Thanks. So much for having me so, pleasure to be here to talk, to you about the. Book that I just published the blockchain and the new architecture of, trust. The, starting, point is that, we. Are today living. Through a global, crisis of trust trust. In. Companies. Trust, in governments trust in the media by. Many, measures, have. Been plummeting, the Edelman. Group does, an annual trust, survey, of people all around the world that they release at, the World Economic Forum, in Davos and, as. You see in, 2019. Their finding, was. That only one, in five people. 20%, of people believe. That the system is working for them and they found that the gap in trust between the. Elites and the mass. Population, was. The highest they've ever seen and. I don't need to tell you this in. Fact you. Might not, be surprised to know there even some people who don't trust, large. Silicon, Valley tech platforms anymore, this, is the world that we live in today so, the question is what's, the answer, well, you probably know I'm going to tell you the answer is blockchain, right. Got a problem with fake news blockchain. Got a problem with insecure voting systems put it on the blockchain, finance. Industry. Too concentrated, well we'll just blow it all up with blockchain, now. About, a year and a half ago when, I was writing this book and we. Were in the midst of the, Bitcoin. And cryptocurrency, bubble. There. Were a lot more people speaking. In these kind of high played in terms saying, okay blockchain, is the solution whatever, the problem is now. With, the subsequent cryptocurrency, crash, and the fact that many. Of these predictions have, not materialized, as fast as people thought now. There's a great deal of skepticism I run into many, more people saying, is this real at all was. This all just hype, is there anything that, blockchain, is useful for and, so, what I want to talk to you about is. Getting beyond, the hype, beyond. The, sort. Of wild. Promises, that suddenly, the world is going to be transformed, because we have this technology, but. Also appreciating. What the real value proposition. Is I. Worked. Twenty, odd years ago at the Federal Communications, Commission on internet, policy back in, the 1990s. And back. Then there, were a tiny number of people on the internet all. Dial, up over, the phone network almost, all in the United States and yet, those of us who were online, them, those of us who were engaged in figuring out the legal and regulatory issues, were, totally, convinced, that the, internet was going to change the world and, yes. We, all got ahead of ourselves in. The hype and excitement we. Had a dot-com bubble, back at that time, but. The reality is the internet did change the world it was true that this was a fundamental. Technology, advance that, today of course has, swept. All around, the world and.
Blockchain. Gets. Me excited because. It's, the first basic. Technological. Change. That I've seen since, then that, has the potential to have a similar kind of impact now I'm not saying necessarily. It's, going to or not make any predictions, of when and how exactly but. It's a very, basic change, to. The way that we do business and. The way that we build networks, and systems and. So that's why I think it's interesting and, we're thinking about the applications, even. If we get away from the expectation, that everything's going to change tomorrow and the. Reason that I think it's such a basic change is that, what's, important, is not ultimately. Bitcoin. Or cryptocurrencies as, a new investment vehicle, or is a new form of money or. Any, of these particular, implementations. Today what's important is really something much deeper it's. About trust and. This. Is not just me talking if you go back to the original Bitcoin, white paper released. By some. Person, or persons, going by the name of Satoshi, Nakamoto, about ten and a half years ago on the, cryptography, mailing list this, is what Satoshi, said, is that, he or she or they were doing that. The idea, was, to create a system, for transactions. Without, relying, on trust now. That seems a little strange right without relying on trust, basically. The argument was that Trust is the problem, the. Problem is that we need trust, traditionally. And so, the promise was, crypto. Currencies, and other blockchain, systems, can, be trust lists that, we can have transactions, without having to have any reliance, on anything trusted, and the. Contention that I'm making. Here and that I make in the book is, with. All due respect to Satoshi that's. Wrong that's. Not actually, what Bitcoin did it's not actually what the blockchain does, it doesn't eliminate trust I mean how could it why. Would anyone find. Something, like a cryptocurrency of any value at all without. A level of trust yes. The technology. Enforces. Scarcity. It, ensures that you can't easily double, span the same coin but there are many many things that are scarce and still. Of limited value, value. Comes from people collectively, believing, that there's value being willing, to take, something and use it for something of importance. So. Trust never fully goes away and, for. Some evidence of this you. Might ask the, customers, of quadriga CX quadriga. CX is the largest cryptocurrency. Exchange, in Canada or at least it was earlier this year about a hundred thousand, customers about, two hundred million dollars, on deposit, for.
