All right. Thank you, Diego, for that introduction and to the whole team at Monero for putting on
another Monero Village at Devon. Just before I go on too long here, can people hear me?
Can I get a from chat or otherwise? Okay, great. Thanks for the feedback. All right.
So, I'm here to give the keynote at Monero Village again. It's a privilege and honor
to do that. I'm Dr. Daniel Kim, Founder and CEO of Sweetwater Digital Asset Consulting.
A little bit about myself. So, academically, I'm trained as a particle physicist. I did
my undergraduate and graduate work in experimental particle physics at Harvard.
Later, I wanted to show an interest in the way the real world worked. Because a PhD shows you
can go deep, I wanted to also go wide and learn about different things and how the world works.
Picked up an MBA later. Most of my career was spent in the non-profit sector. I spent 10 years
as a symphony orchestra musician. Ended up doing about 700 concerts professionally. And concurrently
with that, I was a medical school professor as well. 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. So, I got that patented and kind of learned about how the intellectual property
system works. After that, I decided that I wanted to try something new. So, I went into the
for-profit world. I ended up becoming Director of Research at an equity hedge fund. And it was
there that I started to look into cryptocurrency kind of as a hobby, just as this interesting thing.
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. And I came to the conclusion that Nakamoto Consensus
was one of those. And so, I decided to go off on my own. And so, I'm an independent consultant now.
Sweetwater Digital Asset Consulting is my firm. And I seek to connect two very separate worlds
that often see each other with a rather distorted lens. So, on one side is the non-commercial,
open source, cypher, grassroots, cryptocurrency side, which is well represented at DEF CON.
But then there's a parallel world that happens. And it really is a world like it goes on
independently. And there's very little kind of real dialogue between these two groups.
And so, that would be the traditional investment and estate planning, trust, family offices,
asset protection. These are using, taking full use of the legal system to protect wealth and
create value for clients. And so, I help people on both sides of this divide. 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. 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.
So, that's my for-profit work right now. But for my non-profit work, I'm also a community
volunteer for the Monero project. And so, for example, my doing this talk is without any
compensation from Monero. I'm doing this because I personally feel that this is an important project
for humanity. And I think it's important for people to speak out and make their voices heard
on matters like this. So, yeah. So, I'm not a dev. I'm not related to a dev. Let's see,
what else? I really am independent from the Monero project. 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. And specifically in that, I specialize in the non-security store of value
type tokens like Bitcoin and Monero. Okay, so this talk, I'm calling sound money safe mode.
And there are four sections to it. There's the pandemic economy to set the framework of
everything. Second part is independent scarcity, that is sources of scarcity that run independently
of governmental control. Third is fungibility versus mass surveillance. 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. So, I'll talk
about the consequences of a fungible versus a non-fungible value token in the third part.
And then the fourth part is about getting involved. So, there are kind of, there's a
shallow way to get involved and there's a deeper way to get involved. The shallow way would be
because it's a cryptocurrency, it is like, it behaves like an asset. 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. That's
one way to get involved with this project is to, you know, purchase. But the deeper, more
significant way is getting involved personally, like with your time and energy and expertise.
So, I talked about that at the end. So, before I start, thanks to Howard H.Y.C. Chiu, Dr. Serang
Noether of the Monero Research Lab, and Dr. Francisco Articman Cabanas, who is on the
Monero core team for helpful discussions and technical assistance in preparation for this
presentation. All right. So, everyone's seen a ton of stuff about the pandemic. I won't rehash
anything that I think that you've already seen before. But, oh, gee, this...
I'm just realizing that this display is not showing the slide completely. Let me close some
stuff. Yeah, there's a weird thing where, like, what I see here on my local screen is not what is
getting sent by Jitsi. So, I apologize. This is the problem being the first speaker of the day.
Okay. It's not super pretty, but at least I can see that the whole slide is showing.
There's a couple other work things. Okay. So, yeah, apologies for all the clutter on the
display here. But I think it's probably more important that you see the entire slide than to
see it framed in a pretty way. Okay. So, back to the pandemic. Oh, yeah. So,
one way to see the pandemic is that there's a microbe that succeeded in social engineering
all of us. So, the left here shows basically a flowchart of our social protocol pre-pandemic.
Going to this is going to seem like a quaint exercise in a long ago era. So, you're sitting
at home. Do you feel like going out? No, you don't feel like going out? Well, you stay home.
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. So, based on that self-diagnosis, you go out.
Now you're in public. Okay. So, while you're out and about in public, do you see anyone coughing,
looking like they're sick? Well, if the answer is yes, then you diagnose that there's a sick
person over there and maybe you should avoid them. But then you carry on doing what you were doing.
You feel like going home? Yes or no. 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. And the thing is that this worked. This switch has been kind of arguably evolved
into us. It's led to the survival of a lot of people basically going by this simple heuristic.
And of course, one thing about the pandemic is that we're told that this heuristic is ineffective
now, right? Because we're told that the self-diagnosis of being healthy if you just feel
like it is no longer true. The diagnosis that you are able to diagnose other people by seeing
if they're coughing or not. And it turns out that that now is insufficiently accurate diagnosis.
So of course, nobody likes being told that their instincts are off. And so that's been
one of the social difficulties in getting like a public health message out.
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. All right, on the right side of the slide, I'm showing what I'm calling
dirty money. And so this is a research paper that was published in Lancet, which is the UK's
premier medical journal. 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. And kind of interestingly, one of the surfaces that they tested was money.
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. And as you can see, there's basically a dual regime
half-life here. So initially, the half-life is rather quick, with a half-life about one hour.
But yet, that's not so fast that the virus is not measurable. So basically, the amount of virus
remaining on money remains highly measurable, even after 24 hours here, 48 hours here.
And so I think at the third day, they came up with a no measurement for that.
