Blockstream Talk #2 — Samson Mow: Mining, STOs on Liquid & El Salvador´s Bitcoin Opportunity

Link to the podcast video: https://youtu.be/olm3oM1dFkU

Welcome to Blockstream talk number two our conversation today is with Blockstream’s chief strategy officer Samson Mow. Samson is really the gas pedal at Blockstream pushing the company to be at the tip of bitcoin product development. and given his time at BTCChina, which was previously one of the biggest exchanges and miners in the space he’s got some great insights into what’s going on in China too. But the bitcoin market moves really fast, and as I’m sure you can probably tell this conversation was recorded a couple of weeks ago. since this conversation Blockstream has launched its own ASIC arm and released our latest lightning network service greenlight you can hear Samson hint at these developments in the conversation. bear with us will definitely improve our time to market in future episodes. and that said i think there’s some really good insights in this conversation! don’t forget to like, subscribe, and share, and if you have any ideas for topics for future episodes, let us know in the comments section below. thanks again and enjoy the conversation.

Jesse Knutson: All right, Blockstream talk number two. my name is Jesse Knutson, today our guest is blockstream’s chief strategy officer samson mow. so thanks for taking the time and joining us today, samson.

Samson Mow: thanks for having me on

Jesse Knutson: great. so i think you’ve got a pretty interesting and diverse background, and i think probably have a good feel for a lot of the things that i want to talk about today. and we’ve got a long list of topics, so we’ll see how many we can get through, but i think china is definitely one — what’s going on in china, bitcoin mining, NFTs, STOs, and then the lightning network. so we’ll see how much of that we can get through today.

Samson Mow: sounds good

Jesse Knutson: but first: what’s your backstory? how did you get into bitcoin?

Samson Mow: yeah so my background is game development. and then by chance i got into the bitcoin industry. so my friend Bobby was running btcchina and i joined as an advisor originally, and then i got pulled into the COO role there and i was the COO for almost two years. and i was running the exchange and mining pool. so in the crypto space my background is exchange operations and mining. and then Adam poached me to Blockstream.

Jesse Knutson: Yeah people might not remember: btcchina was a huge player in the space back in the day. i think that was the first exchange in china, right?

Samson Mow: yeah it was the first exchange. and then after gox imploded, basically everyone went to btcchina to trade, so it had a massive growth spurt and a massive influx of traders and volume.

Jesse Knutson: yeah i think for a while it was probably the biggest exchange in the world as well.

Samson Mow: yeah pretty much

Jesse Knutson: you guys had a giant mining pool too that i think you were involved in.

Samson Mow: yeah so btcc pool was pretty big. i think at the top, we were like 20% of the network hashrate.

Jesse Knutson: so that’s so crazy

Samson Mow: yeah that was way back in the day.

Jesse Knutson: okay, so the first topic i want to get to is china because obviously china is a huge part of this market and it’s a little bit difficult for outsiders looking in to get an accurate gauge of what’s happening in china. so what’s going on in china? is mining just done for good in china now?

Samson Mow: well i think large-scale mining is probably done for good, at least in the near-term. it’s hard to say what’s going to happen down the road, but i know that most mining operations were shut down. like miners were basically forced out — they’re evicted! and they even had to tear down their facilities, too, which is adding insult to injury, right? so they built massive high-quality mining operations, and they basically have to rip everything apart, take down the transformers and just like — get out. so that was pretty disruptive, i would say, and we saw it on the network hashrate: we saw a massive drop in network hash, and we still haven’t quite recovered yet, actually.

Jesse Knutson: yeah. so but what’s the broader situation like in china? so you hear a lot of FUD on china, like otc desks getting shut down and the authorities coming to your house if you log into binance. and it’s hard to separate the BS from what’s actually going on — the signal from the noise. so can you still buy bitcoin in china?

