Nic Carter is an investor, Founding Partner at Castle Island Ventures, previously founded Coin Metrics, and researcher. What happens to Bitcoin or other cryptocurrencies if artificial intelligence continues to accelerate and is able to solve quantum computing or public cryptography? Nic discusses the potential scenarios for the crypto market, Bitcoin forks, doomsday scenarios, market signals to watch for, whether China or North Korea could be involved, and what he expects to happen.
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Nic: [00:00:00] There's never been a infrastructure rebuild this significant in Bitcoin ever. I mean, even Satoshi talked about quantum. The government is working with quantum researchers and asking them to withhold some of their findings. Similar to the Manhattan Project. Is it China? Is it North Korea with Chinese technology? We can't take the risk of waiting until we're on the cusp of a quantum computer, then Bitcoin is thrown into chaos. I think it could happen faster than we think. The worst case is... If I'm talking about something, you should assume I have exposure to it. Right. It would be negligent if I didn't, right? Right. Like, I don't believe in this academic model of, like, if you have exposure, you're not allowed to talk about something. Right. I think that's totally inverse. I think the people that care the most about stuff should have exposure, right? 'Cause that is what actually incentivizes you to care. Luke: I was joking, but obviously, like, what, what has that been like? Like, I know that people have, have genuinely come at you for speaking out about this. Nic: Yeah, but that's Luke: like- Like, what has that been like? Nic: This is, like, the 10th time the [00:01:00] Bitcoiners have tried to cancel me. I mean, I think the first time was in 2021, and they got mad at me for investing in, like, a wallet infrastructure company that was doing non-Bitcoin stuff. It's like, yeah, man, I never said I was just gonna invest in Bitcoin. That's not what our f- our fund does general crypto infrastructure investing. Luke: Sure. Nic: So I was kind of puzzled by it then, and it was maybe a little bit annoying at the time, but, uh, now I'm more than used to it, so... And also I'm very transparent. Like, all of our investments are on our website. All of my board seats, personal investments are on my website. So at any time, anyone can go see what my exposures are. So I think I'm more transparent than anyone, actually Luke: The most Nic: transparent Than, than, than politicians, for sure. Luke: Um You have them beat. That's like, there's, there's no debate there. Nic: So yeah, I mean, assume I'm exposed, and then just consider my argument on its merits. That's all I'm asking. You know, like, listen to what I'm saying. If you disagree with the logic of my arguments, that's completely valid. Luke: Right. [00:02:00] Nic: Yeah, I don't buy this whole thing that's like, oh, you're not allowed to have positions and stuff. Like, that's silly. We're investors. That's what investors do. We invest in stuff we care about. Luke: Let's get into the merits then. I'm curious, how did you stumble upon this, right? This was, like, the first article I saw you talking about the quantum risk to Bitcoin was six months ago almost now, six, seven months ago. This is well before Google started publishing. This is well before BlackRock, well before Coinbase has put out their thoughts on it, or Michael Saylor. He has $50 billion in Bitcoin. He wasn't talking about it yet. You started writing about this. How did you kind of find that idea early? Was it a research piece you were doing? Was it a startup that came across your desk? Like, how do you, one, find ideas like that early, but also this one specifically? Nic: Well, it's my job to be early to ideas and to see the future, you know? So like stablecoins, I wrote my first major white paper on stablecoins in 2020. The supply of stablecoins was like 6 billion when I wrote it. Now it's 300 billion. I was five years early, early [00:03:00] to that. That was-- That's my job, is to be early and to consider weird ideas that aren't on the mainstream. Like, if I only ever chased narratives, I would be a terrible venture capitalist, right? So I have to be ahead. With quantum, I'd always been aware of it vaguely as this potential risk to Bitcoin. I mean, even Satoshi talked about quantum. So you're always aware of weird tail risks to Bitcoin. I didn't take it seriously at all for, you know, years and years and years. In '24, '25, I started to take it seriously because there were a bunch of breakthroughs in the quantum space that took it from completely theoretical to, "Oh, well, like, actually maybe the engineering problems are tractable. Maybe in the next decade we will build a quantum computer." So there were quantum supremacy demos, which is a situation where on a quantum computer you demo-- you demonstrate a task that a classical computer could not do, [00:04:00] or you do it way faster than any classical computer could do. So I think the first of those was in 2024. It's a toy problem, but it's, you know, it shows you where the world is going. And then in 2025 or late '24, early '25, the quantum space started to demonstrate scalable error correction, so they were able to subtract errors from these qubit arrays Uh, faster than adding new qubits introduced errors. So by adding qubits, you can reduce the net amount of error in the system. That was kind of the key moment. And so, you know, we met this company, Project 11. We made an initial seed investment in them. They helped educate me, and then I did my own education. And I took a look at the field, and I realized that the experts in the field were updating their views as well. Scott Aaronson is a very well-known theoretical physicist, uh, computer scientist, one of the m- most famous educators in the quantum space. His tone started to shift from, [00:05:00] "Hey, like, probably most of these quantum companies are scams," to, "Oh, it looks like this is just an engineering problem. It's not-- There's no more fundamental discoveries need to be made." So then I started doing my investigation. I wrote my pieces. Then the Google paper came out, the Oratomic paper came out, and then I think most Bitcoiners are now more on my side than the pure skeptic side, which is this is BS. It's like nuclear fusion. We're never gonna have it. We don't have to worry about it. Now I think the consensus is more in line with my views, which is, okay, we don't know when it's gonna happen, but we actually know that it's probably going to happen. Luke: Yep. Nic: Given that it's gonna take Bitcoin a very long time to prepare, we can't take the risk of waiting until we're on the cusp of a quantum computer, because Bitcoin will take too long. So we actually should just start doing it now. If you wanna zoom out, the key realization is all systems that are premised on the integrity of a cryptographic function, like elliptic curves [00:06:00] Or RSA, but mostly elliptic curves. They need to embrace a new model, which is cryptographic agility, which means maybe have more than one function at a moment in time that you rely on, because one of those functions could be compromised. I think that's, uh, that's what most of these protocols have embraced now. You