All right, so what did this trigger in an economic sense? So there's a lot going on in this chart,
which is all US data from the Federal Reserve. So I'll go through it step by step. So first,
you look at this blue line here, that is the U6 unemployment rate. Now, U6 is the more broad
measure of unemployment. 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. So those people who are not
counted in the usual measure of unemployment, which is U3, do get counted in U6. And the blue
line here is showing on the left scale. The other thing to note on this plot is that this is a very
long timescale. So we're going back to 1980 here. And you can see that the unemployment rate, which
kind of peaked at about 18% in the last financial crisis in 2009. If you look at that for 2020,
you can see that it peaked at about 23% unemployment. So what was the response to
this? The response was to, for the current response by the Federal Reserve, is to be
primarily concerned that this is going to cause deflation. 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. So the remedy
to that particular short-term problem is to print money. Because by printing money, that reduces
interest rates. And when interest rates go down, it becomes less attractive to save your money, and
more attractive to just spend your money. So it's part of the stimulus. 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. 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.
So the green line shows the total of the MZM money supply, and I divide that, because it's an
enormous number. It's in the trillions of dollars, which is hard to get your head around what that
means. So I normalize that number by the gross domestic product. And you can see that that is
the green line. And you can see that in 2020, the money supply took this very steep upward jump
as a result of the pandemic.
Now on the bottom here, you see this very wiggly line. 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. And you can see this half century history is shown here. And there's never been
this occurrence ever in which the government is taking in much, much less than it's spending.
Now, part of this might be temporary, because at least in the US, there was a tax moratorium.
The usual tax due date of April 15 was moved back to July 15. So in those intervening months
between April and July, there was basically likely to be no money into the Treasury.
So it could be that this line will spike back up because taxes were due July 15 this year.
But it remains to be seen. You know, how much will receive taxes go up back up? It's hard to know.
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.
So you can see that during the 2009 financial crisis, our federal debt to GDP went from about
60% to about 100%. Now, at the beginning of the year, we were looking at about 110%.
And this federal debt to GDP number is lagging now by four months. So what you're seeing here
is actually only going up till March of this year. It's not showing the worst
so far, the worst so far time of the crisis. 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. It's not an understatement. Nor is this limited to the US.
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. And here
I'm plotting the money supplies of each of these eight countries. And I'm looking at a more limited
timescale. Now I'm looking at 2018 to the present. And I'm normalizing each of these money supplies
to the money supply as it was on January of this year. So all of these different monies
are normalized to 1.0 at the beginning of this year. You can basically see that there's like a
hockey stick shape to this curve, right? So up until January 1st, the money supplies of these
was growing at a concerning rate. 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. The size of the USD money printing is really, it's hard to get
one's head around this. 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. 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. 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. So now you're seeing 17 different countries' fiat currencies here.
It's 17 and not 20 because France, Germany, and let's see, I'm blanking out on one other.
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. So that's why the number of currencies is not exactly
20 for the G20. But nevertheless, you can see that this is all of them. 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.
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.
This whole concept of exponential growth is pretty familiar. Like this exponential growth
curve, it's basically like a tumor growth curve. You have basically a doubling time for this
malignancy that's growing. And so here in, you know, if you apply that math to this,
we're looking at a doubling time of about eight years. 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. 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.
So that's a 1000x growth given the compounding rates that we're seeing in this chart.
There's an interesting book called Monetary Regimes and Inflation. 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. So this chart is showing that the money creation
is happening, and especially now in 2020, it's happening even more than ever.
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. So what does all this mean? 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. So in a time of high inflation
in fiat currency, what does it make sense to consider looking at for those who have assets?
Independent sources of scarcity are what traditionally get looked at. So we're talking
about physical commodities like gold and silver. And since 2009, now there's been a digital option
in terms of digital commodities. 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. Now, physical commodities are interesting. So
gold and silver, if you follow the gold prices, you've probably seen that the gold prices have
also spiked recently. There's a generational divide here as far as how people react to this
divide between physical commodities and digital commodities. 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. So as a result, I can
kind of see things from both perspectives. I can see, I can remember a time when there was no
internet. And so I can, I can see how people would kind of gravitate towards gold and silver in a
time like this. 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. It's funny though, because for gold and silver, there are lots of ways to buy gold and
silver. And not all of them involve actually getting your hands on metal. So some of them
involve hiring somebody to buy your metal and store it for you. 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. And it's probably true. I mean, or it's going to be true until it
ceases to be true. 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. And it's funny because it's like history
repeats itself, but rhymes. So they're like now in the crypto space, there's like the analog of
all these things. Basically people offering to, you know, to take your crypto as you know,
they offer to store your crypto for you. So you don't have to worry about all that trouble of
learning, you know, what's going on behind the crypto. We'll take care of all those details.
You pay us just a little bit and we promise crypto is all going to be there. That's happened in the
precious metals market. It happens now and people get in both cases. 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. 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. 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. So you're not going to see 10x
going up. 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. 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. But let's talk
about digital scarcity networks. So taking aside gold and silver for now and focusing on digital
commodities. So let's look at centralized security versus a decentralized security model. In
centralized security, you have banks and fiat. So you have a database, which is protected,
it's got firewalls around it. 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.
Otherwise, you have no access to the database. There's one authoritative version of the ledger,
which exists inside the bank walls. 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. 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. There can be insider abuse.
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. 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, you know, to get access to the central database, they have to
come to you. Now, so that means you're a middleman, you're in a position of power. 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, 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. So these are the pros and cons of a centralized
security model for digital scarcity. If we turn now to a decentralized security model, now everything
is turned on its head relative to the centralized security model. Anyone can join the peer-to-peer
network whose job it is to maintain a ledger of who owns what. Each of these nodes maintains its
own version of the ledger. The code is open source, under the more eyeballs is fewer bugs, kind of
principle that's espoused in open source software development. 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. So there's a lot of
noise to sort through because it's new. 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, 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.
