Max Hillebrand is an economist who started reading Keynes when he was 9 and got into Bitcoin at the age of 16. He says “Bitcoin is for everyone”, even his grandmother runs a Lightning node. First we discuss Bitcoin and then Max is debunking misconceptions about the Lightning Network.
- Cantillon effect
- Gold, silver and bitcoin
- how to reduce bitcoins volatility
- Satoshi never mentioned Blockchain only Timechain
- Censorship resistant time
- Lightning Network
- Malicious actors
- Punishment transactions
- Watchtower services
- Static channel backups
- Autopilot feature
- Atomic multipath payments
- Digital scarcity
Lightning Network FUD
Max addresses the following criticism about the Lightning Network
- The Lightning Network is built for small payments, therefore I can never send bigger payments and I have to change to the root layer and do it with a Bitcoin transaction.
- Lightning network is too complex for the non technical people to use – for instance you have to open a channel manually and fill the channel before you can use it, then you might have to open a second one for a bigger payment.
- If one of the nodes that route the payments turns off its service, I loose my funds.
- Lightning funds cannot be backupped, there is no seed to recover funds.
- Lightning Network is a centralized solution – there will be nodes that are big and route payments, they can control and censor payments like a bank, which is completely against the fundamentals of Bitcoin.
- The Bitcoin Network will not be feasible anymore. If all payments are in channels, there will be opening and closing transactions on the base layer only. Miners will stop mining because the transaction fees they earn will be not enough to pay the costs of mining. Bitcoin will fall apart.
- If I open a channel today and close it in 5 years, the fees might be higher than today and then I might not have enough funds to pay for closing the channel.
- Funds in my channel will shrink, if fees become higher.
- How to get inbound liquidity.
- Will node providers be regulated?
- You have to be online all the time to send and receive payments.
- I need to have Bitcoin before I can use Lightning, how should the people in poorer countries be able to participate?
- The Lightning Network will be too slow and complex to grow and it does not scale.
- Lightning Network is an Altcoin.
Support the podcast
ShownotesRecording Date: June 12, 2019
- Video: Bitcoin Security: Bubble Boy and the Sewer Rat
- The Internet of Money, Vol 1 by Andreas M. Antonopoulos
- The Internet of Money, Vol 2 by Andreas M. Antonopoulos
- Lightning Network Whitepaper
- Mastering Bitcoin by Andreas M. Antonopoulos
- Grokking Bitcoin by Kalle Rosenbaum
- Optech Newsletter
- My interview with Rene Pickhardt
Anita Posch 0:32
Maybe you've heard one of my last podcast episodes, the interview with Team Satoshi. Now the Satoshi freeathlon is history. We made it, we made 357 kilometres swimming, cycling and running from Switzerland to Munich in Germany to raise positive awareness for Bitcoin and we even made it into some magazines and we had great responses from you people out there. And our new challenge is for everybody. It's a smaller one, you can choose how long and what you want to do. You can walk, you can run. It's the run for Hal Finney, he was a runner, and he ran his last half marathon on the sixth of September. And that's why we do this and we want to honor Hal Finney with this run. Afterwards I visited Alpbach in Tyrol, because I was invited to do a panel moderation on the topic of decentralized and centralized cryptocurrencies, or let's say digital currencies. Now that I'm back in Vienna, I'm organizing new podcast guests new interviews. And next week, I'm going to the Baltic Honeybadger conference in Riga. There I will also do new podcast interviews for you.
In this episode I talked with Max Hillebrand. He is a great supporter of Bitcoin and open source software. Even his grandmother runs a lightning note, we talked about the most common misconceptions about the lightning network. You will find additional information and links that are mentioned in this talk in the episode description on the website, bitcoinundco.com or in your podcast player. If you liked the episode, please share it on social media and subscribe to it in your podcast player. And a reminder, if you want to listen to my German episodes, go to Bitcoinundco.com/de/ . And now let's start
It's hot today in Berlin and I'm sitting here with Max Hillebrand, who will do a talk at the Unchained Convention about privacy in the lightning network later this week, Max describes himself as an open source entrepreneur and Bitcoin enthusiast. Hi, Max. Thanks for your time.
Max Hillebrand 5:11
Well, thank you very much, Anita. I'm really looking forward to this podcast because I enjoyed all the previous episodes very much.
Anita Posch 5:16
Oh, you listen to it. Are you for sure. Oh, thank you. Max, what is an open source and entrepreneur? Can you explain that? What are you doing?
Max Hillebrand 5:26
Yeah, good question. Well, I love to work on open source projects that share knowledge and information freely with everyone. And that everyone can change source code and the software can look into the hardware. And I think that is very important to really be in control of your own computing power. And open source or Libre software is the way to go here. And the thing is that I personally can't code which kind of sucks and I still have to learn this. But I can still support open source projects in different ways and without directly contributing to the code base. So that is with with education or with support or with high level decision...or roadmaps. And I try to do this not just with one project but with as many projects as I can that all focus on libre open source Bitcoin software and hardware.
Anita Posch 6:09
Okay, but why don't you say then that you're a Bitcoin entrepreneur?
Max Hillebrand 6:13
Well, that is a good question, because most of the projects I work on are Bitcoin, but I guess I enjoy open source in general. And I wouldn't mind working on open source software, or hardware that is not Bitcoin, for example. I'm a huge fan of GPG encryption, and that has nothing to do with Bitcoin, right?
Anita Posch 6:31
Yeah. But in a way it has, as we all know.So they like sister and brother.
Max Hillebrand 6:37
Exactly, pretty much.
Anita Posch 6:40
And when did you discover Bitcoin? The first time when did you hear about it? And when did you start getting really involved in it?
Max Hillebrand 6:48
Well, I think I heard it a couple times in 2012 13. And that time, and I never really got into it. I never really had this click moment. But then in early 2016, I watched my first video, Andreas M. Antonopoulos, the bubble boy and the sewer rat, which was one of his first videos and talks, but it's to the day his best one. So he really pulled me in with this awesome talk. And I spent the whole day just listening to Andreas and the next day, I bought my first few Satoshi, and ever since then I could not leave the rabbit hole.
Anita Posch 7:18
Okay. How old were you in 2012?
Max Hillebrand 7:21
Good question. How old was I then? 16.
