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4440	11040	All right, welcome to day two of Monero Village at DevCon Safe Mode 2020. I'm Daniel Kin,
11040	19580	and welcome to another day of Monero Village. We have a lineup of interesting talks for you,
19580	29060	and also tutorials and so on. So this talk that I'm going to give is called Sound Money Safe Mode,
29060	36180	and it is a kind of a broad, big-picture introduction to cryptocurrency and Monero.
36400	46180	I will do my best to get this all transmitted in a timely manner. There's a lot of material,
46180	52800	because I'm assuming that the viewer here is a bright person, knows their way around a computer,
52800	58120	but has not necessarily spent a lot of time thinking about Bitcoin or Blockchain or Monero.
59560	64980	A little bit about myself. I studied physics at Harvard. I did a bachelor's, master's, and PhD
64980	72000	there. There I kind of had a habit ingrained in me to always look at data. So there's going to be a
72000	77960	lot of data shown in this talk. Most of my career was spent in the non-profit sector. So my first
77960	82060	job out of grad school was with a symphony orchestra, where I ended up doing about 700
82060	86640	concerts professionally. First as a violinist, and then later as a keyboardist. And then
86640	90840	concurrently with that, I jumped through the hoops to become board certified in radiation
90840	97520	oncology physics, where then as a medical school professor in medical physics, I helped about a
97520	103160	couple thousand patients with their fights against cancer by helping with the technical aspects of
103160	109720	delivering high intensity radiation to cancer. So it was there that I signed up for the executive
109720	114880	MBA program at Yale, because I thought that I wanted to show an interest in the way that the
114880	120460	world works in a different way than in physics. Of course, in physics, you're, you're studying how
120460	125520	the world works at the smallest levels, which is what I did as a particle physicist. But then to
125520	131760	think broadly about real world human problems from a variety of perspectives, the MBA is good for
131760	138160	that. So I ended up signing up for that. And while doing that, I made a switch to the for profit
138160	145240	sector, I joined a small hedge fund on the hedge fund world, meaning like about a billion dollars
145240	149540	under management management, and I become director of research there.
150220	156980	I was a co author of a paper that won the top research award of the CFA Institute, which is
156980	166060	the basically the premier credentialing Institute for equity analysts. So that paper was about the
166060	173120	effect of liquidity on asset prices. So it was there that kind of in my spare time, I was getting
173120	178020	more and more interested into cryptocurrency, and blockchain. And then I made a decision that
178020	182640	I thought that this was a genuine innovation, of which there are not that many that happened in
182640	188480	one's lifetime. So I jumped to my own small business, which is what I do now as an independent
188480	195240	consultant. So right now I help bridge two very separate worlds as the founder and CEO of
195240	200560	Sweetwater Digital Asset Consulting. As you can see on the bottom, there's the world that Defcon
201280	206440	kind of represents, which is a non-commercial, open source, cypherpunk, grassroots cryptocurrency
207180	216000	culture. And on the right side is the very parallel universe of traditional asset protection,
216000	222180	trusts and family office, portfolio management, estate and tax planning. These two separate worlds
222180	226900	know very little about each other in practice. They often make assumptions about each other that
226900	236780	are kind of, you know, maybe based in fear and not necessarily information. And so as one who
236780	241820	has significant experience on both sides of this divide, I help people who are in one side or the
241820	251540	other to gain the benefits of genuine engagement of the other. So in my non-profit efforts these
251540	258260	days, I am also a community volunteer for the Monero Project. My talking here is on a voluntary
258260	265320	basis. I do not receive any support from the Monero Project. I've never asked for support from
265320	271360	the Monero Project because actually I want to maintain my independence as my primary loyalty
271360	280300	duty is to my consulting clients, to whom I owe the duty of doing the research and examination of
280300	284540	the entire cryptocurrency space and making recommendations on what I think are the
284540	290360	most compelling projects out there. And within cryptocurrency, I also specialize in
290360	296820	tokens that do what I think is the killer app of Nakamoto Consensus, which is store of value.
297140	303300	Basically, cryptocurrencies that act like money, as a private form of money. And within that space,
303300	308800	I think that there are only really two projects worth considering and they are Bitcoin and Monero.
308800	315760	So that's what I do for my non-profit in my non-profit time is that I help out with the
315760	326440	community and that's about me. All right, so this talk is called Sound Money Safe Mode
326440	333360	and it's got four parts. First, I'm going to talk about the pandemic and the economic fallout so far
333360	344400	from the pandemic. Second is that the management of fiat scarcity in the world leads to a strong
344400	350600	suggestion that it might be a good time in history to be looking at independent sources of scarcity.
350600	355900	So that will be the second part of the talk. Third, I'll talk about fungibility, what that means
355900	362330	and why it's important as the world moves increasingly towards a mass surveillance society.
362330	368490	And the fourth part will be how one can get involved with the Monero project. So before
368490	373390	starting, I wanted to say thanks to a few people in the Monero community who I had consulted with
373390	379830	while preparing this talk. So they are Howard H.Y.C. Chu, Dr. Sarang Nether of the Monero
379830	390920	Research Lab and Dr. Francisco Cabanas of the Monero Core Team. All right, so very much has
390920	399140	been said about the pandemic, so I'm not going to go into that too much. But I wanted to show
400400	406840	basically, from a social engineering point of view, how one can see this entire pandemic that
406840	413140	we're in the midst of. Really what this is, is an example of a microbe that did a very good job of
413140	420980	social engineering humanity, basically taking advantage of a weakness in evolved humanity's
420980	427680	ability to diagnose their disease state. So here I'm showing this in the form of a flow chart.
427700	434160	And if you start here in this upper left corner, this is basically what people would go through
434160	440440	as their decision process before the pandemic hit. So they would be sitting at home,
440440	444140	and you ask yourself, well, do I feel like going out? Well, if you don't feel like going out,
444140	448740	you stay at home. But if you do feel like going out, then you diagnose yourself as being healthy,
448740	455020	because of course you're healthy, because you feel like going out. If you weren't healthy,
455020	459400	you wouldn't feel like going out. Therefore, since you feel like going out, you must be healthy.
459600	464780	So there's a self-diagnosis that gets made there. And now that we're in the midst of the pandemic,
464780	469480	we can look back at this pattern of thought and think, wow, that was kind of naive.
470900	474400	There's like this bygone era when you could assume that you were healthy,
474400	479940	just because you felt like you were healthy. All right, so going on, again, in the pre-pandemic
479940	484220	thought process, because you diagnose yourself as being healthy, now you go out.
484280	490100	And so now you're dealing with other people, and their disease state is not known to you.
490120	496460	But you use basically a heuristic. That is, you ask yourself, do you see anybody who's coughing?
496680	499420	Well, if you don't see anyone who's coughing, then you just carry on.
500620	505500	If you do see someone who's coughing, then you diagnose them as being a sick person,
505500	511740	and you want to avoid them. And then you carry on, because you don't make a big deal out of it.
511740	516180	You just make a mental note that, oh, gee, that person might be sick. Maybe I'll keep my distance.
517040	521880	And then do you feel like going home? No, then you stay out in public. And yes,
521880	528880	if you do feel like going home, you go home. And nowhere in this loop does the possibility of
528880	534280	actually getting sick really come up that much. And so now we can look back at this and
535120	541520	see how basically this pattern of thought, which has, I would say, probably evolutionarily
542080	548760	developed in humanity, after all, it's gotten us to survive for this many thousands of years
548760	555200	as it is. And now all of a sudden, we're confronted with this microbe that challenges that.
555200	560640	And of course, it's not fun for anybody to be told, hey, your instincts are totally wrong.
560640	567280	You need to not trust your instincts, and you need to stay at home even if you feel healthy,
567280	573180	or put on a mask even if you feel healthy, and so on. So people generally don't take too well
573180	580520	to being told that their very natural instincts are leading them astray. But nevertheless,
580520	585280	if you look at the objective reality, that is the fact.
586820	596560	All right, so in addition to having our notions challenged of who is sick and who is not sick,
596560	600880	what the current pandemic has also done is challenge our notions of what can you get sick
600880	608160	from. And in the right side of the chart is a published study that was published in The Lancet,
608160	613080	which is the UK's premier medical journal. And what this is showing is an experiment that some
613080	623280	researchers did in which they took SARS-CoV-2 and they put it on money, like cash. They put it on
623280	628900	banknotes. So what this chart is showing is how much of that virus remained on the money over
628900	635820	time. So here at time zero, they put a drop of the virus on. This is how much virus they measured.
635820	641840	And then as time goes on, you can see that the amount of the virus remaining on the money goes
641840	648520	down, but it goes down less quickly than one would hope. So for example, here at the 24-hour mark,
648520	655560	there is still a significant amount of virus detected. And you have to go to three days out
655560	664040	before these researchers found that undetectable amount of virus on the money. So what would happen
664040	670100	in a real-world scenario when something like this gets unleashed? And here I'm showing basically the
670100	676520	macroeconomic effects of what's happened in the pandemic. So there's a lot going on in this chart.
676520	682400	So I'll start with the blue line here. The blue line is showing U6 unemployment. So this is the
682400	690440	fraction of people who are either looking for work, or underemployed, or working part-time when
690440	696000	they want to be working full-time, or are so discouraged with their state of trying to find
696120	701960	a job that they've given up. So all these people are measured, are counted as unemployed in the U6
701960	709980	measure of the U.S. government's unemployment number. This is contrasting with U3, which is
709980	715300	only counting those people who are actively looking for work and can't find it. So U6 is a broader
715300	720340	measure, and so it's widely considered to be more accurate. And here in this plot, I'm showing a U.S.
720340	726720	government data going back, all the way back to 1980. So we're looking at 40 years of history here,
726720	733880	and you can see here that the unemployment line in the year 2020 spiked up to the highest level
733880	742920	that ever in recorded history, at least of the U6 unemployment rate. It spiked up to about 22-23 percent,
742920	750040	so one-fourth of Americans out of work. And fortunately, that's gone down a bit since then,
750040	756940	but it's still definitely not a pretty number. So what happens when something like this happens,
756940	765280	like the demand for services, like in travel, in dining, entertainment, all fell through the floor.
765380	772000	And so the federal government's reaction to that was to be concerned about deflation. So deflation
772000	779120	happens when people stop spending their money and the economy drops to a halt. So to fight that,
779120	784300	they expanded the money supply. So they basically printed money, which is what you do to try to get
784300	789560	people to spend again, because by printing money, that reduces the interest rate. The interest rate
789560	794320	goes down, then it becomes less attractive to save your money and get a tiny, tiny bit of interest.
794320	800580	It becomes more attractive to spend your money. So here in green, I'm showing the MZM money supply.
800580	807340	MZM stands for money zero maturity. And what that consists of is the M1 money supply, which is
807340	814140	coins, currency, and checking accounts. And it combines that with savings accounts and also
814140	818740	money market accounts, which many people use as sort of an alternate form of a savings account
818740	825540	these days. It differs from M2 money supply in that it does not include certificates of deposit,
825540	829820	which as you know, you go to a bank and you lock in your money for 12 months and they pay you
829820	835500	slightly higher interest for the time that your money is locked up, be it 12 months or six months
835500	841380	or whatever the time term is that you agreed to. But because that money gets locked up for that time,
841380	848980	that is not counted in money zero maturity, the MZM metric. So basically, the green line
848980	858460	is showing all of the liquid money in the US. Now, it's a huge number. It's roughly
858460	863960	$20 trillion. So because that's hard to get your head around, I've normalized that number
863960	869220	to the gross domestic product. That is the value of all goods and services produced in the US
869220	876640	in one year. So you can see that the money supply as a fraction of the productive output of the US
876640	882920	has been going up for the last four years. And you can see here at 2020, the line spikes up from
882920	890760	about 70% to over 100%. So, you know, the word unprecedented gets thrown around a lot for this
890760	898700	crisis. But truly, if you look at long term plots like this, and you see that the size and the slope
898700	904880	of this money printing that's been happening in the last several months is truly breathtaking.
906020	912240	All right, so that's the money supply. So of course, the government can print as much or as
912240	920740	little money as it wants with nothing stopping them from doing whatever they want. This has been
920740	930780	true since Nixon in the 70s abolished the linkage of the US dollar to gold. So before the 1970s,
930780	938780	the US dollar could be traded in for some quantity of gold. And that meant that the US government was
938780	942360	constrained in how much money it could print because if it printed more money, it needed to
942360	948520	have more gold in order to accommodate those people who wanted to trade in their US dollars
948520	957540	for gold. But Nixon in the 70s did away with that kind of inconvenience from the part of the
957540	963840	federal government. And so since then, the US government has been free to create however much
963840	968600	money it wants, just like any other country, all the countries of the world are free to use
968600	976420	their own judgment and discretion in controlling their own money supply. All right, so that has
976420	983340	nothing to do with, for example, the ins and outs, the income and the expenses of the government,
983340	990040	which would be taxes and government spending. So looking at the bottom line here, the bottom line,
990040	995300	which is, you know, wiggling all over the place, what this is showing is on a monthly basis,
995300	1000620	how much money is the US government taking in, minus how much money is the US government
1000620	1005920	spending. So it's basically taxes minus spending on a monthly basis going back to 1980.