This Exchange where you could buy and sell crypto, currencies like Bitcoin and, heathyr and so forth and quadriga. Announced, earlier this year that its. CEO Gerald, cotton, had, died, while, visiting, India, a couple months before and, then, they said what. We're very sorry he. Had the only key. He. Had the cryptographic private. Key to all of, the crypto on the exchange they, said there's one cold wallet, that has all of your money and our. CEO had the key he's, gone we can't find it, that's. An awful lot of trust right. Think about it if you went to a bank and they. Said okay we're gonna take your money watches we'll put it in the vault here we're, gonna close the vault and the, bank branch. President. Has, the key and, if. She loses the key we can't open the vault you'd. Never put your money in a bank like that that's way more trust. Than anyone would have in a traditional financial institution. And yet, users. Of quadriga CX had that trust now. Turns. Out the story is much crazier, than that people have done forensic, analysis, of Bitcoin. And a theory and blockchain there. Actually is no cold wallet, the, money was, siphoned. Off over. A period of several months sent. To various money-laundering. Sites and other ways to obscure the trail of it this was a Ponzi scheme basically. That. Was essentially, taking, people's money and yet the point is people. Were, willing to, use that exchange, to hold their assets now. Quad Regas in exchange it's not a blockchain itself. It, works with the crypto currencies, that are verified, on the blockchain but, it's a centralized, service it takes custody of people's keys and manages. Them but, think about it what's. The population, that. Would be the least likely, to trust, a centralized, financial, institution, to control their money its crypto, investors, right these are people who, are excited, about their. Early adopters, of this technology, because. It seems to be trustless because they don't want to trust the banks and trust the government and yet, we know from studies, that 80% of, cryptocurrency, users. Put. Their assets. In a custodial exchange like, a quadriga, CX now, most of them are much more legitimate, companies, like coinbase and, Polonia X and so forth here but, people are willing even if, they are believers. In the potential of this technology to. Trust, a custodial, exchange so what does that lead us to what it leads us to is that blockchain, is not the end of trust Trust doesn't go away it's. A change in the structure of trust what I call the architecture. Of trust because. It turns out that there are different, ways that trust manifests, itself, in the world Trust is not an either/or it's not either, you trust something or you don't there, are traditionally, three forms, of trust. The first one is peer-to-peer trust, so you have a trust, in a person, that, you've done business with maybe trusted a family, member a longtime, friend and companies. Can have peer-to-peer trust, companies that have worked together for. A period of time have a relationship, will trust in each other and that's, why if, your brother comes and asked you for a loan you're. Probably not going to request a credit report before, you give him the loan I don't know all of your brothers but, generally. If you trust someone because, you've got a relationship, you're. Willing, to not just focus on the. Formalities. Of whether. They can be, trustworthy, same is true among corporations, we see lots of examples where. Even, though companies have contractual, relationships, that specify performance, the, relationship, matters and the, ongoing relationship. Matters and so they allow the contract. To be varied under some circumstances. In the interest of the long-term relationship so this is a very powerful form of trust but, it's limited it's, peer-to-peer doesn't. Scale very well to. A large, global, and personal economy second. Form of trust I call Leviathan, in the book this comes from Thomas Hobbes 17th. Century English philosopher, and Hobbes, point was that we often, enter into trusting, relationships, because. There's a backstop because. We can use a legal form a contract, to. Specify. The terms of the relationship and if, someone breaches a contract, if I give my money to a company and they go run off with it I can, sue them I can. Bring them into court I can use the power of the legal system to, enforce, that agreement and, the, legal system is an arm of the state so I can actually use the, government, which, has the power to throw people in jail among, other things to. Enforce, my private agreement and what, that does is it actually facilitates, trust in those private agreements you hope you never will have to sue and go to court but, knowing, that that's there is a backstop.
Facilitates. These private, interactions, problem, there of course is you have to cross the government and you, have to go through the legal system now I'm a lawyer so I think laws are great but. Even I can admit that the. Legal system is slow its inefficient, it often gets things wrong that's, the limit of that form of trust third form of trust is intermediary. Instead. Of having to trust each other directly, we, trust some central, actor some sort of institution, in the middle of the network and. This could be a bank or an exchange or it could be a large, digital platform. That, provides a great deal of value and. The trouble with that form of trust of course is there's that intermediary, in the middle which. Has to be trusted. And gains, power by virtue of being in that point in the network so all these forms of trust still exist today are still relevant and important, but they all have this limit that there's something that has to be trusted, so blockchain is a fourth architecture, of trust it's a new structure. For how Trust manifests, itself and, what blockchain, Trust says is that you, can trust something very specific you. Can trust the, history, of transactions. Basically, the the state of the ledger, without. Having to trust any particular. Actor, to, verify that information you. Don't have to trust a bank you have to trust a government, issue or currency you don't to trust some validator, that's, saying yes this is accurate you can trust the state of information. The cryptographically, signed audit, log without. Trusting, anything, in particular and, this works through a variety of different technical, mechanisms, known as consensus, Bitcoin used. A particular one called proof of work but. There are a number of other variants, that make different kinds of trade-offs here that all have, the feature that, they, allow a level, of confidence, that everyone, has their own copy of information, but. You can be confident, that everyone is seeing the same thing you're not copying, from some central, master, but. You can believe and. Verify. Based. On the underlying math, and cryptography, that. What you are seeing is the same as what everyone else is seeing so you can trust that information without a central point of trust an, important, element of that is it involves, immutability, so. It is very. Difficult and ideally, impossible. To. Change the ledger it's a write-only, database. Because. If anyone, had the power to reverse transactions, if there anyone who could say that. Transaction. Happened, but, now I'm going to send it back maybe. It, was a mistake, maybe, there's some problem, with the transaction we, all agree let's send it back if anyone had that power, you'd. Have to trust them right you'd, always have to believe that, no one used, the, to, reverse a transaction, so in order to trust that what you see on the ledger is accurate. Without, having to trust in you in particular you have to believe that those transactions, are immutable all, right so that's basically the essence of what blockchain, trust is what's, a good for why. Would you ever need a blockchain, and service. We can ask, an, illustrious Googler, vint cerf then. Put, up this great tweet. Last, year with, a really simple flowchart saying, here's, how you decide if you need a blockchain look. At the flowchart doing, it a blockchain know, and Vince.
