The Kevin Rooke Show

Randy Naar - 00:00:00:

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I think that's a very powerful idea that Liquid was built with assets in mind. It's kind of baked in. A lot of ideas can kind of go into Liquid first. So SegWit is a famous example. You can kind of design it, implement it, and then so much in Liquid and show kind of the world that, hey, this model works, right? I would say Liquid is still very much its own thing, but because it's so similar to bitcoin, when a new feature is introduced to Liquid, it definitely should, I guess, raise some excitement for the possibilities for bitcoin. What we call a native asset on Liquid is the standard asset, but there's also things called issue attract assets and transfer restricted assets, and those are built on something called Amp. One thing that I've heard from people is that because Liquid has this extended script, you can create things like liquidity pools and decentralized exchanges. Because Liquid works on Lightning, I think that is also a huge draw to come and build on Liquid as well.

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Kevin Rooke - 00:01:00:

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Randy Naar is a software engineer at Blockstream, focused on bringing assets to the Liquid side chain. In our discussion, we covered exactly what Liquid is. We discussed how it works and what sets it apart from other L2 scaling solutions such as the Lightning Network. We also discussed what asset issuers are using Liquid for today and the potential future applications that asset issuers might want Liquid for in the future. Randy is also asked to have his share of today's sat splits sent to the Human Rights Foundation. So if you enjoy this show and if you learn something new, the best way you can support the show and the Human Rights Foundation is by sending in sats over the Lightning Network in response to the value you got out of this show. If you thought this show was great, send a lot of sats. If you didn't, send a few. Just a quick note before we get into today's show. This episode is sponsored by Voltage. Voltage is the industry standard and next generation provider of Lightning Network infrastructure. This episode is also sponsored by Zebedee, and Zebedee is your portal into the world of bitcoin gaming. We'll have more from Voltage and Zebedee later in the show. Randy, welcome to the show, and I'm so excited to chat with you about Liquid because it's a layer two scaling technology that I know exists. I know it's different from Lightning. It's got its own features, that it's got different trade offs, but I don't know enough about it. And I want to learn more, and I want to learn how it interacts with bitcoin, if it interacts with Lightning at all. And I've got a ton of questions for you, but before we get into it, maybe we can start off with your background in bitcoin. I'd love to know more about how you first discovered bitcoin, why you decided to then put all your energy and time into building on Liquid.

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Randy Naar - 00:02:56:

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Yeah. So how I first found out about bitcoin was in 2014, I had a cousin who kind of went all in on bitcoin and he was researching all these different cryptocurrencies, like Ethereum and whatnot. But he told me bitcoin is the best. But the thing is, he didn't understand all of the technicalities of bitcoin, but he understood kind of the overall mission, decentralization, and he kind of got me into bitcoin. And he also used to play around with Dogecoin, and he used to mine bitcoin as well. So I guess my first experience was doing that. And we kind of used to have fun with Dogecoin. We used to gamble online with it. There's a whole bunch of gambling sites back then where he could gamble your Dogecoin all the way. It's funny because no one expected Dogecoin to go up. So if you actually look at it, he had like millions of dollars that he was today, I guess, ignored bitcoin for a long time. And during the pandemic 2020, I had a friend who started inviting me to some bitcoin meetups. He's like, oh, you heard of bitcoin? And I was like, yeah, I used to play around with it. I started going and that's a BitDevs in south Florida. So I guess that's how I kind of was reintroduced to bitcoin. After that, I got obsessed and I started reading a lot about bitcoin. I went back and I got, like, the original code for bitcoin and scanned it. So I can really understand the foundation and yeah ever since then, I guess I've just been focused in on how bitcoin works and different things about bitcoin.

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Kevin Rooke - 00:04:37:

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Nice. And then how did you decide then Liquid is this side chain you want to be building on that. What was so important about Liquid.

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Randy Naar - 00:04:46:

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Yeah, so there's a lot of different ways to scale bitcoin, and Liquid is just one of the scaling solutions. I think there's a lot of things that makes Liquid very attractive, including the kind of scripting model. It's very similar to bitcoin’s and the fact that it's pretty much like a fork of bitcoin. It shows a lot of the same code, and it's pretty secure in terms of how it's programmed. And I can actually jump into it from reading things in the bitcoin code base and understand things easily. So I really appreciate that. And there's a lot of other great features of Liquid. I don't know if you want me to get into it now.

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Kevin Rooke - 00:05:23:

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We can get into it. We've got a long list of topics to go through. But maybe first if we're thinking about Liquid, I've heard people talk about it as a federated consensus model and as a side chain. So can you start with maybe a high level understanding of, like, what is a federated consensus model? How does that differ from bitcoin's consensus model? And how does Liquid as a side chain plug into bitcoin or connect to Bitcoin or interact with it.

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Randy Naar - 00:05:56:

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Yeah. So I guess I could start with Bitcoin’s model. Sure. With Bitcoin, when you generate blocks, you have miners and they collect transactions, they create a block and then they compete to try and kind of find this target hash and they plan with the nons and the extra nonces until one of them finds it and then they can go and collect the block reward coin based transaction. And for kind of the Liquid side chain, it's not a competitive thing. They decided to kind of have these Liquid members that are called block signers. And when you generate blocks, it's like a round robin type thing where members will take turns kind of signing or creating these blocks and take turns signing these blocks until they can kind of be finalized and added onto the Liquid blockchain. So it's not a competitive type of thing. I'd say that's like the big difference between them, it's not as open in certain ways, but it also isn't completely centralized because you have all these different parties who have different interests and you also have kind of this concept of dynamic federations where you can add and remove people from the selected list of roles, what we call watchmen and block signers. But yeah, in terms of block generation, I think that covers it.

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Kevin Rooke - 00:07:36:

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Yeah. So the members in this federation can be added and removed. What is the incentive for all of them to participate correctly and to correctly process transactions?

