1 00:00:01,430 --> 00:00:02,370 All right. 2 00:00:02,590 --> 00:00:11,290 Thank you, Diego, for that introduction and to the whole team at Monero for putting on another Monero Village at Devon. 3 00:00:11,290 --> 00:00:16,230 Just before I go on too long here, can people hear me? 4 00:00:16,230 --> 00:00:20,470 Can I get a from chat or otherwise? 5 00:00:29,850 --> 00:00:31,010 Okay, great. 6 00:00:31,010 --> 00:00:32,050 Thanks for the feedback. 7 00:00:32,050 --> 00:00:32,670 All right. 8 00:00:32,950 --> 00:00:37,470 So, I'm here to give the keynote at Monero Village again. 9 00:00:37,470 --> 00:00:40,030 It's a privilege and honor to do that. 10 00:00:40,530 --> 00:00:41,450 I'm Dr. 11 00:00:41,450 --> 00:00:45,410 Daniel Kim, Founder and CEO of Sweetwater Digital Asset Consulting. 12 00:00:45,450 --> 00:00:46,990 A little bit about myself. 13 00:00:46,990 --> 00:00:50,170 So, academically, I'm trained as a particle physicist. 14 00:00:50,170 --> 00:00:55,370 I did my undergraduate and graduate work in experimental particle physics at Harvard. 15 00:00:55,470 --> 00:01:01,250 Later, I wanted to show an interest in the way the real world worked. 16 00:01:01,430 --> 00:01:08,710 Because a PhD shows you can go deep, I wanted to also go wide and learn about different things and how the world works. 17 00:01:08,730 --> 00:01:11,090 Picked up an MBA later. 18 00:01:11,410 --> 00:01:14,330 Most of my career was spent in the non-profit sector. 19 00:01:14,330 --> 00:01:17,330 I spent 10 years as a symphony orchestra musician. 20 00:01:17,390 --> 00:01:20,570 Ended up doing about 700 concerts professionally. 21 00:01:20,590 --> 00:01:23,850 And concurrently with that, I was a medical school professor as well. 22 00:01:23,990 --> 00:01:41,510 It was as a medical professor that I did my perhaps most DEF CON thing, which was to invent a device that did packet sniffing on a medical network to reconstruct treatment data being delivered to cancer patients just before the time of treatment. 23 00:01:41,850 --> 00:01:48,090 So, I got that patented and kind of learned about how the intellectual property system works. 24 00:01:48,910 --> 00:01:54,290 After that, I decided that I wanted to try something new. 25 00:01:54,290 --> 00:01:57,310 So, I went into the for-profit world. 26 00:01:57,310 --> 00:02:01,370 I ended up becoming Director of Research at an equity hedge fund. 27 00:02:02,130 --> 00:02:08,910 And it was there that I started to look into cryptocurrency kind of as a hobby, just as this interesting thing. 28 00:02:09,450 --> 00:02:17,390 And it was there that I decided that there are only a few times in one's life that a truly fundamental discovery is going to happen. 29 00:02:17,390 --> 00:02:22,270 And I came to the conclusion that Nakamoto Consensus was one of those. 30 00:02:22,270 --> 00:02:25,050 And so, I decided to go off on my own. 31 00:02:25,050 --> 00:02:27,330 And so, I'm an independent consultant now. 32 00:02:27,330 --> 00:02:31,550 Sweetwater Digital Asset Consulting is my firm. 33 00:02:31,550 --> 00:02:38,570 And I seek to connect two very separate worlds that often see each other with a rather distorted lens. 34 00:02:38,570 --> 00:02:48,130 So, on one side is the non-commercial, open source, cypher, grassroots, cryptocurrency side, which is well represented at DEF CON. 35 00:02:48,310 --> 00:02:51,210 But then there's a parallel world that happens. 36 00:02:51,210 --> 00:02:55,510 And it really is a world like it goes on independently. 37 00:02:55,510 --> 00:03:00,790 And there's very little kind of real dialogue between these two groups. 38 00:03:00,790 --> 00:03:08,490 And so, that would be the traditional investment and estate planning, trust, family offices, asset protection. 39 00:03:08,530 --> 00:03:19,730 These are using, taking full use of the legal system to protect wealth and create value for clients. 40 00:03:19,810 --> 00:03:22,590 And so, I help people on both sides of this divide. 41 00:03:22,590 --> 00:03:38,850 So, I talk with crypto guys who want some guidance in putting together a plan to shield their crypto from future creditors, whether they be random people who might sue them or a potentially vindictive future ex-spouse. 42 00:03:39,310 --> 00:03:58,950 And then from the other direction, I talk with traditional portfolio managers in the trust and estate world who are well acquainted with traditional assets, but have heard about this cryptocurrency stuff, want to know if it's for real, and want to get in touch with a Sherpa who can help them sort through all the noise. 43 00:04:00,350 --> 00:04:03,370 So, that's my for-profit work right now. 44 00:04:03,370 --> 00:04:08,490 But for my non-profit work, I'm also a community volunteer for the Monero project. 45 00:04:08,490 --> 00:04:15,910 And so, for example, my doing this talk is without any compensation from Monero. 46 00:04:16,110 --> 00:04:20,910 I'm doing this because I personally feel that this is an important project for humanity. 47 00:04:21,290 --> 00:04:31,530 And I think it's important for people to speak out and make their voices heard on matters like this. 48 00:04:31,950 --> 00:04:32,630 So, yeah. 49 00:04:32,630 --> 00:04:34,350 So, I'm not a dev. 50 00:04:34,350 --> 00:04:36,330 I'm not related to a dev. 51 00:04:36,750 --> 00:04:37,990 Let's see, what else? 52 00:04:37,990 --> 00:04:41,950 I really am independent from the Monero project. 53 00:04:42,110 --> 00:04:55,470 My duty is to my clients of my consulting firm to whom I offer my best advice on what I think is legitimate in terms of cryptocurrency. 54 00:04:55,710 --> 00:05:06,550 And specifically in that, I specialize in the non-security store of value type tokens like Bitcoin and Monero. 55 00:05:11,050 --> 00:05:14,450 Okay, so this talk, I'm calling sound money safe mode. 56 00:05:14,450 --> 00:05:16,410 And there are four sections to it. 57 00:05:16,410 --> 00:05:22,650 There's the pandemic economy to set the framework of everything. 58 00:05:22,710 --> 00:05:31,030 Second part is independent scarcity, that is sources of scarcity that run independently of governmental control. 59 00:05:31,450 --> 00:05:34,710 Third is fungibility versus mass surveillance. 60 00:05:34,770 --> 00:05:48,730 And so, this is in the crypto world, this is, I think, insufficiently discussed because the current market leader cryptocurrency does not have fungibility as a defining feature. 61 00:05:49,670 --> 00:05:58,410 So, I'll talk about the consequences of a fungible versus a non-fungible value token in the third part. 62 00:05:58,450 --> 00:06:00,770 And then the fourth part is about getting involved. 63 00:06:00,790 --> 00:06:04,310 So, there are kind of, there's a shallow way to get involved and there's a deeper way to get involved. 64 00:06:04,310 --> 00:06:09,810 The shallow way would be because it's a cryptocurrency, it is like, it behaves like an asset. 65 00:06:09,830 --> 00:06:18,750 And so, I put on my hedge fund hat and I kind of look at Monero and Bitcoin and also gold as parts of one's portfolio. 66 00:06:18,750 --> 00:06:22,950 That's one way to get involved with this project is to, you know, purchase. 67 00:06:23,230 --> 00:06:30,930 But the deeper, more significant way is getting involved personally, like with your time and energy and expertise. 68 00:06:30,930 --> 00:06:33,270 So, I talked about that at the end. 69 00:06:35,850 --> 00:06:39,250 So, before I start, thanks to Howard H.Y.C. 70 00:06:39,250 --> 00:06:40,270 Chiu, Dr. 71 00:06:40,270 --> 00:06:44,170 Serang Noether of the Monero Research Lab, and Dr. 72 00:06:44,170 --> 00:06:53,830 Francisco Articman Cabanas, who is on the Monero core team for helpful discussions and technical assistance in preparation for this presentation. 73 00:06:57,220 --> 00:06:58,020 All right. 74 00:06:58,020 --> 00:07:01,100 So, everyone's seen a ton of stuff about the pandemic. 75 00:07:01,140 --> 00:07:07,780 I won't rehash anything that I think that you've already seen before. 76 00:07:08,400 --> 00:07:10,500 But, oh, gee, this... 77 00:07:14,560 --> 00:07:18,060 I'm just realizing that this display is not 78 00:07:21,260 --> 00:07:25,360 showing the slide completely. 79 00:07:29,410 --> 00:07:31,450 Let me close some stuff. 80 00:07:34,480 --> 00:07:42,360 Yeah, there's a weird thing where, like, what I see here on my local screen is not what is getting sent by Jitsi. 81 00:07:42,980 --> 00:07:44,360 So, I apologize. 82 00:07:44,560 --> 00:07:47,620 This is the problem being the first speaker of the day. 83 00:07:48,540 --> 00:07:49,100 Okay. 84 00:07:49,220 --> 00:07:55,880 It's not super pretty, but at least I can see that the whole slide is showing. 85 00:07:56,940 --> 00:07:58,960 There's a couple other work things. 86 00:08:00,840 --> 00:08:01,860 Okay. 87 00:08:02,600 --> 00:08:06,960 So, yeah, apologies for all the clutter on the display here. 88 00:08:06,960 --> 00:08:12,940 But I think it's probably more important that you see the entire slide than to see it framed in a pretty way. 89 00:08:12,940 --> 00:08:13,140 Okay. 90 00:08:13,140 --> 00:08:14,940 So, back to the pandemic. 91 00:08:14,940 --> 00:08:16,960 Oh, yeah. 92 00:08:17,100 --> 00:08:26,260 So, one way to see the pandemic is that there's a microbe that succeeded in social engineering all of us. 93 00:08:26,480 --> 00:08:33,480 So, the left here shows basically a flowchart of our social protocol pre-pandemic. 94 00:08:33,480 --> 00:08:38,900 Going to this is going to seem like a quaint exercise in a long ago era. 95 00:08:39,280 --> 00:08:41,560 So, you're sitting at home. 96 00:08:42,160 --> 00:08:43,760 Do you feel like going out? 97 00:08:44,280 --> 00:08:45,640 No, you don't feel like going out? 98 00:08:45,640 --> 00:08:46,560 Well, you stay home. 99 00:08:46,560 --> 00:08:53,500 But if you feel like going out, well, then you must be healthy because the fact that you feel like going out means that you must be healthy. 100 00:08:54,200 --> 00:08:57,140 So, based on that self-diagnosis, you go out. 101 00:08:57,140 --> 00:08:58,320 Now you're in public. 102 00:08:58,840 --> 00:08:59,060 Okay. 103 00:08:59,060 --> 00:09:04,040 So, while you're out and about in public, do you see anyone coughing, looking like they're sick? 104 00:09:04,040 --> 00:09:10,600 Well, if the answer is yes, then you diagnose that there's a sick person over there and maybe you should avoid them. 105 00:09:10,680 --> 00:09:13,700 But then you carry on doing what you were doing. 106 00:09:14,260 --> 00:09:15,780 You feel like going home? 107 00:09:15,780 --> 00:09:16,440 Yes or no. 108 00:09:16,440 --> 00:09:26,480 And then you kind of repeat this out in public where you just generally avoid people who are visibly obviously looking sick and don't worry about things otherwise. 109 00:09:26,640 --> 00:09:28,640 And the thing is that this worked. 110 00:09:28,640 --> 00:09:34,580 This switch has been kind of arguably evolved into us. 111 00:09:34,620 --> 00:09:39,760 It's led to the survival of a lot of people basically going by this simple heuristic. 112 00:09:40,100 --> 00:09:46,000 And of course, one thing about the pandemic is that we're told that this heuristic is ineffective now, right? 113 00:09:46,000 --> 00:09:52,500 Because we're told that the self-diagnosis of being healthy if you just feel like it is no longer true. 114 00:09:52,800 --> 00:10:00,340 The diagnosis that you are able to diagnose other people by seeing if they're coughing or not. 115 00:10:00,340 --> 00:10:05,700 And it turns out that that now is insufficiently accurate diagnosis. 116 00:10:06,020 --> 00:10:11,220 So of course, nobody likes being told that their instincts are off. 117 00:10:11,220 --> 00:10:17,560 And so that's been one of the social difficulties in getting like a public health message out. 118 00:10:18,760 --> 00:10:33,800 But that's one way of looking at this, is that the pandemic has taken advantage of a social engineering weakness in humans that has to do with self-diagnosis and spot-checking others' diagnosis of disease. 119 00:10:35,880 --> 00:10:40,640 All right, on the right side of the slide, I'm showing what I'm calling dirty money. 120 00:10:40,640 --> 00:10:46,400 And so this is a research paper that was published in Lancet, which is the UK's premier medical journal. 121 00:10:46,400 --> 00:10:59,080 And what they did was they took samples of COVID, I mean, I'm sorry, SARS-CoV-2, and deliberately put it on various surfaces to test how long the virus would live on various surfaces. 122 00:10:59,520 --> 00:11:04,280 And kind of interestingly, one of the surfaces that they tested was money. 123 00:11:04,280 --> 00:11:13,860 So they took money, they put a virus on it, and then they measured that money to see how much virus was remaining on the money as time went on. 124 00:11:13,860 --> 00:11:18,640 And as you can see, there's basically a dual regime half-life here. 125 00:11:18,640 --> 00:11:24,660 So initially, the half-life is rather quick, with a half-life about one hour. 126 00:11:24,760 --> 00:11:30,840 But yet, that's not so fast that the virus is not measurable. 127 00:11:30,840 --> 00:11:41,700 So basically, the amount of virus remaining on money remains highly measurable, even after 24 hours here, 48 hours here. 128 00:11:42,100 --> 00:11:47,180 And so I think at the third day, they came up with a no measurement for that. 129 00:11:55,120 --> 00:11:59,000 All right, so what did this trigger in an economic sense? 130 00:11:59,000 --> 00:12:04,240 So there's a lot going on in this chart, which is all US data from the Federal Reserve. 131 00:12:04,240 --> 00:12:06,000 So I'll go through it step by step. 132 00:12:06,120 --> 00:12:10,380 So first, you look at this blue line here, that is the U6 unemployment rate. 133 00:12:10,380 --> 00:12:14,140 Now, U6 is the more broad measure of unemployment. 134 00:12:14,400 --> 00:12:27,620 It counts not only those people who are attempting to find work, but also those people who are underemployed, and also those people who are so discouraged about their prospects of finding work that they give up, and they stop even looking for work. 135 00:12:27,620 --> 00:12:33,880 So those people who are not counted in the usual measure of unemployment, which is U3, do get counted in U6. 136 00:12:34,200 --> 00:12:37,380 And the blue line here is showing on the left scale. 137 00:12:37,420 --> 00:12:41,940 The other thing to note on this plot is that this is a very long timescale. 138 00:12:41,940 --> 00:12:44,360 So we're going back to 1980 here. 139 00:12:44,620 --> 00:12:53,560 And you can see that the unemployment rate, which kind of peaked at about 18% in the last financial crisis in 2009. 140 00:12:53,560 --> 00:13:00,540 If you look at that for 2020, you can see that it peaked at about 23% unemployment. 141 00:13:01,840 --> 00:13:05,060 So what was the response to this? 142 00:13:05,060 --> 00:13:15,460 The response was to, for the current response by the Federal Reserve, is to be primarily concerned that this is going to cause deflation. 143 00:13:15,460 --> 00:13:21,780 That is, that people are going to just stop spending money, and that the economy is going to grind to a halt because of that. 144 00:13:21,780 --> 00:13:26,320 So the remedy to that particular short-term problem is to print money. 145 00:13:26,320 --> 00:13:29,600 Because by printing money, that reduces interest rates. 146 00:13:29,600 --> 00:13:36,220 And when interest rates go down, it becomes less attractive to save your money, and more attractive to just spend your money. 147 00:13:36,520 --> 00:13:39,000 So it's part of the stimulus. 148 00:13:39,140 --> 00:13:48,280 And so you can see that the MZM money supply here, which is shown in green, MZM money supply is the broadest measure of liquid money in the US. 149 00:13:48,280 --> 00:14:00,020 It includes cash, currencies, checking accounts, savings accounts, and also money market accounts, which many people nowadays use as a kind of form of a checking account. 150 00:14:01,540 --> 00:14:07,540 So the green line shows the total of the MZM money supply, and I divide that, because it's an enormous number. 151 00:14:07,540 --> 00:14:10,560 It's in the trillions of dollars, which is hard to get your head around what that means. 152 00:14:10,560 --> 00:14:14,000 So I normalize that number by the gross domestic product. 153 00:14:14,180 --> 00:14:16,300 And you can see that that is the green line. 154 00:14:16,300 --> 00:14:27,080 And you can see that in 2020, the money supply took this very steep upward jump as a result of the pandemic. 155 00:14:29,180 --> 00:14:32,580 Now on the bottom here, you see this very wiggly line. 156 00:14:32,580 --> 00:14:41,680 So what this is showing is how much money the US government takes in on a monthly basis, minus how much the US government spends on a monthly basis. 157 00:14:41,800 --> 00:14:45,200 And you can see this half century history is shown here. 158 00:14:45,380 --> 00:14:55,380 And there's never been this occurrence ever in which the government is taking in much, much less than it's spending. 159 00:14:55,560 --> 00:15:00,560 Now, part of this might be temporary, because at least in the US, there was a tax moratorium. 160 00:15:00,560 --> 00:15:04,960 The usual tax due date of April 15 was moved back to July 15. 161 00:15:05,220 --> 00:15:12,900 So in those intervening months between April and July, there was basically likely to be no money into the Treasury. 162 00:15:12,900 --> 00:15:20,140 So it could be that this line will spike back up because taxes were due July 15 this year. 163 00:15:20,720 --> 00:15:22,740 But it remains to be seen. 164 00:15:23,640 --> 00:15:28,320 You know, how much will receive taxes go up back up? 165 00:15:28,320 --> 00:15:29,520 It's hard to know. 166 00:15:29,860 --> 00:15:41,420 The time integrated result of this gray line here gives you the black line on top, which is the overall federal debt, which I'm normalizing to, again, to the GDP on the right scale. 