Samson Mow: yes! absolutely. all the news that comes out of china is typically sensationalized. media wants clicks and that’s the stuff that gets you attention. so we can address it one by one: there was news that people logging into binance would get a call from the authorities, but that wasn’t the case. i think it was a scam site and people would get a call afterwards being advised that you may be logging into a scam website — so that was kind of normal. and the other one was the ban on otc trading. so i think larger otc trading operations are getting some pressure to close down, but still like people can still buy bitcoin peer-to-peer on otc apps. and we haven’t had exchanges proper for the longest time, so basically it’s just larger-scale cryptocurrency trading operations are being clamped down on and closed, but spot-trading, otc trading, is still very much flourishing. and bitcoin actually is a protected asset in china. there have been cases in court where people have disputed ownership of bitcoin and it is deemed an asset category that you can seek legal protection on.

Jesse Knutson: okay. yeah i did a call last week with a big Taiwanese financial holding company and i got that question from one of their institutional investors. like, How can bitcoin possibly go higher without chinese retail? because they’re very cognizant of the power of chinese retail. so it sounds like chinese retail is still in the market — we haven’t lost them.

Samson Mow: yeah. i think there’s an overemphasis on the importance of the chinese retail market, but i think it’s obvious now that it’s not the only market-mover, right? so the doge phenomenon was not china-driven. it’s north american-retail driven, and it can pump that coin up to close to a dollar, and it shows you like — there’s money all around the world, and it’s not necessarily one region or country that is going to be driving things.

Jesse Knutson: what do you think motivated this latest crackdown in China?

Samson Mow: you mean the mining crackdown, right?

Jesse Knutson: yes

Samson Mow: yeah so i think in large part it started in inner-mongolia, because a lot of miners were abusing government subsidies. there were subsidies in place to encourage data center construction, data center operations, and basically like IT usage. and they were getting those perks, but to do mining. so that was what initiated the crackdown, and i think also the awareness in general that there is a lot of electricity consumption for mining — that it’s basically unwanted because of environmental concerns and concerns about perception of environmental impacts. so i think that was what kicked it off, and then it just snowballed from there and i think personally that it went out of control, because they clamped down on mining in Sichuan and Yunnan too, but for the most part that’s hydropower. so it’s just like overkill at that point. but ultimately i think it’s a good thing, because we always had to deal with this FUD that China controls mining — all the miners are in china. so now that’s not the case anymore! and actually we might be dealing with FUD like, There’s too much mining in north america now.

Jesse Knutson: yeah i totally agree, and i worry about that. and that’s one thing that i liked is that there was another big mining base in a competing economic center, right? so that they could like neutralize each-other out. so i think it is actually — it’s better in some ways, but it’s concerning in other ways as well, you’re totally right. what about the supply chain? because hashrate is now very geographically distributed, but we’ve got a big bottleneck in the supply chain for mining rigs. the three big guys i guess are microbt, bitmain, and canaan, and all their manufacturing facilities are in china. do you think at some point it could extend to a supply chain crackdown?

Samson Mow: so i think a lot of the components for manufacturing miners — not the chips per se, but general — the chassis and other things like that, are still built in china. so there is some risk there, but i don’t see it as mission-critical. if there was ever any problem, then new centers would just come up and manufacture elsewhere.

Jesse Knutson: yeah. and then the components around the chips are — that’s not rocket science, right? the chips are from south korea and tsmc, so you’re right — i guess that could be made anywhere.

Samson Mow: yeah. i’m thinking like more commodity things like fans, cables, connectors, the metal chassis, and all that stuff, so yeah — all that stuff can be made elsewhere. it’s not mission-critical.

Jesse Knutson: all right. so we’ve had a good bounce in hashrate since this crackdown and a massive difficulty adjustment i think has helped with that as well, but it looks like some of the chinese hardware is already starting to find new homes in different parts of the world. where is that chinese hardware going? and has hashrate bottomed now, do you think?

Samson Mow: i think we’ve bottomed out. i think we’re going to see it slowly come back online from. what i gather, it’s mostly going to russia and russia-adjacent territories, like kazakhstan is a popular destination. and also north america. but i can see more and more places opening up. like south america is looking promising, too. and central america with el salvador volcano mining, so i think it’s just a matter of time before the hashrate comes back online, it’s just going to take a good chunk of time, because rebuilding all those facilities and all that infrastructure is not something that’s just going to happen overnight. that’s going to take months. and things don’t get built as quickly as they do in china, so it could be six months, eight months, before we really bring back all the hashrate.