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Randy Naar - 00:07:50:

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Yeah, so block signers, I think there's always the intrinsic motivation to hold integrity of the chain, but there's also fees that are collected to help process the on-chain transactions to go back into Bitcoin. A lot of the block signers it's good. I guess they have the control to go and collect these blocks and keep publishing them. They all kind of invested interest in Liquid. So I guess I'd say that.

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Kevin Rooke - 00:08:23:

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Yeah. Now let's get into some of the features of Liquid because in some ways it's similar to Bitcoin, but in some ways it's different. A few differences. There's a 1 minute block time, native assets, confidential transactions. Can you talk more about why it's important that Liquid has this set of features that is different from Bitcoin?

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Randy Naar - 00:08:48:

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Yeah. So because you don't really have the same mining model, you get different affordances and one of them is quicker block time or 1 minute block time is like great and it's fast. And there has even been discussion of seeing if we could lower that even further. And it's kind of a nice functionality you have there. In terms of the other features that make Liquid different is you can introduce things like confidential transactions where I could go and transfer a certain amount of LBTC or any other asset which we could also get into and blind the amount and the asset type that I am sending to a recipient, which is very helpful in a lot of different scenarios.

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Kevin Rooke - 00:09:35:

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And then you can also create native assets as well on Liquid.

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Randy Naar - 00:09:40:

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Yeah. So assets on Liquid are like first class citizens. You could go and make issuance transactions and you can distribute your asset. There's also a concept of having reissuance tokens and creating more of tokens in the future if needed. I think that's a very powerful idea that Liquid was built with assets in mind. It's kind of baked into the design.

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Kevin Rooke - 00:10:05:

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One other thing that I think I've heard you talk about it at a past conference is that Liquid is sort of a test bed for bitcoin, or in some ways it's a testing ground for new features. How does that work? How do Liquid features migrate over to bitcoin? Is there precedent for that?

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Randy Naar - 00:10:29:

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Yeah, I guess test bed might be a little misleading because sometimes when the word is like testbed is used, it's implied that the features aren't, I guess, fully fleshed out when a lot of the features that are added to Liquid already have gone through years and years of research and are definitely audited. Well, yeah. So a lot of ideas can kind of go into Liquid first. So SegWit is a famous example. You can kind of design it and then implement it in Liquid and show kind of the world that, hey, this model works, right. We have it working in some place, so we kind of have something proven here. And addition to that, I guess Liquid also has these other things that are going on within the chain that could kind of evolve and move to bitcoin at some point. So another thing is simplicity is a big thing. It's an alternative scripting model to bitcoin. Or it could be also in addition in terms of if it's ever integrated into the main chain. But it's a lot more powerful and it's just a very interesting concept that I hope can get some progress. But, yeah, Liquid looks like it's going to be his first home right now. And it's a really cool idea.

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Kevin Rooke - 00:11:55:

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Yeah. So let's use maybe segued as an example. What was the process from that on Liquid to moving that to bitcoin?

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Randy Naar - 00:12:04:

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I know Liquid or kind of elements on GitHub is what you call it, shares a lot of core maintainers to bitcoin. And just like everything, there's always going to be a bit that's introduced in bitcoin. I'd say the adoption of ideas are still kind of go through the standard process for bitcoin. It's just that now you kind of have additional verification, I guess, in this other chain. But you can say, hey, look at this. This is a working implementation. So it kind of adds backing if you prose a dip.

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Kevin Rooke - 00:12:38:

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Right. So is it fair to say that this is kind of like this experimentation ground for building things onto bitcoin? Is this supposed to attract developers who want to add new features to bitcoin? Is that the idea? Here.

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Randy Naar - 00:12:57:

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If I'm hesitant to say that any kind of ideas could be added to elements or it's necessarily supposed to attract people who want to add things to bitcoin to Liquid, I would say Liquid is still very much its own thing. But because it's so similar to bitcoin, when a new feature is introduced to Liquid, it definitely should, I guess, raise some excitement for the possibilities for bitcoin. Is that okay?

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Kevin Rooke - 00:13:26:

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Yeah. So let's think about Liquid as a scaling solution and maybe we can do it in the context of Lightning. How do these two compare to each other? Because both can process more transactions than you can on bitcoin. What are the other similarities and differences and do these two cross over at any point? Where do they overlap?

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Randy Naar - 00:13:51:

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Yeah, so it doesn't really have to be one or the other. You could have Lightning channels in Liquid because the scripting model in Liquid is very similar to that of bitcoin. Liquid does add some additional opcodes, but all of the things that you could do on bitcoin you could pretty much do in Liquid. So you could open channels with people HTLCs are also something you could do on Liquid. I don't know, it feels kind of weird to compare. But in terms of Liquid, I guess it also introduces the door for additional functionality like having these things like opcodes and additional opcodes and faster block times if we're comparing straight to bitcoin. And I think those are huge benefits as a scaling solution and to be able to kind of offload some of the transactions on Liquid and to gain all those features that Liquid has, like confidential transactions, I think is a nice thing to have in terms of scaling, I guess the quicker block time is kind of a huge thing, right?

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Kevin Rooke - 00:15:03:

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Is there another technology you might want to use instead to compare Liquid to or is there maybe within the broader crypto ecosystem or in the traditional finance ecosystem? Is there something that more closely resembles what Liquid is trying to do with bitcoin?

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Randy Naar - 00:15:23:

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Yeah, I would say at least kind of how me and some others I've spoken to have started thinking about. Liquid is like a financial layer on bitcoin. So a place that you could do a little bit more than what is natively supported on bitcoin. So being able to have native assets on it. So you could issue stablecoins like in Liquid right now in tether, you could enable atomic swaps between them and you have a very nice ecosystem to be able to build out these higher level financial products. But at the same time you are still using bitcoin and that's kind of like the native asset that you have on Liquid. And I think that's very important in terms of comparison. I don't know if there's anything exactly like Liquid that I can compare it to, but yeah, I would say it's a side chain. A lot of side chains have been posed as similar solutions to other blockchains.

