 So I'm going to talk a bit about blockchain, but mostly I want to talk about money Now the word blockchain is used by a lot of people to mean all of the applications of this technology Beyond the financial applications beyond money And I'm certainly one of the people who said in the very beginning that money is just the first app So a lot of people are excited about all the things you can do beyond finance. However I'm here to remind you of two things one money is the killer app It is the killer app for bitcoin and bitcoin is the killer app for blockchain technology Money is the killer app because it is the foundational technology of all commerce And as such it touches everything and how it works affects everything The second thing is that for all of the applications that come after the stuff that is beyond money The blockchain Applications in order to make those work in a neutral open and decentralized global platform They will need to transact a neutral open decentralized global currency. You can't do The commerce the trade the land registry the identity the everything else Without first having that foundation Of a fundamentally new way of doing money that is open neutral borderless global censorship resistant And that is what comes out of The killer app which is money on a blockchain One of the problems we have in this space is understanding the terms we use And money is probably one of the most abused terms because very few people really understand how money works what money is And money as such is not a definitional term It's a best a descriptive term really. It's more of a general classifier I'm going to talk a bit about what we mean when we say money and how we need to understand money as things go forward Now that we have a new form of money based on the blockchain This talk is inspired by a conversation on twitter that Vitalik had with a few people just a few days ago People were asking vlad zamfair may have heard of him one of the other um, ethereum greats about whether ethereum is money and vlad was saying no ethereum isn't money And some other people were saying yes ethereum is money And vitalik said how about instead of using the term money Instead we talk about moe soe Sov and u of a Most people didn't realize what he was talking about that was a really insightful comment The three fundamental uses of money Sov store of value moe medium of exchange uo a unit of account We use the word money to describe things That in their practical application Exhibit one of the fundamental behaviors that allow us to use them for these purposes And if you just use the term money in general You may be having a conversation across purposes with other people because what you define as money May be colored by your perception of what you think the most fundamental aspect or use case of money is Ever had a conversation with a gold bug as far as they're concerned The most important most fundamental use of money is as a long term durable store of value Therefore The new zealand dollar is not money The u.s. Dollar is not money real money Money made of gold That's money Right But if you talk to many other people gold isn't money Because it's not very practical as a medium of exchange And while we recognize that it has proven to be a durable store of value over time It's not very practical as a medium of exchange Don't believe me Take some gold specie go to your local bar and say do you take gold in here matey? Now if it's a costume party, they'll probably appreciate that otherwise they're going to ask you for new zealand dollars or visa Is visa money visa is a medium of exchange But it doesn't represent a unit of account nor does it represent the store value in fact in many cases It represents a form of debt Wait, but most money is that Except for gold which is a store value and perhaps some of these new currencies on the blockchain which are also assets not debt instruments So this whole conversation becomes confusing And the reason it becomes confusing is we're using a descriptive term of money to refer to these characteristics without differentiating them The first form of money was precious metal the first form of broadly used money throughout the world as a singular global unit That could be recognized and used as a medium of exchange across cultural barriers silver gold Is it money? It was then it's not today So what are the features that make its money? What are the features that give it the capability to serve as a store value a medium of exchange a unit of account? certain characteristics It has to be portable right There's a Polynesian tribe pacific islanders that use giant stones As money great store value poor medium of exchange Thing weighs 20 tons You can carve it And then it sits there Because nobody's willing to move it One of the stories that comes out of that is when during transport for payment of debts between one Village and another transport by canoe across an island channel canoe sinks stone goes to the bottom of the ocean And it's still used as a medium of exchange because both tribes agree that it's still there Bottom of the ocean hasn't moved its ownership now belongs to the tribe where it would have arrived And they still refer to it as a medium of exchange and base value on it. It doesn't matter. It's there It fulfills the role because it has preserved scarcity Right scarcity is a fundamental consideration when you're trying to build a store value What are the other ones fungibility? The ability to have units of value that are indistinguishable from each other for legal purposes