’s very small.

So you can focus on Ross Ulbricht, allowing people to just transact with marijuana or books because like the most sold item on the silk road were actually books, mostly Bibles in middle east, or books in order to make explosives, but still books. So you focus on that. If you are China, you may focus on capital flight because that’s your revenue erosion source.

But when actual money start to move, not just Saylor but in a more microscopic way, when 50% of Tesla and not 5% of the treasury goes there, when [01:15:51] all this money starts to flee from the inflating dollar and going into Bitcoin, I think the kind of incentive you have of just stopping pursuing the marijuana, because you’re right – saving is more important than buying drugs.

I think that government will increasingly stop focusing on people buying drugs and they will start to focus on some competition to the US dollar that if successful may cut the federal government budget back to 1914 levels, maybe. The scenario in which saving is perfectly legal and buying drugs.

Isn’t I think it’s a very unstable scenario. And that’s why even for the saving use case, I think that the Bitcoin darkness is paramount. At this point, not just at a personal level, like in the second point, but at this point as a systemic level. Why? Because if, as you said, [01:16:51] Bitcoin is all basically captured in an identity compliance scheme, where people are scared to go to jail if they’re not, or to lose their money, to get frozen accounts if they don’t comply, then you can just add a new compliance rule, which is you don’t just have this black list of addresses you cannot send to or receive from, or white list of addresses you are allowed to receive from or send to, now you also have this tax address you have to send to compensate the appreciation of Bitcoin against dollar because you evil speculators are causing dollar depreciation and you’re causing inflation.

It’s not Putin anymore, it’s not gas stations anymore, now it’s Bitcoiners causing inflation. And the president says so. The same panopticon or partial panopticon that was making people too scared to transact following just a protocol. So this is a transaction, it’s a value transaction.

I accept it. I don’t have to connect with an external party [01:17:51] oracle telling me this is an allowed transaction. This is just a Bitcoin transaction. If most of the Bitcoin economy cannot just ignore external oracles to transact, I think they will not have the force to ignore even something like – you are forced to run a new protocol that inflates just at the same level of The FED.

So FED adjusted inflation in Bitcoin, or easier to implement a tax output which compensates for the lack of inflation in Bitcoin. I don’t think that will be the death of Bitcoin if that happens. I think that Bitcoin is flexible enough that it can go in a very bad direction like that, and then only recover when it’s needed.

But I think that we can see right now what was the cost of the internet centralization that I was talking about before with people building the internet infrastructure did assume perfect good [01:18:51] fate by the actors and by the government and best case scenarios. And now that we are in a bad case scenario the internet is still working, but very fragile.

It’s very easy to censor in China. It may split off into two nets if there is a global war. It’s very easy to censor the internet. So my point in this case would be, I think I made the point pretty clearly, saving may become illegal.

Just one thing that I wanted to add about the “just because I want something to be so, it doesn’t mean it will be so. I think that there may be a very, this is a very strange argument, but what I feel if I just reflect on myself about intellectual honesty in the face of these eventualities, I think that there is some kind of Pascalian wager situation here. I know that this scenario of Bitcoin darkness is not guaranteed, [01:19:51] but I’m so convinced that it’s necessary for Bitcoin to be relevant that I just dismissed the other scenario not as impossible, but as irrelevant. So I don’t really want to live in a word where I have to ask for permission to save and transact. So if that’s the case, I accept the case but that means Bitcoin has failed.

And so I just don’t want to consider. The Pascal wager was about God, but it’s the same. In the decision metrics the scenario where I lose is so bad that it doesn’t even make any sense to be right in that scenario. It’s just useless because it’s not actionable.

The only actionable scenario is the one in which I am right and I can do something about it.

Saifedean Ammous: That famed maximalist open-mindedness again! Okay, so obviously we agree about a lot here but if I were to offer my disagreement, it would be first [01:20:51] of all yeah, you’re saying that they will crack down and make saving illegal. I don’t think that’s a necessary thing that can happen. I think there are a lot of scenarios where this does not happen. So that’s one disagreement.

You’re confident in the fact that the crackdown will come in a very specific way. I think there are many other ways in which they can attack and crack down.

And I think there are scenarios in which they decide to ride the Bitcoin wave and benefit from it rather than attack it. So these are worth considering, and then the second disagreement I think this is really perhaps the crux of the point is that know even if they do clamp down, I think we both agree that Bitcoin will survive.

I don’t know actually, you were suggesting that it won’t survive, but I think even if they do crack down completely for me, this is the difference. I think it’s not that I don’t want the privacy, it’s not that I don’t think that the privacy is not [01:21:51] important, it’s that I think even if we have the privacy completely removed, even if we end up in a world in which, whether through government and position or whether through just the dynamics of the network, we end up in a world in which every single Bitcoin address is KYC’d I still think, I’m not saying I want that, but I still think if we do have that, I still think Bitcoin’s 21 million cap survives and people will save in Bitcoin legally and publicly, and everybody’s on chain transactions will be public, but that will not compromise the 21 million cap.

This is I think the key disagreement between us, is that you present this idea that if we uncover the identities of the users, if Bitcoin is not dark, then we may then it’s a trivial step from there to go to 21 million.