167 00:15:41,420 --> 00:15:50,420 So you can see that during the 2009 financial crisis, our federal debt to GDP went from about 60% to about 100%. 168 00:15:50,420 --> 00:15:54,460 Now, at the beginning of the year, we were looking at about 110%. 169 00:15:55,500 --> 00:16:00,560 And this federal debt to GDP number is lagging now by four months. 170 00:16:00,560 --> 00:16:05,280 So what you're seeing here is actually only going up till March of this year. 171 00:16:05,280 --> 00:16:12,000 It's not showing the worst so far, the worst so far time of the crisis. 172 00:16:12,480 --> 00:16:28,200 So yeah, it's to say that this pandemic on an economic basis is unprecedented, at least within the lifetime of all the people who are likely to be looking at this stream. 173 00:16:28,560 --> 00:16:30,560 It's not an understatement. 174 00:16:32,840 --> 00:16:35,200 Nor is this limited to the US. 175 00:16:38,030 --> 00:16:54,010 So if we look at the G20 fiat currencies that have reported data to the OECD, it turns out that there's eight countries who have been reporting data consistently through the this time. 176 00:16:54,010 --> 00:16:58,390 And here I'm plotting the money supplies of each of these eight countries. 177 00:16:58,390 --> 00:17:00,550 And I'm looking at a more limited timescale. 178 00:17:00,550 --> 00:17:03,590 Now I'm looking at 2018 to the present. 179 00:17:03,590 --> 00:17:12,510 And I'm normalizing each of these money supplies to the money supply as it was on January of this year. 180 00:17:12,510 --> 00:17:18,110 So all of these different monies are normalized to 1.0 at the beginning of this year. 181 00:17:18,110 --> 00:17:23,810 You can basically see that there's like a hockey stick shape to this curve, right? 182 00:17:23,810 --> 00:17:31,650 So up until January 1st, the money supplies of these was growing at a concerning rate. 183 00:17:31,870 --> 00:17:47,590 But now in retrospect, now that we can see how the rate of money printing has been going post pandemic, the 2019 and 2018 periods look like rather restrained periods in retrospect. 184 00:17:47,890 --> 00:17:54,390 The size of the USD money printing is really, it's hard to get one's head around this. 185 00:17:54,390 --> 00:18:08,230 The size of this gap here amounts to $1.3 trillion, which means that in that time period, in the first six months of this year, the rate of money creation has been $300 million per hour. 186 00:18:09,670 --> 00:18:25,610 Now, given that the market cap of Monero is about four or five times that, so we're talking about the money supply growing by the market cap of Monero about six to seven times a day for six months. 187 00:18:30,410 --> 00:18:44,130 All right, if we look now at a larger set of countries, so now all of the G20 fiat currencies, including those that stopped reporting data for whatever reason to the OECD in late 2018. 188 00:18:44,130 --> 00:18:48,370 So now you're seeing 17 different countries' fiat currencies here. 189 00:18:48,370 --> 00:18:57,230 It's 17 and not 20 because France, Germany, and let's see, I'm blanking out on one other. 190 00:18:57,390 --> 00:19:06,890 There are three countries that don't have their own money yet sit on the G20, and the euro, like all of the euro zone, has a seat on the G20. 191 00:19:06,890 --> 00:19:10,730 So that's why the number of currencies is not exactly 20 for the G20. 192 00:19:10,730 --> 00:19:13,950 But nevertheless, you can see that this is all of them. 193 00:19:14,350 --> 00:19:27,490 And since 2009, which is the date of the Nakamoto white paper, the world's fiat currencies have basically doubled or tripled in the about 11 years since. 194 00:19:28,370 --> 00:19:40,270 So as a former med school professor who worked in oncology, I was a physicist helping with the, you know, technical details of delivering high-dose radiation to cancer patients. 195 00:19:40,350 --> 00:19:44,270 This whole concept of exponential growth is pretty familiar. 196 00:19:44,270 --> 00:19:49,270 Like this exponential growth curve, it's basically like a tumor growth curve. 197 00:19:49,730 --> 00:19:55,490 You have basically a doubling time for this malignancy that's growing. 198 00:19:55,830 --> 00:20:04,030 And so here in, you know, if you apply that math to this, we're looking at a doubling time of about eight years. 199 00:20:05,850 --> 00:20:19,830 So if you apply a doubling time of eight years through your lifetime, so if you imagine an average lifetime is 80 years, let's just say, which would amount to 10 doubling times. 200 00:20:19,830 --> 00:20:27,730 So you're looking at an expected growth of two to the 10th power for the money supply in your lifetime if you extrapolate the results in this. 201 00:20:27,730 --> 00:20:36,210 So that's a 1000x growth given the compounding rates that we're seeing in this chart. 202 00:20:37,470 --> 00:20:41,890 There's an interesting book called Monetary Regimes and Inflation. 203 00:20:41,890 --> 00:21:00,450 It's in its second edition, and it's written by an academic in Switzerland who studied 25, or I'm sorry, 29 different historical cases of hyperinflation and found that in 25 of them, the root cause of this was that governments were funding their deficits with money creation. 204 00:21:02,130 --> 00:21:10,690 So this chart is showing that the money creation is happening, and especially now in 2020, it's happening even more than ever. 205 00:21:11,330 --> 00:21:21,350 The other, what this chart is not showing is the government deficit part, but well, it's hard to be too optimistic about that, frankly. 206 00:21:21,970 --> 00:21:25,990 So what does all this mean? 207 00:21:25,990 --> 00:21:41,610 It means that it's probably a good idea to entertain the possibility that the probability of increased inflation in the future has gone up as a result of the pandemic. 208 00:21:43,960 --> 00:21:54,080 So in a time of high inflation in fiat currency, what does it make sense to consider looking at for those who have assets? 209 00:21:54,640 --> 00:21:58,620 Independent sources of scarcity are what traditionally get looked at. 210 00:21:58,620 --> 00:22:01,700 So we're talking about physical commodities like gold and silver. 211 00:22:01,920 --> 00:22:07,920 And since 2009, now there's been a digital option in terms of digital commodities. 212 00:22:07,920 --> 00:22:27,360 Bitcoin was the first, and in my opinion, Monero is probably the only other one that checks the necessary boxes to be taken seriously as a second digital commodity in the space of store of value cryptocurrencies. 213 00:22:28,360 --> 00:22:30,760 Now, physical commodities are interesting. 214 00:22:30,760 --> 00:22:39,660 So gold and silver, if you follow the gold prices, you've probably seen that the gold prices have also spiked recently. 215 00:22:40,220 --> 00:22:48,840 There's a generational divide here as far as how people react to this divide between physical commodities and digital commodities. 216 00:22:49,200 --> 00:23:01,320 And as a Gen X-er, for whom the kind of one way you can define Gen X is that these are people who had a considerable chunk of their childhood spent in a time that didn't have the internet. 217 00:23:01,620 --> 00:23:04,920 So as a result, I can kind of see things from both perspectives. 218 00:23:04,960 --> 00:23:08,280 I can see, I can remember a time when there was no internet. 219 00:23:08,280 --> 00:23:15,260 And so I can, I can see how people would kind of gravitate towards gold and silver in a time like this. 220 00:23:15,460 --> 00:23:32,380 But also having seen the transformative effect of the internet, I can also see things from like a, you know, like a Gen Z or millennial type view, in which one can sort of assume that the internet's always going to be there, just like running water is always going to be there. 221 00:23:35,980 --> 00:23:44,320 It's funny though, because for gold and silver, there are lots of ways to buy gold and silver. 222 00:23:44,320 --> 00:23:48,360 And not all of them involve actually getting your hands on metal. 223 00:23:48,620 --> 00:23:54,400 So some of them involve hiring somebody to buy your metal and store it for you. 224 00:23:54,400 --> 00:24:02,900 And then you think you have your metal because you have a piece of paper or you have an email saying you own this much gold in this vault that's somewhere. 225 00:24:03,880 --> 00:24:06,320 And it's probably true. 226 00:24:06,320 --> 00:24:09,840 I mean, or it's going to be true until it ceases to be true. 227 00:24:10,300 --> 00:24:22,100 And there have been like a lot of scams, basically in the precious metals market of people being taken advantage of in ways like this. 228 00:24:22,120 --> 00:24:27,040 And it's funny because it's like history repeats itself, but rhymes. 229 00:24:27,040 --> 00:24:31,480 So they're like now in the crypto space, there's like the analog of all these things. 230 00:24:31,740 --> 00:24:39,540 Basically people offering to, you know, to take your crypto as you know, they offer to store your crypto for you. 231 00:24:39,540 --> 00:24:44,200 So you don't have to worry about all that trouble of learning, you know, what's going on behind the crypto. 232 00:24:44,200 --> 00:24:46,140 We'll take care of all those details. 233 00:24:46,140 --> 00:24:50,460 You pay us just a little bit and we promise crypto is all going to be there. 234 00:24:50,740 --> 00:24:53,260 That's happened in the precious metals market. 235 00:24:53,260 --> 00:24:57,360 It happens now and people get in both cases. 236 00:24:58,180 --> 00:25:10,400 Trading on margin with leverage is another way for kind of the less sophisticated investors who want to try and make a quick buck get taken advantage of. 237 00:25:10,540 --> 00:25:26,580 It turns out that the mathematics of margin borrowing, which is necessary to take on highly leveraged positions in any asset, including precious metals or in cryptocurrency, highly disfavor the person placing the bet. 238 00:25:27,300 --> 00:25:41,360 So basically if you go 10x on something, and it goes up, you're not going to get the 10x because part of the gains from that 10x are going to be used to repay the loan that you took in order to go 10x. 239 00:25:41,480 --> 00:25:43,900 So you're not going to see 10x going up. 240 00:25:43,900 --> 00:25:52,720 But if the asset that you 10x on goes down, then yeah, you're going to lose all your money in a strictly linear fashion like you would expect. 241 00:25:53,760 --> 00:26:08,520 So and then, you know, now in the crypto era, you have people getting kind of attracted to the casino of trading on leverage and using that to basically lose to more sophisticated, more knowledgeable counterparties. 242 00:26:11,730 --> 00:26:14,250 But let's talk about digital scarcity networks. 243 00:26:14,250 --> 00:26:19,210 So taking aside gold and silver for now and focusing on digital commodities. 244 00:26:19,210 --> 00:26:23,970 So let's look at centralized security versus a decentralized security model. 245 00:26:23,970 --> 00:26:26,610 In centralized security, you have banks and fiat. 246 00:26:26,870 --> 00:26:31,230 So you have a database, which is protected, it's got firewalls around it. 247 00:26:31,230 --> 00:26:39,270 And the idea is that once you have access, once you're a trusted insider, you're a bank employee or something like that, then you have access to the database. 248 00:26:39,270 --> 00:26:41,410 Otherwise, you have no access to the database. 249 00:26:41,710 --> 00:26:46,910 There's one authoritative version of the ledger, which exists inside the bank walls. 250 00:26:47,030 --> 00:26:56,350 It's all closed source, of course, it's closed source, why would you open up the source, because that would be, you know, showing potential vulnerabilities to people. 251 00:26:56,690 --> 00:27:13,550 And there are downsides to this, of course, there's mismanagement, there's like all these charts showing the runaway growth of fiat currency are arguably categorizable under mismanagement of centralized scarcity model. 252 00:27:13,550 --> 00:27:15,590 There can be insider abuse. 253 00:27:15,590 --> 00:27:30,490 There are numerous accounts of bad behavior on the part of, you know, regulated banks, who basically do, you know, egregious violations of their customers trust and end up getting just a slap on the wrist for it. 254 00:27:31,710 --> 00:27:49,250 The other thing, if you are in charge, if you are the designated, approved gatekeeper of a centralized security network, then as the gatekeeper, you don't really have that much incentive to improve your service, because you're the gatekeeper, people have to come to you to get service, 255 00:27:49,250 --> 00:27:53,890 you know, to get access to the central database, they have to come to you. 256 00:27:53,890 --> 00:27:57,230 Now, so that means you're a middleman, you're in a position of power. 257 00:27:57,370 --> 00:28:14,430 And that means there's less incentive for you to improve your hours, or your services, which is why we still see banks having, you know, nine to five Monday through Friday hours, in a time where, you know, for years and years now, people have been able to go onto Amazon and, 258 00:28:14,430 --> 00:28:25,110 you know, go shopping, you know, 2.30 in the morning, you know, from their bed if they want, but for banking, like to get a wire sent out, you still have to do business hours. 259 00:28:25,470 --> 00:28:30,510 So these are the pros and cons of a centralized security model for digital scarcity. 260 00:28:30,990 --> 00:28:38,910 If we turn now to a decentralized security model, now everything is turned on its head relative to the centralized security model. 261 00:28:38,910 --> 00:28:45,810 Anyone can join the peer-to-peer network whose job it is to maintain a ledger of who owns what. 262 00:28:45,810 --> 00:28:49,410 Each of these nodes maintains its own version of the ledger. 263 00:28:49,450 --> 00:28:59,610 The code is open source, under the more eyeballs is fewer bugs, kind of principle that's espoused in open source software development. 264 00:28:59,690 --> 00:29:20,790 The downsides are that this source of scarcity are new, and so people have to get their heads around it, and there's going to be a lot of noise, and there's going to be a lot of excitement, a lot of not very smart ideas being given a decentralized security sheen around them in order to sound new and glamorous. 265 00:29:20,870 --> 00:29:24,970 So there's a lot of noise to sort through because it's new. 266 00:29:24,970 --> 00:29:48,750 It's also inefficient because the efficiency of centralized security models, you just have one database that's in the middle, so as long as you you just have to, you know, maintain one computer's worth of computing power, whereas in a decentralized model you have different ideas of what the state of the ledger is among all of the computers in the network, 267 00:29:48,750 --> 00:29:58,950 and the methods to obtain consensus on what is the true state of the network are going to necessarily be less efficient than that of a centralized network. 268 00:30:02,540 --> 00:30:17,480 So for this talk, I'm assuming that the, you know, you viewing this are not necessarily immersed in Bitcoin and blockchain topics, since Defcon is a pretty broad tent. 269 00:30:17,480 --> 00:30:29,560 There are a lot of people with a lot of diverse interests in Defcon, and so I'm going to assume that you have not taken, you know, a lot of time to think about how Bitcoin works. 270 00:30:29,660 --> 00:30:31,060 So I'm going to do that. 271 00:30:31,060 --> 00:30:32,720 I'm going to try and do it very briefly. 272 00:30:33,340 --> 00:30:52,200 So I would invite you, if you're new to cryptocurrency, and even if you're not new to cryptocurrency, I think it's a good thing to do to put yourself in the mindset of pretending like things were back when they were in 2009, before there was a way to check the price of every cryptocurrency every second, 273 00:30:52,200 --> 00:31:11,580 before there were, you know, limit orders and exchanges and all this, you know, that, that unfortunately tend to put a profit and loss, you know, like a profit and loss framework on around Bitcoin, that gets away from the kind of true spirit of the thing, 274 00:31:11,580 --> 00:31:17,620 which is really a technological and computing, like, miracle. 275 00:31:17,620 --> 00:31:22,300 So it's, it's good to kind of disregard all of that price stuff. 276 00:31:22,620 --> 00:31:27,360 I think, I think most of the time when you're thinking about cryptocurrency. 277 00:31:27,860 --> 00:31:30,240 So let's go back to Bitcoin's early history. 278 00:31:30,240 --> 00:31:35,500 So on Halloween of 2008, that's when the Naokimoto white paper came out. 279 00:31:36,580 --> 00:31:40,300 January 9th, 2009 was the Bitcoin Genesis block. 280 00:31:40,300 --> 00:31:42,380 That was the very first block. 281 00:31:42,380 --> 00:31:47,320 In other words, the very first list of transactions of who sent what to who in Bitcoin. 282 00:31:47,960 --> 00:31:53,960 And since January 2009, this network has been going strong ever since, 24-7. 283 00:31:54,980 --> 00:32:00,040 In, in the year 2009, Bitcoin was operational, but it had zero value. 284 00:32:00,040 --> 00:32:00,460 Right. 285 00:32:00,460 --> 00:32:05,380 So it was just this, this thing that was like a, like a geek play thing. 286 00:32:06,040 --> 00:32:12,040 There was no, there's no money involved, there's no profit involved, there's no trying to sell anything involved. 287 00:32:12,040 --> 00:32:27,340 It was just this interesting innovation of a digital thing that claimed to act like money without needing a central authority to, to limit its scarcity like money. 