 So what I'd like to talk about today is a concept that I call infrastructure inversion. What I'm going to talk about is how things change when infrastructure that is new is laid on top of... infrastructure that is old, and how that creates a conflict. Bitcoin is new. Bitcoin is different. When I say the term Bitcoin, I'm speaking a bit more broadly. What I'm talking about is decentralized network-centric platforms of trust for doing currency and payments... and other applications of trust. It could be Bitcoin, it could be other things, but I'll just use the term Bitcoin to cover that whole category that has now been created. It's new, and we're trying to somehow squeeze it on top of the existing banking system. The result is messy. Not only is it messy, but it's also an opportunity for those who support the traditional... banking system to go, hey, see? See? It's not working. It's slow. It doesn't work so well. This isn't new. This is a phenomenon that happens every time you have a new technology that is disruptive. In the first few years of its adoption, it has to be carried by the existing technology that it is disrupting. Let's look historically at how these things play out. When you read about it, 20, 30, 40 years in the future, it's all very smooth. It's obvious because hindsight provides clarity. For example, automobiles, great invention, and when automobiles were invented, everyone in the world went, yay! You don't need horses anymore. That's not exactly what happened. Instead, they said, that's crazy. Those noisy, disgusting machines that are probably going to kill us all will never work. Why would anyone other than stupid rich people playing with these crazy, noisy toys want to use one of these horrible machines... when we have perfectly good horses? That's actually what happens in history when you introduce a disruptive technology. We meet resistance. Resistance is the first reaction. The ones who succeed are the ones who continue, even though the rest of society tells them they're crazy, to pursue this crazy idea. Automobiles, electrification, the internet, bitcoin. Every time, crazy pioneers who were made fun of by everybody else in society persisted until everybody could see what they were doing was correct. Looking at that history, one of the really interesting things to me is the fact that in the beginning, the disruptive technology has to live in a world created for the technology it's replacing. When you first ride your brand-new automobile in a city, you are riding on roads designed and used by horses, with infrastructure designed and used for horses. There are no light signals, there are no road rules, there are no paved roads. You are in horse society, and you are the crazy one driving one of these vehicles. Well, there are a few things about horses that cars don't have. These early cars were a four-wheel drive, so just two wheels turning. Horses are four-foot drive vehicles, which gives them a lot of flexibility. They also have balance. If you have a road that is designed for horses, and it's not paved, the vast majority of roads were not paved. Some of them had cobblestones, but the vast majority were not paved. They were also not dry. They were usually covered in mud and horse poo, because that's what horses do. This is the environment that the automobile had to prove itself in. It didn't start out with, yes, great, we have now invented an automobile, allowing me to demonstrate on the Autobahn. No. Instead, the crazy rich people who were experimenting with this technology were driving their cars in these roads with deep ruts where the horses had been, in roads not designed for automobiles, in mud, and what happened? The cars got stuck, because they didn't have balance and four feet. Everybody went, this is never going to work. Look, you can't even get out of the mud. Also, where are you going to get gasoline? There are no gasoline stations, right? There's one gasoline station. What happens if you run out of gasoline before you get there? If your horse gets hungry, you can at least go a few more miles, but if your new crazy car idea runs out of gasoline, that's it, you're stuck. You were already stuck because of the mud, but now you're really stuck because you ran out of gasoline. This is never going to work. So the infrastructure at first is the infrastructure of the technology you're replacing. And then, of course, eventually what happens is you build infrastructure for this new technology. And something really interesting happens, because when you pave roads and make them suitable for vehicles, the old technology horses are very comfortable on these new roads, right? If you want to do a nice tour of Zurich on horseback, I'm sure, perfectly comfortable. Horses are very comfortable on asphalt, as are skateboards, segues, motorcycles, and bicycles. Technologies that didn't exist. In fact, in order for those technologies to exist, you first had to put out the infrastructure for automobiles. Flat paved roads not only allow the automobile to exist, allow the horse to comfortably exist, and open the door for new technologies, and now you have people riding segues, scooters, skateboards, and roller blades, and prams, and all of the other things that are moving around on our streets. Now that's an infrastructure inversion. You start with the new technology, living on the old infrastructure, and then it flips. You build infrastructure, and then the old technology rides on top of the infrastructure designed for the new technology. Let's look at a couple more examples like that. So one of the great things about history is that some of the most confident sayings are often ridiculed for centuries, because they are so ridiculous. Like, for example, when electrification was introduced during the Paris Fair, and the mayor of Paris at the time said, electricity is a fad. And as soon as we close the Paris Fair and take down the Eiffel Tower, electricity will vanish in history. Wrong on two counts. Eiffel Tower still standing, electrification one. But think about the time that electrification was happening. There was no infrastructure, and so how do you put electricity in a home? First of all, the only reason you would put electricity in the home is because you're one of these crazy rich people, probably one of the same people who went and bought an automobile. And you are now putting basically the same thing that's enlightening in your walls, which is surely a crazy idea that will result in your house burning down. And that's what the newspapers wrote. They wrote about every house that burned down and how these crazy people were putting electricity in their homes. What was the infrastructure at the time? You had infrastructure for gas. In fact, gas lighting in major cities was pretty common. There were pipes that could deliver gas, primarily to