And I’m trying to present the proposition that no, in fact we could end up with a completely public [01:22:51] ledger where, if we replace we replace app public addresses of names or we link public addresses to names and still manage to maintain the 21 million. I think this is my contention because I think ultimately you can identify people and link identities to addresses and keep track on addresses, you do all of that outside the Bitcoin node, outside the Bitcoin protocol, outside the Bitcoin software. Government will keep track of every address. They could do that, we could have a true North Korean dystopia in tracking down every single individual Bitcoin address.

Obviously it’s difficult. It’s extremely difficult and they won’t be able to pull it off most likely but even assuming that they do [01:23:51] pull it off, it’s completely irrelevant and it doesn’t help them in changing the 21 million cap.

All that you can do to change the 21 million cap is make a new shitcoin, which is going to be like Bcash, and you basically make an airdrop for Bitcoiners who maintain the old Bitcoin and the Bitcoiners who go along with a new Bitcoin end up like Roger Ver’s Bcash and BSV, and it’s just that instead of having Ver they’ll actually have central banks and governments going along with that, but I don’t see how compromising Bitcoin’s privacy and making Bitcoin not dark, even if it were possible – putting that aside, I don’t see how it threatens the network. That’s I think the issue. Let me know what your case is for why removing the anonymity can change the 21 million fixed cap.

Giacomo Zucco: [01:24:51] Okay. This is a very subtle point. I will try to be straightforward. I hope not to just get stuck into some circle.

First thing is in order to do that, in order to know everybody, to spy everybody, to track everybody, what we are basically assuming as tool by the government is the KYC enforcement. We use that as an assumption or maybe not a necessary assumption, but instead of, if your scenario is a magical government that can just be omnipresent and watch on our shoulder when we just type the passwords, so they even know the private keys because they’re spine on everybody, and they just don’t touch anything.

Saifedean Ammous: No, they don’t know the private keys, but they know whose address is whose.

Giacomo Zucco: If they know that purely by observation force, because they are omniscient somehow, but they don’t force you to do anything, I [01:25:51] think that’s very difficult.

I think the way we were approaching that as a scenario, which was more realistic, is that people will self-identify because if they don’t they will be prevented from spending Bitcoin to buy a home. So they need some censorship to force you. It’s not a neutral kind of observation. If they censor you in order to force you to do something, that’s already some kind of thing that can be applied to the 21 million cap directly or indirectly.

For example, if you don’t run the new shitcoin with inflation embedded, of course I will not call it inflation embedded, I will call it in a different way, maybe

Saifedean Ammous: Optimized!

Giacomo Zucco: Optimized for something, since the Cantillon tax is just a tax you can really replicate the same behavior if you tax some people in a different way or if

Saifedean Ammous: That’s fine. Let’s assume for this argument that they do impose a [01:26:51] level of taxation. So it becomes completely public, and you have to pay taxes on your Bitcoins, and it becomes very transparent, and let’s say they even make it a smart contract where the government gets a small transaction fee.

Giacomo Zucco: So my point is that there is an economic way that replicates almost as close, it can get as close as you want to Cantillon taxes by taxation. If you don’t inflate the supply, but you can redistribute the same nominal amount, from the last spender to the first spender, you can replicate Cantillon’s phenomenon even without printing.

You just need to adjust taxes accordingly. Of course the reason that governments managed to become so rich with fiat money and printing is that it’s a more hidden kind of tax. It’s a tax that you don’t really see, but if you can replicate that with a smart contract taxation, smart contract taxation can become indistinguishable from money printing.

That global effect is just – take money from the [01:27:51] last receiver and you move it to the first receiver and maybe there’s other side effects of inflation. Like you take money from the creditor and you give it to the debtor, you take money from the importer and you give it to the exporter, and then you increase the general level of taxation for fiscal drag because you have the threshold that is now lower.

So all these things can be replicated, and my point is that if Bitcoin is a lifeboat against fiat hyper inflation, then the government will try to stop people from using the lifeboat. Because these are basically taxation victims that are escaping from your taxation lager. If I’m the capo of the lager, I don’t like prisoners to escape.

And if you are escaping with a boat which is Bitcoin, if I can enforce any behavior, if I’m so powerful to enforce address blacklist or whitelists, or even [01:28:51] taxations, I can replicate the same economical behavior, then I will have a simpler act of money printing. Of course, I can even just say that if you don’t use the new optimized Bitcoin by then, you are responsible for inflation, so you cannot buy a house with your old Bitcoin.

That doesn’t mean that you kill Bitcoin of course, but it does mean that we are back to the black market scenario again – where the people that kept the uninflatable unprintable Bitcoin need to go around sanctions and white market limitation anyway, and so they go back in the dollar in Venezuela situation anyway.

And so let’s just go there directly instead of finding out first.

Saifedean Ammous: Yeah. I’m still not entirely convinced because I think first of all, [01:29:51] if you do implement some form of taxation, obviously I believe taxation is theft. Well, more accurately it’s extortion, it’s not exactly theft.

I don’t think it’s morally justified in any case. Taxes should be voluntary, which means they’re just basically payments for services, which makes them private goods. Just pay for the things that you want. So I definitely don’t believe in the legitimacy of taxes but I think it is conceivable if we assume for the sake of this argument, that we could end up with a world with full surveillance and taxes, but still, as long as you are not doing the inflation, if we manage to move into a world of full financial panopticon surveillance with a fixed supply money and taxation, I still think simply doing that software [01:30:51] upgrade on the back end of a modern society is going to make a far larger difference than any technology, maybe since the printing press or the steam engine or something like that.

