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This week, we discuss cryptocurrency and security.

Paul Matzko
Tech & Innovation Editor
Aaron Ross Powell
Director and Editor

Aaron Ross Powell is Director and Editor of Lib​er​tar​i​an​ism​.org, a project of the Cato Institute. Lib​er​tar​i​an​ism​.org presents introductory material as well as new scholarship related to libertarian philosophy, theory, and history. He is also co‐​host of Libertarianism.org’s popular podcast, Free Thoughts. His writing has appeared in Liberty and The Cato Journal. He earned a JD from the University of Denver.

Matthew Feeney is the director of Cato’s Project on Emerging Technologies, where he works on issues concerning the intersection of new technologies and civil liberties. . Before coming to Cato, Matthew worked at Reason magazine as assistant editor of Rea​son​.com. He has also worked at The American Conservative, the Liberal Democrats, and the Institute of Economic Affairs. Matthew is a dual British/​American citizen and received both his B.A and M.A in philosophy from the University of Reading in England.

Will Duffield is a research assistant at Cato’s First Amendment Project.

This week, we discuss cryptocurrency and security. There was a hack recently of a digital currency storage site. We’ll talk a little bit about what that means, what cryptocurrency ‘hot’ and ‘cold’ wallets are, what happens if you lose your password, and the sometimes surprising lengths to which major cryptocurrency owners have gone to secure their holdings. (Warning: Severed fingers make an appearance.)


00:00 Paul: Welcome to Building Tomorrow. I’m your host Paul Matzko, and with me today…

00:05 Will Duffield: Will Duffield, a research assistant in speech and internet policy.

00:10 Aaron Powell: I’m Aaron Powell, I’m director and editor of lib​er​tar​i​an​ism​.org.

00:14 Matthew Feeney: And I’m Matthew Feeney, the director of Cato’s project on emerging technologies.

00:19 Paul: Thanks for joining me today, guys. Today, we’re gonna talk about cryptocurrency and security. There was a hack recently of a digital currency storage site. We’ll talk a little bit about what that means, what cryptocurrency wallets are, the difference between hot and cold wallets. So a lot of topics to get to, but before we dive into the particulars, let’s explain for our listeners what cryptocurrency security means. When you say you own some Bitcoin, you own Ethereum, or any one of these other cryptocurrencies. How are they supposed to be secured in theory?

00:56 Aaron Powell: So I guess you have a… Your currency resides in a wallet and a wallet is just a set of two numbers. Two long numbers. One is the public address of the wallet. So that’s where, if people wanna send you money, they punch in, send it to this address. And, the other one is your private basically pass code. And so, if you want to send money from your wallet, you have to have access to your private pass code. The security thing comes in that anyone who has access to your pass code can take all of the money out of your wallet instantly, and there’s no way for you to get it back and it’s very hard to trace where it went, if not impossible. And so, the security part comes in with, “What do you do with this pass code?” It’s too long for most of us to memorize.

01:52 Paul: ‘Cause it’s what? 64 characters or something like that?

01:55 Aaron Powell: I guess I don’t know how long it is.

01:58 Matthew Feeney: I think it can… I’m not sure the exact figure, it’s long. No human’s gonna be able to… Well, very few are gonna be able to memorize it.

02:03 Aaron Powell: People with those memory castles, whatever they are.

02:05 Matthew Feeney: Right, right.

02:06 Aaron Powell: And so, if you forget it, though, you’re out of luck. The funds in your wallet are locked away forever and ever, and there’s nothing that can be done about it. If someone steals it, you’re out of luck. So, the question of security is: Where do you put these things? How do you keep them secure in such a way that other people can’t get them, but they’re accessible to you in order to use and you’re not going to forget them?

02:30 Paul: So, I suppose we should remind our listeners, maybe don’t make your crypto password, “Password.” Right? You wanna [chuckle] set it to something a little more complex. What were you gonna say Matt?