The fact that it doesn't matter if your New Zealand dollar Serial number ends in a three or five. It's still the same It's legal tender and you are legally prohibited from making discriminations based on that You cannot say in my store. I only accept New Zealand dollars that end in a six Because I am compelled for religious reasons or whatever other crazy thing you want to do You can't do that fungibility is a requirement under the legal tender laws Why because without fungibility currency ceases to be practical as a medium of exchange Because you now have differential pricing If you can differentiate between units then one New Zealand dollar will be worth one New Zealand dollar And another one that's less desirable because fewer locations will accept it will be discounted in the market And operate at the discounted rate, which is now means you have to keep track Of different values associated with different units of the same currency As they are discounted that one was touched by a robber that one was used by a drug dealer That one has traces of cocaine on it. Actually all of them have traces of cocaine on them and feces, but We still accept them at a hundred percent value by law fungibility There are half a dozen properties that give us the characteristics that make money suitable To fulfill one of the three fundamental functions that we understand Unit of account is less easy to understand But the fundamental concept there is that in a barter system Prior to the invention of money One of the fundamental problems you have is that you have to keep track of the relative value of different commodities if I offer haircuts In exchange for pedicures and also offer haircuts in exchange for chicken eggs And also offer haircuts in exchange for oil changes for my car I can have a local area functional community of barter but The reason that doesn't scale is because I have to keep track Of the exchange rates between haircuts oil changes chicken eggs and pedicures And so does the pedicurist the car mechanic and the chicken farmer We all have to keep track. How many haircuts is it today for an oil change? How many oil changes for a chicken? How many chickens for a pedicure, etc, etc? It gets very complicated What if we had some magical thing and we could say let's price everything in that And that's money And that's the fundamental function of having a unit of account It's interesting that the first forms of money are metal Metal isn't necessarily very good money It has some problems one of the problems is that if Precious metal is used as money It has some intrinsic value that is separate from the money it represents Right silver and gold can be traded independently for aesthetic reasons to be used in jewelry for other purposes So if you have a silver coin and you recognize that perhaps it's not quite worth enough as a silver coin You melt it and you turn it into a necklace add some artistic Creativity to it and it can have a value greater than that that it previously had as a silver coin That destroys its fundamental function as a medium of exchange Or you shave off a tiny bit off the edge ever noticed while coins have raised bumps around the perimeter Those were introduced by the Romans when they realized that people were taking roman silver coins when they used to have full silver In them and were shaving the perimeter making them smaller and smaller and smaller and smaller and smaller Until you reached the point where one of the merchants went hang on There's an awful lot of coin missing in that coin I seem to remember them being this big when I was young They solved that problem by gradually diluting the silver until what you got was 99 10 And then hyperinflation destroyed the roman empire, but that's a story for another era We wouldn't possibly do that nowadays Gold is a terrible metal to use as a medium of exchange and one of the reasons is terrible is it's because it's too damn soft It dents it scratches bits of it fall off quite easily Great for jewelry can hammer it very easily soft metal fantastic for jewelry Not so good for a coin because one of the things you want with the coin Is you want it to be able to be used 100 000 times in 100 000 pockets by 100 000 people touching it without it losing bits In the process because it's not durable Durability is a fundamental requirement for a medium of exchange and gold is too soft So here's an interesting analogy metals represented for humanity at an era when we used the materials we found around us in the world And adapted them to the uses for which they fit You don't make a spear out of gold Not because it's too expensive But because you can't stab anyone with it because it's too damn soft Right And so human beings looked around them and they said this is the world We have these things in the world. What could their use be? How do we take what exists? leather iron shells bones tusks Ivory whatever how do we take these materials we have? And find uses that are suitable for these materials At this point we are adapting nature to the uses we have but only in a peripheral way One of the interesting things that happens in our civilization is gradually we become more intrusive in our adaptations We start molding nature to our needs And the first level of that Was the ability for human beings to interact at a molecular level with the materials they were operating To turn wood into charcoal To turn metal alloys into stronger metals more durable metals harder more brittle less brittle more malleable less malleable of different colors Melting at different