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. 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. So I'm going to do that. I'm going to try
and do it very briefly. 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, 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, which
is really a technological and computing, like, miracle. So it's, it's good to kind of disregard
all of that price stuff. I think, I think most of the time when you're thinking about cryptocurrency.
So let's go back to Bitcoin's early history. So on Halloween of 2008, that's when the
Naokimoto white paper came out. January 9th, 2009 was the Bitcoin Genesis block. That was the very
first block. In other words, the very first list of transactions of who sent what to who in Bitcoin.
And since January 2009, this network has been going strong ever since, 24-7.
In, in the year 2009, Bitcoin was operational, but it had zero value.
Right. So it was just this, this thing that was like a, like a geek play thing. There was no,
there's no money involved, there's no profit involved, there's no trying to sell
anything involved. 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.
So the Bitcoin white paper describes a way to synthesize this digital scarcity without needing
a central authority. So there are three parts to the analogy between Bitcoin and a bank network.
So the first part of the analogy to, to describe is like, what, what is the analogy of a bank
account? And that is a Bitcoin address. Second, what's the analogy of writing a check or sending
funds out? That would be in the Bitcoin world, in the cryptocurrency world, it's a message signing.
And then third, who is the party that is going to clear the check and process the check once it's
been written? Who is doing that function in, in this new digital commodity realm? And so there's
an accounting network of peer-to-peer computers that gets used to do that in Bitcoin.
So going through these three analogies in a bit more detail. So the SecP256k1 elliptic curve
is what defines the cryptography in Bitcoin. So that I'm showing what it is. It's Y squared is
congruent to X cubed plus seven mod this very large prime number. And the mod and the three
lines on the equal sign means that we're talking about clock arithmetic. 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. So here we're talking about a clock that has like a, you know, a gigantic
prime number, number of numbers on its dial. So Y and X, sometimes you'll see drawn in, you know,
diagrams explaining what elliptic curves are. You'll see like a curvy shape to that. That's true
if X and Y are real numbers, but in this case, X and Y are integers. And so it's not very helpful
to have that image of a classic curve in your mind as you're doing this. 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. 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. So when you have an X, Y combination
that satisfies this equation, it's lit up. And to have an X, Y combination that satisfies this
equation is a rare thing. 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, Y combination
on your own that satisfies this equation. But yet there's more. So as part of the elliptic
curve definition, there's a base point that is defined. So I'm saying piece of B, that's the
coordinate X of B, Y sub B. So there's a certain point in this vast grid paper of very sparse
points on it. There's a certain point that's called the base point. That one's special.
That one is told to you by the elliptic curve kind of standard, right? So basically the formula
for the curve is given and the solution, a solution to this curve is also given to you.
Furthermore, there's a third step that you can use. 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. 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. So if you want to go from N to piece of N, you can compute that, but the inverse is not
calculable. So piece of N to N doesn't, you have to brute force that. And so that's the asymmetry
behind the encryption process. So what that means is that the, the number N is a private key.
That's the secret. 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. 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. You're calling that number yours. 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. 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. 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. And those, that elliptic curve point is described by two numbers, the X
coordinate and the Y coordinate, right? One of those you make public and the other one you keep
secret and they're linked to each other. So that's why it's not like a password where you can just
change the X, Y numbers that you're assigned. It's, it doesn't work like that. There's a math
equation behind it. So that X, Y pairing is unchangeable. It's, it's not modifiable so that
if somebody, you know, forgets their secret, there's no recourse to get their money.
All right. So moving on to how does writing a check work in a network like this? So there's secure
message signing, which is facilitated by the elliptic curve math that I showed on the last
slide. So what a sender does is take a message and combine that with their private key. 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. So the signature
can only have been made by somebody who had the message and the private key. 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. 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. They would send out the message and the signature. So the recipient now gets this
purported message from the sender, plus the signature from the sender. And the recipient
also knows the sender's public key. So because that is supposed to be a data point that is
associated per person. So with those three pieces of information, you can get a binary verification
result. You get a result that says, yes, that was a legitimate message by the, this person, or no,
it was not. And so sending Bitcoin means that you're sending this signed message to the Bitcoin
network. This, this kind of message signing happens in all, in a variety of computing contexts. 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. So interestingly, knowledge of the private key, which is a form of
speech, is now tantamount to money. Knowledge is tantamount to money. 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.
All right, third. 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? Who's going to make sure
it's legit? And so on. So that is done by a network of miners in Bitcoin. So miners
are just a word for peer-to-peer Bitcoin accountants. So peer-to-peer, meaning that
there is no boss computer, there is no super user in this network. They are all equal. So
how do they settle disputes? It's basically, they gossip a lot and they do majority rules.
So that's, that's basically how they, they figure out who's right, if there's a disagreement between
them. 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. And so each of these accountants, when, when they receive a spend
message, they will check it. And if it's legit, then they will pass that message on to their
compatriots. So this is what I meant by gossipy accountants. So each of these miners is,
is taking in incoming messages for spend instructions around the world,
checking them for themselves. And then if they're correct, they'll spread those messages around.
So every 10 minutes on average, you have a list of transactions then that has been
kind of building up in that time. And so that's called a block. A block is simply a list of valid
signed spend messages. 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? Well,
in addition to having the rules of allowance kind of programmed into them, they, there's what's
called proof of work. And so what proof of work is, is that in each block, there is a small data
field within each block called the nonce. The nonce is something that it's a blank data field
that each miner is free to fill with whatever random bits they want. 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. 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. 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.
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. 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. 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. 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. 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, the hash of that is going to be a bunch of zeros, and then
some gibberish, right? So because it started with a bunch of zeros, that satisfies the difficulty,
therefore that block is accepted by the network. 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? 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. 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. So in Bitcoin, every Bitcoin in existence
came into being as a payout to a miner helping to secure the network. 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, money from people. Bitcoin is just a decentralized
group of computers. Anyone can download the Bitcoin software, run it on their computer,
and join this network. Anyone who does that has a probability of finding a
nonce that satisfies difficulty and therefore getting the block reward.