02:44 Matthew Feeney: Oh, I was just gonna say that what’s been interesting about the last year, I suppose, has been this renewed interest in cryptocurrencies that seems to be very well correlated with the price of Bitcoins which has exploded in value. Although it seems to be on a bit of a nose dive at the moment. And you’ve seen these exchanges set up. Probably the most common at least in the United States is Coinbase. But the interesting irony about these big exchanges is that it’s not actually… When you’re using these exchanges, you’re not owning the Bitcoin in a sense. It’s Coinbase saying, “Here’s an ‘I owe you’.” Thus in the crypto community you’ll hear, “If it’s not your key, it’s not your Bitcoin.” Right? That you made. But this is an example of people trading… Well, doing a balancing act between security and convenience which is… Actually if you want to own the key and not use Coinbase and not use these exchanges, you’ve got to be very careful by yourself on how you secure these assets. And some people are willing just to have Coinbase handle a lot of their crypto.

03:52 Will Duffield: So which crypto users are tending to use these exchanges rather than storing it themselves? What’s the breakdown of…

04:02 Matthew Feeney: Well, I think… My guess is, so I haven’t seen any survey on it, but my guess is that people who are somewhat on the perif… Just getting started quite like Coinbase because it’s a cool way to keep track of the price of the most popular crypto assets. It’s easy to use. You quickly link up a bank account. The people who tend to be very wary of these things are people who have at least from what I’ve seen, been in the space a long time. They understand the cryptography, they understand the technology, and they know that Coinbase is one scary letter away… One scary IRS letter away from shutting down effectively. And that should, I think, worry more people who are using it.

04:40 Paul: Now it’s kind of striking to me that as we describe what something like Coinbase is, how similar it is to Fiat currency. Right? Where essentially… At least in theory. Not fully Fiat, where there’s nothing backing it other than trust in the government. But, the old style system, like a, well, a gold based system back in the day where you used to have to trade in bullion. Your Spanish pieces of eight. It was silver or gold. That was what your currency was. That was really inconvenient to carry all that on your person. It’s easily stolen. So instead, you deposit that in some kind of central repository, a bank, eventually the federal government, the federal reserve, there’s Fort Knox, there’s gold. We issue an “I owe you,” a piece of paper. What’s striking me is, this really is…

05:28 Will Duffield: I mean, you can compare it to the Scottish free banking system in a sense there. Where you have a commodity bank that holds the underlying commodity and you’re issued some kind of script.

05:40 Matthew Feeney: The irony of all of this is, of course, when Bitcoin first emerged, one of its big selling points was, “We shouldn’t have these big powerful institutions that are controlling our currency and finance and everything. What about this great decentralized system. Wouldn’t that be preferable?” And now you have these big giant institutions like Coinbase emerging, which are acting in very similar ways, which is a strange irony.

06:03 Aaron Powell: I don’t know if that’s necessarily a fair characterization. So let me take a stab at defending these large exchanges. So, a centralized money system and the stuff that upsets people who thought that we needed cryptocurrencies for a decentralized system. So the stuff that upsets them about it is first, the government control of the money supply, the ability of them to inflate it and the money simply being a product of the government. The government is the one in charge of all this.

06:35 Matthew Feeney: True Fiat currency. Yep.

06:35 Aaron Powell: Neither of those apply to cryptocurrencies.

06:40 Matthew Feeney: So that’s totally fair.

06:42 Aaron Powell: But even then, the centralization issue, one of the issues that we have is that you have to be… You have to basically get approval from the government to be a big player in the Fiat currency space. You… If you’re gonna do electronic transfers of money or you’re gonna use your credit cards, those are through just a handful of centralized things and a new entrant can’t really come into that market in a meaningful sense. Neither of those are true about these exchanges. So you can put your money in Coinbase but you can still send that money across this network that is not owned by Coinbase to anyone else who is on that network. You don’t need Coinbase’s approval ’cause they… Coinbase will just send it to an address that you give them. You can switch out of it very easily. So it’s large in the sense that a lot of people use it for convenience sake and for security’s sake, but it doesn’t feel large in the sense of having out sized power over the market and network.