temperatures we start manipulating the world around us using The molecules at a very high level That's the beginning Gradually we get better and better at this until eventually we can start affecting the atomic nature the chemical era Just a century ago erupted across the world and we can now manipulate the atomic structure of things We can create synthetic fertilizers Plastics synthetic fabrics we are now not waiting to find the use For a material we are changing the material in order to create a material that fits the use we have preconceived And if you take that to its extension, we're now at the point where we can do this at a nano scale Where we can affect the subatomic structure? We can now affect things like carbon nanotubes We are not just manipulating the atomic structure of this to the point of making the material behave a certain way We are giving it physical properties conductivity thermal dispersion Properties that we give to these materials by manipulating them on a nano scale and in sci-fi We talk of the diamond age where you can go Subparticle and Take any material and convert it by a sheer force of will a design pattern and sufficient energy To create many nukes. I'm sure You could take a chair and say a chair has carbon Diamonds have carbon. Well, here's a machine. I made you throw a chair in the back And diamonds come out the front. What's the difference is just a rearrangement of the particles, right? It's science fiction for now We just did something amazing to money until now We have taken money As it exists in the world and said This is kind of good as medium of exchange. It kind of sucks the store value But we're going to have to compromise because this is the money we have and we cannot change its fundamental nature We have precious metals. They work very well for one thing, but not for another so we make compromises We invent paper money But we are still subject to the limitations of paper money and as a result we can use it as a medium of exchange But its control architecture means that it's going to be inflated forever by central bankers who are out of control So we say, ah, well, it's not a good store of value It's two percent inflation Compounded year after year. Don't tell your children that that means that after 30 years half of it's gone Let's pretend that's not happening Saki store value great medium of exchange great unit of account We adapt our uses to the material and not the other way around until now Because now for the very first time we can engineer money We can engineer the fundamental properties of money We can start tweaking Whether this is more suitable as the store value or a medium of exchange or a unit of account We start working at the fundamental structure of money by making it digital And breathing into it the exact properties we want A monetary policy fungibility privacy durability resilience Transportability of unimaginable levels we can whisk it across the world in seconds without sacrificing Any of the properties that previously we would have to sacrifice instead of compromise we engineer away the trade-off Can we have it all can we have something that is simultaneously? The most amazing store value that ever existed the most amazing medium of exchange the most amazing unit of account but wait How about we invent some new characteristics of money that have never existed before? Now our money is also Fundamentally a universal ledger of transactions money never did that before We never had a form of money that in addition to being store value medium of exchange a unit of account Was a universal ledger an auditable Trackable ledger that can tell us where the money is being How it's being used Maybe or not because we tweak the privacy dial up And say guess what? Individuals should have privacy governments should have accountability. Let's tweak the dial Let's reset that societal conversation and say no to surveillance You have to tell us where you're spending our taxes. I don't have to tell you shit about where I'm spending my money Because I did nothing wrong And so we tweak that dial and some people are brave enough to tweak it in ways that we didn't anticipate We are engineering money for the first time And the conversation comes up and people say is this new network blockchain money really money? Well, that depends What do you mean by money dear sir? Are you referring to its function as a store value or a unit of exchange? a unit of account Or as a universal ledger the thing we just invented or some other property that hasn't yet been invented We don't know yet What this money is going to be good at? But I can tell you one thing It's already better A lot of the systems of money we have because the systems of money we have represent compromises We have a thing we call it money and we take it with all of its faults and say that's the best we can do We can do better now We can engineer the properties and create forms of money that exhibit exactly what we want in their behavior That have behaviors that surpass the physical world that give us instantaneous settlements without third parties across the world That can be used in payment channels for settlements of billions of transactions per second at zero cost or near zero cost We can do these things We can do micro transactions that operate at a micro second level on a global basis for fractions of a satoshi We can do these things now because for the first time we are engineering money until now When choosing the form of money we had we are making a choice that lasts A choice that is difficult to get