1006020	1011360	You can see that the line goes up and down quite a bit. It basically spikes four times a year
1011360	1017940	because that's when estimated taxes are due. And so there's that seasonal structure to it.
1017940	1025420	Also, if you integrate this over time, then you get the black line that's on top,
1025420	1032580	which is the total federal debt and normalized to GDP again. So basically you can see, for example,
1032580	1040180	in the aftermath of the 2008-2009 financial crisis, the government was spending quite a bit
1040180	1045940	more money than it was collecting. That's this area here. And as a result, when you time integrate
1045940	1052660	that, you get the black line up here in which the rate of increase of the federal debt to GDP
1053300	1060800	went much faster in the aftermath of the 2008-2009 crisis. Unfortunately, in the years
1060800	1066040	that followed the last financial crisis in 2008-2009, which could have been an opportunity
1066040	1073100	to reduce our federal debt, much as what happened in the late 1990s over here, you can see the
1073660	1081600	went down a little bit with the government surplus. No such thing happened in the 2010s.
1081620	1087600	And so the federal debt kept creeping up. And now we're at this point here, in which at the
1087600	1094820	beginning of the year, the debt to GDP ratio was about 110%. And that is before the pandemic. And
1094820	1101020	so this federal debt to GDP number is actually lagged about four months. You know, all these
1101020	1104580	numbers come from the government. So there's like a significant bureaucracy behind it. So
1104580	1112260	it's far from the situation in a digital form of money like Monero, where you can see everything
1112260	1120080	instantly. So there's a four-month lag. And so the debt to GDP number is only showing the first
1120080	1130020	quarter of this year. But it's rather troubling to see all this. Oh, yeah, back down here.
1130020	1136620	So this line here with the monthly taxes minus government spending, as you can see, it really
1136620	1143420	tanked in especially quarter two of 2020. Now, some of this might bounce back, it might not
1143420	1147980	be as alarming as it looks. Because if you're in the US, you probably know that
1149400	1154700	April 15, which is the normal deadline for taxes to be due got pushed back to July 15 due to the
1154700	1161530	pandemic. And so basically, the government was collecting zero tax between April through July.
1162320	1169960	And so that's why you'll see this precipitous drop here is that there was no tax revenue coming in,
1169960	1174480	yet the government was continuing to spend money as it was before. The spending didn't stop,
1174480	1182300	just the income stopped. And so this might reverse itself now that July 15 has come and gone,
1182300	1190020	with a correspondingly high spike in taxes that is assuming that this July 15 was a kind of a
1190020	1193760	bonanza from from the point of view of the IRS with a whole lot of tax money coming in, we'll
1193760	1204510	see if that was actually the case. Zooming into other countries as well. So in the G20, there are
1204510	1209830	eight countries that have been reporting statistics on the amount of money that's in circulation in
1209830	1215910	their particular currency. And that's going back to 2018 here. So of these eight countries,
1215910	1221350	you can see there's basically this hockey stick shape to this curve of how much money of each of
1221350	1226430	these countries is circulating. Here, I've normalized the amount of money in every country
1226430	1233590	to be equal to one on January of 2020. So you can see prior to the pandemic, the money creation was
1233590	1240890	at this rate, and post pandemic, it's happening at this much more fast rate. In the United States,
1240890	1249830	which is the biggest line here, as you can see, post 2020, the M1 expansion has been to the tune
1249830	1256930	of about $1.33 trillion, which amounts to increase in the money supply of about $300 million per hour.
1257590	1262310	Now, if you compare this to, for example, the market cap of Monero, the value of all the
1262310	1267790	Monero in existence, it's something on the order of like about $1.5 billion. So this is saying that
1267790	1275470	the money supply of the U.S. expanded by the size of Monero's market cap roughly five times every
1275470	1283670	day for the last six months. And if you look at MZM money, so this metric is M1 money supply,
1283670	1288590	which is only coins, currency, and checking accounts. If you add to that the other forms
1288590	1295410	of liquidity that are included to MZM, then this figure jumps up, it's to more like half a billion
1295410	1302790	dollars per hour. All right, let's broaden our focus to not just the eight countries in the G20
1302790	1308550	that have reported results recently, but let's look at all the G20 fiat currencies. And let's
1308550	1315250	also expand the time frame in which we're looking to back to 2009. 2009 is the date that I chose
1315250	1320490	here for the left hand scale here. That is because that is the year in which the Bitcoin white paper
1320490	1326850	came out and introduced a way to introduce digital scarcity without needing a central authority to
1326850	1333330	maintain that scarcity. But since 2009, and I again, I've normalized this so that every country's
1333330	1340030	money is equal to one at the beginning of 2009, you can see that there's been steady growth
1340030	1346790	in all of the currencies. There is not one of the G20 currencies that has been flat or has actually
1346790	1352490	decreased their money supply over time, it's all increased. And you can see that the average,
1352490	1358530	if you pick the middle line of this distribution, it looks like it took about seven or eight years,
1358530	1366370	eight years for the average G20 cryptocurrency, average G20 currency to double. So as a former
1366370	1374610	med school professor who worked in oncology, the exponential math of uncontrolled growth,
1374610	1379070	which is something we see in cancerous tumors, is something that I think about when I see a plot
1379070	1383470	like this. So here we're looking at a doubling time of eight years. It took eight years for the
1383470	1389570	money supplied to double. So it's kind of like a certain cancer tumor that takes eight months
1389570	1394990	time to double in size. There's similar metrics that get used in the oncology literature.
1394990	1400810	So, but if you look at the money supply here, it's, and this is a pre-pandemic, pre-pandemic,
1400810	1406750	we're looking at a doubling time of about eight years per doubling. So if you think about how
1406750	1414610	long does, you know, average human survive, let's say 80 years, that is 10 doubling times. So eight
1414610	1420870	times 10, that's 10 doubling times, which means at this rate, the amount of money expansion in a
1420870	1425810	average human's lifetime is going to go through 10 doublings, which is two to the 10th power,
1425810	1432470	which is 1,024. It's about a thousand times increase in the money supply. And that is before
1433350	1437970	the pandemic. And so now after the pandemic, we're looking at a doubling time that's closer
1437970	1446270	to like two years. There's an interesting scholarly book called Monetary Regimes and Inflation,
1446270	1454550	which did a study of 29 historical cases of hyperinflation. So this is, for example,
1454550	1460010	what happened in the Weimar Republic of Germany in the 1910s, and other countries throughout
1460010	1465350	history in which, you know, the people are taking wheelbarrows of money out to buy a, you know,
1465350	1470830	one loaf of bread, that kind of thing. That's because the money supply grows at such a large
1470830	1476710	rate that the prices go up too. And so people basically find that their savings are destroyed.
1476850	1482870	So if you have, you know, $100 in savings, and then in a month from now, you find that the $100
1483470	1489650	used to buy you, you know, say a week's worth of groceries, but now the $100 buys you a candy bar.
1489650	1496190	That's what hyperinflation looks like. And I would say, you know, at least for Americans,
1496190	1501630	none of us have ever had to, you know, live through that. But all accounts of what it is
1501630	1506570	like to survive through something like that, it's no fun at all. It wipes out people's savings.
1506570	1512950	It promotes, you know, social unrest, social violence. It's just not pretty.
1513690	1518430	But this book that studied the underlying economic causes of hyperinflation came to
1518430	1524070	the conclusion that in 25 out of 29 of these historical cases of hyperinflation,
1524070	1530470	the trigger was that there was money creation that financed government deficit. So these charts
1530470	1536750	from the G20 money supply, this should be convincing evidence that the money creation,
1536750	1541390	which is half of this equation, is indeed happening. The second half is the government
1541390	1547890	deficits. So unless governments are able to make extremely difficult decisions and are able to
1547890	1554410	their budgets, now we're going to have two out of two of these criteria met for conditions to be
1554930	1560370	favorable for the development of hyperinflation. And this is not really like a, this is sort of
1560470	1566670	a phase transition kind of thing in which it's hard to predict when, because the conclusion
1566670	1574350	of people that the money is no longer trustable and must be spent immediately, otherwise it lose
1574350	1579910	value, that that decision, which needs to take place among an entire population in order for
1579910	1586550	hyperinflation to take place, that's, it's a social thing, right? So it's like, it's the herd
1586550	1591230	that decides, you know, that they don't have confidence in the money anymore. It's hard to
1591230	1598970	predict. So it's not an, it's not a 100% foregone conclusion that money creation plus government
1598970	1606030	deficits means hyperinflation or increased inflation, even, but it certainly doesn't help
1606030	1614910	the prospects. And so in this backdrop, I think the takeaway for anyone with assets to save
1614910	1622910	is that, you know, it might be wise to consider the possibility that the future might hold higher
1622910	1627910	inflation than what you are used to and what indeed, what you might be comfortable with.
1630250	1635550	All right. So moving on to the second part of the talk. So what does this mean in terms of
1635550	1646250	independent scarcity? So if the unit of account that is being used in your society is, is going
1646630	1651910	under hyperinflation, what people often do is they look for a different sort of unit of account that
1651910	1657050	is not subject to hyperinflation. It's a rather natural thing to want to do is to preserve the
1657050	1663010	value of your savings. And so historically, at least in a hyperinflation sort of scenario,
1663010	1668310	there have been independent sources of scarcity that have been looked at to store wealth. So that
1668310	1672910	would be physical commodities, for example, gold and silver. These are the classic ones.
1673270	1679550	And since 2009, there is a new option for humanity that is in the form of digital commodities,
1679550	1687150	which became possible to consider after the development of the Satoshi Nakamoto Bitcoin
1687150	1695930	white paper. And as one who studies this stuff, thinks about it a lot, I've come to the conclusion
1695930	1701030	that there are really only two projects out of the many that are worth considering. It's Bitcoin
1701030	1710380	Monero. Let's think about digital scarcity networks for a bit. So let's contrast digital
1710380	1717520	fiat versus decentralized digital scarcity like Bitcoin and Monero. After all, our US dollars,
1717520	1725260	our euros or yen, or all of our fiat central bank monies are in fact digital these days.
1725980	1733380	There is such a thing as online banking, your banks are using computers. So the fiat money
1733380	1738980	is a source of digital scarcity. It's just that that scarcity is controlled by a centralized
1738980	1749040	entity. So the access to the database of who owns what is protected. There's a moat of firewalls
1749040	1753280	around that. And there's really just one authoritative version of the ledger. There
1753280	1757880	might be backups and stuff, but really there's basically you have a moat. And then inside the
1757880	1766360	moat, you have the copy of who owns what, the ledger that says who owns what. And once you
1766360	1772380	have access to that, you have quite a bit of ability to change things. At the lower level,
1772380	1776880	like at a bank teller level, of course, you can't just create money out of thin air. But you have
1776880	1781720	the power to manipulate money between accounts. For example, you can transfer money from one
1781720	1788020	customer's account to another. As you go up in the system, the amount of power that you have over
1788020	1792740	that database becomes higher. So that now that you get to the level of the Federal Reserve Bank,
1793300	1803740	when this committee of men sitting around a table, I guess there's some women on the FOMC
1803740	1809180	now, I'm not totally sure. But traditionally, it's been just a group of men making this decision that
1809860	1814180	okay, it's time to print more money. And then when that decision gets made,
1814180	1822720	some employee in the federal government goes to their computer and they click a button,
1822720	1828020	and they get a $1 billion money supply by another billion dollars. Yeah, I guess that's probably a
1828020	1832740	very hardworking federal employee right now, whose job it is to click create money. They're
1832740	1839160	kind of sitting there working overtime, clicking this button over and over. But at the highest
1839160	1848400	levels of government, it becomes literally just arbitrary right access to this ledger. And of
1848400	1852360	course, the software that controls this is closed source. It's closed source, because why would they
1852360	1858680	open source it? Because then that would facilitate bad actors learning how the system works.
1859360	1864660	And there are downsides to this. Mismanagement is probably the chief one. So all these plots that I
1864660	1869480	was showing of the money supply could be interpreted as signs of mismanagement.