288 00:32:27,340 --> 00:32:33,000 So the Bitcoin white paper describes a way to synthesize this digital scarcity without needing a central authority. 289 00:32:33,000 --> 00:32:38,860 So there are three parts to the analogy between Bitcoin and a bank network. 290 00:32:38,860 --> 00:32:45,700 So the first part of the analogy to, to describe is like, what, what is the analogy of a bank account? 291 00:32:45,760 --> 00:32:47,840 And that is a Bitcoin address. 292 00:32:48,160 --> 00:32:51,860 Second, what's the analogy of writing a check or sending funds out? 293 00:32:51,860 --> 00:32:55,720 That would be in the Bitcoin world, in the cryptocurrency world, it's a message signing. 294 00:32:55,720 --> 00:33:02,440 And then third, who is the party that is going to clear the check and process the check once it's been written? 295 00:33:02,520 --> 00:33:07,360 Who is doing that function in, in this new digital commodity realm? 296 00:33:07,460 --> 00:33:12,780 And so there's an accounting network of peer-to-peer computers that gets used to do that in Bitcoin. 297 00:33:13,940 --> 00:33:17,500 So going through these three analogies in a bit more detail. 298 00:33:17,500 --> 00:33:25,080 So the SecP256k1 elliptic curve is what defines the cryptography in Bitcoin. 299 00:33:25,180 --> 00:33:26,900 So that I'm showing what it is. 300 00:33:26,900 --> 00:33:32,160 It's Y squared is congruent to X cubed plus seven mod this very large prime number. 301 00:33:32,420 --> 00:33:38,020 And the mod and the three lines on the equal sign means that we're talking about clock arithmetic. 302 00:33:38,020 --> 00:33:47,280 So in clock arithmetic, one o'clock and 13 o'clock and 25 o'clock are all the same thing because the, when the hour hand goes around, it repeats. 303 00:33:47,500 --> 00:33:55,520 So here we're talking about a clock that has like a, you know, a gigantic prime number, number of numbers on its dial. 304 00:33:55,880 --> 00:34:02,560 So Y and X, sometimes you'll see drawn in, you know, diagrams explaining what elliptic curves are. 305 00:34:02,560 --> 00:34:04,820 You'll see like a curvy shape to that. 306 00:34:04,980 --> 00:34:11,280 That's true if X and Y are real numbers, but in this case, X and Y are integers. 307 00:34:11,280 --> 00:34:17,300 And so it's not very helpful to have that image of a classic curve in your mind as you're doing this. 308 00:34:17,300 --> 00:34:25,540 Really what this is more like is you, you have a, you have a giant grid of X and Y points and the Xs are both integers. 309 00:34:25,540 --> 00:34:36,480 So you have points on the intersections of this giant, you know, graph paper and certain one, certain intersections on this graph paper are lit up. 310 00:34:36,640 --> 00:34:42,060 So when you have an X, Y combination that satisfies this equation, it's lit up. 311 00:34:42,380 --> 00:34:47,360 And to have an X, Y combination that satisfies this equation is a rare thing. 312 00:34:47,360 --> 00:35:10,500 It's, it's if you try to brute force and guess pairs of X, Y numbers that satisfy this equation, because this prime number, this modulus number is so huge, it's, it would take a, you know, unimaginably long time, like, you know, 10 to the 40, 50, something like that years to basically brute force and try to figure out an X, 313 00:35:10,500 --> 00:35:14,240 Y combination on your own that satisfies this equation. 314 00:35:14,920 --> 00:35:16,180 But yet there's more. 315 00:35:16,180 --> 00:35:20,720 So as part of the elliptic curve definition, there's a base point that is defined. 316 00:35:20,720 --> 00:35:24,920 So I'm saying piece of B, that's the coordinate X of B, Y sub B. 317 00:35:24,920 --> 00:35:32,180 So there's a certain point in this vast grid paper of very sparse points on it. 318 00:35:32,300 --> 00:35:34,300 There's a certain point that's called the base point. 319 00:35:34,300 --> 00:35:35,180 That one's special. 320 00:35:35,180 --> 00:35:39,780 That one is told to you by the elliptic curve kind of standard, right? 321 00:35:39,780 --> 00:35:47,520 So basically the formula for the curve is given and the solution, a solution to this curve is also given to you. 322 00:35:47,520 --> 00:35:50,440 Furthermore, there's a third step that you can use. 323 00:35:50,440 --> 00:36:00,620 So that is given that you know a solution, there's a way to calculate N times that base point solution, which is another solution, piece of N. 324 00:36:00,740 --> 00:36:17,780 So in other words, if somebody tells you N, a number N, you can figure out the Nth point on this graph paper by doing some simple manipulations on the base point, which you are, which you have knowledge of, which you know, because it's part of the standard of the elliptic curve. 325 00:36:18,920 --> 00:36:26,100 So if you want to go from N to piece of N, you can compute that, but the inverse is not calculable. 326 00:36:26,100 --> 00:36:29,040 So piece of N to N doesn't, you have to brute force that. 327 00:36:29,040 --> 00:36:33,580 And so that's the asymmetry behind the encryption process. 328 00:36:33,620 --> 00:36:40,100 So what that means is that the, the number N is a private key. 329 00:36:40,100 --> 00:36:41,960 That's the secret. 330 00:36:42,060 --> 00:36:52,400 And that knowing that number N is the authorized signature to spend the money that is associated with the private, the public key piece of N. 331 00:36:52,680 --> 00:37:01,020 What this really means is getting a new, a Bitcoin account really means you're picking a number, you're picking a number in this vast numeric field. 332 00:37:01,140 --> 00:37:03,140 You're calling that number yours. 333 00:37:03,460 --> 00:37:13,060 And you're keeping that number secret, just like you would keep like, just like Coca-Cola keeps the formula to its soft drink secret. 334 00:37:13,140 --> 00:37:21,400 It's this piece of information that you can write on an index card, but you need to keep secret because it's the, it's the keys to the kingdom. 335 00:37:21,400 --> 00:37:35,920 So that's what's going on in Bitcoin is that you, you and you alone are in, are the person who knows the existence of this one certain point on the elliptic curve, which is yours. 336 00:37:36,520 --> 00:37:43,460 And those, that elliptic curve point is described by two numbers, the X coordinate and the Y coordinate, right? 337 00:37:44,040 --> 00:37:49,540 One of those you make public and the other one you keep secret and they're linked to each other. 338 00:37:49,600 --> 00:37:55,300 So that's why it's not like a password where you can just change the X, Y numbers that you're assigned. 339 00:37:55,300 --> 00:37:56,800 It's, it doesn't work like that. 340 00:37:56,800 --> 00:37:58,540 There's a math equation behind it. 341 00:37:58,540 --> 00:38:03,280 So that X, Y pairing is unchangeable. 342 00:38:03,280 --> 00:38:10,320 It's, it's not modifiable so that if somebody, you know, forgets their secret, there's no recourse to get their money. 343 00:38:13,280 --> 00:38:13,600 All right. 344 00:38:13,600 --> 00:38:17,500 So moving on to how does writing a check work in a network like this? 345 00:38:17,500 --> 00:38:23,420 So there's secure message signing, which is facilitated by the elliptic curve math that I showed on the last slide. 346 00:38:23,480 --> 00:38:29,340 So what a sender does is take a message and combine that with their private key. 347 00:38:29,340 --> 00:38:38,860 Once you take a message and combine that with a private key, you get a signature, which is just a sequence of bytes, which is derived from the combination of the message and the private key. 348 00:38:38,860 --> 00:38:44,860 So the signature can only have been made by somebody who had the message and the private key. 349 00:38:45,360 --> 00:38:54,680 So once the sender does this, basically generates a signature based on their message and their private key, they would send out the message and the signature. 350 00:38:55,700 --> 00:39:03,200 They would definitely not send out the message and their private key because then that would leak the, you know, basically their signature for, for signing. 351 00:39:03,220 --> 00:39:05,300 They would send out the message and the signature. 352 00:39:05,300 --> 00:39:13,740 So the recipient now gets this purported message from the sender, plus the signature from the sender. 353 00:39:13,740 --> 00:39:16,820 And the recipient also knows the sender's public key. 354 00:39:16,820 --> 00:39:21,780 So because that is supposed to be a data point that is associated per person. 355 00:39:21,780 --> 00:39:25,340 So with those three pieces of information, you can get a binary verification result. 356 00:39:25,340 --> 00:39:30,880 You get a result that says, yes, that was a legitimate message by the, this person, or no, it was not. 357 00:39:31,180 --> 00:39:37,680 And so sending Bitcoin means that you're sending this signed message to the Bitcoin network. 358 00:39:37,720 --> 00:39:43,380 This, this kind of message signing happens in all, in a variety of computing contexts. 359 00:39:43,380 --> 00:39:56,380 For example, HTTPS uses this and here we're just using it in a financial kind of like a self-contained accounting system point of view. 360 00:39:57,100 --> 00:40:05,300 So interestingly, knowledge of the private key, which is a form of speech, is now tantamount to money. 361 00:40:05,300 --> 00:40:07,880 Knowledge is tantamount to money. 362 00:40:07,880 --> 00:40:20,840 And so that makes that, for the era that we're living in, the idea that just knowledge of something can in itself be cash. 363 00:40:23,240 --> 00:40:24,760 All right, third. 364 00:40:24,760 --> 00:40:35,360 So once you have a person who has a Bitcoin account and they sign a message saying, I want to spend this Bitcoin, who's going to do the processing? 365 00:40:35,360 --> 00:40:36,840 Who's going to make sure it's legit? 366 00:40:36,840 --> 00:40:37,800 And so on. 367 00:40:37,800 --> 00:40:40,440 So that is done by a network of miners in Bitcoin. 368 00:40:40,440 --> 00:40:45,500 So miners are just a word for peer-to-peer Bitcoin accountants. 369 00:40:45,560 --> 00:40:52,440 So peer-to-peer, meaning that there is no boss computer, there is no super user in this network. 370 00:40:52,440 --> 00:40:54,140 They are all equal. 371 00:40:54,180 --> 00:40:56,440 So how do they settle disputes? 372 00:40:56,440 --> 00:41:00,860 It's basically, they gossip a lot and they do majority rules. 373 00:41:00,860 --> 00:41:06,280 So that's, that's basically how they, they figure out who's right, if there's a disagreement between them. 374 00:41:06,340 --> 00:41:19,380 Now, each of these Bitcoin accountants have pre-programmed into them, the, like the elliptic curve, they have pre-programmed into them the code that determines whether an incoming message is legit or not. 375 00:41:19,380 --> 00:41:25,160 And so each of these accountants, when, when they receive a spend message, they will check it. 376 00:41:25,160 --> 00:41:31,380 And if it's legit, then they will pass that message on to their compatriots. 377 00:41:31,380 --> 00:41:33,560 So this is what I meant by gossipy accountants. 378 00:41:33,560 --> 00:41:42,000 So each of these miners is, is taking in incoming messages for spend instructions around the world, checking them for themselves. 379 00:41:42,000 --> 00:41:45,020 And then if they're correct, they'll spread those messages around. 380 00:41:45,620 --> 00:41:54,140 So every 10 minutes on average, you have a list of transactions then that has been kind of building up in that time. 381 00:41:54,220 --> 00:41:56,080 And so that's called a block. 382 00:41:56,080 --> 00:42:00,120 A block is simply a list of valid signed spend messages. 383 00:42:01,200 --> 00:42:12,980 Now, how do we make sure that this global network of computers, of which there is no one boss, is going to properly process these messages? 384 00:42:13,420 --> 00:42:21,140 Well, in addition to having the rules of allowance kind of programmed into them, they, there's what's called proof of work. 385 00:42:21,140 --> 00:42:29,280 And so what proof of work is, is that in each block, there is a small data field within each block called the nonce. 386 00:42:29,280 --> 00:42:37,160 The nonce is something that it's a blank data field that each miner is free to fill with whatever random bits they want. 387 00:42:38,300 --> 00:42:49,900 Now, in this system, a block is not accepted by the network until the hash of the block is lower than a certain number called the difficulty. 388 00:42:50,060 --> 00:43:02,200 So this is something that's hard to get your head around if this is the first time you're hearing it, because usually when you think about hash functions, you don't care about what the hash function is, you just care that the hash function matches something else. 389 00:43:02,240 --> 00:43:11,240 For example, if you're checking the download of a file, you want to take a hash of what it is you downloaded and check that against the hash of what you think you downloaded and make sure that they match. 390 00:43:11,400 --> 00:43:18,820 Here in this case, we actually care if the hash starts with a zero, or a one, or a two, or what the hash starts with. 391 00:43:18,840 --> 00:43:25,480 In fact, we care about what the first several digits of the hash starts with, and we will require them typically to all be zeros. 392 00:43:25,480 --> 00:43:42,600 So what that ends up meaning is that each of these miners is going to try repeatedly, and most often fail, to find a nonce that causes a block of spend messages to be considered valid. 393 00:43:42,600 --> 00:43:58,320 So basically, you have this worldwide network of computers, each of them is churning away, brute force guessing different values of the nonce that will eventually, one of them will eventually succeed, and come up with a block that satisfies the difficulty. 394 00:43:58,320 --> 00:44:17,900 In other words, one miner in the world will take their page of transactions, which is, you know, the list of valid transactions from their point of view, combine that with a nonce, which was randomly generated, and then the hash of that entire block, that is the messages plus their nonce, 395 00:44:17,900 --> 00:44:23,180 the hash of that is going to be a bunch of zeros, and then some gibberish, right? 396 00:44:23,180 --> 00:44:30,580 So because it started with a bunch of zeros, that satisfies the difficulty, therefore that block is accepted by the network. 397 00:44:31,060 --> 00:44:42,780 The kind of announcement of this new block is, again, because the accountants here are very gossipy, the news of this is sent around the Bitcoin network, right? 398 00:44:42,780 --> 00:45:01,920 And so once all of the computers in the world get news of this new block, then they clear out the pending transactions in their own personal queues with the transactions that have been officially kind of ratified in this new block, and then they continue working on the next block. 399 00:45:02,460 --> 00:45:09,820 So the computer that succeeds in getting this done gets what's called the block reward, and so that's a Bitcoin payout to the nonce. 400 00:45:09,840 --> 00:45:17,980 So in Bitcoin, every Bitcoin in existence came into being as a payout to a miner helping to secure the network. 401 00:45:18,040 --> 00:45:33,620 So this is important to realize that sometimes you'll see, you know, people who have very little technical knowledge about cryptocurrency make a claim that, you know, Bitcoin is just some, you know, scam, it's some company that's out there to get, you know, 402 00:45:33,620 --> 00:45:34,960 money from people. 403 00:45:35,180 --> 00:45:41,180 Bitcoin is just a decentralized group of computers. 404 00:45:41,180 --> 00:45:46,140 Anyone can download the Bitcoin software, run it on their computer, and join this network. 405 00:45:46,140 --> 00:45:56,240 Anyone who does that has a probability of finding a nonce that satisfies difficulty and therefore getting the block reward. 406 00:45:57,020 --> 00:46:06,520 So contrary to the assertion that money in Bitcoin has gone to some third party, some centralized organization, that's not true. 407 00:46:06,540 --> 00:46:13,160 All of the block rewards in Bitcoin have gone out to miners who are helping to secure the network. 408 00:46:14,960 --> 00:46:18,140 Now again, we're in 2009 here. 409 00:46:18,280 --> 00:46:24,640 We're in a time, we're imagining that we're in a time in which Bitcoin did not have monetary fiat value. 410 00:46:24,640 --> 00:46:38,140 So we're thinking in terms of this self-contained system in which this kind of imaginary unit of account, Bitcoin, gets created, and we're going to try and see if it actually acts like money like it claims it might be able to. 411 00:46:38,760 --> 00:46:40,520 All right, so there's conflict resolution. 412 00:46:40,520 --> 00:46:45,320 So what happens if two computers on opposite sides of the world come up with a block at the same time? 413 00:46:45,320 --> 00:47:00,160 So this could happen, for example, with the latency that's introduced by the Great Firewall of China, that you could have computers within China coming up with a different idea of what the next legit block is relative to the outside of China world. 414 00:47:00,160 --> 00:47:01,960 So what happens then? 415 00:47:01,960 --> 00:47:05,140 Well, again, the miners are all gossipy, right? 416 00:47:05,140 --> 00:47:08,180 So the miner within China is going to 417 00:47:15,210 --> 00:47:20,990 likely to hear about that Chinese found block first. 418 00:47:21,150 --> 00:47:32,050 And so they will proceed with the network as if that is the legit block. 419 00:47:32,090 --> 00:47:34,850 So the same thing is going to happen in the non-Chinese world. 420 00:47:34,850 --> 00:47:42,490 There's going to be a different block that satisfies difficulty that will be deemed the next block in the chain. 421 00:47:43,090 --> 00:47:48,210 And then that news is to propagate among the miners in the non-Chinese world, right? 