07:49 Will Duffield: It’s not an issuing authority in any sense.

07:51 Matthew Feeney: So in my earlier comment, I didn’t mean to characterize Coinbase as, I don’t know the Bank of America of crypto. It clearly is mutt and I’m on coin net, I think a fan of institutions like Coinbase ’cause they’ve been really good at getting people into the space and in fact, because I’ve been in the libertarian world for so… I was initially a skeptic of cryptocurrencies and I was badgered by so many gold bugs to get involved in all this that I eventually bought a little bit of Bitcoin using Coinbase because it was easy years ago and it was only more recently when I logged back in to check what the actual value of this was that I thought this is worth worrying about and looking a bit more into the security. So clearly it was one of the most downloaded apps last year, wasn’t it, the Coinbase app?

08:37 Aaron Powell: Like it hit number one or two on the App Store.

08:39 Matthew Feeney: Right, so for people who are interested in the space, that clearly, I think it’s good news but we should still remain aware that people using it just don’t have as much control over the asset as they would if they used Cold Wallets or other method.

08:54 Paul: This is actually a good transition moment. So you just mentioned Cold Wallets Matthew, so for our listeners, there are Cold Wallets and Hot Wallets when it comes to these exchanges, your Cold Wallet is the offsite, hard… Non‐​digital storage medium, it is… Sometimes you have a USB Key to access it. You don’t want to be plugged in, it’s not easily immediately accessible online, it’s separate from the digital infrastructure. The Hot Wallet is, what is readily accessible. The comparison I’ve heard made is checking account versus savings account but even that’s probably not enough distance ’cause your savings account is still these days online and accessible.

09:43 Aaron Powell: It’s like checking account versus a safe deposit box.

09:46 Paul: Versus the bank vault. Yeah. How does this cold versus hot wallet thing play into the recent hack of specifically Coincheck? I think it was $30 million was stolen from Coincheck. What’s that being stolen from or the $64 million from NiceHash last December? Mt. Gox lost $450 million. So, it’s one of those things where… My understanding, I don’t know about Mt. Gox, that Coincheck, it was 30% of everything on Coincheck which is a South Korean exchange. It was basically everything in their Hot Wallet, which meant they were carrying 30% of their assets in what was essentially a relatively easy to access low security relative.

10:36 Will Duffield: And was this a technological hack or some kind of social engineering gambit? What tends to be the vector of attack on all of these exchanges?

10:46 Aaron Powell: In most of these it’s a technological hack and so it’s gonna be those Hot Wallets because if you want… If you’re a big organization and you want people being able to buy and sell cryptocurrency through you at a rapid clip, then these Cold Wallets, these offline wallets as you know, so basically, a private key written on a piece of paper in a vault somewhere or stored in a computer that’s not connected to the internet in a vault somewhere. It’s inconvenient to get money in and out of that because someone’s gotta figure out… You gotta go down there and get the key and enter that whole thing. So you wanna keep a significant portion of the money that’s in your system in these hot wallets which are connected to the internet so that you can move money around quickly when people want it. And so that’s, in a lot of cases, that’s what’s getting stolen is those wallets. There’s hacking in and they’re getting access to it or they’re somehow getting access to… They’re hacking the website and getting access to people’s passwords when they’re entering them.

11:48 Matthew Feeney: There’s a lot of key stroke, where they basically will track your key strokes.

11:52 Aaron Powell: So the cold storage is much safer and so they keep a lot of it… The larger reserves are stored in there. And the only way you would get that is either through… Is through say social engineering, like you talk someone into giving you access, who has access to those, or someone on the inside decides to steal, someone who does have access decides they wanna steal it, or you do…

12:17 Will Duffield: Some kind of Ocean’s 11…

[overlapping conversation]

12:19 Aaron Powell: Ocean’s 11 and break into the vault thing.

12:21 Paul: That’s a future movie, definitely. Yeah, right.

