Episode Transcript
[00:00:00] Speaker A: Sadly, there has been very little in the way of a clear definition of MEV in the context of bitcoin, and the standard definition of the term is so broad as to be entirely useless in discussions of protocol risk. The term MEV or miner extractable value originated with the Ethereum community and means broadly all the value that miners or stakers can extract when building blocks. This includes both in band protocol fees, in block subsidy, but also any out of band fees they accept directly from transactors value they can extract by reordering or creating their own transactions, exploiting smart contracts, or even reorging the blockchain.
The best in bitcoin made audible I am Guy Swan, and this is bitcoin audible.
[00:01:12] Speaker B: What is up, guys? Welcome back to bitcoin Audible.
[00:01:15] Speaker A: I am Guy Swan, the guy who.
[00:01:16] Speaker B: Has read more about bitcoin than anybody else, you know. So we are digging into, we're extremely extending a conversation that we've been having recently. So we talked about Peter Todd's proposals on covenants and all the different soft fork ideas, proposals, texts, and op codes and all that good stuff, right? We talked about.
We expanded on this conversation with Reardon code, our chat with him, which I thought was extremely useful. And we got to actually cover a.
[00:01:51] Speaker A: Lot of different pieces of this already.
[00:01:53] Speaker B: And he gave one of the best and simplest examples of quote unquote mev that I think is just easy to understand in relationship or using the context of the CTV proposals and any prevale and the things that we had been discussing in the very previous episode or the read from Peter Todd. And I think it's a good one to kind of, like, keep in mind if you haven't listened to that conversation, definitely do. I think it will help to really build a baseline to understand a lot of what Matt Corralo is talking about in this piece. But this is from Blue, Matt's blog, which is Matt Corralo. If you do not know, you definitely should be following Matt. He's been around you. It seems unlikely that if you've been in bitcoin for any length of time that you don't know about Matt and you haven't seen or heard Matt's expertise on a lot of these things.
[00:02:46] Speaker A: Been building on bitcoin for a really.
[00:02:47] Speaker B: Long time, uh, and lightning, and also very solid on centralization risks, and I think is a great resource for a lot of these things.
[00:03:00] Speaker A: And in this case in particular, he's.
[00:03:02] Speaker B: Done a great job of breaking down and trying to not only simplify, but I guess, distinguish or lock down the problems of MEV, like when MEV is a problem versus when it's just something that's just always going to be present and is more of a broad and open thing that doesn't actually result in the centralization risk that is often discussed in connection with MEV. Basically that MEV is an extremely broad term and we need to redefine it or narrow down exactly what we mean when we say we need to prevent.
[00:03:41] Speaker A: Or stop ourselves from potentially introducing op.
[00:03:45] Speaker B: Codes or other tech to the bitcoin ecosystem.
[00:03:48] Speaker A: That introduces bad MEV in particular, not.
[00:03:52] Speaker B: MEV in a broad sense, because really the concept is so broad that it's unavoidable. Mev already kind of exists in, when we think of it in a very broad strokes. So I'll let Matt, he does a much better job and less rambly way.
[00:04:09] Speaker A: Of breaking it down and distinguishing the idea.
[00:04:12] Speaker B: So we will go ahead and get into the article and we will discuss.
[00:04:15] Speaker A: It a little bit afterward.
[00:04:16] Speaker B: So let's dive right in. And the article is titled stop calling.
[00:04:22] Speaker A: It Mev by Matt Corrallo as the systems built on bitcoin become increasingly expressive, the use cases for bitcoin grow exponentially. While this is incredibly exciting, the one major concern both proponents and detractors of increased expressiveness can agree on is the risk of MeV.
Sadly, there has been very little in the way of a clear definition of MeV in the context of bitcoin, and the standard definition of the term is so broad as to be entirely useless in discussions of protocol risk. The term mev, or minor extractable value, originated with the ethereum community and means broadly all the value that miners or stakers can extract when building blocks. This includes both in band protocol fees and block subsidy, but also any out of band fees they accept directly from transactors value they can extract by reordering or creating their own transactions, exploiting smart contracts, or even reorging the blockchain. This is such a broad term that saying were concerned about MEV is somewhat useless. Are we concerned that miners are extracting the block subsidy theyre entitled to? Obviously not. Worse, the Ethereum communitys concerns with MEV partially overlap the concerns of the bitcoin community, but certainly arent the same.
Still, to understand the risks of MEV in bitcoin, its useful to learn from the history of Ethereum. As block building on Ethereum has become increasingly specialized to extract the maximum possible MEV, a few effects have emerged.