Right, There. Is nothing that you cannot, do. With a traditional, database. That you can do with the watching it's just another kind of a database so. There's never a situation, where blockchain, is the only mechanism to. Do a certain kind of function now there might be certain things you want to do that, require certain conditions, that that blockchain, is, necessary. For but basically for the application, you, never actually need a blockchain now. Fortunately, Vint. Actually said some nice things about my book so unless do you think that you, should get up now and, not be interested in this my, point is even though, we. Can agree that, blockchain. Is not a solution, to every problem and, not necessary, there, are still, many. Contexts. Where, it actually has value where. Even though you don't absolutely need a blockchain you may want to use one two. Basic, categories there, one, is situations. Where there's too much trust now again not that trust gets eliminated but trust can be minimized and, part of that is simply, for security, reasons anytime, there is a trusted, entity it's. A point of vulnerability it's, a single point of failure so even if the entity's trustworthy, there, are security reasons why you may want to use this approach but. Then there are many situations where, the concern is that the trusted agent is not going to be trustworthy that's some of the examples that I've given you already where. We may want to have a system where we don't have essentially, a monopolist, in the middle of the network if, you are a central, hub of trust you, have a cent of it set of incentives to, maintain, your control over the network as opposed to doing what's necessarily. In the interest of everyone on that net. And finally. When, you have these central, islands, of trust there's, not one, trusted, entity for the whole world so, what winds up happening is, that where there are these central central, points of trust many. Applications, require them any of them so think about sending, money around the world even, inside a company if you're a multinational corporation you've. Got money in your Treasury in Kenya, and you want to send it to your affiliate in Canada, you can't just do that directly because.
There Are multiple central. Points of trust involved you've got to go through central. Intermediaries. Through correspondent. Banks, through, intermediaries, that create liquidity across. The currency, pair so, you wind up having delays, and costs again even if you're just moving money internally. Across borders, so, that friction, that comes up from the intermediating. That Trust requires is something, that potentially we, can overcome by, using one. Shared, blockchain, ledger second. Category is sometimes. It's not not enough trust so. Pretty much any time multiple. Companies have to work together which, is of course almost, any kind of business, transaction you, can think of there's. A potential gap in trust so. You've got a buyer and a seller even, in a simple one-to-one situation they. Are each going to want to keep their own set of Records and when, you multiply that out across let's say a supply, chain and you've. Got a manufacturer, that wants to ship products, around, the world they. Have their own records, they, contract, with a freight forwarder has, their own set of Records they put something on a truck there's a trucking company there's, a port that it's clearing customs as a shipper, and the whole thing repeats on the other end and if. Something, goes wrong the, products don't get to where they belong then, there has to be a reconciliation project. A process. By which all the parties say well my records say I put it on the boat but, my records say it didn't get there what happened and, this leads, to tremendous fragmentation. Because, sometimes, there were errors sometimes. There, are problems, in this process, so we get a tremendous amount of inefficiency, multiplied, by all the transactions, that happen in the world because. We have all these multiple, islands. And they don't connect up and something simply don't happen sometimes. Companies, may want to work together. But they don't trust each other and they're not willing to give up control to, one, central. Intermediary, platform, so, the activity, simply doesn't happen, the idea with blockchain, is a shared source of truth the. Idea is once the information gets on the blockchain then. Everyone, can trust in the information, that they're seeing and it, potentially, eliminates, all of this massive duplication it. Also means that the, state again is just reflected, on the blockchain so, instead of having to have auditors, come in and pull data from all these different points and reconcile. Them you, can directly audit the blockchain itself, or, potentially, regulators, can come in and use the blockchain itself, as the, canonical source of information and, finally.