Jesse Knutson: and there’s probably going to be some slippage too. like i think there’s probably some older equipment that was operating in china that people just thought, Okay it’s not worth me moving this to kazakhstan or north america, and they just bin it, right? so there might be some slippage and hashrate might take a while to get back to the previous level.

Samson Mow: yeah. anytime you have a mass migration like that, i think you will see that slippage, just because things will break in transport. when you’re taking tearing down all the infrastructure and pulling the miners off the shelves, things are just going to break. and like you said, some of the equipment is not worth transporting, so they might just keep it in china and wait until things cool down a bit, and they might restart some mining operations, but maybe more low-key, smaller operations. nothing massively industrial — which is good for bitcoin i think, in the end.

Jesse Knutson: yeah so shifting gears towards STOs. i think this is another really interesting application, and another market that’s massively set for disruption is like traditional capital markets. and so you mentioned at the beginning that you’re also the ceo of pixelmatic, a gaming company, and one of the few companies in the world i think that has actually executed an STO issuance. so why did you choose to go the STO route? what are the benefits you see for companies?

Samson Mow: well i think STO’s are going to drive the reformation of traditional capital markets. the benefits are largely what we make them out to be: if you do STOs on your average blockchain with no dimension of privacy, then there’s nothing really improved about it, right? i think, if done right, it will be done on something like Liquid, and this is why i spearheaded the Blockstream AMP product at Blockstream, because Liquid has confidential assets and confidential transactions, so it’s just the perfect platform to do security tokens on. i think if you’re just tokenizing something on an inefficient platform that doesn’t offer privacy, then it’s not really anything better. we need something to be 10x better than the legacy system in order to win market share. and i think we’re reaching this point where people are starting to realize that the traditional system is broken, not just because you’re only trading five days a week during working hours minus bank holidays, but it’s the fact that the platform itself can say “can you please stop trading now?”, which is weird right? so with a security token, there is no central party that can say, Stop trading. so for example the BMNand the exo token for infinite fleet — those things can be traded peer-to-peer. you don’t need the permission of someone else to trade them, because they’re tokenized and as long as all the investors are whitelisted on the Blockstream AMP platform, then peer-to-peer trade is just a native part of that that system.

Jesse Knutson: yeah that’s really exciting. and I agree i think that’s just a massive opportunity. so one of the reasons i like working in the space is because you get to be on the cutting-edge of things and you get to look at a lot of really interesting things. so i think without giving away too much of the secret sauce, i’ll put the ball in your court to how much you want to reveal — but what do you think about STOs in the next 12 months? i feel like there’s some massive things coming, and i think this could be really a big year for STOs. is there anything you feel you can share on that?

Samson Mow: yeah i think there’s probably three dimensions to it that are required before they’ll really take off: one is a trading venue, or trading venues. and we see that with INX, right? they raised a lot of capital, they’re rolling out their platform, they finished their acquisition of open finance, and basically they can start offering security tokens now. and then i know there’s a couple other exchanges, one really large exchange that is going to be launching a security token exchange. and once these venues are in place, then i think it opens the door for this market. so venues are one part. the second part is the technology. and like i touched on, it’s building on top of something like Liquid that offers this additional benefit of privacy and confidentiality. like, you don’t want the platform to shut you off, but you also don’t want them to trade against you, and that’s pretty much what those platforms do — like Robinhood sells your data to someone else. with Liquid, then, you don’t have that problem. so no one can see what you’re trading. and then the third thing really is the regulatory landscape. and in the us, that’s opened up a lot. you have Reg Afilings that are not as difficult to get through. you also have Reg CF which has been largely expanded. basically the regulator in the US, they want people to be doing these things rather than illegal security offerings and ICOs and the like. also in luxembourg — which is where we’re doing EXO and the BMN— the regulatory framework is also quite effective too and efficient, that lets us get these things out the door rather soon relatively, right? so i think with these three pieces, we can start to see a big growth spurt in STOs, and i think people have to see the potential of it and see projects successfully completing capital raises, and then the floodgates will open and everything will change