1870260	1875440	That the Federal Reserve is supposed to be imposing discipline, it's supposed to be
1875440	1881400	independent of the political process. The Federal Reserve is supposed to be the entity that says,
1881400	1888200	no, I'm sorry, we're not going to print tons and tons of money. Government, you're just going to
1888200	1894300	have to learn to come up with a budget that you can balance. And please don't look to us to be
1894300	1898850	just manufacturing money out of thin air, because that's not sustainable. That's what the
1898850	1905790	Federal Reserve is supposed to do. Arguably, and these charts before are evidence showing that
1905790	1912470	it's not really doing that. There's also insider abuse that is a problem with these sort of
1912470	1918010	centralized security models. And that is, there are plenty of examples of large banks that do
1918010	1923090	egregious things to abuse the trust of their customers and get away with it with just a slap
1923090	1931050	on the wrist. For example, there is a case where Bank of America took its customers' personal data
1931570	1936950	and created fake checking and savings accounts under the names of the, you know, using the names
1936950	1941130	and social security numbers of their customers, they made fake accounts, and then they proceeded
1941130	1946970	to charge fees on those accounts, which the customers didn't even know existed. And, you know,
1946970	1952350	this caused some scandal, and then they got a fine, which was, you know, maybe, you know, a day's worth
1952350	1959570	of profits. And, and that was that. So, you know, the potential for insider abuse is, unfortunately,
1959570	1965790	there for a centralized network where, basically, you have middlemen between the people and the
1965790	1971150	database, you have the these middlemen who are in a position of power, and so they unfortunately
1971150	1977770	abuse that. Another feature, or, you know, I would say benefit from the point of view of the middleman
1977770	1982990	of being a middleman is that there's little incentive to improve. So if there's a database
1982990	1990360	that holds your bank account balance, right, and, and, for example, you want to do a wire transfer,
1991530	1996550	you need to wait for the middleman to be good and ready to process your wire transfer before
1996550	2002330	you can get it done. So the very fact that we have bank hours, Monday to Friday, nine to five,
2002330	2008410	in an era in which everyone has been used to shopping at 2.30 in the morning from their bed,
2008410	2012850	on their phone, you know, shopping on Amazon to get whatever they want, yet we're still in a,
2012850	2018170	in a situation where fiat money oftentimes requires the services of another human
2018170	2025330	to, to help you do what you need to do. So the decentralized security model of Bitcoin and also
2025330	2030950	Monero is totally different. So in, in these decentralized networks, anyone can join the
2030950	2036530	peer-to-peer network. Anyone can download the Monero code, run it on their computer, and then
2036530	2043310	basically become part of this network, which does the functions of what a bank does. It processes
2043310	2050410	transactions, it keeps track of who owns what, it, it, it keeps track of all this. Each node maintains
2050410	2056390	its own version of the ledger. So in contrast to the centralized security model, where you have a,
2056390	2060770	you know, a master database sitting in the middle with all sorts of firewalls and protections
2060770	2068010	around it to try and defend it from misuse, here each node has its own copy of the ledger. Every
2068010	2073710	node in the Bitcoin network, every node in the Monero network has a database file that contains
2073910	2080970	a record of who sent what to who. In the decentralized security model, it's open source.
2080970	2085730	It would have to be. If, you know, if anyone is able to join the peer-to-peer network, you'd better
2085730	2090510	make your code open source, because otherwise how do you know what you're running? How do you, how do
2090510	2096030	you get people to, you know, put their trust basically into this network unless you publish the code
2096030	2101930	as open source? And so like the Cathedral and the Bazaar, the, the classic open source software
2101930	2106910	development book that contrasts the building of a cathedral, which is a centralized sort of
2106910	2113750	process a la Microsoft, versus the Bazaar, which is just a, you know, farmer's market where everyone
2113750	2119910	is free to come show up and just build something, which would be like the Linux model. This is
2119910	2127110	basically the version, the Linux of money. So really these two situations, fiat versus decentralized
2127110	2133170	money, it's really like Microsoft versus Linux. So the fiat monies would be like Microsoft of money
2133170	2139990	and the decentralized solutions like Bitcoin and Monero are like the Linux of money.
2141070	2146150	Of course, there are downsides to this, just like there are downsides of Linux over Windows, and
2146150	2152050	that's new, but fewer people have heard of it. It's relatively inefficient, at least not the
2152050	2158570	operating system now, but the, the use of FOSS in money is going to be inefficient because you have
2158570	2163890	this decentralized network keeping track of who owns what. So if there's no boss computer, if
2163890	2169210	there's no, you know, like super privileges computer within this peer-to-peer network,
2169210	2175250	then how are you going to decide what the true version is of the database that keeps
2175250	2186990	track of who owns what? So to explain that, currently cryptocurrencies are able to be
2186990	2193310	traded for US dollars and all sorts of fiat currencies, but this used to not be the case.
2193390	2198990	So back in 2009, when the Bitcoin white paper first came out, Bitcoin had zero dollar value.
2198990	2206370	It was just a geek project. It was this, you know, kind of interesting curiosity of a system that
2206370	2213130	purported to make a new form of scarcity that kind of acted like money. But back in 2009,
2213130	2218530	nobody knew that that was actually the case. Nobody knew if this thing would actually work
2218530	2223910	like it said it would work. And so I think it's a good idea if you're new to cryptocurrency to,
2223910	2230990	before you get caught up in the hoopla of, you know, the prices of everything and, you know,
2230990	2237430	God forbid, you start searching cryptocurrency on YouTube and are confronted with, you know,
2237550	2243650	a hundred different channels of people making sensational, you know, hay out of like the latest
2243650	2248590	price movement of this and that currency, and you get caught up in the horse race aspect of all that.
2248690	2253390	Before you get into all that, I would suggest pretending that all of cryptocurrency has zero
2253390	2260130	value, because it'll end up being good for you in the long run, because you'll have a more solid
2260130	2264290	understanding of what's actually going on with this stuff that you're buying and selling.
2266790	2271390	One, Halloween of the year 2008, that is when the Nakamoto white paper was just
2271390	2279190	dropped into existence on a bulletin board, like a discussion board. 2009, January 9,
2279190	2285150	is when the Genesis block, which is the very first block, which is the very first record of
2285150	2290470	who sent what to who in the Bitcoin network, that is when that happened, was in 2009. And since then
2290470	2296990	the network's been going, it's been running 24 hours, 7, 365 ever since. So in the calendar year
2296990	2305150	2009, Bitcoin was operational, but Bitcoin itself, like each Bitcoin unit itself had zero monetary
2305150	2311810	value, because again, it was just a geek project. So I'd like to kind of turn the clock back and
2312370	2318430	summarize how Bitcoin works from that standpoint. Now there are three aspects that you need to
2318430	2326770	get working to create a private form of money. First, you have to have some sense of what is the
2326770	2333490	analogy of a bank account. Second, is you need to have some analogy to what it is to write a check.
2333490	2337630	And third, you need to have some sort of process for that written check,
2337630	2340970	once it's shown to be legitimate, to be processed through the system.
2342910	2348290	So Bitcoin is based on the Secp256k1 elliptic curve, and that's written out here. It's public
2348290	2352610	knowledge what this elliptic curve is, there's nothing secret about it, it's a public standard.
2353170	2360630	It's y squared is congruent to x cubed plus 7 mod this very large prime number. And x and y,
2360630	2365150	usually you think of as being real numbers, like if you think of like high school algebra,
2365150	2370550	and you want to plot this curve, you will make a nice kind of curvy shape out of this if you
2371030	2377050	let n y be real numbers. But in this case, we're restricting x and y to be integers,
2377050	2382130	right? And furthermore, these integers are modulus this prime number, which is basically
2382130	2388110	clock arithmetic. This is saying that 1 o'clock, 13 o'clock, 25 o'clock are all the same,
2388110	2393950	because the number on the clock dial is pointing to the one. So basically, every 12,
2393950	2399990	your counting goes back to zero. So that's the case here, except instead of 12 numbers,
2399990	2408090	you have like this 70 some digit prime number that so you have a clock with just an unfathomable
2408090	2414430	number of numbers on its dial. Alright, so the way to think of this, this x and y is basically
2414430	2424010	you have this, you know, universe sized sheet of grid paper, and on grid paper, you can have x y
2424010	2431310	coordinates that are each integers. And some of the points on this huge, gigantic sheet of grid
2431310	2438650	paper are solutions to this particular elliptic curve. And if one was to try to guess just random
2438650	2445970	combinations of x and y to, to come up with a solution to this, your chances of coming up with
2446330	2453070	a solution to this elliptic curve would be one in that prime numbers probability. So one in 10 to
2453070	2458910	the 70th, I forget the exact number, it's like 10 to the 70th, something on that order. So basically
2458910	2465310	you to come up with a solution on your own is it's basically impossible. But so fortunately,
2465310	2469750	part of the elliptic curve definition is to provide you with a solution called the base
2469750	2476370	point. The base point is a solution x sub b, y sub b, which is known to solve this equation.
2476510	2481430	And furthermore, because of the mathematics of elliptic curves, it's possible if somebody gives
2481430	2488110	you an integer n, it's possible to come up with another point, another solution. So basically,
2488110	2493690	if somebody gives you this base point solution, it's possible to compute another solution to this,
2493690	2498070	which would be another point on this grid paper. And this other point on the grid paper would be
2498070	2504770	n times the base point. And that would be p sub n, which is equal to x sub n, y sub n. Now it's
2504770	2509330	much more complicated. It's not just that you take the base point and you multiply both the x and y
2509330	2513890	coordinates by the number n. It's much, it's more sophisticated than that. But the idea is that
2513890	2520410	if somebody tells you n, you can compute the nth point that is a solution to the elliptic curve.
2520410	2524910	The thing is that it's a one-way function. So if someone tells you n, you can get p sub n.
2524910	2529810	But if someone tells you p sub n, you can't get n. You have to brute force that. And again,
2529810	2535250	to brute force this is a 10 to the 70th chance of getting it right, which means, you know,
2535250	2543670	might as well just not try. And so that's the key to this, is that the public key, which is the
2543670	2551330	location of that base point, is itself the Bitcoin address. Now it's not a number like I'm kind of
2551330	2557470	implying it is here. The number gets translated to a string of letters and numbers in Bitcoin,
2558230	2563730	which is a Bitcoin address. But at the heart of it, that Bitcoin address is representing an x,
2563730	2573210	y coordinate on the secp256k1 elliptic curve. The private key is n. n is the which solution
2573210	2582150	to this elliptic curve is your point. And again, it's a one-way function. So if you give your
2582150	2591690	Bitcoin software the number n, which is basically the seed to generate a public address, then you
2591690	2598050	can get the public address from your private key, but you can't go backwards. So the private key is
2598050	2603270	like basically it functions as an authorized signature to spend. So getting a new Bitcoin
2603270	2610610	account is tantamount to picking a number. What can you do with this elliptic curve point? So
2610610	2615870	big deal, like why make such a big deal out of having a, you know, an x, y point that satisfies
2615870	2620930	this equation? You can do something very useful with it, which is secure message signing. So if
2620930	2627130	you are in possession of a public-private key pair, and you have a message that you want to
2627130	2631430	send to the world, and you want to make sure that everyone in the world knows that that message
2631430	2636610	came from you and only you, this is the way you would do this using elliptic curve cryptography.
2636610	2641770	You would take your message and you would combine it with your private key. So you would have to
2641770	2648210	manipulate those in a routine. So the combination of the message and your private key scrambled up
2648210	2653590	together will produce a signature, which is just a block of bytes that is unique to the combination
2653590	2658650	of the message and the private key. Then as the sender, you would send your message in plain text
2659190	2663630	and you would include with your plain text message the signature, which is this byte block that you
2663630	2669970	generated by processing your message along with the private key. As a recipient now, you get this
2669970	2674970	message and you got the signature from the sender, but now you're not sure if this actually came from
2674970	2679610	the sender or not. So what you do is you take this stuff that you came from the purported sender,
2679610	2683610	and you combine this with a public key, which you know to be from the sender.
2684110	2687950	When you combine all three of those, you get a binary verification result that says, yes,
2687950	2694610	this was a legitimate message from the sender or no, it was not. This type of cryptography gets
2694610	2701010	used all over the internet. For example, it gets used in the HTTPS protocol. In Bitcoin,
2702970	2708930	this was used in a novel way. That is, the sender's public key was used in a further
2709890	2716770	interpretation to be an analogy to a bank account address. So the public key then becomes
2716770	2722210	your Bitcoin address, and the private key becomes the signature that's needed to spend the money
2722210	2727630	that's associated with the public key. So sending Bitcoin means sending a signed message to the
2727630	2733210	Bitcoin network. And it's analogous to a check, as I'm showing here. So knowledge of the private
2733210	2740670	key is tantamount to speech, which is tantamount to money. So finally, once a valid check gets
2740670	2744650	written and signed and sent to the Bitcoin network, how does it get processed? Well,
2744650	2750190	in Bitcoin, the network is controlled by a group of gossipy accountants. So these are computers,
2750190	2754070	again, anyone can join the Bitcoin network simply by downloading the software and putting your
2754070	2759230	computer on this. When you do that, your computer is going to start to download the entire transaction
2759230	2763750	history of everything that's happened in Bitcoin since 2009. It's going to get that from being
2763750	2768830	gossipy with the other Bitcoin computers that it's connected to on the network. And those other
2768830	2774730	computers will willfully share little pieces of the database. And there's redundancy because you
2774730	2779170	want to make sure that a database that you're getting in from your neighbors is correct. So
2779170	2785450	there's checks and balances for that, namely the hash value of the blocks. So that is what is used
2785450	2792090	to guarantee kind of authenticity of the database through the system. So again, miners are peer to
2792090	2797550	peer Bitcoin accountants. What they do is they process blocks. Blocks are lists of valid signed
2797550	2803010	spend messages. It's basically the list, the current list of pending checks to be processed.
2803390	2808990	They get packaged into a collection called the block, and then the block gets added to the
2808990	2817090	chain. And therefore, it's basically one page worth of transactions showing who sent what to
2817090	2822310	who. That's what a block is. Part of what the block has is a nonce. And the nonce is just a
2822310	2827170	little data field within the block, which is free for the miner to choose whatever they want it to
2827170	2833710	be. So the miner can just guess a number and put that in the nonce. Why do they have to do that?