Anita Posch 7:24
Wow, okay. So early. And the story about the sewer rat is also in the book The Internet of Money, "Das Internet des Geldes" So you listeners, you can also read it? Yes, very good. And what are reasons, why you do think we need Bitcoin or what are the reasons why you're so enthusiastic about it?
Max Hillebrand 7:46
Well, Bitcoin is Libre sound money and it is a tool to achieve freedom and to defend yourself against theft and coercion. And the monetary good is a very important one in any economy and when the monetary good is based on, well immoral things like as fractional reserve or inflation or other things to steal from people, then the entire economy and society some hopeful stone, the jitter and with with a Libre sound money and that could be gold that could be Bitcoin or any other tool that we come up with that might help us in this regard. And I think that the far reaching consequences of sound money that is censorship resistant permission less and invulnerable to coercion is extremely powerful and liberating. And I enjoy supporting this project because mainly of this reason.
Anita Posch 8:35
Do you think about this, I mean, in the means of like, also for us in the Western world, or maybe for other countries even more?
Max Hillebrand 8:43
Oh, well, in general for everyone, but definitely for, for those, let's say, third world countries, and much more, because well, over the last 200 or 100 years, we've lived on a fee on standard that was mainly controlled by Western countries, especially the United States and later than Europe. This means that we, as a society here in these Western countries, have benefited from the printing of money at the expense of those that received this newly printed money later, the county on effect. And so I think that vast majority of the value transfer that we've seen over the last hundred years from these these beautiful regions here in other parts of the world, to the United States Empire, and the European Union, is very much the, well, let's say, a, not the cause, but the effect of having such a weak fiat money. And I do believe that we have a partaking in great amount of theft, and that we have really have not live peacefully with our neighbors. And that is not good. So definitely the victims of the US dollar and euro Fiat standard are very much so these these regions in Africa or China, but in general, because for everyone.
Anita Posch 9:51
So the theory where that comes from think is the Austrian national economics. Have you studied that? or Why do you know so much about it?
Max Hillebrand 10:01
Oh, yes, economics is always been my passion. It's kind of embarrassing, but I started reading Keynes when I was nine years old. It was General Theory of economics, because I just started working them and hustling. And I was like, I need to understand a bit about economics and entrepreneurship. And so of course, the first thing you Google is the Keynesian the mainstream stuff. And so I picked up a spoken I was like, this does not make any sense whatsoever. So either I'm, I'm not smart enough. Either. I'm not smart enough to understand this, or just the theories fault. And so I kept on studying and studying and studying and until eventually, a couple years later, I found Mrs in high IQ especially. And then pretty much at the same time where I got into bitcoin, I also started reading Rothbart, and that really helped me a lot with with thinking about all these very non trivial subjects as economics, but I'm a economist, first and foremost,
Anita Posch 10:49
but how did you? I mean, with nine, who did anybody guide you? I mean, did you have a grandfather or grandmother who was into economics? or Why did you research that with nine?
Max Hillebrand 11:02
Well, my mother supported me greatly with with the first job which was just tending on newspapers. And and she really showed me the values of having a world providing the service for others and removing problems for others. And that is, that is something very profound, and of course, at the heart of entrepreneurship and economics. And so when I started there, I didn't really know much about how to actually do that, and really be productive in the marketplace. And so I thought, hey, I need to read some books on economics. And it was it really helped me in the sense that I that a more and more understood this, of course, the Keynesian part, much, much less than the economic, Austrian economic side of it. But it definitely helped me in a lot of these ways, and mainly out of passion and and the thrive for knowledge, which I've always had.
Anita Posch 11:48
So and then Bitcoin came along. Oh, yeah.
And did you fall into the classic little rabbit hole? I mean, how did you study Bitcoin? And what was the first project you were in?
Max Hillebrand 12:00
Oh, yeah, the rabbit hole was pretty intense. And I'm still caught in it. And it doesn't really release its grips. So that it's it's very time consuming and energy consuming, and most of my focus and attention in 2000, or ever since those 16 years on this project. To start out, I really just was very, very curious about the monetary aspects of this. Because again, having this Austrian economics knowledge, even before I was into bitcoin, I understood the power of a unchanging money supply. And so I really understood that it was important, and I didn't really understand how it was achieved. And so I got much more involved in the economics, and especially the technical side, which is the area where I really needed to learn much more. And so the first project that I'm still continuing is education, and just being becoming more knowledgeable about all this very important stuff. And then I wrote a short little paper about how to do project finance, with with Bitcoin, because that is more of my background in finance, as well. And here, kind of got carried up in the Ico bubble thing a little bit, until I realized that the incentives don't really work out and that there are some some major flaws with having such a type of funding structure. And then in after the user activated soft work with seg wit and the no two x defends against the hard fork, I really understood that Bitcoin is something big and very legit. And that with this, then we're moved completely away from all the bitcoins first and foremost, theatrically to them focused on Bitcoin full time.
Anita Posch 13:31
I, you, you you live with Bitcoin only? I've heard
Max Hillebrand 13:36
Well, yes, I mean, gold, silver, and Bitcoin, I think is a good portfolio, mainly silver for small purchases. And I try to use Bitcoin as much as I can. And I mean, mainly, I try to hold as many Bitcoin as I can, and rather than as little field as I need to, because holding a currency and not spending it gives, it's actually its power, and its value. And so if you hold fiat currencies, then it's an active support of the VN system, which I do not think is morally righteous.
Anita Posch 14:03
Okay. I think many people don't understand that.
I mean, I understand if you hold fear to lose your money, but other people would say, but if I hold Bitcoin, then I also lose money because of its high volatility. But we know that actually, if you really would live with Bitcoin, like get some burn some pay something with it, then you don't have this high volatility, because at the moment you spend it, it's the same, it's the same time actually, so
Max Hillebrand 14:32
exactly, it's the it's the cost average method of regularly buying I mean, I'm a big advocate of buying Bitcoin every Monday. Bitcoin Monday have become money Exactly. And and then the thing is, when you so when you buy it regularly, if you still have affiliate income, this reduces the volatility of your entry into the market. And then if you sell it every day for your groceries and your clothes and enter your housing, then this is a exit of the market regularly. And if you have both a regular entry and regular exit, the volatility is very little, actually. And I mean, guess the long term volatility is great, but mostly to the upside, right? And that's, I mean, it's, it's, it's doable, if you really need to attach yourself there are financial tools to do so with derivatives or short positions and options. But I personally don't really ever needed to do that. And I personally value my wealth in Bitcoin and one bitcoin is one bitcoin. So in that sense, it's not volatile little Mm hmm.
