 That's nice and warm. Awesome. I know, it's warm. Real fire for once. Great, thanks everybody for coming. This is a hot and interesting topic with Bitcoin cryptocurrencies, and a lot has changed. It's 2017. I was actually here talking about blockchain last year, and we're excited to kind of give a bit of an update on what's happened in this industry and the technology. A lot of people know about Bitcoin. How many people know that there are other cryptocurrencies other than Bitcoin? Really? Awesome. We have that knowledge, so let's kind of try to figure out what's, number one, what's changed in this industry? What's changed in Bitcoin? Because it's not 100% static. Things in the industry change, and then as well, we'll talk a little bit about other cryptocurrencies, how they're different, what makes them unique, and what also can they bring into the ecosystem, and how can they be potentially changing our viewpoint on economy, and how they could change economic theory in general. So I know, Elizabeth, you are intimately tied to some of the changing protocols and protocols being built on top of Bitcoin. Maybe you can give us a bit of an overview on what's happened in the Bitcoin space and its protocol. Awesome. It's great to be back, super excited to be here. I can't believe it's been a year since we were last on the stage, Paul. Seems like so much has happened since then. The prices of a lot of cryptocurrencies have gone way up, but also the technology has evolved substantially. So for example, when it comes to Bitcoin, we've had upgrades to the protocol, one of which is called Segregated Witness. That was a really big deal for us and the developers working on the Lightning Network protocol because it allowed for these layer two solutions to be built on top of Bitcoin. We've had a variety of forks or fork attempts, including one that was called the Segwit 2X hard fork initiative that actually was canceled. We had spin-off currencies, like Bitcoin Cash or B Cash, different people call it different things. On August 1st, we're a new currency spun-off from Bitcoin, a community that had a bit of a different vision for where things would be. We had some other threats of forks that didn't occur. And we had one thing that I think is really interesting and that I'm still kind of coming to terms with was Bitcoin wasn't really cool for a long time. People, you know, I have a startup or building technology for Bitcoin layer two, Lightning Network is making Bitcoin faster and more scalable while maintaining the trustless nature. People were all about blockchain. It was like, oh yeah, blockchain, not Bitcoin or blockchain, not cryptocurrency. 2017, by and large, has been the year of Bitcoin and cryptocurrency. A lot of mainstream companies, for example, Square in the US, if anybody knows of them, they're now, I believe, probably the first public company in the US to be selling Bitcoin to their customers. A lot of banks are telling us, their customers are calling, they're saying they want to buy Bitcoin, they want to buy cryptocurrency, they don't want to invest. Many people's family members have been hearing about this. So I would say that 2017 is the 1995 of Bitcoin and cryptocurrency. That's the year that Netscape went public, that the World Wide Web was going mainstream. This is now beginning to happen in our space. It's exciting, but there's also a lot to come in terms of building up the technology, getting the infrastructure out there and ensuring that the entire world can have access to this technology. That's fascinating. A whole lot has definitely changed. You mentioned a handful of things, actually more than a handful, two handful of different things that have happened with forks and potentially lightning networks and segregated witness and 2X, and for a lot of people that might be very unfamiliar. Let's take maybe a nugget of that and go into a tiny bit more detail on the concept of these forks. You mentioned like a Bitcoin cash. Could you give maybe a brief description of what exactly was that that happened? You mentioned a disagreement in the industry. What was at the heart of this disagreement and what ended up happening in kind of this... We're kind of in the short term still, post of this kind of disagreement of scalability. Maybe you can describe that a bit. So one of the fun things about being involved in the cryptocurrency world is you're basically living in a soap opera. I like to say that my life is a combination of a soap opera and a dystopian, cyberpunk science fiction novel, and it's certainly been that way for the past year. I hope one day somebody really writes the book and makes a movie out of this because there's so many layers and so many fascinating things that's like you could dig deeper and deeper and there are just more layers there. So a fork in software traditionally with open source software is the ability to take the code and then modify it and then change it. Like in GitHub, people fork code in GitHub all the time. Sure, yeah, fork me on GitHub, right? So there's the concept of a software fork. So for example, Litecoin, if anybody here has heard of it, goes by the silver to Bitcoin's gold. Originally it was a code fork of Bitcoin with some changes, for example, it's a bit faster, 2.5 minute block times and they change the hashing algorithm. So then there's a concept of what's called a soft fork, which is a backward compatible change. So segregated witness was a soft fork for Bitcoin and then probably the most interesting type of fork for our discussion is the idea of a hard fork, a non-backward compatible change to the protocol. So very quickly we have, I think three different types of hard forks. The first is a non-contentious hard fork. Everybody goes along and upgrades. We see a lot of that in other cryptocurrencies. In Bitcoin, it's not so simple. There's the idea of a contentious hard fork. Not everybody agrees. Personally, I believe in order to have a successful hard fork, you want to have agreement within the community consensus in order to upgrade. And then the third is a somewhat