422 00:47:48,210 --> 00:47:53,870 So now you have this schism, you have a disagreement in the network as to the state of the network. 423 00:47:53,870 --> 00:47:54,930 What happens then? 424 00:47:54,930 --> 00:48:01,770 So basically, both halves of the network then proceed as normal, trying to work on the next block. 425 00:48:01,870 --> 00:48:05,370 And then one of them is going to come up with a block first. 426 00:48:06,030 --> 00:48:20,190 I suppose I could come up with it simultaneously, but that's highly unlikely, since the probability distribution of the time distribution between blocks is Poisson distributed, because it's basically a fixed probability per unit time that a block is going to be found. 427 00:48:21,130 --> 00:48:32,750 So that means that, on average, blocks come out every 10 minutes, but it's a highly peaked distribution in the short end, actually, of the 10 minutes. 428 00:48:32,750 --> 00:48:43,390 Most blocks are going to be found... the median block is going to be found, like, shorter than 10 minutes. 429 00:48:43,650 --> 00:48:51,890 So what happens is one of the blocks, either in the Chinese world or the non-Chinese world, find the next block. 430 00:48:51,930 --> 00:49:03,250 And because conflict resolution works in that the chain with the more hash power wins, whichever of those chains comes up with the longer chain first will be the winner. 431 00:49:03,310 --> 00:49:23,990 So for example, if the second block is found in the Western world first, then that block will be propagated around the world, it'll get past the Chinese firewall, eventually the Chinese mining commuters will see that, and they'll see that, oh, this chain that came from elsewhere is longer than our chain, 432 00:49:23,990 --> 00:49:27,770 so we're going to adopt the chain that has more proof-of-work behind it. 433 00:49:27,770 --> 00:49:34,310 So that's basically how the network self-heals itself against disagreements in the state of the network. 434 00:49:35,030 --> 00:49:43,030 So then finally, blockchain is a distributed append-only linked list of blocks with low-value hash-verified pointers. 435 00:49:43,930 --> 00:49:47,810 So to summarize, Nakamoto consensus synthesizes digital scarcity. 436 00:49:47,810 --> 00:49:51,470 There's account-level scarcity, which is basically property rights. 437 00:49:51,470 --> 00:49:54,230 What defines property rights in Bitcoin? 438 00:49:54,230 --> 00:50:00,690 It's enforced by the user's selection and their subsequent protection of an elliptic curve private key. 439 00:50:01,330 --> 00:50:03,930 Next is aggregate-level scarcity. 440 00:50:03,930 --> 00:50:10,670 That is, how do we know that there's not going to be an infinite number of Bitcoin created? 441 00:50:10,670 --> 00:50:31,750 It's because each of these miners have programmed into them a recognition that there's going to be a limit of 21 million Bitcoin produced, and if any rogue node is added to the network that has a different idea of coin issuance, because it's going to be vastly outnumbered by the rest of the network, 442 00:50:31,750 --> 00:50:37,050 its idea on what coin issuance should be is going to be ignored by the rest of the network. 443 00:50:37,210 --> 00:50:49,810 So that's how that gets enforced, is that the aggregate-level scarcity that is the macroeconomic money supply gets enforced by an open network of peer-to-peer accountants who are rewarded for behaving consistently with a consensus rule set. 444 00:50:49,990 --> 00:50:52,470 They're rewarded by getting the block reward. 445 00:50:52,570 --> 00:51:11,070 So basically, if a computer works under mistaken rules, and mistaken meaning minority, if a computer is working under minority rules, comes up with its own idea of a block, gives itself a block reward, then when it propagates that supposed good block to the rest of the network, 446 00:51:11,070 --> 00:51:13,950 it's not going to be recognized by the rest of the network. 447 00:51:13,950 --> 00:51:25,050 And so it might have succeeded in getting a block reward for itself, but it's not going to be in the currency that the rest of the network is using. 448 00:51:26,690 --> 00:51:29,330 Okay, finally, database modification scarcity. 449 00:51:29,330 --> 00:51:32,450 How do we establish record permanence in Bitcoin? 450 00:51:32,450 --> 00:51:42,450 Well, that is enforced by requiring that each page in the transaction block have a hash that is smaller than the dynamically adjusted difficulty threshold. 451 00:51:42,490 --> 00:51:59,170 So the fact that the difficulty threshold is dynamically adjusted according to how many computers are currently active on the network, that is how a 10-minute block time gets established on average, even if computers leave or join the network. 452 00:52:01,030 --> 00:52:05,050 Okay, so let's contrast that with the scarcity features of Monero. 453 00:52:05,050 --> 00:52:08,430 So first, code is a scarce asset. 454 00:52:08,910 --> 00:52:22,390 Unfortunately, in much of the cryptocurrency world, new currencies get made by basically copy-pasting Bitcoin's code, changing a few lines of it, and then declaring that you've created a new cryptocurrency. 455 00:52:22,670 --> 00:52:29,710 So in that sense, they're not really using any scarcity of their own intellectual property. 456 00:52:29,710 --> 00:52:35,050 They're basically copying off the Bitcoin intellectual property, which is open source. 457 00:52:35,050 --> 00:52:41,130 That's a kind of an unfortunate drawback of that, is that it's open for everyone to look at and to copy, but that's the downside. 458 00:52:41,130 --> 00:52:42,970 It's open for everyone to copy. 459 00:52:43,450 --> 00:52:51,110 So unlike the situation, for example, in precious metals, where authentication is a difficult thing, right? 460 00:52:51,110 --> 00:52:58,690 So if you have a gold bar, the chief worry is that the gold bar that you bought is actually gold-plated tungsten, right? 461 00:52:58,690 --> 00:53:10,710 For example, there's a case in China where there's a very significant storage of gold bars that was being used as collateral for loans. 462 00:53:11,030 --> 00:53:17,550 And it turns out that tons and tons of gold was actually tungsten with gold plating on it. 463 00:53:17,850 --> 00:53:24,490 So this is a problem in precious metals that happens to the big boys, too, not just the retail little guys. 464 00:53:24,490 --> 00:53:26,530 But even little guys, you have to worry about that, too. 465 00:53:26,530 --> 00:53:29,990 You have to worry about, is this shiny piece of metal? 466 00:53:29,990 --> 00:53:31,830 It looks legit, but is it legit? 467 00:53:32,130 --> 00:53:35,470 And so you have a challenge in precious metals to do authentication. 468 00:53:35,490 --> 00:53:47,790 That is, you have to buy devices to check and make sure that the conductivity and the resistivity and the density and all the properties of the metal that you think are going to be true are actually true. 469 00:53:47,850 --> 00:53:59,430 And even then, you don't know, because the only real test is to do destructive testing, stick the thing in a furnace, you know, and melt it down and see what you've really got. 470 00:53:59,870 --> 00:54:05,290 In contrast to that, in cryptocurrency, authentication is not that big of a problem . 471 00:54:05,290 --> 00:54:09,530 So basically in Bitcoin, it's easy to see if a Bitcoin is legit. 472 00:54:10,250 --> 00:54:20,570 The problem in cryptocurrency is that the falsehood happens in the myriad of cryptocurrencies that exist that offer nothing of value. 473 00:54:20,830 --> 00:54:36,190 So basically, that is the challenge for an investor or, you know, anyone new getting into cryptocurrency is wading through all of this, all of these low quality projects and figuring out where the good ones are. 474 00:54:36,610 --> 00:54:41,870 All right, so Monero's code base is not a copy of Bitcoin's. 475 00:54:41,870 --> 00:54:44,690 It started from the ground up as its own thing. 476 00:54:44,690 --> 00:55:00,610 So this is, I'd say it's a pretty strong acid test of legitimacy is, can something start from its own with a code base that is totally not derived from Bitcoins and survive and do something useful for humanity? 477 00:55:02,130 --> 00:55:05,470 All right, the elliptic curve used in Monero is different too. 478 00:55:05,470 --> 00:55:08,270 So Monero uses ED25519. 479 00:55:08,270 --> 00:55:11,510 So this is yet another source of technical hedging. 480 00:55:11,510 --> 00:55:28,490 So to the extent that one of Bitcoin's weaknesses could be its reliance on this particular elliptic curve, one can hedge one's reliance on that by looking at a alternate elliptic curve as a basis for a cryptocurrency like Monero does. 481 00:55:28,650 --> 00:55:31,390 In Monero, there are dual private keys. 482 00:55:31,390 --> 00:55:39,290 So there's a spend key and spend money, just like knowledge of the key is in Bitcoin. 483 00:55:39,310 --> 00:55:41,130 But in Monero, there's a second key. 484 00:55:41,130 --> 00:55:46,050 There's a view key, which is basically like a cryptographic subset of the spend key. 485 00:55:46,050 --> 00:55:52,270 If you know the view key, then you can look at details of transactions that you were involved in. 486 00:55:52,470 --> 00:55:56,130 So it basically offers an opt-in transparency. 487 00:55:56,530 --> 00:56:04,310 So one of the misconceptions about Monero, it's just this completely secret box where you can tell nothing about what's going on in it. 488 00:56:04,310 --> 00:56:05,110 You can. 489 00:56:05,110 --> 00:56:11,630 And you can actually share details of what's going on in your particular Monero account if you share your view key. 490 00:56:12,490 --> 00:56:14,170 The address space is different. 491 00:56:14,170 --> 00:56:15,890 It's larger in Monero. 492 00:56:16,150 --> 00:56:21,490 It's 10 to 76 versus 10 to the 60 in BTC. 493 00:56:22,070 --> 00:56:38,890 But there's a cost to that expanded address space, which has a pro in that it reduces the birthday problem, which is the birthday problem being the probability that the account number that you personally choose for your crypto account is going to, by random, 494 00:56:38,890 --> 00:56:44,690 be the same as the number that somebody else somewhere else in the world chooses for their crypto account. 495 00:56:44,690 --> 00:56:53,050 And you have a conflict because now you have two people who actually have the knowledge of the spend key for a account, not just the one that it's supposed to be. 496 00:56:53,210 --> 00:56:56,990 So that probably goes down in Monero, but there's a cost to that. 497 00:56:56,990 --> 00:56:58,890 That is of complexity. 498 00:56:58,890 --> 00:57:08,550 So for example, the addresses in Monero are quite a bit longer than they are in Bitcoin, which has an effect on user friendliness. 499 00:57:08,890 --> 00:57:11,150 The emission schedule is different. 500 00:57:11,150 --> 00:57:30,870 So in Monero, there's kind of a theme in that this project looks at how things are done in Bitcoin, gives it due and proper respect as the granddaddy of the space, but then thinks, well, what could we do that's maybe even better than that? 501 00:57:31,010 --> 00:57:34,030 And the emission schedule, in my opinion, is one of those. 502 00:57:34,030 --> 00:57:36,410 So it's continually decreasing. 503 00:57:36,410 --> 00:57:38,770 There is not a four-year half-mean cycle. 504 00:57:38,850 --> 00:57:46,050 So in Bitcoin, every 210,000 blocks, the size of the miner's reward gets cut in half. 505 00:57:46,270 --> 00:57:56,870 So that means if you're a miner in Bitcoin, there's a date every four years, approximately, circled on your calendar in red, in which your income is going to get cut in half. 506 00:57:56,870 --> 00:58:01,870 So that introduces a lot of drama in the mining world. 507 00:58:01,870 --> 00:58:13,770 So it's hard for any business to make plans if your income and your expenses are unpredictable or change drastically over time. 508 00:58:13,770 --> 00:58:20,410 So that's exactly what happens in Bitcoin with the mining reward happening as it does. 509 00:58:21,190 --> 00:58:25,640 In Monero, we have a continuously decreasing schedule. 510 00:58:27,700 --> 00:58:33,750 In Monero, we have what we think is a solution to a form of unwanted scarcity. 511 00:58:33,750 --> 00:58:38,850 A form of unwanted scarcity is the future miner rewards. 512 00:58:38,910 --> 00:58:50,180 So in Bitcoin, the mining reward is projected to get cut in half every four years, approximately, until it's basically zero. 513 00:58:50,180 --> 00:58:57,280 And so at that point, who is going to reward the network miners for doing the accounting work of the network? 514 00:58:57,280 --> 00:59:04,960 In Bitcoin, it's hypothesized that a fee network, basically user fees, are going to step in and make up the difference. 515 00:59:05,000 --> 00:59:12,180 But there are papers that question the viability of such a system. 516 00:59:12,280 --> 00:59:15,620 And so what we do in Monero is called the tail emission. 517 00:59:15,620 --> 00:59:22,040 So basically, in Monero, the block reward is never going to be smaller than 0.3 Monero per minute. 518 00:59:22,040 --> 00:59:23,700 We call this the tail emission. 519 00:59:23,700 --> 00:59:30,640 We call it the tail emission because you have a distribution with a tail, and the tail extends out far into time. 520 00:59:30,940 --> 00:59:38,120 So often this gets described as being infinite emission, which I suppose is technically true. 521 00:59:38,120 --> 00:59:41,980 As time goes to infinity, yes, the emission will go to infinity. 522 00:59:41,980 --> 00:59:47,540 But in practice, no human is going to live to the limit as t goes to infinity. 523 00:59:47,540 --> 00:59:52,160 That's basically a theoretical construct that's useful in calculus. 524 00:59:52,160 --> 01:00:07,660 But as far as, you know, mortal humans are concerned, it is quite sufficient to know that the coin supply is going to be such and such a level in 10 years from now, 20 years from now, 50 years from now, 100 years from now. 525 01:00:07,660 --> 01:00:15,460 It is not necessarily relevant to a mortal human what the emission is as time goes to infinity. 526 01:00:16,680 --> 01:00:25,020 Secondly, the absolute value of coin emission is not that relevant. 527 01:00:25,020 --> 01:00:27,100 It's actually annualized inflation. 528 01:00:27,100 --> 01:00:33,340 That is, what is the percentage of inflation that takes place in a supply, like, say, over a year's time? 529 01:00:33,340 --> 01:00:35,060 That is more relevant. 530 01:00:35,060 --> 01:00:51,180 And so if you have a situation like you have in Monero, in which the coin emission is growing linearly over time, it means with linear growth, you have a growth rate, a growth percentage rate, which is asymptotically going to zero over time. 531 01:00:51,200 --> 01:00:57,380 And in any macroeconomic theory, it's the inflation rate that is relevant to a theory. 532 01:00:57,440 --> 01:01:10,980 So basically, the difference between equal zero inflation, which is what you have in Bitcoin versus asymptotically zero, which is what you have in Monero, it's irrelevant. 533 01:01:10,980 --> 01:01:15,380 It gets swallowed up in the noise of whatever macroeconomic theory you're looking at. 534 01:01:16,180 --> 01:01:30,140 So what do we get in exchange for this very small kind of, I guess, you know, giving up of a continual block reward into perpetuity? 535 01:01:30,140 --> 01:01:34,800 Well, at least in Monero, we know that minor incentives are guaranteed forever. 536 01:01:34,800 --> 01:01:53,400 We don't worry about who is going to be forced to pay for this, which is, it actually was one of the causes of the civil war and the divorce a few years ago within Bitcoin was that there is a disagreement as to how much of a load should the transactors of the coin be paying? 537 01:01:53,400 --> 01:02:00,860 Is it okay that people actually transacting in the coin are paying hundred dollar fees to make one transaction? 538 01:02:00,860 --> 01:02:01,640 Is that okay or not? 539 01:02:01,640 --> 01:02:04,220 There's a disagreement of that over that in Bitcoin. 540 01:02:04,820 --> 01:02:13,200 And the argument for, yes, it is okay for them to be paying that is that, well, eventually minor rewards are going to go to zero. 541 01:02:13,360 --> 01:02:17,160 And so we're going to rely on user fees to pay the miners. 542 01:02:17,160 --> 01:02:22,840 So they better get used to it because, you know, this is going to be the future is that, you know, the fees are going to pay the miners. 543 01:02:22,840 --> 01:02:25,620 So, you know, they better just get used to ponying up the money. 544 01:02:26,560 --> 01:02:35,180 So anyway, without getting too much into that, you know, civil war, that's something that we avoid in Monero by having this tail emission. 545 01:02:35,880 --> 01:02:36,500 All right. 546 01:02:36,500 --> 01:02:38,960 So I mentioned that as a physicist, I like to look at data. 547 01:02:38,960 --> 01:02:41,420 So I'm going to show some of it here. 548 01:02:42,120 --> 01:02:44,360 This is looking at supply emission. 549 01:02:44,480 --> 01:02:48,840 So this is over time, how many Bitcoin have there been in existence? 550 01:02:48,840 --> 01:02:59,240 And again, each one of these Bitcoin was given in the past to a computer as a reward for doing the computing power of maintaining the network of who owns what within Bitcoin. 551 01:02:59,580 --> 01:03:05,320 So you can see the solid part of this Bitcoin line is what actually happened. 552 01:03:05,860 --> 01:03:08,360 And that is taken from block explorers. 