Transcript: Alex Bergeron: You Are Your Own Single Point of Failure

Alex Bergeron [0:07] You've had a dynamic where money's become freer than free. Let me talk about a Fed just gone nuts, all, all the central banks going nuts. So it's all acting like safe haven. I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins.

Marty Bent [0:25] In the world of fiat currencies, Bitcoin is the victor.

Alex Bergeron [0:29] I mean, that's part of the bull case for Bitcoin.

Marty Bent [0:32] If you're not paying attention, you probably should be.

Alex Bergeron [0:34] Probably should be. Probably should be.

Marty Bent [0:36] Alex, welcome back to the show.

Alex Bergeron [0:39] Thank you, man. It's been, uh, it's been a minute, but, um, there's been a whole lot of things happening, so I think we've got a whole lot of things to catch up on.

Marty Bent [0:48] I've been hassling you for like 6 months, I feel like.

Alex Bergeron [0:51] Yeah, I last saw you in, uh, Pub key, I think was the last time, right? During the Up Next Up Next conference. Seems like forever ago, but I don't know that it was that far. I mean, this was just like no, it was earlier this summer, I guess, right?

Marty Bent [1:09] It was like March. Yeah, the suits are here. The suits are here to fix quantum. They're they're stable. Yeah, right.

Alex Bergeron [1:15] Oh my god! I mean, no, but I mean exactly speaking of. How that story is kind of like completely faded into nothing really. The completely felt faded into the background. I wonder if it's gonna rear its ugly head back. But with the way the market is going at the moment, I don't feel like anyone's trying to hear some. We've we've had plenty of bad news, so I don't think the quantum fudsters are are going to get. People's attention with this price action?

Marty Bent [1:47] No, because I remember I'm looking at the chart right now. I think it was like mid-February or early March, but I think it was mid-February. I remember saying to you specifically, because they were saying the price won't go up until we have a clear path to fix this, I was like, all right, well, if the price goes up, you're going to change your tune. And we are higher than we were in that period, but Yeah. I mean, I think we were just discussing before we hit record, it's been a pretty insane 3 weeks in Bitcoin. Today, we're— I mean, the last 2 days, we're up over 10%, but this is on the heels of a pretty traumatic experience with the ColdCard vulnerability being exploited. And then on top of that, a number of other projects. being prodded and probed by AI tools and more vulnerabilities being discovered. And you were saying this, you think this is like an acceleration point for Bitcoin and everything really.

Alex Bergeron [2:53] Yeah. Well, I mean, it certainly triggered a lot of, as you mentioned, reflections and It feels like one of the bigger and most important ones is a heavy dose of humility, really, for everyone involved. I think kind of all realizing that we were— everyone was swimming naked, basically. And I was reflecting on this with someone just the other day and thinking about how we have been You know, on every crypto project's asses, laughing about all of their vulnerabilities and how, you know, shitty their code bases or the DeFi platforms were for getting hacked throughout the last couple of— Well, little did we know that we had in some way, shape, or form the same type of exposure in a lot of our fundamental architecture, fundamental infrastructure.

Alex Bergeron [2:53] I think the bounties were not as readily available as they would have been, you know, in the sort of 2021 era DeFi smart contract, but it was certainly there. So yeah, this certainly takes us off of our high horse for Or hopefully what is the next step, which is going to be, well, you know, we have to kind of get a little bit more serious. And I think, you know, it was time for the adults in the room to kind of— and not that— it's hard to say. You know, it was kind of like, it feels— One of the things that I tweeted Really, as as this was unfolding, was just that this was the most cathartic kind of moment for Bitcoin in the sense that you know I think one of the core totem, if you will, of the OG Maxi community was being torn down and you know.

Alex Bergeron [2:53] Certainly forced a lot of reflection on the tribe, but I'm you know I I've said I'm lucky enough that I've unfortunate that I wasn't affected. None of my close friends or families were affected, and I feel for the people who were. But at the same time, this really has made me hugely bullish in terms of like. Seeing the ability for some certain groups, certain individuals to rally together and kind of lead. I think, you know, you needed the emergence of leaders, new leaders in Bitcoin for a significant amount of time. And I think for the last couple of years, it wasn't really clear who was going to pick up the slack, who was going to, who was going to be this adult in the room to say like, okay, like We got to mature and take this to a level where it's not our little project, a little experiment anymore.

Alex Bergeron [2:53] And I think this process hasn't quite played out fully, but it feels to me like we're on the right path. And surely a number of, again, organization, individual projects has seemingly stepped up to the plate there.

Marty Bent [6:31] Yeah. I mean, you said we need to get more serious. What does getting more serious look like in your mind?

Alex Bergeron [6:38] Well, um, Ian, I mean, you know, it's easy to say in hindsight, and, um, but I had some interactions with, with Spaces, with American HODL, you know, last week or whenever, a couple of weeks ago, I guess now, um, just in the days ensuing following the events. And we were talking about how, you know, we were kind of all enamored with this garage band type of shop that Coldcard was and how slick it was that, you know, they were true to the authenticity of, you know, and the spirit of the Bitcoin project. But at the end of the day, you know, we're realizing— I think we all knew in some way, shape, or form, and, uh, but, you know, it was a 3, 4 3, 4 people shop managing the security infrastructure and providing security products for, you know, I mean, it may, it might have been, it might have made sense back in 2018, 2020, all the way up to 2020 or whatever, when the amount of money that was secured by those cold cards might have been significantly lower than it was today.

Alex Bergeron [6:38] But Um, you know, now that talking about large sums of money and people's life savings, uh, that have grown considerably throughout the years, I think one part of getting a little more serious is having processes in place where, uh, it doesn't matter if you're an OG and, uh, that you've built this from the ground up. Um, you need to kind of institutionalize some sort of, uh, framework to constantly, especially in the world that we— I mean, again, I, I also told you just earlier that this is not really only about Coldcard. It's about— this is a story that's larger. It's about the AI security paradigm that we're entering.

Alex Bergeron [6:38] And it seems very clear that it requires constant vigilance. But it also kind of, to me, one of the lessons is really that we're all most likely to be our own most obvious single point of failure. Like, is it in the sense that, like, we— doesn't matter how smart you are or how, how many years you've been into Bitcoin, um, you're, you're likely to have blind spots in the way that you operate things. And if you depend solely on yourself, um, to secure, again, those life savings, um, you are, I think, kind of missing out on the opportunity to optimize again the security. And it's all about just having the ability to distribute the trust, right?

Alex Bergeron [6:38] So that indeed you can follow best practices yourself, but there are too many scenarios now where that's just not going to cut it. So for me, yeah, that lesson has been kind of just we can do like, like, you know, self-custody doesn't mean that you, uh, have to do it by yourself. Um, and I, I think this is kind of where I'm hoping, um, we move, um, in, in this new direction where, um, we're a little more creative, we're a little more open to, um, uh, because, you know, this, this dogma I think that we had instituted, um, kind of shunned or kind of probably limited the amount of more creative ideas that could have arrived in terms of potential alternatives to secure your funds, right?

Alex Bergeron [6:38] Or yeah, then those are not alternatives where you have to throw away the hardware wallets or anything like that, but more so kind of complement, um, where again you have the ability to distribute the trust and I've always said, you know, in throughout especially the last couple of years is there's there's always been this misconception about Bitcoiners that trust is to be avoided at all at all costs almost, and it always was kind of I felt was an unfortunate narrative really because ultimately I mean Bitcoin was invented because yes you cannot trust anyone. With the management of a base reserve currency and, um, you know, the issuance of money.

Alex Bergeron [6:38] Um, but certainly was not created because all forms of trust need to be, need to be eliminated. And, you know, trust can be usually beneficial if, especially if you can engineer it, uh, the way that we're able to do so. Uh, so this is what I'm kind of like looking forward to. Um, and yeah, it's just a great— it kind of creates, uh, this You know, it kind of creates a vacuum here now with Coldcard being, you know, more or less gone, of like, okay, where do we go from there? Um, you know, BitKey, uh, is one project that is kind of, uh, seemingly out of nowhere took center stage, and it's because they deserve it, really.

Alex Bergeron [6:38] It's a fantastic, uh, it's a fantastic product. I use it myself. But, you know, I think the vacuum is more like, yeah, let's just get back to the design board and see how we can push this to really kind of like new, something that's just more modern. We'll get into that. But what I'm building, what we're working on at Arc Labs with Arcade and whatnot, one of our mantra internally and kind of externally as well is just like modern Bitcoin tools. And I feel like we've kind of been living in a very primitive sort of development environment for last decade where we've had an evolution of improvements to the protocol and improvement in, say, libraries and new ways to build things on Bitcoin, but they were very much iterative and piecemeal attachments.

Alex Bergeron [6:38] But no one really ever took a step back and be like, okay, how do we actually piece this together so that someone wants to build a multisig solution? include new signers, distribute the trust via different methods of time locks, and perhaps additional logic there. How can we take all of this corpus of protocol enhancement and techniques and ARK and batching and all of this? How can we bring this together and just provide builders and users something that they deserve. How do they get reliable Lightning payments that doesn't require running a node? It's been 10 years. Now, people are finally managing to ship that, but that's not the only thing that matters.

Alex Bergeron [6:38] And security is one of the big important pain points. And so we can do better there. And it was just a matter of Yeah, just uniting all of these pieces and I think creating an interface that people can use.