new phenomenon. I would call it a spin-off fork. The idea is somebody's going to create a new currency out of an old currency. And in doing so, everybody that has the old currency owns a new currency as well. So we've seen this concept of, I'm going to call it an IFO, initial fork offering. This has been kind of the second half of 2017. Instead of an initial coin offering. And I know Steve says, well, it's not really the initial. It's probably the final, but you can get to that. And people are now creating, they're kind of forking the network. They're trying to get hash power on that network and create new currencies. Personally, I'm a little bit skeptical of a lot of these initiatives. They don't necessarily have the same development team. They don't necessarily have the network effect. But it's a fascinating exercise in new types of economic incentives. And I think that's a testament to this ecosystem being really based on open protocols, open source code that anybody can touch, anybody can copy, anybody can change and launch their own network. We'll get back to that concept of that new economic theory of a kind of a split fork that creates new currency for people that already have the existing. That's a very interesting one we'll kind of get back to. But I think one aspect of the different digital currencies that many people I'm sure are very interested in that we can go into more detail about are the token offerings. Most of them built on existing blockchains such as Bitcoin, mainly on Ethereum. And Steve, you definitely have a good insight on this working on a project that does have a token based token based backing. Maybe you can kind of give the audience a bit of an understanding of, well, what exactly is a token? Where did this kind of come out? We didn't even touch these last year in our blockchain talk. We barely mentioned them. Now it seems to be one of the hottest items to talk about. Bitcoin was also really uncool last year. So happy to be cool. Exactly. Actual blockchains that are decentralized and permissionless are cool again. And you're definitely on that ecosystem. You can give the audience a description of what exactly is a token. Yeah, sure. I mean, this is all just made up instant money from the beginning. What is it made up? What is it made up instant money? I guess what I would describe, so I think the best way to think about a token is, if you look in the Ethereum, I think it's on the first page of the original website, there was an example of, this is what you can do in Ethereum. And the first example was, you can create your own currency. And so, what Ethereum is allowing you to do, it's got a Turing complete virtual machine. You can code anything. And, but not everything is useful to be coded in a decentralized way. For example, high frequency transactional databases are not very well suited to decentralized architectures. But contracts are good and immutable contracts are also good. And creating a currency is an example of an immutable contract. Immutable meaning, you can't change it. So I would just probably define tokens as cryptocurrencies that don't include mining. Mining is where you have your own blockchain, you have some form of creation of a token. Also not proof of stake, right? Proof of whatever. Really, they don't have their own blockchain, really define them as a cryptocurrency that is built on top of a preexisting cryptocurrency that has its own blockchain, that has its own method of security, but can be issued without having to create that ecosystem of miners. Certain networks, for example, our network actually has a proof of work, but the proof of work is done separately. Ethereum blockchain is used for other reasons, like identifying, making sure nodes are real. So you can add in other things, but the basic idea is you're leveraging something like Ethereum or Bitcoin in the future when it decides to put in smart contracts. And then you'll be able to create a new currency on top of it. So like you said in the beginning, what is a token? It's really just money made out of anywhere, out of nowhere. Although for a lot of people in the cryptocurrency space, that's pretty much all of money. And so what ends up giving it value effectively is whatever system needs it and the people wanting to use that token for some purpose, which is obviously one of the projects that you're working on and many other companies are working on. If an interesting question came from the audience, which I think is worth answering, which is do we think that the super fast increase in the price of Bitcoin is harming the trust in cryptocurrencies within the general public? And my first take on this, if you look back in history, is Bitcoin has always had super high thrust in increase in price over a short period of time, which then levels off for some period of time and then does it again and again and again and again. And it will continue to do that. But if you look at the amount of increase, every time it decreases. So the rate of increase slows down, the volatility slows down over time. The chart of volatility looks like this. So it actually becomes more usable as a stable cryptocurrency, although relative to fiat, it's not necessarily that way. Do I personally think that it's harming the public's perception? I think for people that are getting into it new and fresh, possibly. For those that are realizing this is just a trend that it's gone through many years and it's part of its adoption curve, that we need to get the currency into the hands of people. The media hype cycle tends to drive it up over a period of time and then it hits a bit of a peak, levels off and we do it again a few years later. Love to hear what you guys think about this effect on the kind of general public as far as its price increase. And right now we're in the middle of one of those. So it's really fun when the price goes up because then I start getting messages and emails from friends and family members asking about Bitcoin and cryptocurrency. Interestingly, when we first started our company, Lightning Labs, the price