So contrary to the assertion that money in Bitcoin has gone to some third party,
some centralized organization, that's not true. All of the block rewards in Bitcoin have gone
out to miners who are helping to secure the network. Now again, we're in 2009 here. We're in a time,
we're imagining that we're in a time in which Bitcoin did not have monetary fiat value. 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. All right, so there's conflict resolution. So what happens if
two computers on opposite sides of the world come up with a block at the same time? 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. So what happens then? Well, again, the miners are
all gossipy, right? So the miner within China is going to likely to hear about that Chinese found
block first. And so they will proceed with the network as if that is the legit block.
So the same thing is going to happen in the non-Chinese world. There's going to be a different
block that satisfies difficulty that will be deemed the next block in the chain.
And then that news is to propagate among the miners in the non-Chinese world, right? So now you
have this schism, you have a disagreement in the network as to the state of the network.
What happens then? So basically, both halves of the network then proceed as normal, trying to work
on the next block. And then one of them is going to come up with a block first. 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. 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. Most blocks are going to be found... the median block is going to be
found, like, shorter than 10 minutes. So what happens is one of the blocks, either in the
Chinese world or the non-Chinese world, find the next block. 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. 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, so we're going to adopt the chain that has more
proof-of-work behind it. So that's basically how the network self-heals itself against disagreements
in the state of the network. So then finally, blockchain is a distributed append-only linked
list of blocks with low-value hash-verified pointers. So to summarize, Nakamoto consensus
synthesizes digital scarcity. There's account-level scarcity, which is basically property rights.
What defines property rights in Bitcoin? It's enforced by the user's selection
and their subsequent protection of an elliptic curve private key.
Next is aggregate-level scarcity. That is, how do we know that there's not going to be an
infinite number of Bitcoin created? 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, its idea on what coin
issuance should be is going to be ignored by the rest of the network. 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. They're rewarded by getting the block reward. 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, it's not going to be
recognized by the rest of the network. 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.
Okay, finally, database modification scarcity. How do we establish record permanence in Bitcoin?
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. 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. Okay, so let's contrast that with the scarcity features of Monero.
So first, code is a scarce asset. 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. So in that sense,
they're not really using any scarcity of their own intellectual property. They're basically
copying off the Bitcoin intellectual property, which is open source. 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. It's open for everyone to copy. So unlike the situation, for example,
in precious metals, where authentication is a difficult thing, right? So if you have a gold bar,
the chief worry is that the gold bar that you bought is actually gold-plated tungsten, right?
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. And it turns out that tons and tons of gold was
actually tungsten with gold plating on it. So this is a problem in precious metals that happens to
the big boys, too, not just the retail little guys. But even little guys, you have to worry
about that, too. You have to worry about, is this shiny piece of metal? It looks legit,
but is it legit? And so you have a challenge in precious metals to do authentication. 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. 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.
In contrast to that, in cryptocurrency, authentication is not that big of a
problem. So basically in Bitcoin, it's easy to see if a Bitcoin is legit.
The problem in cryptocurrency is that the falsehood happens in the myriad of cryptocurrencies
that exist that offer nothing of value. 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.
All right, so Monero's code base is not a copy of Bitcoin's. It started from the ground up
as its own thing. 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?
All right, the elliptic curve used in Monero is different too. So Monero uses ED25519.
So this is yet another source of technical hedging. 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. In Monero, there are dual private keys. So there's a spend key and
spend money, just like knowledge of the key is in Bitcoin. But in Monero, there's a second key.
There's a view key, which is basically like a cryptographic subset of the spend key. If you
know the view key, then you can look at details of transactions that you were involved in.
So it basically offers an opt-in transparency. 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.
You can. And you can actually share details of what's going on in your particular Monero account
if you share your view key. The address space is different. It's larger in Monero. It's 10 to 76
versus 10 to the 60 in BTC. 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,
be the same as the number that somebody else somewhere else in the world chooses for their
crypto account. 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.
So that probably goes down in Monero, but there's a cost to that. That is of complexity. So for
example, the addresses in Monero are quite a bit longer than they are in Bitcoin, which has
an effect on user friendliness. The emission schedule is different. 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? And the emission schedule, in my opinion, is one of those.
So it's continually decreasing. There is not a four-year half-mean cycle. So in Bitcoin,
every 210,000 blocks, the size of the miner's reward gets cut in half. 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. So that introduces a lot of drama
in the mining world. So it's hard for any business to make plans if your income and
your expenses are unpredictable or change drastically over time. So that's exactly
what happens in Bitcoin with the mining reward happening as it does. In Monero, we have a
continuously decreasing schedule.
In Monero, we have what we think is a solution to a form of unwanted scarcity.
A form of unwanted scarcity is the future miner rewards. So in Bitcoin, the mining reward
is projected to get cut in half every four years, approximately, until it's basically zero.
And so at that point, who is going to reward the network miners for doing the accounting work of
the network? In Bitcoin, it's hypothesized that a fee network, basically user fees, are going to
step in and make up the difference. But there are papers that question the viability of such
a system. And so what we do in Monero is called the tail emission. So basically, in Monero,
the block reward is never going to be smaller than 0.3 Monero per minute. We call this the
tail emission. We call it the tail emission because you have a distribution with a tail,
and the tail extends out far into time. So often this gets described as being infinite
emission, which I suppose is technically true. As time goes to infinity, yes, the emission will go
to infinity. But in practice, no human is going to live to the limit as t goes to infinity. That's
basically a theoretical construct that's useful in calculus. 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. It is not
necessarily relevant to a mortal human what the emission is as time goes to infinity.