Marty Bent [13:54] Yeah, looking at, uh, my, uh, my notebook, but like, that's one of the things I wrote down in the wake of this cold card stuff. As many lessons we learned from this debacle, mainly in humility and the dangers of, uh, groupthink enabled by hubris and peer pressure. And I think to your point about the lack of innovation, I think a lot of that was driven by, by hubris and peer pressure, like no trusted third parties. And to your point, Like trust exists for a reason in certain situations. And not only from that angle, but also the learning from what's going on in DeFi and other protocols and incorporating the good ideas in Bitcoin.

Marty Bent [13:54] There's been some dogma about even attempting that over the years. And I think to your point, it's time to brush all that away, look at it with clear eyes. And that's why, again, I've been pinging you for 6 months because you've been teasing what you guys are doing with Arcade and Arc Labs and Covenants. And I think the timing of you guys releasing these products and really leaning into like, hey, we're going for this, we can do things a different way, is perfect timing. Because when you consider what's happening in the world of stablecoins and AI now, particularly with Stripe acquiring OpenRouter, I'm not sure if you saw their—

Marty Bent [15:18] No. investor letter about that acquisition, but they're really going full bore in digital payments using stablecoins and their permissioned blockchain. I forgot if it's called Metronome or something like that, but I think—

Alex Bergeron [15:37] Tempo.

Marty Bent [15:37] Tempo. That's what it is. Yeah. If Bitcoin wants to, the Metronome sets the tempo. If Bitcoin wants to compete. I mean, I think we have to begin exploring these, these different avenues, and I think your team at Arc Labs is, is definitely on the frontier, on the tip of the spear of doing that.

Alex Bergeron [15:55] Yeah, no, exactly. Um, I, and I, I feel like what I've— you know, again, just coming back to what we can take away from, um, this saga is also that we need to be less I think prescriptive about the models that we had in our head about how things should be built and the level of trust that every solution should carry. And one easy example is just like I had someone just a couple of days ago or so that had an interaction about what we were doing with Arcade and asking why our model whereby, you know, we use transaction logic and covenants in a way that's not enforced by Bitcoin consensus, you know, how is this useful?

Alex Bergeron [15:55] Because then you need to— not that you need to explicitly trust someone, but the, you know, the reasoning there is that, well, if it's not secured or validated by Bitcoin, you know, it serves no purpose and has no utility. And, you know, for me, this couldn't be further from the truth. And the quick— the thing that I quickly mentioned was, well, you know, just like you're not going to have every transaction validated on Bitcoin, which wouldn't make sense, you're not going to have every financial operation or application contract or covenant validated by Bitcoin. There's no room for that. And there's no point really kind of doing any of this.

Alex Bergeron [15:55] So yeah, it, you know, for us it's, it's been the perfect opportunity indeed because if you followed, uh, if you've kept track with, um, my account and, you know, the way that we've been going to market with Arcade, um, we've been kind of distancing ourselves from, uh, quite a bit from the original I guess, foundation of the company, right? At the end of the day, our company's name remains Arc Labs, and the original vocation, I guess, was to kind of manifest the Arc Protocol. And it's this idea to scale Bitcoin payments and create the first mainnet implementation of it. And we achieved that, but we achieved this quite a while ago.

Alex Bergeron [15:55] And, um, but very early on in that process, um, our mind was set on sort of much more ambitious, um, uh, architecture because, yeah, we just realized that, well, it turns out that what we can do with Arc is— appears to fit as only kind of, call it, a module in the entire sort of toolkit that we're building. So this idea that you can do off-chain transactions and batch them on Bitcoin layer 1 in some sort of regular fashion. That's just one tool in the Arcade system. Now, what does that mean practically? I think we got to revisit a lot of the— I mean, it's interesting.

Alex Bergeron [15:55] There's different ways to approach this depending on the audience. But there's kind of quite a bit of artifacts from older Bitcoin days where people were exploring some of these programmable directions using cosigner systems like Arcade, right? Because when you think about what Arcade is fundamentally, just not even getting into the technology, it's really just like an architecture where you have a client and you have a server. And this idea of a client and a server, and the server being this entity that coordinates Bitcoin transaction with the client, the client being a wallet or mobile phone or whatever that might be, it's something that from the perspective of 10 years or plus ago People at Blockstream and people at specifically Green, the Green Wallet, Green Address originally was, you know, I went, I actually went a couple of weeks ago again to look back on it in the context of the ColdCard story.

Alex Bergeron [15:55] But Green Address in 2014 was advertising a system where you had some sort of, you know, 2FA type of co-signing service using the GreenAddress server. So you would create a 2-of-2 multi-signature system, right? And it would require obviously the signature of GreenAddress, the server, to be able to just send transactions around from the wallet on which the coins were deposited. And what this allowed GreenAddress to do was To tell users, well, you know what we can do is we can enforce daily spending conditions on your coins. So as you register your wallet and we create your account effectively, I we can set a certain threshold at which point me myself as the green address as the server, I'm going to refuse signing transaction beyond that threshold.

Alex Bergeron [15:55] say, within, you know, the daily threshold or monthly threshold, whatever that might be. And so, you know, that— those were very early days. And obviously, I think in 2014, that kind of use case didn't make sense, if only for the fact that, listen, like, we've made a lot of progress in terms of Bitcoin commerce and Bitcoin daily payment usage in the last, again, 10 years, but still it hasn't grown that much. And so, imagine putting yourself back in 2014, like, who really had a use for that type of spending policies for their wallet? So, it's a feature that was ahead of its time. And on top of that, they had— so, how does the model work?

Alex Bergeron [15:55] Well, obviously, if the server doesn't accept to co-sign your transaction for no reason at all, then you had a backup transaction which you could actually broadcast. So, you know, it was kind of like a decrementing time lock or some type of lock time where you could just then broadcast your transaction yourself, wait a little bit until a certain amount of blocks, and then you just get your money back. So you never had to trust that server with your money. That server was never able to spend any of your Bitcoin, but that server provided very valuable services. And again, that model kind of fell out of favor, I think, during this last era.

Alex Bergeron [15:55] And part of the reason why that is so, and I really believe, is that people had started having this obsession for solutions that were completely trustless, right? Or that appeared completely trustless, right? It's like, why are you going to have a single server when you can have the Lightning Network, right? This super internet-like distributed system where nobody's in control, nobody ever holds the funds, and there's not a central node that can actually sort of censor you, right? At least the idea is, well, you want to route some payments through Lightning, most likely you're going to find a node that's willing to do that because there is a shit ton of nodes.

Alex Bergeron [15:55] on Lightning. And so we dedicated all of our resources to this. And then I think without quite being aware of it, we've walked this back over the years by reshifting the model towards client servers. What is an LSP? It's the realization that, well, actually, no, it's like the notion that nodes— everyone was going to have their Lightning node. didn't really make sense. So we shift the burden back on the server. And I think the ultimate kind of full circle moment are systems like Arc-inspired client-server implementation and ultimately what Arcade does. And this is why I'm super excited about the latest work that we're doing because it's been hard for people to understand when I tell them, listen, Arcade is not about ARK, it's not about sending transactions around.

Alex Bergeron [15:55] And, you know, I've been telling everyone, yeah, it's programmable money, you can build a bunch of script and, um, and whatever, and you can do some cool DeFi, uh, shit. And that's, that's all well and, and fair, and that's going to play out, you know, uh, as kind of like the market timing, uh, requires it. But now with the ColdCard event, there is kind of the opportunity to create one of the first showcases of why Arcade is more than just fast and cheap payments like Arc. So we can talk about what I'm up to with that, with the vaults and some of this stuff. But yeah, I mean, this is something that I've been spending all of my awake hours on the last, literally in the last week.

Alex Bergeron [15:55] And obviously this is all accelerated by, thanks to AI.

Marty Bent [25:48] Yeah. Not signed into X on this browser because I only use Chrome for this, but let's dive into what this is and how Arcane enables this. And so it's, you've vibe coded this over the last few weeks.

Alex Bergeron [26:04] Yeah.

Marty Bent [26:05] Well, I mean, that's—

Alex Bergeron [26:06] It's on UDNET.

Marty Bent [26:07] It's very, very rudimentary, but just, I think you're just trying to get the idea out there of what's possible.

Alex Bergeron [26:12] It's very experimental. Obviously, it's like I pointed out, it's not code that's been reviewed by any actual developer. But I think one of the, for me, one of the fascinating breakthroughs in, let's say, the last couple of months in terms of AI development and vibe coding and whatever is the ability for Codex or Claude or whatever it is you use to nail front ends because it gives myself, people that are not developers, the ability to kind of actually materially visualize and have kind of this tangible interface with what I'm vibe coding. Because if I'm vibe coding something and it's all through GitHub and if it's all just like a bunch of lines and it's just a bunch of documentation, Then I'm kind of like, you know, it's it's it really is the blind leading the blind here.

Alex Bergeron [26:12] But in the last couple of months, Codex specifically has just been. I mean, it's it's absurd the quality of front end that it's being that it's able to deliver now. money application, which is something that we've built internally, which is something that is you know. Programmed by developers and has been around for several months now, if not a year already. And I just told it, like, listen, take that, use that as a shell, and then we're just gonna take the internals and swap them out. And instead of being a spending wallet, it's going to be a Bitcoin vault, right? So what's the idea of a Bitcoin vault?