Once We get to these shared, platforms. This again becomes the new base layer this, becomes, the new connectivity, layer it's a decentralized. Platform. That, then can be the foundation for decentralized applications and, so this is the vision of these so-called, smart contract, platforms, like aetherium, and many of the other block chains coming after the, opportunity to actually create a decentralized. Computer, using, the blockchain technology, and have application. Functionality, and other higher level functionality written, on top of it so, that's, the potential that's what's. Good about this. What's. Not to like what's to worry about well a great deal because. Again the fact that you can trust the blockchain itself, trusts, the ledger doesn't, mean you can trust the whole system and in fact we see all of these cases where. This technology gets, abused or used for, very, problematic, untrustworthy. Things still. Today one. Of the if not the biggest use of crypto currencies, like Bitcoin for, actual transactions. Is people, who wanted to illegal things money. Laundering, illegal, drug, transactions. Terrorist, financing, and so forth the New York Times recently collected, some data with an analytics firm showing, that those kinds, of dark market activities, are still a huge, percentage, of what, people are doing with crypto currencies because the money that we have works pretty well and it's, already pretty digital, for, doing basic kinds of transactions, it's the people who want to avoid the accountability, of that system who, are some of the earliest adopters of this technology and then, you have situations like the quadriga situation, where the basic transaction, is a legitimate, one but, you can't trust the people on. We saw this with icos initial, coin offerings, raised 20 billion dollars in about, a year and a half in 2017, 18, huge. Percentage, were just out and out scams, now again the the blockchain the crypto currencies, were, valid. In the sense that you, were accurately, getting, a crypto, currency token that represented. Some, share, of the available tokens on that prospective application. But, that didn't show at all that, the person selling you those tokens was, not going to basically run away and take all the money Wall. Street Journal did an analysis, where they looked at major. Initial. Coin offerings, 20. Percent, of them were. Obvious, fraud literally you read the white paper it, was clear this was a scam and yet these things raised billions of dollars so, this is a huge problem again the fact that the blockchain is trustworthy doesn't. Necessarily mean that the system is and it's not just true of the open, public block, chains like Bitcoin, and etherium there's, a whole other world of, what are called permission, block chains being used by enterprises. Where the system is decentralized but. You have to get permission to access the network not anyone, on earth can, join the, network, which. Makes the consensus, process a lot simpler and you would think okay well there we don't have any of these problems of, trust, well, it turns out that we do, PwC. Did a survey several, months ago of 600. Executives. Around the world involved with blockchain, projects, and they, asked them what's standing in the way of adoption. Well. You see here one, of the most significant, people. Don't trust each other people. Don't trust each other well I thought the blockchain was about getting rid of trust well no it's people, don't trust each other again you, might be confident, in the ledger but how do you trust the other participants, in the network what, are some of the other things that they said well the number one was. Regulatory. Uncertainty, law. The, legal system, is something. That people want to believe in standing.
Behind These systems and the, next two the other significant, ones were, basically about governance about. How the blockchain, networks. Are constituted. How they are formed how they work together and, interoperate, with other networks, these. Are, the, elements. Standing, in the way of, realizing. The of this technology so, in my book I talk about this on two levels first of all I talk about what I call Vlad's conundrum, Vlad's an fear is one of the key developers. Of aetherium, and. He, points out that there seems to be this tension that. If we use, blockchain. And these immutable, smart, contracts, for, transactions. It seems. To make it impossible to use law, because. If we, have a transaction, that is recorded immutably sending. Money to a terrorist, group the fact, that a government, comes in and says you can't do that that violates, our sanctions seems. To be immaterial. Because. The transaction, has already happened and no one has the power to reverse it, similarly. You. Can create a decentralized. Application. That, is a decentralized, prediction market a place where you can buy and sell, belief. In predictions, about future outcomes. And this is actually something widely, used and studied in, companies, people use it to predict the outcomes of elections and so forth you get skin in the game the prediction market produces, valuable. Kinds, of outputs and a kind of wisdom of crowd sense but, the problem is running a real, money prediction, market is illegal. Today or at least is very strictly, regulated because, essentially, it's a commodities, exchange it's really no different from the regulated, futures exchanges, that are available to, investors, and it, creates an opportunity to do things like create a prediction, market on whether, the President of the United States will still be alive in a year and that. May be intended, as something totally legitimate, but it's functionally, identical to. An assassination market, on the, life of the president so, what, do you do to stop that well the idea is well it's immutable nothing. Can stop it so Vlad's argument, was I guess we have to choose either. We have law or. We have blockchain, and that, doesn't sound terribly, satisfying there's, a similar, problem with regard to governance. I call this Villas paradox, Vili later on Verta is. An economic, sociologist, at the Oxford internet Institute, he. Wrote about something called the Dow incident. The Dow was a decentralized. Crowdfunding. Application, built, in 2016, on the etherium blockchain, it's, like a Kickstarter, or an IndieGoGo, but, totally, created, as a decentralized, application, you've provided, ether. Cryptocurrency, you. Got that token, you could vote those tokens for, projects, the application, provided. Account. And the, ones that got above a certain threshold would get the tokens to, be able to use the cryptocurrency for. Building their application, or their project, and then, when they hit the milestones, they would contribute money back which would then go back to the people who voted and. The problem was this, exploded. In popularity raised. 150, million dollars, worth of ether in about three weeks in 2016, which at the time was. A very significant. Percentage of all of the cryptocurrency outstanding. And then, very quickly someone. Found a bug in the code they, were able to exploit, a fairly, simple. Programming, error siphon. Off about 40 percent about 60 million dollars, to. Their own account this was clearly a theft so, someone's stealing people's. Money and yet. It was an immutable transaction. The, smart contract didn't know the difference the blockchain itself, the, application. Codes it up yeah this was a legitimate transaction. So, there was no way to, say give. The money back so what, had to happen was, the whole community, not just the people involved in the Dow but the whole aetherium community the miners, the coders had. To get together and, decide what to do because, this would have undermine trust, in the whole blockchain, the, fact that all this money got stolen so quickly, would have probably killed off aetherium so, ultimately through, this very kind, of confused. Process. The. Etherium, foundation. Agreed to do a software, upgrade they. Got enough of the miners, that were, validating. The blockchain to run the software upgrade to, four kathiria, not. Just to blow up the Dow but to actually break the entire blockchain, into into. Two crypto currencies, one is called aetherium one, became called aetherium classic, and the idea was the, new aetherium, would reverse the hack money, would go back and then it would go forward and the hope was the second chain would just die off didn't.