Secondly, the absolute value of coin emission is not that relevant. It's actually annualized
inflation. That is, what is the percentage of inflation that takes place in a supply,
like, say, over a year's time? That is more relevant. 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. And in any macroeconomic theory, it's the inflation rate that is relevant
to a theory. 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. It gets
swallowed up in the noise of whatever macroeconomic theory you're looking at. 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? Well, at least in Monero, we know that minor incentives are
guaranteed forever. 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? Is it okay that people actually transacting in the coin are
paying hundred dollar fees to make one transaction? Is that okay or not? There's a disagreement of that
over that in Bitcoin. 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. And so we're going to rely on user fees to
pay the miners. 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. So, you know, they better just get used
to ponying up the money. 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. All right. So I mentioned that
as a physicist, I like to look at data. So I'm going to show some of it here. This is looking
at supply emission. So this is over time, how many Bitcoin have there been in existence? 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. So you can see the
solid part of this Bitcoin line is what actually happened. And that is taken from block explorers.
In this case, I'm using blockchain.com. 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. And that is basing that off the Bitcoin white paper. So the Bitcoin white paper
basically is what programmed all the computers that generated this line for the last 11 years.
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. And so let's not kind of dismiss or downplay
the, you know, how crazy this is in terms of monetary policy. This is a monetary system
in which the emission is declared in advance. And not only is it declared in advance,
like there's an 11-year track record of it actually happening as predicted. 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. That doesn't happen in Bitcoin.
All right. We can look at Monero's supply emission as well. So again, in Monero, we do not
have four-year halvenings. 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.
Monero's curve is actually smooth. And so again, to the left of the present between 2014, which is
when Monero came into existence. And now you can see this very smooth curve. It looks like that's
a theoretical curve, but that's actually not a theoretical curve. That is actually, that is
empirical data that I'm showing on the left on Monero. 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. 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. There was no
centralized company. There was no kind of person behind the scenes getting a cut of the action.
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.
All right, and so the tail emission in Monero, you can see it as this very gradual slope that
continues upward. The tail emission is going to get hit not too long from now, and then it'll
continue in perpetuity. All right, here's year-over-year supply inflation. 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. What I had to do this year to make this plot actually fit was to change the scale
of the y-axis. So it was 20% before, it's 30% now, and that is because I had to fit the supply
inflation of the U.S. dollar that's shown in green. 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%. 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.
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. They're continuing to drop.
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. 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. Here, I'm showing also
the inflation curve for gold. So the World Gold Council keeps track of an estimate every year of
how much gold it thinks exists. And it calls it its estimate above ground gold. So basically,
it's not counting the gold in the ground that hasn't been mined yet. It's not counting estimates
of that. It's only counting estimates of, you know, ore that's been mined and processed and
turned into bullion. 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.
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. So if you think of gold as being sound money, that
basically introduces this figure, like basically this 1.8% per year figure. 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. 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.
And it'll just drop after that. All right, there's another form of unwanted scarcity
that I want to talk about, that is mining hardware. And so miner reward should scale
with miner expense. So in the Bitcoin white paper, there's this phrase, one CPU, one vote.
And what that means is that, you know, you basically want to be fair to the miners. 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. Now, unfortunately, silicon economies of scale destroy this linearity.
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.
They're not optimized for this certain problem. So in Bitcoin, you have exactly this situation.
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. And so at this point, ASICs are what are
practically dominating the Bitcoin mining network. 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. I mean, basically,
it's like lotto sorts of chances. It's like, you might as well just, you know, go buy lottery
tickets. It's that bad of a return on investment for someone who does not have the requisite
hardware. And unfortunately, all of the requisite hardware happens to be all made in China. So
Bitcoin mining currently is a Chinese dominated oligopoly. Now, this is not necessarily a problem
that it's China. 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.
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. So if you look at the proof of work at Monero, since 2018,
it has changed four times. This is remarkable for any cryptocurrency. We've done it four times.
It started out as Kryptonite, then Kryptonite v2 came, Kryptonite v3, then Kryptonite R,
and now RandomX. So this is looking at, again, data from the Monero blockchain.
And this is looking at Monero network difficulty. So in other words, this is the number that is
required for miners to successfully submit a new block to the Monero blockchain. 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. So you can see, and so on this timescale, we're starting at
April 2014, which is when April 2014 is when Monero started. So through version 0.11,
the proof of work was Kryptonite. 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. So that caused a fair bit of alarm within the
Monero community, and steps were taken to basically render these ASICs useless. So that's
Kryptonite v2 came out with v0.12 in early 2018. That worked for a while, but then there's basically
just a lag time before the development of an ASICs to do Kryptonite v2. So once there was
another alarming spike up in the difficulty rate, well, Kryptonite v3 went out. And these were all
hard forks. So these all were changes that had to be adopted by everyone on the Monero network,
otherwise they would be mining an obsolete coin. So it... and this process continued again. So
then in 2019, there was another spike in the hash rate. So we went with Kryptonite R. And then
finally, around Thanksgiving of last year, is when RandomX got put into the network in v0.15.
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. People like that have a shot at mining a block in Monero.
All right, there's another form of unwanted scarcity, and that's access to layer one.
And that is, can you actually get a transaction onto the network during, say, busy times,
during peak times? So this is another cause of a civil war in Bitcoin. There's a one megabyte
limit in the Bitcoin code. 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. But is this actually temporary? Should it have been
removed? 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.
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. And even though they've divorced, they're still at
war. 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. 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. They just don't get it for this and that
reason. And, you know, this bickering has been going on for years, and it really hasn't
dissipated much since then. 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.
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. So in Monero, instead of having a hard-coded limit on how big
blocks can be, we have an adapted block weight algorithm. It used to be called adaptive block
size, but then, you know, some improvements got made to it. Now it's called adaptive block weight.
