[00:03:21] Daniel Hinton: Right? So before Bitcoin existed, there was no way to have a decentralized distributed system and not have any oracle involved, but the parties still know the status of the system. In Bitcoin, when you run a full node, You validate all the transactions that are happening across the network over the history of the blockchain and you don’t have to trust anyone to know that you have the Bitcoin that you own.

[00:03:46] Daniel Hinton: And that, that gets us in an extremely long way, but it doesn’t get us all the way to removing trusted third parties from things that people do. The reality of it is that in today’s world people still transact in dollars. People want to place bets on things. People have commodities contracts and other things that they want to settle in Bitcoin.

[00:04:07] Daniel Hinton: And that oracle problem presents itself when you’re dealing in things not denominated in Bitcoin. And so for a person in finance, it’s a bit of a challenge to get your head around why this is a problem. Number one, because whenever you’re trading, you go to the website, you check the price and that’s the price.

[00:04:24] Daniel Hinton: But in the world that we’re living in this, the trust that’s been eroded and in the Bitcoin markets, particularly, There’s not a central clearinghouse for the price of Bitcoin, right? There is a global market with hundreds and thousands of different participants every day with different market depths and different spreads and prices and fees.

[00:04:43] Daniel Hinton: So there is no single price of Bitcoin, which is one of the really interesting things that we’ve sort of tried to approach this with.

[00:04:50] Preston Pysh: Where I find it to be really important for people to wrap their head around this Oracle idea is like, let’s say I bought a call option and it’s that I want to be able to buy Bitcoin at the current price, 26, 000, roughly right now, today, I want to be able to buy it at that price one year from now.

[00:05:08] Preston Pysh: And this would be a derivative. What am I using for my reference rate six months from now when I’m looking at that derivative when I’m saying, okay Well the price on this exchange is saying it’s 30, 000 the price on this exchange is saying it’s this price and there’s And I’m relying on a person that’s managing that exchange to tell me that that’s that price or some entity that’s telling me that it’s that price.

[00:05:34] Preston Pysh: But how does that become decentralized? That somebody’s not saying that price or some entity that’s controlling that price. Really kind of the essence of what

[00:05:41] Daniel Hinton: we’re getting at with Oracles. This concept, at my day job, I run finance and operations for SFOX, and what we do is we aggregate pricing from exchanges and OTCs around the world, and something that we see happen, not every day, but on a fairly routine basis, is significant market dislocations at a single particular venue.

[00:06:00] Daniel Hinton: So you’ll have 20 exchanges with one price and then one of them has a significantly different price. This has happened at all the big name exchanges, you know, for brief periods of time, but it does happen. And just understanding that concept of there’s not equally distributed liquidity across the market at all points in time in a market like Bitcoin, where there is no central clearinghouse or, or exchange.

[00:06:23] Daniel Hinton: It kind of necessitates this more decentralized approach of using the blockchain itself as the price oracle because that’s where this genuine settlement activity happens. And it is actually the clearing house for Bitcoin is the Bitcoin network. So it’s pretty interesting.

[00:06:42] Preston Pysh: Yeah. One other terminology that I think we have to address before we get into this is just UTXOs.

[00:06:48] Preston Pysh: I know for you guys that might be a little funny to think that that’s a term that we have to cover, but for most people that aren’t intimately familiar with the space, it’s just a term that they’ve never heard before. And the concept, I don’t know if you can put it into terms. One example that really resonated for me was just like coinage or coins.

[00:07:07] Preston Pysh: And you have a dollar and it turns into four quarters and things like that so that you can explain it for people that they can kind of really wrap their head around what a UTXO is.

[00:07:16] Daniel Hinton: I’ll give the, the layman approach here. So the way that I think about it is imagine you have a Bitcoin wallet and it’s a physical wallet sitting in your hand, you know, there, there’s a bunch of different bills in that wallet, right?

[00:07:26] Daniel Hinton: Each bill, it doesn’t have to be 5 or 1. It can be a bill of any size. So you’ve got a hundred dollar bill in your wallet. That single bill is a UTXO. Alright, and then you have your set of UTXOs, everyone else has their set of UTXOs. When you add up all those UTXOs that everyone else around the world owns, that adds up to the exact amount of Bitcoin that exists in the world today.

[00:07:51] Daniel Hinton: And when you spend a UTXO, you know, you’ve got your hundred dollar bill. You go to the convenience store, you want to spend 3. You can’t rip off a corner of the bill and hand that to the clerk, right? You have to spend the entire 100 bill. It splits into two new UTXOs. They get their 3, and then you get change back for 97.

[00:08:11] Daniel Hinton: And that’s, you know, one UTXO is now spent, and that becomes two different UTXOs. Same way you can combine them, you know, if you had to spend 1, 000, you can combine multiple UTXOs together in a single transaction to spend 1, 000 for something. So I think that visual has always resonated with me.

[00:08:29] Preston Pysh: So now we’ve got these two really important terms, UTXOs and oracles defined for folks.

[00:08:35] Preston Pysh: Tell people about your discovery.

[00:08:37] Daniel Hinton: Steve, I’ll, I’ll pass this one to you.

[00:08:40] Steve Jeffress: To me? Okay. I do like that analogy of using coins or bills for UTXO. If you want a little more technical way to think about it, you know, Bitcoin is a database system. Things in databases are stored in rows of a database, kind of like an Excel spreadsheet.

[00:08:59] Steve Jeffress: Every time you make a new transaction, you’re creating kind of new rows and you can think of each row on the spreadsheet as a UTXO. It’s just that in Bitcoin, you have to delete the old row. So it’s kind of like the old row up there is kind of not active anymore and you have like two more rows. And these transactions, they’re all, you know, publicly available.