look at Ethereum, you look at Solana, or any of these big tech companies. You look at Cloudflare, Google, Apple, they're, they're already transitioning. The government asks us, the government agencies, to transition between 2030 and 2035. Critical agencies have to transition before 2030. That's really not far away, right? Yeah. Bitcoin is a system that is completely dependent on cryptography working, unlike other systems where cryptography is a piece. The entire validity of Bitcoin rests on it being hard to break the elliptic curve discrete log problem. Why would Bitcoin [00:07:00] wanna be a laggard relative to every other major system? Ignoring the base reality, just like from an optics perspective, why would Bitcoin wanna be late? That looks bad. Luke: Going back to 2010, you mentioned Satoshi talked about this. You also wrote a fictional piece, I think it was fiction. I think there was, like, part of it maybe you thought was, was real. I don't know. It's, it's hard to tell. But, um, kinda joking that maybe Satoshi was, was, uh, part of the NSA. But back in 2010, Satoshi, someone asked him, this user Llama, if something happened and signatures were compromised, perhaps integer factorization is solved or quantum computers, then agreeing on the last valid block would be worthless. Basically asking Satoshi what happens if this quantum thing, right? This is 15 years ago, 16 years ago. Yeah. If this dream, this science fiction idea happens, what happens to Bitcoin? He said, yes, if it happens suddenly, that's an issue, but if it happens gradually, we can still transition to something stronger. When you run into the upgraded software for the first time, it would re-sign all your money with the new stronger signature algorithm. So back in 2010, when this [00:08:00] wasn't, these weren't advancements in quantum, we didn't have AI, was building software faster and faster and able to iterate. What, I mean, was he in the NSA? How is he seeing the future like that 16 years ago when these were concepts? Like, correct me if I'm wrong, I think IBM and Google had these big devices that almost looked like a car engine, but I don't think they were able to solve anything Nic: yet. Yeah. I mean, 15 years ago, the QC sector was nowhere, you know? Right. It was, the, these QCs barely existed, so. But it's Satoshi's job to consider tail risks to the protocol, even then when Bitcoin was worth nothing. I think literally- That's what it is, no price ... zero dollars until mid-2010, I think, it didn't have a price. So, but this is Satoshi's job is to think adversarially, and I think all Bitcoin developers should still be like that, right? Think adversarially, especially now this thing's worth over a trillion dollars. Like, it's- downright negligent to not consider these kinds of risks. So Satoshi clearly told us what we ought to [00:09:00] do, right? Which is transition to a new scheme. You know, there was this golden p- era in cryptography when Elliptic curves were efficient, they were small, they were compact, and they were considered very safe. That was the last 30 years. We're entering a new era in cryptography where we're gonna have to consider systems that are clunkier, that are slower, more costly, but, uh, are secure against quantum threats. So unfortunately, the golden age of cryptography is in the past. Now we're in this more scary era where we might have to consider less tested cryptographic functions. But they certainly exist, it just means incorporating them is gonna be a little tricky for Bitcoin. But th- this is the unfortunate reality. Uh, quantum computers are very good at this specific thing, which is finding hidden periods in elliptic curve groups or factoring integers. It, it basically means they're good at seeing [00:10:00] patterns that are hard, uh, that com- that regular computers have a hard time seeing, and that's bad for this kind of cryptography. Luke: It reminds me, I don't-- Y- you know Marques Brownlee, tech reviewer? So MKBHD and Cleo Abram, both great YouTube channels, they did this video, like, two or three years ago, and they visited IBM's quantum computer. And the IBM lady, she's like, "This is gonna help us do so many amazing things for humanity, and we're gonna create medicines that haven't existed yet." It makes me think of that meme where people are like, "Well, we're, we're spending a ton of money and electricity on AI." And the guy's like, "Well, we're s- we're curing cancer, right?" And then he goes to the girl, and it's, it's, like, a girl with big, big, uh... It's like, "Really, we're just trying to crack Bitcoin with quantum." Nic: Yeah, I mean, o- obviously the labs building QCs would like for there to be a use case other than destructive. Luke: Yeah. Nic: But it appears that the initial use case will just be crapping, cr- cracking cryptographic functions, whether to recover Bitcoin or to, you know, go after Chinese state [00:11:00] secrets or something like that. Subsequent to that, there will be other use cases, like simulating particles. So that was why quantum computers were actually initially proposed, was particle simulation, because the world is quantum, right? We live in a quantum world. It's very, very hard, effectively impossible, for classical computers to do physics simulation. So once we have QCs, probably all of these amazing use cases will happen. We will be able to simulate new, uh, compounds for medicine, for material science. So it will be a very important, like, set of physics discoveries that occur. But also, probably the first or one of the very first use cases will be breaking ECDSA. So that, it is what it is. Luke: This episode is brought to you by Kraken, by Payward. Now, Kraken is a simple investing platform where you can trade over 600 tokens, whether it's Bitcoin, it can be 11,000 different stocks and ETFs too. Now, conviction is an easy part in the bull market. Proving your edge is [00:12:00] harder, and that's why Kraken has a program called Kraken Funded. You take a challenge, and if you prove you can trade, you have a chance to unlock $1,000- 000 funded account. Once you're funded, you keep 80% of the profits. Now, normally this challenge costs about 20 bucks, but Kraken is letting anyone right here who listens to the show, Delphi Media listeners, it is free. So all you have to do, you sign up on Kraken with code CONVERGENCE1000. That's code CONVERGENCE1000. You deposit 200 bucks, and you trade 200 bucks, and you unlock your free challenge. Now you can figure out whether your edge is real. Head Nic: on over to Kraken, use code CONVERGENCE. If you pass that challenge, you get a $1,000 funded account for free. All the terms and information are down below. Check it out. Let's get back to the show. Luke: I think Kurzweil actually predicted that as well, of like these are not gonna be general purpose devices. They're gonna be very good at one or two things. Right now it's cracking Bitcoin, maybe simulating physics, but like it's weird. It, it feels like everyone is a little bit asleep at the wheel. I mentioned that you wrote your pieces before Coinbase or BlackRock had stepped up and said anything. I, I remember back in 2017 when [00:13:00] Bitcoin would talk, or when anyone would talk about China banning Bitcoin. It was like the industry would rally around, okay, this is like