I will spare you the details in this talk, but ArcticMine actually is going to be talking right
after me. So I expect his talk will have a lot of good details on this matter. 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. 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. So, basically,
their minor reward is going to go down the bigger the block they make. And to make up for that,
though, user fees are going to increase if recent blocks are bigger than that. So, basically, if
there's congestion on the network, then users are going to be asked to pay a little bit more.
The block reward to the minor goes down a bit. But all of this is handled dynamically in a system
that's not hard-coded. 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. It's going to allow
for that. And you can see this in the transactions per day plot that I'm showing in the bottom here.
Here I'm showing transactions per day on a logarithmic scale. So we're going from 10 up to 1
million transactions per day on Bitcoin versus Monero. 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. Whereas in Monero, we're liberated from that with this adaptive algorithm. And you
can see, basically, the general trend line in Monero is that the transactions per day are going
up. We are seeing usage of the network. All right. So I want to move on to fungibility
and its consequences in a surveillance society. Bitcoin is transparent. 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. 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. 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. Bitcoin is 100% transparent. It's all there in the Bitcoin
whitepaper. The Bitcoin block etches forever for everyone to see. For every transaction,
it shows the sender, the receiver, how much got transferred. For every Bitcoin address,
it's trivial for anyone to go to a Bitcoin block explorer and type in anyone's address. It doesn't
have to be your own address. It can be any person's address. It can be the, you know, donation address
of somebody you see online. You can type them that address and you can see how much money they have.
You can see a complete balance history in live, real time. What this does is it puts innocent
people and businesses at risk. 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. 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. 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, making a visit
to this guy and seeing if he might be persuaded to share his Bitcoin with them. So this transparency
puts innocent people and businesses at risk. For businesses, trade secrets are routinely
considered part of business and nobody questions that. 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.
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. And so businesses don't want to give that away.
On a transparent blockchain like Bitcoin, they are forced to give that information away. They
have no choice. They have to give it away because it's by design transparent.
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. Mint. You know, it shows you like every dollar bill shows you the mint that it came from.
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. And then basically every single
person on that dollar bill, a list of that is shown. That's Bitcoin. Every single coin is
traceable back to the miner. That invites voyeurism. It invites people to just basically be snoopy,
like snoop, be creepy because they can. 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.
It's easy to do it. The system invites you to do it. So people do it.
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. 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. Like I would like to talk about squeaky clean people if that's
okay and not criminals. You know, I identify more with the squeaky clean group quite a bit more.
So I would like to talk about the interests of the squeaky clean people and what they would
like to see in a cryptocurrency. So let's say you have a situation in which a squeaky clean guy is
buying a car from somebody, right? So when you buy a car from somebody and you go on Craigslist
or whatever, you see a bunch of cars posted. You don't really think to do a background check
on the person selling the car. Is that really relevant? Like you're just buying a car.
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. Is that really something that we think as a
society should be a necessary part of buying a car on Craigslist? Currently the answer is no.
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? 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. 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.
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. 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. And let's say I could further identify certain members of this system as being bad
actors, right? 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. Well, let's say this bad
actor sold his car to Squeaky Clean Guy. 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. Now this bad actor goes out and does something bad with that Bitcoin. Let's say, you
know, drugs or organized crime or whatever, you know, whatever, whatever the bad thing is, right?
So this criminal goes out and does that with the Bitcoin that they got from this
innocent Squeaky Clean Guy. 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. 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. 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. This is currently live
and in place in Bitcoin. 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, could well have the power to make false assumptions,
false positive results against my character. And I have no recourse over that. That is part of the
implicit terms and conditions that squeaky clean people sign in effect when they participate in
Bitcoin. Technical censorship resistance, which is proudly featured within Bitcoin,
you know, our network is censorship resistant. We have the most hash power behind us.
Unfortunately, when this comes up against the topmost OSI layer, right, we're talking like the
human meatspace layer. 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, and they have a Bitcoin address. In effect, anyone who does a transaction with that
Bitcoin address is going to get a lot of unwanted attention. It's going to be instant. And because
the Bitcoin blockchain is so public, and there are companies that are looking at this sort of data.
So even though you have technical censorship resistance, well, yeah, yeah, I guess. 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? How many Bitcoin people are there who are actually,
you know, checking against all of these addresses on their list? I would say they're probably very
few, like, like individuals. But every company is paying 10s of 1000s of dollars per month
to one of these blockchain analysis companies that is doing. All right, in contrast with Bitcoin,
Monero is fungible. And Monero does this by integrating three separate technologies,
all of which combine to promote indistinguishability between the tokens in the
Monero network. One is ring signatures. So ring signatures, keep the identities of the senders
private. 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, which is associated
with my address, and then the protocol will pick 10 other chunks of Monero that exist on the
network. 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. You don't know which one it is. So that's how ring signatures keep the transacting
senders private. Stealth addresses keeps the transacting receivers private. So in Bitcoin,
the receiver's Bitcoin address shows up in plain text on the blockchain for everybody to see.
So in Monero, that doesn't happen. In Monero, the receiving blockchain address gets encrypted
in a one-time sort of thing. So it doesn't get encrypted the same way every time it gets
encrypted in a different way for every transaction. So a stealth address gets a one-time stealth
address gets put on the blockchain. That's what everyone can see. It's an encrypted version of the
receiver's address. And so that keeps the transacting receivers private. Then finally, RingCT
is a technology that keeps transaction amounts sent private. So the original white paper for
Monero was a crypto note white paper. The crypto note white paper included ring signatures and
stealth addresses in it, but it did not include RingCT. RingCT came later. It's a fungibility
innovation. 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. So to put RingCT live into action, it required three things. It required original
cryptographic research. So we're talking, you know, post-PhD level mathematics. It required
development and an external audit of new code. So you need some code ninjas to make
this stuff happen. So you have some higher level math being created, new knowledge being created on
the mathematical cryptography front. Then that has to be applied into code that people
are confident enough can be entrusted with keeping safe custody of people's money. So
you need development in an external audit of new code. So the external is actually optional.