Anita Posch 15:32
So you're involved in a lot of projects, also around the lightning network at the moment, you have a deep interest and knowledge about the technical side, too, because you recorded videos about your type road, multi CIG, and so on. So now, let's move from the topic of Bitcoin more to the lightning network. Or for some people say it's the same I mean, it's actually the same. We agreed to do a lightning network fat past episodes, like fat stands for fear, uncertainty, and doubt, or denial. So now we're going to throw arguments against lightning network at you, and you will destroy them. But before, please tell us what is the lightning network? How is it working? And what is its use case?
Max Hillebrand 16:19
Yeah, so lightning network is a very smart way of transferring the ownership of Bitcoin without touching the parent time chain. So it's a way of securing unconfirmed transactions, basically. And we do this with the power of something called payment channels, which is a specific will spit coin script quote unquote smart contract that defines who can spend these Bitcoin on the time chain again. And with with this bit, well, basically, it's a to have to multi signature, which means it's a non simulated shared ownership of these Bitcoin with someone else. And then collaboratively, we can update who owns how much of these Bitcoin of this UTXO onchain in a way that that is very cheap, very instant, as fast as we can sign and broadcast transactions. So this, this gives us a lot of speed, because we no longer have to tell every full node about this change. It's not on the time chain, right. It's it's a non published signed transaction.
Anita Posch 17:18
You know, they say time chain, and you mean blockchain?
Max Hillebrand 17:22
Well as Satoshi Nakamoto actually never mentioned, once the word blockchain, he said in the white paper, a time stamping server, and in the code, there was actually in a in a comment, it was called the time chain. So actually, in the version 0.1 of Bitcoin, there's only time chains.
Anita Posch 17:39
So do you want is this a way to differentiate the Bitcoin blockchain? Like from the other blockchains?
Max Hillebrand 17:46
Yes, I really think so. Because somehow blockchain really took off and I don't know why, because it's just a slow database. But but then all of a sudden, I think we've we've tapped into that, because actually, the real innovation of Bitcoin is not that it makes blocks is that actually orders transactions in a provable time following so we know that one transaction came after the other. And that is extremely powerful. So the innovation is actually to have censorship resistant time, so to say, and I mean, we could make an entire episode of just what is time at how's it applied in Bitcoin?
Anita Posch 18:20
So I think the innovation was also combining things like game theory, peer to peer networks, cryptography, mining, etc. And, and, and the time chain.
Max Hillebrand 18:30
Anita Posch 18:32
Okay, let's start with the lightning network far.
So some people say, the lightning network is built for small payments, therefore, I can never send bigger payments, and you have to change to the root layer to the Bitcoin blockchain and do it with a Bitcoin transaction.
Max Hillebrand 18:49
Yes, that is actually a very good point, because there is a fundamental restraint, that we the lightning network, we route payments through all different payment channels. This means if Alice wants to send money to David, and Ellis has a channel open with Bob, and Bob has a channel open with Charlie and Charlie has a channel open with David, then Ellis can send a payment or route a payment through all of these payment channels to eventually reach David. But the thing is, if these payment channels are rather small in their capacity for a, which is the UTXO, on the time train, this multi signature, how much value that has, for example, if all these channels have 0.5, Bitcoin value or capacity, but Alice wants to send one bitcoin through this channel, it's simply impossible, because he doesn't have enough Bitcoin there. So that is a problem. And it actually really is. However, I think we can solve this mainly with efficient allocation of the liquidity inside these payment channels. So on which side of the channel is actually the money, I think that will help a lot. And we can do automatic rebalancing, and all these fancy stuff. And also something that is called atomic multi path payments, which basically means we send one payment from Alice to David. But we send it not throughout one route through the channels from Ellis, Bob, Charlie David, but maybe also throughout a second round with Ella's Eli and Mary them to David, in a way that either both routes succeed, and the money is in David's hand, or they both fail, and the money remains with Alice. That's the atomic part. And this means we can all leverage the capacity of several payment channels in order to send a payment. So if for example, Ellis has two channels in this route that have each 0.5 Bitcoin, she can then actually send one bitcoin by sending half of the Bitcoin through the first route and the other half of the Bitcoin to the second world.
Anita Posch 20:42
That, will she have to do this manually?
Max Hillebrand 20:45
Or no, hopefully not. I mean, this is this is the tool or this is where we have software as a tool to automate all this. And I really believe that, that we can get this quite seamlessly in the background. And it hopefully will be a standard. So if you if you don't, well, if you're very first from one route, and if this one road does not have enough capacity, you just add new routes more and more as and as soon as you have enough capacity, you sent the payment. So I hope this is done automatically without even the user noticing it.
Anita Posch 21:15
Yeah, because that's also one of the criticisms about lightning, that it's not so easy, non technical, people cannot use it, because you have to open one channel manually, then you have to know you have to find the liquidity into the channel, then maybe the liquidity is not high enough to pay something. And many people say that's not usable. But I guess the goal is for all the developers and UX people to develop tools that are very, very easy to use.
Max Hillebrand 21:44
Exactly, absolutely. I remember when I first had my first lightning node in December 2017, there was nothing, there was absolutely nothing. There was one implementation by blockstream. That was all command line interface. And it was buggy as hell it was, nothing worked. When I've been first tried to route a payment. I think it failed 19 times or 20 times. But then eventually it succeeded. I but it was all command line, I had no clue what I was doing. It was reckless as hell, but it worked. Even back then. And as you say, Now, over the last one and a half years, we have built so many outstanding tools that are very intuitive, very user friendly already. And we're just getting started. So something like the zap wallet or the Zeus wallet, which are just really beautiful wallets. I think one of the most beautiful you bonded user experiences that we have so far in Bitcoin in general, not just for lightning network wallets. So I think we can get there. Absolutely. And there will be further improvements and further improvements of the UX. And the question is, how fast can we get there? And the cool thing is, you don't need to wait for anyone. If you want to use the software, you can, you can do so for more than a year. Now. It's just a question. How much do you want to learn? How far do you want to get in depth? And if you want to sacrifice your time and attention to really learn this? You can? And then it's possible to use magic internet money.
