FORMATTED TRANSCRIPT: LIGHTNING PAY, BITCOIN & THE FUTURE OF MONEY WITH SIMON COLLINS

Opening Quote

"The next time you see the emergence of a major shift in networks or the emergence of a potential major new network, you should really grab hold of it with both hands."

Introduction

Well, hey everyone. Welcome to Pushing The Limits. Fantastic to have you all join me again. Today I have the wonderful Simon Collins with me. Welcome to the show, Simon.

Simon: Thanks, Lisa. How are you?

Lisa: I am very good. And you're sitting in cold Queenstown and I'm sitting in cold New Plymouth. And we've had a bit of a weather bomb, haven't we?

Simon: Yeah. Yeah. Yeah. I'm actually in cold Christchurch.

Lisa: Oh, you're in Christchurch.

Simon: Yeah. I'm the one non-Otago member of the team at Lightning Pay. So we scrape in as an Otago business despite me, not because of me.

Lisa: Yeah, that's right. Yeah.

Simon's Background

And Simon, you're a co-founder at Lightning Pay, and we had your wonderful Brandon Buchet on recently, your partner. And we're going to do a bit of a further deep dive into Lightning Pay, but also your experiences because you've had a really wide-ranging experiences, also in mining and sustainability and all of those great conversations that I want to get on to with you today around Bitcoin.

So, but just in your own words - tell us, Simon - where did you come from and how did you end up in this space?

Simon: Thank you. So I'm a Wellington boy, not necessarily born but definitely bred. I lived in Wellington until I was about in my late 30s. And I started life as an academic. So I did my PhD at Vic in Wellington in management. I started a consultancy not long after finishing that, which I ran through kind of the 2010s. It was not a tech consultancy, but I've always been very drawn to technology. I'm best described probably as a bit of a hardware tinkerer and a software destroyer.

But I was always very attracted to technology as a space. And then when Bitcoin came along, I had a very slow but kind of consistent emergence into the space - as first as an observer, sometimes participant, dipping in and out, losing probably more Bitcoin than I ever want to think about through bad practice, dodgy laptops, ignorance...

Lisa: And then probably - it was very early days.

Simon: It was very early days. And then probably in the late 2010s, started to make it a far larger part of my life. Whether that was mining at home or simply just accumulating as much Bitcoin as possible, and then doing all sorts of stupid things like gambling with it and DeFi and that kind of thing.

Always Compelled by Bitcoin

But I was always kind of compelled. I always saw it as something that was worth keeping an eye on, really interesting as an experiment. But then when it became clear that it's no longer just an experiment, I knew that I kind of had to grab a piece of it.

And rather than just owning it, I've always thought it's really important for New Zealand to have local businesses that are Bitcoin-based or Bitcoin-centered. Because we simply will be left behind if we don't. I mean, the rest of the world, particular parts of the rest of the world, have grabbed hold of Bitcoin with both hands. And in New Zealand, I really feel like that's just not the case.

So whether it's through my very small and mutating mining company Stacker, or through Lightning Pay, I've sort of sought to bring at least the outcomes of Bitcoin and Bitcoin ownership to New Zealand.

The Internet Story

Lisa: Yeah. And you talked about seeing the network grow. Last time we talked, you talked about the internet - seeing that as a young person and then going, "Ah, I missed the boat on that one."

Simon: Yeah. Yeah. Happy to tell you that story, because that's a fundamental way of how I think about the power of networks and why networks are so important.

So I was a kid in the - I was born in the 1980s. I was a kid in the 1990s when my mother worked for one of the first ISPs in New Zealand, one of the first internet service providers in the country. And so during school holidays, I used to go and stuff envelopes with invoices. So we used to send invoices for the internet using snail mail back then. That's how early days it was.

And it was a startup. It was a startup like Lightning Pay is a startup. It was like two guys who were really passionate about this new internet thing. And so I sort of saw the beginnings of the internet in New Zealand, and I was just too young. I was probably 13 or something. And so I was never going to buy a piece of it or build a business off it. But I tucked that away in the old long-term memory.

Facebook in an Internet Cafe

And then when I was probably slightly older, I remember - because my now wife and I, we were traveling through Southeast Asia for quite a long time - signing up to Facebook, I think in an internet cafe in Vietnam. That's how old I am. Internet cafes were a thing.

And so signing up to this first social network from the sort of base of the technology that they were at at the time, and watching social networks become the almost dominant type of network - whether they are about creating relationships between, creating and sustaining relationships between people, but also then becoming major advertising monetization networks in of themselves.

The Lesson: Grab the Next Network

I think it was about that time I decided: the next time you see the emergence of a major shift in networks or the emergence of a potential major new network, you should really grab hold of it with both hands.

And so I think when Bitcoin came along, I was already looking for the next one of these. I think because - I mean, the internet has demonstrated how powerful it is when you network information. We've bolted a whole lot of stuff on top of it. The internet was never designed to have retail on it, to send media over it. It was never meant to displace physical stores or anything like that.

But here's what kind of the intersection of innovation and a network enabled was for people to go, "Well, if I can put a library on the internet, why can't I put the shop next door on the internet?" And then the same with social networks - "If I can put a letter on the internet, why can't I put photos? Why can't I put my experiences? Why can't I put all sorts of stuff on social media?"

Bitcoin as a Platform for Innovation

And I think the same with financial networks. When we look at Bitcoin as an extensible network, it's not just a thing that stores coins for you. It's a platform for innovation. We can build stuff on top of Bitcoin that might not actually look like just sending money between people.

Like, what's the Netflix moment for Bitcoin? What's the iPhone moment for Bitcoin? What is the innovative product that will change how financial networks are viewed, seen, and used?

I think we're not there yet. We're not there from a user experience perspective. We're not there from an adoption perspective. And we sort of maybe aren't there from an infrastructure perspective maybe.

But I still think that when people like the team at Lightning Pay - we look every day to understand how we can create new and interesting things that live on top of Bitcoin and particularly on top of Lightning. Because Lightning allows for that kind of innovation, extensibility, programmability - you can build apps on Lightning, all that sort of stuff.

So that's the kind of thing that we look to do. And so I think we're all pushing Bitcoin towards maybe - what is the Facebook, the Netflix, the iPhone moment for this particular network?

Lisa: Wow.

A Framework for Understanding

That's a really golden explanation because it gives you a bit of a framework. Because we tend to think as humans in a linear sort of fashion. We can't imagine what we don't understand or don't know. And we don't know when the internet came - none of us had an inkling of just how big it would be. And then we had the dot-com boom and bust cycle, and people thought it was all over. But actually, it was just the beginning of the internet really afterwards. It was really where it really sort of grew and blossomed, if you like.

And it's changed all of our lives. And of course, the iPhone came along and that changed our lives and so on and so forth. So we have these moments in history, if you like, where we didn't see it coming. It's only in the rearview mirror when we can go, "Okay, that's what that was about."

Bitcoin: More Than Lightning

And with Bitcoin, how is it different then? Because you're building the infrastructure - Lightning Pay - for those who haven't watched the episode with Brandon Buchet, go and listen to that, and I'll link it in the show notes where we go into a little bit more the specifics of Lightning Pay.

But basically, it - definitely go and listen to it.

Simon: Definitely go listen to the episode. Yeah. Yeah.

Lisa: And we talk about the Lightning Network itself and how it's helping the scalability of Bitcoin and Bitcoin payments. Because the actual base layer Bitcoin itself protocol can only do seven transactions per second or something ridiculously small, because it's focused on security and decentralization. And with Lightning Network, we can build and scale on that.

But what you're saying is that actually we're going to be able to build a whole infrastructure around Bitcoin. So it's not just Lightning - it's much, much more. Is that what I'm understanding?

The Internet of Value

Simon: Yeah. Total sort of financial plumbing stuff happening. And I think of it like this: the internet is purely the exchange of information.