First, and most concerningly, there are only a very, very small handful of companies who have invested sufficient capital in the form of hiring world class engineers to be competitive at selecting and creating the most profitable set of transactions for the next block. From the point of view of censorship resistance on the network, this is incredibly damning. When only a few companies do or could select nearly all the transactions which can enter the blockchain, any hope of censorship resistance is lost. Second, those trading on decentralized exchanges, and more broadly, those using protocols that have an undefined counterparty, often find their counterparty replaced with the blocks transaction selector to some loss in value. This comes in many forms, but commonly simply by the transaction selector, arbitraging prices between decentralized and centralized exchanges, taking the price difference for themselves as profit. This impacts the quality of the experience for users of more expressive contracts on Ethereum.
Bitcoin as a system and community largely seeks to maximize censorship resistance through decentralized transaction selection over any other goals. Sadly, today bitcoins transaction selection is also highly centralized in the form of pools. Luckily, theres no strong financial incentive for this, only historical technical reasons. While this allows us to massively redecentralize bitcoin with only technical tweaks to the mining software stack, any financial disincentives to adopting such technology would absolutely destroy bitcoins long term censorship resistance.
[00:08:03] Speaker B: So much so that I'd argue that.
[00:08:06] Speaker A: If we end up in the same place as ethereum is today, we should simply give up on bitcoins censorship resistance axiom, as we simply will not achieve it in any reasonable way.
Thus the first class of MeV, the resulting centralization pressure is also a substantial potential issue for bitcoin. The second issue, degraded execution quality and usability, much less so. In fact, given bitcoins axiom of censorship resistance above all else, I'd argue trading transaction execution quality for any marginal censorship resistant gain would be worth it, at least at the level of the overall bitcoin system.
Some bitcoiners have taken to calling the centralization MeV risk mevil or MEV that is evil, specifically MEV, which results in a financial incentive for miners to employ sophisticated technology in order to ensure the transactions they include in the next block have the maximum value, is Mevil. This can come in the form of changing the order of transactions in a block or creating new ones, but it does not include cases where an open market might bid on creating specific transactions using replace by fee or RBF. Further, because there is likely to be reasonable long term decentralization of hash power, we do not include multi block censorship attacks. Such attacks require some amount of minor coordination and require miners be willing to forego profit now for greater profit later, risking their competition, claiming the profit for themselves.
Many developers working on increasing expressiveness in bitcoin have concluded that MEV is inevitable on bitcoin and we should simply prepare ourselves for it. However, I think this stems from a focus on the broad definition of MeV rather than the more practical definition of mevil. Mevil is not inevitable on bitcoin, however, avoiding it does require engineers building expressive bitcoin systems to consider the impacts of their work carefully.
Here, it is useful to consider some examples of things which fit the broad definition of MeV and how they do or do not introduce mevil.
MEV is often raised when discussing systems which may result in transactions which can be profitably replaced, for example, an output on chain which can be claimed by anyone without specific private key material, or a trade in a decentralized exchange which executes at an incorrect price. In these examples, it may be possible for anyone, including miners, to create a new transaction which claims some value directly or indirectly. While this is obviously mev, after all, this value should flow to miners somehow it is unlikely to create mevil. Thanks to bitcoin's ten minute block time and public mempool, anyone has a chance to bid by paying a higher mining fee for the ability to claim this value. This allows miners to extract this value while remaining entirely passive and not implementing any custom or advanced logic to monitor for or create these claims. Over the past few years, we've seen a handful of examples of these kinds of in Memphull bidding wars, including, notably, funds sent to insecurely generated private keys. This also implies that miners which receive transactions via any form of private relay should ensure they submit such transactions to the public mempool, ensuring others can bid to replace them and increase the miners revenue. A popular scheme a number of groups are working on building are quote roll ups on bitcoin. These are sidechain systems where the transaction data for the sidechain is embedded in the bitcoin blockchain itself.
[00:12:06] Speaker B: Because these systems can have arbitrarily expressive.
[00:12:10] Speaker A: They are likely to have the potential for advanced mev extraction similar to what we see on ethereum today. However, in most cases such systems do not create mevil in bitcoin. In most rollup systems, there is a single or small group of sequencers that select the transactions that enter the rollup as well as their order. Thus, the sequencers have the exclusive ability to extract mev and bitcoin. Miners are not able to use their transaction selection or ordering power to influence the rollups transactions.