12:24 Matthew Feeney: So you do get significant advantages with cold wallets, if you are using it yourself, but it also comes with a lot of risks, of course, ’cause the security is up to you. So if you forget your pin code, there isn’t a bit​coin​.com that you can call, right? So, if I lose my debit card I can call up the bank and they’ll ask for some ID verification and then they’ll issue a new one, or if I forget my pin code, they’ll go through a similar system. This was highlighted by… For my money, one of the best pieces of non‐​fiction writing in the recent years, which was an article written by Frank Frauenfelder, who wrote a Wired article titled: “I Forgot My PIN: An Epic Tale of Losing $30,000 in Bitcoin.”

13:10 Matthew Feeney: And it’s a… It’s an incredible piece of writing. I think… The tension really builds, and it’s a couple of thousand words. He got one of these cold wallets Trezor, which is one of the most popular models and you access it with a pin code, that he forgot and he also lost, or more accurately, I think his housekeeper threw away the 24‐​word backup list that can help you recover the wallet. And Trezor has this great security feature, which is every time you put in a wrong pin code it doubles the amount of time you have to wait before trying again, so, you wait 10 seconds and then you have to wait 20, and then 40 and very quickly you realize you’ll have to be waiting months before trying it again.

13:52 Will Duffield: So at some point, it’s inheritance only.

13:55 Matthew Feeney: Yeah, and so, he came up to, he said, by the 31st try it would be 34 years…

14:00 Aaron Powell: Right.

14:02 Matthew Feeney: The wait, yeah. And what’s amazing about this is, it does a good job of showing that you better do a lot of, I guess, security yourself to make sure that things like this cannot happen, because there are horror stories all over the Internet of people accidentally throwing out hard drives, or people forgetting their passwords, and for some of these people there’s literally hundreds of thousands if not millions of dollars that are just in dumpster somewhere.


14:28 Aaron Powell: So, this brings up kind of interesting parallel to government and theories of government, because… So one of the most popular theories of how we get to the state is the state of nature, and the state of nature is as Thomas Hobbes called it, our lives they are, “solitary, poor, nasty, brutish and short” which I always thought it would make a great name for a Gary Coleman bio.


14:53 Aaron Powell: But you then… But that’s bad, we don’t wanna live that way. It’s too… The risk’s inherent in everything we do in our lives are…

15:01 Paul: Speak for yourself Aaron.


15:03 Aaron Powell: Sure. Are hard, more than we want to deal with, and so, we band together and give up some of our rights, give up some of our freedom for additional security. And what we’ve got here is, the cold wallets that you keep yourself are ultimately a state of nature, in a sense. Like you… They are high risk in this way, like you can’t… They’re unforgiving. And if you… If something wrong, if something goes bad, it goes very, very bad. But that’s the… But you’ve got maximum freedom, you’re not being controlled by anyone, you have total control over your money. The network can’t be controlled by anyone, so you can do anything on it that you want to. So, it’s a… It’s that kind of… It’s financial anarchism. But then a lot of people say, look, that state of nature sounds not so great to me, ’cause I could lose it all, I could screw it up somehow.

16:08 Aaron Powell: And so, I’m going to give up some of my freedom, some of my ability to do what I want with my money as quickly as possible, give up some of my money, ’cause these places charge fees to enter into a social contract with Coinbase. And so, it raises… There’s… You see, really indignant like crypto enthusiasts, like the ideologically motivated crypto enthusiasts. People who got into this stuff because they have libertarian political views and they want to escape the state and embrace crypto‐​anarchism and whatever else. Just really looking down on people who would use something like Coinbase or something, where you don’t own your own private key.

16:49 Will Duffield: ‘Cause they’re accepting the bad… The threat of a bad sovereign as they do in other areas of their life, in a way that rankles the anarchist.