Alex Bergeron [26:12] Well, again, I think the closest approximation that we can give at the moment, or at least something that was very inspiring to me, was BitKey and the model that they've kind of pioneered for self-custody. Meaning that obviously they've built a fantastic hardware device, especially the latest version with the screen and the ability to not do blind signing effectively. But just the quality of the whole UX speaks for itself. I would recommend anyone to just give a shot. Give a try to BitKey. But ultimately, the thing with BitKey, right, is that it relies on a server. That server acts as a cosigner, and it is able to enforce spending policies in the same way that the Green Address wallet from 14 years— from 12 years ago was able to do that.

Alex Bergeron [26:12] It was able to do. And the reason why that's also important is that Again, not only can you rely on the service providers, in this case BitKey, to set spending policies on your funds, you can use them as some sort of intermediary to recover your funds if you have an incident. So if you lose your— if you use your phone, so the device with which you recover with which, sorry, you've set up your BitKey wallet, then the BitKey server has a key, and you also have the hardware wallet that has a key. And then therefore, you can kind of reinitialize everything and boot up a new phone and get back to fully managing your wallet.

Alex Bergeron [26:12] Same thing happens if you've lost your hardware. So there's all kinds of scenarios here where, again, Introducing a bounded sort of service providers allows you much more latitude and much more freedom in terms of how you interface with your money, in terms of how you secure with your money. And so that was the idea for the bit for the arcade vault is okay well BitKey offers that they have fully open source code to their credit and you can. you know, you can do something yourself, uh, with Bitkeys code that probably comes close to what I'm doing. But my idea was, well, what we've done with Arcade, you know, is fundamentally a 2-of-2 signing server.

Alex Bergeron [26:12] Originally, it was built to be able to facilitate the transition of users from on-chain UTXOs onto off-chain virtual UTXOs for the purpose of using off-chain payments, right? And to be able to use kind of like this ARK batching module, if you will. But the pieces are there and the pieces are modular enough where for the last couple of months we've spent a lot of time designing something that is versatile enough, whereas you're not forced to use Arcade in an off-chain environment. you can use Arcade as a sort of— I've been calling it kind of like a smart signer. And the idea is when you think about wallets and key security and key material and the way that this is being handled nowadays, regardless of your setup, whether it's collaborative multisig, multisig that you implement yourself, every key is controlled in a very discretionary way by some sort of entity that'll decide whether they sign off on a transaction or not.

Alex Bergeron [26:12] Whereas what Arcade is becoming is kind of a software signer, right? And what Arcade will do is that you will set some sort of template of policies, and what you'll kind of negotiate with Arcade is that, well, I'm going to include you in the multisig set that I've created here as a sort of coordinating signer, and your job will be to only sign. And so this is where it becomes really important, right? The distinction is that it's not whether or not you're going to sign a transaction, but like what transaction, what transactions are you going to sign, what is the context, what are the policies.

Alex Bergeron [26:12] And this is made available by additional logic. So I imagine you've had like ArbDoubt on your show talking about SigBash.

Marty Bent [32:36] SigBash too.

Alex Bergeron [32:37] Exactly. And some of that. So those are kind of very converging ideas. We're certainly not the only ones that have had this idea. Obviously, Rob Hamilton with AnchorWatch. I mean, Rob is one of the, I would say, pioneer of commercializing this solution, right? In the sense that look at AnchorWatch, and the reason why they're able to offer this institutional insurance policy is because they insert themselves into the multi-signature process of the client in a way that AnchorWatch can never spend their client's money, but in the way that AnchorWatch can act as some sort of failsafe signer in terms of, you know, depending on vast scenarios of outcomes that I'm sure you diligently sort of set with them.

Alex Bergeron [32:37] when you begin your policy. And so, you know, Arcade Vault is simply just an experiment in terms of saying, okay, what if we use Arcade as a module to become a generalized cosigner, and then we give any entity the ability to offer this type of service to their customers? So think if you're a river, think if you're Um, a bull Bitcoin, and you have clients that obviously you want to steer them towards self-custodial setup, but you know that in the reality that we live in, um, they might not be able to fully— it's just they're not going to be able to do it alone, and they should not be doing it alone, right?

Alex Bergeron [32:37] Um, I think that's kind of the lesson again, right? It's like you, you're not sending people— and, and what I mean by doing it alone is like Helping them secure with self-custody, it's pretty clear that it's not just sitting down with, um, you know, your cousin and teaching him how to use a cold card and sending him on his merry way. Uh, that's kind of a recipe for failure. You know, one of the most jarring kind of, I think, other observations from the cold card incident was the amount of people that actually Fortunately, had still had their funds around, but had to scrap into recovering their money and transferring them to a new wallet.

Alex Bergeron [32:37] And people did not even know how to use. You know, people had presumably hundreds of thousands of dollars on these devices, and and I was listening to spaces, and I couldn't believe what I was. You know, like you literally. people were being held through transferring their funds off of Coldcard, and it's very clear that they had no idea what it is that they were doing. And so you got to ask yourself, like, how were they put in this situation to begin with, right? Like, this is kind of where something really went wrong. And so, um, yeah, Arcade Vault kind of like just is, is kind of an attempt to open up the design space Hopefully someone picks up.

Alex Bergeron [32:37] We're going to be pushing in this direction and probably polish a lot of what I've been, or maybe scrap entirely what I've been doing and start with some legitimate developer foundations on it. But the fact of the matter is it works. The application actually, I'm playing around with it at the moment and it really opens up something where Bitcoin companies that have built a certain reputation in the last decade that are still around and that deserve this reputation, they should be able to offer financial services to their clients beyond just buying, selling Bitcoin in custody. And I think the future is going to be that there will be these types of collaborative custody models, because for any company that has a bit of foresight, especially in the context of potentially changing regulatory environments over the rest of this decade and just liabilities.

Alex Bergeron [32:37] If you're able to offer consumer experience that rivals custody in terms of reliability and just the assurance that you can sleep tight and that your money is safe, Because— and how does that happen is, yes, you have control over your money, but there's also someone that is a professional that has the vigilance of having an architecture in place that spends 24/7 making sure that your money is not moving without you making the explicit approval. And in the event that it does, you have sort of Vault type. What is the idea of the vault? Is that if some unforeseen transactions hits the network because a certain device that's part of a multisig was compromised or part of a signing setup, ideally, right, the promise of the vault is that you can kind of interfere with this fraudulent withdrawal and eventually funnel the funds into a backup location, which was kind of previously agreed upon.

Alex Bergeron [32:37] Now, the idea with vaults, or at least the common vault design, obviously involves covenants, or at least, you know, it's a bit of a difficult conversation because vaults are such a general term. And when you ask anyone in crypto, outside of Bitcoin, vaults mean a completely different thing. It doesn't have anything to do with security. So it's a little hard for me when people are like, okay, well, no, vaults are consensus-enforced covenants setups that are completely trustless. It's like, well, yeah, maybe that's one design, but now that we don't have and we continue to bike shed covenant, and maybe that's going to be the next thing that continues chipping away at kind of like the social tissue of Bitcoin.

Alex Bergeron [32:37] Well, in the meantime, covenants are just— what are covenants? They're just contracts. And again, the idea with Arcade is, well, it turns out you can enforce contracts between multi-parties without having to require Bitcoin consensus to interject here. Obviously, if you need the most trustless type of execution, then you're going to need Bitcoin. But Bitcoin might not apply to every single financial arrangement, and it shouldn't.

Marty Bent [39:28] What's up, freaks? This script was brought to you by our good friends, the Bitcoin team at Block. Bitcoin at Block. Bitcoin was originally introduced as a peer-to-peer electronic cash system. We all know that. The idea wasn't just to buy and hold, it's to use Bitcoin in many different facets. Holding is one facet. Spending, receiving is another facet. I've been working towards this for 17 years, and Block put together a whole ecosystem of companies to really bring about the reality of Bitcoin as everyday money. So with Cash App, you can buy, spend, send, receive, earn, get paid in Bitcoin. When you're trading over $2,000, you're not going to pay any fees on that.

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Marty Bent [39:28] So together, Cash App, Square, and BitKey are helping make Bitcoin easier to earn, save, spend, and secure. It's a simple idea. Bitcoin works when people can actually use it in the way that they want. That's Bitcoin at Block. This episode is sponsored by Bitcoin at Block, including Cash App, Square, and BitKey. To learn more about Bitcoin at Block and the latest offers from Cash App, Square, and BitKey, check out the links and the promo codes in the episode description. Bitcoin services are provided by Block, Inc. Bitcoin services are not licensable activity in all US states and territories, and not all services are available in all states.

Marty Bent [39:28] BitKey is not available in New York. Block, Inc. operates in New York as Block of Delaware and is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. Bitcoin is a non-deposit, non-bank product that is not FDIC insured and involves risk, including monetary loss. For additional information, see the Bitcoin disclosures in the show notes. Freaks, look at me.

Marty Bent [41:16] I'm glowing. I've got an angel's halo going around me. You know why that is? Is I feel good. I feel taken care of. I feel blessed, healthy, happy. And that is because I'm a CrowdHealth member. My family and I have been CrowdHealth members for 5 years now. Literally this month, 5 years ago, we joined CrowdHealth. We've had 2 babies, we've had multiple health events, and we're never going back to health insurance. CrowdHealth is crowdfunded healthcare. So you sign up for CrowdHealth, you pay a monthly fee, you help out with other people's bills, and it's significantly cheaper than health insurance. We were on COBRA as a family of 3 when I left my last job before I went full-time with TFTC, went on The Crowd Health.