553 01:03:08,360 --> 01:03:10,380 In this case, I'm using blockchain.com. 554 01:03:10,380 --> 01:03:20,980 And what's shown in the light shaded gray, like the not solid black, but the gray, that is projecting into the future what the supply emission of Bitcoin is going to be. 555 01:03:20,980 --> 01:03:24,140 And that is basing that off the Bitcoin white paper. 556 01:03:24,760 --> 01:03:33,240 So the Bitcoin white paper basically is what programmed all the computers that generated this line for the last 11 years. 557 01:03:33,320 --> 01:03:41,420 And so you can kind of, you know, have some confidence that the future coin emission of Bitcoin is going to be what was predicted as well. 558 01:03:41,420 --> 01:03:51,860 And so let's not kind of dismiss or downplay the, you know, how crazy this is in terms of monetary policy. 559 01:03:51,960 --> 01:03:56,680 This is a monetary system in which the emission is declared in advance. 560 01:03:56,680 --> 01:04:04,280 And not only is it declared in advance, like there's an 11-year track record of it actually happening as predicted. 561 01:04:05,040 --> 01:04:17,620 So you can't have a situation like a, you know, for example, a pandemic causing a committee of, you know, men in a boardroom deciding that it's time to print a bunch of money. 562 01:04:17,920 --> 01:04:19,640 That doesn't happen in Bitcoin. 563 01:04:20,540 --> 01:04:21,160 All right. 564 01:04:21,160 --> 01:04:24,440 We can look at Monero's supply emission as well. 565 01:04:24,440 --> 01:04:28,480 So again, in Monero, we do not have four-year halvenings. 566 01:04:28,480 --> 01:04:38,600 So in contrast to this Bitcoin line, which you see has these kinks in it every four years or so, there's a, it's like basically it's a piecewise linear emission line. 567 01:04:38,600 --> 01:04:41,420 Monero's curve is actually smooth. 568 01:04:41,520 --> 01:04:48,660 And so again, to the left of the present between 2014, which is when Monero came into existence. 569 01:04:48,660 --> 01:04:50,640 And now you can see this very smooth curve. 570 01:04:50,640 --> 01:04:54,060 It looks like that's a theoretical curve, but that's actually not a theoretical curve. 571 01:04:54,060 --> 01:04:58,580 That is actually, that is empirical data that I'm showing on the left on Monero. 572 01:04:58,580 --> 01:05:04,860 And then on the right, there's a formula that declares, just like in Bitcoin, it declares what the coin emission is going to be. 573 01:05:04,860 --> 01:05:18,240 And in Monero, just like in Bitcoin, all of the coin reward that is now in existence was once given in the past to a miner that helped do the accounting work in the Monero network. 574 01:05:18,240 --> 01:05:20,780 There was no centralized company. 575 01:05:20,780 --> 01:05:26,480 There was no kind of person behind the scenes getting a cut of the action. 576 01:05:26,480 --> 01:05:44,980 Now, all of the money that was rewarded in Monero was given to a random computer out there in the Monero network that just happened to come up with a difficulty-satisfying nonce, therefore coming up with a rare set of data that could be added to the Monero blockchain. 577 01:05:46,060 --> 01:05:52,820 All right, and so the tail emission in Monero, you can see it as this very gradual slope that continues upward. 578 01:05:53,260 --> 01:06:01,080 The tail emission is going to get hit not too long from now, and then it'll continue in perpetuity. 579 01:06:01,500 --> 01:06:04,540 All right, here's year-over-year supply inflation. 580 01:06:04,540 --> 01:06:23,360 And in case you've seen Monero means money, which is the lecture I was a part of, which featured my last keynote lecture that I gave at 3063 in Leipzig, Germany, I also showed a version of this plot. 581 01:06:24,080 --> 01:06:32,760 What I had to do this year to make this plot actually fit was to change the scale of the y-axis. 582 01:06:33,100 --> 01:06:39,880 So it was 20% before, it's 30% now, and that is because I had to fit the supply inflation of the U.S. 583 01:06:39,880 --> 01:06:42,020 dollar that's shown in green. 584 01:06:42,020 --> 01:06:58,920 And so you can see that spike there is post-pandemic, and the MZM money supply line inflation, that is the amount of USD in circulation now versus one year ago, is up 30%. 585 01:06:58,920 --> 01:07:15,840 So you have this kind of interesting turn of events in which just a few years ago, it was cryptocurrencies that had the drastic supply inflation, as the cryptocurrencies were trying to get Boeing put out there. 586 01:07:17,860 --> 01:07:28,880 But now we're coming on a new era of scarcity in cryptocurrencies, in which the inflation rates of both Bitcoin and Monero are now on the sub-3% level. 587 01:07:28,880 --> 01:07:31,060 They're continuing to drop. 588 01:07:31,480 --> 01:07:44,060 And interestingly, you can also see there's going to be an eight-year period, basically, between now and about 2028, in which the inflation rate of Monero is actually going to be smaller than that of Bitcoin. 589 01:07:44,160 --> 01:07:53,700 So if you want to, if scarcity, you know, if extreme scarcity is something that interests you, Monero should be a contender on your list. 590 01:07:54,160 --> 01:07:57,740 Here, I'm showing also the inflation curve for gold. 591 01:07:57,740 --> 01:08:06,660 So the World Gold Council keeps track of an estimate every year of how much gold it thinks exists. 592 01:08:06,940 --> 01:08:11,300 And it calls it its estimate above ground gold. 593 01:08:11,300 --> 01:08:16,780 So basically, it's not counting the gold in the ground that hasn't been mined yet. 594 01:08:16,780 --> 01:08:18,460 It's not counting estimates of that. 595 01:08:18,460 --> 01:08:25,300 It's only counting estimates of, you know, ore that's been mined and processed and turned into bullion. 596 01:08:25,760 --> 01:08:35,860 So if you look at that, the inflation rate of gold has been roughly 1.81%, if you average that out over all of the data that it's provided. 597 01:08:36,360 --> 01:08:49,300 So we tend to think of gold as not being inflationary, but the money supply of gold actually does inflate as, you know, it gets dug out of the ground every year at this rate of, pretty steady rate of about 1.8% per year. 598 01:08:49,300 --> 01:08:57,820 So if you think of gold as being sound money, that basically introduces this figure, like basically this 1.8% per year figure. 599 01:08:57,820 --> 01:09:09,580 Like if you have some source of scarcity, that is, I'd say around or below that 1.8% per year figure, then it's a candidate for being called sound money. 600 01:09:09,580 --> 01:09:24,080 And so I would say, I would posit that both Bitcoin and Monero , if they don't technically meet that definition right now, they certainly will be literally below the year over year supply inflation rate of gold by the end of 2020. 601 01:09:24,080 --> 01:09:26,760 And it'll just drop after that. 602 01:09:31,810 --> 01:09:36,510 All right, there's another form of unwanted scarcity that I want to talk about, that is mining hardware. 603 01:09:36,510 --> 01:09:40,190 And so miner reward should scale with miner expense. 604 01:09:40,190 --> 01:09:43,370 So in the Bitcoin white paper, there's this phrase, one CPU, one vote. 605 01:09:43,370 --> 01:09:49,330 And what that means is that, you know, you basically want to be fair to the miners. 606 01:09:49,370 --> 01:09:59,670 You want to have every miner's probability of hitting a block reward be proportional to the investment that they put in to securing the network. 607 01:09:59,830 --> 01:10:04,150 Now, unfortunately, silicon economies of scale destroy this linearity. 608 01:10:04,150 --> 01:10:23,650 So if you have an algorithm that is simple enough that you can design a piece of silicon to do nothing but that algorithm super efficiently, then you'll have an advantage over general purpose computing devices like CPUs, and to a lesser extent, GPUs that are meant to be general purpose. 609 01:10:23,650 --> 01:10:26,710 They're not optimized for this certain problem. 610 01:10:26,770 --> 01:10:29,730 So in Bitcoin, you have exactly this situation. 611 01:10:29,730 --> 01:10:40,490 So the proof-of-work algorithm in Bitcoin is simple enough that ASICs got custom designed to do nothing but a Bitcoin proof-of-work algorithm over and over. 612 01:10:40,850 --> 01:10:50,230 And so at this point, ASICs are what are practically dominating the Bitcoin mining network. 613 01:10:50,270 --> 01:11:08,630 It is simply a silly exercise for any, you know, little guy, any one of us to put our, you know, our little gaming rig on the Bitcoin network and think that we have any infinitesimal chance of getting a Bitcoin reward. 614 01:11:08,630 --> 01:11:12,210 I mean, basically, it's like lotto sorts of chances. 615 01:11:12,210 --> 01:11:15,650 It's like, you might as well just, you know, go buy lottery tickets. 616 01:11:15,650 --> 01:11:22,890 It's that bad of a return on investment for someone who does not have the requisite hardware. 617 01:11:23,310 --> 01:11:28,150 And unfortunately, all of the requisite hardware happens to be all made in China. 618 01:11:28,150 --> 01:11:31,550 So Bitcoin mining currently is a Chinese dominated oligopoly. 619 01:11:31,630 --> 01:11:34,250 Now, this is not necessarily a problem that it's China. 620 01:11:34,250 --> 01:11:45,630 The problem is that it's just one part of the world that effectively has a monopoly on the production of the necessary equipment to maintain the accounting system. 621 01:11:46,250 --> 01:12:08,770 So in Monero, we have taken steps to try to keep the proof of work algorithm viable for small, independent miners who don't necessarily have, for example, $50 million to spend on their own silicon fabrication facility, or, you know, have social inroads with the CEOs of the companies who do have these silicon fabs. 622 01:12:08,930 --> 01:12:15,470 So if you look at the proof of work at Monero, since 2018, it has changed four times. 623 01:12:15,470 --> 01:12:18,290 This is remarkable for any cryptocurrency. 624 01:12:18,910 --> 01:12:20,290 We've done it four times. 625 01:12:20,290 --> 01:12:26,550 It started out as Kryptonite, then Kryptonite v2 came, Kryptonite v3, then Kryptonite R, and now RandomX. 626 01:12:27,270 --> 01:12:31,370 So this is looking at, again, data from the Monero blockchain. 627 01:12:31,370 --> 01:12:34,390 And this is looking at Monero network difficulty. 628 01:12:34,790 --> 01:12:44,010 So in other words, this is the number that is required for miners to successfully submit a new block to the Monero blockchain. 629 01:12:44,070 --> 01:12:54,930 So the higher the number, the higher the difficulty, that means the more competing computers there are doing the accounting work on the Monero network. 630 01:12:55,130 --> 01:13:02,410 So you can see, and so on this timescale, we're starting at April 2014, which is when April 2014 is when Monero started. 631 01:13:02,430 --> 01:13:06,390 So through version 0.11, the proof of work was Kryptonite. 632 01:13:06,410 --> 01:13:22,330 But then you see here, there's this spike up in the difficulty, and that was basically due to ASICs having figured out how to do Kryptonite efficiently on ASICs, making an ASIC to do that, putting it on the network, and then basically running away with the vast majority of the miner rewards. 633 01:13:22,430 --> 01:13:31,210 So that caused a fair bit of alarm within the Monero community, and steps were taken to basically render these ASICs useless. 634 01:13:31,450 --> 01:13:37,450 So that's Kryptonite v2 came out with v0.12 in early 2018. 635 01:13:37,450 --> 01:13:45,590 That worked for a while, but then there's basically just a lag time before the development of an ASICs to do Kryptonite v2. 636 01:13:45,750 --> 01:13:53,550 So once there was another alarming spike up in the difficulty rate, well, Kryptonite v3 went out. 637 01:13:53,550 --> 01:13:55,950 And these were all hard forks. 638 01:13:55,970 --> 01:14:03,930 So these all were changes that had to be adopted by everyone on the Monero network, otherwise they would be mining an obsolete coin. 639 01:14:05,090 --> 01:14:08,230 So it... and this process continued again. 640 01:14:08,230 --> 01:14:10,990 So then in 2019, there was another spike in the hash rate. 641 01:14:10,990 --> 01:14:12,230 So we went with Kryptonite R. 642 01:14:12,230 --> 01:14:20,690 And then finally, around Thanksgiving of last year, is when RandomX got put into the network in v0.15. 643 01:14:20,690 --> 01:14:36,670 And all signs so far are that things are looking good as far as keeping the network open and available for little guys with just a CPU, just a gaming computer, for example, that they set to mine, you know, overnight or whatever. 644 01:14:36,670 --> 01:14:42,270 People like that have a shot at mining a block in Monero. 645 01:14:46,210 --> 01:14:50,170 All right, there's another form of unwanted scarcity, and that's access to layer one. 646 01:14:50,170 --> 01:14:57,450 And that is, can you actually get a transaction onto the network during, say, busy times, during peak times? 647 01:14:57,450 --> 01:15:02,130 So this is another cause of a civil war in Bitcoin. 648 01:15:02,130 --> 01:15:05,710 There's a one megabyte limit in the Bitcoin code. 649 01:15:05,710 --> 01:15:24,870 So basically, Satoshi, in a kludgy, hacky way to prevent the network from getting spammed, Satoshi coded in a one megabyte hard-coded limit on the size of every new block and saying that it was a temporary thing. 650 01:15:24,870 --> 01:15:27,210 But is this actually temporary? 651 01:15:27,210 --> 01:15:28,310 Should it have been removed? 652 01:15:28,310 --> 01:15:37,750 Like, basically, a few years ago, when interest was picking up in Bitcoin and the block sizes were running up against this one megabyte limit, you had two camps. 653 01:15:38,950 --> 01:15:45,810 You know, again, if you're new to crypto, I guess I don't want to go too much into details of this messy civil war and divorce. 654 01:15:45,810 --> 01:15:49,450 And even though they've divorced, they're still at war. 655 01:15:50,510 --> 01:16:06,570 Basically, the first thing you have to do if you want to be in the social circles of Bitcoin is you have to declare your allegiance, whether you have allegiance to Bitcoin Core or Bitcoin Cash or Bitcoin SV. 656 01:16:06,570 --> 01:16:15,290 And then you have to declare your unending scorn and hatred for everyone else and the other, you know, forks who don't do things right. 657 01:16:15,290 --> 01:16:18,510 They just don't get it for this and that reason. 658 01:16:18,650 --> 01:16:25,670 And, you know, this bickering has been going on for years, and it really hasn't dissipated much since then. 659 01:16:25,930 --> 01:16:39,390 But anyway, it's an example of what, I guess, can go wrong within a crypto community is that you have like a civil war blow up of a seemingly technical parameter. 660 01:16:39,390 --> 01:16:54,170 So, again, in the Monero community, we've looked at what Bitcoin's done and we've, I think, taken steps to try to avoid at least the, you know, direct brunt of the drama that results from making some of these decisions. 661 01:16:54,310 --> 01:17:01,690 So in Monero, instead of having a hard-coded limit on how big blocks can be, we have an adapted block weight algorithm. 662 01:17:03,010 --> 01:17:08,210 It used to be called adaptive block size, but then, you know, some improvements got made to it. 663 01:17:08,210 --> 01:17:10,170 Now it's called adaptive block weight. 664 01:17:10,330 --> 01:17:17,050 I will spare you the details in this talk, but ArcticMine actually is going to be talking right after me. 665 01:17:17,050 --> 01:17:21,430 So I expect his talk will have a lot of good details on this matter. 666 01:17:21,430 --> 01:17:33,010 But the basic idea is that there's a disincentive to the minor reward that kicks in when the blocks are above a certain size, like 300 kilobytes. 667 01:17:33,470 --> 01:17:43,230 So, basically, the minor is disincentivized from just putting all sorts of spam into a block and then, you know, saying, hey, here you go, world, here's your new block. 668 01:17:43,510 --> 01:17:47,930 So, basically, their minor reward is going to go down the bigger the block they make. 669 01:17:48,690 --> 01:17:54,690 And to make up for that, though, user fees are going to increase if recent blocks are bigger than that. 670 01:17:54,690 --> 01:17:59,530 So, basically, if there's congestion on the network, then users are going to be asked to pay a little bit more. 671 01:17:59,530 --> 01:18:01,930 The block reward to the minor goes down a bit. 672 01:18:01,930 --> 01:18:06,330 But all of this is handled dynamically in a system that's not hard-coded. 673 01:18:06,330 --> 01:18:16,830 So that if you have a case in which there is actual organic, slowly growing, legitimate, non-spam use of the Monero network, it's going to accommodate that. 674 01:18:16,830 --> 01:18:18,210 It's going to allow for that. 675 01:18:18,210 --> 01:18:21,890 And you can see this in the transactions per day plot that I'm showing in the bottom here. 676 01:18:21,890 --> 01:18:25,070 Here I'm showing transactions per day on a logarithmic scale. 677 01:18:25,070 --> 01:18:29,790 So we're going from 10 up to 1 million transactions per day on Bitcoin versus Monero. 678 01:18:30,150 --> 01:18:38,070 And in Bitcoin, you can see that there's like this, basically, this asymptotic limit that is being hit because there's this one megabyte block limit. 679 01:18:38,350 --> 01:18:43,690 Whereas in Monero, we're liberated from that with this adaptive algorithm. 680 01:18:43,690 --> 01:18:49,690 And you can see, basically, the general trend line in Monero is that the transactions per day are going up. 681 01:18:49,750 --> 01:18:51,850 We are seeing usage of the network. 682 01:18:54,540 --> 01:18:55,480 All right. 683 01:18:55,480 --> 01:19:00,400 So I want to move on to fungibility and its consequences in a surveillance society. 684 01:19:00,580 --> 01:19:02,120 Bitcoin is transparent. 