Die Off some. People wanted, they believed so much and immutability they picked up and started mining that chain so that's still there as a theory am classic, worth, a lot less than a theorem but still out there so, this, is the back story and Billy's. Point is this, was governance there, was a problem there was an unexpected challenge. That someone, was able to steal, all of this, cryptocurrency. And, the. Community came together and made a decision we're, going to do this fork and he says that's great but. It's centralized, governance it's. No different, from saying the, executives, of a company or the, large. Holders, of cryptocurrency the powerful, leaders, of the community made. A decision so, what he says is well there's nothing new here if you have governance, you, don't have this decentralized, blockchain, technology, if you have something truly decentralized. There's, no governance, so, these are really the. Same problem, the legal and the governance problem, and the, answer to both is the same it's. Not either/or, just. As I said Trust is not either, you have something that's trusted, or not decentralization. Is the same way decentralization. Is a parameter. You can have systems that are more or less decentralized. Along, various, axes. And there's, value in making these decentralized, but there's a trade-off there and the, reality, is that systems. That, strive for widespread adoption system. That want to reach the mainstream, want, to be easy to use and convenient, are going, to have to trade off some element of decentralization. It's just inherently, harder, to, build systems that operate like. Today's, massive, centralized. Systems if you, decentralized, everything, and that's the reality of what actually has, been built and it turns out that it's possible, in most cases to. Find hooks, for. Legal enforcement, and mechanisms. For governance, so, we've seen even. Applications. And exchanges, that are built to be decentralized, ones, that are not custodial, like quadriga that are basically just an application, it turns, out typically there's a developer, behind it there's, some centralized. Element, of this network and it's possible, for legal enforcement to happen so this is what we've seen with shapeshift which is a decentralized, system, that, basically didn't, require any identity, you can go put, in your ether and convert it to Bitcoin without, having to identify yourself, they, had some conversations. Apparently, with law enforcement that said we care about money laundering banks. Need to ask who you are they, need to understand the source of your funds they have to check to make sure you're not sending it off to some terrorist group or sanctioned State and you, need to do that too because, your handling money it's the same problem and even. These decentralized. Systems, are generally, gradually. Coming into compliance now it's a long process, it's imperfect, but, it turns out that even though you can build something that is theoretically, totally. Decentralized, it doesn't, get used as much we, see this similarly, with, privacy, protecting, coins there are technologies, like Z, cash Amman arrow and grin that are deciding, to be harder, to trap than Bitcoin and yet.
You Would think that that's what all the criminals would use it's, not what the criminals using criminals. Just use Bitcoin well, hi much, more liquidity much easier to get much easier to use much easier to spend so, even though there is some degree of arms race here it's not that everything automatically, moves to the hardest to track option. And. So, we're starting to see evidence. Of. Ways. To, leverage, the, value of the decentralized, technology while. Also being legally compliant block stacks the company that's building a decentralized. Platform, really a new internet a whole, framework. Of layers for decentralized applications, they. Are doing what's called a regulation, A+, token offering they're doing something like an ICO but. Legally, compliant using, a framework, in the u.s. that was created for equity crowdfunding systems. So, getting, the benefit, of being able to offer cryptocurrency, tokens, the kind of liquidity that, that gives you while. Still fitting into the existing, system again this, is taking time it's imperfect but, we can see a pathway for this to happen, there. Is also a role for technology though, and. This is really the answer to Billy's, point that you can't do something that really is governed and still be decentralized the same kinds. Of mechanisms, that can be used for consensus, on the blockchain network, can. Be used for, governance. So it's possible in their systems like kaizo sandy cred that, are setting up decentralized, voting systems where you vote your cryptocurrency, in a situation, like the, DAO attack, if the. Community agrees that the. Blockchain. Should, be edited to reverse a transaction, if enough, people vote, and agree on that it's the consensus, of the community that can be automatically, implemented, there, are systems that also create hybrids between legal enforcement, and the technology, of smart contracts, so, Ricardian, contract, is something that base he says it's a human written legal contract, specifies. The terms of the parties and there's, a code, based, software. Based smart contract, that exists as well and they're, tied together there's. A hash of the. Human contract, in the blockchain so, we can verify that's the correct human contract, to deal with situations where there's not, specified, outcomes, and the. Human contract, says the smart contract that controls is here at this address and the blockchain so, anything that can be done through, the smart, contract system it gets done that way and if there's a problem it can be kicked out to the contract or even to a decentralized. Arbitration, system based. On the cryptographic keys, using what's called multi-sig, technology, to, be able to decide through either centralized, arbitrators, or even through a decentralized. Incentive. Based kind of computational. Jury system so, there's a whole bunch of these, systems. Being developed again, still fairly early still. At the, prototype. Stage or, at the early. Implementation. Stage but, they have a lot of promise just as we've been able to see that the, blockchain, network, itself based on the cryptocurrencies can remain secure, for, a long period of time it's, possible, to think about these systems ultimately, addressing. These governance, challenges. Ultimately. The, reality, is that these. Are systems, that need governance, because that's what they do right. What makes a blockchain trusted. Is there's a sense of legitimacy it's. Not just that you can go in and look at the code and you can be confident, in the level of security in the cryptography.
