On Bitcoin

Hi, this is Charles Hoskinson broadcasting live from warm, sunny Colorado. Today is November 26, 2024. Thanksgiving is coming, and I'll be flying out soon to Argentina for the constitutional convention. We're also sending a full delegation to Kenya for the other part of the convention, and we're working very hard to ensure that both experiences are immersive. It is truly remarkable to see the level of progress that has been made on the Cardano Constitution after its integration and publication on the 20th.

There has already been a huge amount of feedback, and one of the spaces had over 60,000 viewers, which is extraordinary when you think about it. People are taking the time to talk about a blockchain constitution, and having 60,000 people want to be part of that is special. I want to talk a little bit about something I've been involved in for a very long time. As many of I started in the Bitcoin space, and I loved Bitcoin. It has been a big part of my life, and the only reason I'm here today is because Bitcoin exists.

I would be doing something else in life and wouldn't be a cryptocurrency entrepreneur had Satoshi not created Bitcoin. Like many people who started with Bitcoin in the early days, I experienced a great degree of frustration with the lack of evolution and progress. It just didn't seem like there was an appetite for new approaches and ideas. So, I moved on and got into the altcoin side of the world, working on BitShares, Ethereum, and later Cardano. However, I never lost my love for Bitcoin.

In particular, with Cardano, I took a lot of ideas from the Bitcoin space and tried to evolve and grow them. For example, the Cardano native asset standard, which allows people to issue assets on Cardano, reflects my study of color coins. When you look at UTXO-style accounting, we took that for Cardano and created extended UTXO, essentially finishing what Satoshi started in terms of the development model. My frustration was that all these amazing innovations would never come home. Bitcoin would stay Bitcoin; it wouldn't change or evolve.

In many ways, it became a dead project. There are plenty of people there, but it's not pushing the ball forward anymore and creating a decentralized society that changes economic, political, and social systems. While some people didn't lose their passion, I was sometimes unfair in my criticism. After SegWit, they created something called Taproot, which I've spent quite a bit of time reviewing. It turns out that innovations built on this ecosystem are allowing some degree of programmability for Bitcoin—not enough for it to ascend to what Cardano or Ethereum can do, but enough for Bitcoin to begin to interact with other ecosystems.

When combined with technology like nested transactions or our variant of Babble fees, it means you can create a DeFi layer for Bitcoin and pay transaction fees in Bitcoin. The revelation of this, after reviewing the technology, reinvigorated my love for the ecosystem. Bitcoin went from a sleeping giant in an innovation coma to an awakened giant that is four times the size of Solana and Ethereum combined. Should these floodgates open, I believe that DeFi in the Bitcoin ecosystem will eclipse DeFi in all ecosystems within the cryptocurrency industry within 24 to 36 months. This is due to scale and liquidity.

As good as Ethereum, Solana, and Cardano can be, let's be intellectually honest about this: governments are talking about a strategic reserve of Bitcoin and Bitcoin alone. It's their entry point, and perhaps in five, ten, or fifteen years, that dialogue and narrative will change. However, I believe that Bitcoin is going to reach a quarter million to half a million dollars within the next 12 to 24 months because of the investment inflows and the great interest that has been generated. This will translate to an ecosystem whose value is starting to approach that of gold, an asset humans have used as a store of value for over 5,000 years. Simply put, Bitcoin is the store of value for the internet, and it will remain in that role for the foreseeable future now that it has a DeFi layer.

One of my big strategic priorities for 2025 is making sure that Cardano doesn't get left out of this story, as we are in many ways a spiritual successor. It is the best place to write an application that has both a Bitcoin mode and a Cardano mode. This is why we initially got very excited about the prospect of things like Bitcoin OS and Grail Bridge. I want to be very clear here: I understand the ethos of the Bitcoin ecosystem better than most. They really don't like other tokens, and that's okay; it's their prerogative.

Bitcoin earned the right to be Bitcoin, and as a result, it doesn't have to wake up every day and say, "Boy, I love all these other tokens floating around." They want to say Bitcoin is king, and we only want to live in Bitcoin land. There should be an option for people who hold that philosophy to be able to do so. Thus, whatever bridge exists and whatever hybrid application model exists for Bitcoin DeFi, it must include an option where you always pay with your Bitcoin, full stop. Other tokens pollute this narrative and, frankly speaking, will ensure the failure of the project.