Some rollup systems, referred to as based rollups, however, give bitcoin miners the ability to directly select and order roll up transactions. This runs substantial risk of creating mevilization, and in fact, if we see deployment of large scale naive based rollups, I believe bitcoin may suffer a terrible fate. Still, base rollup developers have a few easy tricks which can substantially reduce mevil risk. First of all, based rollups can remove the ability for miners to order roll up transactions by randomizing the order keyed using the bitcoin block hash. Thus, for miners to influence the order of rollup transactions, they must be willing to fully discard valid bitcoin blocks, forgoing potentially substantial profit. Secondly, based rollup developers can randomize transaction ordering across multiple blocks, ensuring single bitcoin miners cannot censor roll up transactions, further reducing their ability to materially extract mevil. While this may delay roll up transaction confirmation times somewhat, I'd strongly encourage roll up developers to consider whether there is a genuine material difference between users waiting for six confirmations and users waiting for seven, eight, or nine confirmations. I'd also encourage developers, bitcoiners, and everyone to vote with their feet. If a roll up system introduces material meval risk to bitcoin, simply use an alternative system. If you don't, the utility of that system is going to eventually be ruined by increased bitcoin miner centralization anyway. In this case, centralized and federated roll ups are much more clearly safe, and based rollups, or ones with a force inclusion mechanism, should be carefully considered before using them.
Another common example raised as mev on bitcoin is the inclusion of nonstandard transactions, or more broadly, any transactions which reach.
[00:14:48] Speaker B: A miner outside of the public mempool.
[00:14:51] Speaker A: While this indeed introduces strong centralization pressure for larger miners to offer this as.
[00:14:57] Speaker B: A service which is absolutely meevil, we.
[00:15:00] Speaker A: Have not yet seen material demand or revenue from such transactions. Indeed, as mentioned above, miners have an incentive to ensure transactions received via private relay reach the public mempool where possible to allow for public RBF bidding. While there is certainly demand for non standard transaction inclusion as a novelty, it is unclear if this market will grow in the long term. Further, bitcoin core can, should, and generally does allow any transaction as standard, with restrictions only for transactions representing denial of service attacks or when the inclusion of a transaction makes bitcoin core unable to accurately calculate competitive block templates.
[00:15:43] Speaker B: As bitcoin core continues to improve, the.
[00:15:46] Speaker A: Demand for any nonstandard transactions will continue to decline, thus reducing the profit potential of any mevil extraction.
More recently, out of band payments to miners have become popular again, allowing individuals to pay large pools for the inclusion of their transactions using payments outside of the normal bitcoin transaction fee. This can create substantial meval, but only if the out of band payment is offered directly to a single or group of miners. Any kind of out of band fee payment, which is easily claimable by any miner, does not contribute to mevil induced centralization, and thus open protocols for this are important. Further, while out of band fees have.
[00:16:34] Speaker B: Been commonly available on bitcoin before, they.
[00:16:36] Speaker A: Have never represented a substantial portion of miner revenue. And with technologies like lightning and RBF very slowly becoming more popular in consumer.
[00:16:46] Speaker B: Bitcoin wallets, the need for out of.
[00:16:48] Speaker A: Band payments should further decrease.
Finally, some individual coins on chain have developed collector value, notably, coins freshly mined in coinbase outputs in certain blocks, especially after difficulty or block subsidy adjustments, have often been valued at higher than their bitcoin amount. While this has negative implications on fungibility, the extraction of such additional value can also be considered a form of mevil. After all, claiming this value may require additional investment in human capital to evaluate and participate in rare SATS marketplaces.
The long term value of these collectors items remains unclear, and valuing them is correctly often considered antisocial by bitcoiners who care about the long term sustainability and performance of the bitcoin system. Luckily, such rare sats that may have material value only occur in very few.
[00:17:46] Speaker B: Blocks currently those every four years after.
[00:17:48] Speaker A: Subsidy adjustments, reducing the total impact that it can have on miners.
While there are many risks on the horizon which may introduce Mevil to bitcoin, thus substantially risking the long term censorship, resistance, and therefore value of bitcoin, there is no reason yet to fear that such an outcome is inevitable. Indeed, while MeV on bitcoin is inevitable, and here today, MEV is a largely useless term for describing our censorship, resistance, and centralization concerns.
Engineers developing and users selecting platforms which add additional expressivity to bitcoin must carefully consider the risk of Mevil. These systems may introduce opting to build or use systems which introduce mevil to bitcoin must thus be avoided and considered antisocial, or the long term value in these systems and the bitcoin system itself may be destroyed.
[00:18:52] Speaker B: Alright, so this is a concept that has been really difficult to nail down, and I think Matt does a really good job here of trying to explain the difference between normal, just the extremely.
[00:19:10] Speaker A: General concept of MEV and MeV, where.
[00:19:13] Speaker B: It'S a very concrete problem, and in this instance. I still wish there was a little bit more clarity. Like we had a very strong example of exactly when this happens. And reading code used an example of a, using a key that allowed for any past transaction to be paid one of, and basically a construction with any prev out. And, and this wasn't even considered, this wasn't even technically a way to reorganized transactions. That would be an evil thing because it would still just result in the proper outcome.