There might be projects out there who don't do an external audit because it costs money.
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, basically extra eyeballs to
look at code before it gets put into production. And then third, you needed community commitment
to hard fork RingCT into existence. So here's some data from the blockchains that
kind of explain the story here. So the top chart I'm showing is the daily average of the average
number of bytes per transaction. So you can see I'm showing in black is Bitcoin. It's been very,
you know, pretty constant in Bitcoin. 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. 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. 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.
It's going to be what it is. So you can see that there's been very little change over 11 years on
this front in how big a Bitcoin transaction is. It's quite different for Monero. So if you look
here now at 2014, the Monero network was born. Initially, nobody was using the Monero network.
And so you would see only minor rewards being sent out. And in Monero, minor reward blocks are,
they don't take that many bytes. 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. But then people started using it. And then in the early
days of Monero, the way it worked was that the system used denominated outputs. So for example,
you can think of there being like a, like one Monero, like gold chunk that is encased in plastic,
right? And it's engraved with the kind of owner's, you know, private key information on it.
And it can only be used by that person. 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. But you basically have this discrete kind of chunk of value that gets passed around.
And so in the early days of Monero, you had, you know, one Monero chunks, two Monero chunks,
10 Monero chunks, 100 Monero chunks. You had basically every round number. So you had one
through nine, 10 through 90, 100 through 900, 1,000 through 9,000. 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. 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. You had to, you know, scrounge around your outputs
and come up with 341. 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. Right. So that was, that's
what was going on in the early days of Monero up until 2017. 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. Now my buddy has 341 Monero and they send it to somebody else.
You can see the 300 and the 40 and the one, you can see they're kind of traveling around.
That's what you could see in Monero pre-RingCT. And so it was decided in the community that this
was not acceptable. 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. 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. So it went to about
10 kilobytes per transaction and it peaked almost to like, you know, 20 kilobytes per
transaction. We're looking at very large transactions compared to the size of the
Bitcoin transactions. 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. All right. And you can see that in the bottom chart here,
I'm showing the daily average transaction fee. So this is how much a, the person signing the
check. 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. And so you can see that for quite a while, the Monero and the
Bitcoin block fees kind of went in, in parallel together. 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.
It's basically because, you know, there's all this, you know, new interest of new people into
cryptocurrency and Bitcoin in particular. The new interest was driven by the, you know,
spectacular rise of price. 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.
There's a ceiling to how many transactions that can process. And so as a result, the fees went way up.
And so they went up in Monero as well. And that was largely, you know, there's,
RingCT had a role in that because RingCT was making the transaction sizes that much bigger.
Then later Bulletproofs came. 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. 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. 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. And then you can see here on the transaction fee side, the fees also dropped by
an order of magnitude. So you can see that all of this innovation happened relatively recently.
We're talking since 2017, 2018. 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, the transaction sizes are way too big. It's never
going to scale, or the transaction fees are way too big. People are never going to want to pay
that. Well, that, that is all obsolete as of like, basically, you know, two years ago. As of late
2018, these things are no longer really true. You could argue that the Monero transaction sizes are
still quite a bit larger than Bitcoins. But there's a, there's a new news item in the Monero
research pipeline. CL-SAGs are a way to compress the byte size requirement of transactions even
further, on top of what Bulletproofs have done. 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.
And again, in Monero, hard fork is not like a term of, you know, war. 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.
So CL-SAGs are set to go on live on the network this October. 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. So
you can see that there's a gap here between the transaction sizes between Monero and Bitcoin,
but it's shrinking. 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.
Meanwhile, on the fee side, fees in Monero have been like in the penny range for like a, like over
a year now. 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, because in the end,
everything you do in Bitcoin is totally transparent. So, I mean, it's like a cat and
mouse game. 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. Some of it might, and most of it
just doesn't get done by most people in Bitcoin. 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.
Monero benefits people with nothing to hide. It eliminates the risk of receiving coins that are
tainted due to no fault of the receiver. So this is the example of the selling the used car.
So one interesting thing is that these chain analysis companies, basically one thing that
they do is that they flatten the time dimension. 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. Once that link happens
between person A and person B, now there's a link. 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. Like the people analyzing the
blockchain have no idea of that social context. All they can do is, you know, assign some sort of
probability of social involvement with that, right? 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. And if that happens, that's going to be flagged in these
companies doing blockchain analysis as a potentially meaningful link. When the fact is,
it's a false positive. It's an actually meaningless link. But you as the user have
no power over that. You have no recourse. You have no way of communicating to these
companies and saying, hey, yo, I'm actually squeaky clean. They don't know. They don't know.
They don't care. They have no liability. 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. I was just doing my job, right? I mean, that's the kind of issue that is
going to increasingly be happening on a totally transparent blockchain.
All right. There's a Nobel Prize winning paper that I want to talk a bit about. It was by George
Ekerlof who won the Nobel in economics, and he got the Nobel by talking about the used car market.
So there's a linkage here between used cars, the pandemic, and surveillance coins,
which is what I like to call transparent coins. All right. There are two used cars types. They're
lemons and they're peaches. So lemons are the ones, those are the bad cars, right? Those are
the cars that are junk. And they were, you know, they went through a hurricane or a flood or
something. There's some big problem with the car. 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. On the other
hand, you have peaches. Peaches are the kind of slang name within the used car industry for
cars that are good. They were in care of. Usually it's like the person who actually bought the car
and didn't, you know, didn't lease the car. They bought the car new. They took good care of it.