Just simply take away simply taking away the inflation first of all gets rid of all of the business cycle distortions. It gets rid of the ability of government to finance all of this insane spending. It gets rid of the fact that government spending becomes unaccountable.

Really the real battle I think here is, while obviously I truly think taxes are bad and privacy is good and we need to get rid of all of those things, I think, and I know you agree with me, as you said, the battle for getting rid of inflationary money in fiat central banks makes everything else irrelevant in my mind.

So I completely sympathize with people who wanna buy drugs online and [01:31:51] not get thrown in a cage by their criminal government. You could also quit drugs or you could just buy drugs off the street like a normal human being, and like I’m not interested in Bitcoin if it’s drug buying technology.

I don’t wake up in the morning… No, I agree with you of course. You’re saying that it’s important for it to be available for the drug dealer, because if they can get the drug dealer, then…

Giacomo Zucco: You can get Ivermectin if you’re sick.

Saifedean Ammous: Yeah, not just Ivermectin, even Ivermectin or red meat, as much as I care about Ivermectin and red meat, maybe Bitcoin will help me secure those things one day when I really need them.

Still though, that’s not as important as the use case which is the real one, which is killing central banks. That’s the jackpot. That’s the prize. That’s the thing that we want to get rid of. We [01:32:51] want to destroy the idea of bond markets. We wanna destroy central banks and turn this thing that is government, whether we completely get rid of government or we end up with, maybe we do maybe we don’t. But the important thing is if we do end up with a government, it’s going to have to function without inflation. For me, with all due respect to all of the people that emphasize the importance of Bitcoin’s usability for extra legal uses.

And I definitely sympathize with those things. I still think getting rid of central banks is a million times bigger of an objective. Tell me what you think about this, perhaps focusing too much on being usable by the drug dealers is [01:33:51] not the thing that is gonna make the difference.

In fact, I think actually this is the way, the way to make Bitcoin resistant to attack is not to make it so that drug dealers and kidnappers can get away with it. The way to make Bitcoin resistant to attack is to have Michael Saylor and Paris Hilton and Tom Brady and all of the world’s normal superstars start buying Bitcoin, talking about it normally, and having more and more people publicly saying “I own Bitcoin”.

You don’t need to hack the ledger account to know that I bought this hardware wallet because I like it and I talk about it online. Maybe that is the better security guarantee for Bitcoin, which is not that well, even if the government cracked down on us they can’t get us because they can’t get the drug dealer and it’s this good.

Maybe it’s just that when you have [01:34:51] senators and congressmen who are open to the idea and liking it when you have more and more presidents around the world and prime ministers and celebrities and athletes and rock stars, when they get into it and it becomes their livelihood, this is really the key thing, once people in positions of power become invested in Bitcoin because they see how it is essential for their future, once they get to experience the transformative power of Bitcoin’s orange pill, that is maybe the reason why we don’t get that kind of attack. Maybe the prison keepers realize that this is our chance to escape from being prison keepers as well.

I think that the value proposition here that I present, if I happen to own your average fiat republic, [01:35:51] whether I’m president or central bank or banker, or one of the small elite of fiat Cantillionaire privileged people who are in essentially owning each one of these fiat farms, ultimately what I’d like to tell those people is – I know it’s probably a family business that you control your little country like a farm over generations, and you’ve been running the central bank and milking the entire country, but holding Bitcoin is a far more profitable and better scenario than slavery.

I’m not appealing to your morality, and I’m not telling you to do this because of – stop enslaving your local population and turning them into starving surfs because it’s not nice, I’m telling you it’s more profitable for you to leave them alone and for you to hold Bitcoin. Instead of using your central bank as a mechanism for enslaving your population and enriching you, having a hard money like Bitcoin is more [01:36:51] profitable.

So I think in a sense, you could spend a lot of money on trying to, really this is the problem with repressing Bitcoin, once you understand Bitcoin, the cost of suppressing Bitcoin will always be measured in Satoshi’s forgone for you.

Like why go and attack Bitcoin and try and destroy Bitcoin, and then if you fail, think about all of the money that you spent on attacking Bitcoin, you could have bought Satoshi with it, and now you’d basically get more than you could ever do. Like at any point in time, once you understand how Bitcoin works, the rational strategy to understand is to start stacking Sats.

I personally have been massively surprised by this. And I guess me arriving at these kind of crazy conclusions that I’m saying right now, what if they don’t attack and what if the kidnappers can’t get away with it, and the reason that they’re getting away with it is that their victims are not looking?

I think [01:37:51] the way that I’ve arrived at it is because historically I used to believe the exact opposite. Initially when I first heard about Bitcoin, I did not, even, first of all, I didn’t even hear about this thing called exchanges, and when I heard about exchanges selling Bitcoin, I thought that’s crazy.

Why would you want to get them clearly when the government finds out what we’re doing, they’re gonna come after you. I bought a lot less Bitcoin than I would’ve. For me, Bitcoin was like this small little thing, interesting project that the governor’s gonna come after and throw people in jail for.

So I was buying small little sums because I did not believe that one day we could just smoothly end up with the world in which you have all these billion dollar exchanges listed on stock markets and Tesla and MicroStrategy are stacking Sats. But that’s what has happened. Maybe this continues in this direction. I think the compromise, [01:38:51] like the synthesis that we could arrive at here is that instead of attacking in all the ways that you would imagine that they would attack, maybe they’re just going to attack by confiscating coins that are on exchanges. And I think that’s a solution that pleases everybody basically, and nobody can complain about it.