2833710	2839810	Well, one requirement for a block to be considered valid is that the hash of the block,
2839810	2843710	and of course, being DEF CON, I don't have to explain too much. Hash is just a one-way
2843710	2850290	cryptographic hash function with fixed output length. So you take as input a file of any size,
2850290	2856390	and you get as output a block of bytes that is basically a signature that is extremely
2856390	2862550	sensitive to even bit level changes in the input. All right, so the thing is that a block has to be
2862550	2867410	have a hash value that is lower than a difficulty number. The difficulty number is dynamically
2867410	2874890	adjusted so that the number of valid blocks that happened in a 10-minute interval is one on
2874890	2880590	average. So there's a maximum acceptable value for the block hash, which the accountants in this
2880590	2887790	network are busy trying to satisfy for a given block. The computer in the network that does that
2887790	2892670	gets what's called the block reward. That is a Bitcoin payout to the non-solver. And it's
2892670	2898550	important to know that in Bitcoin, and also this is true in Monero, and it's actually quite rare
2898550	2904670	for cryptocurrencies to have this property, is that all of the accounting money, all of the money in
2904670	2910350	existence, came into existence as a payout to a random computer in the network that was helping
2910350	2915930	to secure the accounting and the bookkeeping for that network. None of the block reward in Bitcoin
2915930	2923470	was shunted off and a cut went to a group of people, or to a foundation, or you didn't have
2924370	2930290	a portion of that money got set aside and then used to do marketing or whatever. All of the
2930290	2934410	money went directly to the computers that were actually doing the accounting work
2935050	2940290	for that network. And this is relevant from a regulatory point of view because FinCEN,
2940290	2947490	which is one of the financial regulators in the US, defines a decentralized cryptocurrency as a
2947490	2951690	currency in which the block rewards all go directly to the decentralized network that's
2951690	2956790	doing the accounting. That's important because if you have a chunk of money that's going to a group
2956790	2961490	of people, then that group of people could be considered as being basically the masterminds of
2961490	2968590	the operation. And so they have to be subject to increased regulation in terms of compliance with
2969350	2977210	AML KYC rules. So it's important that the block reward, both from sort of a philosophical and a
2977210	2982690	fairness point of view and also a regulatory point of view, that all of the unit of
2982690	2990210	currency in existence went as a reward to the decentralized network of miners. Conflict
2990210	2994850	resolution. So again, there's no one boss computer that is in charge of having, you know, the
2994850	3001350	correct version of the ledger. So how do we know if you have a conflict in the network, who wins?
3001350	3006010	Well, the answer is that the chain with the more hash power is going to be the one that is deemed
3006010	3011590	to be the authoritative version of the blockchain. So this basically functions as a self-healing
3011590	3016830	mechanism. If there's a discrepancy in the state of the network in two geographically
3016830	3023250	distant parts of the network, basically the tie break will be resolved at the next block that
3023250	3031350	comes, because then that will have, that chain will have more hash power. So at least relative
3031350	3037630	to the state of the blockchain at the time when the chain fork happened.
3037630	3043190	All right, anyway, I'm getting a bit too technical here. So back to the blockchain, it's a, the
3043190	3048170	definition is it's a distributed append-only linked list of blocks with low value hash.
3050070	3056310	And sorry if I've gone too fast here, but there's lots of big concepts here to understand.
3056310	3061890	And if this is all new to you, I would suggest taking the time to, you know, think about it until
3061890	3067970	it makes sense. Because especially before, you know, getting into this circus, which is kind of
3067970	3075190	the cryptocurrency, you know, world of today. So to summarize the Bitcoin white paper, Nakamoto
3075190	3079870	consensus synthesizes digital scarcity. There's a few different kinds of scarcity that we're
3079870	3083950	talking about. One is account level scarcity, that is property rights, the establishment of
3083950	3089630	property rights. How do you know that who owns what in this system of accounting? So that is
3089630	3095350	enforced in Bitcoin by the users, the individual's selection and subsequent protection of an elliptic
3095350	3100870	curve private key. How do we know in aggregate how many Bitcoin there are? How do we know that
3100870	3105710	we're not going to have a situation like we have in fiat banking, where we have a money supply whose
3105710	3112530	quantity is unpredictable over time and is subject to the hopefully wise, but in
3112530	3119450	practice, not always 100% wise decisions of a central group with arbitrary control of that
3119450	3124870	money supply? Well, that is enforced by an open network of peer-to-peer accountants in Bitcoin
3125430	3129590	who are rewarded for behaving consistently with the consensus rule set.
3130150	3136810	What that means is that the majority of nodes in Bitcoin have decided in advance, it's been
3136810	3143850	coded in advance, that the Bitcoins that are given to a miner as a reward is going to decrease over
3143850	3149470	time. And therefore, the total number of Bitcoins that are going to be rewarded to miners in the
3149470	3157810	network is going to be a total sum of 21 million Bitcoin forever. So any new computer that comes
3157810	3163610	onto the network and has a different idea of what the money supply should be, let's say there's a
3163610	3170630	computer that Joe Noob Hacker comes up with their own version of the Bitcoin client
3170630	3175310	in which they program that the block reward is going to go to their personal Bitcoin address,
3175310	3179950	and then they put that on the network. What's going to happen is that it's just going to get ignored
3179950	3186910	because you need majority decisions on this network to be considered correct. That's how
3186910	3191510	you get around the fact that there's no boss computer. Basically, the majority rules becomes
3191510	3196970	the boss, right? And so a rogue computer that's introduced to the network is going to have zero
3196970	3203530	effect on it unless it can manage to get 51% of the hash power, which is expensive and difficult to do.
3205310	3212250	Finally, you have database modification scarcity, which is record permanence. The number
3212250	3219390	of opportunities that the Bitcoin network has to modify what's in the Bitcoin database is severely
3219390	3224330	limited. And it's severely limited by this proof of work mechanism, like the nonce stuff that I was
3224330	3229990	talking about. Basically, when a Bitcoin computer comes up with a nonce that satisfies difficulty,
3229990	3236150	it's coming up with a block of data, that block, which is extremely rare, because its hash value
3236150	3241570	is arbitrarily low. It's got a whole bunch of zeros in front of it, and then numbers after that,
3241570	3246730	which does not really happen if you just have randomly generated blocks. If you have randomly
3246730	3251530	generated blocks, then you would have random numbers for the hash function. But every single
3251530	3258550	block in the Bitcoin blockchain, and also this is true in Monero, has a low hash rate, has a low
3258550	3263930	hash number associated with each block. And so that makes each little piece of data that gets
3263930	3269410	added to the blockchain a rare piece of data. It took a lot of trial and error effort. In other
3269410	3274610	words, it took a lot of proof of work to get that piece of data added to the blockchain. And so,
3274610	3280210	as a result, it's extraordinarily difficult to make modifications to that database, especially
3280210	3285730	as time goes on, and more proof of work gets piled on top of the older transactions. It becomes near
3285730	3295370	impossible to modify older transactions. Okay, so how is Monero's features of scarcity? How do
3295370	3303410	they differ from Bitcoin's? Probably the most important, I would say, from a assessment point
3303410	3308770	of view when assessing, you know, is Monero something worth considering, given that Bitcoin
3308770	3315250	was there first, and it has the largest network. Currently, it has the largest, you know, market
3315250	3323230	share, the largest mind share, the largest network value. But if you look at Monero, it is not
3324310	3330790	a code fork of Bitcoin. So most all of the cryptocurrencies in existence today simply did
3330910	3335970	a copy-paste of Bitcoin's code, and then changed a few little things. And that, you know, they
3335970	3340790	said, oh, I like this about Bitcoin, I don't like that about Bitcoin, made a few oftentimes
3340790	3345550	trivial changes to the code, and then published that and call it your own cryptocurrency.
3346190	3356030	And because we're in a time in which the, I would say, the, I guess, the sophistication level
3356030	3362570	on a dollar-weighted basis in the crypto market is rat low. It's basically like the
3363130	3367910	early days of the dot-com bubble, in which the internet was new. And because the internet was
3367910	3373090	new, it was like, you know, there's all sorts of technological utopia talk going on about how the
3373090	3379290	internet was going to revolutionize everything. And as a result, because you had basically,
3379290	3384310	you know, a bunch of geeks who understood how the internet worked, and a bunch of normies who had
3384310	3389550	really no idea what even email was. So you had the situation where you had, you know, stupid idea
3389550	3396390	plus internet equals sexy company. So you'd have things like pets.com, which, in which the business
3396390	3403210	model was to, you know, FedEx 50-pound bags of dog food to people. But they were using the internet
3403210	3409050	to get the orders in for these dog food orders. And so therefore, this was just like a hot
3409050	3413430	company back in the early days of the internet. It's funny for us to look back at that and kind
3413430	3418130	of laugh at that. But we are in exactly the same situation now with cryptocurrencies, in which
3418130	3425590	stupid idea plus a little bit of blockchain buzzwords equals hot new cryptocurrency. And
3426650	3433650	that's enough to get a bunch of people who have basically profits in mind above any sort of
3433650	3441150	technological benefit to get in on a bandwagon. So anyway, one criteria that one can use to
3441150	3447570	whittle down the subset of cryptocurrencies that are worth considering are this. Is it simply
3447770	3452710	a Bitcoin fork? How much original intellectual effort went into the creation of this other
3452710	3458470	cryptocurrency? In Monero, it was started from scratch. It has its own separate code base. In
3458470	3463890	fact, it uses a completely different elliptic curve than Bitcoin. So Monero uses ED25519.
3463890	3470970	That is the very XY points on this gigantic sheet of grid paper, which is fundamental to how the
3470970	3476570	cryptocurrency works. That very equation is different in Monero than it is in Bitcoin.
3476650	3482330	So this is a form of technical hedging to the extent that the elliptic curve used in Bitcoin
3482330	3487170	may or may not have weaknesses associated with it. This is a form of technical hedging in which
3487170	3492390	Monero has chosen deliberately a different elliptic curve. In Monero, there are two forms of
3492390	3497350	private keys. There's a spend key and a view key. The spend key works like the Bitcoin private key.
3497450	3501790	So if you know the spend key, you are in complete control of your account and you can see everything
3501790	3507010	that goes on with it. In contrast to Bitcoin, there's also a view key in Monero. In Monero,
3507010	3515010	the view key is used to basically see details of your account. So by default in Monero,
3515010	3521190	lots of the details of transactions are encrypted because by default, the details of transactions
3521190	3525410	are nobody's business except for the people who were involved in the transaction. It's their
3525410	3533890	business. So in Monero, there is a public blockchain, which everyone in the Monero ecosystem
3533890	3539990	gets if they run the Monero software, but many details of this blockchain are encrypted.
3540410	3546110	Because by default, a random person downloading the Monero blockchain, it's not their business
3546800	3552690	who sent what to who, like all the details. They can know very high level details about what's
3552690	3557810	going on, but why is it their business to know exactly who sent what to whom and how much they
3557810	3565110	spent? So in Monero, this necessitates the use of two different keys. There's a spend key and a
3565110	3569910	view key. Those are both private keys. All right, in Monero, the address space is larger. So we're
3569910	3576730	talking about 10 to the 76 different addresses to choose from in Monero versus 10 to the 60th
3576730	3583070	in Bitcoin. This means that there is more security in terms of the birthday problem. So
3583070	3588250	when one is choosing a cryptocurrency account, one is simply picking a point on this grid paper
3588250	3593310	and calling it your own. When you do that, you have to consider what is the risk that somebody
3593310	3597450	else in the world is going through this same process and picking a random point on this grid
3597450	3602730	paper. And what's the chance that they pick the point that I picked? If they pick the point that
3602730	3607690	I picked, then they will know the private and public keys for that elliptic curve point. Therefore,
3607690	3611750	I'm going to be basically sharing my money with a stranger somewhere else in the world.
3612550	3618430	That is a possibility. So in that sense, there is security by obscurity in cryptocurrencies,
3618430	3623690	but that is mitigated by the fact by the vast number of addresses that are possible.
3623710	3628430	And there is an even more vast number of addresses in Monero than there are in Bitcoin by
3628430	3636970	10 to the 16th, that many times more addresses in Monero. The drawback of this is that you have a
3636970	3643130	less user-friendly experience because the address lengths in Monero are long. They're
3643130	3649710	very long strings of numbers and letters. The emission schedule is different in Monero
3649710	3655090	relative to Bitcoin. So in Monero, it's continually decreasing. There's not a four-year halvening.