Anita Posch 23:03
Yeah, but not for the average people.
Max Hillebrand 23:05
Well, my grandmother has a lightning network node. Okay.
No, I mean, yes, like we're getting there. It's definitely still early and reckless. I mean, this is probably still early beta. The best Yeah,
Anita Posch 23:18
but it needs like, like people like you and me and others who do a lot of things and try and develop. So otherwise, things won't change.
Max Hillebrand 23:28
Yep, exactly. Exactly. This is this is something that we can work on, and that we are working on. Yes, it will take time. Yes, it will take a lot of developers and UX designers and all this stuff, a lot of teachers, but we will get there, we will make it.
Anita Posch 23:43
So is it possible that I lose my funds in a channel when somebody else closes the channel or something like that.
Max Hillebrand 23:50
So there are several ways of closing a channel, the best way is to cooperatively where Alice and Bob both agreed to close the channel at the most recent state. So they probably the last signed transaction that they've made, and they disregard all the previous channel updates, and just put on the latest where it's actually shows the correct property rights of both Allison pop. And if they do so then it's a to have to multi signature cooperative close. So everything's peaceful, everyone gets their money really, really quickly. Now, there might be a case where, for example, Bob is offline, he's on vacation, or his node crashed or something. And Alice is the only one left online, but because you know, no longer can receive payments through this channel, and she wants to get this liquidity elsewhere, she would have to close this channel to then later open it again. And here, this closing requires only Ellis's signatures, and not Bob's signature. So it's a one have to spend of this multi CIG wallet. And this is only possible after the so called dispute resolution time. Because it this is no no longer cooperative, right? So Ellis might publish a old state ID that gives her money and that Bob previously has signed, but since then they've made for the transactions. And if Ellis would publish such an old state, then Bob would need for example, one day or one week, or one year worth of time to check if this one sided clothes is actually legit. And if it is with the latest state. And if this is the case, then Bob will just ignore it. And nothing will happen until this one week time period, for example, and Alice can take the money. But if Alice would close the channel previously, or even with an old state, then Bob has the opportunity of showing to every full node on the metric that this is actually fast. And then he can punish Ellis by by taking her money as well.
Anita Posch 25:41
But what is Popeyes?
Max Hillebrand 25:43
Yeah, that is a good question. Right? So if Bob dies, and Alice Well, if I was not malicious, she will just close the channel to the most recent state, right. But if Alice is malicious, then she can actually publish a old state, right, that gives her more money that she than later would have sport has spent. And the is if Bob does not respond within the time period, let's say one week, then yes, Alice can close the channel with a previous state. And this might lead to Bob actually losing money that he's previously received from Alice. So yes, that is that that is really that is the case. And I guess that that that kind of has to be the case, because we deal here with unconfirmed transactions. And because they are not confirmed, they're not verified by every full node. Right. And therefore, we really need to make sure that when we eventually closed the channel, that then the verification that is done by the full node is actually correct. And every full node here needs to have to support off the two individuals within this channel in order to find out is this actually the most recent state? Because if Bob does not tell a full nodes that this is a old state, how should they know? I mean, the old state has every valid signature, right? Because it was a valid transaction at that point. It's just been spent in the meantime, so forth in the eyes of four notes, this is a valid transaction. And Bob now has to prove right innocent and till proven guilty, basically, that he that this is theft, and that he can prove them easily crypto graphically. But he has to do so.
Anita Posch 27:08
But actually, that's like how it is now. So if somebody dies, somebody else has go to the bank account and deal with all the stuff. So I guess that might be the same in a few years with lightning. What Bitcoin bitcoin wallets?
Max Hillebrand 27:22
Exactly, yes. So for one thing there, there are services like watchtowers where there's this revoke or the Yeah, the punishment transaction, the real proof of what are what is the actual state that this this can be outsourced, so to say to another server, where everything's encrypted and rather private, but then in the case that a old state is updated or published on the time train, that then the Watchtower can actually defend Bob and give him his money back his rightful money. And there is a first implementation, as far as I know, in l&d version 0.7 that is being worked on right now. But the really major improvement that we will need for this year to make this even better, is the so called LT protocol, which is a drop in replacement for just the channel update mechanism. So just how can Alice and Bob update channels, and it's, it's a quiet brilliant solution in a way that we no longer need this punishment transactions, but we just need to say this is actually the right state, and it's, it's much more efficient, it's much more or less technically complicated, in size efficient. So this will help especially for, for example, these Watchtower services, to make sure that even in the case where someone tries to maliciously close to channel two, then still, like get everyone the money that he rightfully owns.
Anita Posch 28:43
Okay, another argument is, lightning funds cannot be back up like you can't have a seed to recover funds.
Max Hillebrand 28:52
Yes, and no, in the early days, that was absolutely the case. I think in version 0.6 of the LMD, a client, they introduced staff take a channel backups, which is a very tiny file with just a somewhat secret. And with this file, in the case, where you crash your lightning node, for example, where the database gets corrupted, as long as you have your Masonic 12 words, and your static channel backup, then you can I think it's a one sided close of all the payment channels, but with the most recent state. So this means then that you that at least you can close the channels and get your money back. At the current implementation, it's not yet possible to do a backup of your lightning network node, so that you can import the backup and keep the channels open, that is not yet possible that it's being worked upon, I think we need to do to make this happen easily. And then. So it's it's still reckless, I mean, this is not just a random hashtag, this is actually reckless, and people have lost money. Thankfully, not either was quite glad about that, and also towards lost so far, but it is possible, but the static gentle backups are at least a first step to do this properly. And we can further improve on this. Okay.
Anita Posch 30:10
Then there are more so the the broad argument, like lightning network is a centralized solution, that will be nodes that are big and drought payments, they can control and sensor payments, like a bank, which is completely against the fundamentals of Bitcoin.