If you’re a Bitcoiner and you keep your money on exchanges, you can’t really complain if your government comes and takes it I think. I think this is highly likely. At some point there is going to be a point, maybe it might happen even this year, one day the central bank of some dysfunctional Fiat Republic is gonna wake up and realize, our entire banking system has X foreign reserves in it, our central bank and all of our banks have X dollars in foreign reserves in it, and our crypto exchanges have 3X dollars in reserve in digital currencies, which we can also send internationally.

And I think it’s very straightforward in a country. [01:39:51] The government just needs to call the exchanges and tell them – it’s a matter of national security, you need to suspend all redemption and withdrawal. We need to investigate because of a threat of something or the other, terrorism or a virus is going through your bank account and we need to stop it. We need to put masks on your money or whatever.

Fiat science is always ready with the stories, or cow farts or something. So we need to stop it, and then we did an investigation and we found that the Bitcoin there has magically transformed itself into helping our economy recover by moving to, we’re gonna set it on the international markets and buy dollars to settle our debt so that we can get oil so that we can keep people warm in the winter.

And then it’s gonna be presented as – should we let crypto speculators keep their gambling, or should we get oil for the children? And the answer is going to be, we get oil for the children. So I think these kinds of attacks where governments take Bitcoin and [01:40:51] steal it are likely because Bitcoin is just there.

It’s just much easier to use it and play along with it and benefit from it and take other people’s Bitcoin and use them than it is to try and fight all of Bitcoin, particularly if you’re broke. And we are entering a world of universally broke governments.

They’re all broke and they’re in no position to sit, I think this is really the key point, if I were to argue for why they won’t attack, it’s an argument from time preference. Bitcoiners, once you’ve upgraded to advanced money that allows you to hold value into the future, you think long term. And so you are able to think of what actions you should do today in favor of the long term.

But if you’re running on a fiat standard and all of us were running on a Fiat operating system before Bitcoin and all of us had a much higher time preference, and we had a much lower ability to think of the future. Now think about what it takes, what kind of time preferences required to not just run on fiat, but to actually [01:41:51] be the people managing the operating system of fiat. Being in government. Nobody in government can think about anything other than their next election cycle.

So it’s designed, particularly democratic governments are designed to be short termist. So there isn’t anybody in a position of authority in your modern democratic republic, who is genuinely thinking and acting from a position of – how is this going to affect my country 50 years from now?

Absolutely nothing. Anybody who tries to run on a platform of – what’s gonna happen to the world in 50 years, you will not get elected. People want their pink unicorns today. People want hospitals built today. They want the money of the rich people confiscated today. They want stupid ideas today. You can’t just promise them things in the future.

And so government selects for high time preference. Government selects for people who think in the short term, and it doesn’t select for [01:42:51] people who are capable of understanding the big, transformative, long term impact of moving from a credit based financial system to a hard equity based financial system.

At any point in time, you’re dealing with people that are playing checkers basically while you’re playing chess, the famous metaphor. That you’re thinking 6, 10, 15, 20 steps ahead, and they’re thinking just the next step or two. So the next step or two is always going to be – yeah, let’s not try and fight this enormous network of billions of people all over the world and waste our money on doing something everybody is telling us is going to be doomed, let’s just take some money. Let’s confiscate money from these exchanges. Let’s tax them.

I think this is the next one. The next level is, perhaps before the big confiscation is when they start realizing – hey, if we can tax those things then you know, we start helping our fiscal position.

And then they start [01:43:51] wanting and becoming financially invested in this. Once you have a tax jurisdiction that is getting significant amounts of tax revenue from Bitcoin holders, then they become invested in Bitcoin.

If we throw all of these, and again, I guess this is my counter argument in that if we throw all of these scenarios here, I’m not saying they’re all correct, but for all of those reasons and many others, we may not end up increasing the demand for dark markets by so much. In other words, the conclusion from all of those things is that the demand for saving is gonna continue to be 1000X demand for illegal activity, because we’re not gonna head toward the world in which saving itself is going to be criminalized.

So if that were the case, then I think we could indeed see anonymity disappear, not through government imposition or government [01:44:51] restrictions, just because the demand for anonymity is very tiny. Maybe it survives on a small scale, but it continues to get harder and harder to be personally anonymous.

But the network continues to work as a global settlement layer. And I think perhaps the other scenario is, with second layer solutions is – we get privacy on second layers, but you don’t get privacy on the base layer. And the base layer ends up being, I think this is a distinct possibility, which is that the first layer just ends up being a place for settlement between people who run lightning nodes will be the equivalent of banks.

And instead of living in a world with one central bank, which is what we have today in the US Federal Reserve and its branches, we would have a world with 10,000 central banks. All of them are sovereign nodes on the network, or maybe a hundred thousand central bank.

None of them can change the money supply. All of them are [01:45:51] sovereign nodes on the network. All of them have public records. Think about it, imagine if your central bank was not a criminal organization, I know it’s a very difficult thought experiment but bear with me, if your central bank was not out there built to rob your population, and if it was just out there to actually care for, to actually do its supposed job, wouldn’t you want your central bank to publish every single transaction that it conducts? Why shouldn’t they? If they’re public central banks, they should have on their website every single thing. Every single dollar going in and out. Because this is a public institution, it’s the public who should know.

And I think in a free market for central banking, we’d have a world built around Lightning network where each Lightning node settles with all the other Lightning nodes and they have all their challenges open with one another and then individuals can use their lightning account, and then if you want privacy, you use the ones that prioritize your [01:46:51] privacy and give it to you.