3655510	3662190	So in Bitcoin, every 210,000 blocks, the miner reward that goes out to each miner who
3662190	3667630	successfully adds a block to the network gets cut in half. That means every four years,
3667630	3671970	if you're a Bitcoin miner, there is a date circled in red that's coming up sometime in
3671970	3677930	the next four years in which your income from helping contribute to the Bitcoin ecosystem gets
3677930	3681830	cut in half. And so from a business point of view, if you're doing mining for a business,
3681830	3689470	it's a rather disruptive thing. And this is something in which Monero has basically looked
3689470	3695610	at the granddaddy cryptocurrency and kind of thought about what they're doing and maybe trying
3695610	3701030	something a little different that might help matters a bit. And so in Monero, the emission
3701030	3709350	is continually decreasing. So we are spared from this drama in Bitcoin of having every four year,
3709730	3718210	a large disruption thrown into the mining ecosystem. There's another form of unwanted
3718210	3725290	scarcity, and that is future miner rewards. So as I mentioned before, all the computers in the
3725290	3731690	Bitcoin network and also in the Monero network are programmed with a understanding of how big
3731690	3738670	is the reward going to be to each computer over time. So now and into the future, how big is that
3738670	3745390	reward going to be? In Bitcoin, this reward is predefined to get cut in half every four years,
3745390	3754050	as I just explained. What that means is that in, say, 40 years from now, the Bitcoin reward is going
3754050	3759730	to be, it's going to have halved four times. So one half to the 10th power, that's about a factor
3759730	3765330	of a thousand. So the Bitcoin reward to miners in 40 years time is going to be one one thousandth
3765330	3772190	of what it is now. So this brings up a concern, like are miners in the Bitcoin network in that
3772190	3775870	length of time from now, are they going to be able, are they going to find that to be enough
3775870	3780670	incentive to keep working for the network? There's some academic research that shows that
3780670	3786010	the solution that Bitcoin has come up with, which is to institute a fee market in which the people
3786010	3793650	who transact end up chipping in and basically engaging in a auction-like process to bid up
3793650	3800670	the fee that they offer with the transaction in an effort to get their transaction into the next block.
3800670	3806730	But that idea may not be enough to incentivize miners in the future. So in Monero, what we have
3806730	3811490	is what we call the tail emission. That is that the block reward in Monero is never going to be
3811490	3817610	less than 0.3 Monero per minute. And what this means is that over time, the number of Monero
3817610	3824650	in existence is going to linearly increase forever. And so this gets kind of portrayed as
3824650	3834330	quote-unquote infinite emission by people who are not thinking about it very, I would say, fairly.
3834450	3841850	But the reason is that the absolute value of emission is not relevant in any macroeconomic
3841850	3846990	theory. Any macroeconomic theory that takes into account what the money supply is and the effects
3846990	3853130	of changes in that money supply in the macroeconomy will look at the percentage increase of that money
3853130	3858090	supply. So it's not the absolute value of U.S. dollars increasing that's relevant, it's the
3858090	3864790	percentage increase in U.S. dollars that's relevant. And if you have a money supply like Monero that is
3864790	3871450	increasing linearly over time, what that means is that if you look at the percentage increase of the
3871450	3878070	money supply, every year it's going to get smaller and smaller. Because every year the money supply
3878070	3883430	is going to expand by a fixed constant amount, which is what linear expansion just means. Every
3883430	3889010	year is a constant amount of Monero is going to be added, but that's going to be added to a
3889010	3895250	pre-existing base of Monero that is going to be growing. Therefore the inflation rate on percentage
3895250	3900870	terms is going to be decreasing and asymptotically going to zero. Which means that that is the
3900870	3906770	relevant input to any macroeconomic theory that uses the expansion of the money supply. An asymptotically
3906770	3914110	zero inflation rate. And so to claim that identically zero inflation rate is significantly
3914110	3920370	different. It's a totally different situation that an asymptotically zero inflation rate is is silly.
3921310	3927310	It's just not factual. It is easy for normies to understand that 21 million bitcoiners
3927310	3932350	is the only amount that's ever going to be created, but it leads to a bit of a laziness of thinking in
3932350	3939430	which one comes to this false conclusion that one must have a identically zero inflation rate
3939430	3946090	in order to be macroeconomically negligible. What do we gain in Monero for having this
3946090	3951410	tail emission? We know in Monero that minor incentives are going to be there in perpetuity.
3951410	3959130	In Monero we do not have a civil war over who is going to be paying for minor rewards in the future.
3959130	3963210	Now this sounds like it might be kind of a trivial and academic thing but this actually happened in
3963210	3968630	bitcoin. There is a civil war that was partly caused by a disagreement over who is going to
3968630	3976830	pay for the network's operation in the future. So this whole position in bitcoin that we are
3976830	3983010	going to get the users of bitcoin, the transactors of bitcoin, to engage in this competition in a fee
3983010	3988770	market to get the transactions processed in the next block. The viability of that was debated
3988770	3995270	within bitcoin and was one of the factors leading to the divorce of bitcoin versus bitcoin cash.
3996410	4002510	Now if you think about it, who wants to go to ebay to try and get a financial
4002510	4007910	transaction going? Who wants to engage in a bidding process to try and just
4008910	4015690	send ten dollars to your buddy for lunch? But anyway, we avoid all that again in Monero by
4015690	4021330	having this tail emission. So here's some charts that show what I'm talking about. This is actually
4021330	4028030	empirical data on the left. So to the left of the present, and I'm looking at a timescale of 2009
4028030	4032370	which is when the bitcoin white paper started, and I'm going out 15 years into the future to the year
4032370	4040050	2035. This is the amount of the number of coins that will be in circulation. So in bitcoin there
4040050	4044670	have been about roughly 18 million bitcoin created and there are going to be three million more
4044670	4051150	created for the rest of time. So you can see to the left this is what the money supply has looked
4051150	4056930	like in bitcoin, and to the right of this in gray we can reliably predict in the future what the
4056930	4062370	future money supply is going to be, because again the miners in the network are kind of programmed
4062370	4069870	with that information in advance. The same is in Monero. So in Monero we also have a predefined
4069870	4075930	schedule for what the coin emission is going to be over time. And so on to the left of August 2020
4075930	4081970	you see what has actually happened in Monero. And this curve here, it looks so smooth and perfect it
4081970	4085830	looks like it's a theoretical line, but this is actually empirical data that I'm showing on the
4085830	4091670	left. This is what actually happened in terms of emission in the Monero blockchain up to now. And
4091670	4097450	then in the future you can see the tail emission in Monero shows up as this very slight
4098010	4103530	curve, a straight line that's that's slightly tilted up to the right. That's the tail emission
4103530	4109350	which there's a going to be a fixed number of Monero dedicated to be given out to miners every
4109350	4115590	year in perpetuity. This differs from bitcoin in which the 21 million limit is a hard limit.
4115610	4120270	Once the number of bitcoins emitted gets close to the 21 million that's going to go to zero.
4120270	4124590	And again they have a problem to deal with, which is how do they guarantee that the miners in the
4124590	4129130	far future are going to be incentivized to keep using their electricity and their
4129130	4136430	silicon to keep supporting their network. If we take the time derivative of this last chart,
4136430	4141610	you get year-over-year supplied inflation. So what I'm doing is I'm taking what is the supply
4141610	4147850	of a currency today versus what is the supply of that currency one year ago on the same day.
4147850	4153550	And I'm showing what you get for Monero, bitcoin, and also gold. So the World Gold Council keeps
4153550	4159970	track of its estimate of how much above ground gold there is in the world every year. And you
4159970	4165650	can see here that the amount of gold in above ground that's known to exist and has been processed
4165650	4174550	and refined into bullion in jewelry, that has been increasing at a pretty constant rate of about 1.8%
4174550	4182250	per year. So if you think of sound money as being something that is gold-like in that there is no
4182250	4187490	entity that can artificially create gold out of nothing, like you have to do the work of mining
4187490	4193770	it yourself, then even gold inflates at a rate of 1.8% per year. So if you use that as kind of
4193770	4198810	your litmus test for defining something called sound money. So sound money, a working definition
4198810	4207270	of sound money would be something, a source of scarcity that inflates by a level of about 1.8%
4207270	4211970	per year or less. So that would be kind of a working definition of what sound money is.
4212250	4218350	So as you can see, Bitcoin and Monero both are coming up on a new area of scarcity. Starting
4218350	4224230	now, here in 2020, going into the future, the inflation rates of both Bitcoin and Monero are
4224230	4230690	going to be lower than gold. And so these will satisfy that definition of sound money. It's
4230690	4237590	like a digital form of sound money. In contrast to this, we have a kind of scary situation with
4237590	4243710	the money supply of the U.S. dollar, for example. This is again, money zero maturity, which is the
4243710	4249890	broadest measure of liquid money in the U.S. And this is looking at year-over-year supply inflation,
4249890	4255750	how much U.S. dollars have there been versus how much U.S. dollars have there been a year ago at
4255750	4262470	the same date. You can see as a result of the pandemic, this has spiked up recently to about 30%.
4267880	4273280	Now, I showed a version of this chart just six months ago at a keynote talk that I gave at
4273880	4279360	the Critical Decentralization Cluster at 36C3 in Leipzig, Germany. You might have seen the
4279360	4286820	Monero Means Money documentary film that was made out of that. And relative to that, which
4286820	4293200	was just six months ago, and just before the pandemic hit, I had to adjust the vertical
4293200	4298560	axis here. It used to go to 20% now because I had to adjust it to 30% to fit fiat.
4301020	4305400	Again, it's a scary situation. Hopefully it works out for the best, because if it doesn't,
4305400	4312660	there's going to be a lot of suffering by humanity. But the situation is what it is.
4312900	4320440	And for those people looking for a source of scarcity that is gold or gold-like, this is what
4320440	4324640	you're looking at. You have gold and you have new digital alternatives in the form of Bitcoin
4324640	4329940	and Monero. There's another form of unwanted scarcity I want to talk about, and that's
4329940	4335280	mining hardware. So in the Bitcoin white paper, Satoshi used the phrase one CPU, one vote. What
4335280	4340520	that means is that this is the idea that the miner reward should scale with miner expense.
4340540	4346240	So you want the probability that a miner computer gets the Bitcoin reward. You want that to be
4346240	4351300	proportional to basically how much money and effort that they spent into buying the computer
4351300	4356260	and paying for the electricity to run the computer and so on. You don't want a situation in which
4356260	4361360	somebody with a whole bunch of wealth can come up with a way to do mining much more efficiently
4361360	4366300	than a little guy who doesn't have much wealth. And yet that's exactly the situation that has
4366300	4373120	come to pass in Bitcoin, and that is because of the economics of silicon manufacture. Silicon
4373120	4377660	economies of scale destroy the linearity between miner expense and miner reward,
4377660	4383200	and that is because you have different pieces of silicon with different capabilities and
4383200	4388840	different specializations. CPUs, like the things that run your computer or your cell phone, those
4388840	4395140	are general purpose computing devices and they're made to be pretty fast at doing everything.
4395140	4400940	Whereas ASICs are custom pieces of silicon that are custom designed to do one thing and do that
4400940	4406860	one thing extremely efficiently. So it turned out that in Bitcoin, the proof of work algorithm
4406860	4412580	that's used is simple enough to encode on a piece of silicon and have a dedicated piece of silicon
4412580	4417460	that does nothing but the proof of work in Bitcoin. So basically, if you have $50 million,
4417460	4422500	you can make a silicon fabrication lab and you hire a bunch of PhD electrical engineers to
4422500	4429940	make this thing happen. And then you can basically print out chips that do nothing but the Bitcoin
4429940	4436000	algorithm and do that more efficiently than anybody else in the world. And so currently,
4436000	4442340	that capability exists really on an economically competitive basis, really only in China.
4442520	4448460	And so at the current date, Bitcoin mining is a Chinese-dominated oligopoly. If you're in Shenzhen
4448460	4460940	and you've got about $50 million, you mine Bitcoin the fastest. Otherwise, you're out of the game.
4460940	4465900	If you are just a regular guy with a CPU, just a gaming computer at home, and you want to
4465900	4471260	join that to the Bitcoin network and try to see if you can maybe hit a block, maybe you can get
4471360	4477560	a reward, you have a higher chance of winning the lotto than getting a Bitcoin block reward.
4477560	4484080	It's just not worth your time. It's not worth your time. It's not worth the extra electricity
4484080	4488520	that your computer is going to eat while it's trying to come up with blocks to satisfy the
4488520	4497300	Bitcoin network. This has the unfortunate effect of centralization. So now, Bitcoin mining is
4497300	4503200	effectively a Chinese oligopoly. You need to be one of these chip fab makers, or you need to be
4503200	4509460	buddies with one of the chip fab manufacturers to get a realistic shot of amassing enough Bitcoin
4509460	4514000	hash power to make a difference, to have a realistic shot of getting a block. So in Monero,
4514000	4518760	again, we've looked at the situation in Bitcoin and asked what can we do, what is going
4518760	4525320	maybe not so great over there, and try to come up with solutions to mitigate that. So in Monero,
4525320	4531240	what we've done is we have evolved the proof-of-work algorithm to keep small independent miners viable.
4531640	4536020	So this is quite remarkable for any cryptocurrency, but if you look at Monero's proof-of-work since
4536020	4541460	2018, it has changed four times. And each of these four times has required a hard fork.
4541460	4548260	So there's been an enormous level of effort that's gone into this. First, you need to come
4548260	4552100	up with these algorithms, you need to notice that they're ASICs, you have to have a community
4552100	4557560	consensus that this is a problem, you have to have a community that's willing to all upgrade their
4557560	4563220	Monero clients to keep up with the latest changes, because these changes were all hard forks.