[00:09:20] Steve Jeffress: They’re on the Bitcoin blockchain. And one of the things I’ve kind of been passionate about for a long time is data visualization. And I think it was about five years ago. Well, I started making these heat maps at utxo. live probably like eight or nine years ago now. And then of all the sorts, interesting sorts of things I saw in these heat maps.

[00:09:43] Steve Jeffress: One of them was the USD price. So I, I’ve known that you could look at the heat maps by eye and see the Bitcoin price on chain for like, what, five years now was at that Starbucks meetup back in 2018. Daniel, when we saw that, I think, so yeah, it’s something I’ve known for a long time and I thought about all the different kinds of creative ways I could write some kind of pattern matching or machine learning, or, you know, I’ve been thinking about all the different ways I could have pulled out.

[00:10:11] Steve Jeffress: What I can see by eye and just finally did it in January, early this year.

[00:10:17] Preston Pysh: So for people that are trying to just kind of wrap their head about around how profound this is. So you have all the transactions that have ever occurred throughout time that are graphically being shown. And we’re going to have some links to in the show notes for people to kind of pull up these charts and some articles that are written about this.

[00:10:36] Preston Pysh: But you can see, like, these, like, wiggles in the chart that are brighter than the rest of the transactions. And Steve, for both of you guys, when you saw this for the very first time to start to show up, you knew immediately that that was in USD terms, that that was like the price action that was kind of manifesting itself in these patterns that you were graphically displaying.

[00:10:59] Preston Pysh: Was it just immediate that you knew that that’s what it was?

[00:11:02] Steve Jeffress: I didn’t know what it was at first, you know, when you look at these heat maps, you can see things like when miners get paid out, you know, the dust limit. You can see that people don’t really transact very much on Saturdays and Sundays. I saw really interesting things during the Mount Gox collapse that I still don’t quite understand.

[00:11:18] Steve Jeffress: But then I saw, I think starting in like 2012 or 2013, these really like I mean, there’s tons of things about Bitcoin that just give me that, like, shot of joy that, like, restore my faith in humanity. This was definitely one of them. It was just like, wow this is it’s a pretty big deal, this Bitcoin system that has, like, I don’t know, it’s like our main way of storing truth on earth, it seems like, and now we have the Bitcoin price in there.

[00:11:45] Steve Jeffress: So, it was just a great day seeing that.

[00:11:48] Preston Pysh: So you guys came up with a model that, and you’re going to have to help me out on the stat here, so like when we go back and we, and anybody can run this with the Python code that you guys wrote, I could plug it into the node that I run, and I can go back and you could say, Preston, on last year, on this day, What was the price of Bitcoin and without referencing any exchange, but just looking at the Bitcoin blockchain transactions in Bitcoin, I can figure out what the dollar price is within how much variances is in that.

[00:12:21] Daniel Hinton: It’s within about a percent. Yeah. So on a normal day, it’ll be about, you know, between 50 basis points and 1 percent different from the daily VWAP price.

[00:12:30] Preston Pysh: And that would be all the exchanges combined. You’re within 50 bips to a hundred bips of that price. What date does this start manifesting itself that you can start seeing this in the blockchain itself?

[00:12:44] Steve Jeffress: The thing I published, I published the price history back to July 26, 2020, sometime in July, you could see the emergence of USD denominated transactions becoming a lot stronger. Like I said, I mean, you can, if you look hard at those heat maps, you can see the price back to like 2012 and I wouldn’t be surprised if UTXO oracle did work back, you know, to 2015 or 2016 or something.

[00:13:08] Steve Jeffress: I just, I haven’t tested it that far, but yeah, the prices that we’ve tested since 2020 July of 2020 have been really accurate. And just one of the things I, you know, I get that question a lot, right? Accuracy. And I usually respond by like, well, what’s the true price? Yeah. Like show me the true daily average price.

[00:13:27] Steve Jeffress: It’s like, it’s 1 percent away from what?

[00:13:29] Preston Pysh: Like all the other models are off.

[00:13:33] Daniel Hinton: There is no reference break.

[00:13:35] Steve Jeffress: And like an exchange price, you know, we’re normally talking about, and let’s be honest, we’re talking about Coinbase, Binance, we’re talking about these exchange prices. These are places where you pay money for Bitcoin and then you kind of have an IOU and a hope of being able to withdraw Bitcoin a week later.

[00:13:50] Steve Jeffress: Is that what spot price is? I love it.

[00:13:52] Preston Pysh: You guys are hardcore. I love this.

[00:13:55] Steve Jeffress: No. So I get, I mean, I get what people say. They’re like, is it way off? You know, if it was like way off, then I mean, it’s a fair question to ask. But once you start getting inside that one percent, it gets kind of cloudy about, you know, true prices.

[00:14:10] Preston Pysh: I’m curious of how you came up with the Python script. Is there AI here that that helped you model this or like how did you guys come up with the code to do this in very general terms?

[00:14:23] Steve Jeffress: Yeah, I guess I’ll take that one, Daniel. Yeah, so I have kind of a background in machine learning and I did some graduate courses in this and I’ve, I just think about, do you want to use a neural network here?

[00:14:31] Steve Jeffress: Do you want to use some of this new stuff? Or do you just kind of want to do something simple where other people could actually understand how it works? Yeah. And I ended up going with the simple route where it’s kind of like, well, I call it a stencil method where if you think about a day where every transaction was in USD and you think it kind of like a bell curve of those transactions.