And look at what people have interpreted information to mean in the modern internet. I mean, we're exchanging information over the internet right now, you and I, Lisa. Like, this is technically information. It runs over the same pipes as the original databases that DARPA used to, or built the internet to exchange - which was literally spreadsheets of data, probably comma-separated values. Nothing fancy.

And then here we are, like 40 years later, the internet is us sending video between each other. There's probably 10 apps running in the background of each of our computers that are also exchanging information. I've got a phone next to me which is constantly connected to the internet, doing a bunch of stuff which is exchanging information. But it's not information as the original internet was kind of designed.

What Is the Exchange of Value?

And so when we think about what the exchange of value is - which is what Bitcoin is, the internet of value - how do we interpret what value is in 40 years when the infrastructure to exchange value touches everybody? When the ability to interpret what that means to you is entirely open because you've got a platform that you can build and innovate on?

I mean, the internet is TCP/IP, HTTP and HTML. I think of it as the confluence of three protocols that people can use and interpret in different ways.

Bitcoin is the intersection of cryptographic signing of transactions, proof-of-work computing, and blockchains. And so it's kind of the same thing. It's the confluence of three innovations that anybody can interpret each of those in the way that they want to. Each of those can be utilized in the way that that person wants to. And you can build stuff on top of it that doesn't necessarily reflect the original use case as it was proposed, but there's nothing stopping you from doing it because it's an open network that allows you to do so.

The Future of Value Exchange

So yeah, I think the thing that's interesting is: what in 40 years does the exchange of value look like?

Because the internet bolted the exchange of money on top as an information layer. Visa and Mastercard kind of went, "Well, if we treat money like information and we can settle it on our own systems later, we can do e-commerce online." Amazing. What a great innovation. That's super helpful. It has enabled an entire sector of the economy to emerge in e-commerce.

And that's great. We can literally just replace that today with Bitcoin, and it's native to the exchange of value. You don't have to kind of do that backwards hack to create money as information, to stick it on the internet of information. Put it over here on the internet of money, and you've actually got real e-commerce between real people exchanging actual value.

What's next? Because these are...

Lisa: Mastercard and not actual real transactions going over the... It's not...

Simon: Yeah, it's an agreement of the debt is going from one person to another person. And that's why it takes so long to settle.

The Reality of Card Payments

I mean, my wife owns a business. They've got probably three or four EFTPOS terminals and three or four online stores across the sort of portfolio of stuff that they do. And you know, it takes days or weeks to settle the funds that they take. Because what you're exchanging at the point of sale is information.

It is: "I bought these items from this person at this amount using this currency at this time of day. I'd like to see that in my bank account at some time, please." Or that's what the vendor would like.

Lisa: Exactly. Exactly.

Simon: So yeah, we've hacked information to be money. But what we have now is an internet of money that is the real exchange of value. So I just think it's exciting to see what we can build on that.

Mind Blown

Lisa: Well, you've just actually really blown my mind because I haven't thought of it in this way - that this is like a new form of internet, for want of a better description. And that we can actually be creative within this and the solutions that we build.

Because I've been focused on Bitcoin as a store of value, as an investment vehicle, as hard money, sound money, in a world of fiat-based debt. And coming at it through that lens because I haven't had a technological background, I haven't really thought of it as like a different protocol - different but similar to the internet protocol - but a completely different, more native protocol that can actually help us build things directly and with lower fees and better transactions and peer-to-peer and all of this. Wow.

Missing the Forest for the Trees

Simon: People get - I think especially people who are new to Bitcoin get very tied up with the fact that: A, it's a token; B, that token has a price; and C, the most important thing about that token is its price.

That simply is not seeing the forest for the trees really. Like yes, a Bitcoin might be worth $115,000 US today. But the network that that Bitcoin is recorded on and sent on will settle $12 trillion US this month. It will do more in value exchange in probably two weeks than New Zealand does in a year.

It's moving more money at sort of 4.7% of the world's population having touched it at some point than most countries will do in decades.

The Network Is What Matters

And so this is, I think, the really important thing that people miss. And when people talk about "what if a better Bitcoin comes along?" - the network is here. It's established. It's working as intended. And it's doing the thing that innovators need it to do, which is to be reliable, safe, consistent, and available.

And so when you get deeper and deeper into Bitcoin, I think the network becomes a really interesting thing. And the value of the token becomes kind of... you know, what it is.

The Network Effect

Because when you see the network effect scaling, when you see more people adopting Bitcoin, when you see more people using it on a daily basis, when you see new innovations being deployed on it - whether it's even just different types of wallet, whether we change wallet security through changes like SegWit and allowing for assets on like the Taproot asset kind of innovations...

You start to look at Bitcoin as a thriving ecosystem that is kind of inevitable and can't be stopped. Like it is now - it's now under its own steam. It doesn't need kind of coddling, handholding. What it now needs is innovators and people to get out of the way.

The Broader Crypto Ecosystem

Lisa: Well, how does the broader crypto ecosystem fit into this framework? Is it a completely different thing then when you have smart contracts starting off with Ethereum and then other layer 1s and other layer 2s and 3s and all of that space that's building on it? How is that different to what the Bitcoin network is? Or is it related from a technological point of view?

I know it from an investor point of view, but I don't know it from a technological point of view. How do you see that development as part of Bitcoin's bigger story?

Bitcoin Maxi Alert

Simon: Yeah, that's a great question because it's a really great opportunity to clarify what I think is really important about Bitcoin and how it's differentiated from the rest of these networks.

So I'll preface everything I'm about to say by saying that I'm probably about as toxic a Bitcoin maxi as you could ever ask to meet. So I don't look very favorably on these other networks.

Lisa: Yeah, that's right.

Compute Networks, Not Money

Simon: I think if you were to be as kind as possible, you would say they are compute networks rather than financial networks. And I think, you know, Ethereum started with the view that it would be a world computer - like it would be a computer you can use the processing of anytime, any whenever you want. You just pay for space on the block and you can execute a smart contract, as you say, which does some sort of thing using the computing power that's available to the network.

And people have kind of - again, in the same way that we did with the internet - they've kind of financialized them by sticking USDT or USDC tokens on top that then they apply a monetary value to. But they're not money.

Bitcoin is money. Like, I think that's the important distinction. Bitcoin is money, and it's a financial network. It has a job. It does the job. It doesn't try to do a bunch of other stuff as well.

No Use Case

All these other cryptocurrencies that were started to be Bitcoin killers or to extend on what Bitcoin can do kind of did so without any real use case. Like, what do you need something to do above being money to be successful?

Ethereum has a market cap of several hundred billion dollars, I imagine, today. I can imagine it doesn't have a use case. It's not the rails of anything.

Lisa: What does it do?

Simon: Stablecoins and all of that sort of jazz - we can put stablecoins on Lightning. We do have stablecoins on Lightning.

It is - I mean, I call it, what? It's a very old-fashioned word, but a boondoggle. You know, it is a massive, expensive project that was done for no reason other than to create it and to see if it would work. And I just don't think it does. I don't think there's anything that it does that offers any value in the real world.

Why Not Just a Database?

People keep trying to kind of inject use case on cryptocurrency, but the underlying question for all of them is: why can't this just be on a database? Why does it have to be on a distributed ledger? Why does your gaming token need to be recorded on a blockchain when it could just be on a database? It would be faster, cheaper, wouldn't require a cost to access or to move. There's all sorts of reasons that they just don't seem to make any real sense to me.

Stablecoins: The Main Use Case

Now, stablecoins have emerged as probably the overwhelming use case. Stablecoins seem to live mostly on one or two blockchains - the Tron blockchain and sort of layer 2s of Ethereum. But now we have it on Lightning Network. And Lightning Network is again, it's a monetary network. So it sort of makes more sense for them to live on Lightning. But also, it's faster and cheaper than any of those anyhow.

And so I just really struggle to see how the crypto space offers anybody any real value other than speculation, memes, and stablecoins.