Max Hillebrand 30:27
Well, that would be very much against the fundamentals of Bitcoin, right? Absolutely. If we have censorship, then it's no longer really Bitcoin and something else, right. So the cool thing is with lightning is that it is actually trust lists and censorship resistant, it just depends on how you use it. Of course, there will be no it's that specialized in the service of routing payments, that's a very specialized niche task, just like mining Bitcoin blocks is a very specialized in each task. And so I do believe that we will see division of labor, where there will emerge some notes that are will tailor made to routing, and I think we see this or something like that refill, or like Alex Ross, where see olds, or maybe a sink, they these there are notes that really relative many, many payments. And while you might have a channel to them, so that you can send and receive payments through this channel. But of course, this does not mean that this has to be your only channel. And you can have many, many payment channels open. And you can have some of them open to these quote unquote, big routing nodes. And then you can have, you can have some open to your friends or a local bar that you often go to or some other places. So the cool thing is with lightning network is that you yourself as the end user, choose which network topology you want to connect to. So if you want to connect only to these high liquidity routing hubs, then you can do so and maybe if you only do that, then you can get really short routing distances, and very efficient payments. But of course, at the risk that the central hubs could shut you down and could close this channel. But of course, you can at any time open a channel with anyone else without asking for permission.
Anita Posch 32:01
So actually, this sounds a little bit like in Bitcoin at the moment. So you can use custodial services like the big exchanges, or if you want to be really have your own freedom and your own node and your your own Bitcoin, your keys, and you hold your keys. So it sounds a bit like that if the mainstream or the people of the streets come into lightning or use lightning, I guess they will just use a software or wallet that does this on its own. And they don't have open notes. channels.
Max Hillebrand 32:34
Yes, exactly. The autopilot feature absolutely will come it needs to improve.
Anita Posch 32:39
This is called autopilot feature. Okay,
Max Hillebrand 32:41
exactly. Yeah. So the autopilot selects with some algorithm which nodes are profitable or good to connect to that reduce? I think the the metric is called the network in between this. So how many hops Do you have to take to reach any part of the network? I think, and you can optimize for this. It's it's there are different algorithms that do that. That's kind of a solved problem. In computer science, now, we just have to apply the solution to lightning. And we cannot we will. And then this will take away a lot of the human choice on which channels to open. And as we say for the people that want to have this intuitive one click thing. You can say just open 10 channels for in total 0.1 Bitcoin and do what do whatever. Right, this could be done. Right. And they're already implementations that do that. I think Renee Picard has just recently published a autopilot plugin for see lightning. So this means that you can use these auto pilots today. But if you don't want to, you don't have to, for example, I don't, all my channels are very private, over Tor, only two known identities that I have there GPG keys, and I've got direct communication to very much not a centralized hub. I'm not connected to any of these big routing nodes, but I can still send and receive payments very easily, very conveniently.
Anita Posch 33:53
So you actually connected to like your friends, in a way. Exactly. Yes. It's a friendship network.
Max Hillebrand 34:00
Well, yeah, I really do believe that in a couple of years, we can say, oh, Max, that is that old friend of mine. I have a lightning network channel with him open for 500,000 blocks. he's a really good guy, not a cookie. Yeah.
Anita Posch 34:13
Before we continue a short message from my longtime show supporters at cat wallet. Thank you, we'll be back soon. Do you want to keep your Bitcoin safe long term, the card wallet is the best cold storage solution retail customer can get. It's easy to use and completely offline. no hassles with updates, passwords or hacks. I gave one two friends as a wedding gift. They are Bitcoin newbies, but was the catalyst if they can hold up Bitcoin securely. And the best thing is, my friend said card wallet.com made a special offer for all the listeners of my podcast. If you go to WWW dot card wallet.com forward slash Anita, you'll get 20 percent of the price. So go to www card wallet.com forward slash Anita now and buy a card wallet with a 20% discount. So the next thing, the Bitcoin network will not be feasible anymore. If all payments are in channels, that will be only the opening and closing closing transaction on the base layer. So the miners won't get any mining fees anymore. What do you say to that?
Max Hillebrand 35:32
Well, it's always supply and demand, right. And the price that is being paid will depend on the individuals making this transaction. So I think it's difficult to say that all individuals, which will stop paying because then miners won't provide the service, right. And so if people want to have block space and censorship resistant settlement of these lightning network channels, then they will be willing to pay. And then white miners will be willing to to invest in mining hardware and software. So I do believe that actually, with lightning network we create, the value of one single transaction is much more powerful than for example, if you want to buy a coffee, and you want to do so on chain, then you will, let's say the coffee is like five bucks. So you probably not going to pay more than 10 cents, 50 cents, maybe for this transaction, right. On the other hand, if you open the lightning network channel, and you know that this will be open for years to come, and that you will be making hundreds, maybe thousands of transactions through this one channel, then you are more willing to pay a higher price for this, right? Because if you have, let's say 100 or 100,000, Satoshi channel open, and you make many thousands payments across this, well, if you close it, then the fee that you pay is not just for this one coffee transaction, but it's for hundreds of coffee transactions. And so maybe you're willing for this closing transaction to pay much, much more than anyone else would.
Anita Posch 36:51
But if I open the channel now, and I found it with let's say 100,000 Satoshi. And I want to close in five years, and the transaction fees over 100, then I can close it. So what happens then?
Max Hillebrand 37:08
Well, it would be dust in that sense. We already have that today. So dust is well they're different types of dust. But dust basically means it's a economically infeasible to spend this UTXO. So for example, a average one input one open transaction, if you pay, let's say, one Satoshi provide fee, I think is already 120. Satoshi is in total for the fee. So if you have let's say 100, Satoshi in this UTXO and you want to spend it, it does not have enough stories in order to pay the minor. Right. So you would have to put an additional input into this transaction, right that maybe has 10,000. Satoshi. And then you have in total 10 or 10,100. Satoshi, and then you could spend the su TXO. But of course then it doesn't really make sense, right? Every time you would spend this ut XO it would cost you these 120 Satoshi, but it's only one hundreds of dollars worth. And there are many of these UTM souls out there and full nodes won't won't really them anymore and save them anymore because they just are expendable. It's not economically feasible to spend. And that will happen as transaction that direct payment of transaction fees rise that will happen with more and more of these zones.
Anita Posch 38:18
What would be a clever way to open channels at the moment, like many small channels, and then get get into the risk of losing them? Because you can't close them?