a real risk. Here's what happens if, if it got shut down in the US, if regulations crack down. Nowadays it's like we're suffering from success. You know, Bitcoin's a, a trillion dollar plus asset class, and we've done so well, survived for so long, and everything is gonna kind of work out. Like using history as an example, like you, you've been in this industry for a long time. You've published a lot of research. You dive deep into these things. What's the best example in Bitcoin's history as to how this could unfold, right? Like quantum risk, Q-Day is approaching, right? The government has even said critical agencies need to be ready by 2030. Bitcoin has to be ready before that. How does this unfold? If Google's right, if the government's right, if this is all happening, like what's the best corollary? Like back then we had the, the 2017 fork. Is it the Ethereum fork? Like, what's the best example of how this- Nic: There isn't one in Bitcoin because there's never been a infrastructure rebuild this [00:14:00] significant in Bitcoin ever. The one sort of relevant example I can think is in 2010, there was a emergency fork because we had a hard fork through two incompatible node versions. I think we had another one in 2013, and so the dev community had to get together and galvanize, pick a certain block, deprecate one of the node versions. So we had a much tighter coordination back then. But so it was, it was kind of the one thing that happened in Bitcoin that required real emergency coordination The m- the closest corollary I can think of is actually Ethereum proof-of-stake transition, 'cause that was a full rebu- rebuild that affected everything. Every aspect of the stack was affected. But that took them how long? Five years? I mean, Ethereum had been planning its proof-of-stake migration since inception, right? And they finally completed it in what, 2020? Something like that. Yeah. 2021. Luke: Yeah. Nic: So that's the kind of [00:15:00] thing we should be thinking of, a highly coordinated full stack rebuild that affects every aspect of the protocol from the nodes to the wallets to user behaviors, and requires a migration. So it's like that in Bitcoin. I mean, the steps required to secure Bitcoin against quantum are, there's many, many steps. Luke: Sure. Nic: We have to settle on one or more new cryptographic functions. That's hard, 'cause they all have trade-offs. We have to propose a BIP. We have to agree that that's BIP and test the code. Then we have to actually get it adopted, right? The miners need to accept it We had issues with that in 2017 and 2021. Right. Right? We had serious issues. I Luke: remember. Nic: And then every wallet has to be rewritten, right? 'Cause the wallets are written with the current cryptography in mind. Every custodian exchange and every individual custodian, you and me, has to rotate their keys, right? We have to move our funds from an old [00:16:00] legacy address to a new one. How long would that take? Maybe five years, right? A long time. Every single one of the tens of millions of Bitcoin addresses have to rotate. So, I mean, that's a huge ask. We've never had anything like that in Bitcoin. Luke: Yeah, the difference with Ethereum is that was part of the plan, going to proof of stake, right? So that's written, everyone's kind of on board if you own Eth- even if you aren't on board with that, it's like, well, you bought into that plan. That was written down, that was gonna happen. The 2017 Bitcoin, even if it's not a perfect example, that was way more contentious, right? There was this mysterious Australian guy who said he's Satoshi, that his Bitcoin's gonna be the real Bitcoin. You had Roger Ver and those guys saying that their Bitcoin was gonna, you know, flip, uh, the real Bitcoin, and for, I mean, it sounds insane to say it now, but there was a period of time, there was a few months where I think Bitcoin Cash was, like, .25 of- Yeah ... Bitcoin. Like, that was- I think- ... a real cons- people- Nic: Yeah, the high print was, like, .4, I remember. Luke: Legitimate funds were saying you should have kind of a one-to-one allocation of Bitcoin Cash- I remember ... hold onto this. You- It was Nic: very scary. I know. For me, I [00:17:00] was a small blocker. For a moment it's like, "Did we, were we wrong?" Like- Luke: That's what I mean. Yeah. And I think, like, even if the Ethereum example is maybe closer in terms of, like, how the upgrade would work, what it feels like we're running into is a much more contentious, there's gonna be a group of people that are on board, there's gonna be a group of people that say, "This is the right Bitcoin." And so in my mind, it's like that lengthens the timeline. Like, I think Bitcoin has to act sooner. Well- That's a harder problem to solve when not everyone agrees, this is not written down. Nic: Yeah. I mean, I think the quantum transition will eventually occur with Bitcoin, because most Bitcoiners will realize it's prudent, even if they don't necessarily think the threat is that high, they might agree it's prudent to do it just for the sake of investors, investors who are concerned. For price. Yeah. You don't Luke: want your number to go down. So for- I Nic: have all this money ... purely selfish price reasons- Sure ... you probably wanna do the switch. But beyond that, the really contentious thing is, of course, the fate of the coins that can't migrate, right? Luke: Yes. Nic: And Jameson Lopp has this new paper he published. He estimates that it's [00:18:00] two and a half million coins. Luke: Or cannot migrate no matter what. Nic: Probably won't. Cannot or probably won't. So- Luke: As in they're lost, or as in it's- Nic: Presumed lost, haven't moved, and they're also exposed. Luke: Okay, so 10% of the supply becomes vulnerable. Walk me through the worst case scenario. What, what does that mean? Nic: The worst case is someone that is not a friendly- Luke: Sure ... Nic: secretly recovers all those coins, and then in the space of 10 blocks, broadcasts transactions spending all of those coins to their own address. So it happens very quickly. Then Bitcoin is thrown into chaos because people started, they see this, right? Oh, the Satoshi coin's all moved, right? Uh, all happens at once, by the way, 'cause you can quantumly recover those, uh, private keys and not broadcast the transaction, right? And then when the time is right, you broadcast all the transactions. Luke: You sell it once. It's, it's a w- you market sell it all. That, you probably- So- get the most for your money then? I don't know. Nic: Uh, so everybody sees this happening. Some people are selling, [00:19:00] some people are telling the devs, "We have to hard fork. We have to invalidate those." But nobody knows which are the valid spends and which are the invalid spends. Luke: Hold on. I, y- this is assuming that we haven't forked before this, or are you saying that this scenario- Nic: We might have forked Luke: is, is inevitable? This is even if we solve it. This is, everything goes right, we fork, everyone rotates their keys, price goes up, good catalyst, we've protected ourself from, from the quantum risk. This is, these coins are always at risk no matter what? Nic: Yeah. Yeah, even if everybody else is migrated, some coins will necessarily be unmigrated. The question is, what happens? How