[00:14:55] Steve Jeffress: You just see spikes, right? Just at like 5. So I created this stencil, which uses kind of the average frequencies in which people spin this stuff on Bitcoin. And then I just slide that stencil over each day. And wherever it kind of locks in, wherever it’s maximized, that’s what I use to estimate a price.

[00:15:17] Steve Jeffress: Wow.

[00:15:17] Daniel Hinton: Okay. Me as a, me as a non technical person, you know, I can open the Python file and it’s, it’s well annotated and I can read through it and understand pretty much exactly what was happening. And it’s only a couple hundred lines, right? And this is a, it’s a very simple thing for someone if you’re, if you’re already running a full node to just run it yourself on your own local computer and get the output price.

[00:15:37] Daniel Hinton: And it’s a very cool experience. It’s kind of on par with that first running a node and seeing the blockchain do the initial download of blocks from 2009. It’s a very cool experience.

[00:15:48] Preston Pysh: I’m curious if you would just take the aggregate price from all the major exchanges and basically use that as your test, like this is the price that it should be, and then you do an AI model.

[00:16:01] Preston Pysh: Do you feel like you would have got as good of a result as this simple, simplified approach that you took?

[00:16:07] Steve Jeffress: I think it’s that same question again, it’s, it’s, you know, how would you really know what’s more accurate? I mean, I think you could write an AI model that added a lot of complexity that was probably more resistant against someone trying to manipulate it.

[00:16:25] Steve Jeffress: And that’s something I think about a lot. It’s kind of like a trade off between complexity and reliability, but you also kind of have understandability of the code in that trade off too. And like Daniel mentioned earlier, you know, please everyone open up this Python script. If you’ve never opened up a computer program before, do it here.

[00:16:46] Steve Jeffress: I mean, I put a ton of English words and explaining every single step of what I do. I taught introductory computing at a. major university for a while. I’m very good at kind of like teaching people how programs work, like, on the base layer. Like, open it up, I think understandability of code is, it’s very important.

[00:17:06] Steve Jeffress: Like, we don’t want a black box AI UTXO Oracle, because why would anybody trust that? And so, yeah, so there’s just a lot of trade off there.

[00:17:14] Daniel Hinton: Yeah. And the same logic applies to the rules of the Bitcoin. That’s why it’s 21 million. Anybody can understand that it’s 10 minute block times. It’s not an AI generated thing to sync up with the U. S. time zones and okay, business is more rapid on, you know, 8 a. m. on a Tuesday. So we need faster blocks and it’s like, no, it’s just 10 minutes. 21 million, anybody can understand it.

[00:17:34] Preston Pysh: Because that’s what you would get effectively if you did an AI model is it would be taking into account a lot of these other things.

[00:17:41] Preston Pysh: So there’s been a lot of naysayers. There’s been a lot of people that are really excited about this in the comments of your, of your post on Twitter, where it was announced.

[00:17:51] Steve Jeffress: I would, I would. I was surprised that there weren’t more naysayers actually. Sorry, I didn’t mean to interrupt, but I was expecting for Twitter, it was way positive.

[00:18:00] Steve Jeffress: It was very positive.

[00:18:01] Preston Pysh: Shockingly positive.

[00:18:02] Steve Jeffress: It was very positive. Sorry, Preston, I didn’t.

[00:18:04] Preston Pysh: No, no, no, no. I love that. I would say, like, at least my, my read on people’s comments was, this is really interesting. I don’t know that if I was entering into a derivatives contract that I would trust this as my sole oracle.

[00:18:19] Preston Pysh: I would probably want this in concert with others that would be weighted a certain way or whatever. I’m kind of curious how you guys see that. as the creators or discoverers of this.

[00:18:32] Daniel Hinton: Yeah, Preston, from my perspective, I think Steve and I wholeheartedly agree that this is, number one, this model is not perfect, and two, it’s impossible to create a perfect model, right?

[00:18:43] Daniel Hinton: Because the world changes, and people’s use cases change, the threats that you’re trying to protect against change, once things are known. So I would not just blindly use the model for a multi year million dollar derivatives contract at this point, you know, there’s, there’s more research that we can put into things that being said, it’s, it’s been very consistent over a multi year period and not having large deviations and, and extreme volatility.

[00:19:10] Daniel Hinton: So I do think it’s, it’s quite robust, but from, from a practicality usability standpoint. There are a lot of teams out there working on these types of multi oracle, decentralized, you know, DLC type solutions. And my hope at least is that, you know, this version of the model or a derivative version could serve as an Oracle in those types of setups and, and just help people to do more things in a decentralized way.

[00:19:38] Daniel Hinton: That’s not really possible these days. The example I like to give for this is like, Oh, well, why don’t you just use a, use a three of five multi Oracle centralized approach and say, okay. Well, you, the oracles that you chose were FTX and BlockFi and Celsius and Voyager and fill in the blank other. And it’s like, surely not all five of those are going to go away and say, Oh, well, they didn’t last year and a half.

[00:20:01] Daniel Hinton: All those have gone away, you know? And now you can’t settle your contract. Whereas if you had layered in the UTX oracle, it doesn’t matter if all of those have gone away. You have this fallback mechanism to rely on the on chain data to where even if you’re using a centralized venue, this is a great backup for you.

[00:20:19] Preston Pysh: What type of feedback have you guys received that was, in your opinion, pretty thoughtful or something to consider kind of moving forward ever since you announced this?

[00:20:29] Steve Jeffress: Yeah, like I said before, I’ve just been blown away at the positive nature of the feedback. A couple people have shared some ideas about how to improve it.