Marty Bent [41:16] Now as a family of 5, we pay, I believe, $700 a month. It's significantly cheaper. They're going to negotiate prices lower for you. They've consistently negotiated healthcare prices as much as 50%, 60%, 80% in many cases. They help out with babies. If you have a pregnancy, you pay the first $3,000 and The Crowd covers the rest. If you have a regular health event, you pay $500 and the crowd pays the rest.

Marty Bent [42:18] Go to joincrowdhealth.com, sign up today, use the code TFTC, opt out of health insurance. I'm uninsured, baby, and I love it. Use the code TFTC at joincrowdhealth.com and you'll get $99 a month for the first 3 months that you're on the CrowdHealth platform in the community. Bitcoiners, you found sovereign money, now find sovereign health and sovereign healthcare. Yeah. And so you, you have a Let's just walk through how you're doing this with the vault demo or prototype. Yeah. Yeah. Whatever you're calling it. Because you say concretely the money sits in 2 Taproot trees. You have a spending tree and a savings tree. And so it seems like there's some conditions there.

Alex Bergeron [42:53] Yeah, exactly. Yeah. So there's, you have 2 accounts because what this turns out to be is, you know, is effectively a Bitcoin account. You know, in Bitcoin we don't have accounts normally. Everything is UTXO and coin selection based. But when you start having a setup like this where you can actually enforce spending policies, it starts looking like accounts. And the spending account is your weekly allowance, call it like that, or your daily allowance. It's what the budget that you set with the server when you initiate the wallet, it'll tell the server, well, again, anything that is beyond 100,000 sats a day, just don't co-sign that transaction.

Alex Bergeron [42:53] But what you also do is you kind of move that, you know, you make it so that you move your budget to that. So actually you can move more, you can move 500,000 sats to your spending account and then you can say, well, I can only spend $100,000. And that's one part of the Taproot 3. And that Taproot 3 is effectively co-signed by your mobile device. By way of passkeys. So that's another feature that I haven't discussed. But again, the idea was to try to replicate the BitKey model. So there's no seeds here. Everything is very kind of like native via passkey, Face ID, and all of these.

Alex Bergeron [42:53] Again, not for everyone maybe, but from a UX perspective, it's kind of like the bar that you need to try to set for modern applications, I think. And so your mobile phone has a key, the vault. So what do you do when you deploy an Arcade vault? It's a third party that deploys a vault, right? So right now, I have an instance, a server implementation that runs on the cloud that operates the vault. But the idea again in the future is like River, they operate their own vault, and then River becomes the cosigner to your wallet transaction, your spending wallet transaction. And on top of that, well, Arcade is kind of like the global coordinator.

Alex Bergeron [42:53] So Arcade also exists in that multisig set. So it's a 3-of-3, it's an N-of-N transaction. Everyone needs to sign in order for spending, you know, checking account transactions to go out. And The important thing again is if in the event that the third-party vault operator doesn't sign or that Arcade doesn't sign, then you have another spending condition that exists in this initial vault contract that you set up, which is, well, me and my phone— sorry, my phone, my device, and the hardware wallet that I tie up to it, we can use our signature to move any amount of money out of that vault that we want, right?

Alex Bergeron [42:53] So, if all of these servers decide to go offline, I still have access to my money. I don't depend on those servers to be able to spend my money. But now, again, what happens if the vault server is compromised? Well, they still require your mobile phone signature. It still requires the Arcade signature as well. So Arcade will actually evaluate this and enforce the policies itself, meaning that even if the vault operator gets compromised, tries to broadcast a transaction that bypasses the limit, Arcade will catch it. Obviously, yourself as a Well, perhaps even your phone might be compromised as well. But the whole thing is set up so right that like there's no single point of failures.

Alex Bergeron [42:53] There are like the worst case scenario again in that kind of setup is that your spending wallet gets drained because effectively you've, you know, your phone's been stolen and listen, fucking the arcade cosigner is compromised and the vault Cosigner is compromised, and if that happens, well, you're spending. You know, your checking account gets drained, and it sucks. But your life savings are still safe because you're in the taproot path of your life savings. There is never a signature from these other third parties, right? It's only it's only hardware and mobile and and your phone, and then there are. You know, for example, there's a policy which is your hardware wallet alone, right?

Alex Bergeron [42:53] So if you lose your phone, if the arcade server is offline and whatever, you can broadcast a transaction that'll spend from your hardware wallet, but it'll just take more time, right? It's going to have a long delay. And what is the purpose of that? Well, the purpose is that if your hardware wallet gets compromised, and just in the same way that Coldcard did, and someone tries to drain the wallet, well, you'll have the opportunity to kind of claw back that transaction. You'll have the opportunity to stop the attacker from being able to drain your entire wallet. And the parameters that I've set here in the thread example, they're not prescriptive.

Alex Bergeron [42:53] In fact, they use kind of MutinyNet settings. So, you know, talking about like 6 blocks, which in mainnet is literally like a couple of minutes. So they're not to be used in production, but it's, again, it's a blank canvas for people to be able to deploy. And I'm very, very interested to see people, because I think honestly it'll become a no-brainer. It'll require people to harden their infrastructure, And this is kind of what people are doing at the moment, right? So it's hard to be pushing new features right now because everyone's busy stopping fires. But eventually, you know, we'll move past that phase. And I think hopefully customers start kind of like, you know, users start demanding better solutions.

Alex Bergeron [42:53] And I think that's just a very promising one. And it's one that, you know, in the spirit of what we're doing with Arcade, is completely open source, completely modular. It doesn't really— if you've heard about ARK and you don't like this idea of virtual UTXOs and expiring funds and all that jazz, you don't have to. It's perfectly voluntary. And that's the beauty of it, right? I think the direction we're going into with Arcade is that we want to have voluntary systems where we know that working within consensus is extremely hard. We've had a great example of the difficulty of working within consensus in, in the last couple of weeks, um, and it'll become increasingly hard.

Alex Bergeron [42:53] So, but people still need to have the optionality to be able to kind of like deploy, you know, the sort of commercial policies and sort of just using Bitcoin in the way that they see fit without having to ask permission is ultimately what it's all about, right?

Marty Bent [50:21] Yeah, and I, I think, um, I definitely want to touch on the AI stuff because there was an announcement this morning. I know you guys are doing stuff with Breeze in that capacity, but before we go there, I think just like really leaning into the sort of breadth of the aperture of potential use cases here with, with the Arcade setup. I mean, you guys launched Intents too, Arcade Intents, in the aftermath of Boltz going down. And it's, uh, I think it highlights just another sort of mechanism that these transaction— the ARK transaction batching protocols can enable, because Boltz was one of the most dependable and relied upon swapping services between Lightning and other sort of aspects of Bitcoin, whether it's on-chain, Liquid, whatever it may be.

Marty Bent [50:21] And they succumbed to the attacks of AI. black hats disrupting their systems. And I think we learned a lesson that that was another sort of central point of failure, or maybe not even point of failure. I don't believe any funds were lost on customers' behalf, but it was a central location point in that part of the industry with the swapping services. And I think what you've done with Intents is really creative. And so you sort of open the marketplace for potential providers that could execute those swaps by using Arc to create a, um, a swap message board, for lack of a better term, or order book.

Alex Bergeron [51:56] An order book, exactly. It's effectively sort of like an order book. And, you know, the idea, the idea behind this and the idea behind a lot of what we're doing with Arcade is simply to standardize, um, practices, right? So again, with Arcade, you have a toolkit where you can build the most basic multisigs up to the most complex contract you can imagine. But the reason why we believe it has a lot of value is ultimately that if you create standards that other people can build around, well, everything becomes interoperable, right? And therefore, any market participants, provided they agree It's kind of like Bitcoin's consensus rules, right?

Alex Bergeron [51:56] It's like, why was Bitcoin valuable? In part is because everyone agrees on this set of rules and everyone coordinates around those rules. So what we've done here is, well, we've had these ideas of smart contracts and everything for so many years around Bitcoin. It was never formalized or specified, but kind of like we needed to create a a common interface for market actors to be able to use these contracts on Bitcoin, as limited as they may be. So the idea with Intents indeed is, well, Bolts was the gold standard for Lightning swaps, or for just not Lightning swaps, but kind of like being this bridge, this non-custodial bridge between every sort of layer of Bitcoin applications and services.

Alex Bergeron [51:56] But unfortunately, their dominance, for lack of a better word, and I think just like I said, the immaturity of the technology stack made it so that it was hard to keep up with them, man. They were pushing the boundaries and they were doing things where people at the time up until now, maybe that AI tools are picking up, it was like you needed to you needed to have significant expertise with Lightning to be able to operate a node of that importance. And not a lot of people were willing to or just had the time to dedicate into deploying that kind of architecture. And for that reason, and probably just a combination of smaller market, just generally, Boltz is doing great, but ultimately, it's still a relatively small market, and perhaps new entrants didn't see enough incentive to enter it.

Alex Bergeron [51:56] But it's a chicken and egg problem, right? So at least what we feel like we've done with Arcade Intents is we've solved one part of that issue, which is that you don't have to be a professional sort of swap operator to be able to serve Lightning swaps, right? One of the reasons why that's super important is because, unfortunately, central to the vulnerability of Boltz and the reason why they took this sort of blunt force attack from AI attackers the moment that these new models were out is that the nature of the model made it so that they advertised themselves as a central API that were processing all of these swaps.