But it could, it just kind of gives an example of how the visibility of a certain miner could represent, could alter the outcome of what bitcoin looks.
[00:20:07] Speaker A: Like, of what the chain looks like, and what the ordering of transactions are.
[00:20:10] Speaker B: And one of those things was you have a, a closing out of a symmetrical lightning channel. And obviously the idea of a lightning channel is that if you publish a state of the channel and I publish a different state, you know, we update 10,000 transactions off chain, right. And somehow the last one doesn't get properly updated. I only see it on my side and I sent you 2000 sats or something is you would publish state 9999 in order to get your bitcoin out. And I would publish state 10,000.
Well, the idea is that state 10,000 replaces 9999 and you would only want one of those transactions to go in.
[00:20:54] Speaker A: However, if you had a lightning symmetry.
[00:20:56] Speaker B: System where you can use any prev.
[00:20:58] Speaker A: Out, you could actually include both.
[00:21:02] Speaker B: And whereas a naive miner may just decide like first you would have the, your transaction get published, but then mine would counteract it. Well, you could also use the exact same transaction signature from mine to publish yours. And you could actually have both of.
[00:21:23] Speaker A: Them run in tandem.
[00:21:24] Speaker B: That's, wait, that might actually be, how would that, how would that work?
I think, I think that's right. It's something a little bit like that. Because generally the idea there, specifically the idea is that that signature, the signature that is made on the last transaction.
[00:21:43] Speaker A: State can be used for any previous transaction state.
[00:21:47] Speaker B: And that's what any prev out is that like. Okay, well you can, we can use.
[00:21:52] Speaker A: Any of these outputs in order to.
[00:21:54] Speaker B: Pay it, which is fine because I, everybody still gets their proper amount of bitcoin. But what it means is that the miner actually has choice in what they include, and they can actually take a signature from some other transaction and apply.
[00:22:12] Speaker A: It to a previous or a different.
[00:22:14] Speaker B: Input or output being used in a new transaction. Essentially they can construct their own transaction or reconstruct a different transaction to work, because you have these signatures that are kind of more universal.
[00:22:31] Speaker A: They apply to multiple transactions rather than only the transaction that is being dealt with.
[00:22:36] Speaker B: My example might be a little bit funky, but it gets the general idea across. But what's interesting about this is that, like, I don't think that would be.
[00:22:46] Speaker A: Mevil in particular, because this is all.
[00:22:48] Speaker B: Stuff going to the open blockchain or the open memple and being broadcasted and everybody, like, the difference between Mevil and Mev in general is whether or not.
[00:23:01] Speaker A: There is a huge centralization risk in.
[00:23:04] Speaker B: The fact that only certain miners could.
[00:23:06] Speaker A: Either be privy to the information or.
[00:23:09] Speaker B: Only certain miners would have the capacity to do the reorganization or do the rebroadcasting in such a way that they're the only ones who can actually extract the MEV. Now, one of the examples I find interesting is rollups and kind of like these public systems where they can reorder transactions on their own, or I, in the case of Ethereum, these decentralized exchanges, where the miners or the stakers, I guess, are both sides, are both on.
[00:23:46] Speaker A: Centralized exchanges and then on the decentralized exchanges.
[00:23:50] Speaker B: And they are basically using their position to let only certain transactions through, or to make sure transactions only occur at certain times. They can delay transactions or get certain ones to go through first and then pocketing the difference by, by arbitraging the decentralized exchange and the centralized exchange price differences.
And the thing about the decentralized exchange is that there is no central coordinator.
They are able to actually change the order of which transactions went through first.
[00:24:27] Speaker A: And which ones got cleared.
[00:24:29] Speaker B: And there's a time gap in them being able, because, because a centralized exchange is going to happen in seconds or milliseconds, literally update, and that order book is done.
The problem of decentralized organization and ordering of transactions is that you don't have that finality. You don't have that instant time sense of, oh, this is submitted or this is added to the order book, and.
[00:24:57] Speaker A: This now can't be changed.
[00:24:58] Speaker B: So there are literally situations where you could find that, oh, your transaction is definitely going to go through, or it's definitely going to happen in this order, has some apparent confirmation or apparent assurance of the outcome, but then it is literally altered by the staker, by the miner who is actually supposed to stamp the thing in order to make your transaction go through or to make, to.
[00:25:26] Speaker A: Add your addition to the order book.
[00:25:28] Speaker B: Because it benefits them on the opposite side for it to be in a different order in when they're making a centralized exchange, a trade, or adding to.
[00:25:42] Speaker A: An order book on a centralized exchange.
[00:25:44] Speaker B: That does not have this delay, and.