If you don’t care about privacy, I can imagine that in a free market there will be demand for people who don’t want to be involved in things that have privacy. In other words, for instance you can imagine Muslims would say that I don’t want to deal with a bank that deals with alcohol.

And so therefore they identify everybody’s transactions and if anybody deals with alcohol, then they cancel their account. You can imagine these sort of things happening. So you will get a free market spectrum of privacy develop, where if you’d rather nobody find out anything about what you use, use the bank that hides all of your information and then you can’t complain if anybody else in your bank is using is, doing something you don’t approve of.

So I think we could get this kind of spectrum and I think privacy on the second layer is a far more achievable [01:47:51] technical thing than on the first layer. What do you think?

Giacomo Zucco: Getting back to the starter of your point, it’s paradoxical that I completely disagree with your main point, which is it’s likely or possible or very realistic they will not attack, because I completely agree with everything else you said.

So from the very same assumption, we go to very different conclusion. So your first assumption, which I agree with completely is that saving is not only more important as volumes than just transacting, but is also more strategical as a point to attack the nation state fiat status quo. So we don’t have to attack first drug censorship.

We have to aim for money printing, which is the real core of the fiat power. So if we attack that, we win. If we just care for Keynesian privacy shitcoin, we lose. Since I agree with that, I don’t think that governments will not [01:48:51] react accordingly. So if buying drugs or exporting capital from China are not as damaging, or paying stuff into Iran, are not as damaging the to the nation state as stopping the money printer, and I agree with you that it’s not, then I think that the government, even if it selects for high time preference individuals, it does also select for people very focused on stealing money.

And I think it has been very clear in the past, again with Franklin Delano Roosevelt example, and even in more recent times, that they have to protect the money printer.

I think that government official, as you said, will understand Bitcoin. Many of them will be orange pilled. Individually, they will start to get Bitcoin, save in Bitcoin, transact in Bitcoin, they will love Bitcoin. Just as I think that Maduro [01:49:51] and Kim Jong-un, they do love Bitcoin already because they know that if they have to run, they cannot use bank accounts and they can use Bitcoin.

So I really think that both Maduro and Kim Jong-un know how to manage Bitcoin already right now. The same will go for Nancy Pelosi or other lower level tyrants. But even if they will understand it, the high time preference thing to do in that case is precisely not to think about your institution taking advantage of Bitcoin for the long term, but just use the tool for yourself and try to steal the money of other people as fast as you can, immediately without thinking about second or third consequences. So for this reason,

Saifedean Ammous: But exactly what you said here relies on Bitcoin continuing to operate. So like the best, most rational strategy, if you’re going to attack it, and [01:50:51] that’s true if you’re being high time preference or low time preference. If you’re being high time preference, you go steal as much Bitcoin as you can.

But what’s the point of stealing all that Bitcoin if then the Bitcoin network stops working? So it’s a problem for the people that you steal from, the victims of your local government, but it’s tick tock next block. Bitcoin just continues to operate.

Giacomo Zucco: I agree with you that confiscation, like when the United States wanted to fight gold as an inflation edge, gold was working as an inflation edge, so they had to confiscate it.

They didn’t try to destroy gold. They did try to confiscate gold. So I agree with you that will be, and I agree with you that low hanging fruits will not be private individuals with their private keys. The low hanging fruits will be just third party custodians, because it’s just easier. If you think about the 7102 Executive Act, Roosevelt did immediately confiscate all the custodians of [01:51:51] gold, and then he came after private individual, but only in very symbolic ways.

There was this very rich Jew entrepreneur in New York and they targeted him physically for the physical gold. The physical attack is very expensive, so it was a big spot in a very spectacular way, but the lowing hanging fruit will be Bitcoin on exchanges.

And I completely agree with that. But I think, like what you say they will tax and then they will confiscate. It’s not – they are not going to attack. It’s that they will attack. It’s just that they will attack first people that are, they will not attack directly people which are just managing their keys.

I think that’s a very desperate late stage move that I think may come as well. It may not come because the government will get will go broke completely and not able to pay for the enforcement before it came to the stage. So I absolutely agree with you that we may have a [01:52:51] scenario in which the government cannot pay for cops torturing for your private keys anymore. I hope that happens.

Saifedean Ammous: That’s the key thing, yeah. Ultimately, if you look at in the 1930s, yes they did, when they say confiscating gold, like sure you mentioned this example of the gold trade, and I hadn’t heard of this one before, and I’m sure there were a few examples high profile here and there. But there was no the U.S. didn’t turn into a Gulag where you had jack-booted thugs, rushing door to door searching everybody’s home, making sure they don’t have any gold.

We did not have that happen home to home because that’s politically very unpopular and expensive. Yeah, especially the second amendment! But also politically and also financially very expensive, but also it’s not very [01:53:51] necessary in the case of gold because the vast majority of gold was already concentrated in banks, and in central banks.

Giacomo Zucco: At this point, I would get back to your point about Bitcoin being more saleable across space than gold.

Saifedean Ammous: Exactly.

Giacomo Zucco: Because when gold was being confiscated, people had not, they didn’t have any chance. So the government succeeded into confiscating, basically all the gold.