Alex Bergeron [51:56] And obviously a lot of their code was all open source. And so it immediately puts a massive target on their back, right? And it tells every— and, you know, listen, Boltz, obviously we know it was not the only one, but there's a certain class of services in the Bitcoin and wider crypto ecosystem that were specifically targeted by those systems. And those are all Boltz-type services, meaning Services that were able to basically that were just providing swap services or trading or services between coins, chains, or whatever that is because those were the ones LMP2P they had to shut down as well. LMP2P, you know, I know that the people at Garden Finance have had some had some issues.

Alex Bergeron [51:56] I think fortunately no funds was lost there, but Zeus, Zeus, Zeus as well. So, you know, and even, you know, even beyond in the wider crypto world. And so, you know, it's very clear, it's becoming therefore very clear that the architecture that's required for these types of service to operate nowadays needs to be very different from what it was before. And so what we've done with Intents is kind of leverage the architecture of Arcade and create an RFQ model, so request for quote model, where you have a marketplace of users and service providers that are effectively advertising— the service providers are advertising different services. One of them, the leading one at the moment, is Lightning swap services.

Alex Bergeron [51:56] and they're advertising via different rates. They might be, you know, right now it's very primitive. Again, you know, we've just launched it. It's kind of a developer preview. So the full vision hasn't materialized yet. But the idea is you'll have, you know, potentially other companies. You could have a Voltage, you could have a Zeus, you could have an Amboss directly running. What does it mean for these providers is they're running a small little server that's attached to their Lightning node. It's a very lightweight interface, and it's not something that they need to advertise publicly to everyone. They don't have to go out on the open internet and say, hey, this is the endpoint by which I'm serving Lightning swap, and if you can figure out how to drain it, it's all yours.

Alex Bergeron [51:56] Rather, then what happens is We have a service by which we coordinate the users that are requesting those swaps, so the wallets. The wallets are able to select from a provision of service providers and say, okay, this is the list of service providers that I want to process the Lightning transactions for my application. And what I want to be able to do is whenever the user requests an action, Right. And this is where the intent word comes from, right? The intent is an action. The intent is the user saying, I have 100,000 sats, I want to pay this 100,000-sat invoice, find me the best Lightning provider.

Alex Bergeron [51:56] And by way of the intent protocol, the wallet will ping all of these providers, check what are their current prices, and return that to the wallet. The wallet will select one, will use that route. Again, everything is atomic, everything happens via HTLC swaps, so there's no chain of custody here. But the important thing is you have a market, right? You have something where for the applications it's extremely important because every single sort of financial service right now, especially crypto financial services, are sort of orchestrated in a way where you want to build an application, you want to build a wallet where users are interfacing with your product.

Alex Bergeron [51:56] You're going to have a single provider for Lightning payment. You're going to have a single provider for those that are interested in swaps to stablecoins. You're going to have a single provider for that. And how does it work? It's all APIs and you're programming an integration. from your wallet to these APIs. And then every time you want to add a provider, you need to add another API integration. And then, you know, so there's a bit of a limit there, right? You're kind of duplicating a lot of work. Whereas with Arcade Intents, the idea is you have a single interface and you create a market for all of these swaps, whether they're Lightning swaps, whether they're stablecoin swaps, And eventually, tokenized asset swaps, whatever people fancy, that'll be available.

Alex Bergeron [51:56] But the important thing is providers can directly tap into these wallets. So from the provider perspective, if you're a Lightning service provider that wants distribution, you can either go to every single wallet in the ecosystem and say, hey, I have extra liquidity. I don't know what to do with it. Maybe you guys want to integrate maybe you guys want to use my routes to be able to send payments via Lightning. Well, that was impractical and that remains impractical, right? It's kind of a— for many different reasons, from a technology perspective to a business development perspective, that type of thing is not sustainable. But now you have the opportunity where if users are using the arcade, if wallet applications and operators of these services are using Arcade Intents, the provider only has to advertise their service via Intents, and then they can be matched with users depending on the application need.

Alex Bergeron [51:56] So it's very early, but we think it's a massive— it has a lot of opportunity because, again, it just comes down to we're going into a direction where you cannot rely on a single service provider. The single points of failures are obvious. And if you would have told us a year ago that we should have made contingency plans for Bolts because maybe someday they were going to go out of service, we would tell you, man, what are you talking about? They've been running for I don't know how many years. They have a perfect track record. we're not going to lose sleep over this. Well, we're living in a world of black swans and where everything is accelerating.

Alex Bergeron [51:56] And so it's become very clear that whatever is the architecture, whatever is the infrastructure you're building, you want to make it resilient to the failure of a single party. And so you do that by creating markets. And so that's kind of like what Arcade Intense does is it allows applications and financial services to plug into Bitcoin-native financial markets.

Marty Bent [1:02:47] Yeah. I mean, what's beautiful about this too, anybody listening is like, oh my gosh, am I have to do all this? No, the service providers are. This will be all abstracted away for an end user. They'll just see—

Alex Bergeron [1:02:59] Well, exactly.

Marty Bent [1:03:00] And they'll pay and they'll get paid.

Alex Bergeron [1:03:02] Exactly. It'll become— it's actually much more intuitive. It's actually just like something that is going to significantly improve the user experience for the end user. And specifically, prices. I think one of the things we didn't discuss is that intents also potentially apply to credit markets, right? So what if you get to a point where you want to get a Bitcoin-backed loan, and rather than negotiating the terms with a single service provider, and going to, you know, shopping around to the Lagos, the, uh, the, the, the Ladin, and every single one of them. Well, if every one of them uses, um, a standardized protocol, a standardized market interface, well, the wallet can integrate all of them and it'll give you the best rate depending on your loan request, right?

Alex Bergeron [1:03:02] And I think this is kind of like the natural way for, for things to evolve is you want to remove those silos because, yeah, they're just not— they're just not competitive. First off, the idea is also you want to create a competitive market. It's going to give better prices to users, better experience. But you also want to avoid censorship as well. You want to avoid a single— what if A certain service provider, a certain Lightning swap provider decides that they need to censor payments going to an address or whatever that is. You want to have it built into your application so that you can route around this.

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Marty Bent [1:04:42] The Aave and Bitcoin Visa card is one of the most interesting things I've seen in the Bitcoin lending space in a long time. Here's the deal. You can get a line of credit up to $1 million backed by your Bitcoin without selling a single sat. No games, no annual fees, no minimum draws, and your Bitcoin is custodied by BitGo, one of the most trusted names in digital asset security. Aven never lends it out. There's no rehypothecation. You stay in control. You can lock in a fixed rate for up to 10 years.

Marty Bent [1:06:20] 10 years. That's 10 times longer than most lenders out there, or go interest only for up to 5 years. Rates start at 8.99% APR. For a product that lets you keep your stack and still access liquidity, it's hard to beat. On top of this, guess what? You also get 2% unlimited cash back every time you use the card. Spend fiat, keep your Bitcoin. That's the whole game. If you've been stacking for years and you need liquidity without triggering a taxable event, this is worth a serious look. Go to aven.com/bitcoin. That's aven.com/bitcoin. Check it out. Yeah, that's what I think I'm, I'm looking up right now 'cause I'm trying to, This is stoking. There's questions in my mind, like, how does this compare to Morpho? Just like thinking about like how this marketplace compares to like the DeFi lending protocols, and there seems to be a distinct difference.

Alex Bergeron [1:07:11] There is. Yeah, there's a bit of— it's interesting. There's quite a bit of difference. There's also some similarities. You'll notice if if anyone, anyone that pays attention to these crypto Ethereum type of protocols—

Marty Bent [1:07:30] I'm thinking of like Morpho specifically.

Alex Bergeron [1:07:32] Yeah, Morpho. So, well, so, you know, Morpho specifically, um, has been going into a direction where they're increasingly building off of a model that is more, uh, let's say order book than, uh, these pool models, right? Um, because we found out that a lot of these pool models are inefficient. They might be risky. They might sort of incur bad debt by, you know, you have these pools that are lending against a collection of different collateral, and if the quality of the collateral isn't up to par, which is the case for a lot of the shitcoins, well, you know, you can be lending against your Bitcoin in a certain pool, but Someone else is lending against their other shitcoin in the same pool, and because that position of the shitcoin, the collateral has gone to zero, let's say speculatively.

Alex Bergeron [1:07:32] Well, the pool cannot liquidate that collateral. What happens is this creates bad debt for the every participant in the pool. So everyone kind of ends up being on the hook for that for for for for that hole. But those are things that we're exploring. I mean, we're talking a lot about Arcade, and we're not necessarily going to go into too much— I'm not going to go too much into details, but one of the exercises that we've also done is that Arc Labs is kind of evolving beyond just a research technology company, but more so towards what is going to start looking like a sort of financial product company.

Alex Bergeron [1:07:32] So our idea with Arc Labs is that we're not spending anymore our entire days building the infrastructure and building the Arcade Protocol, but rather we want to be first to market with a lot of the applications that we think are best implemented on the Arcade Protocol. And so when you think about the standardization of credit markets or Bitcoin-backed loans, Well, this is something that we're looking at is, okay, well, how can we build something that is going to be versatile enough that it can fit any type of custody infrastructure? So again, we're not prescriptive anymore in the sense of, okay, well, if you use Arcade, everything is going to be self-custodial.

Alex Bergeron [1:07:32] Actually, that's not the case. You can actually use Arcade as part of your sort of custodial service. But the idea is, well, anyone that operates, even a custodian, needs to be managing keys, needs to be managing lending origination flows. There's some sort of logic, okay, tracking the collateral. Where does this go? Who are the creditors? And all of that stuff. Well, it turns out that you can do that on a very simple database. But there's also the opportunity to do that by just using modern Bitcoin software that is going to be much closer to Bitcoin and kind of just provides something that again lends itself more to interoperability between providers.