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Kevin Rooke - 00:16:23:

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Right now when you talk about the financial layer on top of Bitcoin, this starts to sound a lot like the financial applications that we've seen explode in the rest of the crypto ecosystem, where you have stable coins, you have decentralized exchanges and things like that. Is it fair to say that those use cases can be ported over to Liquid and be built on Bitcoin?

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Randy Naar - 00:16:49:

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Yeah, and 100% there's native stable coins that are being built on Liquid right now, like Fuji Money. And there's decentralized exchanges that are also being built out like Bitmatrix, which use the concept of liquidity pools and Liquids, advanced scripting features to enable things that Bitcoin previously couldn't. And a big change is having these web wallets, almost like MetaMask. There is something for Liquid called marina and that enables a lot more use cases than could have been anticipated on Bitcoin. So I would say that is a huge pivot towards the direction of actually having a lot more DeFi applications on the similar scripting model.

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Kevin Rooke - 00:17:42:

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Yeah. So when you talk about advanced scripting models, is this something that is Liquid Turing complete? Am I thinking about that in the right way where you can do more, it has more flexibility or no, not.

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Randy Naar - 00:17:57:

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Quite in that way, but for example, you can kind of enable covenant like functionality or you can there are opcodes that allow you to inspect the output of your transaction. And I guess I've heard these called introspection opcodes where you could make assertions about certain outputs and what asset types they are and so on and so forth. And with that, you can kind of make powerful applications. I guess this is the tangent in Bitcoin. Plus we were working on the Saxophone project where Barack from Bitmatrix, he was able to make a script for gambling. Pretty much our application was dog racing. So you pick a certain number and then my role is to help construct these transactions that use his locking script. And he would have a covenant that would allow for players to go and pick a number and then the output of that would end up picking one winner and administering the winning. So that's an example of a use case that's not really supported on Bitcoin but is unlikely because they have more UpCodes to work with, which gives you more control. So it's not quite like something like Solidity on Ethereum, but it definitely is more powerful than what Bitcoin can currently achieve.

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Kevin Rooke - 00:19:33:

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Right. It can handle a subset of the things that can be built on Solidity, but it encompasses a lot of the financial applications that one might want to build. Is that a correct assessment?

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Randy Naar - 00:19:49:

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Yeah, I would say so.

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Kevin Rooke - 00:19:51:

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Got it. So let's get into Liquid assets and some of the financial applications here. Are there any limitations to what kind of assets that can be built on Liquid?

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Randy Naar - 00:20:06:

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Yeah, so you could pretty much issue anything. And then after you create an asset, what you typically want to do is register it. So Blockstream has their own asset registry, and you could register an asset that represents a new stablecoin that you'd like to make. Or if you wanted to make some other model where you plug in assets from other blockchains, you could technically do that as well. So I guess what you can do in terms of assets isn't very limited and there's a lot of different possibilities there.

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Kevin Rooke - 00:20:42:

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What do you think if you look at the asset landscape and think about all the different things you can build on Liquid, what do you think will be the first asset or the first use case that really finds product market fit on Liquid?

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Randy Naar - 00:20:58:

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Yeah, so there's, I guess, financial assets are being created today that you might have heard of before, right? Like the mining notes and the volcano bonds. People have been kind of talking about things like that. So those are definitely huge use cases that we'd see. I would say there's been other use cases which have been shown. There's a product that we have called Amp, and on our website we have a bunch of smaller use cases that have been taken on by developers. And depending on what kind of assets you're talking about, I guess it enables a lot. Something else that I could bring up is Amp, this product Amp that we have. So what we call a native asset on Liquid is the standard asset, but there's also things called issue attract assets and transfer restricted assets. And those are built on something called Amp, and they will restrict things about your asset. So, for example, you can create these things called like distributions, where you can administer assets specifically to our green wallets, which will enforce tighter control of these assets so that they can only be transferred between, let's say, green wallets. And they do this with this multi signature scheme. So if you'd want to create a wallet in green, they could create a multi signature one that will look for authorization from Blockstream to transfer certain types of assets. So you can kind of create these cool systems, which you can kind of close it a little bit more and add more restrictions for people who might want to use those use cases. And I would say that's pretty big.

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Kevin Rooke - 00:22:49:

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Yeah. Can you also time lock things like, for example, stock vesting schedules and things like that?

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Randy Naar - 00:22:58:

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Yeah. So any script that you could write for Bitcoin or LBTC in Liquid’s case, you could also make for an asset, which is very nice. I know the Bitcoin scripting model is very pushed a lot amongst my circles. I've seen a lot of praise go towards its predicate directed format. So I think it's very beneficial to the landscape to be able to transfer assets with the same type of script that is already used.

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Kevin Rooke - 00:23:36:

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Yeah. Now when you zoom out here and you think about the ways in which Liquid could impact the global financial landscape, where does your mind wander? Like, what impact do you think this could have if adopted globally?

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Randy Naar - 00:23:55:

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Yes, I think a lot of the money on bitcoin could be moved on to Liquid and the use cases that range from options to all these crazy other type of financial instruments. And people could do that securely and confidentially between each other. You could have Lightning channels that do atomic swaps between bitcoin and Liquid. We kind of can see that now through bolts. They have APIs that allow you to do things like submarine swaps and reverse submarine swaps, where you could even send Lightning bitcoin and receive LBTC on the Liquid network. So I think that's a really cool application as well. Going back to the hackathon project, what we did is we were able to send some Lightning bitcoin to bolts API and receive some LBTC that was locked in the covenant. And the logic would kind of be all executed on Liquid. And then we could also make a payout back to bolts to receive some bitcoin Lightning as well. And I think that application can see a lot more use cases in the future.

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Kevin Rooke - 00:25:17:

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Do you think that I know this is pie in the sky ideas that I'm throwing out to you here, but when we think about some of the big financial entities today, like maybe let's take an example. Let's take the New York Stock Exchange. Can Liquid do all the functions of the New York Stock Exchange? Can it support all those trades and all the different operations that this entity might have had to do otherwise? The New York Stock Exchange.