17:00 Matthew Feeney: So I think, the risks associated with Coinbase, I wanna emphasize that I’m not worried that Coinbase is going to be the target of some kind of Ocean’s 11 heist. I do think from what little I understand that Coinbase does a pretty good job at keeping this sensitive information stored under lock and key. My worry is, when the SEC or the IRS or someone decides that they don’t like Coinbase, then you’re out of control… In an anarchist world, there’s of course no, I guess, principled objection to something like Coinbase, right? Which is well, I’m forgetful, I’m definitely gonna lose this piece of paper and I judge the risk of a hack to be really low with Coinbase, so yeah, I’ll use it. And listeners, should I think just download these kind of apps, specially Coinbase just to see if nothing else how easy it is. And it’s kind of amazing that it used to be something just for mathematicians and cryptographers and geeks. Now it’s just really easy to use.

18:00 Paul: Well, it’s a cool example of spontaneous organization, which is a favorite libertarian principle; that we have individuals who are solitary, who are facing shortage in wants and scarcity, banding together to create new orders, new institutions. So, to me, that’s actually exciting. I suppose I’m not a hardcore crypto‐​anarchist. I think it’s cool when you organize something like that. The alternative is, of course, the central authority organizing something like that for you in order to make you legible, so the state can see you. So, there is the possibility, I think, as you’re alluding to here, Matthew, that at some point state can say, “Hey we don’t like the fact that cryptocurrency is by its very nature illegible; very hard for us to read. And so how can we tax it? How can we regulate it? How can we police it and its users?” And that’s a legitimate concern.

19:00 Paul: But there are a couple of articles that you guys shared today. People going to kind of extreme lengths when it comes to creating these new institutions and orders. One was a bunker. It’s from an article by Tom Metcalf for Bloomberg, “The Wealthier Hoarding $10 billion of Bitcoin in bunkers,” which, you have to go check out the… When you read the article, there is a picture of one of the bunkers, and it’s like a Swiss military installation that’s been demilitarized. And there’s a giant steel vault door the person’s hauling open, and that’s where the cold wallets are being stored for wealthy investors.

19:42 Paul: It’s quite a striking picture. But my favorite paragraph from it is this: “Every part of their DNA,” this is the users of… The people who are storing their cold wallets, “is geared to security, said Sean Clark, First Block’s founder. Who noted the vault’s fingerprint scanners were equipped with a pulse reader, to prevent amputated hands from being used. Whenever we make big transfers, they FaceTime us and we have duress words, which like if you’re kidnapped. If it’s big enough, they’ll fly out to see us. So think about the chain of security measures there. At one point they said, “Okay, we just need the password.” And that’s a hard thing to get because it’s off‐​line, it’s this whole complicated thing that no one has memorized, so you have to get access to this physical password. Well, that’s not good enough, if that’s stolen, if it’s stolen from you.

20:31 Paul: Then they said, “Well, okay, so we’ll have a fingerprint scanner, so we know it’s you.” And then someone said, “Oh, what if they chop off your hand and bring it and scan your dead thumb?”. “Okay well, we’ll put a pulse reader on it. And if you have the pulse reader, we know it’s not a dead hand. It has to be alive. And then, “Well, but what happens if you’re still alive, but they have a gun to your back or something while you call in and have your thumb on the reader?” “Well, we’ll have duress words, so you can signal: ‘hey, the pineapple is in the tree.’ ‘Oh, they said pineapple. We’re not gonna let them make the transfer!’ ” It’s actually quite a fascinating example of how far this institution’s building is going. It also makes me wonder the practicability of this for most users. This is one thing if this is a place…

21:19 Will Duffield: These aren’t most users. These the are the users who would in other markets be using a Swiss bank account to store something.

21:29 Matthew Feeney: Well, maybe not for billionaires, but Trezor, which is one of the wallets I discussed earlier, has an interesting solution to what some people refer to as the “$5 wrench problem.” Which is: You can have one of the best passwords around. You can have vaults, and all the rest of it, but when someone has dragged you into an alley and is bashing you over the head with a $5 wrench, demanding your password, then all that security flies out of the way. So Trezor, for example, allows you just to set up as many account as you want on the one device. So you can have one sort of dummy account for muggings, which has quite a bit of money in it, but it’s definitely not your full amount, so that you can give out the fake password to it. But this is a worry, and there have been stories of people being kidnapped and people asking for ransoms in Bitcoin.