Jesse Knutson: yeah it’s a it’s a huge opportunity. i think in in taiwan where GDRs (global depository receipts) used to be really big as a way to let foreign investors invest in this market. it’s the same thing, right? it opens it up to global investors and i think it’d be a really really big deal. all right so moving into nfts. i mean stos i get completely, but NFT’s are something i’ve struggled with a little bit to get my head around. but there’s a ton of interest, right? on the issuer side so nba nike marvel they all want to issue NFT’s. so what’s the opportunity here for issuers and for investors or collectors or the other side of that trade?

Samson Mow: yeah so i also i see your your point about nfts and i think a lot of people from the bitcoin space are like, i don’t really want to touch this stuff, or, i don’t like it. and i think that has to do with it being over-hyped. and the ethereum side hasn’t really done much to mitigate that hype, right? they like the hype. and you see things like the $69 million dollar nft sold, but i think that’s all noise. the real potential here is opening up trading and tokenization. so again: i think nfts, there is some merit to it if it can confer some benefit to end users. so i’ll take infinite fleet as an example: we’re making all the spaceships as nfts. and the game currency is also a crypto asset. so what you can do is an atomic swap on Liquid where you can trade these things without involving us — the game, the platform — and just do it peer-to-peer, and there’s no risk, right? the the trade either executes or it doesn’t. so you can alleviate the problem of games in the past where, if you’re like buying game currency or trying to sell an item, you have to send it to the guy first and then get a payment on paypal or something else afterwards. so i think there needs to be some sort of benefit to using it, and i think we need to really present the benefits and not oversell it. like most nft games or nfts in general, they’re like, Yeah you own this thing now! but if you read the terms of service, you actually don’t. so if you read the terms of service for Topshot it’s like: you can go to our app and buy it and sell it and look at it here but you can’t do anything with that thing. but if you look at their marketing, it’s all, You own this now! you own this moment! so it’s very misleading, right? i think maybe that’s what irks bitcoiners.

Jesse Knutson: yeah and there’s just obviously so much smoke and mirrors with it. like that $69 million thing, like in hindsight it turns out it was just insiders churning it and it just doesn’t pass the sniff test at all. so that’s why people don’t like it. but i think it makes more sense in the infinite fleet context, like in a closed ecosystem, or between closed ecosystems. that makes a lot more sense to me. i think that’s something that i can get my head around.

Samson Mow: yeah well we just want to be honest with it. so we don’t tell people like you own the ship and you can have the ship. like, we present it more like, The nft is the key to your ship. and as long as you have the key, you can access the ship and you can trade that key with somebody else. but we don’t oversell it, and we don’t overstate it, and we don’t anchor all of our marketing on, Own your own ship forever and yada yada yada.

Jesse Knutson: okay el salvador. this is something that i didn’t think we’d see this cycle. like i didn’t think in this cycle we would see sovereign adoption. and i thought that if we did see sovereign adoption in this cycle or the next cycle, it would be some non-g7 country buying bitcoin and putting it on their balance sheet. but a country coming out and saying Hey bitcoin is legal tender — that exceeded all my expectations for probably the next cycle, let alone this cycle! so i feel like this has the potential to be a massive domino effect, because there’s so many dollarized economies in south america, even in asia, and also in africa. and it’s definitely not being reflected in the bitcoin price at the moment. i guess we’re in a downtrend so we just shrug off good news. but what do you think the opportunity is for bitcoin in these dollarized economies like el salvador?