Max Hillebrand 38:27
Yeah, right now we're at this really awkward stage where you want to have a good guy a good connection to the network. So you want to open rather many channels. I mean, I guess at least 10 or let's say eight to 10 channels, I think is a good minimum. And then you can go further if you want. And then the question is how much do you want to put into this wallet? Right? Because let's say if you want to have 0.1 Bitcoin 10 million Satoshi, then you might be able to open let's say 10 channels with each 1 million Satoshi that is rather large. That's what 30 euros for every channel opening. So still very decent. And then well, but but this would mean that currently without these atomic multitask payments, your payments are limited to the amount of the channel 0.1 0.01 Bitcoin, right. So this limits the maximum amount you can spend within one transaction currently, right, we have fixes for this. But on the other hand, right, if you only open one channel with 0.1 Bitcoin of really large one, then you might be able to send many payments, right or large payments, and you won't have issues with the dust, right that you can no longer close it. But you only have one connection to the network. And this will decrease your relative ability and the ability to send and receive Bitcoin. So it's a very difficult trade off here on how many channels to open with whom. And to be honest, I don't really have a good solution for this.
Anita Posch 39:48
I think at the moment, there's also another problem, that's the problem of enough liquidity. So for instance, if you're a event organizer and want people to pay with lightning, then you have to to have the lightning channel funded with a lot of Satoshi seen it is a problem. I mean, that's basically I would need to get money from somewhere to be able to organize an event that people can pay for
Max Hillebrand 40:15
what you need to get inbound liquidity, which just means you need to have a payment channel where there are Satoshi on the other side, I because if there are situations on the other side, then people can start sending these Satoshi to your side of the channel, which means you receive a payment. Right. And there are different ways that you can get the liquidity on the other side of the channel, either as you said, you you ask someone to please open a channel to you with all the capacity on their site. And there are many private individuals that do that. And there are many companies that do that.
Anita Posch 40:46
Okay, so they don't have to give me or send me the money, they just have to open a channel with me with the liquidity in it.
Max Hillebrand 40:53
Exactly. Okay. They don't have to give you money, but they have to commit money into your channel. And the cool thing is for them, this might be a service that they provide because again, you can charge a routing fee for providing a service. And so for example, I think you know, the the Bitcoin Rabbi with the bill Bitcoin book. Yeah, exactly right. And so he was selling this book, and he didn't have enough liquidity on the other side. So for example, Matt Odell from Tales of the crypt, he has a novel and he one of the biggest in the network, actually, and he connected a channel to the Bitcoin rabbi. And of course, you have to pay the unchained fees. And he had to like, quote, unquote, like committed this look, this capacity, this liquidity to the Bitcoin rabbi. But because then the big contract, I started selling books and books and books, he rented a lot of payments. And he could charge a small fee for every of this route. So after like the first couple weeks, it was actually profitable for Matt Odell to open this channel to the Bitcoin rabbi, because the Bitcoin rabbit is a good entrepreneur providing a good service and receiving a lot of payments. And then here, it was very profitable for metal actually, to open this channel. So this is a business model.
Anita Posch 42:03
Yeah. I also heard that it might be the fact that those node providers or call them will be needing a banking licence or something, or will be regulated maybe?
Max Hillebrand 42:19
Well, we don't know. Right? Yeah. bureaucrats like to change the rules often. And so the thing is, it very well could be but I don't think it would be a smart thing to do. Because first and foremost, it's non custodial. Right? If I open a channel to you, and it's it has all the capacity on my side, then you have no money at all. And if you forward it to me, you also don't give me custodial custody of the money. Right? If you roll the payment through this channel, then you I only get the money if I forwarded on its atomic, I cannot steal the money. And therefore it's non custodial. And so far, the bureaucrats have not yet regulated not work non custodial individuals holding their own money without any one person mission. I'd so hopefully they will continue on this peaceful path. But it might very well be that they start censoring and regressing against lightning network operators. Now, what do we do about it? We'll run your note behind tour and open private channels and nobody will know that you have lightning node. So the enforceability of such a stupid rule is entire other question. And I don't think at all that it is enforceable, but this doesn't mean that the Spirit Kratz won't try. And I don't think we've seen the brought the brute force that they want to apply it against, against Libra sound money. And I do believe that we will see many, many more regulations, not just for Bitcoin businesses, like exchanges that are heavily regulated already. But more and more for Bitcoin only businesses, and then more and more also, for individuals holding Bitcoin. I mean, we just have to go back, what 80 years or so where then the holding of gold for private individuals was illegal. I mean, that it's like they do this. And they I do believe will do this with Bitcoin as well. The question is, will we allow it? And will we tolerate this aggression?
Anita Posch 44:01
That would be another episode, actually, probably. So let's stick to the lightning network. There's another argument that says you have to be online all the time to send and receive payments.
Max Hillebrand 44:13
Yeah. So what you need to do when you send or receive or route a payment, technologically, it's on the same basically, then you need to sign a transaction. And this means that you would have to need the private keys online somewhere, and on a machine that can easily sign and then broadcast this transaction to your peers. And this process, of course, is it's an active one, right? So you need to actively agree to both send and receive and router payment. Yes. Is that an issue? Well, you know, I don't I don't know. Because more and more all of our devices are connected online all the time. And so I have a lightning node with the sink wallet on my phone. And it's running in the background, and it's just listening, Hey, does someone want to send money to me? If so, then it automatically opens and it says, Hey, you will receive money. And this all works in the background, and my phone is on pretty much 24. Seven, right? And it's always connected to the internet. So I think more and more we will no longer agree will be hopefully online. 24 seven, right? And then this is no longer much of an issue. But of course, it's a huge advantage of having Bitcoin on train that you can receive Bitcoin on train without even knowing that like that someone wants to send you money. So this is a great advantage of on train. And we'll just design of whole lightning network works on the second layer here.
Anita Posch 45:33
Yeah, at the Lightning Hackday in Munich, some guys built an offline, lightning ATM machine. And this worked. I mean, what whas that? Have you seen it?
Max Hillebrand 45:44
Yes, it's a beautiful hack. It's It's beautiful. It's really cool. But here, it's important to notice that there is there there three devices here. There's one the phone that is the user right, then there and that is online than their second is a server of the receiver, you're off the merchant operating this ATM, and the server is also online. And then there's a third device, which is this ATM, and only the ATM needs or can be offline. Okay. And it's completely off. Yeah. Okay. And then you use. So you either reveal the hash pre image, the secret that you get from the receiver, when he act, when you actually send money as a proof of payment, you can reveal this to the ATM, and then the ATM knows for sure. Okay, this is a secret that my server has generated. And it's a valid one. So now I the offline ATM knows that the server has received money. Or when then for example, the user puts in FIAT into the ATM, then the ATM will give a regular offline signature, just with private public keys that he has received the fiat built. And this signature can then prove to the offline server sorry, to the online server that the payment has actually been made. And then for example, the server could send a lightning network payment back to the user was just given cash to the ATM gets a signature, he proves the signature to the server, then he gets a lightning payment on his phone. But for the actual lightning payment part. They still need to be offline online. Sorry.