Alex Bergeron [1:07:32] So what does that mean? Well, it means potentially open credit markets, right? Where you have a custodian originator, you a self-custodial, Lagos-type originator, and everyone is starting to have the ability to open their books to each other, right? In the sense that, hey, if someone comes to you and says, I need a $100 million loan against my Bitcoin, maybe you don't have the lender available, maybe you don't have the liquidity to serve that loan, but maybe someone else does. Now, to what extent do you want to open those books? And, you know, a lot of the game in lending is origination. So you're not going to send a potential client to one of your competitors.

Alex Bergeron [1:07:32] But there's an opportunity here to just, again, standardize a lot of that. And the other things that we're looking at is very sort of grounded financial primitives. What does it look like if you want to exercise options, hash rate derivatives on top of your Bitcoins? if you're a mining operation, if you're a treasury that wants to hedge against market volatility or take directional position against market volatility. Again, these are not necessarily DeFi protocols, right? We don't think, or at least I don't think, that what we are doing and what we've been needing to do is bring DeFi to Bitcoin. Rather, we need to just improve what Bitcoin is able to do.

Alex Bergeron [1:07:32] And just, you know, smart contracts were never about making everything trustless. If you look at what the work of Nick Szabo, and if you go back and read a lot of these papers, they were simply about elevating business logic into software, right? And how do you create checks and balances around the handling of treasury, the handling of budgeting of, you know, All these movements and flows of monies within organizations and institutions, there's an ability to be able to elevate that at the software layer where you have something that is more compatible with a native digital currency, right? But that doesn't mean that every single third party, you know, needs to be removed.

Alex Bergeron [1:07:32] No, I mean, actually, I like to— I've been thinking a lot about how to frame this, and I like to say that what we're doing is not decentralized finance. It's more like, actually, it's collaborative finance, right? It's like, hey, listen, if we get a bunch of parties together and we get them to agree on a set of rules, as long as everyone is collaborating with each other, the outcome is running great and it's going to be very efficient. And we're able to do a lot more with the liquidity that we have available. We can open it up to new markets and find new business lines and opportunities.

Alex Bergeron [1:07:32] And worst-case scenarios, if for whatever reason the agreement between the parties falls apart, well, everyone has kind of like these routes back to get their money back on-chain. No one gets to censor anyone. Again, it's all just voluntary, right? So it's kind of like this voluntary collaborative finance, and I think it's a more productive way to think about it, right? Ultimately, like this sort of decentralized finance where we almost disenfranchise the individual and be like, okay, well, you can't be trusted. We don't want to have to trust you in any ways. And actually, no, if you can build solid bounded trust, then that is going to unlock a lot of things.

Alex Bergeron [1:07:32] And I think this is what we're trying to do on the commercial side by creating commercial interface to the Arcade protocol so that businesses that don't want to implement everything from scratch themselves can actually rely on our product as standards to be able to do so.

Marty Bent [1:14:57] Yeah, it ties nicely with the conversation I had earlier this week too. And if you can successfully implement that collaborative lending protocol, whatever you want to call it, protocol or market. You can see a scenario where liquidity begets liquidity. Customers are happy, they're choosing it more as an option. And yes, competition exists and it should exist, and the individual actors within that marketplace should refine their systems based off of the sort of competitive feedback that they're getting and try to outcompete. But, um, you can see a scenario in the long run where if you collaborate instead of trying to dominate the market, you could actually, you could actually see yourself doing more origination because people just like the UX of that collaborative marketplace much better than having to go to the individual operators.

Alex Bergeron [1:15:53] Yeah, I do. I look at it very much kind of like we need to find a substitute for the rule of law, right, in the digital world, right? S. markets, you know, the most, you know, act— you know, again, the most successful markets in the history of the world is that they're ultimately— you know, you can do— you can, you can debate it nowadays, but ultimately they're kind of held by a rule of law framework that has proven itself over, um, you know, uh, like more than a century now. And the underpinning of the value of a lot of these, you know, the, the value of private property and things like that is held by, uh, the implementation of the rule of law.

Alex Bergeron [1:15:53] But the rule of law only exists to a certain extent in, um, in the digital world with digitally native currencies. And what is the rule of law? I mean, you know, on one hand, it's the ability, yes, to throw someone in jail if he doesn't do what society expects them to do. But it's also kind of just a bit of a common framework which we agree to operate under, which just facilitates, right, the interaction of Don't tell me you're going to say it. It's kind of—

Marty Bent [1:17:29] code is law.

Alex Bergeron [1:17:30] Code is law? No, I mean, no, far from it. No, no, no. I mean, code is never going to be law, of course. So that's why, you know, you got to be very careful of— but there is room whereby, you know, it's like in normal law, you don't need to adjudicate everything in court, right? People were making that analogy with Lightning back in the days, but it's kind of like if you have a system in place that aligns everyone's incentives, in a way where the game theory is that it's preferable for everyone, right? It's kind of like Nash equilibrium. The game theory is that everyone is better incentivized to follow the rules than to break apart from it.

Alex Bergeron [1:17:30] Then you start building a system that, you know, it relies on trust as much as it relies on incentives. And I think we haven't done a lot of that, right? We've This is kind of when you were asking how do we mature out of this last era of Bitcoin is stop being so pedantic about trying to disenfranchise the individual, the institution, and their ability to kind of have agency in the market by collaborating with others, right? It is true that, you know, the ultimate form of agency is the sovereignty of the individual. But the reason why, you know, free market capitalism works is that, you know, listen, we, we operate in a market that we're, we're able to, uh, collaborate with one another to, to achieve the outcomes that we need.

Alex Bergeron [1:17:30] And this needs some sort of rules, right? This needs like the ultimate law. The, the only law in Bitcoin is the laws of consensus, right? And those are the ones that everyone needs to abide by. No one can really debate or discuss. Well, certainly they can debate and discuss them, but in their individual agency, there's very little recourse to be able to change them. But on top of that, there's room for systems of rules. And this is what protocols are, right? Smart contracts are protocols. Nick Szabo used to refer to them as functionary code, right? Functionary protocols, which is how do you— these kind of flowcharts that you think about.

Alex Bergeron ⋮ Maybe if you've taken like an accounting class back in college and you think about these flowcharts where it's like, okay, the auditor signs off on this transaction, this debit, and then it goes somewhere, and then the treasurer, whatever. And so on and so forth, right? I mean, there's books and books and books and books of these processes that have kind of that are embedded in the fiat monetary system, and it's part of the reason why it's you know as big as it is. So the way that I see it is we have a lot of work to do to kind of pick pick up the slack and kind of be able to create these types of frameworks so that regardless of where you come from, if you're an an ardent sovereign maximalist that's never going to trust anyone with your coin, or you're a sort of middle-aged person that prefers dealing with Coinbase or whatever, there needs to be some sort of ways by which we can connect all of these people together.

Alex Bergeron [1:17:30] And these are the market interfaces that we're hoping to create with Arcade and with our clubs.

Marty Bent [1:21:05] Well, I love to see it. I've been telling you when I see you in person and in DMs, like, I think what you guys have been building, what you've been teasing is very exciting. And I think you are, you are finding success in achieving your goal of sort of expanding the conversation and pushing the boundaries of how we think about individuals interacting with Bitcoin, businesses interacting with Bitcoin, and interacting with each other as interacting with the protocol at different layers. And I think Arc Labs, Arcade, has been a breath of fresh air that's been underappreciated in the market for quite a while now. But I think Per our discussions and DMs, it seems like you guys are really ready to begin leaning in and going after all this stuff that we just discussed.

Marty Bent [1:21:05] So I'm very excited to see that. But before we wrap up too, I mean, AI has been a sub-theme threaded throughout this conversation, and I think it would be remiss if we didn't sort of tie the knot on that theme and what it means for the state of Bitcoin security today, what it means for the state of Bitcoin security maybe a year or 2 years from now. Are we going through hell right now to harden the system, to make it more robust than we could have ever imagined just a year ago, a year from now? And then what does it look like hardening the system?

Marty Bent [1:21:05] I saw that Prem AI announced this morning the launch of CyberScam, which is Prem's proprietary security agent for vulnerability detection built in partnership with Arc Labs and BreezeTech. Obviously, if you've seen the Bitcoin Red team, um, uh, supported by individual donators, uh, donors, excuse me, and, and OpenSats. And what, what does the security landscape within Bitcoin look like today and a year from now?

Alex Bergeron [1:23:12] Um, you know, it's interesting. I, I think I, I, I mean, those are maybe words that I'm going to eat, but, um, I think it's as bad as it's going to get, meaning it's going to get better from here on out, I believe. And that is because as bad as we got hit, and that probably in certain ways we're continuing to get hit by the advance in these frontier models, At the very same time where when the you know the attack surface became obvious and just fucking manifested itself in in by the various attacks we've seen play out, you know, during this this month, the AI.

Alex Bergeron [1:23:12] Again, the scope of AI development has fundamentally shifted as well, right? And so now you're seeing the open-source models catching up. I mean, the open-source models are the entire story here, right? They were the attackers, or at least— sorry, they were used by the attackers, or most likely we suspected they were. And they were also the ones that were being used to fend off the attackers. And I think that's a massive story, if only for the fact that I think that's a big debate within the technical community now as to whether or not, I guess, whether or not it's possible at all to write secure software in this day and age.

