Trace Mayer has a long history in the Bitcoin industry. As an investor, Mayer he has backed well-known Bitcoin companies, including BitPay, Armory, and Kraken. He’s well-read in Austrian economics, and has degrees in law and accounting.
Mayer’s first foray into the world of alternative assets was the gold and silver markets in the mid-2000s. Back then, he worked with a company called GoldMoney.com. “They were trying to innovate in the digital gold payments space, bringing sound money to the digital age,” he said. “But, gold just isn’t suited for it. You’re not able to transfer gold over a communications channel like you can with Bitcoin. Gold’s an atom, not a number.”
Mayer, who hosts The Bitcoin Knowledge Podcast, discovered Bitcoin while covering privacy issues. “Unconstitutional intrusions by the NSA, the Chinese government, and all their intrusions,” he recalls. He thinks our freedom to keep secrets is just as essential as our freedom to make our own choices. He then became one of the first with a significant readership––stemming from those precious metals and privacy days––to start publicly talking about a novel attempt at digital currency. Bitcoin was about a nickel to a quarter at the time, as Mayer targeted the libertarians first.
“Because they’re just kinda crazy,” he explains. “And I figured they would like monetary sovereignty. And then I targeted the goldbugs, because they should understand sound money. And, [Bitcoin] is the new innovation in monetary technology. The hardest money ever invented, censorship resistant.” The rest is history as they say.
“Both the libertarians and the gold bugs seemed to be pretty resistant to Bitcoin,” Mayer said. “A lot of them were old technosauruses. But, they’ve since come around––almost all of them. It’s been a wild ride.”
Since 2017 alone, Mayer has watched as the Bitcoin price reached nearly $20,000 in December 2017, after which it collapsed to $3,000, and now is at $10,000 headed into the next halving. “We could have a wild 2020s,” he says. “The next decade is going to be surprising to so many people.”
While he believes privacy and fungibility is important in cryptocurrencies, he thinks the finite number of bitcoins in existence is the most important factor. “We know that there are only 21 million bitcoin, and we know the emission rate, and we have very solid mathematical proofs on that. That’s more important than the fungibility and anonymity characteristics.” But that’s not to discount how important privacy and funbility is.
“Those help protect us against censorship. Wielding the monetary system against political opponents, things like the WikiLeaks banking blockade and Operation Choke Point,” he says, referring to the credit card companies, PayPal and others blocking donations to WikiLeaks, as well as US Department of Justice initiatives the US House of Representatives ultimately found were not legit exercises of the Department’s legal authority.
Mayer adds: “If we are private and fungible with the technologies that we’re using, it’s a lot more difficult to engage in that type of censorship.”
Mayer expertly speaks on all the development going on in the Bitcoin space. “There are hundreds and hundreds of open source developers working on the Bitcoin core software,” he said. “The Bitcoin core software is the backbone of the Bitcoin network. It’s the most widely deployed implementation for all the network consensus. I really liked the work that Bitcoin core developers have been doing.” At the time of writing, 760 issues and 359 pull requests on the GitHub repository, found at GitHub.com/Bitcoin/Bitcoin, showcase ongoing Bitcoin development. Mayer then rattles off a list of Bitcoin innovation:
- The Lightning network (Introduces channel factories and private messages on Bitcoin’s second layer)
- Blockstream’s Atomic swaps on Liquid, a sidechain-based settlement network for traders and exchanges.
- Blockstream’s Elements, an open source, sidechain-capable blockchain platform, providing access to powerful features such as Confidential Transactions and Issued Assets.
- RSK (for the development of smart contracts on Bitcoin’s second layer)
On the mining front:
- The Fiber Network for connecting all the miners
- Matt Corallo’s Stratum Version 2 Protocol, (“going to make it a lot better for individual miners to control how the blocks get created instead of the mining pool screening it,” says Mayer).
- Mining derivatives (“like hashing contracts, will likely trade on a CFTC regulated swap execution facility,” says Mayer).
On the privacy front; particularly confidential transactions:
- Bulletproof (shorter proofs for more efficient confidential transactions)
- SNICKER (coin mixing)
- Value Shuffle (coin mixing)
- Mast (Merklized Abstract Syntax Tree, for smaller transaction sizes, more privacy, and larger smart contracts)
- Taproot (for expanding Bitcoin smart contract flexibility)
- Graph root
- Tap script (Improvement’s to Bitcoin’s script structure)
“We’ve got performance and usability increases, Schnorr signature cross input aggregation, Multisig, neutrino, erlay, and transaction accumulators,” he said. “Then there’s things like BTCPay for merchants to accept Bitcoin with open source software. It’s free. There’s just so much innovation happening on Bitcoin. People are largely ignorant of that, if they’re not closely following the space with the technological competence to kind of be looking and watching all the stuff that’s happening. Bitcoin is in forward motion like never before.”