4563220	4570240	That is, they were not backwards compatible. So it's a testament to kind of the persistence
4570240	4575820	and really the unanimity of the Monero community in having this goal of keeping
4578480	4584600	a situation of decentralization really viable in the real world, not just a theoretical thing,
4584600	4589360	but something that's actually decentralized in practice, with small independent miners
4589360	4595460	having a shot at getting a block reward in Monero. This chart is showing data to support that
4595460	4601620	narrative. So here I'm looking at 2014 to the present, and this is a chart of the Monero
4601620	4607600	network difficulty. So again, previously I talked about how Bitcoin works, there's a number called
4607600	4613600	the difficulty, which is a number under which blocks have to have a hash that's under in order
4613600	4623060	to be considered a viable block. So as more computers get onto the network, you can see that
4623060	4632840	difficulty will increase. So through version 0.11 of Monero, the proof of work was Kryptonite.
4632920	4638860	And so you can see that the difficulty was proceeding along for several years, and then
4638860	4644120	now there's a spike upwards in the difficulty. And this is basically interpreted as ASICs coming
4644120	4651840	onto the system. So basically, there were chip manufacturers who looked at the Monero proof of
4651840	4657040	work, figured out how to program the Monero proof of work into a custom piece of silicon, make that
4657040	4661760	piece of silicon, plug it into the network, and then start getting a disproportionate share of
4661760	4666800	block rewards from Monero. So once that happened, there was some alarm in the Monero community.
4667720	4672680	There were signs that, you know, ASICs were going to dominate the network and have a situation in
4672680	4676460	which you have to have connections with a bunch of buddies in Shenzhen in order to be able to
4676460	4682800	have a realistic shot at mining. And so work commenced on a variant of the Kryptonite proof of
4682800	4690080	work. So Kryptonite v2 was developed and tested and then deployed on the network in early 2018.
4690240	4695620	When that happened, you can see the difficulty took a nosedive. And that is because all these
4695620	4701080	ASICs that were previously viable in collecting a lot of the block reward were now shut out
4701080	4706940	because the proof of work changed on them. So that proceeded for several months. And that's
4706940	4710780	the lead time in silicon design, is that you need, there's like a several month lead time
4710780	4715660	from the time that you design an ASICs to the time that you actually fabricate it in enough
4715660	4720440	quantity to make a big dent on the network. So several months later, there was another upward
4720440	4726080	spike in the difficulty. So that was ASICs coming back online. So Kryptonite was patched again,
4726080	4731600	to again, preserve the network viability of getting block rewards for the little guy.
4731620	4735860	So again, there was another hard fork in late 2018 to change to Kryptonite v3.
4735940	4740900	That worked for another few months. Then the difficulty spiked up again. And then finally,
4740900	4744960	there was Kryptonite R, well, not finally, almost finally, there was Kryptonite R introduced in early
4744960	4752020	29. Then kind of mercifully, there was this, there's this silence from the ASICs manufacturer,
4752020	4757520	which was a nice sign to see in the Monero community. And then finally, there was a
4757520	4762900	kind of a revolutionary change in the proof of work algorithm to RandomX, which uses
4762900	4769820	a randomly generated computer algorithm that must be executed in order to do the proof of work.
4769820	4774020	It uses not only integer operations, but even floating point operations. And so it's a very
4774020	4784020	interesting example of a proof of work algorithm, for which the customized piece of silicon that
4784020	4790000	will do RandomX the best happens to be, for example, an AMD Ryzen Threadripper, which is
4790000	4795800	something that you can buy on Amazon. So it's basically commodity hardware is the most efficient
4795800	4801740	at doing the Monero proof of work. It's not something that you have to, you know, go on
4801740	4807600	Alibaba to try and get for yourself, and then suffer through like the very many shenanigans
4807600	4812640	that are associated with having a centralized mining operator. So for example, these ASIC
4812640	4818160	manufacturers do not have the most honest reputation, shall we say, of immediately shipping
4818160	4823600	their product out once a customer buys an ASIC. There tends to be a several month lag due to,
4823600	4831160	you know, testing and other very unexplainable reasons that their shipped product gets delayed.
4831160	4835760	And why would a ASIC manufacturer want to delay shipment of product that's been paid for?
4835760	4842900	Well, they want to test the thing by running, by basically collecting Bitcoin block rewards with
4842900	4847580	their customer's hardware before they send it out, right? So that's basically the shenanigans that
4847580	4853580	one has to deal with when one does not have a commodity piece of computer hardware to do proof
4853580	4860840	of work with. And so since RandomX has gone into effect, CPUs have once again been dominating the
4860840	4867000	network. Arguably, that was also the case with Kryptonite R, but we see that there is basically
4867220	4874240	a regime change in the proof of work. The metric of difficulty became apples and oranges once
4874240	4881080	RandomX came in. So this increase in difficulty is not to be interpreted as meaningful. It's just
4881080	4889840	what is meant by a hash now is different in RandomX versus Kryptonite. So there's a one-time
4889840	4895180	jump in the difficulty, which is meaningless. But since RandomX went in, it's been all signs
4895180	4901420	have been that there have been only CPUs on the network. Another form of unwanted scarcity is
4901420	4907520	access to layer one. So Bitcoin's one megabyte block limit caused a project fork. So there is a
4907520	4913620	controversy as to whether this hard-coded line of code, which Satoshi had put into the Bitcoin
4913620	4919620	client, saying that blocks have to be no larger than one megabyte in size, which is something that
4919620	4926420	Satoshi did as a kludgy way of preventing the network from getting spammed. That has remained
4926420	4935840	in there. The decision has been made, at least in the dominant implementation of Bitcoin,
4937640	4942940	post-divorce of Bitcoin, the most dominant one has preserved this one megabyte block limit,
4942940	4950020	subject to very marginal level changes like Segwit, which actually made it like 1.3,
4950020	4955700	whatever. The idea that there's going to be a hard block limit that doesn't change has
4955700	4961620	survived in Bitcoin. And so you can see the transactions per day here. And I'm showing
4961620	4966220	an exponential scale. So this is 10 transactions a day on the bottom to a million transactions a
4966220	4973760	day on the top. In Bitcoin, you can see that just like the mining reward asymptotically hits a
4973760	4978660	ceiling, the transactions per day in Bitcoin have also asymptotically hit a ceiling. And that is due
4978660	4983900	to this one megabyte block limit. Again, in Monero, we look at what's happening in the dominant
4984780	4989660	granddaddy cryptocurrency and give it all due respect as being the pioneer and the first to
4989660	4997520	exist. But we're on a case-by-case basis looking at what could be done as an alternative solution
4997520	5003340	to some of these issues. And so in Monero, we use what is called an adaptive block weight.
5003400	5007620	It used to be called the adaptive block size, but now there were modifications to the algorithm. So
5007620	5013220	now it's called the adaptive block weight. But the basic idea is that there is no hard-coded
5013220	5018280	limit on the size of the Monero block. It dynamically adjusts along with the network
5018280	5025260	so that it can dynamically expand if there is organic growth in the demand for Monero transactions,
5025260	5030860	which as you can see from this past history of transactions per day, you can make a pretty good
5030860	5036060	argument that the trend line of this transaction per day is on the way up. It's unlikely to be
5036060	5043560	spam related. It's unlikely to be like spammers are just kind of carefully spamming the network
5043560	5048380	by just a little bit and then increasing the amount of spam that they send over time.
5048420	5054100	You know, this by all indications seems to be organic growth in the demand for Monero transactions.
5055100	5062400	It looks... so from here to here, from like this time in 2016 to this time today, that's a 10x
5063120	5069580	increase in the transactions per day. So 10x in four years is what we're looking at in terms of
5069580	5074120	transaction per day growth. It doesn't look like much on this chart, but if you think about it,
5074120	5078360	that is quite significant. In four years from now at this pace, we're going to be looking at
5078360	5084020	100,000 transactions per day. And then in the year 2028, maybe in DEF CON we'll be showing a
5084020	5090620	million transactions a day, who knows. But in the adaptive block size, there is a minor disincentive
5090620	5095280	that kicks in when blocks get too big. So that disincentivizes miners from including a whole
5095280	5101840	bunch of transactions into a block. And if that happens, there are user fees that also increase
5101840	5108560	if the blocks get too big. So miners will continue to be... they won't be so disincentivized that they
5108560	5113880	stop making blocks, because their reward is not going to go down to zero, because user fees are
5113880	5122660	going to kick in. Yet there's a disincentive for miners to just blindly process like spam.
5125280	5130620	All right, so moving on to the third part of the talk, which... so up to now there have been kind of,
5131100	5137500	I would say, technical under the hood differences between Monero and Bitcoin. At this point of the
5137500	5141860	talk, I want to talk about fungibility and transparency. And this is where the two kind of
5141860	5147200	mission statements of these two cryptocurrency projects start to diverge quite strongly.
5147200	5153420	Bitcoin is transparent. Etched forever, for everyone to see forever, is for every transaction
5153420	5157620	you can see the sender, the receiver, and the amount. For every address, you can see a complete
5157620	5164980	live balance history. And so this is contrary to what you might have heard from the popular press,
5164980	5170780	if you're kind of new to getting into the real details of cryptocurrency, because the news
5170780	5175780	reports always make Bitcoin out to be this anonymous currency that nobody knows anything
5175780	5179740	about. Nothing could be further from the truth. It's actually completely transparent. It shows
5179740	5185640	every single detail. So for example, for the high net worth clients that I work with
5185640	5190560	in my consulting practice, this tends to be a showstopper once they know about it. Once they
5190560	5196120	become aware of this fact that, hey, did you know that if you put, say, a million dollars into
5196120	5201300	Bitcoin and you have a Bitcoin address that has a million worth of Bitcoin in it, everyone can
5201300	5206860	see that. As soon as they know your Bitcoin address, anyone in the world can go to their
5206860	5211740	blockchain explorer, type in that address and see, oh, hey, there's like 100 Bitcoin in there
5211740	5218440	that's worth a lot of money. This is a showstopper for really anyone with wealth. No one with wealth
5218440	5227740	wants to broadcast that to the world. It's indiscreet and it's unsafe to do that.
5228400	5234220	So the fact that there's this transparency in Bitcoin, it puts innocent people and businesses
5234220	5239980	at risk and also businesses, because businesses have as part of their secret sauce as to how they
5239980	5246760	are able to serve humanity, make a profit at the same time, is that they have
5246760	5252680	suppliers and customers. They have a certain pattern of suppliers they get their inputs from.
5252740	5257420	They have certain vendors that they deal with and they buy products from their vendors at a
5257420	5262120	certain time. Then they sell their products to their customers. So oftentimes the prices of those
5262120	5266440	products might not be public knowledge if it's a business-to-business sort of transaction.
5266900	5272220	And so there are lots of trade secrets that businesses have and there's no shame in that,
5272220	5278660	whereas for some reason, for some people, any sort of desire for privacy gets portrayed as
5278660	5285280	being something nefarious. For businesses, they routinely need privacy in order to survive as
5285280	5290020	businesses, in order for their intellectual property, their trade secrets, to not be
5290020	5297920	copied by competitors. Another problem in Bitcoin that goes beyond privacy is fungibility.
5297920	5303680	That is that reputation transfers in the Bitcoin network as well as value. So for every coin in the
5303680	5308600	Bitcoin network, it's traceable back to the miner. So it's as if you have a $10 bill and on the back
5308600	5313860	of the $10 bill, there's a neat chart that shows for the entire history of the existence of that
5313860	5321360	$10 bill, basically your address, your bank address. It might not be your name in picture, but
5321360	5327320	it's your bank address, let's say, your bank account numbers. And then the account numbers
5327320	5332900	of everyone before you who had that $10 bill going all the way back to the US Mint
5332900	5339820	that fabricated the $10 bill. And you have a nice neat chart for all to see. It's even worse
5339820	5345760	than that, because it's not that the $10 bill has that transparent list on it, because if it were
5345760	5350000	actually on a physical piece of paper, then the holder of the piece of paper would be the only
5350000	5355400	one who could see it. In Bitcoin, everyone in the world can see that nice transaction list
5355400	5361380	for every piece of currency that's in the entire system. Every coin is traceable. Who owned it
5361380	5366500	is traceable all the way back to the miner who first mined it. And what that does, first
5366500	5373940	it invites voyeurism. So if you know a Bitcoin address, it's just natural to go to a Bitcoin
5373940	5377900	explorer and type in the address and see how much money is there and see how many transactions they
5377900	5383940	do. It's a part of the culture of Bitcoin to basically... it's normalized being nosy.
5384960	5390900	I think it's a pernicious social effect of this feature of the protocol. There's also guilt
5390900	5396020	by association. And this is far more serious. There are now many companies in existence
5396020	5400940	whose job it is to try and associate names and faces with every account in Bitcoin,
5400940	5406100	every address in Bitcoin. They're trying to dox everyone on the Bitcoin network. And what do they
5406100	5410960	do with that information? They basically come up with the equivalent of a social credit score.