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Randy Naar - 00:25:48:

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Yeah, I think there's room to be able to swap different things assets. If you have stable coins and you have any arbitrary assets that you can create, you could definitely kind of create markets for things. And the way script is right now, you can definitely support use cases where you need exchanges, which is any kind of arbitrary exchange. You can kind of create and make the 1 minute block times can support a lot more than bitcoin can. So I really think that should be emphasized and that things are kind of moving in that direction with things like Bitmatrix. But in terms of functionality, I think there's still a lot more work that could be done and more applications that I'm excited to see in the future. But to answer your question, yes, I think something like an exchange, like a New York Stock Exchange could be emulated in ways on bitcoin, on Liquid, and using Lightning, you could even make cooler integrations where you could easily siphon off your Lightning bitcoin into the Liquid network and pretty much pipe them into your applications.

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Kevin Rooke - 00:27:02:

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Now, what's the bearer case for this? If I ask you now, what's the reason? If we fast forward ten years and Liquid is not eating the New York Stock Exchange or some other large exchange. What would the reason what do you think is the drawback of using something like Liquid?

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Randy Naar - 00:27:26:

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Yeah, so I have heard some criticisms about pegging out. When you peg out, your Bitcoin has to go to a whitelisted address, and I guess that's what I've heard as one of the drawbacks.

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Kevin Rooke - 00:27:43:

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But can you describe that pegging mechanism? Anyone can peg in, but only whitelisted address can peg out.

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Randy Naar - 00:27:49:

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Is that right? Yeah. So there is a set of whitelisted addresses that you can peg out too, and they're kind of also Liquid members, but you typically can synchronize with one of them, and I imagine they would administer your funds that way. But you also don't really have to do that. You could do atomic swaps and you could do atomic swaps to get some Bitcoin or Liquid one way or the other, or you could kind of do submarine swaps or reverse submarine swaps and all that to try and get liquidity in either end of the spectrum. So I'd say that's the drawback that people typically bring up, but I'd say there's some work around there.

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Kevin Rooke - 00:28:31:

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And you could also do like a peer to peer exchange.

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Randy Naar - 00:28:33:

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Right, right, yeah. What do you mean by peer to peer exchange?

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Kevin Rooke - 00:28:38:

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Just to get out of a Liquid asset into bitcoin or something like that.

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Randy Naar - 00:28:43:

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Right, exactly. Yeah. So any asset technically, you could go and do a swap between that and another period, I guess. Does that cover the Bear case or.

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Kevin Rooke - 00:29:00:

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Would you yeah, I think so. I think so. I want to get into Liquid usage in a bit and like adoption and how that's going, but I want to stick to the asset discussion for now and maybe we can go into the weeds on the different assets that are on Liquid today. I know it was a block stream mining note and volcano bonds you talked about. Can we go into the details of exactly how these work and how they're different from a traditional bond offering for the volcano bond, for example?

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Randy Naar - 00:29:33:

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Yeah, so I guess I can't really talk about the intricacies of how those work policy wise. All I can kind of say is that their assets, like our other Liquid assets, and I guess it changes by who's issuing it, makes it important. But in terms of any details about them, I can't say too much about it.

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Kevin Rooke - 00:29:59:

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Right. The issuers of these assets are going to have to abide by their own policy restrictions in different regions and things like that. Right, yeah. Okay, got it. If I'm an issuer, is there any other advantage beyond maybe speed or efficiency in getting these bond offerings up on Liquid? Like, why else might I want to use Liquid over taking a traditional route?

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Randy Naar - 00:30:34:

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Yeah. So again, we also have our Amp product, which integrates with Green, which gives you tighter controls over who can own your asset and who your asset can be transferred between because with Green you kind of generate this green ID that all ties into that multistage wallet. And being able to transfer certain assets, you kind of have to get approval.

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Kevin Rooke - 00:30:55:

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So when you're making a pitch to someone who wants to issue assets, is the big selling point then that you have tighter controls over the assets and you can manage that process more seamlessly.

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Randy Naar - 00:31:08:

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Yeah, I would definitely say Amp brings a lot in the form of having tighter controls and being able to have a say in who owns your asset and control over your initial distribution of where that can go, who that can be traded between. I think that's very powerful to have. You also have issuer tracked assets where you're kind of tracking the flow of how your assets go between different parties. And I think being able to yeah, I think that restriction is very important to have and kind of sets a distinction for our Liquid brand of products.

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Kevin Rooke - 00:31:49:

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So what is an issue or tract asset mean that they can follow that chain along? If I pass it to you and you pass to someone else, the issuer can see who holds it all the way along.

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Randy Naar - 00:31:59:

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Yeah, you can kind of see the IDs and how this certain asset gets distributed amongst certain participants. I was also going to say Amp, they have a product page on blockstream and for people who are interested, you could also look and see the different types of assets and they also have example use cases that you could go and look at for anyone who's interested in making any.

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Kevin Rooke - 00:32:34:

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Now, is an issue or tract asset similar to I've heard this use case mentioned a few times specifically with NFTs in mind, where an NFT issuer can put in a rule that if there's a resale, they take 10% of the sale does that and maybe that could apply for concert tickets or something like that or some other ticket based asset. Is that something that can be done on Liquid? And do you think that will be a big use case?

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Randy Naar - 00:33:09:

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Yeah, so I haven't really thought about, I guess, a use case of NFT royalties, but I'd have to look more into it. But I think something like that can be achieved in some way and that's.

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Kevin Rooke - 00:33:23:

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Something that you can do through this issuer tracked asset system.

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Randy Naar - 00:33:28:

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Yeah, I can imagine a certain use of covenants that requires a transfer of an asset to always have an output that sends a certain amount to an address. So, yeah, even just with the additional outputs and what you can make functionally with covenants, I think it accomplished something similar.