do those coins get recovered? What's the nature of that? And the worst case is it's an unknown entity, potentially malicious, recovers them, spends them all at once, recovers two, you know, two and a half million. I don't think it'll play out like that, but that would be the worst case. Luke: How do you think it plays out? Nic: Well, there's really, I think, three possible ways. Sure. So one is China, which is [00:20:00] neck and neck with the US in terms of quantum traction. Do they care about Bitcoin? Do they like Bitcoin? Certainly not. The other possible case is the Bitcoin community says, "Well, we're just gonna invalidate spends from these sets of coins," right? From the, from the, these two and a half million coins. Luke: Satoshi plus ha- what's- Nic: Early miners, people that have abandoned their wallets, et cetera. Luke: But that's- What is, what does it, yeah, what does that mean, though, if you're an early miner that just doesn't wanna sell your coins? That's a weird- Nic: It, it's very arbitrary, right? At that point, we would be collectively confiscating or freezing coins that are valid, you know, they belong to real people. Yeah. I probab- I don't think that's gonna happen, actually. Right. I, I know there have been proposals to do it. They're very contentious. There's people that are, like, diehard on both sides of the issue. Sure. Right? So I don't see us getting enough consensus around that. I think we probably should actually freeze the coins in the end, but we won't. The best case is a friendly entity recovers the coins. I think it'll be the US government. So whether or not you think they're [00:21:00] friendly, a somewhat, you know, benign entity that maybe cares about Bitcoin recovers the coins, puts them in a trust, says, "Satoshi, anybody else, if you can prove that these were your coins, you can have them back." Luke: We're asking Satoshi, who left because the NSA and CIA and they started getting interested, and he said, "I'm gonna, I'm gonna leave out the exit door here." We're kind of asking him, "Okay, the government's taken the coins. Hey, Satoshi, come prove your-" Nic: Yeah. Luke: You know? Nic: Come hat in hand- Yeah ... prove that it was you, show us the telemetry or the metadata on your laptop from 2010, prove that you mined these coins, you can have them back. Luke: How real do you think that is? 'Cause part of that, as I said earlier, that was a bit of a fic- you said it was a fictional story you were kind of writing about how all this could play out, of the US government is gonna seize those coins and add them to the Bitcoin strategic reserve. It could be China that wins the quantum race and takes it. That, that doesn't seem fictional. This seems like a, like the m- not most likely, but it seems like we go left or we go right. That's [00:22:00] kind of like we don't really have another option. Nic: This is my modal outcome, because someone will recover the coins, right? I- I- unless we freeze the old coins, unless we disable spends from old P2PK wallets and freeze other classes of coins, someone will recover the coins. Guaranteed, 100%, that's gonna happen, right? So assume that's the base reality, someone recovers the coins. Sure. Then it's just a question of who. Is it China? Is it North Korea with Chinese technology? Or is it a US lab? If it's a US lab, it's gonna be done in coordination with the government. Luke: Sure. Nic: The government took stakes in six quantum companies today. The government has a close strategic relationship with all of these quantum companies because, of course, the first tasks that a quantum company will do when they have a quantum computer will be in service to the government, right? Luke: Yeah. Nic: It'll be decrypt this bundle of data that we got from China, take the Bitcoins Steal these secrets, right? Yeah. Luke: That's- There's only, there's only a couple tasks we can do here. Nic: So- Is Bitcoin gonna be the first task? Maybe not. Will it [00:23:00] be the 20th task? Maybe it will. So my modal outcome is that at the behest of the US government, some, most likely a US firm, uh, recovers the coins, and it happens legally. It happens in an orderly fashion. Like a shipwreck, you know, one company is the salvor. They salvage, they have the rights, exclusive rights to salvage the shipwreck, and then basically a court determines what happens to the coins thereafter. Luke: So China, the US, or a rogue entity, I guess if neither of them c- I guess China or North Korea would probably sell, US probably holds, and then if it's a third entity, they probably sell. Nic: And I think the case of the coins being lawfully recovered by the US, obviously I sound like a statist for saying this, but, uh, it's the best outcome for Bitcoin because- Luke: Yeah ... Nic: they might wanna hold the coins, right? So those coins get re-immobilized. It's probably good. Um, in theory, there's a legal path for Satoshi or anyone else to reclaim the coins if they can [00:24:00] prove that they're theirs. Uh, and we don't have to freeze anything. We don't have to steal anyone's property, we the Bitcoiners. So I think it's the, actually the best possible outcome. It's not a ver- it, you know, it's not very satisfying. Yeah. You know, it's not how Bitcoin was meant to be, but it's just, you know, the present reality of Bitcoin. Luke: Yeah, it just, it just doesn't seem like there's a winning scenario there. I, if, if you're thinking purely in terms of is this good for my portfolio, is this good for price, no matter your view on the US government or China, I think for price, it's better if the US government, just the probability of them not market selling the coins- Nic: Yeah Luke: goes up dramatically. Nic: I mean, they have a strategic reserve already. That legal framework is already in place. Yeah. We don't know who's gonna be in charge of the government when this day happens. Maybe it'll happen- AOC. Maybe it'll be Trump before 2029, or more likely it'll be the successor. Hopefully, they also like Bitcoin. We don't know. Maybe it'll be Vance, maybe Rubio, maybe it's AOC, maybe it's Zoran Mandic. Yeah. Uh, [00:25:00] that might be worse than China, frankly- That's right. ... in that case. It's a- Maybe, I mean, we, we kind of root for China. But, uh, yeah, I mean, I, I think it's, it's the best outcome for price. Luke: That is just insane. So that's-- I didn't really think about that. So that's, even if we get Q Day fork right, this is- Yes ... it's inescapable. Nic: E- even if we do everything right, we're still gonna have to reckon with this. This will be the controversy. Luke: I was trying to just, like, as I was preparing for this show and, and just over the past couple of months, as you become more vocal, as Google published their report, I was looking around of like, who, who else is talking about this, right? Like, what has Saylor said? What has BlackRock said or Coinbase? We're in this weird, weird world where Retail plays a smaller role. Like, there's just these big players where if they voice their opinion, people view that as BlackRock's turn to take over Bitcoin, or Coinbase, or Binance. And I was listening to this trader, Flood, on Twitter, very successful trader, and he had one of his other traders on there talking about it, and he said, "Man, it's, like, so weird that, like, BlackRock