Alex Bergeron [1:23:12] And as someone who knows nothing about software, or at least hasn't written any software other than vibe-coded something. My intuition, and I'm always someone that operates, I'm someone that kind of operates always off of my intuition, is that it's actually going to make writing software and safe and secure software much easier than it's ever been. And I think you can get a lot of that software to certain security domains and sort of standard of deployments where, you know, when you look at the spectrum of security of software, you know, maybe on the further, most secure end of the spectrum is all of these, what has been referred to as kind of like formally verified systems, right?

Alex Bergeron [1:23:12] Where you can kind of mathematically prove the integrity of the system, right? Whereby literally, you know, unless you get to a point where, you know, it's a different conversation if AI starts breaking, you know, elliptic curve cryptography. I think we're not really there yet. But if we assume that cryptography is sound and is going to remain secure for the foreseeable future, I think we can push the development of Bitcoin software into a direction where you're going to need to harden kind of like the dependencies, right? Because a lot of the security failures, a lot of time they come from this seemingly small dependency in your code that calls another service, and perhaps that service gets compromised, and it opens up an avenue for compromise of your own system.

Alex Bergeron [1:23:12] So it's going to be teamwork, right? It's like you can build the most secure system that you want for your own organization, but ultimately, if everyone, again, kind of like doesn't do the same thing. Um, it only takes one— in a lot of cases, it only takes one domino to, uh, make the whole thing fall apart.

Marty Bent [1:27:32] You're only as strong as your weakest link.

Alex Bergeron [1:27:34] Yeah, exactly. I mean, yeah, it's very true in some ways. Um, but so, I mean, so this is why, you know, part of that, uh, then becomes how do you assess those threats and This is why Prem, Prem being kind of a non-official sister company of of Arc Labs, actually a project that is led by one of the co-founders of Arc Lab, a completely separate project in its own right. That's been around for a couple of years already, and you know they started off with the thesis of sovereign AI and Prem being. in part meaning on-prem, you know, so on-premise, meaning local AI, locally deployed AI.

Alex Bergeron [1:27:34] And they've been doubling down on that for, again, the last couple of years. And, you know, what we've seen over the last couple of months is just such a validation of the direction that they were going into. And so it really has been You know, as far as they're concerned, such an opportunity to kind of put themselves on the scene and demonstrate the expertise that they've acquired. And so one of the things that we did with them the moment that, you know, some of those dominoes started falling is get together in the same way that the red team did with Rob and Callie and all of that.

Alex Bergeron [1:27:34] You know, I think it was again. It's not just a single group of person or contributors or individuals. It was a collective effort across all different kinds of teams. And what we did is in a lot of ways very similar to Red Team or Project Loop from Block— from Spiral, sorry— which is just create a secure security harness. What is our harness? It's just sort of a scope AI. It's a method by which you're able to run scans of your software, of your projects via an AI model and instruct the model to work in very specific ways whereby it's going to look at very specific part of the codes and follow a certain mechanism to really audit.

Alex Bergeron [1:27:34] Because you can go on Kimi K3 and give it the GitHub link of the organization and it's going to do a security audit. But we know that these processes of these AI and these LLMs, it's not deterministic. It's very random. You never really know how it's going to go through the And in a lot of cases, for whatever reason, it's going to skip one part of the code that might be more critical than the other. And then you never know. It just does not tell you. So you kind of have to be very stringent in terms of what you want the audit to actually be able to do.

Alex Bergeron [1:27:34] So Prem, the last couple of weeks working with Breeze, working with us internally, Andrew, I mean, we didn't talk about Andrew Cooks, You know, obviously on our end at our labs, we were certainly targets of attacks by people poking around. Fortunately, we, you know, we dodged the bullets and were able to harden our infrastructure before sort of any vulnerability was exposed. But, you know, Cooks, our CTO Andrew, is also the maintainer, one of the maintainers of BTCPay Server. Unfortunately, they were not as lucky as we were. So Andrew has had to put a lot of work in. I think everyone is scrapping together and learning as we all go in terms of, okay, how do we adapt to this new threat?

Alex Bergeron [1:27:34] What can we put in place? But the pace, man, the pace. Again, this all comes back to the acceleration. Dude, I'm seeing what's playing out and the ability now with Pram to do constant monitoring. So it's like, no, you're not doing a security audit every quarter. You have a machine and an agent that's running a permanent security audit on your system. If there's a new pull request that comes in, a new commitment to the codebase, that gets audited, that gets cross-checked. And so you have something that's a lot more robust. And so generally, I'm super positive. I mean, I think it's just like, I think AIs are just getting so good as well that, you know, they're gonna just write secure code.

Alex Bergeron [1:27:34] I think it's possible to do that. I mean, I'm, I, I've been on the— I, I don't know if I'm even just a reliable, um, opinion at this point, at least in the last couple of weeks, because man, I'm on this— I'm on the edge of the one-shotted, uh, sort of meme where it's, you know, for the last year there's been kind of like these cycles. And I remember very distinctly like 2 or 3 occurrence of me chatting with a friend and being like, yeah, you know what, like the AI models, man, like they're— if they kind of all suck now, like, like, you know, I would tell them like, you know, I feel like they've all gone to shit.

Alex Bergeron [1:27:34] Like, it's like they're not going— they're not really— I would tell them, you know, I feel like they're not getting any better and perhaps they're getting worse. And then inevitably, dude, like a couple of weeks after somehow, dude, everything would change, right? And somehow I would—

Marty Bent [1:33:41] Me too.

Alex Bergeron [1:33:42] And I feel like I'm in that position right now where, like I was telling you, what I'm developing with the vault, and obviously I can't audit any of what's happening, but dude, the quality— I mean, I'm building an app which would have taken 2 years for someone. I built that in 4 or 5 days, dude.

Marty Bent [1:34:04] Yeah, it's insane.

Alex Bergeron [1:34:06] And it's not like a— it's not a fucking, uh, uh, you know, it's, it's a very complex code base that interacts with, with Bitcoin. And, you know, again, is it full of holes?

Marty Bent [1:34:17] Maybe.

Alex Bergeron [1:34:18] But the reason why I'm saying I'm on the edge of being one-shotted is I was actually having a conversation with Andrew, uh, just yesterday about this, and I was like, man, I feel like I'm getting close to a point where I have to ask you guys like the developers to be like, hey, can you honestly look at this? Because it works. And I wonder if the code is not actually quite good. I have no ability to judge it, right? And maybe it's not, but eventually it's going to be good, maybe even better than the developers can do it. And I was telling also Andrew, how are the developers going to react to that?

Alex Bergeron [1:34:18] Right? Are the developers going to start pushing? I feel like we're on the verge of a sort of crisis in the technical community where the developers are going to realize that, holy shit, the guy that's vibecoded something by himself, he did a better job than I could have possibly done and there's nothing I can— Then how do you know you— how do you yourself kind of accept this outcome, right? You obviously can pick up on the tools and start working on, uh, with them yourselves. But, um, man, it's going to be, uh, yeah, the acceleration is completely crazy. So I, I don't even know what it's going to look like 3 months from now, let alone a year from now, uh, what it means for us, what we're doing.

Alex Bergeron [1:34:18] Um, it has so many implications, and I think that's why it's very hard, you know, from the perspective of someone that operates in technology at the moment, to make a plan for that— make a plan that's beyond 3 months, next quarter. Like, focus on what you can do in the next quarter because you don't know what, what's next.

Marty Bent [1:36:12] No, it's insane. And to your point about Using models, like they're getting worse. I mean, I agree. Like you'll use— it happened with 4.6 and 4.8 Opus for me. But it's become obvious that like, yeah, they'll get you addicted to the crack of the frontier model and then they'll get a ton of demand for it and they'll need to train the next model. So you like divert GPUs, they just like degrade things.

Alex Bergeron [1:36:35] Yeah.

Marty Bent [1:36:35] And the lack of compute and power that's out there is like the bottleneck right now. But to your point, I To have the intuition that it's going to make it so you can vibe code very secure systems. And just so when you think about just having competing frontier models able to cross-audit each other as you're building, and if the rate of intelligence continues to increase at the pace that it has, I mean, just logically you're going to get to a point—

Alex Bergeron [1:37:06] And if that's the case, I think What if we're just a couple of models away from something that can build the perfect code, call it a perfectly secured system? If that's true, then we're 3 models— we're actually 1 more model away from open source because you've seen what's happening with Quan and all of those where you're actually running it on your laptop. You're running it locally on your laptop. You don't need a fucking GPU next to you, and it performs in the same way that, you know, Opus 4.6 did like 6 months ago, right? So one, I think there's a certain limit where it's like everyone assumes that— like, I think a lot of technologists assume that everyone is always going to demand frontier intelligence, but like, it's like, at what point is this true? Right. Eventually you're going to—

Marty Bent [1:38:03] Do you need 1,000 IQ or you're like, it's too much?

Alex Bergeron [1:38:06] Yeah, no, no, no, exactly. 200 should be able to like operate like, um, like the— again, write perfect code. So by the time you're able to write perfect code, uh, you know, unless— again, it's hard. It's hard because it's kind of like all just like— I look at it from the perspective of like the singularity and entropy and everything's just like the randomness of everything. It's just like What is even secure code? You know, like in this chaotic environment, like you never you never know. Maybe fucking maybe we're all worried about. I said that earlier, but maybe we're all worried about quantum and actually, you know, AI is just going to crack elliptic curve and then we're just all fucked anyways. Well, hopefully we're not fucked, but yeah, yeah, it's uh.