Anita Posch 47:14
then there's another one that says I need to have Bitcoin before I can use lightning? How should the people in poorer countries be able to participate? Now? I would say now.
Max Hillebrand 47:26
Yeah, very good question. I mean, of course you need Bitcoin, right? You need Bitcoin in order to send Bitcoin? Yes, all things work, right? But maybe, and then the question is, or, well, how much are the costs for one buying Bitcoin? And then spending Bitcoin and onchain? And so for buying Bitcoin this is of course, the the main question is liquidity for the trading pair. So for example, if we have, I don't know the Zimbabwe dollars, right, that hyper inflate or Venezuelan pesos, they will have a pretty high margin to get their hands on Bitcoin, they willing to pay marginally more of their fiat coins in order to get Bitcoin, because becomes much more valuable to them. And this will mean that in poor countries where there's less liquidity, unfortunately, most likely, this means that there's a higher spread, and that the individuals will need to pay more in order to get Bitcoin, well, I as an entrepreneur, then see a great business opportunity for providing the service of exchanging Pesos for Bitcoin, for example. So that might be a very profitable business that actually solves many problems. So that will be the first answer. And then for for opening a channel, I really do believe that the direct fees for any onchain transaction will be very high in the future, the total fee, including the indirect subsidy, the issuance rate of the bitcoin is already pretty high. And as more and more of this fee will be paid directly and not indirectly, I do believe that it's going to be much more expensive. And so assuming that we have, for example, $100 worth for direct payments on the chain. I mean, many people are not going to be able to spend that right? And then the question is, how can we be more efficient with the usage of block space. And I think we can do a lot a lot of improvements. And maybe it will be enough to only have one onchain transaction to for example, fund a channel factory, that then on a second layer opens hundreds of channels, completely off completely, not on the chain completely off chain, and instant, and cheap and everything. So there are many tools that we can make it more efficient to use block space, but block space is very rare and very precious. So I do believe that it will always be expensive as it already is. But I do believe it will be more expensive in the future. So that's definitely a problem. And we need to build better tools to solve it. Hmm.
Anita Posch 49:46
Okay, finally, we come to the last one, at least the last one I have, which is the lightning network will be too slow and to complex to grow. And it doesn't scale.
Max Hillebrand 49:57
Well, a lightning network is reckless. And the amount of growth we've seen over the last one and a half years is breathtaking. I mean, it's really insane. Like we add many percentage points on both capacity and nodes and channels. And we just continue increasing the so the the growth so far even we are in the quote unquote bear market has been outstanding. So I think that work is already here. I mean, we can use it and we can buy stuff with it for a long while now. And again, individuals can use it, will we ever be at the point where we can have quote unquote, mass adoption, or hundreds of millions of people every day are being on boarded? will hopefully soon, hopefully, we will be ready for it. But again, I'm think Bitcoin is, of course Bitcoin is for everyone. But I don't think Bitcoin is designed for the masses. I think really, Bitcoin is designed for the individuals that really need this tool. And the individuals that really, really need to get their hands on censorship resistant money, they are most likely willing to first educate themselves, right. And then second pay actually not just in their time and attention, but also in their they're assets, like for example, Bitcoin for the transaction fee, in order to use the sound money. Again, those that want to use it, it's here, those that want to wait until we have the perfect one click solution that does all the magic in the back end, they will need to wait a bit. And it might be more expensive might be I don't know, there might be other traders were waiting. For example, most of the channels that I've opened, I've opened with a one Satoshi per byte onchain fee, I mean, that's nothing. And they were confirmed pretty quickly, I that's a benefit of being early in Bitcoin of still enjoying here a high subsidy for block space and low usage of block space. So that I then have a pretty well set up lightning network node already, which I'm comfortable with keeping open for a long time, that that will then will help me in times where the on chain fees are really high, and I no longer need to open the channel. So it really depends, if you want to use Bitcoin on lightning, you can do it today.
Anita Posch 51:53
That also sounds like you don't give too much attention to the FUD. Because I mean, you say it's for the people who need it and who want to use it. And those who want to wait, and maybe those who don't want to wait, they can build their own stuff or use it in the way they want. So sounds also like much freedom in this. And if you don't want to use it, then don't do it.
Max Hillebrand 52:18
Exactly right. And if people don't really need it, they are not going to they're not going to be willing to educate themselves and pay so much. And and then this will just be bad user experience. Right. And I do believe we kind of saw that with with the merchant adoption in the early days that everyone wanted to, like buy everything with Bitcoin, and thus they were pressuring merchants to accept Bitcoin. But well, I think we saw that this wasn't much successful because the merchants did not really need Bitcoin. So they didn't really see a reason to educate themselves and pay the high cost. But I mean, in Venezuela and Zimbabwe and Greece and all these countries that have tyrannical governments and a feeling Fiat's system, then they really needed and they don't care about the onchain fees, they just need to defend themselves against theft on a inmeasurable scale. And pretty much any price is worth it.
Anita Posch 53:06
So Max, thank you very much. That was terrific. have I forgotten any big FUD?
Max Hillebrand 53:14
Good question. Oh, yeah, maybe that that lightning that triggers an Altcoin? Oh, yeah. Right. But that we also hear often hear that that lightning is something new on top of Bitcoin? And I don't really think so I Well, I mean, the the unit of account that we send throughout the network is still Bitcoin, right? It's not a new currency, it's not backed by anything, it is actually Bitcoin. And on the time chain, we actually have a UTXO, a regular unspent transaction output a coin, so to say, but every anything or the only thing that changes is that it's not locked up by a single public key, where a single signature can actually spend this coin. But it's locked up by a more complex script with two of two multi signature and with all these hash time law contracts, and all this stuff, and we and it's just a more complex way of defining property rights of Bitcoin. But it's still Bitcoin. And we don't change anything here.