or Coinbase haven't come out about this and, like, made a strong stance." And I think you made the point of, like, they're in a [00:26:00] really tough spot. Do you remember when we launched an ETF how many people said, "BlackRock is trying to take over Bitcoin"? Yeah. Now imagine if they say, "We're gonna choose this fork instead of this fork." I just, I, I really struggle to see how some of the biggest players, even if Saylor comes out and says it, how that's interpreted by the rest of the market of, of people viewing this and saying, "The biggest institutions, the banks, are trying to steal our Bitcoin." Nic: I think this is the deal we made in 2017 when Bitcoin began to be financialized. This was the Faustian bargain the we the Bitcoiners made. It was gonna become institutionalized, and it did. We are living in a very much post-institutionalization world. This applies to all aspects of the Bitcoin protocol. If there's a random 51% attack, those firms will have to react. And now there's a existential issue, those firms have a perspective, and they have one of two choices, I think. There's one of two things they can do. Luke: Okay. Nic: They can delist all their Bitcoin products. So they can walk away from all the revenue. They [00:27:00] can say, "We don't wanna be a part of this. It's too risky. We can't anticipate it. Our clients are gonna sue us if there's, uh, if these coins get recovered and the price of Bitcoin goes to zero. So we can't stomach that risk. We're delisting." So some firms will go that route. Luke: Correct me if I'm wrong, Larry Fink launching the most successful ETF of all time, I don't, I don't think he's Nic: gonna- I don't think they wanna delist I don't think he's gonna do that. They make hundreds of millions of dollars a year from their Bitcoin product, right? It's the best ETF they have. So what do they do? They can't really sit idly by a- and watch as Bitcoin forks into two things, and they-- I don't think they'd be able to support two Bitcoins. Let's say there's the, uh, you know, no freeze Bitcoin and the freeze Bitcoin. Mm-hmm. Right? They can't really support two Bitcoins. People are gonna ask them, "Okay, what coin does this ETF refer to?" They're gonna have to say, "This coin." Luke: Which coin is real? What's- Yeah. Nic: So which coin is real, I think, assuming the lawful recovery does not happen, and we end up in this freeze situation where you have contentious forks, they have to pick a side, I think. They have to pick a side. [00:28:00] What side are they likely to pick? I think you can guess which side. The freeze side. Now, I'm not putting words in their mouth, in BlackRock's mouth, Coinbase's mouth, or any other asset manager. I'm just guessing. I used to work at one of these companies, right? I used to work at Fidelity. Again, not putting words in their mouth. I don't know what they're thinking. But they have to do something. So I think what they could do is all of those big asset managers get together, they write a letter, they say, "We're only gonna support the freeze side That's it. The only valid Bitcoin is gonna be the freeze Bitcoin. So if it comes to that, if we have a contentious fork, I think the freeze side wins instantly by default- Yep ... with no fighting. Yep. Because every asset manager has pre-committed to support that side only for the sake of their clients. They don't wanna get sued. So that's the only palatable side for them. Does that mean Bitcoin has been effectively commandeered by the institutions? Yes, 100%. But that was the deal that we made in 2017. If you don't like it, should've complained back then. Luke: The deal was number go up and- Nic: [00:29:00] Yeah, we traded NGU for a certain amount of corporate oversight. Luke: It seems that, I mean, that was inevitable too, though. There's no way to, that's, that's- Yes ... capitally. Nic: Anyone's allowed to buy Bitcoin. If Bitcoin was gonna win, it was gonna be financialized. Sure. That's how we do things in this country. We financialize things. Luke: Sure. Nic: So is that a bad outcome? I don't know. I think it's a fine outcome, you know? It's not the libertarian cypherpunk outcome, but Bitcoin, people have been saying this for years, Bitcoin's soul has been lost, it's been captured, it's too corporate now. Now Bitcoiners celebrate every time Saylor buys more Bitcoin, right? Would the Bitcoiners of 2011 liked that? Maybe not, right? But today, the Bitcoiners support the price going up even at the expense of decentralization. So now we found ourselves in this situation where we actually are beholden to these companies, but that was the deal. Luke: Let's talk about Saylor. Uh, I also looked up what he had said. He spent 56, 58, 55 billion, it seems like a billion every couple weeks now, uh, more into Bitcoin. And in my mind, [00:30:00] you know, someone spending $50 billion on, on Bitcoin, he's probably thought through this. He's probably read the, the top research, maybe even consulted with the, the researchers that put out the report from Google. And I was going through, and I just asked Claude and said, you know, "What is, uh, what has Saylor said about this? Like, what's his opinion? Is there any direct quotes?" Saylor in a CNBC article, he says, "Quantum, it's mainly marketing from people that want to sell you the next yo-yo token." I thought that was a bit, I thought that was a bit aggressive. I couldn't... Here, here's the, here's my question. Is that mar- Is that posturing of him saying, "This is my bet. I'm all in. It's the most successful preferred stock launch. Stretch needs to go up, MicroStrategy needs to go up, Bitcoin needs to go up. I don't want people to worry about this"? Is that the game that Saylor is playing? Right? Like, the, it has to be that, because here's the alternative. If that's not the game he's playing, has he done the research and he just thinks it's, it's like Google's lying, the NSA is wrong? What's your take? I'm trying to wrap my head around this. You've spent more time diving in [00:31:00] and, and getting the opinions and, and reading the, the actual papers from those people. What's your take on Saylor? He has people advising him on this, or is this posturing? Nic: He, is Saylor, he has a degree from MIT, right? Like he's a- Incredibly smart ... very technical guy. Yeah. Yeah. So I don't know what he actually believes. I have seen what he's said in the press. I'll say this Even if every quantum stock was a fraud and every quantum coin was a scam, we should still care about this. Even if 90% of the people complaining about this had an ulterior motive, which was to make their coin or stock go up Even if that was true, it would still be a threat. Yeah. Every quantum stock could be an absolute worthless stock that goes to zero in the end, but we could still get the quantum development that threatens Bitcoin. Yeah, you can look at, uh, you know, the incentives of all the players. Certainly my incentives are known. Everyone that has, you know, said something about this has some kind of exposure, whether it's, uh, you know, they're [00:32:00] intellectually long quantum or they're actually long quantum. Everybody has an exposure. You just have to look at the reality of the science, right? Yeah. So I think what Saylor is doing is I think he is trying not to spook the MicroStrategy investors because this truly is a very thorny issue for Bitcoin. Firstly, on the technical front, it's actually gonna be quite challenging to put in post-quantum signatures and to do the transition. In Bitcoin, it's very hard to agree on anything, and we've had a very hard time with our last two soft forks, and those were pretty minor technical changes, right? Like Taproot and further back, SegWit. Those were not that big of engi- engineering lifts compared to this. So this is much bigger. It's much harder. That alone is scary. And then you have the more intractable thing, which we talked about, which is what do we do with these, these two and a half million coins? There's no easy answer. So as a investor in Bitcoin or in MicroStrategy, you're thinking to yourself, "Wow, [00:33:00] this is a little scary. Maybe I won't invest in it. Maybe I'll reduce my portfolio allocation f- from 5% to 1%-" Until, yeah "... 