of Bitcoin was like $230. And from our standpoint, this was not about the price. This was about the compelling nature of the technology and all the potential that came along with the ability to have a global decentralized store of value and currency and transaction and payment rail that was backed by math, right? That wasn't dependent upon any single government, corporation and that really had this aspect of being a means of building on top of. You don't have to ask for permission to build on top of Bitcoin. And part of what our major goal is with Lightning Labs and building out the Lightning Network protocol is the idea to have a layer two that's built on top of, right now we support Bitcoin and Litecoin that an application developer can build on top of. It's like the HTTP, the kind of the web application layer of Bitcoin and value. So as for the price though, my point is what can go up can also go down. And for those of us that have been involved in the cryptocurrency space for a while, it's like, yeah, we're used to this. Things can go way up like late 2013, right? Above a thousand and bam, crash back to like 150. I think we'll still see the ups and downs. That said, personally, I really believe in the long-term vision of what Bitcoin can be for the world. I think there's a lot of room left to grow. I didn't expect things to happen this quickly. If you had asked me a year ago that Bitcoin would be at 10,000, which I remember, I think it was four years ago, having a conversation with a friend of mine about how, wow, imagine one day if Bitcoin got to 10,000, 10K, like wouldn't that be crazy? And then all of a sudden the day came. That said, I think it can be a positive thing when more people learn about the technology, but this is not just about investment, although a lot of people are interested in investing. It's about a new type of internet, a new type of decentralized protocol and technology. So my hope is people might buy some Bitcoin, learn about it, and then understand the value that comes along with that. And I think we'll see more of that. Take Steve. I think a simple problem we have right now is that I actually have many friends who say, they're new to this space, and they say, I can't afford to buy a Bitcoin. By the way, you can buy less than one Bitcoin. Exactly. A lot of people don't know that. A whole lot less. That was my punchline. Sorry. Do you want to keep going? It's always challenging on being on a panel with Americans. That usually shuts them up for a few minutes, but I love you, Elizabeth, sorry. She's going to come back stronger now. I'm scared. So it actually is an issue. People come to me and say, I can't afford to buy a Bitcoin. I'm like, what do you mean? You just buy less than one, and they're like, oh. So it's kind of like the price is an issue, and I think the fact that people think about the price at all is kind of an issue too. I mean, so you want price predictions? This is fun. So Bitcoin, if you look historically, has gone up 10X and then fallen in half. So it goes up 10X very rapidly, and it goes down by 50%. So we're going to see, I believe, by June of next year, the entire crypto space will be worth about $150 billion, which is half what it is right now. And then over the next year or two years, we'll see a 10X increase from there. So in other words, there's a 5X increase coming in the next couple of years. So why does this do this? Well, there is no intrinsic value to any currency. The goal doesn't have intrinsic value. It does. It's about 1,000th of its actual value. Same with diamonds. So you essentially end up with this thing which melts up. And what's actually happening is that you're not seeing a rapid appreciation in something. You're seeing a rapid devaluation of everything else. So people are shorting fiat currency right now. They're saying, I don't trust the US government. I don't trust the European. I need to short this thing. What can I do? What can I possibly buy? And they used to buy gold, and now they buy crypto. That actually leads right into another question in the audience, which is how do you value cryptocurrency? And I think what people forget is that the value that goes into cryptocurrency, just like Steve said, has to come from somewhere. And one of my predictions is less about a price prediction for cryptocurrency, but more so that once it hits about two to three more orders of magnitude increase in price, right now we're about $10,000, and when we hit about that million to $10 million per coin, the value of it against fiat will be less relevant versus how many eggs you can buy. And you'll notice at that point it's sucking so much value from fiat that your ability to spend fiat to buy goods and services will significantly go down, because it has to come from somewhere. If it's coming from fiat, that means your fiat is being worth less. So it's just like what Steve had said, is that it's actually sucking value and decreasing the value of the fiat. And so while an order of magnitude might sound like a large amount of increase in the crypto space, that seems almost like a daily occurrence. So it's still a few years out, but definitely has a strong potential. Yeah, so there's a new article which actually goes back to work that we did at Pantera, and then before that's a kind of currency trading theory, which talks about how you can price currencies. And not only people think about this stuff, because pricing currencies is this weird, arcane thing that only currency traders care about, because you can't really price currencies based on some kind of variables that anyone can really measure or agree upon. So what they do is they price it based on the velocity of the currency, within the currency. In other words, how much it moves, how much it moves around. So there's a new article which is, I was gonna tweet it later today, so if you sign up to my Twitter, I'll tweet it and you can see it. But it talks about how there's an equation which works pretty well to predict pricing so far, and also indicates that it's about to be overvalued. Interesting, so in