22:20 Will Duffield: Just earlier this week, three members of a Bronx biker gang were charged in a two and a half million dollar crypto kidnapping heist. They tossed somebody in a van and took off with them.


22:36 Paul: Yeah, and it’s not that…

[overlapping conversation]

22:36 Will Duffield: Driving around for a few hours at gunpoint till they turned over all of the accounts.

22:46 Paul: It would be fair to point out that, look, this is a non‐​unique harm. Kidnappings already happen, right? Like you take the heir of the Getty Foundation. They just made a movie out of this a year or two ago. And mailed his thumb or a finger back and say, “Hey pay me the ransom in cash or else.” I think the rejoinder would be: Yes, this is worrisome, but is it really any different than a non‐​cryptocurrency‐​based system? Is this a unique or an exaggerated threat, compared to the status quo?

23:16 Will Duffield: I think there is a slight exaggeration of the threat given the medium. It’s much harder to track and recoup losses. Traditionally, they catch the kidnappers when someone goes to make the money drop. There isn’t a money drop in this.

23:35 Matthew Feeney: Well, it depends on how smart the criminals are. One of the things that I think will actually make cryptocurrencies more mainstream is when governments realize that actually it’s not anonymous, and that you can track this stuff. If you are relatively skilled at Financial Forensics and you’re examining blockchain transactions you can figure out where… Now, there are methods that smart people can use to disguise transactions, but you’d have to be pretty knowledgeable about this.

24:11 Will Duffield: How much do borders matter there, if you’re sending this stuff all around the world?

24:17 Matthew Feeney: Very little, but there are international law enforcement efforts.

24:21 Paul: Interpol will save us. [laughter]

24:23 Matthew Feeney: Yeah, Interpol will save us. Yeah. No, we should expect more of these stories, but I think as Paul mentioned, that this isn’t a unique problem to cryptocurrency. And as it becomes more common, law enforcement will try and figure out ways [chuckle] to track it down.

24:40 Aaron Powell: Law enforcement will try to figure out ways. And the various companies, the various players in the crypto space will figure out better and better ways to prevent this sort of stuff happening. It might not need to be as elaborate and macabre as amputated hands and whatnot. But there’s a lot of media frenzy around this stuff. These heist make very good stories. This is new tech. That’s very weird tech, that also has a lot of… Let’s call ‘em, out‐​sized characters involved in it, and so it’s fun to report on. And we’re also in the incredibly early stages of this tech. This is like looking at the internet in 1990, or so.

25:23 Will Duffield: Every gold rush is exciting.

25:28 Aaron Powell: The space is going to get more boring.

25:30 Will Duffield: And that’s a good thing?

25:31 Aaron Powell: It’s a good thing. It’s gonna get boring because it’s gonna get settled down. And as more people have this stuff, you won’t know like, “Oh well, this guy. We know this guy is a Bitcoin guy, so we’re gonna go kidnap him.” Because everyone will be a Bitcoin guy, and the security will be better. There are real concerns here, but they will be mitigated fairly quickly.

25:52 Paul: Well, the historical corollary, this reminds me of, I was thinking about this earlier. It’s a pre‐​Federal Reserve, pre‐​National Bank, pre‐​Jacksonian. It’s like the 1820s and ‘30s, when you had a whole network of dozens, even as many as hundreds of banks, all essentially running their own private currencies. So you would have… Your cash was secured by a deposit in the Bank of New York, or in… And at that time, there was a… It’s a new system, it’s a new form of fiat currency backed by deposits in these individual banks. It led to a lot of currency speculation. It led to a lot of arguably a bubble in investment, but ultimately there’s a whole complicated economic history literature on this phase of financial regulation, of financial industry.