[00:25:46] Speaker A: They are able to arbitrage the difference.
[00:25:48] Speaker B: Not between just the price between the decentralized exchange and the other, but the fact that they can reorganize one order book and not the other.
[00:25:57] Speaker A: And if they have an outsized probability.
[00:26:01] Speaker B: Of being the order of the proper.
[00:26:05] Speaker A: Or the accepted decentralized order of the decentralized order book, well, then they are.
[00:26:11] Speaker B: Going to make a proportionally larger arbitrage.
[00:26:15] Speaker A: From the centralized exchange.
[00:26:17] Speaker B: In fact, they may be the only ones that can actually sustainably do this.
[00:26:20] Speaker A: Because you have to have some sort.
[00:26:22] Speaker B: Of a guarantee that at some point in this mix, you're going to.
[00:26:26] Speaker A: Their order book is the one that's going, or their organization of the order.
[00:26:29] Speaker B: Book is going to be the one that gets submitted or gets finalized. Now, there's always just normal Mev stuff like pay, paying for transactions out of band and that sort of stuff. And really, I think what the issue is there is like, that's unavoidable. You know, there's no way for.
You can't just be like, oh, well, financial services can't make options.
You're not allowed to do options trading on, I don't know, bitcoin block time or something. There's a bunch of different things that could totally happen with.
Imagine you had a bitcoin block time options contract that happened with every single block, and it was literally just based.
[00:27:16] Speaker A: On the amount of time between blocks.
[00:27:18] Speaker B: And you could put $2 million up.
[00:27:20] Speaker A: Into this options contract.
[00:27:22] Speaker B: And it said there's going to be, you know, nine minute blocks, and then you're a huge miner, and you get the next block and it's nine minutes, but you put a bet on it's going to be eleven minutes or more. Well, you may very well just be able to hold on to that block, not publish it. Wait, and when the next block, remind that block, and if the next one comes in at twelve minutes or 13 minutes, and then you publish that one, well, now you've made $2 million or whatever the options contract, maybe it's a.
[00:27:57] Speaker A: Three x contract or something, you've made $6 million on the contract, and it.
[00:28:01] Speaker B: Was worth it to give up that one block worth of revenue. Now, I don't even know if this was technically fallen or mevil, but the point I'm just getting at with this example is purely that there's no stopping that. That is not controllable.
[00:28:17] Speaker A: There was never anything in the bitcoin.
[00:28:19] Speaker B: Blockchain that could have ever prevented that. It's conceptually, it's so it is entirely.
[00:28:26] Speaker A: Outside of the bitcoin system.
[00:28:29] Speaker B: The thing that protects against that is literally just. That is just the basic incentive structure of bitcoin is that they run the.
[00:28:38] Speaker A: Risk of losing the option and the.
[00:28:40] Speaker B: Block, not just the options contract or, excuse me, not just the block in trying to enforce the options. So this ends up basically just being a game of play stupid games, win stupid prizes.
And as Matt kind of points out is, well, you can just have basically technical solutions to a lot of the problems that we have today. They're just kind of.
[00:29:06] Speaker A: They're not strong financial incentives that make.
[00:29:10] Speaker B: Things the way they are today.
Even in the absence of everything being perfectly decentralized. And we have centralized mining pools, we.
[00:29:21] Speaker A: Have a lot of centralized block templates.
[00:29:23] Speaker B: There's actually a really great piece about that very recently. There's literally so many different things that we could discuss or that we could talk about fixing and that are subpar in how bitcoin works. But almost all of them are. They're not huge financial incentive problems.
[00:29:41] Speaker A: They are simply technical problems. And all of them, as he says, pretty much all of them can be solved with a technical solution.
[00:29:49] Speaker B: And it's funny, I hadn't even thought about RBF in particular as. Cause he specifically brings up transactions out of band. And as I had always seen or suspected is there wouldn't be like a.
[00:30:05] Speaker A: Huge market for that.
[00:30:06] Speaker B: And I've used out of band transaction like accelerators and stuff where you actually pay. I think memple space still has one, I think.
[00:30:15] Speaker A: Or is it amboss?
[00:30:16] Speaker B: I can't remember. One of the big block explorers has a transaction accelerator.
[00:30:23] Speaker A: But what's funny is I hadn't thought.
[00:30:25] Speaker B: About RBF specifically in that context. That RBF is essentially an open market protocol for exactly that thing for transaction acceleration.
And it's funny that that actually works to the point that I've used transaction acceleration before. I like, I've actually seen an example of how these incentives work in just my own use case. Or use of these tools is after RBF kind of became a standard.
I haven't used a transaction accelerate again accelerator ever again. I've literally just used RBF. And it just works like right in.