[00:20:38] Steve Jeffress: We had a few people that actually ran a node for the first time in order to get this running, and I love seeing that. I mean, that’s a big motivation of mine is just. Allowing people to do cool things with their node. Daniel, did you, did you get anything else?

[00:20:53] Daniel Hinton: No, I think it’s yeah, the people that have initially seen the idea and it, and it really clicks with them.

[00:20:58] Daniel Hinton: It kind of just makes sense. It’s one of those things where once you see it, you can’t unsee it. And it just, it intuitively makes sense why, you know, when you send your cousin a hundred dollars a Bitcoin, you’re not pegging that to the price a month ago. You’re saying, okay, I’m going to send you a hundred dollars.

[00:21:13] Daniel Hinton: Here’s a hundred dollars. And that UTXO shows up on chain. And when thousands of people do that every single day in different USD denominations, it’s kind of crazy that we haven’t talked about this before. Yeah.

[00:21:25] Steve Jeffress: And before you actually look at the data, you might just think, oh, okay, there’s just a little bit more transactions right at these even amounts of dollars.

[00:21:33] Steve Jeffress: It’s way more, I mean, it looks like this giant, if you look at the bell curve, it’s like a smooth bell curve. And then there’s these giant pitchfork prongs sticking out that just go into the stratosphere. And it’s like, it’s very clear where a hundred dollars is like that’s. But it’s never a question in my mind, especially for a human, I mean, it’s a little bit harder writing the algorithm to pull it out, but a human would have no problem looking at the heat maps and telling you what the price is.

[00:22:01] Steve Jeffress: And yeah, along the lines of that how robust is this? It’s certainly new. We’ve been doing it for a while. It’s still probably in kind of a beta stage. But we thought it was a good enough idea and a kind of original approach that needed to be shared. Like me and Daniel were just like, you know, we shouldn’t just keep this to ourselves.

[00:22:22] Steve Jeffress: Let’s just go ahead and release it. Obviously, it hasn’t been tested in any kind of adversarial environment. Who knows what will happen with that. But we just thought it was, it was good enough to release at this point.

[00:22:34] Preston Pysh: And if a person were to try to game this. Like, walk us through how you would try to game it if you were an adversary, just so we can kind of like, as a thought experiment, kind of understand the vulnerability.

[00:22:49] Steve Jeffress: You want to take that, Daniel, or do you want me to go for it? Sure, I’ll hit a few of them. I’m sure you’ve got others. There’s a couple of things that just, they might just happen over time natively without anyone trying to game it. If the average transaction fee on Bitcoin is over 100, then it’s not going to make sense to send 100 to someone anymore.

[00:23:07] Daniel Hinton: So that line would just not be visible on chain anymore because people don’t send in those round amounts of that magnitude.

[00:23:15] Preston Pysh: So hyper Bitcoin, so the answer is hyper Bitcoinization would invalidate it with enough time.

[00:23:21] Daniel Hinton: Exactly. Yeah, that’s a good point as well.

[00:23:23] Steve Jeffress: You just do the lines at $10,000, we’d be fine

[00:23:25] Daniel Hinton: Yeah, yeah, yeah. It’ll just be a different line.

[00:23:27] Steve Jeffress: You know, when price goes up like Preston or like what’s his name says you know, when Bitcoin price goes up, people just use Bitcoin to send higher amounts of money and there you go. Those lines would be even more crystal clear, in my opinion.

[00:23:40] Daniel Hinton: It used to be you send your friend $1 a Bitcoin and nobody sends $1 a Bitcoin anymore.

[00:23:45] Daniel Hinton: You send 10 or 50 or a hundred, right? Yeah. One other reasonable approach that someone might take is just to create a lot of UTXOs that instead of 100 or 1, 000, you create 107 just to create more confusion in the model. But for many reasons, I don’t think that that would be an effective use of an attack because number one, you can add UTXOs to the Bitcoin data set and you can transact on your own, but this whole horde of other people that are just transacting in their daily lives, they’re not going to stop just because you’re attacking, right?

[00:24:19] Daniel Hinton: So all you could do is create a second line with a slightly different price. And I don’t think that you would overwhelm the entire global user base of Bitcoin. And that type of attack. And you can’t get rid of their UTXOs. All you can do is create a slight, you know, a slightly different line, which you’d have to have a lot of money on the line to give, you know, to give it that much effort and cost.

[00:24:40] Preston Pysh: You’d be paying huge fees for doing something like that, right?

[00:24:44] Daniel Hinton: Right. And by my estimate at today’s rates, it would cost you about seven Bitcoin a day to do this. And another nuance here about how this model works is We’re taking the average price for the, for the day. We’re not just taking a single blocks worth of UTXO.

[00:24:59] Daniel Hinton: So you’d have to create this signal over a full day. And if a day is not long enough, just wait longer. All right. Just do a three day or a seven day or a 30 day version. And that just drastically increases the cost of attack to where if you’re doing a, a year long options contract on chain. You probably don’t mind taking the last month’s average price for the settlement price and you can do that very easily with this model.

[00:25:24] Preston Pysh: Yeah, well, that’s how a lot of these derivatives contracts are closed out. It’s the close of business on Friday of this date on this month. Your seven Bitcoin threshold is you’re saying to basically wash out because Steve described it as basically like these peaks that really like stand out on the blockchain.

[00:25:43] Preston Pysh: So you’d need seven Bitcoin per day to basically wash that out across the whole spectrum. It seems like it would be higher than that.

[00:25:52] Daniel Hinton: Well, no, what you, you’d be paying seven Bitcoin in fees just to create a second set of lines.