5411240	5418880	Because every Bitcoin in existence can be traced as to who owned it, they can make a graph showing
5420300	5424640	people transacting money with each other. And if any of these people happen to be a, quote,
5424640	5431740	bad person, then those people who happen to have exchanged money with that bad person are now
5431740	5438440	flagged as potentially being bad themselves. Now, the problem with this is that it's based on
5438440	5444160	imperfect information that is often easy to misinterpret. So, for example, let's say
5444720	5452820	somebody buys a car, right? Somebody buys a car and they pay for their purchase with Bitcoin. Or
5452820	5458620	let's say the opposite, for example. You're selling your used car and you want to get Bitcoin for it.
5458620	5463740	And so the person who you sell your car to gives you Bitcoin. And now, unbeknownst to you, the
5463740	5469980	person who sold your Bitcoin... the person who bought your car and gave you Bitcoin for it,
5469980	5475160	the way that they got their Bitcoin was that they were, for example, selling drugs on the dark web,
5475160	5478940	right? And that's how they came up with that Bitcoin, which now you own because you sold
5478940	5486120	your car to this person. And you also failed to do, like everyone else who sells their car
5486120	5491280	to a stranger by posting an ad on Craigslist, you didn't do a thorough background check on this
5491280	5495620	person who bought your car, you know, because they just had some Bitcoin. They had Bitcoin, you had a
5495620	5500520	car, you did an exchange, you went on your way. Unbeknownst to you that they were a quote-unquote
5500520	5505360	bad person. And now, because they were a bad person and the companies that are doing blockchain
5505360	5512760	analysis know that, now they are looking at you and thinking, oh, this person just got, you know,
5512760	5520980	$10,000 worth of Bitcoin from a known drug dealer. Maybe this person is supplying, you know, drug
5520980	5527040	paraphernalia to that dealer. So now you are under suspicion for that. And it had nothing to do with
5527040	5531900	you, right? But it had to do with the fact that this money is completely transparent and has this
5531900	5539960	history behind it. What this means is that there is a social level of censorship, because now when
5539960	5544860	this person who sells their, who sold their car and got this tainted Bitcoin, now this person
5544860	5551360	tries to put their tainted Bitcoin into a crypto exchange to get USD out of it. Once they send
5551360	5556720	their tainted Bitcoin to their exchange, it gets frozen, because now it's under suspicion. And now
5556720	5561560	the customer who's done this has to go through all sorts of extra hoops to kind of prove their
5561560	5566780	innocence. And to do that, they're trying to prove their innocence to somebody who really doesn't care
5567560	5572320	to know the truth. They're just, they just want to cover liability on their side. They just
5572320	5577620	want to make sure that they don't get in trouble. So, you know, probably the most, the easiest thing
5577620	5582840	to do is just to, you know, quarantine that money, not give it back to the customer and wait for
5582840	5587940	the authorities to give them permission to give it back, something like that. And none of this was,
5587940	5594700	anything to do with the innocent person involved. So this is why the transparency of Bitcoin is a
5594700	5600400	problem, even for innocent, squeaky people who have nothing to hide, is that because the system
5600400	5608420	is transparent, false accusations can be made against them due to false assertions, incomplete
5608420	5612820	misunderstandings that other third parties are making based on that transaction data.
5613600	5619900	In contrast, Monero is fungible, which means that every Monero is indistinguishable from every other
5619900	5625200	Monero. There are three technologies that promote this indistinguishability. One is ring signatures.
5625200	5630920	So those keep transacting senders private. Stealth addresses keep transacting receivers private. And
5630920	5636920	ring CT keeps transaction amount sent private. So all three of these are present on the Monero
5636920	5643120	blockchain. But when a person joins the Monero network with, by downloading the Monero software
5643120	5648040	at getmonero.org, and running that on their computer and downloading a copy of the blockchain
5648040	5655340	from the, from their peer miners, then they are getting a complete history of who sent what to
5655340	5660560	who in Monero. The difference is in Monero, it's all encrypted, because by default, it's none of
5660560	5665120	your business, like what the details of those. You can, you will know that transactions happened.
5665120	5670160	You will know when they happened. And you will know that they happened, but you won't see the
5670160	5675000	details of what happened. You won't see the details of who's, who was the sender, who is the receiver
5675000	5681860	and or what the amount was. Two of these three technologies were included in the original white
5681860	5685780	paper that defined Monero, which is the crypto note white paper, ring signatures and stealth
5685780	5691720	addresses, but ring CT was not. Ring CT was a innovation. And the history of how this got into
5691720	5696880	the network is an example of the dedication of this group of people to put it in. Ring CT
5696880	5702520	required several ingredients to come to fruition. It first required original cryptographic research.
5702520	5709700	We're talking postdoc PhD mathematician level cryptographic research that goes through audit
5709700	5719140	and peer review. Second, you need development of code to implement this new math. And, you know,
5719140	5724100	on the sharp end of the bell curve to be doing this because like the math is not trivial and
5724100	5729580	then to write code that faithfully implements that new math is also not trivial. To write
5729580	5736880	clean code that does not screw up somehow in implementing that is even harder. And so that
5736880	5742360	was another ingredient in getting ring CT implemented. Also, just in case there were
5742360	5747220	problems in the code that got written, it got subject to external audit. So basically the
5747220	5754380	community was solicited for donations to pay for external auditors to examine the code of ring CT
5754380	5761560	and make sure that there were no subtle errors of memory overwrites or stuff, you know, or such.
5762100	5768180	So and that got approved. Then finally, it doesn't matter if code gets written if nobody actually
5768180	5775660	runs it. So the community of Monero node owners needed to get on board and download this and agree
5775660	5781760	and update their computers once the new code came out. And because this was a hard fork that that
5781760	5787700	ring CT was again, a hard fork being that it's not backwards compatible, which means if if a
5787700	5791660	node owner fails to update their computer, they're going to be left out, they're going to be kicked
5791660	5800490	off the coin. So all these ingredients had to happen for ring CT to go in. Here are some charts
5800490	5806590	that show the evolution of how this went down. On the top, I'm showing daily average bytes per
5806590	5812630	transaction. This is how many bytes, like how much disk space is taken up by a transaction on
5812630	5817450	both the Bitcoin network and the Monero network. Bitcoin is the chart you see in black. And it's
5817450	5823170	been pretty constant over time. So that's one of their, I guess, that's part of their community
5823170	5827550	ethos over at Bitcoin is that they want a stable protocol, they don't want to rock the boat,
5827550	5831470	they don't want to make too many changes, because they feel that they have an enormous amount of
5831470	5838050	money in custody, under their control, they don't want to do anything that might jeopardize
5838670	5845590	safety in their view. Of course, if you take a broader view, the amount of money in Bitcoin is
5845590	5852230	just like a trivial amount in terms of global finance. So it's arguable as to whether that
5852230	5861490	sort of high horse view of the importance of the intrinsic goodness of what's already been done
5861490	5866090	is maybe subject to question. That's something that's different in Monero. In Monero,
5866090	5871710	we are used to acknowledging that this is all experimental, acknowledging that they're going
5871710	5877970	to be new research, new innovations that make fungibility even better. And we go through the
5878510	5884270	time and the trouble and the effort to actually make that happen. So in Monero, you can see that
5884270	5890670	the bytes per transaction started out as being pretty high, they're much bigger than in Bitcoin.
5890670	5894510	And this was in the early days of denominated outputs. So in the early days of Monero,
5894510	5900130	you had, for example, little nuggets of Monero, you can think of 1, 2, 3, 4, 5 Monero,
5900130	5907210	like little dollar bills, but they're like Monero bills. So doing a Monero transaction in the old
5907210	5912030	days meant that if you were going to send 123 Monero to somebody, you would need to scrounge
5912030	5917110	around and find a 100 Monero chunk, a 20 Monero chunk, and a three Monero chunk, and then you
5917110	5922130	would send those out. And then those like little dollar bills would have to get broken up and then
5922130	5927650	sent to whoever you were sending your money to. And so as a result, there were a large number of
5927650	5932390	inputs, large number of outputs on every transaction. And there were the transactions
5932390	5939210	rather large. But this had the drawback of if you can see the denominations that are being sent
5939210	5949190	around, that's harmful to fungibility. Because you can see that this, you know, certain accounts
5949190	5956290	on the Monero network seem to have been identified with certain denominations of Monero chunks.
5956290	5961350	And so you can make some assertions about that break fungibility in that case.
5961350	5965630	There were some papers that were published that made the case that fungibility in Monero was
5966590	5972690	potentially breakable under certain circumstances. But these papers were written before 2017. And yet
5972690	5979070	they continue to be kind of parroted about to this day as and shown as examples of weaknesses in
5979070	5985450	Monero, whereas this got fixed in 2017, kind of an eternity ago in cryptocurrency standards.
5986010	5992290	So RingCT was enabled in 2017, at which point the bytes per transaction went up by quite a bit.
5992290	5997310	Then RingCT became mandatory. And now you can see that transactions were about, you know,
5997310	6002870	1000 times larger than Bitcoin transactions in throughout 2017, 2018. This was until bullet
6002870	6007630	proofs came around. So this was another independent research effort, in which it was found that the
6008290	6015030	higher level math that RingCT used in order to ensure that the value of outputs was the same as
6015030	6020010	the value of the inputs, i.e. ensure that no money was being created out of thin air,
6020010	6024810	that cryptographic proof could be done in much smaller byte space than could have been done
6024810	6030070	earlier. And so as you can see, overnight, basically, the transaction size dropped back down
6030070	6037070	with RingCT and bullet proofs. Now, recently, there's been CLSAGs. This is a new research
6037070	6042270	initiative that was developed by the Monero Research Lab, and it's gone through audit,
6042270	6048210	and the audit came back good. And so in October, we are projecting to go with another hard fork to
6048210	6053810	implement CLSAGs, and that is going to decrease the transaction sizes in Monero by about 20%,
6053810	6058930	which this dotted line is kind of showing you the magnitude of that. So basically, there is
6058930	6065730	ongoing active research in Monero to improve the way the engine works under the hood.
6066090	6070290	This is the kind of thing that is actually rare to see in other cryptocurrencies. Other
6070290	6077590	cryptocurrencies tend to make big announcements, use lots of buzzwords, and not actually improve
6077590	6083570	anything. And it's actually the opposite in Monero. There's not a lot of big splashy
6083570	6089630	announcements. People work generally quietly without fanfare, and from time to time introduce
6089630	6095010	something that improves the actual product. All right, and the bottom here, you can see the daily
6095010	6101010	average transaction fee. And so over history, and the scale here is, again, quite large. So it's one
6101010	6106310	penny to $100 per transaction. So at times of peak demand, like for example, in the last bull market
6106310	6112010	in the end of 2017, you can see that transaction fees were, in both Bitcoin and Monero, were quite
6112010	6119410	high. They were in like the $50 range. But then now, since then, bulletproofs have gone in.
6119450	6124430	When bulletproofs went in, not only did the transaction size drop, but also the fee to send a
6124430	6130110	transaction dropped by that order of magnitude sort of level. So that now, transaction fees in
6130110	6135790	Monero are on the order of a penny. Whereas in Bitcoin, now that there's what is potentially a
6135790	6143390	new bull run starting, you see transactions in Bitcoin creeping up again to now the $5-$10
6143390	6151110	range. And if there's another burst of interest in cryptocurrencies that is driven by the price,
6151110	6156650	expect to see, again, another spike in the transaction cost for sending Bitcoin.
6157190	6162630	It might spike again in Monero too, who knows, but we're already at a sub-penny level already. So
6164090	6170210	we're looking good on the fee front. So Monero benefits people with nothing to hide. And
6170210	6175710	primarily it does that by eliminating the risk of receiving coins that are tainted due to no
6175950	6181050	fault of the receiver. It's even worse than that. So for example, let's say you're an owner of
6181050	6187550	Bitcoin and you get hacked. Somebody steals your Bitcoin, right? And let's say that the person who
6187550	6193750	stole your Bitcoin now goes on the dark web and spends it. Whereas let's say you are a squeaky
6193750	6200390	clean person. You don't even know what the dark web is, or you do absolutely nothing that could
6200390	6205370	get you in trouble. You're totally 100% squeaky clean, but you have Bitcoin and this Bitcoin is
6205370	6209450	on a transparent ledger, which is completely traceable. So now you get hacked, you've lost
6209450	6214170	your money. So in addition to suffering the loss of your money, now it turns out that the person who
6214170	6221150	stole your money is now using it to buy drugs, right? So now your address, your identity is
6221150	6225810	associated with drug buying, right? Let's say something really bad happens. The person who
6225810	6231630	stole your money does something extremely bad with it. Now your identity is caught up with that.
6231650	6236710	And so now you might be even investigated for crimes that were committed
6236710	6242970	with your formerly your Bitcoin that got stolen. And so now, not only are you suffering the loss
6242970	6249110	of your money, you're having to now explain to people that, no, no, no, it's not the case that I
6249550	6254130	paid this guy to buy drugs for me. I actually had my money stolen from me.
6254130	6257790	You know, you have to... all sorts of headache can happen.