'cause there is a tail risk here that I can't price." Yep. Right? I don't know when it's gonna happen. I don't know what's gonna happen when it does happen. Do I think this is the best strategy? No. I wanna bite the bullet and accept fully the risk today and start to plan for the future. That's what I wanna do. But also, I don't run a company that has X many billion dollars of Bitcoin. Right. So his incentives are different. For him, maybe it will work out that this problem just gets tackled and it's less of an issue than maybe we thought, or maybe it never happens. I think he's probably betting that the quantum future, maybe it happens in 20 years as opposed to five years. In that case, I think maybe his view would be warranted, but even so, I don't wanna take that risk. I don't wanna take the risk that quantum happens faster than we thought and we're not prepared. Luke: Yeah, I just wanted to get your read on that. He has a very, yeah, different set of incentives. I mean, he obviously wants the number to [00:34:00] go up too, but it was interesting. Like, he's very calculated usually in, in how he thinks about risk, how he even explains it to the press, and I think he does, like, a good balance of, of being technical, giving it thought, and also kind of mixing in the bullish propaganda. But that was like, it was total dismissal. I mean, there's five other quotes where he basically says, like, "This, this is absurd. Anyone talking about this is absurd. It's not a concern. I'm not worried." Yeah. I was kinda thinking, you know, I have, uh, 1/1000, 1/1,000,000th of your size. I'm a little concerned. I don't know. Maybe you're Nic: right. A- as am I. As am I. And, uh, I think that You know, the incentive discussion doesn't really work anymore with the set of people that have come out and said, "We need to make the switch." Like Google, you know, does Goo- Are they really trying to, you know, increase the price of quantum shitters? Like, Google is just a big internet company, right? Yeah. They just want the internet to work. Yes. You know? Cloudflare, they're very well on their way to being post-quantum. Actually, most traffic that goes [00:35:00] through Cloudflare is now post-quantum, so they've actually already begun this transition. Luke: Yeah. Nic: So when Cloudflare and Google are saying by 2029, by 2029, we're moving up the deadline 2029 Are they, do they have some kind of like perverse ins- or like are they just like looking after their own businesses, you know? Yeah. And they're reacting to a threat, they're quantifying it, and they're saying, "This is our deadline." When you look at these academics like Scott Aaronson, like he's an academic. He just cares about the base reality here. He's saying, if you read one of his recent blogs, he says, "This is your warning. You have to do it now. Start the transition." When Coinbase, Coinbase is the biggest Bitcoin custodian in the world, right? They very much care about the integrity of their clients' Bitcoin. This is existential for them. When they're saying, "Hey, we need to start the transition now. Let's not debate how long it's gonna take to get to Q-day." This, this is what they wrote in their new paper. They said, "The actual timing doesn't matter. All we know is we need to do this transition. We might as well start now." So when all of those people are [00:36:00] saying that, I'm inclined to trust them. Luke: What's your take on, on the Google Quantum paper? Because as you said, they're not-- It's not a Bitcoin strategic reserve they have they're trying to protect. It, they wanna be right, they wanna protect their business. The leading AI and tech companies wanna protect their business. One of the things that came up, uh, that was super interesting in that Google Quantum report, they mentioned a couple coins that were quasi already in a post-qua- quantum world. They, I think they mentioned Zcash, they mentioned Ethereum. Is that real? Is that a narrative? And you know, obviously narratives matter so much here. Even in the AI world it's like the narrative almost matters more than fundamentals. But in crypto land, people have latched on to Zcash is post-quantum. Zcash is the quantum safe coin, or Ethereum is more quantum safe. From what you've seen, what you've read, how real is that? Nic: Zcash has been the most proactive in terms of quantum preparedness. Are they quantum safe today? No. But have they laid out the cleanest roadmap? Yes. Luke: They have a plan. Nic: They have a very clear plan, and they [00:37:00] have coordination. They can make this happen. Of course, it's easier to change Zcash than it is to change Bitcoin. Luke: Right. That's a- So- ... that's a feature for Bitcoin, right? That's not necessarily always a bad th- it's been- Yeah ... a, it's been a very good thing, but at the same time, more agile projects, it's easier. Nic: Yeah. So I give them credit. They-- I completely believe that they'll be quantum safe within a year or two. Ethereum has also been very proactive with regards to quantum. Ethereum has a lot of problems. Yeah. Luke: It hasn't done much for the Ethereum price, but- Nic: Ethereum's got a lot of problems. Luke: Yeah. Nic: They've laid out a plan by 2029 as well. So 2029 is starting to, starting to hear that number a lot. Luke: Yeah. Nic: So they have this website, pqethereum.org, where they say, "This is the plan. This is what we're gonna do. This is who it's gonna affect." And Vitalik has been very clear about it. Justin Drake of Ethereum was also one of the co-authors to that paper. And it's a big rebuild for Ethereum, too. I mean, for anyone. Uh, Solana has also said they have to do this. So like you can kind of go down the list and, uh, it's sort of a dawning realization. Every [00:38:00] altcoin, altcoin, I don't know, do we still call them altcoins? Every non-Bitcoin coin effectively has a plan or will have a plan. And Bitcoin, I think, will be the last to migrate. I think Bitcoin will still get it done in time, but they're gonna have to be dragged kicking and screaming. I have said in the past, if you want a sense of whether investors are really spooked about Quantum, look at ETH BTC, 'cause ETH, you know, has this plan. They're probably gonna do it by '29. There might start to be a premium Luke: Or Zcash Bitcoin Nic: Or Zcash Luke: That's-- I mean, that's- Or ZEC ... the narrative I hear way more- Yeah ... is