[00:25:59] Preston Pysh: Oh, got it. Okay. So that there would be right.

[00:26:01] Daniel Hinton: Okay. And then you also need about 100 million of Bitcoin to make those UTXOs as well, because you’re going to have to do tens of thousands of transactions in a day that’s going to use up Bitcoin to do that.

[00:26:13] Daniel Hinton: So it’s, it’s going to be fairly expensive.

[00:26:15] Preston Pysh: But I’ve seen the, I’ve seen the chart and you have lines at a hundred, you have lines at a thousand, you have lines at 10, 000. So you would have to basically replicate the, the 107 and the 1070 and the, right? So like, it seems like it’d even be more than what you’re saying.

[00:26:33] Steve Jeffress: You can’t just manipulate one line and think you’re going to fool it, but keep in mind when you are paying high transaction fees, you are trying to crowd other people out. So, you know, you know, one person could essentially pay the entire fees and be the only person in the block. So there’s, there’s that to add to it, but that might just be astronomical to think someone would pay the fees for all blocks in a single day, but they might.

[00:26:56] Steve Jeffress: But anyone who is really seriously considering using this for some high level contracts. Should have some kind of model of the cost of a tech because that would give you kind of a natural price You know, you wouldn’t want to exceed in your contract or something like that.

[00:27:12] Daniel Hinton: Do you guys block fee the block fees are those are constantly iterating?

[00:27:17] Daniel Hinton: So if this type of thing were happening after 10 minutes The entire Bitcoin blockchains fee model would kick in and everyone would be paying a higher fee. So it’s going to get exponentially more costly to run this type of attack if you’re running it actively.

[00:27:32] Preston Pysh: To me, it seems like the, the signal in the data is getting stronger with time.

[00:27:38] Preston Pysh: Is that what you guys are seeing? And so like, if we warp five years into the future, do you feel like this, this signal or this peg to the dollar in the data is this Oracle data is going to get stronger?

[00:27:51] Steve Jeffress: I’ve been surprised at how strong the USD round amount of patterns have gotten right now. I would predict it getting stronger, you know, in the long run, you know, hopefully it’s like a dating app that’s designed to be deleted.

[00:28:04] Steve Jeffress: Like hopefully, you know, USD isn’t the major unit of account for the world in a hundred years, but for right now, yeah, it’s gotten stronger. That’s been interesting. It’s also interesting. So back in 2015, the brightest line was like the 1 line. And then knows the $10 line and now it’s the a hundred dollars line, maybe the brightest line will be a thousand dollars.

[00:28:27] Steve Jeffress: So that’s happening too. Yeah, I’m not sure, but definitely, definitely getting stronger over the last few years. Okay.

[00:28:34] Daniel Hinton: Yeah. And, oh, go ahead. It’s also just one of those things we’re pressing, you hit it dead on with, you know, hyper Bitcoin ization this line, probably the signal probably goes away. ’cause why transaction dollars if ization is here?

[00:28:46] Daniel Hinton: Yeah. And also if Bitcoin goes to zero, the line goes away. ’cause. So either way, it’s going away eventually, who knows how long that’ll take.

[00:28:54] Preston Pysh: Looking at the heat map, one of the things that I found really fascinating, and I think I’m understanding the data, but correct me if I’m, if I’m not, I feel like I can really see the huddle waves on the chart behind you there, Daniel, in particular, where you can see where the price in dollar terms kind of hit its high.

[00:29:13] Preston Pysh: And you can see how people who were sitting on coins, like just let them age as you go through this next cycle. I’m curious, A, is that correct, and then B, what data or what visual are you seeing beyond what we’ve already talked about that has just really been intriguing for you guys by looking at all of this?

[00:29:35] Steve Jeffress: And you’re definitely right about the way you can see the hotaways and the charts. I mean, I like the triangle better than the hotaways chart, but that might just be because I’m more familiar with that triangle chart. In terms of what other pattern, I’m sure I could think of something. Daniel, do you have anything in mind?

[00:29:50] Daniel Hinton: I’ll just say there are, this is not necessarily a modern thing, but this concept of Bitcoin archaeology or just like, you know, digging into the UTXO set and seeing the history of things that are, that have happened, Steve has a really awesome chart that is annotated over the entire history of Bitcoin’s existence about interesting things that are happening, right?

[00:30:12] Daniel Hinton: So there’s, There’s the Satoshi Coins, there’s Satoshi Dice, there’s Mt. Gox, there’s all these things that have happened, and then there are some other things that are very visible and distinct on chain, but they’re still a mystery. Somebody was testing a wallet back in 2011, and they created a bunch of these UTXOs that are still there today, and that, in all likelihood, will never ever be moved, so they’re just permanently there.

[00:30:34] Daniel Hinton: There’s a lot of cool things you can look at in the history. Yes. So UTXO. Live has some really great charts to explore that type of thing. Oh, we’ll have to have a link there.

[00:30:45] Preston Pysh: Okay. That’s awesome.

[00:30:46] Steve Jeffress: I did think of one thing that I am fascinated with is I have one, if you go to UTXO. Live slash changes, I think it is.

[00:30:54] Steve Jeffress: You can see what the distribution of ages of coins that were spent yesterday were. And this distribution is fascinating. So, you know, you get things on Glassnode kind of like, you know, The average holder is holding on for two years and this has changed, whatever, but I think it’s so much more fascinating to just look at that statistical distribution of how long people have been holding on to the coins they spent every day.

[00:31:19] Steve Jeffress: You know, you’ll see one or two coins that are spent from back in 2013 or 2012 or something like that. And then you’ll see this kind of like bell curve in log space over amounts where like. You know, the mean is right at 0. 01 Bitcoin and it kind of maybe the top of that bell curve goes back three or four years or something.