685 01:19:02,180 --> 01:19:13,820 So if you're new to crypto, you might be under the mistaken assumption based on, and it's an understandably mistaken assumption, based on how wrong the popular press is. 686 01:19:13,820 --> 01:19:27,000 So often when it comes to any sort of reporting on Bitcoin or blockchain related topics, they routinely, you know, mangle the details in ways that you would expect and ways you wouldn't expect. 687 01:19:27,260 --> 01:19:41,840 But this narrative that Bitcoin is this, you know, super secret currency that nobody knows what's going on in it once you're in it is totally categorically false. 688 01:19:41,960 --> 01:19:43,840 Bitcoin is 100% transparent. 689 01:19:43,840 --> 01:19:46,080 It's all there in the Bitcoin whitepaper. 690 01:19:46,460 --> 01:19:50,960 The Bitcoin block etches forever for everyone to see. 691 01:19:50,960 --> 01:19:55,760 For every transaction, it shows the sender, the receiver, how much got transferred. 692 01:19:55,760 --> 01:20:02,600 For every Bitcoin address, it's trivial for anyone to go to a Bitcoin block explorer and type in anyone's address. 693 01:20:02,600 --> 01:20:03,940 It doesn't have to be your own address. 694 01:20:03,940 --> 01:20:06,160 It can be any person's address. 695 01:20:06,160 --> 01:20:11,280 It can be the, you know, donation address of somebody you see online. 696 01:20:11,280 --> 01:20:14,840 You can type them that address and you can see how much money they have. 697 01:20:14,960 --> 01:20:19,900 You can see a complete balance history in live, real time. 698 01:20:20,900 --> 01:20:24,780 What this does is it puts innocent people and businesses at risk. 699 01:20:24,780 --> 01:20:38,500 So, for example, let's say you, you know, pay for a pizza with Bitcoin, but just as it happens, let's say that, you know, this innocent person happens to be, have a significant amount of wealth in Bitcoin. 700 01:20:38,500 --> 01:20:48,640 So when they pay for this $10 pizza with Bitcoin, then the delivery guy now knows that, okay, here's the Bitcoin address that I just got my payment from. 701 01:20:48,680 --> 01:21:07,080 You know, delivery guy goes home, types in the address and can instantly see that the guy that he just delivered a pizza to has enough Bitcoin in it to be worth maybe considering sharing with some of his unsavory friends who might be interested in, you know, 702 01:21:07,080 --> 01:21:13,680 making a visit to this guy and seeing if he might be persuaded to share his Bitcoin with them. 703 01:21:13,700 --> 01:21:18,760 So this transparency puts innocent people and businesses at risk. 704 01:21:19,100 --> 01:21:26,680 For businesses, trade secrets are routinely considered part of business and nobody questions that. 705 01:21:26,680 --> 01:21:35,600 So no business wants to divulge how many customers it has, how much those customers pay, who its suppliers are, when they pay their suppliers. 706 01:21:35,600 --> 01:21:54,820 But all this sort of proprietary information that is necessary to make the special sauce of any legitimate business that is adding value for its customers, these operational details are an important part of that success. 707 01:21:54,820 --> 01:21:57,580 And so businesses don't want to give that away. 708 01:21:57,680 --> 01:22:01,840 On a transparent blockchain like Bitcoin, they are forced to give that information away. 709 01:22:01,840 --> 01:22:02,880 They have no choice. 710 01:22:02,880 --> 01:22:06,740 They have to give it away because it's by design transparent. 711 01:22:08,540 --> 01:22:20,460 It's as if you have a situation in which you have $10 bills, but on the back of every $10 bill, you see a nice list of everyone before you who's owned that $10 bill going all the way back to the U.S. 712 01:22:20,460 --> 01:22:20,880 Mint. 713 01:22:20,880 --> 01:22:24,580 You know, it shows you like every dollar bill shows you the mint that it came from. 714 01:22:24,580 --> 01:22:36,580 Imagine it showed the date of the printing, the employee at the mint who was the last person to touch it before it left the mint, the first bank that it got. 715 01:22:36,580 --> 01:22:41,260 And then basically every single person on that dollar bill, a list of that is shown. 716 01:22:41,260 --> 01:22:42,380 That's Bitcoin. 717 01:22:43,120 --> 01:22:46,160 Every single coin is traceable back to the miner. 718 01:22:46,380 --> 01:22:48,440 That invites voyeurism. 719 01:22:48,440 --> 01:22:54,980 It invites people to just basically be snoopy, like snoop, be creepy because they can. 720 01:22:55,160 --> 01:23:01,040 Because it's easy to type in, you know, your buddy's Bitcoin account into your own browser and look up how much cash they have. 721 01:23:01,040 --> 01:23:02,320 It's easy to do it. 722 01:23:02,380 --> 01:23:03,940 The system invites you to do it. 723 01:23:03,940 --> 01:23:05,100 So people do it. 724 01:23:06,700 --> 01:23:16,900 It also invites guilt by association because let's say you have a situation in which a squeaky clean guy, I'm going to use this squeaky clean guy example a lot. 725 01:23:17,560 --> 01:23:26,220 So I guess maybe in a Monero talk, you're not going to expect a whole bunch of talk about the interests of squeaky clean people, but maybe that's a refreshing thing. 726 01:23:26,220 --> 01:23:30,020 Like I would like to talk about squeaky clean people if that's okay and not criminals. 727 01:23:30,820 --> 01:23:35,540 You know, I identify more with the squeaky clean group quite a bit more. 728 01:23:35,580 --> 01:23:41,780 So I would like to talk about the interests of the squeaky clean people and what they would like to see in a cryptocurrency. 729 01:23:42,540 --> 01:23:48,120 So let's say you have a situation in which a squeaky clean guy is buying a car from somebody, right? 730 01:23:48,120 --> 01:23:54,640 So when you buy a car from somebody and you go on Craigslist or whatever, you see a bunch of cars posted. 731 01:23:55,540 --> 01:24:00,220 You don't really think to do a background check on the person selling the car. 732 01:24:00,220 --> 01:24:01,400 Is that really relevant? 733 01:24:01,400 --> 01:24:03,480 Like you're just buying a car. 734 01:24:03,520 --> 01:24:17,020 Is it necessary to, you know, pull a credit report and go on a detailed investigation on the person selling the car to find out if they had a, you know, a happy childhood, got enough hugs when they were a kid, like find out all that kind of stuff. 735 01:24:17,020 --> 01:24:23,660 Is that really something that we think as a society should be a necessary part of buying a car on Craigslist? 736 01:24:24,020 --> 01:24:25,480 Currently the answer is no. 737 01:24:25,600 --> 01:24:36,880 So basically it's okay to just go buy a car from a stranger and you don't know what that stranger's history is as long as they have clear title to the car and you have the cash, you can make a deal , right? 738 01:24:36,880 --> 01:24:53,940 And it's not going to be... and if it turns out that the person selling you the car was an unshady character in some way, you would expect in the cash system, in our current fiat system, that that is not going to come back to haunt you, that that is not going to be used to falsely accuse you. 739 01:24:53,940 --> 01:25:05,420 But yet in Bitcoin we have this situation where you have complete transparency in the blockchain, yet ignorance on the social circumstances surrounding each transaction. 740 01:25:05,420 --> 01:25:18,380 So, but you also have this perfect voyeurism that's part of the currency, which means like you're thinking, well, gee, I have this blockchain that shows every single detail of who sent what to who. 741 01:25:18,380 --> 01:25:31,880 If only I could associate each of these Bitcoin addresses to actual names and faces, then I would have a graph, I would have a graph showing different people giving money to different people. 742 01:25:31,880 --> 01:25:37,740 And let's say I could further identify certain members of this system as being bad actors, right? 743 01:25:37,740 --> 01:25:47,540 So now I have this graph of bad actors and I have that bad actor's complete financial history on this transaction, on this transparent blockchain. 744 01:25:47,600 --> 01:25:52,500 Well, let's say this bad actor sold his car to Squeaky Clean Guy. 745 01:25:52,580 --> 01:26:08,620 So Squeaky Clean Guy now gave his Bitcoin, in this scenario, his or her Bitcoin, to this, unbeknownst to them, bad actor who was selling them a car. 746 01:26:09,280 --> 01:26:13,500 Now this bad actor goes out and does something bad with that Bitcoin. 747 01:26:13,500 --> 01:26:20,080 Let's say, you know, drugs or organized crime or whatever, you know, whatever, whatever the bad thing is, right? 748 01:26:20,080 --> 01:26:27,380 So this criminal goes out and does that with the Bitcoin that they got from this innocent Squeaky Clean Guy. 749 01:26:28,100 --> 01:26:50,720 Well, because the Bitcoin blockchain is transparent and you have multiple companies whose job it is to do precisely what I just said, that is, put names and faces on accounts in the Bitcoin system and basically come up with what amounts to a social credit score for everyone in the Bitcoin network. 750 01:26:50,720 --> 01:27:02,940 Your social credit score will be good if your dot in their graph is only connected to other dots in their graph that are known to be quote-unquote good. 751 01:27:02,940 --> 01:27:11,700 And as soon as you have a link from your dot to another dot that's quote-unquote bad, that's going to ding your social credit score. 752 01:27:11,700 --> 01:27:14,840 This is currently live and in place in Bitcoin. 753 01:27:14,840 --> 01:27:37,920 And by participating in Bitcoin, it's like you are signing an implicit terms and conditions saying that I agree for my data that is being put on the Bitcoin blockchain to be poured over by analysts somewhere in the world who have no idea who I am, but based on basically who is sending money to who, 754 01:27:37,920 --> 01:27:45,040 could well have the power to make false assumptions, false positive results against my character. 755 01:27:45,040 --> 01:27:46,880 And I have no recourse over that. 756 01:27:46,880 --> 01:27:54,740 That is part of the implicit terms and conditions that squeaky clean people sign in effect when they participate in Bitcoin. 757 01:27:55,500 --> 01:28:07,520 Technical censorship resistance, which is proudly featured within Bitcoin, you know, our network is censorship resistant. 758 01:28:07,520 --> 01:28:09,800 We have the most hash power behind us. 759 01:28:10,420 --> 01:28:18,200 Unfortunately, when this comes up against the topmost OSI layer, right, we're talking like the human meatspace layer. 760 01:28:18,200 --> 01:28:35,960 Unfortunately, technical censorship resistant turns out to be insufficient, because if you have a Bitcoin address that is associated with a, like, let's say a really bad guy, like an undisputed, you know, international terrorist who everybody agrees is like a really bad person, 761 01:28:35,960 --> 01:28:37,540 and they have a Bitcoin address. 762 01:28:38,700 --> 01:28:46,920 In effect, anyone who does a transaction with that Bitcoin address is going to get a lot of unwanted attention. 763 01:28:47,000 --> 01:28:49,280 It's going to be instant. 764 01:28:49,360 --> 01:28:57,900 And because the Bitcoin blockchain is so public, and there are companies that are looking at this sort of data. 765 01:28:58,420 --> 01:29:04,820 So even though you have technical censorship resistance, well, yeah, yeah, I guess. 766 01:29:04,820 --> 01:29:13,840 I mean, but so what if you have, like, every three letter agency has this certain, you know, list of Bitcoin addresses on its bad list? 767 01:29:14,120 --> 01:29:21,240 How many Bitcoin people are there who are actually, you know, checking against all of these addresses on their list? 768 01:29:21,380 --> 01:29:25,960 I would say they're probably very few, like, like individuals. 769 01:29:25,960 --> 01:29:34,360 But every company is paying 10s of 1000s of dollars per month to one of these blockchain analysis companies that is doing. 770 01:29:37,230 --> 01:29:40,350 All right, in contrast with Bitcoin, Monero is fungible. 771 01:29:40,350 --> 01:29:49,310 And Monero does this by integrating three separate technologies, all of which combine to promote indistinguishability between the tokens in the Monero network. 772 01:29:49,310 --> 01:29:51,050 One is ring signatures. 773 01:29:51,050 --> 01:29:55,690 So ring signatures, keep the identities of the senders private. 774 01:29:56,030 --> 01:30:14,950 So in Monero, what happens is that, let's, let's say I want to send Monero, what happens is that when I put together my transaction, and I sign it at the time of signing, I take my, my transaction input, basically, you can think of my little chunk of Monero, 775 01:30:14,950 --> 01:30:23,650 which is associated with my address, and then the protocol will pick 10 other chunks of Monero that exist on the network. 776 01:30:23,930 --> 01:30:35,290 And when I construct the signature to spend that Monero, the only thing that you know cryptographically is one of these 11 chunks of Monero are the are the ones that actually are being sent. 777 01:30:35,590 --> 01:30:37,210 You don't know which one it is. 778 01:30:37,210 --> 01:30:41,990 So that's how ring signatures keep the transacting senders private. 779 01:30:42,190 --> 01:30:45,290 Stealth addresses keeps the transacting receivers private. 780 01:30:45,290 --> 01:30:51,670 So in Bitcoin, the receiver's Bitcoin address shows up in plain text on the blockchain for everybody to see. 781 01:30:51,770 --> 01:30:53,090 So in Monero, that doesn't happen. 782 01:30:53,090 --> 01:31:00,290 In Monero, the receiving blockchain address gets encrypted in a one-time sort of thing. 783 01:31:00,290 --> 01:31:05,730 So it doesn't get encrypted the same way every time it gets encrypted in a different way for every transaction. 784 01:31:05,750 --> 01:31:09,430 So a stealth address gets a one-time stealth address gets put on the blockchain. 785 01:31:09,430 --> 01:31:10,690 That's what everyone can see. 786 01:31:10,690 --> 01:31:12,890 It's an encrypted version of the receiver's address. 787 01:31:12,890 --> 01:31:15,790 And so that keeps the transacting receivers private. 788 01:31:16,010 --> 01:31:22,030 Then finally, RingCT is a technology that keeps transaction amounts sent private. 789 01:31:22,430 --> 01:31:28,090 So the original white paper for Monero was a crypto note white paper. 790 01:31:28,090 --> 01:31:34,670 The crypto note white paper included ring signatures and stealth addresses in it, but it did not include RingCT. 791 01:31:34,670 --> 01:31:35,990 RingCT came later. 792 01:31:35,990 --> 01:31:37,630 It's a fungibility innovation. 793 01:31:37,630 --> 01:31:50,590 And I think it's an interesting example of the kind of stubbornness and dedication and kind of alignment of all the elements of the Monero community in improving fungibility in this project. 794 01:31:50,590 --> 01:31:55,670 So to put RingCT live into action, it required three things. 795 01:31:55,670 --> 01:31:57,830 It required original cryptographic research. 796 01:31:57,830 --> 01:32:01,630 So we're talking, you know, post-PhD level mathematics. 797 01:32:01,690 --> 01:32:05,530 It required development and an external audit of new code. 798 01:32:05,530 --> 01:32:08,830 So you need some code ninjas to make this stuff happen. 799 01:32:08,830 --> 01:32:16,390 So you have some higher level math being created, new knowledge being created on the mathematical cryptography front. 800 01:32:16,390 --> 01:32:27,310 Then that has to be applied into code that people are confident enough can be entrusted with keeping safe custody of people's money. 801 01:32:27,350 --> 01:32:31,610 So you need development in an external audit of new code. 802 01:32:31,610 --> 01:32:33,730 So the external is actually optional. 803 01:32:33,810 --> 01:32:38,750 There might be projects out there who don't do an external audit because it costs money. 804 01:32:38,830 --> 01:32:57,910 So in Monero, all of the new, all of the big, you know, code upgrades that I can think of, certainly in the last several years, have all had a separate external audit phase in which community members are asked to contribute to pay for other, you know, 805 01:32:57,910 --> 01:33:01,850 basically extra eyeballs to look at code before it gets put into production. 806 01:33:02,090 --> 01:33:09,310 And then third, you needed community commitment to hard fork RingCT into existence. 807 01:33:11,590 --> 01:33:18,910 So here's some data from the blockchains that kind of explain the story here. 808 01:33:18,910 --> 01:33:25,890 So the top chart I'm showing is the daily average of the average number of bytes per transaction. 809 01:33:25,930 --> 01:33:28,750 So you can see I'm showing in black is Bitcoin. 810 01:33:28,790 --> 01:33:32,550 It's been very, you know, pretty constant in Bitcoin. 811 01:33:33,610 --> 01:33:46,210 Like they're, you know, the ethos coming from Bitcoin is that, you know, we want the protocol to be safe and we don't want to make too many changes because, you know, there's a lot of money riding on this network. 812 01:33:46,210 --> 01:33:55,650 You know, set aside the fact that Bitcoin is still like a baby in terms of global finance, like the Bitcoin in global terms is not keeping track of a whole lot of money. 813 01:33:56,050 --> 01:34:03,350 But that's the attitude that they take is that, you know, we're the custodians and you want to be very conservative and we don't want to make changes. 814 01:34:03,350 --> 01:34:04,330 It's going to be what it is. 815 01:34:04,330 --> 01:34:13,490 So you can see that there's been very little change over 11 years on this front in how big a Bitcoin transaction is. 816 01:34:13,750 --> 01:34:15,210 It's quite different for Monero. 