Lisa: Yeah.

Why Not Bitcoin Lightning?

And so when the US government is going hard with stablecoins and using it to help prop up their debt economy and have someone buy their bonds because no one else is buying them - and that's mostly running through Ethereum and, as you say, maybe Tron - so why are they not using Bitcoin Lightning? Is there a reason? Is it just lobbyists that have marketed it better, or is there a financial...?

Still Early Days for Lightning

Simon: Yeah, it's a good question. I mean, to be fair, we've seen USDT on Lightning for maybe three or four months at the time we're recording this. So it's a pretty new product and probably hasn't had the time to kind of establish itself in the market in the same way that USDT, which has been operating on Ethereum and Tron for probably 10 years.

So the easy thing for everybody to do, including Bitcoin-only businesses like Strike, is to use a crypto implementation of a stablecoin at the moment.

European Stablecoins

So I would say that's why. I mean, I think it's going to be interesting to see how these European-licensed stablecoins will operate. Will they operate on blockchains? Will they operate on private blockchains or on public blockchains? Because the EU is so kind of crypto-skeptic anyway.

So we may see kind of the transition of stables away from these kind of public blockchains onto either private ones or even just back to a good old-fashioned database, because they come with none of the kind of downside of using blockchains.

Database vs. Blockchain

Lisa: Explain to me as a non-technical person: what is the difference between a database and a blockchain then for those listening? Why is this considered special on the blockchain?

So we hear about real world assets all going on-chain - we're going to have our deeds of our houses on-chain, our driver's licenses, our identities, god forbid, all of those types of things. What's the difference there between a blockchain and a database?

The Technical Difference

Simon: Yeah, I think - okay. I mean, there's obviously a technical difference. A blockchain is a distributed type of computing where it's a - I mean, it's a distributed type of database, I should say to clarify. So it still is a form of database. It's just that a blockchain is one where there's a certain amount of space every - let's say Bitcoin for example - every 10 minutes there's a certain amount of room for you to put information into the database, and you pay a small fee for that.

And when around about 10 minutes is up and the block is relatively full, miners hash the block, they confirm all of the transactions in it, and the information that you provided at that time is locked into that block forever.

Immutable Records

So that means that you can go back in 10 years, you can go back and go, "Oh, look, there's the transaction that I made." And it doesn't matter that you've lost your banking login. It doesn't matter that you closed your account. It doesn't matter that you don't have the paper statements anymore. You go back to any Bitcoin node that stores a copy of the blockchain, you download your own copy of the blockchain, and you can go back and you can find Lisa's 2015 purchase of 10,000 Bitcoin.

Lisa: I wish.

Simon: Yeah, there's a little bit of hopium for you.

Regular Databases

Meanwhile, a regular database is like a spreadsheet. You can go in at any time, change a value. Usually it will update the whole balance of whatever it is that you've got if you've got a tabulated sheet or whatever.

Gaming Tokens Example

And so if you are just recording - let's go back to the gaming token kind of example - if you're recording what type of special item a person has on a game, it's far quicker, easier, and cheaper for a database to be updated than to inject that information to a blockchain, to pay for the transaction, to have a miner mine it, to create money out of thin air to reward the miners to do so, or the stakeholders and validators, which is really the case in crypto these days.

The Tourism Industry Example

And it's sort of again - it's a use case, but it just doesn't really compete with the existing application for using this stuff. And I mean, prior to leaving my consultancy, I did a lot of work in tourism, did a lot of work with airlines, airports, and that kind of thing. And blockchain was the hot word at the moment. And everybody was talking about blockchain ticketing, blockchain passports, all this kind of stuff.

And I think what's really emerged is that all of that stuff is still just better on a database, on a centralized database that everybody can access. Because if you want to change a ticket, it's way easier to change an entry in a spreadsheet than it is to find a transaction on a block, pay for the block... Like again, I'm saying the same thing over - pay for the transaction and the entry on a block, and then to have that block rewarded to create a bunch of money out of thin air to pay people to validate it, all that sort of stuff.

And so this is why it's much more complicated and convoluted.

Real World Assets on Blockchains

Lisa: So when people are talking about all real world assets being tokenized and being put on the blockchain, you don't think that's actually going to be a thing? Or in some use cases but not others? Or do you think it might build out on the Bitcoin network as it was intended?

Election Results on Bitcoin

Simon: Yeah, I mean, I think there are certain things that are really worth recording on a blockchain as a major event. We're seeing some interesting stuff in the United States where - well, sorry, we're seeing interesting things internationally where both in the United States and in Guatemala, election results have been recorded to the blockchain so that they can be independently verified at any time. So they've been recorded on Bitcoin.

And that is a really interesting use case, because yes, if you record the results of a vote and it's a verifiably accurate vote, it's very hard to change the number - or absolutely impossible to change the entry on the Bitcoin blockchain.

Lisa: Yeah.

House Transactions

Simon: And so, yeah, that's an interesting use case, I think. And I'm going to get a lot of heck from the Bitcoin Knots side of the OP_RETURN debate on this one. But I think there's value in recording things like a house transaction on a blockchain, because the details of that are so important - they are the transition of a major asset from one person to another. They do require the time and date of that transaction to be recorded.

It really is important. I don't think that the deed needs to exist on there. I think in New Zealand, Land Information New Zealand is probably still way better at holding on to who owns a piece of land. But the value of the transaction, the time it happened, who it was between is really useful because it really does establish immutable ownership of that. And you can't have somebody go, "Well, I've got a piece of paper that says I own it and I've got a piece of paper that says I own it." Well, not that that happens often.

Car Ownership and Accident History

But the other interesting use case as well, I think, is cars. And this is probably one that most people haven't heard of or thought of. But if you buy a car and the ownership is recorded on the blockchain, that's a really useful thing. If that car is in an accident and the accident and the repairs that are required are recorded on the blockchain, then when you go to sell that car to another person, that person can look up the history of the vehicle and see that you've had particular work done or you didn't get a warrant or you failed a warrant at some point. You understand the condition of that vehicle far better.

Where an event really does benefit from the immutability of the information that surrounds it - that's a really interesting use case for blockchains, maybe outside of money.

On Bitcoin, Not Other Chains

Lisa: And would that fit within the Bitcoin framework - like building on Bitcoin as opposed to building on the other crypto?

Simon: Yeah. Yeah. Well, I mean, if we're going to allow or if we're going to have NFTs on Bitcoin, like we apparently do these days - if we're going to have non-financial information on Bitcoin, I would really hope that it was at least useful.

Lisa: Um.

Simon: The exchange of digital paintings is probably down my list of value. Not saying that they have absolutely no value to anybody, but they're probably down my list. But yeah, these sort of real world events that are important to record - elections is a great one, transition of major financial or physical assets is another really great one.

Side Chains for Non-Financial Data

Lisa: But can we build applications on top of the - so it's not on the Bitcoin base layer - that would allow for these non-financial transactions or things, PDFs and whatever, without being on the base layer? And is that the core? I don't understand the whole argument - what's going on there? I know there's arguments going on, but is that really what's being discussed there?

Lightning and Liquid

Simon: I mean, the thing about Lightning and Liquid - sort of side chains to Bitcoin - is that eventually their information gets recorded back to the main chain but in a bulk fashion. Right? So rather than having to do every single one of these transactions on-chain at the cost that that comes at, the time delay that that requires, and at the expense of other major transactions to be recorded in the block, you can do thousands or tens of thousands of smaller transactions that then get kind of bulk recorded to the blockchain at once.

And I think that's where high velocity is really useful. We could increase the velocity of stuff that happens on Bitcoin by using Liquid and Lightning side chains to maybe record...

Moving JPEGs Off-Chain

Yeah, I mean, the transacting of JPEGs is a great one. Let's move that off the main chain if possible, because to compete for block space with the transaction of a picture is kind of frustrating. But maybe where there's literally no downside - because if there's channel liquidity and a route - who really cares what you're transacting on Lightning? Because it's so fast and cheap and settles instantly. So it's a completely separate thing.