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Kevin Rooke - 00:33:49:

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Interesting. Now I have a question about the structure of Liquid as a blockchain. The other scaling solution, or the other big one is Lightning and that's architecture is different from a blockchain. Why is a blockchain the right approach here for scaling Liquid? Why is. That the decision made to create a blockchain versus this network that resembles like, the Lightning network.

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Randy Naar - 00:34:21:

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Yeah. So in terms of the actual creation of it or the reasoning behind the designers. I can't speak so much. But I can give my opinion on why it's less of a blockchain in terms of being able to verify as a participant or someone who I guess just as a node in Liquid. You could kind of verify all of the transactions in that all of these block signers actually went through every single block and signed it. And you can audit the chain yourself. And I think that kind of don't trust verifying stands true, especially when you want a wide look on the blockchain and all the transactions between the different parties.

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Kevin Rooke - 00:35:06:

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I see. Is there a scaling limit to Liquid? Is there a defined, like here's how many transactions can be processed per second, or here's where the system can no longer scale? What does that look like? What's the maximum kind of throughput on Liquid?

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Randy Naar - 00:35:24:

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Yeah, so I don't know what the maximum is, but I do know that Liquid has more room to grow in terms of even the design. Like I was saying, even the kind of the block times of 1 minute are somewhat arbitrary and can maybe even be shrunk down a little bit so the throughput could be made higher. I would say that there's even still room to improve. I can't tell you the actual hard numbers, but yeah, I can't say that right.

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Kevin Rooke - 00:36:00:

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And now let's discuss trust on Liquid. And I want to understand more about the differences in who you have to trust in this, like, Federated consensus model versus Bitcoin. Can you break those down for me and explain the difference and maybe even in relation to issuing an asset? If I'm a user on Liquid, who am I trusting in this process?

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Randy Naar - 00:36:31:

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Yeah, so in a way, you do kind of put trust in the block signers that they will sign your blog. There's a certain threshold of block signers that need to be able to act and honestly and put these signatures on the blocks. So I'd say that's the trust model. You do kind of have to put a certain amount of trust in the federation that has been created thus far. Whereas Bitcoin. Your only trust is put towards the fact that if you had. Let's say. I don't know. A malicious 51% of minors. It would be very expensive to perform attacks. Especially to try and rewrite significant portions of the chain. So, yeah, I would say there's a big difference in kind of the trust assumptions for each chain.

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Kevin Rooke - 00:37:22:

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And then in respect to the token, if I've created a stablecoin and you buy some from me, are you trusting them that I don't create more? Is that another trust issue?

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Randy Naar - 00:37:38:

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Yeah. So in terms of trusting an issuer to administer assets, one part of trust is being able to look at the block stream registry and looking up an asset name and that we verified whatever domain is tied to that asset. So there's a trust assumption there. And also this registry blockchain has one, but technically anyone could make their own commitment scheme for the blockchain and make their own registry, but most people are going to kind of start using the blockchain registry. So I just kind of bring that up as a trust assumption in terms of reassurance, you can use certain things about your transaction. So, yeah, you could keep unblinded issuances and say, hey, I want to show the world this is how many tokens that I've administered, and I'm going to set zero reassurance tokens. So there's a way to kind of prove to people like, hey, I'm not going to be reissuing more assets. So you don't necessarily have to put any trust in an issue. In that way. You could just check or verify if you have your elements in the blockchain.

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Kevin Rooke - 00:38:52:

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I hope you're enjoying the show so far. I just want to give a quick shout out to our sponsor, Voltage. Voltage is the industry standard for Lightning Network infrastructure, creating layer two applications and services on top of bitcoin starts with Voltage, where you can spin up nodes, get access to Liquidity, optimize your node, and much more. Voltage is leading the way as the next generation provider of Lightning Network infrastructure. And if you want to get a free trial and start using Voltage today, you can do so at Voltage cloud. Okay, let's get into usage on Liquid today. So I've been digging around and I looked through the Mem Pool Explorer and I'm watching Liquid blocks come in right now. They're more or less empty. They're often like one to five transactions per block today. Where do you think we are in the grand scheme of Liquid adoption? And how do we get to the point where there are full blocks on Liquid? What needs to happen?

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Randy Naar - 00:39:54:

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Yeah, so I think development of applications is still early on Liquid, and there's a lot of room to create a whole bunch of use cases. And one thing that I've heard from people is that because Liquid has this extended script, you can create things like liquidity pools and decentralized exchanges. And sometimes kind of what people in crypto want to do is have fun with the blockchain. And one of those things is being able to have something where you could gamble with all these random tokens that people create our assets. And I think that will help job adoption, but also the more serious cases where people want to have assets that they have a lot of tight controls over and they still want it to be auditable with the blockchain. I think that's very important. So I think we'll continue to see more serious financial instruments maybe being placed on Liquid and confidential transactions. I don't speak enough justice to it, but it is a very cool application where I can send an arbitrary amount of something and keep that hidden from the network, what type of asset it is and what amount it is. So I do see, I don't know if I'm an institution, I want to move a large amount of money. That's pretty important to me. But another thing that's important is I could share what you call a blinding key with somebody, and they can audit me as well. It's still auditable, but only to selected parties. And even then, everyone who has a copy of the blockchain with their elements note can go and verify that the integrity of the amounts, that nothing's being created or destroyed. Cryptographically I find that really interesting.

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Kevin Rooke - 00:41:44:

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Yeah. How does the privacy on Liquid compared to other blockchains and other things we've seen? Like, we have Z Cash and we have Monero and there's a few others. Is it fair to make a one to one comparison here, or are these different systems?

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Randy Naar - 00:42:02:

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I haven't looked too deeply at the other blockchains, but from what I've heard, it's very similar in how you can kind of hide the amounts of these confidential transactions. Cryptographically I think they're very similar.