Anita Posch 54:04
Yeah. And I think the definition of an Altcoin, at least for me, is it's a it's a basically a copy of the Bitcoin blockchain software. But the lightning network is a second layer protocol. It's it's not the base layer, and an Altcoin would be the base layer.
Max Hillebrand 54:19
Exactly. Right. Right. And, I mean, it's anyone who has Bitcoin can open a lightning network channel, and easily send and receive payments. Now, it's, it's a very different means of exchange, right? We have a different method of payment, so to say, and therefore a Bitcoin that has this are a UTXO that has this lightning network script on the time chain is a different economic good, right? It's not the same UTXO as a UTXO, that only has a single signature or single pub key and the script. And therefore the UTXOs are absolutely different, right? And the way that we define the property rights and who can spend these Bitcoin How is very different, but the Bitcoin itself, in both of these UTXOs is just Bitcoin and they are completely fungible. And they're just numbers in the end value field.
Anita Posch 55:10
So lightning is Bitcoin
Max Hillebrand 55:12
Lightning is Bitcoin, just a very smart way of sending Bitcoin around.
Anita Posch 55:16
You're writing your master's thesis at the moment, I think, the bachelor thesis, What is it about?
Max Hillebrand 55:22
Well, it's a rather long title. And but I think it really is, it explains it quite well. It's called non simulated shared ownership of scarce Bitcoin in the lightning network. So basically, what is what is scarcity? scarcity is the binary attribute that a good can only be used for one task at one time by one individual. So for example, if we have a wood log, then either Alice can build a house, or Bob can build a boat, it is physically and universally impossible, that at the same time, Alice can use the same wood log to build the house, and can use the same wood log to build the boat. It's impossible. That is scarcity. And because there is this potential of conflict, where when Alice uses this she excludes Bob from the usage, we need to have some form of rules set to define who can use what and individual property rights are one of the of these proposed rules that work really, really well. And therefore, scarcity is the underlying foundation for property rights and property rights as the underlying foundation for money. So every money needs to be scarce, right. And of course, all the commodities like gold, silver, all these monies are scarce. If I hold a gold coin, or if Alice holds a gold coin, Bob cannot hold it right. Now, with digital information, this is non scarce. If I have a PDF document, I can share it with you. But I don't give it up, I still have the quote unquote, original PDF document, and I've just sent you a copy. And this is the non scarce, we don't have this potential conflict, because my usage of the PDF document does not exclude your usage. But we can share and both learn from the same knowledge and present the same information. So in this sense, we don't need property rights with information, because there's no need to allocate these non scarce resources because anyone who wants them can get them. And that was the fundamental reason why digital money has always failed. That's why we took so long to find out how we can create digital money that is scarce like Bitcoin in Bitcoin or Bitcoin is scarce, not because of the quantity of Bitcoin in existence, but rather because of the fact that one UTXO is always locked up by one script in one script at a time. And for example, if the UTXO is locked up by Alice's public key, and then only Alice a signature can spend the coin and not Bob's signature. So again, exclusive right either Alice controls this Bitcoin or Bob does, and they cannot do at the same time. So therefore, Bitcoin is scarce. But the cool thing is, and that is the part of my thesis that because we can have non scarce programs, non scarce software that is open that is Libra to define the property rights. And now we can do multi signatures, for example, where we need to both the signature from Alice and from Bob, in order to spend the coin and this is quite mind blowing, because in this sense, both Alice and Bob have have non simulated shared ownership of this scarce asset. But scarcity is defined as exclusive ownership by one individual. Right. So so all of a sudden, we it's still a scarce right, the one UTXO always only locked up by this to have to multi signature, but the two of two multi signature actually is controlled by both of them. And that is kind of what I want to find out in my thesis and how we can use multi signature and lightning.
Anita Posch 58:46
Okay, sounds very interesting. And I'm looking forward to maybe read it and also to all the things that come next because I see that many people very clever people are working on the these problems and so you're also an educator you're making your you're producing a lot of videos on this stuff. And I guess you have some book recommendations or maybe video recommendations on like, how people who want to get involved in lightning, how they can do that? What should they read or listen or learn? And also maybe the basics of Bitcoin?
Max Hillebrand 59:26
So yes, I do the videos on the world crypto network and focusing mainly on Austrian economics and and the usage of these liberal open source tools that we have. And then for book recommendations, will I have my personal website towardsliberty.com. And then slash economics gives you a archive of links that link to books and lectures of all the stuff of Austin economics. And Bitcoin is the same or a similar list with links to all the stuff that I find valuable to share and Bitcoin. So there is a long section of Lightning resources there with a bunch of references. And the thing is Lightning is rather new. So it's kind of difficult to give good recommendations here, I would say the lightning network white paper, it's actually really useful. There's a lightning network section or a payment channel section on the Bitcoin wiki, which was also really in depth. In the newest version of mastering Bitcoin from Andreas M. Anotnopoulos, there's a section on the lightning network, which was really profound. Grokking Bitcoin that was just recently released it's a very good book as well. And it also has some stuff on the lightning network. And I would say Rene Pickhardt, he has a great YouTube channel that is focused on lightning. And he's also working on a book about lightning. So that really helps. And then maybe one last one will be the optech newsletter. That one is really, really good, written, amongst others by David Harding. And he's a prolific writer, and he can explain very technical concepts very well, adequately, and his newsletter is very good. And there's a lot of knowledge about the lightning network in here as well. More on the technical side.
Anita Posch 1:00:59
Okay, thank you. I will put that in the show notes. And where can our listeners follow your work and you?
Max Hillebrand 1:01:05
Well, that will be on twitter at Hildebrandt max probably on telegram as well. I think max Hillenbrand or max underscore Hillenbrand and as I said, the personal website is towards Liberty calm. And most of the videos are uploaded to the world crypto network, which was a huge archive know of over 3000 videos, which which is quite nice. So really, Bitcoin history is in there. And it's always fun to go back many years to see what were people talking about Bitcoin at that time. So yeah, follow me there and stay educated.
Anita Posch 1:01:33
Yes, thank you. Thank you very much for this great interview. And I'll see you at the UNCHAIN convention and I guess at other events, too.
Max Hillebrand 1:01:41
Yes. Thanks very much. Anita was very kind for the invitation. A great podcast I'm looking forward to listening to not just this episode, but all the following episodes that he will produce. Thank you very much you.
Anita Posch 1:01:51
Thank you. Bye.