Marty Bent [1:38:54] I mean, we can go far down this rabbit hole. It's never ending, but I'm going to give you that.

Alex Bergeron [1:38:58] But I'm very positive myself. I'm super— I find myself to be very optimistic about all this stuff. I mean, I feel like really with Bitcoin, with open source hardware, with local models, It feels to me like we have, in a certain way, Bitcoin was, Bitcoin is what we all believe to be the ultimate bearer of sovereignty. But in the world that we live in, it was probably not enough. And I think local AI models are going to, open source local AI models are going to be kind of like this companion that everyone's gonna have to be able to navigate this, this world. Um, yeah. And so the convergence is, is, is impressive.

Marty Bent [1:39:56] Yeah. And if you're out there, like, what, you gotta touch it, like, and you gotta use it.

Alex Bergeron [1:40:01] Yeah.

Marty Bent [1:40:01] That's a, I was, I had a couple conversations yesterday. It was like a ton of people out there like, yeah, I use AI, but they're just using ChatGPT and, um, Claude, excuse me, as another Google search. It's like, no, you've got to integrate this in the systems and create agents and see how these things interact with each other. And once you see it, it's hard to become pessimistic. I mean, you can have the lingering thought of ASI leading to the paperclip problem and us bringing Skynet to the world, I don't know. To your point, these things aren't deterministic, and I don't think they ever will be.

Alex Bergeron [1:40:42] Yeah, no, no, exactly. No, I mean, I'm, I'm a huge bear on, um, on AGI. I don't think, like, I, I mean, I, I don't think that this class of intelligence, if you can call it that, is ever going to get close to— you can tell, you know, like, it's kind of ridiculous how good they are at doing a million things, but you can still, you know, you can still tell that they're kind of dumb as rock, right? It's kind of like, it's just like, as, as our friend Rob always says, it's just like pulling the slot machine and just getting a random result. And, uh, maybe it's gonna be— if it's gonna be great, maybe it's gonna be completely retarded.

Alex Bergeron [1:40:42] Um, and, and so from that perspective, there's, there's very little in that tells me that. But, you know, maybe they'll fucking figure it, you know. Maybe they'll— maybe you'll pull the slot machine one day and they're gonna be like, oh yeah, I found a way to get smart, you know, to actually be smart.

Marty Bent [1:41:39] 7th across the board every time.

Alex Bergeron [1:41:41] Yeah.

Marty Bent [1:41:44] Uh, well, um, it's been great catching up, dude. Thank you for, uh, for coming on. I'm pumped to see what you guys are pushing out at Arcade and Arc Labs, and love to see, um, you guys collaborating with Breeze and Prem to to secure these systems. And, um, like you, it's been a— I'm very optimistic on, on the future of Bitcoin. I think we've learned a lot of hard lessons in the last month. A lot of introspect— introspection and reflection, uh, certainly been part of my day-to-day process over the last 3 weeks. And, um, I, I think, uh, It's hard to say. To your point about like this cathartic release that the cold card thing probably represented, it's just like, I'm not going to come out and say it's hard to say, but lessons that for me personally, taken very seriously and hopefully will lead to better outcomes, better conversations, better sort of risk assessments in the future.

Alex Bergeron [1:42:58] Yeah, and hopefully better or kind of more willingness to contribute also in whatever ways is available to people. Just circling back to this AI conversation, I mean, one of the reasons why I am so optimistic, and one of the reasons why I feel like at our collabs and at Arcade, with Arcade, we've been able to keep ourselves away from the distraction and kind of survive through this very difficult bear market and whatnot, is that we, you know, controlled our narrative. We shaped our own future. We were not out there trying to entertain identity politics or whatever that might have been. Or just like, you know, it's just like, man, there's never been a better time to build in Bitcoin.

Alex Bergeron [1:42:58] Like, every— you know, we've literally hit, knock on wood, like peak bottom from here. And if you think that this is the case every single bear market, right? But we, we, through, through the, through the deepest part of the bear market, we always underestimate, uh, how crazy things can get during the next bull phase. And I think people are in this state right now where kind of like people are dejected. There's a lot of apathy about the future of Bitcoin and are suits going to control everything and whatever that might be and whatnot. And Well, listen, like if you care about it that much, one of the things that you can do is not just you know yap about it on Twitter, but listen, man, just get a couple of agents going and let's just fucking churn out some product ideas and and try to contribute in some ways.

Alex Bergeron [1:42:58] Like there's there's really no excuse anymore. And if you're if you're if you're if you if you have an idea and if you think things should be better. like act on it, um, because otherwise you're not going to have any excuse.

Marty Bent [1:45:06] You don't have to build a full-fledged product either, like a simple—

Alex Bergeron [1:45:10] No, exactly, exactly.

Marty Bent [1:45:12] Developer can look at and be like, oh yeah, that is actually pretty cool, here's how you would actually make it viable.

Alex Bergeron [1:45:17] That's, that's the most— I mean, everyone now, like my— I, again, I am not going to be able to write a secure code base myself ever, but I'm at a point now where I can own an entire sort of product design scope research phase and execute on it in a matter of a week, and I have a proof of concept and a prototype that actually works on MuniNet, and I can go tell Andrew like, hey, listen, Andrew, like, I know you've been busy kind of, you know, patching every code base and making sure that everything is secure. In the meantime, you know, here's what I've Because I don't, you know, I'm not going to touch that.

Alex Bergeron [1:45:17] Like, you don't want me touching the critical parts and fixing everything. But while you're busy doing this, like, here's what about— here's the direction, here's a direction that I thought we might want to take. Uh, and, you know, when you get back to things being a little more normal, like, this gets us ahead of steam in terms of being like, okay, do we discard this idea or do we start iterating on top of it? And, and yeah, there's just like there's just so, so much opportunity for, for people to participate, and it's, it's the better remedy to be able to get through. I can tell you 100%, uh, from my perspective that if I hadn't been at Arc Labs and I hadn't had this opportunity to work on this project in the last 2 years, I probably would have been completely checked out of Bitcoin.

Alex Bergeron [1:45:17] You know, I would probably have my own little stash, and I'd probably, you know, be, uh, shitposting here and there on Twitter. But actually, I'm afraid that I would have probably fell into one of these, you know, just aimless identity sort of like wars, because I am a sucker for a lot of that shit. But at least I found that, you know, I have an outlet now. Um, so I would encourage people to just, to just put their, their energy there. Um, and, uh, with, you know, hopefully the market rallying back, um You know, the opportunities will manifest themselves. It might not look like there's a lot of market, there's a lot of demand, there's a lot of attention for some of the ideas that people have at the moment.

Alex Bergeron [1:45:17] But man, this industry is going to be 10, 50 times bigger in the span of a couple of years, the next decade. If you think that the people that own the application layer right now or own the service layer right now are going to be the same 10 years from now, I mean, you're kidding yourself, right? I mean, there's just like— there's going to be so much market. There's never going to be one LightSpark. And listen, I love the guys at LightSpark. Like, I've always been very, very explicit that we don't see them as competitors with what we're doing at ArcLabs and Arcade. And if there's room for collaboration there, we'd be happy to do so.

Alex Bergeron [1:45:17] But the point is, again, that there's going to be room for 10 LightSparks in 10 years from now. So, you know, if you think that they have built something good that works, and, you know, look into perhaps using that model and serving eventually a different part of the market with perhaps that has different demand. But there's really no excuse for anyone anymore. So yeah, this is what makes me optimistic. And this is why I kind of keep my circle tight with hopefully people that are of the same idea and that have never kind of relented. I mean, dude, like, yeah, let's just say we've lost a lot of good warriors, if you can call it that, in, in this bear market.

Alex Bergeron [1:45:17] It seems like— I don't know if we're gonna get them back. Um, uh, hopefully we, we do, but, um, uh, hopefully it's in, in a context again where they can contribute in healthy ways and not just kind of like in, uh the social area of X.

Marty Bent [1:49:09] Yeah. The ROI on engaging in that is very low, if positive at all.

Alex Bergeron [1:49:15] Yeah.

Marty Bent [1:49:16] But time is a flat circle. This happens every bear market.

Alex Bergeron [1:49:19] Exactly.

Marty Bent [1:49:21] I appreciate you again coming on, doing what you do, and we'll do this again at some point.

Alex Bergeron [1:49:29] Yeah, man. Thanks for hearing me out. And Yeah, let's hopefully we bump into each other soon.

Marty Bent [1:49:36] Yeah. All right. Peace and love, freaks.

Alex Bergeron [1:49:37] Okay. Peace, man.

Marty Bent [1:49:39] Thank you for listening to this episode of TFTC. If you've made it this far, I imagine you got some value out of the episode. If so, please share it far and wide with your friends and family. We're looking to get the word out there. Also, wherever you're listening, whether that's YouTube, Apple, Spotify, make sure you like and subscribe to the show. And if you can leave a rating, On the podcasting platforms, that goes a long way. Last but not least, if you want to get these episodes a day early and ad-free, make sure you download the Fountain podcasting app. You can go to fountain.fm to find that.

Marty Bent [1:50:15] $5 a month gets you every episode a day early, ad-free. Helps the show, gives you incredible value. So please consider subscribing via Fountain as well. Thank you for your time, and until next time. Okay.