Lisa: Wow.

Mind Blown Again

That discussion's absolutely blown my mind and sort of opened my eyes a little bit further to the underlying technologies and trying to grapple with things. Because when you come into the Bitcoin space or the crypto space, you come in it usually from the investing side of things and not from the technological. Where you've come from the other way around, and Brandon as well.

And then because with Bitcoin, there's so many layers of that onion you can peel back. And every time you do, you just realize you don't know anything. And you've got to go another layer deeper and go, "Oh!" So it starts to blow your mind.

Bitcoin Mining and Energy

But if we switch gears now a little bit - you have a background also in doing a lot of mining in the early days. And then there was the argument - and there still is, especially now with AI - and then in the past it was more of a discussion: Bitcoin is using up energy resources and it's not sustainable and it's not environmentally friendly.

What's your - as someone who was a miner and understands this space very well - why is that not quite the full picture?

Digital Asset Research Institute

Simon: Yeah. Well, I mean, I think there's several ways you can go about that discussion. So for another useful piece of context, I'm one of the founding researchers at what's called the Digital Asset Research Institute, which is a research body that is aimed at doing kind of impartial and empirical research on Bitcoin with a focus on producing outcomes that are useful for policymakers, for the boards of large investment institutions, so that they can make actually informed decisions about whether or not to invest in Bitcoin or Bitcoin businesses or Bitcoin-related businesses.

Because yeah, there is a huge amount of misinformation out there.

Citation Laundering

One of the first pieces of research that we produced at DARI was a piece of what we call citation research. And we looked at the pathway that different bits of misinformation took through the kind of narrative of Bitcoin.

And what we traced it back to was a guy and a paper. The guy - his name is Alex de Vries - and he works for or continues to work for the European Central Bank as a consultant.

Lisa: And he wrote a paper in 2018 called...

Simon: Yeah. Yeah. I mean, yeah, there's plenty to be said and not said about that.

Lisa: Yes. Exactly.

Bitcoin's Growing Energy Problem

Simon: Alex de Vries wrote a paper called "Bitcoin's Growing Energy Problem." The problem with this paper is that it is not a research article. It's what's called a commentary. Commentaries are published in academic journals, but they are shorter and they are limited to 16 references. They also don't necessarily - and in this case certainly did not - actually conduct any research, like any primary research. He did not go out and measure anything, and then he did not perform any analysis on that measurement, and then he did not create results based on that measurement.

What he did was kind of gather the information he could in 16 references. 16 references, by the way, is nothing. Like, I produced a paper that was released on SSRN recently - it had 143 references. So he's off by a factor of almost 10 for an actual...

Lisa: And again, mine was a theory paper.

Simon: Yeah, that's right. Well, I mean, it just means there's no rigor. There's no - like, you can collect sort of secondary databases and you can make some inferences, but again, you've only got two and a half pages to write this stuff up.

The Citation Cascade

So he made up a bunch of stuff, thoroughly debunked by several papers that followed it. But not only he, but a small group of other researchers produced further commentary papers using that as the single source of truth basis.

Lisa: It happens in medical as well, because I do a lot in the medical space, and it happens over and over.

Simon: Yeah. So nearly 5,000 references accumulate for this one paper that isn't even true.

The Narrative

So this is where the story that "Bitcoin uses as much electricity as certain countries" - Bitcoin uses as much... What that fails to mention is the context of it. Like yes, Bitcoin uses as much energy as some small countries. It fails to mention that almost all industries use more energy than entire countries, because countries are relatively small. Industries span entire countries or the entire planet. They're not geographically bound like New Zealand or Ireland is.

So they're based on these kind of large and absurd claims that people don't have the time or wherewithal or their own knowledge to kind of consider with any sort of skepticism.

The Energy Mix Problem

So we ended up with a narrative in the mainstream that Bitcoin is coming to eat the planet's electricity, where it couldn't be further from the truth.

And then the other bit of the narrative is that it uses all of this horrible thermal electric energy - like coal, natural gas, oil, all that sort of stuff. Whereas the reality is that those sorts of figures come from taking a country's entire grid mix, which is the whole balance of electricity produced in that country - how much of it is coal? How much of it is hydro? How much of it is solar? How much of it is wind? - and then going, "Okay, there's this much Bitcoin mining in that country. They must produce this much emissions because they use the same electricity as on the grid."

The Incentive to Be Off-Grid

Failing again to realize that in Bitcoin, you have an incentive to be off-grid. Off-grid means that you don't pay for the costs of transmitting electricity around the grid. It means that you can do deals with a generator to be on-site with them and to purchase electricity from them directly, which means you don't incur a bunch of different costs.

It also means that you're incentivized to be a flexible consumer of electricity rather than using it at any or finding the cheapest electricity and using it at any cost.

Interesting Dynamics

Which means that you get interesting dynamics like Bitcoin mining at wind and solar sites where it only uses electricity when there is excess. That means you get really interesting dynamics like if you've got Bitcoin mining at hydroelectric sites and the Bitcoin mining scales up when the dams are full and need to lower lake levels to maintain appropriate water levels, or to scale down when electricity - or when the lake levels are low and the grid is in need of that electricity.

The Nuanced Reality

So there's a whole kind of collectivized and inaccurate narrative that got picked up because it's really simple and easy to understand, and there's a really clear - or there's a much different and more nuanced story under here. That's the reality.

Guess which one is easier to report on? To turn into a sound bite? To turn into a shocking fact to have to talk about at dinner?

So yeah, the reality of Bitcoin mining and its energy use is majorly, majorly misunderstood, misquoted, and maligned for those reasons. So yeah, as a result, we have a pretty poor reputation and public outlook.

The Reality

The reality is Bitcoin mining is the fastest-greening business on the planet. At DARI, we run what we call the Bitcoin Emissions and Sustainability Tracker - the BEST model. And we track both on and off-grid mining, the proportionality of that, the different - the hash rate of different countries, the proportion of on and off-grid in different countries.

And we produce what we consider the best picture of the actual use of electricity of Bitcoin mining in the world. And we put it at about 56 to 57% renewable energy and probably 40 to 50% off-grid.

The Economic Incentive

So Bitcoin mining is a very, very nuanced space. And the reality is it's incentivized to use renewable energy because it costs what it costs to throw a lump of coal into a coal power plant and generate electricity. The cost of that coal fluctuates quite significantly. In fact, it's been quite inflated over the last few years for certain reasons.

Whereas renewable energy has very flat costs overall if you amortize it out, but has very consistent generation profiles, and the cost of generating that doesn't change. So if you build a solar farm or a wind farm, you know what it's going to cost to operate from now for the next 10 years. You may not know what you'll get for the electricity because the grid demand fluctuates.

Buyer of Last Resort

But if you have a Bitcoin miner there to soak up any extra electricity, then you've got a buyer of last resort for that electricity, which means that otherwise it would be lost. The electricity gets wasted.

Lisa: That's right.

Curtailment

Simon: So yeah, we talk about curtailment in Bitcoin mining. So we talk about curtailment in energy. Curtailment works on both sides. You can curtail generation or you can curtail demand.

Curtailing generation means: sorry guys, the grid can't take any more electricity at the moment. It's full up. You need to turn off a wind turbine. You need to turn off inverters at solar farms. You need to close off some gates at a hydroelectric generator because the grid can't take anymore.

That's a perfect opportunity for a Bitcoin miner to step in and buy that electricity that would otherwise not be transmittable at a reasonable price.

And then curtailment on the other side, on the demand side, is: hey guys, we don't have enough electricity for the grid's demand. We need you to turn off.

New Zealand Example

And we see this - there's a seed oil plant in Canterbury who has a 1-megawatt seed mill, and they will be curtailed at no notice by their supplier because the grid doesn't have enough electricity for them. And so they can get curtailed at no notice.