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Kevin Rooke - 00:42:17:

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Do you think this poses an issue for regulators? Like, in a world where there's a lot of assets on Liquid and there's a lot of money moving back and forth, and this isn't like Lightning where it's microtransactions. This may be like big issuances of volcano bonds or something. Is that an issue for, do you think, for regulators around the world where all of a sudden they recognize that there may be billions or trillions of dollars flowing through a system, but they can't see any of it, or they don't know who it's moving to and from?

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Randy Naar - 00:42:53:

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Yeah, so it could be a problem for regulators in certain areas. But if I'm an institution and I do kind of am obligated to follow whatever laws are in my area, I do always have the possibility of giving a regulator my blinding key and auditing me. Or on the same hand, I could also make unblinded transactions. So I guess this is from the point of view where I am an honest party who would like to follow regulations in my area that is possible to do. Of course, I think being able to make confidential transactions on an individual basis is always very important. So regulators or anybody else doesn't need to snoop around there. But, yeah, if you do want to be a party who abides by certain things, you always have the option to allow people to audit what you're doing.

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Kevin Rooke - 00:43:51:

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I see. Now I know getting back to the discussion about different exchanges, one thing I want to understand is how important in the financialization of Liquid, how important is it that you guys can build a network effect on Liquid? Because we've seen these network effects that have really taken off in the d five ecosystem obviously like the main stock exchanges in the traditional financial space. That's a network effect in and of itself. How do you think about bootstrapping a network effect around Liquid?

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Randy Naar - 00:44:30:

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I'm hoping for these network effects to happen. I think they can take place with the addition of all these applications. I think that's kind of what a lot of us are banking on, that people will start seeing the value of this side chain and rushing to go and kind of peg in your money and start making your confidence transactions or start making swaps between your LBTC and assets and inviting other people in it. So you could also create things like NFTs as well. And I know that people have started doing it, I hear, and then just the more integration that you have and the more the user base expands, I do think there is a network effect that can be capitalized on that right now.

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Kevin Rooke - 00:45:26:

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Is this going to be an uphill battle of trying to disrupt or trying to take market share from things like Uniswap or the Nasdaq or some bond market or do you think the primary network effect is going to be built around serving people who don't have an alternative today? Maybe volcano bonds is a good example where maybe is it true that there's going to be some use cases where there's just no venue to support this kind of activity today or are you going to be disrupting kind of existing business models, do you think?

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Randy Naar - 00:46:06:

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I think maybe a little bit of both. For some use cases, maybe there isn't quite the ability to implement whatever idea that you want to do. Again, going sorry to go back to these kind of main big differences. So I keep referencing these features. But maybe I have an idea where I would like to have a whole bunch of assets and distribute them to different people for some scheme and I want that to be kept hidden but transparent to regulators so I can give blinding keys to the people who need it, but also keep the public at large clueless to what I'm doing. That could be kind of a scheme that I could enable with Liquid. And again, having LBTC is very important for some as being the native asset and being kind of pushed as like the underlying currency that pushes everything up. But you also get the traditional use cases like again the liquidity pool that people want to see begin to swap type of use cases. And I think being able to build things that we've seen before, but also things that aren't as common or haven't been thought of because the functionality side of Liquid hasn't been made largely known, is important and can happen. So I think both things are possible, traditional applications and also building new things that maybe weren't as possible to do before or not as easy. We're definitely trying to make the developer experience as easy as possible on Liquid to attract more developers and make it a chain that people want to use.

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Kevin Rooke - 00:47:51:

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Right. What's been the biggest challenge so far in attracting developers to build on Liquid?

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Randy Naar - 00:47:56:

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Yeah, so I would say just a lot of bitcoin developers that I've spoken to want to know more, but they just like they haven't had an opportunity to learn. So I definitely think getting the word out and going to more of these type of bitcoin events and talking more about the possibilities that are enabled with Liquid are going to be very important for being able to spread the word about Liquid and attracting more developers and building tools that can help people try to experiment with Liquid in ways that are low friction or not too difficult to onramp if you worked with bitcoin. So, yeah, I'd say those things.

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Kevin Rooke - 00:48:40:

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It seems like in the last year the Lightning ecosystem has really taken off and has done a flood of developers in off of the initial adoption there, are there any lessons that you're taking away from the last year of Lightning adoption and trying to apply to Liquid to catalyze or bootstrap another wave of adoption?

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Randy Naar - 00:49:06:

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Yeah. So because Liquid works on Lightning, I think that is also a huge draw to come and build on Liquid as well. You could start building covenants that integrate with Lightning and you kind of are able, at least in terms of the Lightning portion of a project that you'd like to build. You pretty much have that covered. Right. Because the protocol kind of stays the same in a lot of ways. So maybe one of the learnings is trying to capitalize on whatever learnings Lightning has made by saying, hey, bring it to Liquid because you could have the same things except with assets and a little bit more additional functionality.

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Kevin Rooke - 00:49:49:

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Right now I have to ask, was the discussion about assets and Lightning tarot or Tarot, how do these two ideas relate to each other right now, taro with Lightning Labs and Liquid plus Lightning, like Liquid assets on Lightning, what are the similarities and differences there?

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Randy Naar - 00:50:15:

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Yeah, so Taro is a little bit different in that it's something that's kind of enabled with the recent type of functionality. Right now, you could start making commitments in transactions that are part of this merkel trade, merkel commitment that you end up putting in a transaction that doesn't take up any more space than needed. It doesn't, I guess, waste a bitcoin transaction. And that's very useful, powerful idea in terms of trying to create this new system where you can have assets. But on Liquid, it is in certain ways simplified because we have first class assets and it's natively supported. I know Taro, at least from what I understand to be incorrect about some things, but it seems kind of like this overlay network with commitments on bitcoin which is a little bit more complex or can be seen by some. And I would say simplicity that Liquid brings might be attractive to some people who'd want to start dipping their toes in a way that's not as involved because we have very easy ways to issue these assets.

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Kevin Rooke - 00:51:35:

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Are there any differences in the types of assets that can be supported on the two between Taro and Lender?