This was our understanding when looking at these bridge mechanisms. I want to introduce you to some of the underlying technology. Another advantage of being in this space for so long is that I know how this stuff works and who created it, so I can go straight to the source and have a conversation with them. Many of these major innovations were created by my dear friend Sergio Lerner. I mentioned yesterday that I'm going to talk to my friend, who has something called Fairgate, and this is Bit VM and Bit VMX.

Robin Linis created Bit VM, but Fairgate is an initiative to create an extension with an abstract CPU, a virtualized CPU based on the RISC-V instruction set that sits on top. When you look at the design of it, there are a ton of really cool ideas in this architecture. What this will eventually allow people to do is create an emulation layer that runs with Bitcoin securing it, allowing general-purpose programmability within reason. This is the underlying concept of how one would start writing a bridge mechanism and a signaling and pub-sub mechanism between Bitcoin and another cryptocurrency. Most recently, you may have noticed that on the Cardano mainnet, thanks to Plutus V3, we tested our very first Halo 2 verification from the Halo 2 proof system.

It was an ad hoc threshold multi-signature scheme, checking out 50 of 90 signatures. Here’s where the transaction came through. The transaction fee for this is just 2 ADA for a very large proof. This type of innovation, combined with other foundational building blocks, is necessary to create a hybrid application architecture where things can talk to each other. Basically, what we want to achieve is to have a wallet that is a Bitcoin wallet with two sides.

The orange side is Bitcoin proper, the Bitcoin mainnet, and the blue side is the Cardano mainnet. The concept is that with your BTC, you're going to click a button and say "enable DeFi." What this really is is a Cardano native token; it's wrapped BTC under the hood. This goes through a bridge, and the existence of these VMs makes that bridge trustless over time. It's a very strong, powerful trust model.

Nothing in life is truly unhackable, but it's as good as it gets in many cases if it's designed the correct way. Once it's here, it behaves just like anything else issued on Cardano. Because of Babble fees, you can pay transaction fees in this wrapped asset. When you're done, you click a button to disable DeFi mode, which burns those tokens and unlocks them on the Bitcoin network. Why do you do this?

You do this because you can have a DApp ecosystem, which can include all the experiences that the Cardano ecosystem has created, plus external ecosystems thanks to Midnight and the bridges being built there. For the first time ever, Bitcoin can participate in that. You can trade your Bitcoin on DEXes, use all kinds of yield-bearing instruments, and get paid back in Bitcoin or stablecoins or whatever you want. When you're done, just click a button, and you go back to the Bitcoin network. Over time, the fees and latency associated with this in terms of settlement time will improve.

This entire model allows people to think around a hybrid application. I'm going to put a dedicated product manager on this, and we're going to call up all those people I've been talking to throughout my 14 years in Bitcoin. We'll figure out how these components fit together. Thanks to Babble fees, you pay in BTC from a Bitcoin user's experience. This is at a wallet level, and supporting wallets can basically just upgrade.

For the first time ever, a Bitcoin user will have a DApp store, and they will just have a simple button to click to enable and disable DeFi mode. That's a seamless transaction, and once it settles, they're in a DeFi ecosystem. When they're done, they go back to Bitcoin. So, if you're a Bitcoin maxi, why would you want to do this? Let's say you want to participate in real-world assets.

You want to go to an exchange and maybe sell some of your Bitcoin, or you want to purchase another token, maybe a meme coin or something like that, or you're a Dogecoin fan. Under the old workflow, you'd have to go to a centralized exchange, turn over your Bitcoin to someone else's custody, go through KYC and AML, and hope they let you withdraw when you're done. That's what the legacy world currently offers you—completely centralized and completely outside of the "be your own bank, not your keys, not your wallet" mindset that Bitcoin grew up with. Under this model, you would send it to a different network that has a very strong security protocol. Our Boris has been running for seven years, 24/7, without disruption, and that security model gives you certainty that when you are in DeFi mode, things are going to run well.

You have complete custody and control over your keys because you own the private keys on both sides. You use your DeFi, and when you're done, you go back to Bitcoin. Over time, Cardano is going to multi-resource consensus. Currently, we have Ouroboros, and when we look at the Omega age, we're going to add Minerva at some point in the roadmap. This means that elements of proof of work from Bitcoin could potentially be used to further secure Cardano.