[00:31:38] Steve Jeffress: And that makes me think about, you know, this is kind of philosophical, but like, is there a sense of an average time preference of how people just act in general? And could something like the Bitcoin blockchain really tell us something about average human behavior? in terms of time preference. So that’s kind of just like a more of a scientific question, but I’m interested in that.

[00:32:02] Preston Pysh: I love both of those. That’s awesome. Guys. There’s a lot of talk about ordinals and inscriptions and the mempool not clearing. As students of the blockchain, like deep students of the, of the blockchain, what are your thoughts on this new development that we’ve seen really kind of play out here in 2023?

[00:32:25] Preston Pysh: And is there any type of cause for concern? As far as the impacts that it might have on the longevity and just the use and the utility of the blockchain.

[00:32:36] Daniel Hinton: I think from both of our perspectives, we’re, we’re largely just Bitcoin only, right? So I don’t particularly have any interest in ordinals or inscriptions from a monetary perspective.

[00:32:45] Daniel Hinton: I do like the concept of the numbering and just having a social layer of like, okay, we’re going to number these UTXOs and do fun things with them. But I’m staunchly Bitcoin only. from that perspective. And I think we’ll probably talk about this more in a bit, but just changing the Bitcoin software has unintended consequences.

[00:33:04] Daniel Hinton: And to claim that any type of change that you happen to personally want and advocate for Like I’m not advocating for any change in Bitcoin with related to, you know, with regards to UTXO Oracle, the good news is it works today without any changes, which is nice. Yeah. Yeah. I just think that people need to really be serious when they consider these things.

[00:33:25] Daniel Hinton: And there are going to be second and third order effects that we can’t predict, you know, with, with inscriptions coming out of taproot and other changes that people are talking about today. It’s just kind of naive and foolish to think that we know all the answers about what’s going to happen with changes in Bitcoin.

[00:33:41] Daniel Hinton: So, Steve?

[00:33:44] Steve Jeffress: Yeah, I pretty much agree with Daniel on that. I’m more on the conservative side when it comes to changing the code. You know, I, I’ve been around forever, you know, I lived through the block size wars. I, you know, that was a deeply personal time about whether we thought Bitcoin was going to survive.

[00:33:59] Steve Jeffress: Yeah, the changes people want today, they’re just, it doesn’t seem like that big of a deal, you know, keep in mind, like Daniel said, you know, but for Taproot, nobody saw any problems with Taproot and then now we kind of have things that we didn’t expect to come, which may have come more from the SegWit limit, but yeah, there’s going to be unexpected changes that you can’t predict complex code really what’s going to happen for it.

[00:34:22] Steve Jeffress: What you want to introduce into the code is probably not going to be how other people want to use it. So it doesn’t really matter what you think the code can be used for. It matters like what else it can be used for. But you know, Bitcoin is, you know, I, I write software. I understand that you always kind of have to keep software up to date.

[00:34:41] Steve Jeffress: So there’s not like total ossification, but just a conservative approach.

[00:34:47] Daniel Hinton: Well, there’s just so many greenfield areas of development that we have not exhausted or even come close to exhausting with Bitcoin today. You know, there are, there are very few taproot specific applications in use today. And it just takes a long time and Bitcoin to do anything and having a long term perspective is really necessary to keep your head on straight, basically, because things are not going to happen on your timeframe and people just have to be okay with that.

[00:35:13] Daniel Hinton: It doesn’t mean you, you can’t work on things and propose things. You know, talk about it, but you can’t expect to change on your timeline.

[00:35:21] Preston Pysh: Yeah, I’m with you guys, a hundred percent. The thing I tell people is if, if we truly want to change the direction of clown world, like the only way we’re going to do it is with sound money and money that’s immutable and all the stuff that we talk about in Bitcoin.

[00:35:35] Preston Pysh: And tinkering with the code and doing the, the gee whiz swoopy thing that everybody’s talking about in the moment is just all risk to perpetuating clown world as far as I’m concerned. So, yeah, I’m with you guys a hundred percent. Daniel, you wanted to talk about positive rationalism. Explain what you’re getting at with this.

[00:35:56] Daniel Hinton: Well, I kind of, it’s, it’s sort of piggybacks on what you were talking about just now with not participating in the clown world, you know, you, it’s, it’s almost impossible to look anywhere in life today and not just shake your head and say like, what in the world are we even doing? How do you consider these to be serious people who are doing a lot of these things?

[00:36:13] Daniel Hinton: And I think with Bitcoin, we have a good history of being seriously considerate people. And because of that. I am my, and I think every other Bitcoiner I know, if you were to talk to a normie and say like, Oh, what do you think about the Bitcoiners? They’d probably think that you were a doomer and that you were pessimistic and you’re like, Oh, just burn everything down.

[00:36:33] Daniel Hinton: And it’s like, but that’s not how Bitcoiners actually live their lives. These are people who are optimistic, you know, reasonably optimistic. We don’t think that there aren’t challenges, but like I listened to your conversation with Guy, who’s a good friend of ours as well. And, you know, Guy is really positive on the AI trend, not for its centralizing effects, but for its decentralizing effects.

[00:36:56] Daniel Hinton: And I feel the same way with everything that happens to the negative side. Luckily, there are extremely positive things happening as well on the, on the social layer, on the personal layer. On the, the business layer, you just have to open your eyes and participate in these things to really see how important they are, but yeah, that’s where I come at it is there are so many good things happening in the world that kind of get swept under the rug because they’re not maybe as fun to talk about as the sensational headline, but I’m very optimistic for the future of the world and for my family.