Could state actors could stop Bitcoin? “It’s in the universe of the game theory,” says Mayer. “But, right now, [cryptocurrencies] are so inconsequential, they don’t really matter at all. It’s just not even worth [the government’s] time to think about it. Bitcoin, specifically, is built in a very force multiplier type of way, where it’s just so difficult to try and hack it. And there’s been a huge bounty there, $150 billion now, and that bounty has been there the whole time––the last eleven years.” Still, no significant hack.
“Bitcoin gets stronger and stronger and any potential weaknesses keep getting further reinforced and strengthened,” he said. “By the time it might matter for a state actor to try and hack it, it’ll be way too big. And all of those potential weaknesses will have already been closed off and highly defended against.”
What if the Chinese Communist Party decides to shut down the many Chinese-based Bitcoin mines, which help to secure the Bitcoin network? “The geographic distribution diversity is increasing,” ripostes Mayer. “Even Bitmain has announced a major new Bitcoin mine in Texas. And Version 2 Stratum Protocol is going to make it even more distributed with the individual or retail miners being able to control what happens in terms of the transactions that go into blocks. Instead of the pool operator controlling that, the individual miners will be controlling that.”
Anyway, China housing so much mining power is old news, and largely overplayed, says Mayer. “We’ve got massive Bitcoin mines in South Dakota, Wyoming, Montana, Canada, Iceland, Denmark, the Netherlands, China, and all over the world,” he said. “The mining market is becoming further decentralized, in my opinion, while racing to find the cheapest operational expenses.”
Mayer, who is often spotted in the western United States, is a champion of North American Bitcoin miners. “You have the miners in the United States, where there’s a constitution, rule of law, freedom of speech, as well as cheap power. It’s important for the miners to be protecting themselves to the greatest degree possible from any type of state interference, and the US more or less has a very good way of interacting with the miners versus China, for example.”
In the meantime, the Bitcoin network is being further financialized through products, such as with Bakkt’s bitcoin futures. Mayer laments, however, that Bakkt initially claimed they would be physically settled and physically backed, yet they ended up only offering 37% backing. Mayer believes that poses a grave risk to Bakkt’s market participants. “You actually have to deliver a physical Bitcoin,” Mayer said. “You can’t just print Bitcoin out of nothing when you have a violent price move.”
There’s other products increasing the financialization of Bitcoin. An ETP product in Switzerland, SIX, for instance. “We also had a very similar type of a product rolled out in Canada that’s now trading on their public exchanges,” said Mayer, referring to 31Q’s Bitcoin fund. Mayer mentions LedgerX. According to the company’s website:
LedgerX is the first federally regulated exchange and clearing house to list and clear fully-collateralized, physically-settled bitcoin swaps and options for the institutional market. The U.S. Commodity Futures Trading Commission (CFTC), which regulates virtual currency derivatives, oversees LedgerX’s registration as a swap execution facility (SEF) and derivatives clearing organization (DCO).
“That’s a great way that people can use their Bitcoin to earn more Bitcoin,” said Mayer. “Selling volatility basically. And they’re 100% collateralized, unlike Bakkt.”
He adds: “All of this is very good, because it increases the financialization network effect and it increases the liquidity and reinforces the first network effect of the speculation.”
Mayer believes the landscape provides ample opportunity for the retail market. He intends to keep an eye on the network effect of events like SIX, as well as legislation making it easier for Bitcoin financial startups to operate. He recently helped draft language for Wyoming’s blockchain-enabling banking rules.
“There was just a group from the public and the industry that helped the banking commissioner formulate some of the rules,” said Mayer. “All of this is very important, in order to bring pension funds and Fidelity into the crypto markets. And that’s when the big money can start coming in. It’s been fun to be on the front lines of all of that. And it’s nice to see that it’s not just Wyoming, but also other states, including Rhode Island, Arizona, Utah, and Colorado. Then it’s other countries like Malta and Switzerland and Bermuda. All of this is just very positive for the industry as a whole.”
What does Mayer have planned for 2020? “Maybe I’ll have vacation,” he quips. “But, Bitcoin and all of this stuff is just so much fun that I don’t really know. I’ve just been very interested in this privacy, anonymity, fungibility debate, discussion, and potential solution, because I think it’s so important and so key for our monetary sovereignty to have those types of tools available. I’m actively looking in that area.”