street lights, but also for home lights, as well as heating. You couldn't use that infrastructure for electricity. You couldn't use it to distribute electricity to homes. At first, the only use for electricity was really for factories, because that's where you could make the most use of electricity. In the past, in a factory, what you would have is one motor in one corner of the factory, a very large motor, that then distributed motive power through a series of belts and pulleys throughout the factory, to run all of the other equipment. That was usually driven by gas, so it was basically a gas turbine. Electricity distributed electricity directly to all of the devices and had electric motors, so factories were the obvious things. But why would you put it in your home? There was no infrastructure. Also, why would you use electricity since you already had light and you already had heating from gas? It worked fine. The infrastructure for gas wasn't useful for electricity, so if you wanted to do this, you would have to build new infrastructure. Then you get the other aspect of this infrastructure inversion, which is that those invested in the status quo point to your new electricity projects, and they say, there's not enough distribution network to create customers, and there's not enough customers to require a distribution network. This is never going to happen, which is exactly what they said about cars. There's not enough gasoline stations to fill your car, and there's not enough customers to require a gasoline station. This will never happen. Then electrification starts happening, and people discover that once you put down electricity infrastructure, not only can you use that to do the new electricity capabilities, you can also use it to do the old applications. You can do light and heating, and you can do them more effectively, in some cases, with electricity. But now you can do new things. You can do fans, and you can do air conditioning, and you can do motors, and you can do mixers, and you can do hair dryers. Generally speaking, houses don't burn down because of electricity too often. Again, you get this infrastructure inversion. For the first few years, you have to run on the old infrastructure. It's almost impossible. You could theoretically attach a gas generator in your house, feed it with a gas, and generate electricity locally, but that wasn't very efficient. Then you build infrastructure for the new technology, and that infrastructure enables the old technology quite comfortably. Lighting, heating, or horses, in the case of roads. But it also opens the door for new applications that you couldn't do before, and the world changes. My third example is a bit more technical. This is where you start seeing the audience separate into those who are over 35 and those who are under 35. Tell me if you can recognize this sound. The people under 35 are looking at me like I'm crazy. And the people over 35 are going, that's a modem! I used to have one of those. That's how we connected to the internet. So modem, and this is where we go into ancient history, is a modulator-demodulator. It's a device that speaks data over a telephone line. If you think about it, the telephone line is like a dirt road, and you're trying to drive a car over it. A telephone line is a system designed to carry human voice. If you were my age when telephone lines were still analog, and I was a teenager at the time, and we still had pulse-styling systems, we used to sometimes try to play music to our friends over the phone line. If you've ever tried this, you will discover it doesn't really work. The reason for that is because the frequencies that a telephone line allows are very narrow. The telephone network is designed to do one thing, and only one thing. It's highly specialized, just like the gas network that delivers gas to houses is only designed to deliver gas. Not gas, or water, or electricity, or oil, just gas. It's specialized, the telephone system was designed to deliver just voice. Human voice is very specific. Our main frequency is one kilohertz, and then we go a bit below that and a bit above that. There are a few people who can go quite a bit beyond that. Teenagers can go to frequencies that I can't even hear anymore. But because of the specialized use of voice, and because of the difficulties of transmitting voice, especially over great distances, engineers narrowed the range. If you allow the full range, you get voice, but you also get electrical interference at very high frequency. You also get electrical interference from motors at very low frequencies. What do you do if you have a phone line that's doing that? You put a filter that chops out the lows, and you put a filter that chops out the highs, and now it's cleaner. But now the voice starts sounding weirder and weirder, because it's being compressed. This is a very difficult road to ride data over. When you're transmitting data, you want to get a lot of information in a very narrow frequency band. This whistling sound that you hear with the modem is two modems trying to test on this specific connection. How much room do we have? Basically, what the modem is doing is going, hello, hello, hello, hello, hello. The other modem is going, I heard the first three, the last one didn't come through. Then the opposite, going low frequency, hello, hello, hello. I heard the first three, but the last one didn't come through. Okay, great. Now we know we have six bands of frequency to work with. Now I'm going to start changing between those bands very quickly. Let's see how much of this you can understand. That's changing frequencies very quickly between two bands. Then the other modem goes, I heard all of that. Great. Now we can transmit data. This is an insane way to do data transmission. You've basically got two devices that are singing to each other over a very narrow channel, trying to somehow squeeze through this little straw as much data as possible. Then we upgraded them and they got better and better at doing this. The phone companies hated it. That's not what we designed the network for. This is a pristine state-of-the-art voice communication network. What the hell are you people doing? In fact, in the country where I grew up in Athens, if you tried to make a long distance call with the modem, what you would hear is du-dee-dee-d-d-click. What just happened? They cut off lines if they detect a modem, because we are competing against the phone company. Kind of like banks shutting down accounts of Bitcoin companies. They were basically exactly the same. What did they say at the time? We could deploy data connections, fiber, coaxial cables, direct data connections at high bandwidth. First of all, no one needs high bandwidth, because what are they going to do? We already have a voice network. It is fantastic. We don't need