With Bitcoin, since it’s easier to take away in time, I think that there is more possibility that they will have to go after individuals, even if it’s more expensive. Or at least high profile individuals, or at least some very low level legal pressure, just like vaccination status. it’s not like – I will really come to your home, but I will show you in the TV news that I do with three, four families, so you will be so scared that you will give up your Bitcoin willingly,

Saifedean Ammous: Perhaps, but then again gold and Bitcoin are very different in the fact that you can move Bitcoin around much [01:54:51] faster. So if they do this, again, it can get bad, they can confiscate it, they can take it, it can be very bad for you as a user, but again, the only reason they’re taking it is because they want the value that’s in it.

So they now have become invested in the safety and operation of the Bitcoin network and in the maintenance of the 21 million cap, and in the maintenance of the security and everything. I guess when we’re saying about the differences of the attack, it’s not just that politically things are different, it’s also that the technology itself makes the angle of attack much more difficult, much more expensive. And I guess to go back to the point of the drug dealer versus the saver, I think this is, there’s the security model again of – if it’s good enough for the drug dealer and the extortionist, then it’s good enough for us to resist the government.

Giacomo Zucco: Yeah.

Saifedean Ammous: I can’t shake away the fact that perhaps we are thinking about this wrong. Yes, that is one model. But there is another model which [01:55:51] is – we want to have Michael Saylor, Tom Brady, Paris Hilton, and all of those people onboard with Bitcoin, we want to have millions of people tweeting about it on Twitter every day.

And we wanna make it the most politically unpopular thing to do to try and confiscate Bitcoins. And we wanna make it so that it’s political suicide, and we’re also making it so that there’s economic suicide, because again, the key thing here is to get coins off exchanges. So if you have coins off of exchanges, you make it very expensive for them to try and go after individual coins to try and stop, and they can’t stop the network itself.

So you still can take your coins halfway around the world. Your coins will still work anywhere you take them. And maybe that’s really the protection that we’re going to survive on. Realistically, it is both, we’d have a world in which [01:56:51] Michael Saylor and Tom Brady are promoting Bitcoin and also you have enough security that it can hide in case of government confiscation.

But again, obviously a lot of people are gonna take all of this conversation, the wrong way, Saif is saying that we shouldn’t have privacy on Bitcoin, that’s not the point that I’m making. The point that I’m making is that even if we don’t have privacy on Bitcoin, Bitcoin is big and strong enough that it’ll still survive.

Giacomo Zucco: So I’m very both on the argument, of course that basically the privacy use cases are like a cannary in the coal mines. So if they can work, then saving can work as well. Your counter argument, which is normalizing, saving as non controversial and non private because there’s nothing wrong in saving can socially protect us more, or the same level. I think it’s more dubious because Michael Saylor and Tom Brady, and Paris Hilton I’m sure they did own, or [01:57:51] some of them own restaurants and stuff. And still they could not stop the lockdowns of restaurants. You can normalize saving, but even walking in the street without a face diaper was normal.

And and when emergency strikes, normal can just disappear. Social normalization – it’s a protection, but I don’t think it’s as strong as the protection of individual tools to escape government and social censorship attempts. So I don’t think we should antagonize governments without reason.

It’s difficult for me, but I agree with your point. This is just the point Satoshi did make as well. When there was Wikileaks adopting Bitcoin, satoshi said wait, don’t. We don’t want to kick that hornet nest yet. We cannot afford that. We are not strong enough. So there is some reason not to be needlessly antagonizing with governments.[01:58:51]

But I think that thinking at the worst case scenario is safer. I think that actually we will have both also because of geographical distinction. I think that some countries, the ones that have less to lose from giving up the fiat standards like El Salvador or Ecuador or Panama or whatever, these dollarized countries, they will probably not criminalize Bitcoin saving or Bitcoin transaction as well.

While I think the United States, even if you are extremely low time preference for a US Senator or presidential candidate, if you really think about what your government spending increased trend can be if you take out money printing, I think that will basically destroy your inside even if you become rich individually because you’re on Bitcoin, being a president on a platform of cutting the budget of the federal government [01:59:51] back to before fiat standards, I think that would be too much suicidal.

So I think the United States will eventually go on a, I don’t know.

Saifedean Ammous: Yeah.

Giacomo Zucco: But I think it’s plausible enough that they will go full censorship and confiscation, that assuming that scenario for our everyday culture building and tool building is wise, even if it’s not certain. The last thing I wanted to answer to you was about SecuLayers.

I completely agree. I think that changing the base layer for privacy feature will be always too problematic. Maybe we can have something which is a technical thing that may benefit Bitcoin without huge trade offs, but stuff like confidential transaction and stuff like that, that also affects Bitcoin security.

Because if you receive a Bitcoin payment for example, you usually wait for a number of confirmation based on the amount that you receive. And if the amounts are obfuscated, you don’t know how much [02:00:51] the blocks move as value. So you don’t know how much security to wait for with block confirmation.

So I don’t think we will have very strong changes in first layer. Privacy will probably move on the second layer, and I think that as Alfini said, we may have Bitcoin banks, 100,000 Bitcoin banks on top of the base layer. They may be trustless Lightning channels, as you said, they may be trusted banks like Alfini imagined or something in between.

So that’s a very likely scenario. I think privacy will be on the margins. It doesn’t have anything to do with confidential transaction and cryptography per se. It’s more like having also always the option to clean, to launder basically, to confound [02:01:51] the trackability. I agree.