If you had an incentive to build more electricity - like say you had a customer who would buy your electricity at any low price - then you might have an incentive to build more generation capacity, which means you don't curtail people like retail customers, and you do curtail your very flexible load like Bitcoin.

Incentivizing Renewable Buildout

And so Bitcoin's presence either on the grid or on the site of generators actually incentivizes the creation or the buildout of more renewable electricity. Because its very variable profile but flexible consumption from Bitcoin means that you can monetize that and account for increases in the demand of the grid.

Lisa: Wow.

AI's Impact

Thank you so much for that nuanced explanation. So now people are educated on the nuance of that one-liner headline that you've heard and seen. And with AI coming into the mix now, we are seeing massive drawdowns with AI. And now the discussion doesn't even seem to be around it - worrying about that - but just building, at least in America, building like no tomorrow.

Alex de Vries Pivots to AI

Simon: Well, here's a fun anecdote. Alex de Vries, the original poo-pooer of Bitcoin and energy, has pivoted his focus from Bitcoin to AI's energy use. So yeah, you can see that...

Lisa: The information - he popped up again on Twitter for the first time in a very long time recently to complain about the abuse he's gotten from Bitcoiners and to announce his exit from the space and that he's now moving on to AI. And now he's gone again.

Simon: Yeah. Yeah, that's right.

AI vs. Bitcoin for Electricity

Anyhow, so yes, AI is coming. This is the thing about Bitcoin mining that I think we need to look at from a security perspective for the base chain. AI is coming for the electricity that Bitcoin is currently using.

If you have 99% uptime as a Bitcoin miner, you're paying $30 to $40 a megawatt if you're getting pretty reasonable pricing. That's US dollars. So that's $55 or so dollars a megawatt in New Zealand at the moment.

AI is coming for that electricity because AI will pay $200 or $500 a megawatt. And AI data centers would absolutely love to outbid Bitcoin miners for baseload electricity.

Bitcoin Forced to Curtailment Niches

So Bitcoin is going to be forced out from baseload to these curtailment and unique energy niches that are only available to Bitcoiners. Because AI can't cope with being turned on and off. Bitcoin can cope with being turned on and off.

Lisa: So it'll be more distributed into smaller packets around the world, so to speak, where they can be at a power station somewhere.

Simon: Riot has an 800-megawatt or almost a gigawatt site, I think, in Rockdale in Texas. That sort of scale might be really hard to justify mining Bitcoin at when AI will come and buy that electricity from that generator at five to 10 times the price that a Bitcoin miner would pay.

Smaller, Distributed Sites

Meanwhile, there is opportunity to build 20 or 30-megawatt, very, very curtailment-focused Bitcoin mining sites at these kind of high-curtailment solar-concentrated solar regions, like deserts and that kind of thing. Because again, Bitcoin mining doesn't mind being distributed. It doesn't mind being further away from towns and cities.

AI gets very caught up in latency issues and that kind of thing. Bitcoin mining can run on Starlink or even cellular networks.

The Dung Beetle Theory

So yeah, there's a guy called Troy Cross. Troy Cross is an academic from the United States, and he works at a university but also has the Nakamoto Institute where he produces research similar to what DARI does. He's got what he calls the Dung Beetle Theory of Bitcoin mining, which is that in the future, Bitcoin mining will be like dung beetles. They'll kind of just look for little unused bits of electricity that it can roll up into a package that it can monetize. And that's what the future of Bitcoin mining looks like.

Lisa: Wow.

Jack Dorsey's New Mining Rig

Yeah. You've got - didn't Jack Dorsey just release a new Bitcoin mining rig for home use as well? Is that correct?

Simon: Wow. I mean, yeah, home - but also commercial or industrial, like commercial-scale mining as well.

US Supply Chain

So Bitcoin mining has been dominated by Chinese companies for basically the entire time that it's been a commercial enterprise. It used to be done on CPUs and then GPUs, and then the first ASICs came along, which is a chip specially designed to mine Bitcoin with. And it has been Bitmain and Whatsminer and Canaan or Avalon who have kind of dominated the space to date.

In the United States in particular, but also in countries like Japan, if a chip or a product has touched the Chinese supply chain, many places will not allow it on their networks anymore.

Lisa: Wow.

Japanese Telecoms Example

Simon: There is a - I was talking to somebody from a very large miner just last week who had a potential large agreement with a Japanese telecoms company to use excess energy on their network to mine Bitcoin. When they did the assessment on the hardware that would be bought onto their network, they were like, "We can't have anything that's gone through China."

Even if the chips are manufactured in Taiwan, if they enter China, they won't put them on their network.

So there is a firm interest in having a Bitcoin mining supply chain that is entirely ex-China, simply because of the risk of the injection of spyware or the manipulation of the hardware or whatever it is.

US Manufacturing Push

So I would say that's part of this. So there's obviously a drive to manufacture more stuff in the United States. I think that's part of it.

Upgradable Hardware

Another part of what Jack Dorsey is introducing with this product is that to upgrade hardware at Bitcoin mining today, you have to remove the old machine and put a whole new machine in. They're sort of shoebox, two-shoebox-sized pieces of hardware. That's kind of expensive from a capex perspective. It's very wasteful from - really, in this whole shoebox-sized unit, there's three hashboards that you're really replacing. They'd be smaller than this book in terms of the actual size. That's where all the compute takes place.

But all you're really doing is upgrading those, and the profile and the layout of the machine, the way that it - the power supply, the control board, all this different stuff is kind of just taken away and wasted anyway.

Modular Design

What Jack's machine does is it means you can remove those internals and put in new internals, and the profile will stay the same and the unit will stay on the shelf. And so it makes the capex and the ease of upgrading much improved. So yeah, that's what Jack is introducing with this kind of innovation.

I think it's well overdue in the space because yeah, it's an extremely - I mean, it's not wasteful if you recycle all of the stuff.

Recyclability of Mining Hardware

So Daniel Batten, who's a New Zealander as well, really good Bitcoiner, working on Bitcoin as a climate technology himself, did a - or he's got a newsletter where he produces kind of independent research himself. And Daniel did a supply chain analysis of the recyclability of Bitcoin mining hardware.

So if you are inclined, which you should be, you can recycle like 95% of a Bitcoin miner. There's plenty of copper, there's plenty of aluminum, there's plenty of plastics that can be recycled. There are only kind of a few bits that are sort of unrecyclable, either from the perspective of being difficult to access or non-recyclable materials.

Repurposing Old Equipment

So yeah, while there is a lot of waste that comes off the shelves, it's all recyclable. And again, the stuff that's coming off the shelves should probably be repurposed for these kind of lower uptime opportunities in highly curtailed energy opportunities - is my view on that.

Lisa: Yeah.

Home Mining: Still Feasible?

So is there going to be a space in the future for the everyday person to run a mining rig like there used to be before it became sort of corporatized? Or is that still not feasible even with this new technology?

It Depends on Electricity Pricing

Simon: There's - I think it really depends on how much your electricity is, and it really depends on how much you are prepared to invest.

If you get very good pricing for your electricity, especially in New Zealand - if you set up a company and you can claim the GST, especially on the import of the machine and of the use of the electricity to run your miner - you get a bit of a head start.

If you buy a brand-new miner at the start of the hardware cycle - so when they release the S23, probably two years from now, say - and you bought one on day one, and you got good pricing for your electricity, you may see a return on that miner.

The Race to the Bottom

The reality is that Bitcoin mining is such a race to the bottom on the pricing of electricity that if you add retail margins for your electricity retailer, if you add the grid fees in terms of the transmission cost of that electricity and the base wholesale generation cost of that electricity, you're adding a huge amount of cost to what you're paying compared to a commercial person.