[00:31:06] Speaker A: All of the apps, there's RBF writing BTC pay.
[00:31:09] Speaker B: There's RBF right in nunchuck.
There's RBF in.
What was the other wallet that I.
[00:31:16] Speaker A: Used for this sparrow? I don't know.
[00:31:19] Speaker B: I don't know. It's pretty common. Like you can just see like the flags in certain transactions and stuff and you can just see the RBF listed and you can easily just go in and be like, broadcast this again.
Here's a bigger fee. Sign it and rebroadcast. And the fact that that is open.
[00:31:38] Speaker A: That'S always going to give me a.
[00:31:40] Speaker B: Better result than if I pay a miner directly. Because I'm paying all miners directly.
[00:31:47] Speaker A: I'm paying literally anyone.
[00:31:49] Speaker B: And I find that interesting, that one of the best ways to avoid this.
[00:31:54] Speaker A: Is to just come up with better open protocols, or come up with open protocols.
[00:31:59] Speaker B: Every time we find that there may apparently be, or there could potentially be.
[00:32:05] Speaker A: Some sort of external or out of.
[00:32:07] Speaker B: Band market for something built into the bitcoin system itself, is that you build an open protocol for it that actually works better and you can actually stave.
[00:32:18] Speaker A: Off the potential risk of that market.
[00:32:21] Speaker B: But if it depends, if it's something that depends on the miners themselves, as.
[00:32:28] Speaker A: Soon as you have a heavy financial.
[00:32:31] Speaker B: Incentive for, it's kind of like ASIC or covert ASIC boost. Back in the day, with everything around the block size war and all of that stuff that was going on is.
[00:32:41] Speaker A: If that wasn't solvable outside of the chain.
[00:32:45] Speaker B: Like if covert ASIC boost.
[00:32:47] Speaker A: Actually, technically.
[00:32:49] Speaker B: Technically, Segwit was like, that was a.
[00:32:51] Speaker A: Huge problem of Segwit.
[00:32:53] Speaker B: And that's actually a great example of how bad this could get, is one.
[00:32:58] Speaker A: Of the things that made the block.
[00:32:59] Speaker B: Size war so absolutely vicious was that Segwit, the proposed upgrade that we wanted, was going to break covert ASIC boost. And the hard fork version of Segwit.
[00:33:15] Speaker A: That they implemented wasn't going to.
[00:33:18] Speaker B: Or they. They said we were. Oh, okay, we'll get Segwit. Segwit's fine, but we're going to do it this way and you're going to get it with, you know, this block size increase that actually would not have.
[00:33:29] Speaker A: Broken covert ASIC boost, simply the way that it was done.
[00:33:33] Speaker B: And ASiC boost, for those who don't know, was bitmain and their miners had the capability of basically getting like a.
[00:33:41] Speaker A: Ten to 15% boost on the efficiency of their hash power.
[00:33:46] Speaker B: I can't remember exactly how the mechanism worked. I forgot. I've forgotten what it was. It's been a long time since I've dug into it and it's all since become completely open. And now basically everybody does quote, unquote ASIC boost to the point that nobody calls it ASIC boost anymore. It's just how Asics work. But it was once a very private and in fact, something that someone held.
[00:34:06] Speaker A: A patent on, a global patent on.
[00:34:09] Speaker B: So legally enforced that they were the only ones who could do it. And I believe it was Greg Maxwell who finally figured this out or proved that covert ASIC boost was happening on those machines. And they could, they could actually have.
[00:34:24] Speaker A: Been running these things and getting this.
[00:34:26] Speaker B: Like ten to 20% somewhere in their boost of hash power, which is a massive centralizing force like that could feed back aggressively. And it may have very well been a big part of the contribution or a big contributor to their incredible dominance.
[00:34:43] Speaker A: Of the mining, mining ecosystem, which they still hold dominance over pretty much as.
[00:34:48] Speaker B: Far as their hardware. But at the time, they were also.
[00:34:51] Speaker A: Explicitly the biggest miners themselves.
[00:34:54] Speaker B: But since then, someone, I don't think I ever knew who it was. I'm not sure if it was ever publicly known who it was, but somebody.
[00:35:01] Speaker A: Paid a lot of money for that patent and then put it behind blockstream's defense defensive patent license.
[00:35:09] Speaker B: So that if anyone uses the ASIC boost, they cannot, they cannot put it behind a, they cannot put anything else related to blockchain technology behind a patent.
[00:35:25] Speaker A: Basically, the use of that patent, it's.
[00:35:27] Speaker B: Kind of like it's open source, except.
[00:35:30] Speaker A: That it's open source in such a way.
[00:35:32] Speaker B: The BDPL which we covered on the show, read a couple of pieces about it.