26:49 Paul: It actually ended kind of up working. It gets superseded by the debates over a national bank and someday the Federal Reserve. But for most of American history, the balance of American history, there is no federal reserve or even a national bank. But there’s a lot of instability at first. The point here is that there is a lot of turnover in these banks, a lot of them fail, but over time it gets routinized. People get used to the system. They figure out who the good actors are, for every bank that falls, there’s one that persists, that builds consumer trust. We are in that kind of moment right now, but it’s something that we’re actually accelerating through more quickly. The cycles happen more quickly in a digital world. So we’ve already gotten that initial burst of speculation, that kind of irrational or hubristic boom in the price of, say, Bitcoin. We might be actually getting on the other side of that now though. The speculators, the enthusiast, well, it’s now being routinized. Normal investors are creating ways to create index funds for Bitcoin. It’s becoming more standardized.

28:10 Will Duffield: I don’t know if we are all the way there yet. We had Dennis Rodman wearing a PotCoin t‐​shirt, taking up a lot of time on CNN for the weekend. The marketing gimmicks are still fairly outlandish.

28:24 Paul: Or Steve Bannon, the deplore coin. I just saw it.

28:27 Will Duffield: A what?

28:27 Matthew Feeney: Yeah, that’s a new…

28:28 Will Duffield: Really?

28:29 Matthew Feeney: Yeah. I think that was in a New York Times article written by Nathaniel Popper, who wrote a book I have yet to read called Digital Gold, which people rave about, but he’s…

28:37 Will Duffield: It’s a lot of fun. It’s a [28:37] ____ terrific book.

28:38 Matthew Feeney: Yeah, I guess it would be fair to call him “The Time’s crypto reporter.” So yeah, interesting [chuckle] stuff.

28:44 Aaron Powell: I will say, I think that… To some extent we’ve been saying, this will all get better as this space looks more like our traditional financial space, in terms of the kinds of institutions and all of that. But I will say that I remain fairly… My interest in this field is not in the… I’m not a monetary economist. The financial stuff is not what really grabs me. It’s the possibilities of using this to advance a freer world that inspires me. And in that regard, I remain really optimistic even as things become normalized. And we get stodgy conservative institutions, running and participating the space and so on, because the underlying technology remains the same.

29:38 Paul: Yeah.

29:38 Aaron Powell: And that underlying technology is accessible to anyone. The fundamentals of this network, you can download onto your phone, and run it by yourself, and it’s easy to do. Anyone would spend 20 minutes reading about it and you can do it. And so these organizations get powerful. We can have all these things, but at any time, any person who wants to, can just opt out of that system and go back to the Frontier, which you can’t do with our existing… You can take your money, you can take your cash and squirrel it away, but the cash is still traceable, and you’re still participating in this government system that the government ultimately has control over. And as the technology advances, every major cryptocurrency is pursuing ways to make it more anonymous, more private, to cut out the ability of the government to track it even more. So in my core libertarian heart of wanting a world where the state doesn’t have access to us if we don’t want it to. I think that the future is still very bright and this stuff is a really important way to get us there.

30:56 Paul: That’s a great point, and it’s ’cause… All these things we’re talking about are still non‐​state action. These are still… There’s this growing network of private exchanges, of private currencies. One of the articles… I think the one who runs the Swiss, the military facility, as a cold wallet storage, Xapo, I think it was called. One of the striking things about the founder who’s from Argentina, is his whole source of getting involved in Bitcoin, cold wallet, cold storage, is the collapse of the Argentinian financial system, where the government was essentially printing money to make up for a gap in the budget, and in effect then, raiding the bank accounts of every Argentinian.

31:48 Paul: It was devaluing the currency and devaluing the savings of ordinary Argentinians, just like over‐​expropriation. I know, as libertarians, tax is theft, but this didn’t even have the democratic processes that go behind voting on taxes. It was just; we’re gonna inflate the currency to get out of a financial tight spot, and you’re gonna pay for our Argentinian investors, and so what does he do to avoid that kind of state expropriation, state intervention in the currency inflation? He buys Bitcoins. He builds a bunker to store… The cold wallet storage. Again, this is a way for him to get around in the intrusive liberty violating state government, and because we live in a globalized society, an Argentinian can buy a Swiss military installation, and keep his money free from that kind of coercive theft.