Hosting as an Option

Options are hosting. So a lot of people will buy a miner that is hosted in a location that's not their home. They are often accessing better pricing for electricity. But again, you're always going to have the headwind of your hosting fees. And your host is always going to add a margin on top of the electricity cost.

So they might be getting electricity at $30 to $40 or $50 a megawatt, and they're going to sell it to you for $70 a megawatt. Then they're going to add a $200 a month kind of hosting fee on top. So they're always going to make a margin on you, and you are always obliged to pay them for your hardware. And if you don't - if you stop paying your fees - they've got a really great piece of collateral they can take off you until you do. And they often do.

Centralization Risk

Lisa: So Simon, then - is the future of the Bitcoin network with the mining being so critical to the whole space - is there any danger that we become too centralized? Because the mining operations are getting bigger and bigger and more centralized, whereas they used to be - back in the day, you used to mine and the mate down the road used to mine and that sort of ethos is not working anymore, or that's not functioning economically anymore. So is there a risk to the network from that perspective?

An Eternal Debate

Simon: Yeah. So I think there's a couple of things to consider there. So one is - yeah, this is an eternal debate in Bitcoin mining. Is it too centralized? Does Riot having a gigawatt in one place ruin it for everybody else, or does it ruin the decentralized nature of Bitcoin? Does it centralize power over the network in too few people's hands?

It's a very good and fundamental question, and I think it's important.

The Satoshi's Heel Attack

There's also what's called the Satoshi's Heel Attack, which is that if - let's say Texas is the largest center for Bitcoin mining in the world, and the US government wanted to hobble the Bitcoin network for some reason, and it agreed to go and cut the power to every single Bitcoin miner in Texas at the same moment...

Several things would happen at once. One, hash rate would plummet. Two, the next block could be delayed because the difficulty is so high. There's so few miners on the network. The next block could be delayed for weeks or months, which means the network kind of comes to an absolute standstill.

Distribution Matters

So distribution and decentralization of the Bitcoin mining network is really important. And this is why I think that even though it may not be profitable or it may be quite marginal, it's a great idea for somebody to have a miner in their garage - to secure the network.

If every Bitcoin miner - if every Bitcoiner had a miner as well - I think decentralization would be massively improved. The same way we say to everybody, "Have a node." Maybe having a nice quiet miner would be a really good way for everybody to contribute to the security of the network as well.

Lisa: We keep a copy of the blockchain. Maybe we should keep a copy of the hash rate as well.

Unlikely But Worth Gaming Out

Simon: The reality is a Satoshi's Heel Attack is probably quite unlikely. We you could argue that the rest of the world has plenty of Bitcoin mining hash rate anyway. It would take a very, very coordinated state-level actor to kind of execute that kind of attack. But it is something that we should kind of think of, as we're all very enthusiastic game theorists in Bitcoin, and so we do kind of need to game out these scenarios.

Lisa: Yep. Yeah.

State Actors

And it behooves us to do so because we need to make sure that we're not getting attacked. Because there are state players who would like to take down - some countries are not pro, shall we say. So we've got to think of these things.

Quantum Computing

And by the same token, when people ask me, "Don't you think quantum computing is going to attack Bitcoin?" And I'm like, if we have quantum computing cracking the Bitcoin code, so to speak, we've got bigger problems. The nuclear codes are also cracked. The central banks are also cracked. The medical histories are also cracked. Everything - the banking system is also cracked. Do you think they're going to go after the tiny little Bitcoin asset first? Or maybe they're going to go after something major.

PIN Codes vs. Private Keys

Simon: Oh, well, I mean, I think of it like this: the private key for a Bitcoin wallet is - I'm not even sure how many numbers and letters - but it is 30 or 40. How long is the PIN code to your bank card?

Lisa: Yeah, very easy to crack.

Simon: What's easier to crack? Everybody's PIN codes than everybody's Bitcoin private keys?

I think quantum computers are worth billions upon billions of dollars. They cost incredible amounts of money to build, let alone operate. The applications for them are so specific. There are probably five or 10 of them in the world. Like, yeah. What are people's incentives to use them on Bitcoin, which is the smaller of the asset classes compared to all the other bigger asset classes?

Lisa: Exactly. Exactly. Yeah. Yeah. How much will you make if you cure cancer with a quantum computer versus how much will you make if you destroy Bitcoin? Like, what's the over-under?

Simon: So don't worry about those things, people.

Lisa: Like, there are things that - but once again, mainstream media likes to grab these headlines and chuck it at you. And that's why it's important to have these nuanced conversations.

Lightning Pay Use Cases

So bringing it back to the use case and Lightning Pay. In New Zealand, you guys - Brandon and Co down in Queenstown - you've really started this Lightning Pay. And we want to encourage people listening to this: if you're a merchant, if you want to have this ability for people to come and use Bitcoin in your business, if you're a coffee shop, a bar somewhere around the place that wants to attract Bitcoiners to you as customers, you can do that now.

You Don't Need to Be a Bitcoiner

And you don't even have to be a Bitcoiner yourself, per se. You can just tap into a new customer base that is growing. And it's early days in New Zealand. It's not early days in the world. Lightning Pay has been around - or Lightning Network has been around for what, eight, nine years now?

Simon: Yeah, it's pretty new relative to Bitcoin. And in fairness, like Bitcoin itself, it's taken some time to kind of mature.

Early Struggles

There is a good anecdote that in the early days it used to struggle to transmit something like 80% of all transactions would fail because there's just so little network infrastructure, so little liquidity. Bitcoin itself is worth so little that a $5 transaction would be quite difficult to push through.

Five-Figure Transactions Daily

Nowadays, we do five-figure transactions all day, every day on Lightning, and it's no issue. We have several kind of adventure sports stores in Queenstown who use Lightning Pay as a payment system, and they'll sell very expensive bikes using Bitcoin on a daily basis.

Lisa: Yeah. Really?

Simon: Yeah. Yeah, absolutely.

What Is Lightning Pay?

So yeah, Lightning Pay is kind of several things. So we have a Lightning and open banking Bitcoin exchange. So what that means is we use obviously the Lightning Network, which is fast, instant, and secure, private transactions on Bitcoin. And we use open banking, which is the banking system's new API-based banking, which means that you can instigate your Bitcoin purchase or sale from inside our app.

The Traditional Exchange Process

Rather than having to log into your bank to do that, we tell your bank: "Hey, Lisa's wanting to buy $100 worth of Bitcoin. Here's her bank authentication token. Here's her second-factor authentication token. You can send us that money because it's verifiably Lisa that has instigated this transaction." We pull it from your bank account and we send you your Bitcoin.

All of that takes about the same amount of time as an EFTPOS transaction, instead of traditional exchanges where you set up a deposit, you tell them how much you're going to send, they give you a reference number, you go to your bank, you sign in, you put in your reference number, set up the transaction, send it, wait for that to clear, you wait for your exchange to see the money, and then they say, "Great, you've got $100 credit. What do you want to buy with it?" You go set yourself an order, you wait for that order to get hit, you've got your Bitcoin, then you withdraw it to your wallet and pay a fee on the withdrawal as well.

And all of which can take several hours up to days to do. So we've condensed that down into the duration of an EFTPOS transaction.

The Point of Sale Solution

So that's really awesome, and people love that as an experience. And what we use that to do is to drive a point-of-sale solution as well.

So if you're a coffee shop, adventure tourism store, if you run a podcast, or if you have any type of retail, and you would like to take Bitcoin alongside your existing sales systems, your point-of-sale system - whether you're using Lightspeed or Shopify or one of the restaurant point-of-sale systems, reservations, all that sort of stuff - you can sit a terminal or an old phone or tablet next to that point-of-sale system and you can take Bitcoin using a QR code.

No Fees or Dollar Conversion

We can give you Bitcoin, which we love to do. We love to give you Bitcoin. There's no fees to accept Bitcoin. It's a completely free peer-to-peer transaction over the Lightning Network.