[00:35:37] Speaker A: The BDPL is written in such a.
[00:35:38] Speaker B: Way that, yes, it's open source, but it is open source in such a.
[00:35:42] Speaker A: Way that if you have any other.
[00:35:43] Speaker B: Bitcoin technologies or innovations or quote unquote patents that you have and you use, you are a miner who uses covert ASIC boost or this ASIC boost anyway. Well, then those other ones immediately fall under the BDPL as well.
[00:35:59] Speaker A: You cannot hold.
[00:36:04] Speaker B: Monopolizing patents on bitcoin related technology if you are using ASIC boost. So it's basically, that's why they called it defensive patent is it was a way to force everyone to open source the other technologies by allowing them to use a critical technology when it came to mining.
[00:36:25] Speaker A: Pretty wild.
[00:36:25] Speaker B: It's actually a really genius licensing move that I had never even thought about. It was just a really, really clever trick. And I still don't even know. I don't know if anybody knows who actually did that.
Not the license, that was a blockstream put that together, but who it was who actually bought and then released it under the BDPL. But going back to the block size war stuff is there was overt and covert ASIC boost.
[00:36:51] Speaker A: Overt was where it was clearly visible.
[00:36:53] Speaker B: On the chain that you were using it. Covert is where you could get the boost, but nobody knew. It was invisible, completely indistinguishable from any other normal blocks or transactions. However, block hashes and everything. As to whether or not you were using it, there's no visible way to prove that, yes, you used ASIC boost for this, but the way Segwit was designed, and it seems like this was not on purpose, it just kind of happened to be.
Just happened to be that way because of how signatures were separated and how the blocks and the signature tree and then the transaction tree were ordered separately.
[00:37:35] Speaker A: Something about that construction meant that the COVID ASIC boost was going to be overt.
[00:37:42] Speaker B: There was no.
[00:37:42] Speaker A: There was no way to do it in secret anymore. And there is a lot of reason.
[00:37:47] Speaker B: To suspect that the block size war.
[00:37:51] Speaker A: Got as unbelievably vicious as it got, largely because of that. Largely because there was a massive amount.
[00:38:00] Speaker B: Of money that did not want this.
[00:38:03] Speaker A: Secret advantage to go away.
[00:38:06] Speaker B: And only through a soft fork, only through social consensus, was it actually able.
[00:38:13] Speaker A: To be fixed, which, again, it wasn't even the intent.
[00:38:16] Speaker B: It just kind of came out during the entire debacle that this was actually a relative, a related item. And this may actually be a lot of the cause of the underlying pressure. And I just. I bring that up only because that.
[00:38:33] Speaker A: Might be how difficult it is. If there is a strong financial incentive.
[00:38:37] Speaker B: For some sort of just minor cheat or little advantage.
[00:38:43] Speaker A: And remember, this was only 10%, 15%.
[00:38:47] Speaker B: It might seem like something small, but.
[00:38:49] Speaker A: There may be just an enormous amount of financial incentive for it to stay a permanent part of how bitcoin works.
[00:38:57] Speaker B: If something like that gets in or.
[00:39:00] Speaker A: Grows to become the norm, there may.
[00:39:03] Speaker B: Not be a good way to unroll it. There may not be a way to go back. And in fact, the only way to.
[00:39:11] Speaker A: Go back may result in.
[00:39:13] Speaker B: It may literally result in another massive.
[00:39:16] Speaker A: Bitcoin civil war if it requires a soft fork to undo it or to stop something from working in some particular way.
[00:39:24] Speaker B: And that is essentially the potential risk of expanding the expressivity of the bitcoin chain or of the bitcoin scripting and transaction language. And I find it interesting that Matt Corralo specifically says, you know, even it may even make sense to make transaction expressivity and transaction execution quality like just the operation of transactions themselves worse if it came to, if we actually had an ability to kind of.
[00:40:02] Speaker A: To even modestly increase the censorship resistance of the bitcoin system.
[00:40:09] Speaker B: And I kind of agree. I kind of agree. I really think it's important to recognize the axiom of the fundamental purpose and the absolute core value proposition of the.
[00:40:22] Speaker A: Bitcoin system as censorship resistance.
[00:40:25] Speaker B: As the way I like to refer to it, is radical neutrality, is that.
[00:40:31] Speaker A: If it is in the bitcoin system, it is done.
[00:40:35] Speaker B: And if you submit it to the bitcoin system, there is nobody who has.
[00:40:40] Speaker A: An outsized influence saying, this can't be accomplished, this cannot be ordered this way.
[00:40:45] Speaker B: This cannot be included, and there should.
[00:40:48] Speaker A: Be no financial incentive, there should be.
[00:40:50] Speaker B: No strong financial tool in order to.