Zcash is already the quan- it's the quantum coin, in a sense. Nic: So look at both of those. However, there are confounding factors. Like- Right Bankless, I think, quit Ethereum yesterday- Yeah ... maybe. I don't know. I like those guys a lot. But there are confounding factors, which is that there's like a sense of exhaustion in the Ethereum community. Luke: Ethereum Foundation selling. Nic: There's weird stuff happening with the-- I never know what's going on at the EF, but, uh, there's all kinds of purity tests and, you know, they're selling all their Eth for some reason. [00:39:00] I never really know what's operating- Yeah ... in there. But I thought if you really wanted to measure this, like how much investors really care- Sure ... you'd look at those ratios. Luke: Where are people positioning? Just what's safer in the quantum world? I guess Zcash too, but then again, it's like there's multiple funds buying Zcash. It has the private Bitcoin narrative. Maybe that's the quant- maybe that's a pure quantum measure. I don't know. Nic: Josh Lim also had a good thread on this, uh, amazing trader. I think he's at FalconX. He said look at the open interest on the cash-settled Bitcoin futures exchanges. Uh, 'cause his view is that if Q-Day ha-ha-happens rapidly, you would actually wanna trade on one of the, on the CME, for instance. Luke: Why is that? ' Nic: Cause it wouldn't be existentially exposed to Bitcoin going down. Like, if Bitcoin goes down, Coinbase might go down, but the CME will be okay. Luke: So you could- Right ... still trade the price. Nic: Yeah. So he says look at- Oh ... the OI on the TradFi exchanges that are trading Bitcoin [00:40:00] derivatives. Look at the long-dated puts on Bitcoin. I think you could also look at the stock price of the quantum companies. Luke: Yeah. Nic: Because let's say we get closer to Q-Day, there's a quantum company that maybe seems like a head and shoulders above the rest. The stock price of that company should start to reflect the value of the Satoshi Bitcoins- Sure don't you think? 'Cause-- Or maybe a, a portion. Maybe they wouldn't get to keep all of it. But maybe if they did do this quantum recovery, they'd get to keep 15%. So now you'd start-- you'd wanna bake that into the price. So I think actually, if we got closer, you start to see, like, the PsiQuantum or the Quantinuum or the IBM price or any of these p- pure-play quantum stocks. If one of them starts to rally, that might be a signal. Luke: Yeah. Nic: I mean, a, a prediction market would be better. It'd be better if we had a prediction market. ' Luke: Cause there'll be an insider too. Nic: Well, yeah, but there's no liquid prediction markets on this right now. Luke: Yeah, not one with enough size. It would probably be-- It would show up, I think, in a quantum stock first. Nic: So that would be the prediction market. Luke: Yeah. Quantum stock or th- I like that [00:41:00] angle from Josh. I was gonna bring that up anyways. Someone like me and, and a lot of people listening, there's-- I'm never gonna be able to figure out if we're advancing in quantum or whatever else. I look for- Yeah ... the next Google paper. I try to read your research. I see if Saylor is, is gen-genuinely concerned or not. Um, there's some metrics we can look at, but, like, I'm, I'm never gonna figure out if we're adding- Yeah ... if we're adding more qubits or not. And so now it's a game of, like, how is Bitcoin going to trade going into this? Yeah. You know, we could look at that 2017 fork I think strangely Bitcoin actually did well going into when it was gonna fork with Bitcoin Cash and Bitcoin SV because people treated it as- Oh, right ... I'm getting Bitcoin plus a dividend. Nic: Yeah. Luke: Yeah, yeah. So, like maybe that could also show up if Bitcoin starts getting bid. As we-- as backwards as that is, Bitcoin maybe catches a bid as the risk increase. There's like a weird element there. Do you think that could happen aga- Like, do you remember how that played out maybe first? Nic: Yeah. W- There was something with Bitcoin Gold too, and then Eth, and, um, there was something with like contango or backwardation, which [00:42:00] was like indicative I think- Right maybe that a fork was coming. Yeah, I mean, I think in 2017 when the cash fork was happening, was that like November 2017? Luke: November or August to November. Yeah. Yeah, yeah. So, it was like a two or three-month period. Nic: That was just like a monster rally. Luke: Oh, so we were just in the-- Yeah. So- We were going up anyways? Nic: Yeah. Bitcoin went from like 3,000 in May to 17,000 in December, so the backdrop was just an insane rally. Luke: But hold it. Now I'm thinking about it. How much of that, though, was what we're, what we were just talking about? Was that people bidding saying, "Maybe I'm getting a Bitcoin plus an extra Bitcoin that could be worth half?" Yeah. Like- Nic: Yeah ... Luke: it's a weird world where a risk premium is adding Nic: value to a coin. I just, I don't think in today's world there can be a contested Bitcoin fork anymore. Yeah. For the reason that I laid out. I think we are post-contested forks. I think people are fighting the last war. They think there'll be a fork, but I don't think there can be anymore. Luke: Well, yeah. There, there'll be a fork, but it's not gonna be something we debate on this one will [00:43:00] flip the other one. Nic: Right. Luke: It'll be kind of a, a battle that's won on the first day. Nic: That's my theory, yeah. Luke: Yeah. Josh's thread was really, really good. It was good. I didn't see that about cash-settled. Uh, he had some other ideas. I wanna pull this up. Yeah, so he talked about Bitcoin and Bitcoin Cash. Hard fork occurred on August 2017, Bitcoin rallying into it. And then, yeah, Bitcoin Cash was like 0.25, I think that's what it spiked to. I sold mine- Satoshi's Vision was at, like, 0.1 ... Nic: I sold mine day of, and then I got worried because it kept going up. Luke: Did you buy back? Nic: I, no, I, I sold mine, I think, for 0.15. I was like, "Yeah, this is great." Luke: That's a, that's a damn good trade. Nic: D- in today's terms, yeah. Yeah. And it kept going up. Back Luke: then, yeah. Nic: Kept going up. I'm like, "Damn, did I just sell the real Bitcoin for 0.15 BTC?" Luke: Yeah, that was a real... Maybe it spiked higher. It could've been 0.3 or 0.4. Nic: It, it spiked, yeah. It did. Luke: So maybe we don't get that again going into the fork. God, that'd be fun, though. That was one of the wildest times in Bitcoin history. Nic: It was too much excitement for me. I was-- I'm, I'm kinda [00:44:00] glad those days are behind us. Luke: So we talked a little bit about warning signs, maybe Bitcoin rallying, looking at venues where CME, that's an interesting angle. I hadn't really thought about that. What other kinda warning signs are out there? Quantum stocks pumping? Like, what can people that are now gonna be a little more tuned into this... I mean, I think we're gonna go through cycles where a new report comes out, or maybe even the research goes silent for a while, and we say, "Why is no one talking about this anymore?" Or Saylor comes out and says something. Like, what are you looking at? Nic: So the trouble is, is the silence, because already the government is working with quantum researchers and asking them to