these new things. Secondly, you don't have enough users to deploy coax, and you don't have enough coax to build a user base. This is never going to happen. The same exact idea. Then we had one of the most spectacular examples of infrastructure inversion I have ever seen, that I recall from history, when first the internet was not wanted and carried over phone lines reluctantly, then the internet was carried over phone lines by phone companies becoming internet service providers, then gradually their backbones become data-oriented, then their entire network becomes digital, then their entire network starts running over the internet, then they start running all of their phone lines on top of the internet. So today, every single phone call you do anywhere in the world is carried over the internet, with a few exceptions to the edges in some developing countries, a complete infrastructure inversion. It turns out it is very difficult to push data through a narrow phone line designed for voice. But if you flip the equation, putting voice over a data connection is trivially easy. What is the difference? One is extremely specialized. It has already chosen the application for you. The application is voice. Data is the exception that you are trying to squeeze through. The other one is very generic. Data means anything. Voice is just one of the applications carried comfortably. I think the ultimate irony of the phone companies was a special thing called comfort-noise generation. If you are a phone engineer, you know what I am talking about. This is the most ironic thing ever. After years and years of people my age being used to their phone lines sounding like all the time, when we started having cellular telephony and digital phone lines that were perfect, they had no noise. The moment the other person stopped talking, what you would have was complete silence. So you are like, oh, okay. I guess they hang up. They didn't hang up. They are still there. There is just none of the... So then the phone companies invent the most brilliant technology ever, which is comfort-noise generation, which is a device that sits on your end of the phone, and it looks to see if the connection is still open. If it is, it whispers in your ear, just to make you feel comfortable that the other person is still there. It actually generates high-frequency noise on purpose, artificially on your end, noise that isn't on the system, just so that you don't think the other person has hung up. The very same companies that said, we will never be able to do quality voice over the internet, and we don't want the internet on our phone lines, and now injecting noise in order to simulate the terrible performance of the previous network, because now we are delivering CD quality or better sound across continents, complete infrastructure inversion. Then we get to Bitcoin. Now we have a decentralized truss platform that can do settlements of transactions on a global basis without interbeteries. But in order to get into the system, or get out of the system, because we still have to live in the old system, we have to go through exchanges, we have to go through bank accounts, we have to do iBan transfers, we have to use credit cards. What we are doing is we are riding the automobile on the muddy roads of banking. The Bitcoin supercar, the Formula One of finance, is riding along on the muddy roads of 1970s mainframe-based banking. It is a bumpy road. The banks pointed this and said, it is not working. You have to do all of the regulation that we have to do. You have to do all of the identity that we have to do. You have to slow everything down to the speed of traditional banking. This is never going to work. Not only that, but you don't have enough users to build infrastructure, and you don't have enough infrastructure to attract new users. So this is clearly never going to work. What we do have, just like with electricity, and the automobile, and the internet, is we have a new technology that has within it the promise of a thousand other applications they haven't even imagined. This is my prediction. We are going to see over the next 15 to 20 years a great infrastructure inversion that will happen in finance. What will happen is the banks will resist, then the banks will adopt, then the banks will run their systems alongside blockchain and Bitcoin systems. Finally, they will run all of traditional banking as an application on top of a decentralized trusted ledger. While it is very hard to do a decentralized trusted ledger that is connected to all of these legacy banking systems, simulating legacy banking on top of a decentralized ledger, on top of Bitcoin, an open global blockchain, is trivial. All you have to do is take all of its capabilities and slow them down. I can create an application that takes your Bitcoin transaction and makes it clear in three to five business days for a cost of five dollars. I have implemented traditional banking. It is kind of like the comfort-noise generation. For those of us who are so accustomed to banking of a previous generation who are like, I don't like all of this fast finance. It makes me uncomfortable. I want to sit at my kitchen table every Sunday and balance my checkbook, and make sure none of my checks balances. I don't like all of this electronic, instantaneous global transfer. It scares me. Who knows? So we can slow it down. What we are going to see is this infrastructure inversion will allow us not only to comfortably run the traditional banking applications on top of a distributed global ledger, an open blockchain like Bitcoin, the open blockchain, probably Bitcoin's open blockchain. But then we open the door for other applications. For applications we have never seen before. These will appear to traditional banking like a segue or a skateboard, appears to someone who is absolutely determined to continue the tradition of horse carriage riding in the city of Zurich. These applications will look the same as someone who is still trying to do gas lighting in their traditional Victorian house. These applications will look as alien as someone who is still trying to do comfort-noise in a CD or better quality voice communication over the internet that is capable of so much more. Enabling the future on your legacy system is very difficult. While you are trying to do that, everyone is pointing at the future and saying, Look, it doesn't work until you flip the infrastructure and then simulating the past on the network of the future becomes extremely easy. So what we are part of now is the very early stages as we look at the future of money and the first stages of the greatest infrastructure inversion the world has ever seen. Thank you. If you enjoyed this video, please subscribe, like, and share. All my work is shared for free, so if you want to support it, join me on Patreon.