Again. It's like why people would use any crypto currencies, because they're willing to trust it and. Consensus. In the. Blockchain sense, is not necessarily. The same as a majority. Vote you, can have a majority vote or not of consensus, you can have a 95, to 5 vote and not have consensus, because the 5% are not willing to agree consensus. Means after, that process happens, everyone. Thinks it's legitimate, everyone. Is willing to basically go along with the result of the majority and that requires. A variety of different mechanisms so. We have these different levers we, have the lever of legal, enforcement we, have the lever of cryptography, to, make, things certain. About what their outcomes are and not easy to reverse we, have the. Lever of. Economic. Incentives, self-interest. Game, theory, to, be able to push people to behave in a certain way without. Necessarily forcing, to them too but in a situation most people will not take the action that's economically, destructive, to them and we have the lever of trust Trust. Is still relevant, here, and it's something that emerges. From activities. Of systems where people are confident. Sufficiently. In what's, going on because, ultimately these are still human systems the. Blockchain, uses, a lot of technology, but the technology alone is not what makes it successful. It's, the confluence. Of the technology, with communities. With, values, with, processes. And with, a history, of people, seeing, that this works and it. Achieves the goals that they have and. That relates, to the very nature of trust Trust is not just confidence I can, hold a gun to your head and be very, very confident, you're going to do what I say doesn't. Mean I trust you right, it's the opposite of trust it's only because I don't trust you that I want to take those extraordinary measures Trust, requires, a, fusion. Of confidence, with some measure of vulnerability. But. People are willing to take a leap of faith people, are willing to trust and do something, even if they are not certain that's, what trust means and it's possible, to get there with this technology, but. Only by, coming, up with systems that use, human, mechanisms. For what they're good for and use the technology of what it's good for so we, are still fairly early in this process I am. Very, excited about the technology and, its potential there, are some early low-hanging, fruit examples, the ones that are going to be, maturing. Faster and adopted faster are the ones that are more incremental if you want to use a cryptocurrency, for.
A Traditional financial trading application once. You're sure that it's, a repository of value that it works like money you, can take it to wall street they'll securitize it and make it tradable they know how to do that that's not revolutionary, it's valuable it's useful the, things that are revolutionary going. To take longer the, fact that we had this huge upsurge, in, price, of cryptocurrencies I think trick, people into thinking we're further along. But the endpoint is still there the potential, is still there and we're at a point now where many many organizations, are looking at how this can be useful ultimately. As with anything else it's about fitting the technology, and the application to. The need and to the problem it's trying to solve so that's where we are today we, are exploring the, map there. Are many different, solutions here, for. Example trading, off some measure of decentralization. For some measure of performance or some other value there's not one right answer, but, what needs to happen is, experimentation. And implementation. To, find the solutions, that solve the real-world problems, that's the the point that we're at today, I'm, excited, about where this could go because there's so many situations where. Either the gaps in trust or problems. With, untrustworthy. Entities, are so, significant. That this is really a technology, that we need at, some point so thanks very much we'd, love to take your questions. And. Your experience. On constructing. This book how how do you feel the digital asset market will evolve over the next decade, or so, well. Part of it depends what you mean by the digital asset market so I think, that. Really. The the market, of people that are treating these as financial assets that. Are saying again this is a different kind of money and just as we can trade stocks and bonds and any other kind of synthetic financial, asset this is a new asset class I think that's a real thing and. I think that's going to evolve fairly, quickly because. It just has certain, benefits, if you have something that's truly digital, at a, native level, and. It's inherently liquid, in a way that traditional financial assets aren't you can have a lot more volume. And something that's much more global than, traditional, assets so I think in the near term you're going to see traditional. Wall Street players. Saying. Ok we know what to do with this and. Building new kinds of derivatives and. New kinds of financial products based on it I think, the potential though is really going beyond that and so I think the next stage will.