out of If I hold New Zealand dollars, but I really wanted to have gold because it's a better store value That's not an easy conversion I can't simply lift a finger press a button and convert my New Zealand dollars into gold I can convert a spreadsheet representation of New Zealand dollars into a spreadsheet representation of gold and then I don't actually have either of them the bank has it and Let's hope Greece doesn't happen again Surely that couldn't happen here But that's not really a conversion if I really wanted to convert The product of my labor into gold I have to go through some pretty Incredible hoops to do that And take physical possession of the gold which then becomes very difficult to transport because it's heavy And then if I wanted to spend it I have to sell it which is another whole rigmarole of problems trade-offs Compromises What if we could do something different instead of trade-offs? We can trade trading becomes The better solution now if I have a fully digital Owned asset that is a perfect store value And I want a fully digital owned asset Not under a counterparty custodial account. I own this I control this with my own keys and I want to convert From the very very slow conservative robust super secure store value currency To the very very nimble micro payment instantaneous buy a damn cup of coffee right now across the world currency Now I can do that with a click In a cross-chain atomic swap with no counterparty risk I don't do trade-offs anymore. I trade And then I don't trade my wallet does on demand intelligently as I need If I need to buy a cup of coffee my wallet converts a sufficient amount of stored value Into coffee And then the remainder goes back into stored value in milliseconds. No trade-offs I can disaggregate the fundamental functions of money Get the best store value the best medium of exchange the best unit of account And some new properties I didn't have before like a universal ledger because we are engineering the very molecular nature of money By making it digital By making it decentralized by opening it up to engineering innovation By making it completely borderless outside of the controls of banks and governments and third parties By making it A pure digital technology And money is technology It is a value language. It is a system of symbolics That allows us to communicate value to each other And until now we've had just poor substitutes of this paper and precious metals and cards that give us access to debt in somebody else's spreadsheet if they will give it to us If they're still solvent And all of these inferior forces of money all of these inferior forms of money Will now have to compete They will have to compete against this new form of blockchain based network based decentralized money that is engineered To deliver exactly the principles and features that we want They're not going to compete very well They don't get it Right now this seems like a glorious experiment Hey, the banks will do blockchain too will optimize the bottom line Will recentralize the decentralized will co-opt it give it a haircut put it in a suit present it up to the board And we will park it in our innovation lab Where innovation goes to die Because if it's an innovative enough and disruptive enough Everyone in that management chain will get seriously uncomfortable That's what innovation does This morning someone said disrupt yourself Bullshit Disruption isn't comfortable. It's not easy. It's not nice Disruption means losing your job Disruption means cannibalizing your profit center. It means destroying your fundamental business You don't do that to yourself No You resist stubbornly until the very last moment Until you can no longer resist You go the way of kodak you invent digital photography in 1987 bury it under the rug Pretend no one sees it and say hey, we've got a good thing going on here with film. I mean Who could ever beat us? Who? Nokia Shipped a billion cameras and they're not even a camera company You can't see that coming. You can't protect from that. You can't co-opt and adjust to that level of disruption engineered currency designed By a rag tag group of anarchist cipherpunk misfits who don't give a shit about your business plan About your innovation lab about whether you like it whether the regulators will legitimize and add credibility and accept Because they are doing now for eight years in bitcoin and three years in ethereum laying down on the ground on assailable facts Faster than anyone can keep up And by the time the regulators figure out how to regulate 2009 bitcoin Zcash comes along and slaps him in the face And who knows what's coming next lightning network payment channels radon smart contracts 17 ICOs in the last 15 minutes There are people at the sec right now with their hair on fire going what the hell just happened I thought you said we were in charge No one asked for permission. Guess what? That's what permissionless means Permissionless doesn't mean present a business plan and hope someone funds you Permissionless means write code launch code change the world ask for forgiveness later. Maybe Do not ask for permission Engineered money just happens. It is a new form of digital money. This is the killer app This will change everything and eventually amazing applications Built on top of this incredible platform for global trust This new organizational model for decentralized society That scales to fit the global needs of a global society Will be built But first We've got some amazing things to do to money And they won't even see us coming. Thank you