6259970	6264290	All right. One way to look at this is in the Akerlof framework. So this was a Nobel prize
6264290	6269270	winning paper in economics. It has to do with used cars. And so I relate this. So first I'll
6269270	6274630	explain the paper and then I'll apply it because that has applicants to both safe mode Defcon,
6274630	6279790	like our virtual meeting that we're doing, and also a surveillance state with transparent coins.
6280010	6282990	So there are two used cars types. There are lemons and there are peaches.
6283210	6288130	Lemons are the cars that are going to break right away. And peaches are the well-maintained used
6288130	6293770	cars. So sellers know which type of car they have. If you own a lemon, you know it because
6293770	6298290	you were there in the hurricane that the, you know, when the, when your car was under, you know,
6298290	6302950	five feet of water and flooded your car, it was yours. And you know that that happened.
6303070	6306990	And now you're trying to sell your car because it's damaged. That's a lemon. A peach is a car
6306990	6311430	that, you know, this is the type of owner who goes and changes the oil and does all the maintenance
6311430	6315790	that you have to do on a car to keep it in good condition. So the sellers know what kind of car
6315790	6320050	they have, but the buyers don't because both lemon sellers and peach sellers make sure that
6320050	6326130	the paint job on their car is extra shiny. So as on a superficial level, both lemons and peaches
6326130	6330390	look identical to buyers. So the buyers can't tell lemons apart from peaches, but they know
6330390	6334550	that they are ignorant in this situation. They know that they could end up with a lemon.
6334610	6339770	So the Akerlof paper brilliantly explains this race to the bottom that happens in this
6339770	6345210	asymmetric information market in which buyers are armed with less information than the sellers are.
6345910	6350670	If you look at what is the offer price that a buyer is going to offer for a car,
6350670	6355970	the offer price is going to be equal to the lemon price because that's the minimum possible price
6355970	6360750	that a car could be, right? Lemons are worth less than peaches, so at the minimum you're going to be
6360750	6365410	offering the lemon price. And then you're going to offer more than the lemon price, but that's
6365410	6369570	going to be contingent on what you think the probability is that you're going to get a peach
6369570	6373750	versus a lemon. So if you think there's a zero percent chance you're going to get a peach, well
6373750	6377330	you're just going to offer the lemon price. If you think there's a hundred percent chance that
6377330	6382830	you're going to get a peach, then you're going to offer the lemon price plus the difference between
6382830	6386650	the peach and the lemon price. In other words, you'll offer the peach price. If you think the
6386650	6390370	probability is somewhere in between, then you're going to adjust your offer price to be somewhere
6390370	6395630	in between. So that's the offer price that a rational buyer is going to offer for a car in
6395630	6399670	this market in which they are ignorant, but they know that they're ignorant and they can price
6399670	6405890	their uncertainty. They can adjust their offer price to account for this uncertainty.
6406390	6411750	So what do the lemon sellers do when they see this price? Well, they see a great offer because
6411750	6418270	they're selling a lemon and the sucker here, the sucker, the buyer, is offering quite a bit higher
6418270	6422990	price than the lemon price. So the lemon seller is delighted. They're going to say, okay, I thought
6422990	6429490	about it and yeah, I guess I'll accept your offer, right? So that's what the lemon seller says. The
6429490	6435710	they know that the value of their car is worth what a peach is, but the buyers are ignorant.
6435710	6440330	Like you can tell them all day that you've done a great job of maintaining your car, but the buyers
6440330	6443390	at the end of the day, they're going to be skeptical. They don't know if you're really
6443390	6446050	telling them the truth. They don't know if you're telling them the partial truth.
6446350	6450910	So the price that the buyer is going to offer is less than that of the peach price.
6450990	6455190	And so what's going to happen then? The peach sellers are going to become discouraged. They're
6455190	6460690	going to be basically kind of disappointed by the fact that the market is not taking to account
6460690	6465570	their goodness, their moral goodness, and taking care of their car is not going to be reflected in
6465670	6471130	a high marketplace price. So they will leave the market. They will delete their Craigslist ad.
6471130	6475810	They will stop selling their car. They will just keep their car until it runs into the ground.
6475830	6481550	What happens then? Because the peach sellers leave, like a few of them leave,
6481550	6486550	now the proportion of cars in the market that are lemons have gone up.
6486690	6492490	A greater fraction of the cars that are available for sale are now lemons. And eventually,
6492490	6496770	buyers are going to get wise to that fact. When they get wise to that fact, they're going to lower
6496770	6502670	further their offer price. And thus the negative feedback loop is born because the offer price
6502670	6508450	keeps going down. Every time the offer price goes down, lemon sellers still accept it because
6508890	6513110	they're getting an offer that is still higher than the lemon price. They're making a profit.
6513110	6516450	And more peach sellers are going to get more and more discouraged and leave the market.
6516450	6522610	You have a situation at the end where only lemons exist in this car market. So this was the Ekeloft
6522610	6530270	paper that got the Nobel Prize. Let's think about this in terms of the pandemic. So in health terms,
6530270	6536550	peaches are people who are healthy, right? So healthy people are the peaches and they are now
6537190	6543730	faced with the decision of do I engage in this super thing called DEF CON, in which a whole
6543730	6549730	bunch of smart people get together and talk about cool, geeky stuff. And you make new geeky friends
6549730	6557590	and you're out in Vegas and have fun. So that decision is basically, are you going to engage
6557590	6563870	in this social marketplace in which you are dealing with other people? So you could be
6563870	6570750	with all peaches when you get to the live in person DEF CON. That is, everyone could be healthy.
6571490	6575590	But you are aware that that's not the case. There are going to be some lemons. There are
6575590	6579790	going to be some people who are sick and don't know it because of the nature of the virus.
6580110	6585790	So basically, you have to gauge your overall social utility of going to the conference
6585790	6590090	by the probability that you're going to end up with a lemon, i.e. get sick.
6590090	6595970	And so the rational decision, if the penalty function of getting a lemon is large enough
6595970	6600990	and the probability of it is getting large enough, then the rational thing to do is to withdraw from
6600990	6605930	that marketplace and decide to do DEF CON in safe mode. And that's exactly what we've done this year.
6606970	6611010	Let's apply this to the marketplace for transparent coins. In transparent coins,
6611010	6616290	or surveillance coins as I like to call them, the complete history of every coin is traceable
6616290	6623510	going back. That means if you're a squeaky clean person, the analogy is that you are a
6623510	6628850	healthy person. You are a peach seller. You are a squeaky clean person with a good reputation.
6628850	6636570	And so your social status is healthy. The thing is, if you deal with Bitcoin with other people,
6636570	6641150	are you going to unknowingly be dealing, are you going to by mistake do a transaction with somebody
6641150	6647830	who is not healthy in terms of a legal status? You don't know that.
6648830	6653890	Just like the lemon buyer and just like the person who's thinking about going to a con,
6654630	6659890	you could suffer a lemon consequence just by dealing with other people in this network
6659890	6665010	because this network has this undesirable feature that the coins are not fungible.
6665310	6669730	So what is a squeaky clean person going to do? They're going to tend to want to
6669730	6676430	go to a coin that rewards them and does not put them in jeopardy due to the actions that they
6676430	6680730	can't control of other people on the network. So you're going to see the squeaky clean people
6680730	6686470	going to something like Monero, which is counterintuitive, certainly according to the
6687070	6692910	biased and misleading portrayal that often gets put on Monero. It's the squeaky clean people who
6692910	6699150	need Monero the most. So Monero is what Bitcoin noobs think they bought. It's sound money in
6699150	6709460	safe mode. All right. I have limited time, so I'm going to just go to talking about how to get
6709460	6716020	involved. One way you could get involved is to purchase some Monero. Because again, I started
6716020	6722760	this talk talking about the kind of out of control extension of the fiat money supply around the
6722760	6727860	world that is currently happening as a result of the pandemic. And that led to the idea that one
6727860	6732220	should maybe spend some time looking into alternate forms of scarcity that are not
6732220	6736520	controlled by governments. That would be precious metals. And also, now that there's Nakamoto
6736520	6743420	consensus, Bitcoin and Monero. How does one kind of process the relative expensiveness or cheapness
6743420	6750600	of these assets? So here is, I think, probably the only price chart that should be looked at by
6750600	6756200	anyone who's looking to think of cryptocurrency as an investment. And that is, I'm doing a long
6756200	6760660	term timescale. So this is from 2009 to the present. 2009 being, of course, when the Bitcoin
6760660	6765160	white paper came into being. And what I'm doing here is I'm showing the value of all the world's
6765160	6770660	Bitcoin. And I'm dividing that by the value of all the world's gold. All the world's above ground
6770660	6775220	gold. So there are several variables that go into this chart. First, there's the number of Bitcoin
6775220	6779840	in existence at any given time. There's the price of the Bitcoin. There's the amount of gold in
6779840	6784380	existence at any given time and the price of gold. You need all four of those ingredients to come up
6784380	6788700	with this ratio chart, which I'm showing a log scale again. And then I've done that again for
6788700	6793220	Monero. This is the value of all the world's Monero divided by the value of all the world's gold.
6793320	6798220	And what you see here is that currently, all the world's Bitcoin is worth something like 2%
6798220	6803580	that of all the world's gold. And all the Monero in the world is worth about one one hundredth of
6803580	6808260	one percent of all the world's gold. You might be aware that there's been a recent kind of
6808260	6813600	spike of interest in cryptocurrency prices. Bitcoin is back over $10,000 for the first time
6813600	6818960	in a few years. So there's been a lot of hype, but you don't see that here because there's also
6818960	6825440	been a spike in the price of gold. So basically, the relative valuation of crypto to gold has
6825440	6832780	been flat in the post-pandemic time period. Now, given that gold is a physical good,
6832780	6837740	which is subject to all of the surface contamination issues that any
6838460	6843340	physical object has the disadvantage of suffering in the COVID era,
6843340	6849820	is this rational that that crypto to gold cap ratios have been flat during the pandemic? I'll
6849820	6855280	leave that to you to decide. Second, of these two cryptocurrencies, there is one that actually acts
6855280	6861380	like gold because it's fungible. Gold does not have on the back of every gold bar a list of
6861380	6868340	everyone who owned that gold bar before you did. And so it's actually a more apt comparison to
6868340	6874440	compare the value of Monero versus gold. So is it rational that the amount, the valuation of Monero
6874440	6879820	is one ten thousandth of that of gold, whereas the valuation of Bitcoin is one, basically,
6879820	6885760	one fiftieth that of gold? So that's another question to think about. One thing I also wanted
6885760	6893200	to show was a chart that I think counters this still and very stale narrative that there's
6893200	6899960	infinite inflation in Monero. So what I've done is I've, I'm answering this question. Let's say you
6899960	6907420	have an investor who today decides that they want to buy one millionth, so one out of every one
6907420	6914500	million of one of these alternative forms of scarcity. And to protect themselves against
6914500	6920000	inflation, they are not going to buy one millionth of today's supply. They are going to buy one
6920000	6926420	millionth of the supply in 100 years time. So they're going to look at what is the supply of
6926420	6933540	this scarce asset going to be in the year 2120. And I would like to buy one millionth of that today.
6933540	6937860	So that's the question I'm answering. First, let's look at gold. So currently there are about
6937860	6944880	200,000 metric tons of above ground gold, and gold has been expanding at about 1.8% per year.
6944920	6949820	When you compound that over 100 years, that ends up being pretty significant. So in 2120, at that
6949820	6954500	rate, there's going to be over a million metric tons of gold, which means to buy one one millionth
6954500	6959320	of all the gold in the world, you're going to have to end up buying more than a metric ton of it,
6959320	6964680	which at the current price is going to be $76 million worth of gold. That buys you one one
6964680	6970020	millionth of the projected gold supply in the year 2120. So let's do that with Bitcoin. So with
6970020	6974880	Bitcoin, they're going to, you know, be very proud that 100 years from today, there's going to be
6974880	6980040	only 21 million Bitcoin in existence. And that's an easy number for even normies to remember and
6980040	6985540	understand. So today, there are about 18 million Bitcoin. In the future, there'll be 21 million.
6985540	6992440	How much does it cost? $244,000. How about in Monero? Well, here's today's emission. Now we
6992440	6996700	have the tail emission, right? So that commonly gets thrown about as being infinite inflation.
6996700	7001260	Well, actually, we know what it's going to be. And in 100 years from now, it's not that bad.
7001280	7006480	The coin supply in 100 years from now in Monero will be less than double what it is today.
7006480	7012100	That's not too bad for a century. So to buy one one millionth of all the Monero that will be in
7012100	7019900	the world in the year 2120 will cost you a total of $3,000. So some more framework for
7020460	7024980	people's consideration when assessing the relative valuation of these assets.
7026540	7032700	Okay. Thank you for listening. If you want to learn more about Monero, there's
7032700	7039700	monerovillage.org for the rest of the festivities happening this week. Also, the official website
7039700	7045740	is getmonero.org. That's important to know. It's getmonero.org, not .com, not other variants.
7045740	7050220	If you want to get in touch with me here at DEF CON on the discourse, I'm intj440.
7050320	7053880	Or if you want to get in touch with me over email, it's Daniel at Sweetwater Consulting.
7053980	7054900	Thanks for your attention.