Be For example using. This for, global. Financial transactions. For, financial inclusion they're. A billion, people in the or more that are unbanked and it's, not a trivial solution to use a cryptocurrency for that but I think you know there is potential, there if you, build out the systems on the ground so, I think that that'll be the next stage is, seeing this use for different things but. There are so many, financial. Products, today and so many assets that. Could be tokenized, any. Physical. Asset like real estate in theory could, be turned. Into interest, in cryptocurrency, tokens, that, can then be recombined, in new ways so. I think we'll see a steady, stream once, we get over the initial regulatory. Hump and that's that's really what's happening over the next couple of years here. And other jurisdictions, saying. How do we create for example a regulated exchange, where you can avoid the kind of quadriga CX problem, and know that if the one running the exchange is, basically running a Ponzi scheme that, they can be stopped or have to provide redress once we get over that hump then I think we're gonna see a great deal of adoption there, are obviously many public, policy applications of this whole straighted technologies, but even, going back to the earliest days of blockchain, one public, policy application, that never occurred, to me as. Map petition and so on was the environmental. Impact of some of the pre-op state systems yeah what are the most interesting insights you've learned from talking to a stakeholders, and what's your best way of communicating what you think are. You. Know is it were you or how do you how do you yeah. So environmental, impact is a huge concern and I didn't really talk about it but you know the proof of work system in Bitcoin requires. Huge, amounts of wasted computation. Huge amounts of energy usage. You. Know by some estimates, crypto. Currencies use as much energy as a small European country today and and, in an age of climate change obviously that's a huge concern there.
Are Many other concerns about that, proof-of-work mining system its potential, for capture, by certain actors and so forth so. My, sense is. We're. Going to have to get beyond that mechanism, because. The energy, usage isn't the point the point is to make it somehow costly. In order. To essentially, compete in this lottery to be the one verifying, the next block of transactions. And. There's no inherent reason why we, need to use solving, these hashing puzzles as the way of making something costly. The, problem, is the, alternate, mechanisms, which are basically is game theory mechanism you stake your currency and you're, at risk of losing it which which you know in, theory is the same thing there's, all sorts of problems in ways that can be exploited but. You know none of them seem to be fundamental, showstoppers, and, so I tend. To think as this, gets more mature. The. The fact that there are all these problems with the mining process uses, so much energy I think it's going to increasingly be a drag there's a you know it's an opportunity to make money and do interesting things to optimize it in the near term but we're already starting to see this we're seeing China which is the source of most of the mining activity, Chinese. Cities. Are starting to cut off the cheap electricity they're, giving to these miners because initially they were saying oh great its economic activity, it's technology based in China now they're saying wait a minute why, are we giving away all this electricity to people who are just using it to burn up for, something unproductive, so, I think we're going to see that kind of pushback over, time well. You know consider the gap between proof of work and proof of stake is indeed. Exactly as architecture of trust problem because there think about energy consumption, it's almost like a theater, of Ebla and sort of conspicuous, consumption thing where the waste is the point yeah because, it's one of the few things you're gonna remotely validate, that the other person did like shoot yourself in the foot and give me a pound of flesh for a pile of gold or a pile of blood the blood I can verify in this case the energy or the heat death of the universe you've accelerated, but, some shooting effort a piece of steak invariably. Involves now many many more forms of calculation so I worry that some. Of the things that are most elegant about the, math I get people excited about it are indeed, on the proof-of-work side, and that, people have to realize that proof of steak is not just a I different blockchain, it's a all. The math you've talked about here something rethinking your kind of trust yeah that's where the trustee says yeah so, you, know in some ways. Bitcoin, is perfect, in, that in that it works right. There were many many other previous. Attempts to do deep digital currency and so forth and this was the one that took off because. It's this elegant, diffusion of different things and. And the approval work actually is, successful.
To Keep this blockchain, secure. For all this period of time the, problem, is it's, perfect, for a very limited set of applications, so again, what is the situation, where, you're willing to trade off all of those energy, costs and other problems with that system there there are some my. Guess. Is they're. Relatively. And that, most of the activities, even just the the basic transactional. Activities, so we're already starting to see this where it's, impossible to, scale Bitcoin, to, what you need for retail transactions, and that's and that's part of the system that it does all this massive duplication and, waste but. If you want to use it for transactions, so now they're building systems like lightning Network these second layer systems, but that trades, off against some of the decentralization, of Bitcoin so. I my sense is I don't think bitcoins going away I've. Called it a cockroach, and in a positive sense it, works for what it does and. And I think there are some things for which that may be the. The best solution. But. I suspect that the. You know the the costs, are such that that you're absolutely right it's. Going to be harder, and take more time and more things to overcome to. Translate, out of what what is successful for proof of work but. I just think if we are going to see and look I'm not, a perfect predictor of the future I think we it's possible, that, that will prove to be a much harder hump to overcome. But. Then I think that will constrain, the adoption, level of these cryptocurrencies. In. A different vein obviously. In talking to policymakers, we've had several years of kind of bits planing going on what. Are your favorite useful, and more probably amusingly favorite useless, analogy, as you've seen the history trying to explain this and not always like what, do you think will be dominant. Paradigms that policymakers bring to it. Yeah. Saying you can't generalize across policymakers. And you know just as an editorial comment you know I hear so many people saying well that you know the regulators, don't get it they're inherently slow, and, they're they're just a drag on this and the reality it's one thing you want regulators, to be slow you, don't want a regulator.