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Randy Naar - 00:51:41:

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From what I understand, no, from our previous discussion about amp, because we've kind of made a product out of the original base asset offering that you could use on Liquid. I would say right now, yes. But I don't know what's in store for the future of Tara, and they could influence a whole bunch of cool things as well. So I'd say right now we have something that works that you could use today and that has a whole bunch of functionality, but tomorrow does look promising, so I don't know what directions they're going to go in that's fair.

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Kevin Rooke - 00:52:20:

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I want to ask about the pegged in capacity on Liquid right now. I believe it's around 3500 bitcoins. Is that correct?

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Randy Naar - 00:52:28:

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I think so.

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Kevin Rooke - 00:52:33:

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How do we think about this number? Is it comparable to the number the public capacity on Lightning? Is it comparable to total value locked metrics in DeFi? Because I know those two are not comparable to each other. The Lightning metrics of public capacity and TV don't quite line up perfectly. It's not quite an apples to apples comparison. How do you think about comparing this number of pegged in capacity to other metrics in the crypto ecosystem?

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Randy Naar - 00:53:06:

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Yeah, so I think there are some interesting things about Liquid in that you could create a Peggy on Bitcoin but also not claim your LBTC on Liquid. You kind of have to make kind of the members aware of your Pagan transaction. So in some ways there could be more. I'm just saying there's like some variability in what is tracked and what has been put into bitcoin and LBTC.

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Kevin Rooke - 00:53:37:

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I mean, the number could be higher than the 3500.

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Randy Naar - 00:53:41:

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Yeah, in ways it could be higher because you have to let the network know that, hey, I made this bitcoin transaction. Go and send this to my address. Technically, not everyone might do that. I could make a Pagan transaction and never claim my LBTC until later. So there's some variance there, but I think something like total value locked is maybe comparable. Right. I've heard someone say that it's almost like you have this multisig wallet that contains this whole universe of the Liquid side chain on Bitcoin, and that would be a way to kind of view it in these multi wallets. It's like these gateways right to the side chain. So, yeah, I guess DVL might be a good comparison.

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Kevin Rooke - 00:54:32:

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Yeah. Now, one thing that I know it happened in the last couple of years is a lot of Bitcoin started moving to other chains as this, like, wrapped bitcoin or this form of bitcoin. Right. I don't know the exact number now, but I think at one point there was about 2500 bitcoin expressed as wrapped bitcoin on things like ethereum. Do you think that we're going to see a similar migration of bitcoin onto Liquid as the ecosystem matures?

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Randy Naar - 00:55:05:

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Yeah, I think there will definitely be a steady increase in bitcoin into Liquid as things progress, as we create more offerings that people want to go invest their money in or applications that people want to go and play around with. So I do expect an increase in the wrapping concept is very similar in how Liquid does it. Of course, there's kind of a lot of sophisticated algorithms that go into the plugins and peg outs and regulating all that, even down to the hardware modules that are used to maintain things in the network. But they have the similarities in being like a rap type of bitcoin can be seen Liquid bitcoin can be seen in a similar fashion, right? Yeah. But I do see growth in Liquid’s future.

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Kevin Rooke - 00:55:56:

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Now, when you think about the total bitcoin addressable market of 21 million, or maybe you want to exclude a couple of million lost coins, what is the breakdown over time? What do you think the breakdown will be of people that just want their bitcoin on bitcoin on the base blockchain and those who want to experiment, those who want to move it onto Liquid or onto Lightning or as a wrap token on some other chain. How do you think about the split between where bitcoin is going to be deployed over time?

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Randy Naar - 00:56:31:

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Yeah, so I think it will vary a lot. Maybe in some future you might have multiple offshoots side chains where you can kind of tag into one and then bring it to another side chain with another set of trade offs and bring it back to bitcoin. Let's say after you're done playing around with your money, you want to leave it in cold storage and your bitcoin wallet, which you could also do. I think we can kind of create an ecosystem surrounding bitcoin where you could take your money to a different chain with different security assumptions and bring it back to the base chain after you're done playing around with it. Pretty much. I think that's a nice idea. Also, I didn't bring this up back when talking about Lightning versus Liquid, but with Liquid you could hold your funds in a cold wallet as opposed to Lightning. You need like these hot wallets. I just thought it was taking a bitcoin, putting things in your coal wallet there. But I do see a world where you can move around your money and things vary and you will see activity between both, whether they're atomic swaps or pegging out your bitcoin. But I do see a lot of activity going back and forth I think would be a nice, healthy way to indicate growth.

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Kevin Rooke - 00:57:54:

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Yeah. So in general, you think bitcoin and bitcoin they hold is going to be moved around faster as time goes on and used for more interesting use cases beyond just storing it.

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Randy Naar - 00:58:09:

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Yeah. So whether you put on Lightning and you want to make a whole bunch of payments and then you want to close your channel or maybe not close your channel and do a reverse submarine swap into Liquid, you can do that too. I think enabling all these different types of use cases of being able to move your funds around is very important to the community and important to the growth of bitcoin because people, unfortunately, everyone's kind of straying to all these other chains. But I think people are, again, kind of starting to realize the value of bitcoin and coming back to this base currency and seeing that there are options that you could do on bitcoin where you could lift your funds and do different things with them. So I just want to see if we can kind of grab some of the audience back to focusing on bitcoin base chains and fostering growth there and seeing that you could do all the things that you want to do on other chains right here.

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Kevin Rooke - 00:59:06:

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Yeah. I wonder if these two ideas are at odds with each other. I just started thinking about this, like, if bitcoiners think, like, I'm going to hold on to this thing because I see how messed up the traditional financial system is. I see all the problems. I think this is the solution, and I think this has a lot of room to run as an asset. I could see how bitcoin may say, I'm just going to hold this. I'm not going to touch it, I'm not going to do anything with it. Forget all the other applications in the crypto space until this thing goes to a million dollars or more. It's kind of just like just sitting on it. And then maybe at that point, people begin to maybe this isn't an off on switch, maybe this is a progression over time, but maybe as the value goes up, do you think it's more likely that people begin to start doing things with it as that the promise of bitcoin as a store of value becomes fulfilled?