[00:37:30] Daniel Hinton: And I think that that’s very common with Bitcoiners. Amen. Amen.

[00:37:34] Preston Pysh: Amen. Steve, did you have anything to add on that one or did Daniel tell you?

[00:37:37] Steve Jeffress: Oh yeah, absolutely. Daniel’s really good at speaking about that kind of stuff. Yeah, I mean, Bitcoin really, there was a time in my life for sure, 2013, 2014, 2015, it was like, Bitcoin is really the only thing I think is true and is kind of like optimistic and that’s the reason I held for so long to be honest.

[00:37:58] Steve Jeffress: People think holding through the bear market’s hard. I mean, it’s… It’s not hold the heart of the bear market when you feel like this is like the greatest path forward for humanity. It’s pretty easy, but yeah, that rational optimism.

[00:38:13] Preston Pysh: You have to understand it for the essence of what it’s trying to accomplish to look at it through that lens.

[00:38:19] Preston Pysh: Like if you stepped into this purely because you were trying to make money on number go up and then. Like you’re not here for like the actual mission of what it’s trying to accomplish. I think the bear markets just wreck havoc on the people that are here for all the wrong reasons.

[00:38:35] Daniel Hinton: That’s the situation I found myself in back when I first got into Bitcoin was I saw number go up and immediately after I bought number went down for a long time.

[00:38:46] Daniel Hinton: And you know, you ask, you get to a point where you have to ask yourself, like, why do I own this thing? And so you start asking the questions that everyone asks and turns out they’re really good, solid, considerate answers for these questions. And another thing that we were talking about earlier, Preston, about this orange pill culture of, of like, yeah, I sat down with my neighbor and I orange pilled him.

[00:39:06] Daniel Hinton: It’s like, guess what? That’s not going to stick. You know, you can’t just tell someone to buy Bitcoin, you know, it takes weeks and months and years in some cases to really internalize why this is why money and having a good money is such a big deal. And it, it doesn’t just stop at money. It affects your personality, your, your life, your family, you know, it affects the world.

[00:39:29] Daniel Hinton: And this is not a trivial thing here that we’re embarking on.

[00:39:34] Preston Pysh: I was talking with Jimmy Song recently, and he, he got into like the cultural rot that really kind of manifests itself through fiat. And I just find it to be so true and so important. And just at a much deeper context than I think most ever would even give it the time of day to have that conversation.

[00:39:53] Preston Pysh: But, you know, when you really pull the thread, it’s just, it is just fiat in general is just wrecking havoc on society at large globally all over the place. But Daniel, you have a very interesting quote on Twitter and I’ve got to ask you about it. You said it’s very short. You said clocks didn’t create time.

[00:40:15] Preston Pysh: What are you saying here?

[00:40:17] Daniel Hinton: I was getting a little philosophical over the weekend and just thinking about number one, thinking about an analogy for how to explain to people the UTXO oracle concept, but just the fact that when people say, Oh, what’s the price of Bitcoin and you look at your venue of choice.

[00:40:33] Daniel Hinton: But that doesn’t mean that’s the price of Bitcoin. Time existed before we had clocks, and the price of Bitcoin existed before there were centralized exchanges. So just trying to conceptualize the fact that there is not a particular price of Bitcoin, and if you like Using the UTXO oracle model as the price that you’re using for whatever you need, you know, go for it.

[00:40:55] Daniel Hinton: This is a method of doing that that doesn’t rely on a centralized party. That’s pretty much where I was going with that. And it’s we had a side conversation about this and there’s a group of people that talk about Bitcoin in time and it’s, it can get a little confusing and you can get wrapped around on the axle.

[00:41:09] Daniel Hinton: So I’m not trying to go too deep with the time thing, but just the fact of there is no Bitcoin website. There’s not even a single version of the Bitcoin software. There’s Bitcoin Core and there’s other versions that, you know, Core is the main version people use, but there is a single Bitcoin blockchain, right?

[00:41:28] Daniel Hinton: And that’s the only real reference we have to Bitcoin is the blockchain and the UTXO set. Everything around that changes.

[00:41:36] Preston Pysh: Yeah. And if people are looking for an article on Bitcoin at Time, Gigi has probably one of the most eloquent, just thought provoking articles there are, which we could have in the show notes as well.

[00:41:48] Preston Pysh: Last thing that I want to talk to you guys about is just meetups. And I think it was at Steve or Daniel that you guys were talking about the various ideas that still need to be shaken out smelting, the 2106 time bug. Things like that and how you’re able to chew on ideas and interact with other people with local meetups. Give us some of your thoughts on this.

[00:42:12] Daniel Hinton: Yeah, I would love to have one comment on that. And Steve, I think it would be great for us to touch on the 2106 if you’d like to, just for a few minutes. From the Raleigh Bitcoin Meetup crew. It’s just such a phenomenal group of guys and people that for years and years at this point have just been consistently meeting up.

[00:42:29] Daniel Hinton: I mean, I used to live in the area and it was essentially like every night of the week there was a different Bitcoin meetup you could go to. It was, it was great. And these were all just normal, good people who care about Bitcoin. who are just genuinely interested in talking about it. You know, there’s a, there’s a lot of people in the space that you kind of reflect back on your time.

[00:42:47] Daniel Hinton: And you think, wow, has there been a day in the last X number of years that I didn’t think about Bitcoin? And if there are any, they are very few and far between because it’s just the most fascinating concept in the world. And it really keeps your attention for longer than most people can say about anything else.