817 01:34:15,210 --> 01:34:20,190 So if you look here now at 2014, the Monero network was born. 818 01:34:20,230 --> 01:34:22,630 Initially, nobody was using the Monero network. 819 01:34:22,630 --> 01:34:27,250 And so you would see only minor rewards being sent out. 820 01:34:27,250 --> 01:34:31,530 And in Monero, minor reward blocks are, they don't take that many bytes. 821 01:34:31,530 --> 01:34:44,050 So that's why in like the birth days of Monero, you see that the transaction size in bytes was very small because those were mostly Coinbase transactions going out to basically empty blocks. 822 01:34:44,410 --> 01:34:46,270 But then people started using it. 823 01:34:46,270 --> 01:34:52,830 And then in the early days of Monero, the way it worked was that the system used denominated outputs. 824 01:34:52,850 --> 01:35:02,350 So for example, you can think of there being like a, like one Monero, like gold chunk that is encased in plastic, right? 825 01:35:02,350 --> 01:35:07,950 And it's engraved with the kind of owner's, you know, private key information on it. 826 01:35:07,950 --> 01:35:10,270 And it can only be used by that person. 827 01:35:10,270 --> 01:35:19,210 And once a person spends that one Monero output, then it transmits and it goes, it becomes the property of somebody else on the Monero network. 828 01:35:19,210 --> 01:35:24,710 But you basically have this discrete kind of chunk of value that gets passed around. 829 01:35:24,750 --> 01:35:31,510 And so in the early days of Monero, you had, you know, one Monero chunks, two Monero chunks, 10 Monero chunks, 100 Monero chunks. 830 01:35:31,510 --> 01:35:33,910 You had basically every round number. 831 01:35:33,910 --> 01:35:38,330 So you had one through nine, 10 through 90, 100 through 900, 1,000 through 9,000. 832 01:35:38,390 --> 01:35:44,450 So you had, you know, and then going the other way, 0.1 through 0.9, 0.01 through 0.09, all the way going there. 833 01:35:44,450 --> 01:35:53,290 So basically to put a transaction together, if you wanted to spend 341 Monero, you'd have to get a 300 block, a 40 block and a one block or some combination. 834 01:35:53,290 --> 01:35:56,670 You had to, you know, scrounge around your outputs and come up with 341. 835 01:35:56,890 --> 01:36:04,290 And then when you spent it, you'd have to either, you know, you'd have to spend the actual chunks that you had, or you'd have to break them up. 836 01:36:04,290 --> 01:36:04,430 Right. 837 01:36:04,430 --> 01:36:09,790 So that was, that's what was going on in the early days of Monero up until 2017. 838 01:36:10,530 --> 01:36:22,310 Then it was recognized that this was not so good for privacy because, you know, if you spend 341 Monero, just to make up a number, I sent 341 Monero to my buddy. 839 01:36:22,330 --> 01:36:26,490 Now my buddy has 341 Monero and they send it to somebody else. 840 01:36:26,490 --> 01:36:30,870 You can see the 300 and the 40 and the one, you can see they're kind of traveling around. 841 01:36:31,250 --> 01:36:34,470 That's what you could see in Monero pre-RingCT. 842 01:36:34,850 --> 01:36:37,870 And so it was decided in the community that this was not acceptable. 843 01:36:37,870 --> 01:36:51,390 And so when the result, the research for RingCT was increasingly tested and vetted and, and it was seen to be good and also externally audited, there was a decision in the community, community to do it. 844 01:36:51,710 --> 01:36:59,190 Now, this was despite the fact that when RingCT was enabled, you can see there's this big jump in 2017 of the transaction size. 845 01:36:59,190 --> 01:37:06,130 So it went to about 10 kilobytes per transaction and it peaked almost to like, you know, 20 kilobytes per transaction. 846 01:37:06,130 --> 01:37:11,250 We're looking at very large transactions compared to the size of the Bitcoin transactions. 847 01:37:11,250 --> 01:37:21,670 But that was a price that was kind of unanimously decided in the, in the Monero community was worth it to improve fungibility of the coin, which would protect the innocent. 848 01:37:22,550 --> 01:37:23,250 All right. 849 01:37:23,250 --> 01:37:28,290 And you can see that in the bottom chart here, I'm showing the daily average transaction fee. 850 01:37:28,290 --> 01:37:31,770 So this is how much a, the person signing the check. 851 01:37:31,770 --> 01:37:45,030 This is how much that person who signs a check to spend money in Monero, how much money they are kicking in to chip into the miner, whose job it is to add their transaction to the next block. 852 01:37:45,250 --> 01:37:52,770 And so you can see that for quite a while, the Monero and the Bitcoin block fees kind of went in, in parallel together. 853 01:37:53,170 --> 01:38:01,810 At the last big bull run at the end of 2017, Bitcoin's transaction fees were in the like, you know, 50, a hundred dollar range. 854 01:38:02,190 --> 01:38:11,170 It's basically because, you know, there's all this, you know, new interest of new people into cryptocurrency and Bitcoin in particular. 855 01:38:11,370 --> 01:38:16,210 The new interest was driven by the, you know, spectacular rise of price. 856 01:38:16,210 --> 01:38:31,550 And so you had all these noobs wanting to try their, you know, their new Bitcoin, going to the network, you know, basically all these people were flooding the network with their transaction requests because Bitcoin has this one megabyte block size limit. 857 01:38:31,550 --> 01:38:34,730 There's a ceiling to how many transactions that can process. 858 01:38:34,730 --> 01:38:37,910 And so as a result, the fees went way up. 859 01:38:38,870 --> 01:38:43,350 And so they went up in Monero as well. 860 01:38:43,850 --> 01:38:51,610 And that was largely, you know, there's, RingCT had a role in that because RingCT was making the transaction sizes that much bigger. 861 01:38:52,250 --> 01:38:54,730 Then later Bulletproofs came. 862 01:38:54,730 --> 01:39:11,870 So Bulletproofs were a method to use more clever mathematics to, to ensure that the balance of inputs and outputs that is guaranteed using higher math in RingCT can be done with far less byte space than it previously did. 863 01:39:11,870 --> 01:39:20,110 So you see when Bulletproofs and again, there's a, there's a research process, an audit process, a coding process, and a vetting process for all this for Bulletproofs as well. 864 01:39:20,110 --> 01:39:29,530 But when that went live on the network, and that was in late 2018, you can see that the transaction size dropped by basically an order of magnitude. 865 01:39:29,730 --> 01:39:35,490 And then you can see here on the transaction fee side, the fees also dropped by an order of magnitude. 866 01:39:35,910 --> 01:39:41,010 So you can see that all of this innovation happened relatively recently. 867 01:39:41,010 --> 01:39:43,690 We're talking since 2017, 2018. 868 01:39:43,730 --> 01:39:59,950 I know it's a long time in terms of crypto terms because, you know, things move so fast in crypto, but, you know, if you look on human terms, like, like all this improvement happened in a short timeframe, which means that oftentimes you'll see like, kind of criticism of Monero being like, 869 01:39:59,950 --> 01:40:02,330 the transaction sizes are way too big. 870 01:40:02,330 --> 01:40:05,770 It's never going to scale, or the transaction fees are way too big. 871 01:40:05,770 --> 01:40:07,230 People are never going to want to pay that. 872 01:40:07,230 --> 01:40:12,530 Well, that, that is all obsolete as of like, basically, you know, two years ago. 873 01:40:12,530 --> 01:40:16,110 As of late 2018, these things are no longer really true. 874 01:40:16,630 --> 01:40:21,550 You could argue that the Monero transaction sizes are still quite a bit larger than Bitcoins. 875 01:40:21,570 --> 01:40:26,170 But there's a, there's a new news item in the Monero research pipeline. 876 01:40:26,270 --> 01:40:35,190 CL-SAGs are a way to compress the byte size requirement of transactions even further, on top of what Bulletproofs have done. 877 01:40:35,270 --> 01:40:43,170 That's been, that just went through an audit process, and it's being coded up for inclusion in the next hard fork, the next planned hard fork. 878 01:40:43,170 --> 01:40:47,190 And again, in Monero, hard fork is not like a term of, you know, war. 879 01:40:47,190 --> 01:40:53,810 It's like a kind of something we look forward to, because it means that new good stuff is coming, going to come on live. 880 01:40:53,970 --> 01:40:58,190 So CL-SAGs are set to go on live on the network this October. 881 01:40:58,230 --> 01:41:11,210 And once that happens, you're, I'm showing in a dotted line here, like basically the order of magnitude of improvement that we're going to, that we're expecting to see on the average transaction side size post-CL-SAG. 882 01:41:11,210 --> 01:41:17,550 So you can see that there's a gap here between the transaction sizes between Monero and Bitcoin, but it's shrinking. 883 01:41:17,550 --> 01:41:27,030 And the reason it's shrinking is that there's a lot of dedicated smart effort being put into that by members of the Monero community. 884 01:41:29,470 --> 01:41:35,950 Meanwhile, on the fee side, fees in Monero have been like in the penny range for like a, like over a year now. 885 01:41:35,950 --> 01:41:52,290 So, you know, if you're thinking of contrasting that with Bitcoin, in which, you know, if you want to try to achieve some measure of fungibility within Bitcoin, you have to do all sorts of, you know, ninja stuff, which is, you know, questionable in effect, 886 01:41:52,290 --> 01:41:56,970 because in the end, everything you do in Bitcoin is totally transparent. 887 01:41:56,970 --> 01:41:59,430 So, I mean, it's like a cat and mouse game. 888 01:41:59,690 --> 01:42:08,870 Anyway, to try and get some semblance of privacy in Bitcoin, there's like a bunch of different steps you got to do of varying practicality. 889 01:42:09,470 --> 01:42:13,890 Some of it might, and most of it just doesn't get done by most people in Bitcoin. 890 01:42:13,890 --> 01:42:34,170 So if you compare the, for the use case of transacting privately, especially for squeaky clean people who want to be insulated from the unrelated actions of other people on the network, Monero is the way to go. 891 01:42:35,890 --> 01:42:38,390 Monero benefits people with nothing to hide. 892 01:42:38,390 --> 01:42:42,410 It eliminates the risk of receiving coins that are tainted due to no fault of the receiver. 893 01:42:42,410 --> 01:42:45,070 So this is the example of the selling the used car. 894 01:42:45,070 --> 01:42:53,350 So one interesting thing is that these chain analysis companies, basically one thing that they do is that they flatten the time dimension. 895 01:42:53,430 --> 01:43:02,790 And what I mean by that is that it doesn't matter if person A sent a Bitcoin to person B 10 minutes ago, or six years ago. 896 01:43:02,870 --> 01:43:08,550 Once that link happens between person A and person B, now there's a link. 897 01:43:08,550 --> 01:43:23,970 Now there's a certain probability of suspicion that people A and B are actually, you know, business partners and not just random people doing a arm's length transaction like with selling a car to a stranger. 898 01:43:23,970 --> 01:43:28,750 Like the people analyzing the blockchain have no idea of that social context. 899 01:43:28,750 --> 01:43:34,590 All they can do is, you know, assign some sort of probability of social involvement with that, right? 900 01:43:34,590 --> 01:43:51,090 What that ends up meaning is that for people who actually are squeaky clean, any involvement in the Bitcoin blockchain means you have a probability of interacting with somebody else on the Bitcoin blockchain who is not as squeaky clean as you are. 901 01:43:51,090 --> 01:44:01,510 And if that happens, that's going to be flagged in these companies doing blockchain analysis as a potentially meaningful link. 902 01:44:01,510 --> 01:44:04,450 When the fact is, it's a false positive. 903 01:44:04,710 --> 01:44:07,230 It's an actually meaningless link. 904 01:44:07,230 --> 01:44:09,790 But you as the user have no power over that. 905 01:44:09,790 --> 01:44:11,590 You have no recourse. 906 01:44:11,590 --> 01:44:17,050 You have no way of communicating to these companies and saying, hey, yo, I'm actually squeaky clean. 907 01:44:17,270 --> 01:44:18,090 They don't know. 908 01:44:18,090 --> 01:44:18,630 They don't know. 909 01:44:18,630 --> 01:44:19,490 They don't care. 910 01:44:19,990 --> 01:44:21,370 They have no liability. 911 01:44:21,390 --> 01:44:35,750 If they do a false positive, well, it's just, you know, they can't help it if they thought that, you know, well, this person looks suspicious, you know, I guess, you know, it's not my fault that they sent the SWAT team to this innocent guy's place. 912 01:44:35,750 --> 01:44:37,470 I was just doing my job, right? 913 01:44:37,470 --> 01:44:45,950 I mean, that's the kind of issue that is going to increasingly be happening on a totally transparent blockchain. 914 01:44:47,410 --> 01:44:48,430 All right. 915 01:44:50,190 --> 01:44:52,950 There's a Nobel Prize winning paper that I want to talk a bit about. 916 01:44:52,950 --> 01:44:59,950 It was by George Ekerlof who won the Nobel in economics, and he got the Nobel by talking about the used car market. 917 01:45:00,050 --> 01:45:09,470 So there's a linkage here between used cars, the pandemic, and surveillance coins, which is what I like to call transparent coins. 918 01:45:11,750 --> 01:45:11,990 All right. 919 01:45:11,990 --> 01:45:13,550 There are two used cars types. 920 01:45:13,550 --> 01:45:15,070 They're lemons and they're peaches. 921 01:45:15,070 --> 01:45:17,790 So lemons are the ones, those are the bad cars, right? 922 01:45:17,790 --> 01:45:19,610 Those are the cars that are junk. 923 01:45:19,750 --> 01:45:23,490 And they were, you know, they went through a hurricane or a flood or something. 924 01:45:23,490 --> 01:45:25,150 There's some big problem with the car. 925 01:45:25,210 --> 01:45:30,510 Whoever buys that lemon is going to have nothing but problems because the thing's going to break and they're going to have repair bills. 926 01:45:31,070 --> 01:45:32,610 On the other hand, you have peaches. 927 01:45:32,610 --> 01:45:38,850 Peaches are the kind of slang name within the used car industry for cars that are good. 928 01:45:39,070 --> 01:45:40,110 They were in care of. 929 01:45:40,110 --> 01:45:44,410 Usually it's like the person who actually bought the car and didn't, you know, didn't lease the car. 930 01:45:44,410 --> 01:45:46,050 They bought the car new. 931 01:45:46,110 --> 01:45:47,270 They took good care of it. 932 01:45:47,270 --> 01:45:48,290 They did all the maintenance. 933 01:45:48,290 --> 01:45:49,210 They changed the oil. 934 01:45:49,210 --> 01:45:59,770 They did all, you know, they took the car to the dealer and paid higher prices for maintenance rather than just take it to their cousin who did oil changes for cheap in their garage or whatever, right? 935 01:45:59,770 --> 01:46:05,610 So peaches are the cars that got like the first class treatment in terms of maintenance. 936 01:46:05,610 --> 01:46:07,110 Lemons are the opposite, right? 937 01:46:07,110 --> 01:46:24,170 And when it's time to sell these cars, you can't tell them apart though because both the lemons and the peaches go through a very thorough paint job process in which the finish is, you know, polished down to a mirror finish so that both the lemons and the peaches look, 938 01:46:24,170 --> 01:46:27,790 they look superficially to be fantastic. 939 01:46:27,810 --> 01:46:32,290 So the buyers can't tell them apart, but the buyers know that they are ignorant in this situation. 940 01:46:32,290 --> 01:46:41,030 They know that even though all of the cars on this used car lot look great, there's some of them that are actually lemons and some of them are peaches, right? 941 01:46:41,030 --> 01:46:43,430 So the Akerlof insight goes as follows. 942 01:46:43,430 --> 01:46:51,170 There is a negative feedback loop in this marketplace which has asymmetric information between buyers and sellers. 943 01:46:51,170 --> 01:46:54,930 The buyers are relatively ignorant relative to the sellers. 944 01:46:54,990 --> 01:46:59,050 The sellers know which of the cars are the lemons and which of the cars are the peaches. 945 01:46:59,050 --> 01:47:02,110 The buyers don't know that, but they know that they're ignorant. 946 01:47:02,930 --> 01:47:05,310 So in that situation, here's what happens. 947 01:47:05,310 --> 01:47:09,110 The buyers come up with an offer price for their used car. 948 01:47:09,110 --> 01:47:15,450 That offer price is going to be the lemon price because that's, that's the minimum possible price it can be worth is the lemon price. 949 01:47:15,730 --> 01:47:26,970 But then based on the buyer's perceived probability of getting a peach versus getting a lemon, they're going to adjust their offer price to account for the probability that they're going to get a lemon. 950 01:47:27,130 --> 01:47:38,110 So in, for example, if the used car buyer thinks that there's only a 1% chance that they're going to get a lemon, then their offer price is going to be almost equal to that of a peach price. 951 01:47:38,110 --> 01:47:43,390 It's going to be basically 99% of the difference between the lemon and the peach. 952 01:47:43,470 --> 01:47:45,330 That's the rational offer price. 953 01:47:45,330 --> 01:47:47,870 If you think there's a 1 % chance, you're going to get a lemon. 954 01:47:49,750 --> 01:47:55,790 So let's say the buyer thinks there's, thinks there's a 5% chance of getting a lemon. 955 01:47:55,790 --> 01:48:02,590 So they come up with this offer price that's in between a lemon price and a peach price, but it's pretty close to the peach price, but it's not quite . 