Samson Mow: so i think it’s really a lifeline for them, right? because right now they’re using another country’s currency. they’re using the us dollar. and they get none of the benefits from the money printing. when money printer goes BRRRR, the bankers and the rich people in the us — there is benefit to them, right? they can have access to capital, they can take out cheaper loans, there is some economic stimulus component to it where infrastructure gets built and things theoretically should get better. but all these other countries, there’s nothing for them. there’s no direct benefit to them other than the erosion of people’s earnings, because they’re still earning dollars and they’re not getting that direct first-order benefit from the money printing. so i think bitcoin is a safe-haven for them. if they can slowly unhinge from the us dollar and anchor to bitcoin, then when they earn a dollar worth of bitcoin, they’re basically earning the same dollar as michael saylor would earn right you’re on fair and even footing with the rest of the world. so i think the potential there is really just making the world a more equitable place. and that’s what bitcoin will help them do.

Jesse Knutson: yeah i think it’s also interesting that so many different places are really turning to bitcoin for growth. so we’ve got places like everywhere from miami to texas to uruguay to panama to brazil — all of these different locations, whether municipal or national, that are desperate for some new growth in the post-COVID economy, they’re turning to bitcoin. i find that like really fascinating and could be a big driver for bitcoin adoption. and what about the lightning network? so it feels like, from my perspective — a little bit an outsider amongst insiders i think — it felt like lightning development news went slow for a long time until the el salvador announcement. so what’s going on? what is the state of the lightning network at that at the moment?

Samson Mow: well i think lightning network is still growing rapidly. like we see the funds in the network have reached an all-time high recently, but i think the technology is still not really ready for prime-time. there’s still a big barrier to setting up your lightning node and managing your funds and liquidity. so hint-hint, i think we need a new service that can fix some of that, and maybe we’re working on something like that for blockstream! but yeah i mean it’s good — el salvador has gotten the lightning network a lot of attention, and Jack Mallers has done a great job marketing what the potential is for lightning — instantaneous, almost free transactions for the world — and we just have to build the technology that can let everyone access the lightning network without having to do a lot of setup and read a lot of guides and do a lot of studying — and basically abstract away all the difficulties. sort of like spv wallets for bitcoin main-chain transactions.

Jesse Knutson: so i guess the plan in el salvador at the moment is bitcoin is basically in the background in terms of the lightning network, right? like things will be priced in us dollars to reduce the bitcoin volatility, and you’re just using bitcoin as the background tool to facilitate that transaction. is that correct?

Samson Mow: yeah at least right now. but down the road potentially there’s more applications of bitcoin. this has been in the news a bit — they could issue bonds. and part of those bonds could be denominated in bitcoin. and over a long time horizon — like five to ten years — that could be a significant benefit to the country if they did have these bonds with a bitcoin component. so that’s all tbd and we’ll see where it goes, but i believe there is strong interest on their part to do these kind of financial offerings.

Jesse Knutson: yeah. do you know what the timeline is like for them? do you know when lightning — when that will roll out and people will begin to be able to use lightning to do transactions? and when are they going to do the $30 issuance? do you know?

Samson Mow: i think that’s all coming in september when the law takes effect. so let’s see what happens. but the world is watching right now with a great deal of interest.

Jesse Knutson: Yeah it is, and i mean it’s really going to be out in the wild and be battle-tested so it’ll be really interesting to see how it how it all performs. all right well we’ve coming to the end of our segment, so thanks a lot for your time. and maybe finish off by by asking, what most excites you in all the things that you’re involved in at the moment? what do you find is the most exciting thing in the space at the moment?

Samson Mow: i don’t know, it’s all pretty exciting! i mean we’re living in very interesting times. like you said, you didn’t expect nation states to adopt bitcoin in this short a time-frame, right? that was thought maybe the next cycle. but everything around bitcoin is happening much faster than any of us anticipated, right? bitcoin is still a baby. it’s like 13 years old. so i don’t know i can’t really pick one thing. it’s all it’s all changing so fast. i also didn’t think that china would clamp down on mining, but that happened and now everyone is moving out. and i thought that would be a couple years from now, if that. so i don’t know. it’s hard to say. i think it’s all pretty exciting.

Jesse Knutson: yeah definitely it is. all right great, well thanks a lot for your time today. and look forward to doing another podcast with you in the not too distant future. thanks a lot Samson.

Samson Mow: sounds good. Thanks Jesse