Or we can exchange that Bitcoin for dollars at the price of your product for 0.21%. So instead of 2.5% for a Paywave transaction - again, this thing of nearly a factor of 10 - we're more than a factor of 10 cheaper.

And we will convert to dollars and just deposit the dollars into your bank account the next day. So if you don't want to be exposed to Bitcoin, but you would like to access Bitcoin customers, you'd like to lower your point-of-sale expenses - if you have a company that does any measure of volume in New Zealand, your merchant service fees on any given year are going to be in the $100 to $200 to $250,000 range.

The Merchant Fee Problem

Lisa: Um.

Simon: It's incredible. I mean, we've let kind of two - we've let a bundle of companies, to be fair, capture 2.5% of all of our economic activity.

Lisa: That's really - people like that's 2.5% that Visa, Mastercard, and Co are taking off your hard-earned work, your sales, and your customers are paying too.

Simon: And the problem with it is it's never going away. And the reason is it's not Mastercard that gets 2.5%. Mastercard might get 0.4%. The interchange gets something like 0.4%. The scheme gets something like 0.4%. The bank gets something like 0.4%.

None of them are going to go, "Oh, I'll give up my bit, guys. We'll give it up and we'll allow customer prices to go down."

Too Many Pigs in the Trough

No, there are too many pigs in the trough for this to ever go away. We have to sidestep it entirely and use a financial network that's based on peer-to-peer exchange to get around it. Because they're never going to let go of their cash cow. Why would they? Why would they ever?

The government, previous government, legislated a maximum for interchange fees and brought prices down by an average of 0.2%. So it's a really hard needle to move.

The Only Way Around

So you can take Bitcoin over the counter. You can still receive dollars. You can still receive every cent that you're due from the priced product on your shelf, in your cabinet, for the coffee that you're going to make. But your customer will pay in their Bitcoin.

And that's the only way we're going to get around the kind of economic capture that we have in New Zealand and around the world in terms of payments infrastructure.

Remittances

Lisa: This is huge. And then for people sending money overseas - people sending money back home to their families or whatever - New Zealand and Australia are huge remittance sources for the Pacific Islands and for Southeast Asia. So Philippines, Indonesia, and all of the Pacific Islands, Fiji...

Simon: Tonga relies on 49% of their GDP from remittances.

Lisa: Holy crap.

Simon: Yeah, the Pacific Islands are one of the most expensive places to send money in the world. Up to 20% of remittances are captured by money transfer services, whether that's Western Union or MoneyWise or whoever.

Lisa: That's evil. That's stealing people's money.

Predatory Pricing

Simon: Yeah. I mean, it is. It is. And it's stealing wages from people who can't afford it. They come to New Zealand or Australia to earn. They're not often earning great wages. They're - unfortunately, they're not able to get jobs as accountants, doctors, and lawyers. And so the sort of predatory pricing kind of harvests from the most vulnerable. And they're sending back to people who have even less earning capacity back in their home country.

NZD E-Cash Solution

So yeah, again, I think Bitcoin and something that we're working on, which I think is a really great solution here, would be like a New Zealand dollar e-cash. So that's a New Zealand dollar stablecoin. It's not technically a stablecoin because it's not a token. It's an e-cash. It sits on top of Lightning and could be remitted between - a lot of countries in the Pacific Islands use New Zealand dollars as currency anyway.

Lisa: Rarotonga and Cook Islands use the Lightning Network as it is now to send money back to...

Spendability

Simon: Yeah, but I mean, it's about the spendability of Bitcoin in those countries. Like, if they wanted to receive Bitcoin, fantastic. Like, that's even easier. But if they sort of need New Zealand dollars because that's how everything's priced and that's what people receive, we can build e-cash on Lightning, and people could settle e-cash on Lightning for the same price as a Lightning transaction, which is effectively nothing.

Improving Lives

So yeah, there's lots of scope to improve the lives of people for whom migrant work is really important - is a lifeline and important - but it is currently an expensive proposition for them to repatriate the money that they've earned.

What Is E-Cash?

Lisa: So e-cash, just for those listening and for understanding, is just an electronic form of cash, but it would be using the Lightning Network. So is that a little bit like Fedimint or...?

Simon: Exactly. That's exactly... Yeah. So it's the mint concept. The mint concept is a fascinating one. There are several different models, but I think - that sort of require a deep dive to get into - but I think...

As we were talking about earlier, what are the innovations that are going to be...? Sorry, I'll say that again. I hope you can edit that out for me.

Lisa: We all do it.

Innovations on Bitcoin

Simon: While I'm ruining the flow of the...

Lisa: Or minting.

Simon: Things like Fedi are exactly what we were talking about earlier. What are the innovations that are going to come out of left field that aren't exactly what we considered strictly the exchange of value, but are built on Bitcoin?

Federated Mints Explained

And so they are federations of like trusted individuals or entities or collaborations that get together to agree to issue a certain amount of money on Lightning. This is a very, very broad-brush representation of what they are. They're quite complicated.

And so within that trusted group, you can exchange this e-cash, knowing that we all agreed its value, how much there is, and how long it will last for. And then basically you have your own little financially denominated ecosystem of money.

Different Models

And so there's several different models. Fedimint is probably the most progressed. But yeah, there is lots and lots of interesting ways of looking at what the exchange of value and what the exchange of money really represents. And what are the cool systems that we can build around it on Bitcoin that you can't do in the traditional economy? Because there's simply no scope, platform, opportunity for innovation.

Lisa: Exactly. There's no programming language for banks.

Simon: Yeah. You know, they build their own systems. They do all that. And they fight very hard to stop you from doing that. Open banking might be something that's similar, but you can't kind of go, "Yeah, I'm just going to innovate on banking." No, that's just not a thing.

Banks Fighting Back

Lisa: Is the banking system in New Zealand and around the world going to fight like cats and dogs to stop all of this innovation? Because we're going to eat their lunch.

Simon: They already do. They already do. We see this every day at Lightning Pay. Banks stop people's transactions. They claim fraud when it's not. They ring people and they give them grief about what they're sending their money to.

Aahu and Open Banking

Certain banks in New Zealand also are - we use an open banking integration called Aahu. Aahu have sort of built their own integrations with all the banks' APIs. They are compliant. The banks are constantly telling our customers that it's against their terms and conditions to use Aahu. Simply not.

And after the 1st of December this year, when the open banking standards are formally adopted by all banks by requirement, they will have to stop saying that. I'm interested to see what they're going to do to try and stop this sort of system after that.

The Uber Analogy

I liken this to Uber and taxis. When Uber came along, taxis fought tooth and nail against it - with the wrong tactics. They barricaded airport taxi ranks. They protested the places where Ubers kind of came and picked people up. They were really aggressive to Uber drivers on the road when they saw them, instead of just innovating. Like, keep up or die.

Robo-Taxis

And when robo-taxi comes into America and hits New York City, oh my god, there'll be carnage to pay. No doubt. But you cannot stop innovation at the end of the day.

Lisa: They can - the policymakers, the politicians, the banks - they can slow it down for a certain amount of time. But people will always find a way around. There will always be a release valve somewhere. And so should it be. Like, we need to keep innovating.

Remittances Example

Just because the banks have had their cash cows for many decades, it's about time we started to - the case with the remittances - those people need their 20% back. They work really hard for their money. They should not be ripped off like that. And that's happening in Mexico and places like that as well. So this is really, really exciting.

Wrapping Up

Lisa: Oh my god, Simon, we're going to have to wrap it up. But I do feel like we probably need a part two at some point in the next few months, because there was just so much nuance to this.

And that's what I appreciate from you - because you're so knowledgeable and deep in this and a genius in this sort of area - helping people sort of get a big picture in their brain of what is actually - not the one-liner headlines that you get from mainstream media.

Beyond the Headlines

When I talk to friends and family about Bitcoin, it's still like, "That's for criminals and drug addicts." And it's so, so far beyond that.