That's Great I get it I'm gonna do something now based on you know some presentation, that that someone gave me for. Half an hour you, want them to think about what, is going to be real here what's going to endure what are the real problems, and. Then how do we match that up with what we're trying to do no. Regulator, or policy maker wants. To stop innovation, I worked at the FCC there, was no one who went into that building thinking. How, can I prevent the internet from, helping people know, they were thinking how do I protect people how. Do I deal with problems, how do I promote cop, titian how do I protect people's assets, and intellectual property and, you know the consequence, of that may have been negative but but that's what policymakers want, and so policymakers, want to understand how. Do we facilitate innovation, while. Protecting what we need to protect and. You, know I don't think there's any perfect. Analogy. What, I find in talking to policymakers and I work with a lot of them is. Again. You have to get beyond. The. Hype and the people. Who, you, know for whatever they say are, just, like woohoo we're gonna get rich, you. Know and the people who say and policymakers, are evil, and we, will measure success, by, the extent to which we can do something that circumvents, the government there. Are people out there who say then I think that's terribly counterproductive. Once, you get beyond that and you say well no look here's it here's a real-world use case here's. A situation I like talking about the you, know there's there's people building decentralized, insurance products. They're. Going to Sri Lanka where only 11,000. Of 800,000, farmers have crop insurance so, all the rest are at risk of being totally wiped out and the problem isn't that there aren't insurance companies and it's not that none of the farmers have capital it's, that there's all these trust gaps getting. From the farmer to someone who's gonna sell them a policy, they're gotta trust that their money is actually gonna get deposited in the right place they've, got to trust if there's not enough rain or too much rain they're actually gonna get paid out you, can do that in an application you. Can do that with smart contracts, in a way that's much more efficient there's actually companies doing that creating, platforms to do that, so. That's an example where again, a policymaker, can understand, the value proposition, even if they don't buy, that particular application so. Again that's why I talked about trust cuz they they understand, the Trust is something valuable, and. They can relate to it so. Facebook, just made some announcements about blockchain at, effaith so. This is kind of interesting it's like a centralized, figure approaching. A decentralized, system wondering. If you see like changes. Happening. Now with blockchain, the, trust elements you have a big player entering, this, market that historically, hasn't had trust so, wondering how you think about those dynamics, and as you talk, about international, finance or, probably. All the current. Cost, of doing international. Transactions, it feels like that's my would be where Facebook. Is thinking, about so to, the extent you can talk about where you think it's headed yeah, so I don't know exactly what Facebook is doing but we know the various reports about what they're doing this.
Gets To my point that that the trust and decentralization, aren't either/or, there. Are many large, established. Players that. Are active, using. This technology in. Fact just, about every. Major, company in, the world has. Some sort of experimental, project, who, are using this technology and. You know and Facebook reportedly, is going to use this as basically kind of an internal, payments, loyalty, point system because, it turns out that even within organizations. There are these gaps in trust and there, are these these sort, of problems, that you've, got multiple sets of Records when, you've got multiple entities coming together so, I don't think, that people, look at that and say oh my god the the whole point of this was to kill off the Facebook's of the world well know that there, was no point of this this. Is a technology that has various, kinds of uses and it's going to get adopted by different players. So. I think it's important not to be religious, about it what. Facebook is going to do with it is very, different, from what someone's, going to do creating, ad central if you want to create a decentralized, social network, on. A blockchain, that, would be a competitor, to Facebook and. So I think it's you know it's a matter of appreciating. If. They can do what they want to do a little bit more efficiency, efficiently. They're going to use the technology, if they can't they're going to abandon it but. I think. It's less. Novel. And surprising, than people want to make it out to be it's. Just another example of a company that you know and they looked around you know they got interested in this they staffed up a group and. You know and they figured out okay here's an initial application. That we think will solve a real problem that we have I don't know if they'll succeed, but. I don't think there's anything yeah really legitimate about that, where. Is blockchain. Not being utilized that, you feel was a missed opportunity. Ha, it's a good question. So. So the. Short, answer is whatever, I say there's probably an example where it is being utilized there. And. So. You, know I think there are. They're. All categories. Where it is being utilized but. It's not being utilized everywhere. So. For example there are many government, potential. Applications, where. Governments. Engage in record-keeping, so, there's some implementations, for example using blockchain for land title for, recording ownership of real estate the, real potential. Is. Basically. Using a blockchain type, system for identity, so government. Grants. You your, birth certificate or. Social security number in the US they basically provide this record, of your identity which is then the foundation, for, all the services that go on top of it for lots of private activity as well and. That's. A centralized. Set of Records and, then we have all these privacy issues when your security social security number gets out somewhere, that. Can be reacted. On a. Blockchain platform. Using what's called a self sovereign identity approach with the ideas you control your identity, you. Can have something that's recording, information and, you can have queries, where someone can make a query, for, something is this, person, over 18 because they want to buy cigarettes did. This person graduate. From the college that they put on their resume or not and. There. Can be an actor that has that information and, says yes, without. Actually. Having to transfer the information back, and forth to. Basically do what's called a verifiable claim, without, exposing. The data itself, to privacy, concerns and without centralizing. The data in one place I think that's something huge. That governments, can do that, will be a foundation. Both for a lot of social benefit as well as a lot of economic, activity, there's. Some experimentation, going on there the the standards, for self sovereign identity systems are still being developed but, I think that's that's probably the biggest. Opportunity. That. I think we're just starting to see it but I think it really could be the most transformative, great.
Thanks, So much for coming. You. You.
2019-05-27