Saifedean Ammous: I’ll say one interesting thought that occurs to me on the US government clamp down on Bitcoin. We have an interesting trojan horse strategy here happening where perhaps what’s gonna happen is that actually the rise of Bitcoin is not going to come at the expense of the dollar initially. Particularly because of stablecoins, because stablecoins are all built around the dollar, what’s happening, and we were discussing this with Paolo last week, currently Tether is worth something like $60 billion, and they’re deciding to move that predominantly now into US treasuries. So at $60 billion they become the 20th biggest central bank in the world in terms of their US treasury holdings.

It’s conceivable that Tether can do a 10X in volume. It’s not conceivable that your average central bank is gonna do a 10X in treasuries. [02:02:51] Conceivable, but it’s less likely that they’ll do 10X in treasuries. So if they keep continuing to grow Tether and stablecoins in general might end up being the best tool for the US government to deliver its dollar to the world. Much more efficient than having foreign central banks do it. And politically and geopolitically quite convenient for the US government. Because what it does is it takes the power away from other governments and makes people dependent directly on the US government.

So effectively you undercut the Mexican and Brazilian and Chinese and Lebanese central banks, who essentially, if you wanna understand what a central bank does in the fiat world – they’re a local monopoly dollar dealer. They are your only ability, the only way for you in Lebanon or Brazil to get dollars is to go through your central bank.

So they have a monopoly on it. And the dollar is being devalued to [02:03:51] finance US government and its cronies, and then your local Brazilian shitcoin is being devalued to finance the Brazilian government and its cronies. Stablecoins are going to allow the American government and the Brazilian people to engage in a direct fleecing relationship with one another where the US government can just rob Brazilians directly and then rob them less than the American and Brazilian government used to rob them together.

So you put the Brazilian government out of business effectively, and you put third world governments out of business because you take away their seniorage. And then the US government benefits enormously because it’s getting seniorage. So it’ll get a very small level of inflation that it can export to the whole world more efficiently.

And that’s going to te be terrible for national governments other than the US but it’s [02:04:51] gonna be great for Bitcoin because that means that the US government is not gonna clamp down on Bitcoin and digital currencies in general, because they like the fact that it might end up being the major demand for treasuries.

To think about it we might end up in a world in which Tether becomes geopolitically important for the US government, because we need to have trillions of dollars in stablecoins out there for the world. And it’s how we’re bankrupting all these other countries, they can’t have armies anymore because they can’t Rob their people with inflation.

And we are the only ones who get seniorage. So in this kind of situation, you can see why your scenario of increasing clampdown becomes less likely because the rise of Bitcoin is accompanied by the rise of the dollar as all the other currencies are dying. And there’s enough [02:05:51] dead bodies for both Bitcoin and the dollar to feast for decades.

And by the time Bitcoin has feasted, it’ll become bigger than the dollar. And then it can eat the dollar when it’s too late.

Giacomo Zucco: I’m not saying it’s impossible. And I also hope that happens because that means less risk for me also, I’m very good friend with Paolo, so that means that I will have a very rich friend, which is always convenient.

But there are a lot of assumption in this scenario that has to go well. The first one is that they do allow Tether and also Bitcoin, as opposed to only Tether and not Bitcoin. There is not an intrinsic reason to, to stay away from a scenario in which they just say – Paolo you just go on exporting our money to other regimes so we can export inflation.

And at the same time Bitcoin is becoming a problem for capital flight from the dollar. So we just buy Bitcoin and you keep on with Tether. The second step would be, you are a great guy [02:06:51] Paolo, but you are from Italy. You’re not even a connected Wall Street guy.

Let’s maybe move to circle money, which is the same. Has the same effects, but maybe we put the back door into the code directly for direct confiscation, and we can trust the Wall Street guys more than you guys from Switzerland. So the second step could be that. The third problem will be that if fiat goes into hyperinflation, the term stablecoin itself that we are using will become utterly ridiculous, because those are fiat coins.

Those are basically dollar credit. And it’s stable just as long as the US dollar is perceived as stable in all these countries. If we go into dollar final phase of fiat degeneration, then demand for fiat representation, on or off blockchain, plausible deniability [02:07:51] structures may fall as well.

So I don’t disagree, that may happen. All the scenarios you’re listing. I think they’re reasonable, but I think that they are not dominant. I’m still convinced that dominant scenario maybe black market increasing and white market restricting and collapsing under their own control freak delusion, in which high time preference is – try to control it. Try to take it. Try to nationalize it, nationalized Tether, and not just allow it. So maybe. Again, I hope you’re right because Paolo is a friend .

Saifedean Ammous: Yeah, no, I think I’m beginning to be won over to the fact that the stablecoins are gonna be a massive Trojan horse for Bitcoin. For the dollar and then for Bitcoin. All right, Peter, you have a question.

Peter Young: So thank you Giacomo, that was fascinating! I had a question related to [02:08:51] people who maybe have less of a technical background on Bitcoin and are concerned about privacy and the darkness of their Bitcoin transactions. So I wondered whether you could outline for us some simple dos and don’ts regarding how people can increase the darkness of their use of Bitcoin.

Giacomo Zucco: Sure. I will go back to the framework that I use with Stephan Livera and now which is this framework of three steps. First step is the first level of darkness, your private key. That should be dark. Only you should know it. So that just mean don’t use custodian services. Which as we discuss may probably be the low hanging fruits of confiscation.