They did all the maintenance. They changed the oil. 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? So peaches are the cars that got like the
first class treatment in terms of maintenance. Lemons are the opposite, right? 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, they look superficially
to be fantastic. So the buyers can't tell them apart, but the buyers know that they are ignorant
in this situation. 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? So the Akerlof
insight goes as follows. There is a negative feedback loop in this marketplace which has
asymmetric information between buyers and sellers. The buyers are relatively ignorant
relative to the sellers. The sellers know which of the cars are the lemons and which of the cars
are the peaches. The buyers don't know that, but they know that they're ignorant. So in that
situation, here's what happens. The buyers come up with an offer price for their used car. 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. 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. 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. It's going to be basically 99% of the difference
between the lemon and the peach. That's the rational offer price. If you think there's a
1% chance, you're going to get a lemon. So let's say the buyer thinks there's,
thinks there's a 5% chance of getting a lemon. 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. So what happens when the, um, the seller makes this offer? Well, the lemon seller is delighted.
The lemon seller is delighted because they're selling a thing that's worth the lemon price.
Here comes the sucker offering almost a peach price for this car. So the lemon seller says,
great deal. Great. I will accept your offer. And they shake hands. They sell that lemon.
How about the peach sellers? The peach sellers are the people who took good care of their cars.
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. The buyer is unwilling to
pay for full goodness. 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. So the peach sellers are
being offered less than what their car, what they know their car is worth. So they will tend to say
no thanks. When the peach sellers say no thanks, they end up leaving this used car market. In other
words, the peach sellers who had put their car up for sale, now they delete their Craigslist ad,
right? As a result, the fraction of Craigslist ads that are selling lemons goes up because some of
these peach sellers left. Therefore, the chances of getting a lemon have gone up. Now the buyers
are eventually going to get wise to this. 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. He got a lemon.
This other buddy, he got a lemon too. So, you know, maybe I think it's like, you know, 10 or 15%.
So basically the offer price goes down. 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. That's their profit. So there's no way for a lemon seller to lose in
this situation. No matter what the offer price coming in is, they're going to accept it. But the
lower the prices, the stronger the reaction from the peach sellers is going to be to leave the
market. 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. You have 100% lemons in the used car market. 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. So, right. So even though there's Carfax now, the used car market continues to have a bit
of a shady reputation, right? 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. They exit that market.
All right. So the Akerlof paper has direct applications to Defcon safe mode, what we're
doing now, and also transparent coins. So let's, let's look at the pandemic example. So people with
good health, right? People who are healthy and actually are healthy. Those are peaches in this
situation. 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. 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, or if
they're going to get a lemon. 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. They come home sick, right? 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. And so the rational,
the rational action in that is for the healthy people to bypass that market. 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. And it's going to be a good idea to do Defcon in safe mode, right? That is an example
of the peaches leaving the market. Let's look at transparent coins of which Bitcoin is one. 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? Who genuinely have nothing to hide. They, they live their lives well.
They haven't done anything to anybody, which is actually the majority of people, I think.
You have squeaky clean coin owners. They are the owners of transparent coins that have their
reputation attached to them. 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?
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. They don't know who it's going to happen with.
This is, it's exactly the same as the Yukon market. 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. 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.
So if you are truly squeaky clean, what is the rational response to such an ecosystem?
What is the rational response? 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? Are you okay with that? 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. So there's a cryptocurrency safe mode idea I want to get across. 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.
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? 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. There's a similar kind of thing I think that's going to happen
with transparent coins. You have people who are squeaky clean. Somebody wants to send them Bitcoin.
Yes. Well, I guess they have Bitcoin, so they must be legit. They, they're cool enough to get
with it with understanding Nakamoto consensus. They must be a good guy, right? Okay. I'll take
your money. So funds received later, any unpleasant effects. And this could be immediate and it could
not be immediate. Like that's the thing about flattening the transaction graph between people.
It takes away the time dimension. So let's say you do, let's say, you know, you settle a dinner
bill with your buddy, right? Five years later, you and your buddy, you know, diverge paths. And
it turns out that your former buddy is now involved in organized crime, right? And then
they use their Bitcoin to do something unsavory with their Bitcoin. 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? But now your address has been associated with this bad guy. So it could strike and you
don't know when. 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. Is anything
unpleasant going to happen as a result of that? Well, ha ha, no, that's not going to happen.
That's just something that these, you know, delusional Monero people talk about
as being something, right? 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. I'm going to call it fake news, right? So like maybe, maybe your entire circle of crypto
buddies, like dismisses this entire possibility out of hand, never talks about it. 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, they approve it. 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.
And you, you listen to that and you say, okay, yeah, that's good enough. That's yeah, that, that,
that should, you know, fix the problem, right? 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. And that quiet voice might be saying, well, you know, maybe fungibility
is, is important. 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.
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. 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. 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. 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. So great. 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. What could go wrong with that?
Monero is what Bitcoin noobs think they bought, which is sound money in safe mode.
All right. I'm going to skip to the Monero community. It has no formal organizational
structure. It's idealistic, scientific, and yet welcoming. It's a cypherpunk community.
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. I think it's appropriate and fitting that
this is the only crypto that gets its own village at DEF CON. Again, I think it's an important
project for humanity. 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. Monero is legal in the United States and a lot of other places too. And it's actually
better at compliance with a lot of laws that regard privacy. For example, the GDPR in Europe,
which mandates privacy protections for its citizens. That is a law that Bitcoin totally
fails because part of that law includes a right to be forgotten. 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.
I don't want to be on there anymore. Destroy your records, any record you have of me. And
European companies have to comply with that. Is that possible in Bitcoin? It's absolutely
impossible in Bitcoin because you have a mountain of proof of work that is basically etched in stone
every past transaction. You can't erase any of that. You also can't undo the metadata associations
of actual people to addresses. So there are significant ways in which Monero is more compliant
with existing law than a project like Bitcoin. Nobody talks about that though. It's always,
you know, oh gee, what are the criminals going to do? Well, again, why don't we talk some more
about what the innocent guys are going to do? All right. All right. With that,
I think I might've already been kicked off, but all right. Thanks.