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Randy Naar - 01:00:04:

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Yeah, I think with the higher value of bitcoin, people will definitely try and have more leeway to take a risk. If I have $1,000 today and it becomes 50,000 at some point, it's like, I have a lot more willing to take I don't know the original amount and go and siphon that into these experiments. So I definitely think having a higher price tag on the existing bitcoin will encourage people to start taking smaller amounts of their bitcoin and trying to invest with it. Like you said, kind of naturally, that was kind of bound to happen. You'll get these increasing prices.

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Kevin Rooke - 01:00:43:

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Right. Okay, I want to close off with some of the interesting projects that you're seeing right now on Liquid. I think we talked about a couple off camera. But can we go through, like, if you have a few important ones, you want to highlight people that are building on Liquid or considering building on Liquid. Do you want to run through some of those projects right now?

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Randy Naar - 01:01:06:

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Yeah, again, I've already kind of mentioned them, so sorry, it sounds repetitive to some, but I'm a big fan of marina the Web Wallet. I think that enables a lot of different use cases to the web and that's still being developed, so there's updates all the time that allow you to do more and more with it. There's the stable point that's going to be here pretty soon, Fuji, and that's going to be on Liquid, which will allow you to do cool things with things like Liquidity Pool, Bit, Matrix, right. Putting in there. I see products like TDEX, there's like Pure Swap and all these different things you could do on Liquid. So I still think that the space has a lot of room to grow and I do want to encourage as many bitcoin devs to come and at least play around with Liquid and see what's to offer there. So, yeah, I think there's a lot more room to experiment and even with all these great applications, I think we have room for a lot more.

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Kevin Rooke - 01:02:14:

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Awesome. Now I want to get into a segment that I do at the end of every show called the Lightning Round, and it's an opportunity for listeners to send in questions and also me to ask some more rapid fire questions. I've got a few questions for you. Are you ready for the Lightning round?

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Randy Naar - 01:02:29:

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Yeah, sounds good.

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Kevin Rooke - 01:02:30:

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Welcome to the Lightning Round, presented by Zebedee, your portal into the world of bitcoin gaming. The Zebedee app offers a full featured Lightning wallet, seamlessly integrated with your own personal gamer tag so that you can earn bitcoin on all of Zebedee's games on mobile and desktop. It's never been more fun to earn bitcoin, and Zebedee is your key to it all, to claim your personal game or tag and start earning some bitcoin of your own. Download the Zebedee app today. All right, first one. Are there any books that have meaningfully changed your view of the world.

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Randy Naar - 01:03:11:

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Here? Let's see. I've read a lot of books. I'm trying to think of if there's any that's changed mine in particular. There's some books kind of early in life that I thought were interesting. I don't know if you ever heard of, like, Man's Search for Meaning by Viktor Frankl. I thought that was a pretty interesting book. There was also one I don't know, I just had a lot of interesting ideas, which is I like to learn about the history of a lot of different companies. So I know there's a book about Pixar sounding. There's also one about Amazon. I can't think of their names right now because it's been a while since I read these, but, yeah, I'd say those stick out my mind, and I love autobiography, so I've read a couple of those.

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Kevin Rooke - 01:04:03:

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Nice.

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Randy Naar - 01:04:04:

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Yeah.

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Kevin Rooke - 01:04:07:

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Next question. What is the most underrated bitcoin project in the entire industry? Putting you on the spot with this one.

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Randy Naar - 01:04:17:

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Yeah.

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Kevin Rooke - 01:04:20:

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Or what is the most interesting one to you that you wish more people would recognize? I guess.

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Randy Naar - 01:04:25:

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Yeah, I like the Utreexo project, which is basically it has something to do with reducing the size that you have to hold on a bitcoin node or a type of bitcoin node. I think it needs, like, a bridge node or something to be able to relay certain information to these kind of new model of nodes that hold, like Mercury, UTXOs. But yeah, in general, I like projects that make bitcoin accessible to more people. So whether that's being able to reduce the amount of space that you hold on your hard drive to hold information off the bitcoin blockchain, or finding easier ways to mine or making it more participatory and decentralized, anything along those lines I think are really cool.

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Kevin Rooke - 01:05:23:

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Nice. If you could change one thing about bitcoin, what would you change?

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Randy Naar - 01:05:33:

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It's hard to say. I would say that maybe it's kind of a controversial topic that I've seen between individuals, but covenants, I do like the idea of covenants. So being able to introduce covenants to bitcoin, I think would be something I would try and change.

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Kevin Rooke - 01:05:55:

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Interesting. Okay, final question. How many bitcoin will be pegged into Liquid in the year 2030?

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Randy Naar - 01:06:07:

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That's a long time in the future. Yeah. I can't even pretend to answer that. I hope a good percentage. I can say.

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Kevin Rooke - 01:06:18:

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Fair enough. All right, thank you for taking the time. I learned a lot. This is kind of my first introduction to Liquid. I'm glad we could do this discussion and really dive into the weeds on how it works. I'm sure listeners will get a ton out of this episode. Where can everyone go to learn more about you and the work you're doing?

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Randy Naar - 01:06:35:

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Yeah, so if you're not following the block, stream Twitter accounts, go and head and follow those, because we'll be publishing news of any new products that we released. There's also a Liquid subreddit. Can't remember the exact Rpad, but I'll see if I could get it and start having it posted on the blockchain. Twitter, I'd say those are good places to kind of learn what we're doing. Liquid applications, which is the team I work on building on Liquid. So, yeah, just keep an eye out on those channels.

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Kevin Rooke - 01:07:12:

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Awesome. Thanks for taking the time and hope we can do it again soon.

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Randy Naar - 01:07:16:

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Yes, thanks.

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