So you should be the only one knowing your keys. Replicate them enough that you don’t lose them, but don’t let them around including like notary services or lawyers. Because Bitcoin is as for now, my thesis is that it’s very good bearer instrument. And even your notary [02:09:51] or your security box manager could plausibly say that it was not him moving the Bitcoin.

It was you because you have another copy. So I will not let the private key even in the ownership of notary services for inheritance or stuff like that. So control your key is the first step. The second step is basically create as much distinction as you can from your physical identity and your public keys, which basically means you can just progress, you don’t have to start from the perfection, just progress. The first thing is don’t reuse addresses when you can avoid to reuse addresses, don’t put your address on your blog or donation page as I did in Bitcoin Talk for years, that’s bad. Just use an ln url to receive lighting or something else, but don’t put aesthetic address, which is always the same. And three, do when you give up identity information like when you buy KYC [02:10:51] or stuff, do coinjoin.

Even if you risk to get your account temporary, frozen or stuff, I will risk it because there you break the history from your withdrawal and everything else you do. Now, if you want to give up that history again, because you need it to be allowed to do something you still can, you can ask for an external technical party to help you. I did it for my clients.

Like there was a client that wanted to sell some Bitcoin for a house. He did conjoin a lot. I just took his wallet and showed everything he did because he wanted to disclose. So if you coinjoin you still can disclose if you want. For example, if you want to show you’re not involved with a drug dealer on the other side of the coinjoin, you can. But it should be you deciding when to disclose on your strategy, not on their strategy. And the third part would be just to avoid linking among your public keys, which is basically [02:11:51] learning coin control, which is the most difficult part of all.

I don’t expect any new user to be able to do that. It’s fine. As we said, attacks on ownership will probably come first to the low hanging fruit, so exchanges. If you have your wallet, you are still better off. Then you go to the guys that link their identity directly with some public keys, and then they will try to use public key connection heuristics in order to say – okay, sorry, in the second step one other thing that I always forget to mention, don’t use stuff like Ledger Live or Trezor Suite in Clearnet because in, when you do that, you basically connect your IP with all your on chain addresses. There’s is a company somewhere with the list of your IP addresses and all your Bitcoin addresses and your IP addresses is just one phone call away from your legal name.

So use [02:12:51] stuff like Specter. You may use the ledger, the Cold Card and and the Trezor, but use them not with their default web interface. Use them with the Sparrow, Electrum, Specter, there are a lot of good tutorials for that.

Peter Young: So what’s your opinion of payment processes like BTC pay? Do they provide much benefit by way of privacy when receiving on chain?

Giacomo Zucco: In a sense, yes. Because for example, instead of linking in your blog, instead of putting your address, which is very bad. You put a link to your payment page that will generate an address for donation or stuff.

So having a server is better than not. Also default for BTC pay server can be Tor. Which is not great against NSA, looking at you again, it’s a question of scale. It’s great against your ISP spying on you on local level, Tor is great. If you are Assange that will not help you, but if you are just a guy that doesn’t [02:13:51] want to be spied upon from the ISP using Tor it is great.

The BTC pay server with Tor is a problem. If you go in my website and you book an hour of my time you will see, you will not go on Tor. Otherwise your browser will not allow it. So I had, I need a service from my Raspberry Pi to the website, which is to, to AP service, which is a little bit complicated. But anyway, having a BTC šay server is better than just using a a centralized third party or like Bitpay for sure.

And it’s also better than reusing a single address. So I would allow you for a small amount. Checkout Lightning. it’s still early, so it’s still evolving. But there are stuff like ln URL that I just mentioned. Just a URL. And then you get the money directly without, without trusting the third party.

And it can work with good privacy if you do that proper. Okay.

Peter Young: Thank you! All right.

Saifedean Ammous: Anybody else have any questions? I [02:14:51] think we’ve basically finished everything. We went over everything. This was the final word, I’m glad we settled everything.

Giacomo Zucco: Okay. I think you can stay in the center of my presentation next time.

Saifedean Ammous: Okay, great! I still do want to, we’re gonna be having Matt Odel coming on soon to discuss best practices. We didn’t have time to get into this in detail today. But like practical,

Giacomo Zucco: I think Matt would be great. The only issue I will have with with him is that he’s relying a lot of the Samurai stack, which I really don’t think is a good idea.

That would be our main disagreement, but I think it will make a very closer argument to mine about the scope and the goal.

Saifedean Ammous: Yeah. I do wanna discuss this with Matt and look at also, start talking more practically about the practical options for privacy and the limitations

. And okay, so you do have cases of people with small sums of money having gotten away with it. You do mention that, [02:15:51] but I think it’s still an open question whether this is going to remain the case moving forward. I think I want to host somebody from chain analysis companies as well, to see them make the case for why they think they can track things down.

Perhaps we could also organize a debate with,

Giacomo Zucco: That would be! I think they’re overselling a lot, what they can do. I I think in most trivial cases they can do a lot of stuff because people are not caring for privacy, but as soon as people start to be smart a little bit, most of the things they’re claiming to be able to do just fall down immediately.

Saifedean Ammous: So real socialism, right? Real privacy.

Giacomo Zucco: That was not real chain analysis.

Saifedean Ammous: Okay! Thank you so much, Giacomo! This has been extremely fascinating and informative and helpful. Appreciate you and appreciate your time and keep doing what you do and stay toxic, my friend!

Giacomo Zucco: I will. Thank you. Was a pleasure! [02:16:51]

Saifedean Ammous: Cheers, take care.

Giacomo Zucco: Cheers!