402 Payment Required: a New Way for AI Agents to Pay, with Nemil Dalal, Dev Platform Lead @ Coinbase

**SPEAKER_1** (0:00)
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**Nathan Labenz** (0:31)
Hello, and welcome back to the Cognitive Revolution. Today, my guest is Nemil Dalal, developer platform lead at Coinbase, who recently co-created the X402 protocol, a new open standard designed to enable both humans and AI agents to transact seamlessly on the Internet with cryptocurrency. The protocol takes its name from the HTTP 402 payment required status code, which believe it or not has existed since the early days of the Internet, but has never been properly implemented due to the limitations of traditional payment systems. As we've covered in a number of recent episodes, AI agents are now quickly becoming more capable and reliable, such that it's no longer crazy to think about giving them modest budgets to spend on access to information, APIs or MCPs, or perhaps even to hire other agents or human collaborators to help them when needed.
However, because traditional payment systems are designed for human users, and because they balance security-related trade-offs very differently, they're often very difficult for AI agents to use, and also generally priced in a way that makes micropayments uneconomical. X402 seeks to fix that, in a way that's both easy for sellers to implement and for buyers to use. Anyone who wishes to charge for access to an online resource can, by adding the X402 library to their application, return a X402 response that specifies the details of the payment required for access. The user, which could be an AI agent equipped with a crypto wallet, can then make the necessary payment to the specified address, and then re-request the resource with proof of payment attached. Now, it's worth noting that while I have used Coinbase to send international payments with the USDC stablecoin, I'm not very knowledgeable about the crypto space in general. So, wanting to properly understand the fundamentals of this system, I asked Nemil, who previously ran USDC at Coinbase, to give me a primer on stablecoins in general. We discussed their benefits to retail users, who we are all trusting to keep the stablecoins stable, and how those actors, including Coinbase, benefit from providing these services. For some, this may be remedial content, but for me, it was very helpful. From there, we get into more forward-looking possibilities. Among other things, I was really interested to learn how crypto wallets, which can be programmed to require multi-signature approval for certain types of transactions, seem really very useful for protecting AI agents from adversarial attacks, to which they do remain very vulnerable, and more generally, for keeping humans in the loop when it matters. Beyond that, we also consider what are as yet unanswered questions. Could this be the technology that finally creates a viable alternative to the advertising model? What sorts of reputation systems might we need and how might they work, especially considering the fact that agents are so easy and cheap to create and delete? Should AI agents have to be capitalized to ensure accountability, as Tyler Cowen has suggested? Is there any way to anticipate the dynamics that might arise when millions of AI agents have wallets, especially considering all the scheming and other bad behaviors that we've seen from the latest generation of models? And what are the prospects for AI finally putting the smart in smart contracts and greasing the wheels of even local commerce by using AI models to provide low-cost resolution for offline disputes? All these are fascinating possibilities that we should all be watching closely as the agent economy continues to accelerate. And big picture, this discussion is also a powerful reminder of the contingency of the technologies that have enabled the AI wave. Most famously, the development of GPUs, aka graphics processing units, was driven for years by the unique demands of video game rendering engines. Here again, cryptocurrency, which was originally motivated by a desire to create digital money that not even nation states could control, might prove to be the perfect enabling technology that allows AIs to participate in the economy. I see this both as a reason to be humble about our ability to predict where all this is going, but also as a challenge to technologists and technology investors to invest now in the development of potentially complementary technologies that will enable the monitoring, supervision, and control of the AI agent economy. I'll definitely be returning to that theme in future episodes. But for now, I hope you enjoy this primer on cryptocurrency and exploration of how AI agents might get their first access to economic participation with Nemil Dalal from Coinbase. Nemil Dalal, Developer Platform Lead at Coinbase. Welcome to the Cognitive Revolution.