32:43 Will Duffield: Speaking specifically to this cold storage model, that seems pretty vulnerable to the state sending some people to crack open your bank vault?

32:54 Aaron Powell: Oh, sure. Just like if you keep your cash at the bank, the state can do that. But it is the speed with which you can opt out of that is very fast. The ability to take… If you have $10 million in a bank account, it’s hard to get that all out and totally off the grid at a rapid pace, whereas you can do it in moments and transfer it into something that then they can’t find and you have all of it and something you carry around in your pocket or in your head. So I think that’s a big difference.

33:26 Will Duffield: I think the preparation analog in thinking about communication security applies here. And that under a traditional banking model, by the time you realize you need to be able to move your money around the world and take it off the grid, it’s already too late, unless you’ve been set up for that. This pre‐​sets you to make those sorts of moves.

33:52 Paul: Yeah. If you try to move that quantity of money, first of all, you’re going to have to wait over five business days at the minimum for smaller transfers, larger transfers, you have to get essentially, the approval of the bank president, you have to jump through a lot of hoops. And then you’re also… Any movement over a certain dollar threshold gets reported to the government. They’re gonna know you’re trying to move your money, and they are not gonna let you do it in large enough increments to get it all out before there’s a freeze slapped on your account. Where as if your money is in the vault, you are a wealthy investor, you’ve got $10 million dollars in that cold wallet in underground Switzerland, you can fly there in an afternoon, pull your money out, put it in the cold wallet in… I don’t know, the Urals [chuckle] or somewhere else. That’s an advantage of the system. It’s not perfect. It’s not…

34:48 Matthew Feeney: It’s not clear to me. I don’t know enough about Xapo to know about… Are they holding the private keys in these vaults themselves, because it seems to me that in a system where they’re actually just storing devices without the keys, that wouldn’t really matter if the government was at the door because it would still need you to put in either the pin or the pass code, but still easy to move if you had to. Ideally, you want a system where they need to know the contents of your memory [chuckle] in order to access.

35:18 Paul: I don’t think they store… They store like a device, like your treasure. My understanding is they store a device, but they don’t… Xapo wouldn’t have your key.

35:32 Matthew Feeney: Oh, well, if that’s the case, then there wouldn’t be much use of the government even knocking on the door in the first place, ’cause I will get these devices at.

35:40 Will Duffield: On storing this in your mind, have we seen any, I guess crypto‐​oriented, either meditation practice services or hypnosis, or other strategies to allow you to remember this key?

35:54 Aaron Powell: They’re probably unconnected, but in roughly the time that cryptocurrencies were really taking off, a number of their books and articles coming out about how to memorize anything, people memorize a deck of cards or so on and so forth. But I do think, I think that the… I’ll go back to just the value of all of this from a libertarian perspective, is to use a term that Paul you used earlier is legibility. That the government wants us to be legible. It wants to be able to see what we’re doing, at any time it turns its eye on us, it wants to be able to have a record of what we’ve done, where our money is, how we got that money, that it can dig through whenever it wants to. And sometimes it says it needs to do that for revenue raising purposes, for investigating criminal activity, but it’s also a mechanism of control, states around the world want their people to be legible for control purposes.

37:01 Aaron Powell: And I think that we… A fundamental human right is to be as illegible as you want to be. And so this system, with all its wards, and with all its odd characters, and with all its risks is still the biggest step that we have seen to‐​date in taking an extraordinarily large area of our lives, namely our economic activity and moving in a direction where it becomes truly illegible.

37:28 Paul: Well, even if there are ways for the state to access that money, they raid the vault, they take your treasure, they take your USB key, they don’t know what’s on it, right? I think you’re right, the key gain here is making you more illegible to the state. They could take it, there’s a way in they can expropriate it, but they don’t know what’s on there until they do so, that itself has a great deal of benefit.

38:01 Will Duffield: So James C Scott’s next book will be “Crypto Tribe Value Tribe.”


38:05 Paul: Well, thanks guys for coming in and talking about cryptocurrency and crypto security, until next week. This is Building Tomorrow.