Simon: Yeah. Absolutely. Yeah. Yeah.

Bitcoin Tourism in Queenstown

I mean, it's amazing. We had a meeting in Queenstown recently when we talked about bringing Bitcoin tourism to Queenstown. Because we want people to come and spend - we've built the Bitcoin Basin as a place that we're trying to create a critical mass of places that will take Bitcoin over the counter. And we think it's really important to also deliver spenders to those venues.

And so we're looking at: how can we bring people from the United States, from Australia, from China, South Korea, where they have really high ownership of Bitcoin, to Queenstown to spend it?

The Drug Question in 2025

And one of the first things we got in conversation with someone from an entity we won't name was, "Well, will those people bring drugs with them?"

Lisa: Oh my god.

Simon: The labor - as like, we're still having to have that conversation in 2025.

Lisa: I know.

The World's Fourth Largest Asset

Simon: Like, it's just - the largest financial institution in the world manages the largest Bitcoin ETF in the world.

Lisa: Yeah. BlackRock and Vanguard.

Simon: It's the fourth largest asset in the world. And it's still associated with its very, very early first use case, which was in part...

Lisa: Yeah. And it wasn't made for that either. Satoshi Nakamoto, who he or she is, did not set it up for such things. But yes, it got co-opted.

Cash Is Used for Crime Too

But then cash is being used for criminal activities too. Do we say that cash is for criminals?

Simon: I mean, banks are the biggest - criminal history. Cybercrime is by value the third, fourth, or fifth largest economy in the world.

Lisa: Yeah.

Simon: Are we going to turn off the internet?

Lisa: Yeah. Exactly. Yeah. Don't throw the baby out with the bathwater. We're going to stop people using cars.

Simon: Like, there's - the sort of the handbrake on everything because of one poor use case is such an overreaction.

Tax Treatment in New Zealand

Lisa: A last question for you. The New Zealand government, the tax handling of Bitcoin and indeed crypto - is there any light at the end of the tunnel for de minimis transactions on Bitcoin, for example? And is it going to get any simpler at any point? If you look into your crystal ball, have we got any show of being able to really start to scale Lightning Pay? Because we don't have this tax problem hanging over our head with having to account for every transaction.

A Real Headwind

Simon: Yeah, it certainly a headwind at the moment, and it is a difficult one. Because I think the tax settings in New Zealand are unequivocal. You owe income tax on every disposal of Bitcoin. If you dispose of Bitcoin at exactly the price you bought it, then great, you've got no tax to pay. But if you made a gain or a loss, you are obliged under the tax settings to calculate your tax obligation.

Though it is a real headache to widespread spending of Bitcoin in New Zealand.

Educating the Government

We have worked with the government in the past to educate them on what Bitcoin really is. Again, getting people past that it's an investment or a speculative investment mindset is really important. It's both - it's money and it's an appreciating asset. It's an appreciating asset because it's good money. You're just used to bad money which goes down in value. This is just money that does the opposite.

And so actually it's not income because: one, I've still got the same amount of Bitcoin. Bitcoin hasn't paid me a dividend to own Bitcoin. Bitcoin hasn't increased its sales because its earnings per share has changed. It's not like a traditional stock or investment in that way.

Hard for Politicians to Understand

So it kind of is all of these things at once. So it is hard for politicians and for regulators to understand that when they're not coming from the Bitcoin space. I think that it will take some time to get across it.

I'm - we're a business. It's very, very difficult for a business to go in and lobby government because we have an individual incentive to have this change made. And government can't really be seen to be bending to the whims of business in the way that we're asking them to.

Bitcoin Policy Institute NZ

So there is a Bitcoin Policy Institute New Zealand which is being stood up at the moment. It's full of some very, very good Bitcoiners. It's a really, really important undertaking in my view, because that is an industry group that will lobby or advocate on behalf of Bitcoin for New Zealanders - on behalf of or to government on behalf of New Zealanders.

And I would hope that a de minimis exemption on spending would be one of the things that they would tackle. I would hope that it's one of the - I mean, it feels like the lowest-hanging fruit in terms of a policy win for a group like that to go after.

Launch in November

So there's a launch for this body in mid-November. And I think after that, they'll have the - at the moment it's all paperwork, it's all incorporated societies and boards and constitutions. But once they're through that sort of setup stage, they can start producing policy papers, positioning papers. They can start meeting and engaging with the government.

Bitcoin Books to Parliament

It's hard to see because the background is fuzzy, but the big white block over my shoulder is leftover copies of The Bitcoin Standard. In early 2025, off the back of a fundraiser that was entirely fundraised in Bitcoin, we sent a Bitcoin book to every member of parliament in New Zealand.

Lisa: Wow.

Different Books for Different MPs

Simon: So we sent - we sent Saifedean Ammous's book, The Bitcoin Standard. So we sent The Bitcoin Standard to everybody on the National, ACT, New Zealand First side. And we sent a copy of The Progressive's Case for Bitcoin to everybody on the left. So Labour, Greens, Te Pāti Māori.

And we sent - we had a stretch goal which allowed us to send a copy of Broken Money to the Prime Minister, to the Minister of Finance, to the Deputy Prime Minister, to David Seymour and Winston Peters. And we sent a copy of Check Your Financial Privilege by Alex Gladstein to everybody in equivalent positions on the left.

Meeting People Where They Are

So the idea there was to meet everybody where they are. Like, if you're a progressive, that book is a really excellent way of looking at Bitcoin through a lens of equity, equality, of financial and social safety. And The Bitcoin Standard is a very kind of economics, rational - I don't want to say that the left aren't rational about it - like they look at things through a different rational lens than the right - but a very firm right-wing economics kind of lens or an Austrian economic lens.

So for me, yeah, it's about meeting people where they are on this discussion.

Lisa: That's brilliant.

A Touch Point

Simon: So at least what I think is important is politicians in New Zealand now know that Bitcoiners can get together, produce a campaign, and they can put their case in front of everybody necessary to do so. Whether or not they read it, whether they put it straight in the bin or on the shelf, we don't know. But at least it was a touch point. It was a touch point that they got to look at, to see, to understand that people will advocate and mobilize on this issue.

Meeting People Where They're At

Lisa: Well, congratulations for such amazing - yet something so proactive and meeting people where they're at. Because that's really important too - that we're in this divisive world that we live in, trying to actually unify by giving different viewpoints that lead to the same sort of conclusion. Bitcoin - all roads lead to Bitcoin, as they say.

Absolutely fantastic, Simon. I want to thank you so much for sharing your absolute amazing wisdom today with my audience. So generous for your time and your deep knowledge. I've learned a lot myself. Just absolutely stoked to share this with my audience.

Where to Find Lightning Pay

And I want people to reach out to the team at Lightning Pay. Give us your website, your handles on X and all of that, so that people - reach out, people, if you want to get your businesses on, if you want to use the exchange, buy Bitcoin, all of that sort of good stuff. Tell us where they can find you.

Contact Information

Simon: Absolutely. So we are at lightningpay.nz for our main website. You can check out the Bitcoin Basin at thebitcoinbasin.nz or just search that up on Google. We're @lightningpaynz on X and the same on Instagram. We're also on Facebook. You can find us there too through a search.

So please get in touch. We love to hear from people. We just want to know how Bitcoin is tracking in New Zealand. And so it's so important for us to hear from old school Bitcoiners, from new coiners, no-coiners, never-coiners. Thoughts and abuse all gratefully accepted.

Lisa: No, not abuse.

Networking Together

But yeah - and that's really great. And I think it's really important that in New Zealand, and for those people overseas, but that we network together. Because it again is the network that makes us stronger. And I'm very glad to have worked with you guys and to stay in contact with you guys. And let's bring Bitcoin to New Zealand - further, deeper, longer - because there's so much more to run.

Thanks so much, Simon.

Simon: Thanks, Lisa. Have a great day.