956 01:48:02,810 --> 01:48:06,150 So what happens when the, um, the seller makes this offer? 957 01:48:06,170 --> 01:48:09,270 Well, the lemon seller is delighted. 958 01:48:09,270 --> 01:48:13,350 The lemon seller is delighted because they're selling a thing that's worth the lemon price. 959 01:48:13,350 --> 01:48:17,590 Here comes the sucker offering almost a peach price for this car. 960 01:48:17,590 --> 01:48:20,850 So the lemon seller says, great deal. 961 01:48:20,850 --> 01:48:21,390 Great. 962 01:48:21,390 --> 01:48:22,850 I will accept your offer. 963 01:48:22,850 --> 01:48:23,790 And they shake hands. 964 01:48:23,790 --> 01:48:25,030 They sell that lemon. 965 01:48:25,070 --> 01:48:26,310 How about the peach sellers? 966 01:48:26,310 --> 01:48:29,550 The peach sellers are the people who took good care of their cars. 967 01:48:29,830 --> 01:48:39,390 They know that their car is worth the peach price, but because of this ignorance, they are unable to transmit this goodness, the knowledge of that goodness to the buyer. 968 01:48:39,390 --> 01:48:41,930 The buyer is unwilling to pay for full goodness. 969 01:48:41,930 --> 01:48:48,650 They are willing to only pay for partial goodness because they think there's some probabilistic chance that they're going to get burned on the deal. 970 01:48:48,650 --> 01:48:54,590 So the peach sellers are being offered less than what their car, what they know their car is worth. 971 01:48:54,590 --> 01:48:56,530 So they will tend to say no thanks. 972 01:48:56,530 --> 01:49:01,090 When the peach sellers say no thanks, they end up leaving this used car market. 973 01:49:01,090 --> 01:49:09,050 In other words, the peach sellers who had put their car up for sale, now they delete their Craigslist ad, right? 974 01:49:09,050 --> 01:49:17,470 As a result, the fraction of Craigslist ads that are selling lemons goes up because some of these peach sellers left. 975 01:49:17,730 --> 01:49:20,310 Therefore, the chances of getting a lemon have gone up. 976 01:49:20,450 --> 01:49:23,470 Now the buyers are eventually going to get wise to this. 977 01:49:23,470 --> 01:49:30,210 They're going to observe that, oh gee, I thought the chance of getting a lemon was 5%, but you know, my buddy just bought a used car. 978 01:49:30,210 --> 01:49:31,050 He got a lemon. 979 01:49:31,050 --> 01:49:33,330 This other buddy, he got a lemon too. 980 01:49:33,330 --> 01:49:36,170 So, you know, maybe I think it's like, you know, 10 or 15%. 981 01:49:36,170 --> 01:49:38,790 So basically the offer price goes down. 982 01:49:38,810 --> 01:49:47,650 When the offer price goes down, the lemon sellers continue to accept that because basically everything in the second probabilistic term for the offer price is gravy. 983 01:49:47,770 --> 01:49:49,130 That's their profit. 984 01:49:49,130 --> 01:49:52,150 So there's no way for a lemon seller to lose in this situation. 985 01:49:52,150 --> 01:49:55,610 No matter what the offer price coming in is, they're going to accept it. 986 01:49:55,630 --> 01:50:02,450 But the lower the prices, the stronger the reaction from the peach sellers is going to be to leave the market. 987 01:50:03,550 --> 01:50:13,450 So you basically have this negative feedback loop and this race to the bottom in which all of the sellers of the good stuff leave the market and you're left with only a market of junk. 988 01:50:13,530 --> 01:50:16,670 You have 100% lemons in the used car market. 989 01:50:16,790 --> 01:50:33,910 And even despite like the real used car market, which has been assisted by things like Carfax, which, you know, gives you some semblance of a history of a car to help you assess that probability, it's still, you know, it's still an unknown. 990 01:50:35,170 --> 01:50:38,430 So, right. 991 01:50:38,450 --> 01:50:48,390 So even though there's Carfax now, the used car market continues to have a bit of a shady reputation, right? 992 01:50:48,390 --> 01:50:55,830 It continues to be the case that people who take really good care of their cars tend to be the ones who will keep the cars and not sell them. 993 01:50:55,830 --> 01:50:57,570 They exit that market. 994 01:50:57,710 --> 01:50:58,150 All right. 995 01:50:58,150 --> 01:51:05,510 So the Akerlof paper has direct applications to Defcon safe mode, what we're doing now, and also transparent coins. 996 01:51:05,530 --> 01:51:08,730 So let's, let's look at the pandemic example. 997 01:51:08,730 --> 01:51:11,890 So people with good health, right? 998 01:51:11,890 --> 01:51:14,530 People who are healthy and actually are healthy. 999 01:51:14,530 --> 01:51:16,390 Those are peaches in this situation. 1000 01:51:16,390 --> 01:51:27,590 So, and the used car marketplace is the marketplace that consists of going to a conference and meeting cool other people and making new friends and all that. 1001 01:51:28,150 --> 01:51:49,150 So when, when a peach seller, in other words, a healthy person is faced with the prospect of engaging in such a marketplace, that buyer is ignorant of whether the product that they're going to buy when they go to that marketplace is continued good health from making new friends and staying healthy, 1002 01:51:49,150 --> 01:51:50,910 or if they're going to get a lemon. 1003 01:51:50,910 --> 01:51:58,850 Getting a lemon would be, you know, you know, making buddies with someone who is asymptomatic and had the virus and didn't know it. 1004 01:51:59,150 --> 01:52:01,750 They come home sick, right? 1005 01:52:01,750 --> 01:52:19,870 So that's, that's the situation where you have ignorance of the particular details of who is a lemon and who is a peach, but a probabilistic assessment that if you engage in the marketplace, there's a percentage of probability that you're going to end up with a lemon. 1006 01:52:20,110 --> 01:52:28,030 And so the rational, the rational action in that is for the healthy people to bypass that market. 1007 01:52:28,030 --> 01:52:37,410 They, they, they say , no thanks, I am not going to engage in the market for real in-person networking at this point in time. 1008 01:52:37,450 --> 01:52:41,010 And it's going to be a good idea to do Defcon in safe mode, right? 1009 01:52:41,010 --> 01:52:44,410 That is an example of the peaches leaving the market. 1010 01:52:45,590 --> 01:52:48,690 Let's look at transparent coins of which Bitcoin is one. 1011 01:52:48,690 --> 01:52:57,390 So when you have a surveillance coin in which all of the details are put, put up on a ledger, and you have squeaky clean people, right? 1012 01:52:57,390 --> 01:53:00,730 Who genuinely have nothing to hide. 1013 01:53:00,810 --> 01:53:02,970 They, they live their lives well. 1014 01:53:02,970 --> 01:53:07,050 They haven't done anything to anybody, which is actually the majority of people, I think. 1015 01:53:07,050 --> 01:53:09,590 You have squeaky clean coin owners. 1016 01:53:09,590 --> 01:53:15,590 They are the owners of transparent coins that have their reputation attached to them. 1017 01:53:16,070 --> 01:53:31,950 Is it worth it for these people to go out into the Bitcoin marketplace and transact goods and services in Bitcoin when they are, when they have full knowledge of the fact that some of the people in the Bitcoin ecosystem are not as squeaky clean as they are? 1018 01:53:31,950 --> 01:53:44,170 And if they transact with these people, they have some risk of being falsely flagged in a false positive as being a, a comrade of some bad guy. 1019 01:53:45,690 --> 01:53:48,570 They don't know who it's going to happen with. 1020 01:53:48,570 --> 01:53:51,490 This is, it's exactly the same as the Yukon market. 1021 01:53:51,490 --> 01:54:02,730 They don't know which of these people that they're transacting with is the lemon who's going to cause them all sorts of problems, because some chain analysis company makes a false association between them. 1022 01:54:02,730 --> 01:54:07,890 They don't know who it is, but they know that they're out there somewhere and that there's some probability of that happening. 1023 01:54:08,090 --> 01:54:14,850 So if you are truly squeaky clean, what is the rational response to such an ecosystem? 1024 01:54:14,850 --> 01:54:16,590 What is the rational response? 1025 01:54:16,590 --> 01:54:27,730 Would you like to opt in to this social system where you might be falsely accused of someone who you have nothing to do with, but you just happen to exchange coins in some, some one-off transaction? 1026 01:54:28,330 --> 01:54:30,010 Are you okay with that? 1027 01:54:30,330 --> 01:54:37,570 So that's the question that's being asked to the squeaky clean people when they are being asked to participate in a system like Bitcoin. 1028 01:54:38,850 --> 01:54:42,070 So there's a cryptocurrency safe mode idea I want to get across. 1029 01:54:42,070 --> 01:54:53,890 So just like it was, you know, we look back and we, we say, wow, it was a little bit naive of, of people to, to automatically assume that they're healthy just because they feel healthy. 1030 01:54:54,490 --> 01:55:03,010 It was naive of people to think that the only people out there who are sick are the ones who are actively sneezing and coughing, right? 1031 01:55:03,010 --> 01:55:11,530 So we can look back at, you know, several months ago, wake to prehistoric times of several months ago and kind of wonder how we could have possibly lived our lives like that. 1032 01:55:11,530 --> 01:55:15,610 There's a similar kind of thing I think that's going to happen with transparent coins. 1033 01:55:15,650 --> 01:55:17,910 You have people who are squeaky clean. 1034 01:55:18,410 --> 01:55:20,290 Somebody wants to send them Bitcoin. 1035 01:55:20,290 --> 01:55:21,350 Yes. 1036 01:55:21,350 --> 01:55:24,710 Well, I guess they have Bitcoin, so they must be legit. 1037 01:55:24,710 --> 01:55:29,650 They, they're cool enough to get with it with understanding Nakamoto consensus. 1038 01:55:29,650 --> 01:55:31,030 They must be a good guy, right? 1039 01:55:31,150 --> 01:55:31,630 Okay. 1040 01:55:31,630 --> 01:55:32,590 I'll take your money. 1041 01:55:32,590 --> 01:55:35,730 So funds received later, any unpleasant effects. 1042 01:55:35,830 --> 01:55:38,750 And this could be immediate and it could not be immediate. 1043 01:55:38,750 --> 01:55:42,610 Like that's the thing about flattening the transaction graph between people. 1044 01:55:42,690 --> 01:55:44,610 It takes away the time dimension. 1045 01:55:44,610 --> 01:55:50,670 So let's say you do, let's say, you know, you settle a dinner bill with your buddy, right? 1046 01:55:51,510 --> 01:55:55,690 Five years later, you and your buddy, you know, diverge paths. 1047 01:55:55,970 --> 01:56:00,110 And it turns out that your former buddy is now involved in organized crime, right? 1048 01:56:00,110 --> 01:56:04,570 And then they use their Bitcoin to do something unsavory with their Bitcoin. 1049 01:56:04,570 --> 01:56:15,790 But part of that spending came back from five years ago when you had dinner together and you settled the bill and you, you know, you gave him, you know, whatever, 50 bucks to like pay for your share of a dinner, right? 1050 01:56:15,790 --> 01:56:19,370 But now your address has been associated with this bad guy. 1051 01:56:19,370 --> 01:56:24,410 So it could strike and you don't know when. 1052 01:56:24,890 --> 01:56:32,430 So like the naive way of thinking about this is that, well, okay, you're going to interact with other people, strangers on the Bitcoin network. 1053 01:56:32,430 --> 01:56:35,630 Is anything unpleasant going to happen as a result of that? 1054 01:56:35,650 --> 01:56:37,810 Well, ha ha, no, that's not going to happen. 1055 01:56:37,910 --> 01:56:43,610 That's just something that these, you know, delusional Monero people talk about as being something, right? 1056 01:56:43,610 --> 01:56:53,810 Like nobody in my friend group thinks that anything like that ever happens, you know, that I don't, I don't think that this, this bad thing that this guy's talking about even exists. 1057 01:56:53,810 --> 01:56:55,690 I'm going to call it fake news, right? 1058 01:56:55,690 --> 01:57:03,190 So like maybe, maybe your entire circle of crypto buddies, like dismisses this entire possibility out of hand, never talks about it. 1059 01:57:03,190 --> 01:57:18,630 Or maybe they talk about it and they say, oh, it's going to get fixed 18 months from now with this new technical change that's, you know, in the pipeline and in Bitcoin, as long as at least 40% of the nodes, you know, indicate through a BIP that they, 1060 01:57:18,630 --> 01:57:20,090 they approve it. 1061 01:57:20,090 --> 01:57:26,650 And then, then maybe at the 40% happens and six months after that, there's like a count, like all this, all this contingency stuff. 1062 01:57:26,650 --> 01:57:29,230 And you, you listen to that and you say, okay, yeah, that's good enough. 1063 01:57:29,230 --> 01:57:33,090 That's yeah, that, that, that should, you know, fix the problem, right? 1064 01:57:34,090 --> 01:57:54,930 But just like in the pandemic, we are at a time in which one's wellbeing depends on the ability to separate one's, what one is hearing from a variety of sources and kind of listen to that quiet voice inside that is saying something that might well be true. 1065 01:57:55,270 --> 01:58:01,830 And that quiet voice might be saying, well, you know, maybe fungibility is, is important. 1066 01:58:01,830 --> 01:58:18,970 You know, maybe this stuff is actually true, what the Monero guys are saying that, you know, maybe this will help usher in a integrated surveillance state in which the fact that Bitcoin's transparency is so radically transparent gets used against us and not for us. 1067 01:58:19,090 --> 01:58:29,790 Like we thought that was going to be used for us as a, as a force to kind of open up the inner workings of large institutions like banks and make sure that they couldn't take advantage of the little guy anymore. 1068 01:58:29,790 --> 01:58:40,930 Well, gee, maybe it's possible that could, that could be turned on us, turned against the little guy and, and the, and the results used to deepen the surveillance that gets used against all of us. 1069 01:58:40,930 --> 01:58:50,710 There was a recent decision that came from the top regulator of US banks saying that banks are now allowed to custody crypto for their customers. 1070 01:58:50,770 --> 01:59:01,670 So now you have a lot of like, this opens up the possibility for Goldman Sachs and all these traditional guys in finance to offer, you know, Bitcoin products for their customers. 1071 01:59:02,810 --> 01:59:04,510 So great. 1072 01:59:04,510 --> 01:59:17,830 So you're combining, combining all of the surveillance capabilities of legacy fiat, and you're augmenting that with the additional power of, of surveillance that the transparency of Bitcoin gives you. 1073 01:59:18,390 --> 01:59:20,390 What could go wrong with that? 1074 01:59:21,730 --> 01:59:26,470 Monero is what Bitcoin noobs think they bought, which is sound money in safe mode. 1075 01:59:28,770 --> 01:59:30,110 All right. 1076 01:59:31,030 --> 01:59:33,090 I'm going to skip to the Monero community. 1077 01:59:33,090 --> 01:59:35,550 It has no formal organizational structure. 1078 01:59:35,610 --> 01:59:38,130 It's idealistic, scientific, and yet welcoming. 1079 01:59:38,130 --> 01:59:40,070 It's a cypherpunk community. 1080 01:59:40,550 --> 01:59:49,750 I think of all the cryptocurrencies, it is the one that's most aligned with organizations such as the Electronic Frontier Foundation and DEF CON itself. 1081 01:59:49,750 --> 01:59:56,430 I think it's appropriate and fitting that this is the only crypto that gets its own village at DEF CON. 1082 01:59:56,950 --> 01:59:59,950 Again, I think it's an important project for humanity. 1083 01:59:59,950 --> 02:00:12,150 And I think it's important for people who, for squeaky clean people in particular, who want to unapologetically claim this right of privacy for themselves, which is legal. 1084 02:00:12,410 --> 02:00:16,110 Monero is legal in the United States and a lot of other places too. 1085 02:00:16,150 --> 02:00:20,890 And it's actually better at compliance with a lot of laws that regard privacy. 1086 02:00:20,890 --> 02:00:25,390 For example, the GDPR in Europe, which mandates privacy protections for its citizens. 1087 02:00:25,590 --> 02:00:32,650 That is a law that Bitcoin totally fails because part of that law includes a right to be forgotten. 1088 02:00:32,790 --> 02:00:39,250 So in Europe, you're supposed to be able to write, send an email to a company and say, delete me from all your databases. 1089 02:00:39,290 --> 02:00:41,070 I don't want to be on there anymore. 1090 02:00:41,250 --> 02:00:43,530 Destroy your records, any record you have of me. 1091 02:00:43,530 --> 02:00:45,850 And European companies have to comply with that. 1092 02:00:45,850 --> 02:00:47,210 Is that possible in Bitcoin? 1093 02:00:47,210 --> 02:00:55,110 It's absolutely impossible in Bitcoin because you have a mountain of proof of work that is basically etched in stone every past transaction. 1094 02:00:55,110 --> 02:00:56,830 You can't erase any of that. 1095 02:00:56,970 --> 02:01:02,790 You also can't undo the metadata associations of actual people to addresses. 1096 02:01:02,850 --> 02:01:11,210 So there are significant ways in which Monero is more compliant with existing law than a project like Bitcoin. 1097 02:01:11,210 --> 02:01:12,710 Nobody talks about that though. 1098 02:01:12,710 --> 02:01:15,610 It's always, you know, oh gee, what are the criminals going to do? 1099 02:01:15,610 --> 02:01:22,770 Well, again, why don't we talk some more about what the innocent guys are going to do? 1100 02:01:22,770 --> 02:01:23,450 All right. 1101 02:01:24,550 --> 02:01:25,210 All right. 1102 02:01:25,210 --> 02:01:29,250 With that, I think I might've already been kicked off, but all right. 1103 02:01:29,250 --> 02:01:29,970 Thanks.