the aspect of it being a currency and increasing in value and its utility, many of us have kind of gone down this interesting hole of, well, what are we using it for? And how is it a value? Because velocity is what you had mentioned. And interestingly enough, it feels like velocity is increasing because we've kind of hit this limit in Bitcoin, but yet at the same time, a lot of people are not using it the way we expected. A lot of the promises about three, four years ago is we have been paying normal goods and services in e-commerce. At our company Edge, nobody in the company has ever received fiat money. We've paid every single person in Bitcoin since day one. We still do the taxes. Your team must be doing pretty well right now. So, ironically, there's an interesting kind of game theory behind doing that because most people, they're still paid a certain number of dollars of fiat that we promise them per month. However, when there's friction to convert it into fiat, you tend to convert what you need and you hold what you don't. And so for a lot of them, they wouldn't have bought that amount of Bitcoin, but you're right. A lot of them are actually doing well because they said, okay, well, I saw enough to pay for my basics, groceries and whatnot, but I kept enough and suddenly, they're definitely a lot wealthier from that point of view. But it hasn't really achieved that level of utility use that we'd expect it to. What do you feel like that effect has had on price, if any? And do you see a world where it will have this kind of utilitarian use versus just simply an investment? Well, first off, price is an interesting and fun topic, but at its core, I'm really passionate about the technology. I said, I don't really care what the Bitcoin price is. Of course, there needs to be some price to incentivize miners to keep mining. From my standpoint, part of what I think is so compelling about this technology is, so for example, the entire millennial generation, so the younger generation, different people define it differently, came into this world around 08, right? So there was this major, obviously, financial crash. Satoshi Nakamoto, whoever he, she, they are, were really inspired by this in terms of releasing the Bitcoin paper, which, by the way, has not even yet been 10 years, and then the initial release of the code in early 09. So I do think this generation really sees the value in having a native currency to the internet. A lot of the people in the early 90s thought this might be possible. Some of the creators of the web even created error codes for eCash or digital payments. Things take time. I do think a lot of people just want us to be in the equivalent of like 2010 or 2012 for Bitcoin and cryptocurrencies more broadly, but it really takes time to build out the infrastructure. In terms of payments, well, personally, I don't believe that public decentralized blockchains can necessarily scale on chain to enable the entire world to use them, and there's a limited block space in Bitcoin. This has been a subject of much debate. We could spend like hours just debating that which we're not going to. There's an issue where everybody on the network, in terms of full nodes, needs to download every transaction that anybody had ever sent. It's kind of like what if to send an email, you had to download every email that anybody else in the world had sent. So it doesn't make sense for a $5 coffee transaction to go on the chain, and so what we're doing with building out Lightning is that you can take these transactions off chain, you can enable instant high-volume transacting, and then not only do we have support for Bitcoin and Litecoin, we just recently announced the first ever Lightning cross-chain atomic swap, which means you can now seamlessly transact between currencies without having to trust a central intermediary. So talk about interoperability. I can't easily just on the internet, transact without having to trust somebody between euros and dollars. There are all sorts of steps involved. Developers can't easily just build applications on top of fiat currencies, but when you have these native currencies to the internet, you can then build on top of that, and I think that's extremely powerful and something that will start to see more and more in 2018 and beyond. We already have a lot of developers building applications on Lightning. Right now we're on the test network. We'll be on the main network with real coins soon. So we'll just see more and more of that. Developers that don't need to ask anybody and they're building applications. Got it, and I like what you had pointed out with us being able to build applications permissionously on top of a blockchain. I think a lot of the promise of Ethereum was based on that, and that you actually could build these decentralized applications that are permissionless, globally accessible, anywhere in the world for anyone that has an internet connection and digital currency. For, I think we didn't barely touch on Ethereum last year. Many people have heard of it. A lot of people are invested in it. You're definitely probably the closest involved in a project that does touch the Ethereum blockchain. One of the things that I envision Ethereum being or smart contract language being is you've got cryptocurrencies, which are just money. Just simply money the way we consider fiat currency is money, but then we have financial services that sit on top of money today. And a lot of the earlier blockchain, Bitcoin, cryptocurrency companies were using old financial services models but sitting on top of Bitcoin. Whereas smart contracts and Ethereum give us the ability to create decentralized versions of those financial services that sit on top of a digital currency. That's one of the views that I've had and that I'm seeing happen with loans and hedging and insurance. I'd love to hear what you guys think about the potential for smart contracts other than just simply a token. Because a token, yeah, everyone's going wild over ICUs and tokens, but the actual utility of a smart contract on a blockchain, what