[00:40:53] Speaker A: Reorg two blocks back. If there's some way for miners, some larger minor, that has 15% or 20%.
[00:41:00] Speaker B: Of the hash power, or let's call it 40%, even if it has to be big, that a 40% hash power of the network can reorganize the block.
[00:41:09] Speaker A: And make enough money to reorganize two.
[00:41:12] Speaker B: Blocks back to somehow reorder something or get some pay themselves some sort of transaction or whatever it is, for information that only they are privy to, because they are 40% of the hash power.
[00:41:26] Speaker A: If that ever happens and it becomes.
[00:41:28] Speaker B: Profitable, that is a existential crisis scenario for bitcoin. It's interesting, I hadn't thought about roll ups and decentralized, quote, unquote, ordering of transactions as a big part of the problem there, because with six confirmations, you may be able to readjust things. And who knows how many fees, like how big and how much economic activity are happening on these roll ups, and.
[00:41:59] Speaker A: How many fees are being paid over.
[00:42:01] Speaker B: There, and all those fees actually going down to the miners, or at the miners being able to reorder specifically on the roll ups in order to.
[00:42:11] Speaker A: Make.
[00:42:11] Speaker B: Sure that the fees go to them, and in a very particular way. But I hadnt thought about rollups and.
[00:42:20] Speaker A: Kind of the openness of rollup.
[00:42:21] Speaker B: And this might be another part about the conversation of privacy, is that how can you build in maybe privacy in these other systems to kind of mitigate that or to stave that off? And maybe I'm not thinking about it right in exactly where the risk lies. And it also does get me to think more about BIP 300 and the side chains.
[00:42:48] Speaker A: The hash power locked sidechains is just the ability of just having any and.
[00:42:52] Speaker B: All expressivity on these side chains, or drive chains, as they are specifically referred to.
It's interesting because you realize that that.
[00:43:03] Speaker A: Opens up the possibility of any of.
[00:43:04] Speaker B: This, like any subsequent decentralized exchange, whatever expressivity. And if it's just open to any minors, I don't know, there's it's interesting because there's still, I still feel like there's some specificity there that I'm missing. And it's so hard to distinguish between Mevil and Mev. And Mev is, like he says, such an unbelievably broad thing.
I don't know. I feel like I need to unpack this more and kind of dig in deeper before I, before I have a lengthy discussion on it because I'm more likely to just confuse myself or confuse you guys in some way that's actually not applicable. So we'll come back to this. I'm going to keep digging. And like I said in previous conversations recently, this is something that I think is the important discussion to really dive into and get as much specificity and as much depth as we can get into because we are talking about covenants, because we are talking about, you know, additional expressivity and tools in the bitcoin system.
And I think this is the important thing to, I guess, have temperance about.
[00:44:16] Speaker A: Or be conservative about in relationship to.
[00:44:19] Speaker B: What things we are hoping to achieve in what new proposals, covenants, CTV, lnhance, csfs, like all of these different things that we've been talking about recently, which ones even start to introduce these ideas or these risks? And how might those things manifest if.
[00:44:44] Speaker A: They did come about?
[00:44:45] Speaker B: So, yeah, I'll keep digging into this. If anybody else has any other, this one was something that somebody else sent.
[00:44:51] Speaker A: To me, by the way.
[00:44:52] Speaker B: So a shout out to whoever that.
[00:44:54] Speaker A: Was, I'm so sorry for not remembering.
[00:44:55] Speaker B: But if you find any other good resources, articles, anything to dig into that's.
[00:45:00] Speaker A: Fantastic, please shoot it my way.
[00:45:02] Speaker B: You can tag me on Nastir or Twitter or shoot me a DM and I'll be keeping an eye out and digging more into this so that we can go a little bit deeper on the show with that. I hope you enjoyed this piece. Don't forget to follow Matt Corolla. Don't forget to follow him.
[00:45:17] Speaker A: Blue Matt.
[00:45:18] Speaker B: Specifically, I will have obviously, the link.
[00:45:21] Speaker A: To his blog as well as his.
[00:45:23] Speaker B: Socials so that you can follow always fascinating opinions. Very, very knowledgeable, been around for a very, very long time. Building on bitcoin. You should absolutely be checking out blue mat. If you haven't with that, I am out of here. Don't forget to buy a cold card to protect your bitcoin. This is bitcoin audible. I am guy Swan. And until next time, everybody take it easy. Guys.
It is the obvious which is so.
[00:46:03] Speaker A: Difficult to see most of the time.
[00:46:06] Speaker B: People say it's as plain as the nose on your face.
[00:46:09] Speaker A: But how much of the nose on your face can you see unless someone holds a mirror up to you?
Isaac Asimov.