withhold some of their findings. So if you notice, and I'm not saying this happened for the Google paper, but if you look at the Google paper, they don't publish all of the data, right? Because they don't wanna give an adversary the key. Luke: Or their methods on how they prove this. Nic: So it's similar to the Manhattan Project, if you'll tolerate me to make that analogy. Luke: Sure. Nic: In [00:45:00] 1938, I think, we discovered that fission was theoretically possible, and then over the next two or three years, until the Manhattan Project was officially begun, scientists started to self-censor So the research being published regarding nuclear fission went away. People stopped publishing it. And then I think it was '41 or '42, there was a total blackout. So quantum is similar in the sense that its value is mainly strategic, and being the first matters tremendously. And having a quantum computer while your adversary is not aware, that's worth even more, 'cause you want your adversary to keep putting out encrypted stuff that you can decrypt, right? Luke: Yeah. Nic: So if the US has a quantum computer, we're probably not gonna tell everyone. We're not gonna say, "Hey, China, you should probably, you know, quantum encrypt your stuff now 'cause we're actually spying on you," right? So the problem is there's this big incentive to be quiet about your research progress, so we may not get a lot more [00:46:00] evidence from the scientific community that we're getting closer and closer. So we might be in this quasi-blackout situation. So that is the worry, because a lot of Bitcoiners think, "Well, we're gonna get this slow ramp, and we're gonna get these toy quantum circuits, and then we're gonna get these findings," and so on and so on, "and then quantum will be useful in physics, and it'll use- it'll be useful in this and that." There's two problems. One is the secrecy. Two, uh, breaking elliptic curves is gonna be one of the first uses because elliptic curves and particle simulation are kind of at the same threshold of difficulty. So it may be that elliptic curves being broken is the first time we find out that a quantum comp- computer exists. Or a quantum break occurs and nobody even knows yet, and someone harvests all those old Satoshi coins, and they don't tell anyone for years maybe. Luke: Right. Nic: Right? You don't have to tell anyone. You can just crack the keys and wait, and [00:47:00] then when it appears inevitable, maybe now you harvest them. You know, you broadcast on-chain So we may not have this slow, gentle, visible ramp into Q-day. We-- Q-day could happen, and we might only find out next year. Luke: What's your honest opinion? Do you think this Manhattan Project, I like the analogy, do you think it's maybe already underway? Nic: Yeah, 100%. 100%. Luke: Inside our government coordinating with top labs, coordinating with top researchers. Nic: 1,000%, and I have no knowledge of how the government operates. I only have my, from where I sit, private sector, right? I have no communications with anyone in the government. As we Luke: started this, I asked you if you're compromised. Now I'm starting to, I don't know. Nic: I have no relationship with anyone in the government. DARPA has a QBI, Quantum Benchmarking Initiative. That's a, a well-known public project. They want to ascertain by the late 2020s what the timeline of a quantum computer is gonna be, and they're actually giving grants to quantum c- uh, companies to do this. The US government today announced that they're taking stakes in a [00:48:00] bunch of quantum companies, including IBM and I think a half dozen others. You know, NASA and NIST have, you know, clear, uh, projects underway. NIST, of course, standardized a lot of these post-quantum algorithms for us. So this is a quasi-governmental project. Of course, there are private sector firms, but the government will want to have a hand in those firms, and they'll wanna dictate to them what tasks they do when they first get a quantum computer. That's happening. We see this coordination happening, and it makes sense, right? This is a-- The primary value of a quantum computer is strategic for nation state. It's not necessarily private sector. Maybe it will be, but that's only after the government's got all its tasks out of the way. Luke: The AI arms race, the quantum arms race, and somehow even though Bitcoin and crypto it seems like have taken a backseat to both of those, it, like, finds itself squarely in the middle. Nic: Yeah, and I think it's great 'cause, like, Bitcoin's in the conversation, you Luke: know? It's like the, it's the key in "Ready Nic: Player One." We're staying relevant throughout all this. Luke: We're right-- It's the bounty. Yeah. If you win the AI or the quantum race, you win [00:49:00] Bitcoin. Nic: And we, we haven't even talked about the fact that AI accelerates quantum development, for sure. Like, what is quantum development? It's an engineering challenge based on trying to scale up, um, a miniature quantum computer into a big one AI is getting very good at doing math, right? Uh, you know, AI is doing physics. AI solved one of the Erdős problems yesterday. The Erdős problems are big unsolved problems in mathematics. A general non-optimized AI model solved an Erdős problem. So when the quantum skeptics tell me, "Oh, well, I think technology's gonna advance slowly," I'm thinking to myself, technology is advancing faster than it ever has in human history right now. Why would we assume the technological growth would stagnate or slow down? Luke: Sure. Nic: This kind of optimize-- And you'll see the first quantum computer will be built with AI, right? 100%. Google's lab is called Google Quantum AI. So AI and quantum are inherently linked. Luke: Yep. Nic: AI will absolutely be [00:50:00] an accelerant here. I think it could happen faster than we think. Luke: I don't know if I should be excited to hear or worried. This is like, it's just so insane. Nic: It's exciting, for sure. Luke: What's your one message that you hope people get out of this or, or think about? Like, or I guess that, that you are constantly thinking about with this. Like, I'm just trying to think, for anyone that's listening to this, there's gonna be a group that's more concerned, there's gonna be a group that now thinks you're a fed, part of the Manhattan Project, right? Like, it, it's just a, it's a v- it's a divisive topic. Some people love this, they agree with you, and some people think it's, think it's ridiculous. What's your message to, to either of those? Nic: Accept that it's gonna happen and start to behave as if it's gonna happen. And for Bitcoiners, that means start the transition now. Don't dither about the transition, just start it. Like, do we have that much to lose? Not really. We have engineering costs and some coordination, some governance difficulties. But Bitcoin doesn't have that much to lose by getting up to the state-of-the-art in terms of cryptography. And Bitcoin is meant to be this kind [00:51:00] of progressive, not in the political sense, but, uh, it's meant to be this really innovative project, right? It-- Cutting edge, state-of-the-art. Why would we use a legacy scheme, right? Why would we not do what everybody else is doing that cares about this and just upgrade? Luke: Nick Carter, always a pleasure.