More collaboration between Bitcoin and Cardano means the best of both worlds can come through. Through Cardano, you have a safe entry point to the rest of the cryptocurrency ecosystem, Solana, Ethereum, etc. If you're a Bitcoin developer, this is an extended UTXO system, so if you learn AEN, which should only take about two weeks, you can write a beautiful smart contract. We can achieve interoperability on these virtual machines and build a compiler for that on the Bitcoin side, so you have one development experience and language to talk to both Bitcoin and Cardano. This is one of my highest priorities because I think Bitcoin's back, and the sleeping giant has awoken.

Cardano has to take care of its destiny and path. This technology doesn't belong to just one company; in fact, quite the opposite. This technology is the product of hundreds of people's labors and efforts, like Sergio Lerner and others throughout the years. Fairgate is just one of several initiatives. Robin is working on this, and there's an emerging ecosystem for it.

It's very important that this finishes its way through and that people get these things done. Thanks to Taproot, Bitcoin has enough to do what it needs to do. There are still a lot of questions about cost and scalability. I was in a space recently with the ordinal people, and a 20-kilobyte inscription on a Satoshi in Bitcoin costs about $400. This gives you a sense of how expensive it is to utilize the Bitcoin mainnet; it's a very scarce resource.

A big part of this is concise representations, and bridge logic and some connecting tissue have to be built. This picture under the hood is significantly more complicated than people realize, but we've been around for a very long time. Having been around for a very long time means we have the people, we know where all the bodies are buried, and we know all the connections and how they operate. We're just going to get it done; we're going to figure it out one way or the other. It's a high priority for us.

It's good to work with old friends and talk to old acquaintances. It's good to look at this old technology that people who carried the tireless torch pushed forward and got done. I never really thought I'd have a conversation like this; I thought the Bitcoin days were over. It's good to come back home, and it feels a lot more comfortable than I thought it would be. I'm excited to start innovating again, and I look forward to seeing Bitcoin enter this new era.

The era of DeFi is going to be a big thing for it, and it's going to change the world. By adding this capability, it means that every government institution gets to play. The fact that Cardano can play a role in that, and was designed to play a role in that, is a really cool honor. It's going to facilitate the movement of trillions of dollars long-term through a network into the rest of the cryptocurrency space. I'm excited to see it and be part of it.

We're going to go into deep product mode now. We already have our infosec people and cryptographers analyzing Fairgate's tech and others' tech. We're discussing how to bring things quickly together. As I said, we're going to set up a dedicated product group within the innovation team, and they're going to figure out how to put these pieces together. We're going to upgrade LA to support Bitcoin; that will come in 2025.

The DApp store in Lace will enable this Bitcoin-style DeFi, but we'll also talk to the ordinals people and other ecosystems in Bitcoin that are a little more friendly to this. We'll see if we can offer an upgrade for free to their wallets to have a DeFi mode in Bitcoin where they just click a button. There are other partners we can bring in as well. The goal here is liquidity, and the goal here is transaction volume. We're going to get this done one way or the other, and we're going to bring it to the industry.

We're going to watch that sleeping giant awaken. Another thing that miffed me about the Wyoming stablecoin was that it was a natural path to bring the first asset-backed stablecoin into the Bitcoin ecosystem. What we were proposing was kind of a three-for-one: you could do privacy-preserving transactions using Midnight. If Cardano is a very secure platform to issue on, then Bitcoin can have access to it and use it. This would act as a wonderful competitor to Circle and Tether, forcing them to not take advantage of monopolistic practices.

The fact that it got captured by Circle and deployed outside of this ecosystem meant that Bitcoin also lost that opportunity. That's okay because there are others who are interested in that role. So, this bridge, in addition to bringing DeFi to Bitcoin, can potentially bring a stablecoin to Bitcoin. We can even look at algorithmic stablecoins, like Bitcoin collateral for Jed, which is a fascinating concept. There's a lot to say about this and a lot to do, but I believe we absolutely can get it done.

I'll make some periodic updates as we get further along. I'm going to try to do this project in the open as much as possible. Whoever we choose to be the product person to lead this, I'm going to try to get them to showcase some demos every two weeks, we did for the demo of the ATMs' recursive signature that was done with Halo 2 on the Cardano mainnet. Alright, everybody, talk to you soon. Cheers!