can it do for this industry and for the world as a whole? I guess I look at this, I'm not a fintech guy at all. I can't stand the word or the business space. And it never happened until blockchain. That's why the real fintech is coming. I'm not a finance guy. So I look at it just like whenever you have a contract, whether that contract is between two people or between two machines or a person on the machine, that's where you can think about putting smart contracts in. We use it in our system in ORCID to make sure that the nodes in the network that are there to route and anonymize traffic to make sure they're real. So each node has to essentially make a contract with the network and put some of its ORCID tokens, which are supposedly worth something, at risk. So that's the contract it makes. And it says, well, the network says basically if I detect that you're not real, like you're Chinese or some government agency, civil attack, then I'll burn that. So that's the utility that you guys have put into ORCID for the platform with your smart contract. Are there any aspects of smart contract use that kind of excite you? So there's a great blog post by a professor over at Princeton named Ed Felton where he talks about the fact that smart contracts are neither smart nor contracts. Correct, I agree. So I actually have a background in law and technology and turns out when you have legal contracts, there's a lot of nuance. And there's meaning that may not be directly written into the text that then say you go to a court and the judge can discern that. So the fascinating thing to me about the term that we call smart contracts is you're following the code by the letter of the code. So one really interesting thing we saw last year in 2016 was the whole DAO, I don't know if anybody, how many people here heard about the DAO 2016, right? So that was an Ethereum smart contract where turns out the code did something different than the writers of the code thought it would or expected it would. And then somebody was able to compromise the funds in terms of the contract. And then there was a whole hard fork within the community that gave the funds back. And there was a split from that. So never a dull moment in our world. But one of the really interesting things about smart contracts is the code is exactly what's going to execute. Larry Lessig, professor over at Harvard, wrote this seminal book called Code and Other Laws of Cyberspace where he talks about the idea of code as law. So with smart contracts, the code is what's executing. I think this works really well for high volume and especially small value transactions where it doesn't make sense to go to court. If you're buying a large piece of real estate, you might want a typical legal contract. But if you're doing, say, a transaction where maybe I want to pay a small amount every time I read an article or watch a video and that can automatically execute given a certain condition, this technology can work really well. And in terms of what we're doing with lightning, we have Bitcoin, other blockchains as layer one. Lightning is layer two. We can create a layer three on top of that. And we're still even figuring out what exactly that'll be, where then you can build on layer three. You can have smart contracts there that then go to layer two on lightning that then can clear to the underlying blockchain. So I think there'll be a lot of really interesting applications. We probably haven't thought of a lot of them yet, but it'll be most useful in the case where it's not a large value transaction where it can go to a court and where you kind of humans interpreting it. Got it. And I think you've touched on the point when mentioning the Dow of some of the risks of smart contract holding a lot of money or holding any money. How many people here in the audience actually work on anything to do with smart contracts, Ethereum and whatnot? It's a good handful. So I came from the hardware space where we designed chips. I actually worked at Nvidia for a number of years before forming Edge. And I likened smart contract development to hardware design because once you put out that chip, for the most part, you cannot change it. There's far more you can do, but you pretty much can't change it. And in the smart contract world, once you put out that smart contract, you cannot change it. And the software industry so used to be able to iterate fast and quick, put it out, fix it, put it out, bug fix it, update your website and then suddenly you fix the bugs and implement a new functionality. Well, imagine a world where you put out that software and if it has an issue, you have to just stare at it as it bleeds money. And I liken it to a vending machine, which is kind of hardware like, do you build a vending machine that sells iPods or iPhones and it's in a train station or an airport and you're watching someone find a bug and just slowly taking iPhones out of your vending machine and you can't do a damn thing about it. That's what it's like to build a smart contract. So as you build it, take the time, one of our partners, Augur, takes a sweet amount of time to make sure that they've got it audited and even that doesn't ensure things, but it's a key piece of this development process and I think it's gonna create a whole new caliber of developer and engineer that we haven't seen before. By the way, it doesn't have to be that way when you can abstract layers on top of blockchains and you don't have consensus level code up there. There are different ways of doing that and then one compelling technology called formal verification is being researched substantially in the community that can provide better ways to verify that the contracts do what people actually want them to do. And this is a big space that I think we'll see a lot more of in the coming years. All right, well, thanks a lot, everybody. I think we're just about out of time. We'll be here for a little bit, so anyone has any questions, we'll probably be just coming out of the backstage and thanks for listening and have a great blockchain day.