[00:43:06] Daniel Hinton: And I think bitcoins are probably the best nurturing ground for that. It’s the place where you can go and ask the ridiculously stupid question that you’re afraid to ask elsewhere. And bitcoiners are, they have a, a gruff online presence, but they’re extremely nice people and will help you in anything.

[00:43:23] Daniel Hinton: And that’s their favorite thing to talk about. So they’re, they would love nothing more than you to come to their meetup and talk about bitcoin with them. So. Yeah, the Raleigh crew has a great meetup scene and I’m in Nashville now and we have a great meetup scene here as well. So pretty epic. It’s just the ideas that come up in the meetup scene are really phenomenal.

[00:43:42] Daniel Hinton: We’ve had a couple in the Raleigh group. I’ll give a quick plug to smelting. It’s a, an idea that really doesn’t happen right now. And it does have some serious drawbacks with block reorgs, but it’s essentially a way to coordinate with a minor to spend a UTXO and then get a new UTXO from the Coinbase transaction.

[00:44:00] Daniel Hinton: So you end up having a UTXO with fill in the blank, whatever history yours had, that’s getting chain analysis run on it all the time. And then you end up spending that one and getting a fresh new UTXO from a Coinbase that was created from nothing. And you do that through paying a really high fee to a miner.

[00:44:18] Daniel Hinton: And it’s a pretty cool concept and it, it makes a lot of the chain analysis stuff. A lot harder and maybe impractical. So that’s my point about there are a lot of privacy and scaling and other techniques that we have available to us today. If the need arose that we just really haven’t developed enough to pursue other types of changes to the core protocol.

[00:44:42] Preston Pysh: Steve, did you want to talk the 2106 time bug?

[00:44:46] Steve Jeffress: Sure. Yeah. Daniel, thanks for giving a shout out to the Raleigh meetup. You moved away and you’re still putting out ads for us. I appreciate that.

[00:44:52] Daniel Hinton: My credits.

[00:44:54] Steve Jeffress: Yeah, we got a good group there. But yeah, so 21. 6 bug, I don’t know, you know, I, I think about what do I want to work on?

[00:45:00] Steve Jeffress: Like, how do I want to contribute to Bitcoin? I think the best improvements to Bitcoin code are ones that actually solve bugs, make things more efficient, adding features. Okay. But, you know, there’s, there’s an actual bug out there that’s going to happen in 21. 06. If you run UTXO oracle I print out a display with kind of like the progress or whatever, and one of the things in that display is the 32 bit time field in the block header, which is a problem, because in 2106, those 32 bits fill up with all ones, so we do need to figure out a way to get past that.

[00:45:34] Steve Jeffress: And I, part of me is like, Oh, you know, we got plenty of years to do this. Like, who cares? But then I hear people coming on podcasts talking about like, well, we have to hard fork anyway because it’s 2106, therefore we should consider these other changes. And I feel like this is a, one, it’s not really accurate and also it’s kind of dangerous.

[00:45:52] Steve Jeffress: So I was thinking maybe I should just start kind of like working on this problem. And I’ve seen Greg Maxwell and a couple of people post. very kind of like easy, simple solutions to this. And so I don’t know, I just thought I’m probably going to start working on that problem next.

[00:46:09] Preston Pysh: I love it. You’re describing like pork barrel, like politics, but for Bitcoin updates where people just want to throw in everything, right?

[00:46:17] Daniel Hinton: Like now we want to drive deep down in the weeds.

[00:46:20] Preston Pysh: That’s awesome. Okay, guys, I really enjoyed this. I learned a ton. I am way less skeptical as to the vulnerabilities to this after talking to you guys than going into the conversation, to be quite honest with you. I’m very curious what people listening to this what their opinion might be afterwards.

[00:46:37] Preston Pysh: Make sure you guys comment when we release the show on Twitter and let these guys know your thoughts or concerns and highlights because this is really exciting. It’s an amazing discovery and kudos to you guys for pulling this off and writing the code that people can go and run right on their nodes and never have to reference an exchange ever again and know what the price of the dollar was at any moment in time.

[00:46:58] Preston Pysh: So, bravo! Give people a hand off to if they want to learn more about you or more about this. Steve, go ahead and throw it out there first.

[00:47:06] Steve Jeffress: You can find me, I’m @SteveSimple on Twitter, but go to the website utxo. live. You can click on Oracle at the top there and open the Python script. You don’t have to go to GitHub to look at software.

[00:47:20] Steve Jeffress: It opens in a website. I don’t love GitHub. It’s a scary place. You can open utxoracle. py. In your browser on the site, utxo.live and just read it.

[00:47:32] Preston Pysh: It’s written in English, mostly on Twitter.

[00:47:36] Daniel Hinton: I am @DanielLHinton and yeah, I just encourage people to participate in your life. You know, if you’re interested in Bitcoin, run a node, go to a meetup, think about it.

[00:47:47] Daniel Hinton: Come up with ideas that you think can make Bitcoin better or use it differently. Cause yeah, there, there are a lot of very fun things. And honestly, this has been a very enjoyable process. It’s so, so much fun hypothesizing and theorizing about these things. And yeah, I’m just glad I get to do it with such good folks.

[00:48:02] Preston Pysh: Gentlemen, thank you for your time. This was a blast.

[00:48:05] Daniel Hinton: Thanks, Preston.

[00:48:06] Steve Jeffress: Thanks, Preston.

[00:48:08] Preston Pysh: If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it’s something that helps others find the interview in the search algorithm.

[00:48:36] Preston Pysh: So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I’ll catch you again next week.

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