 Alright, welcome everyone. Hello. Decentralize. So, we're here at Decentralize, and I think the topic for today should be about what is decentralization and why does it matter? What does decentralization mean? It's a word that you hear a lot in this community. And I think even though we talk about it a lot, not everyone understands exactly what it means. So, that's what I'm going to talk about today. What is decentralization? How does it compare to decentralization? Why do we care? So first of all, decentralization is not new. Decentralization, in fact, is the original form of organization. Decentralization means person-to-person. And it's the system of organization we've used in society for as long as society existed. In fact, decentralization is the new invention. Centralization is the invention of agrarian economies. Centralization is how you organize cities to scale once you have density of population. We needed something to organize, and out of that came politics, religion, and organizational systems that centralized control so that you could scale agrarian societies. And now we're talking about decentralization again. And the reason is because we're trying a different way to scale. Centralization and decentralization, fundamentally, if you think about it, is a matter of architecture. It's the architecture of power. It's how you organize power in a society. And decentralization is a system of organization of power that looks like a pyramid. It's a hierarchical system of power, and it's very efficient. It's very efficient because it allows very large numbers of people to make decisions quickly and efficiently in a way that allowed agrarian societies to grow to tens of thousands, hundreds of thousands, millions, and now tens of millions and hundreds of millions of people within a single cohesive society. Centralized organizations, a hierarchy allows you to marshal resources. Marshal, of course, being the word for raising armies, which is probably one of the most important resources that was organized by centralized societies. But hierarchy has a fatal flaw. And the fatal flaw of hierarchy as an organizational principle is that as it scales, it becomes more and more corrupted. If you build a pyramid, the wider the base, the higher the top, the further apart the peak of the pyramid is from the base. And a system that is hierarchical and looks like a pyramid concentrates power from a very wide base to a pinnacle of power, the highest position of power at the top of the pyramid. Hierarchical systems are systems of concentration of power. And what happens with human beings when you concentrate power? Power corrupts. Absolute power corrupts absolutely. The higher up in the pyramid, the more corrupt. It becomes a nexus that attracts sociopaths. And the problem with centralized systems of societal organization is that we can only scale them so far before they really, really start attracting the worst sociopaths imaginable. If you have a village with a hundred people and you build a hierarchical system with a village council that represents the hundred villagers, you don't have a lot of power. And okay, maybe your crazy uncle ends up being the sociopath in charge of the hundred villagers. They can't really do a lot of damage. You widen that pyramid and you create a system of hierarchical power that has 100 million people at the bottom. And you will attract a very big sociopath to rise the top of that pyramid. And they will arrive at a position of power that is very far removed from the bottom of that pyramid. Decentralized systems are an architecture that represents a flat system. Every peer is equal. And so in a decentralized system, the problem is that you cannot scale horizontally and continue to make decisions efficiently. That is until we invented network protocols. And with network protocols, what we can do now is take flat systems and scale them to millions of participants and still make decisions efficiently. We can take a flat system like the Bitcoin blockchain and every ten minutes we can hold a vote and decide what the current state of consensus is in a flat system that now scales to millions of participants. We can take the internet and scale out freedom of information to three or four billion people without hierarchy. So, the reason we are talking about decentralized systems again, after thousands of years in which centralized systems dominated, is because we now have the ability through network protocols to scale decision-making in a flat system across millions of participants. But decentralized systems are not efficient. They are not efficient at making decisions. If you want efficiency, you build a pyramid. What is the truth? Whatever the guy at the top says. What do we do? Whatever the guy at the top says. How fast can you make a decision? As fast as the guy at the top. But the problem with that is corruption. Not only do you attract sociopaths, but the bigger you build a pyramid, the more of a sociopath you attract. And you get this disparity of power, this enormous disparity of power between the top and the bottom of the pyramid. Why would anyone at the bottom of the pyramid agree to the system? Why would they continue to believe that this is a powerful and efficient system of organization? Because of one simple lie. That lie is the promise that one day you can climb up that pyramid, and that power can be yours. If you believe that lie, which is obviously untrue, because there are very few positions at the top, and a very broad base. Clearly, not everyone can climb to the top. But you have the Lake Wobegun effect, which is we're all above average. I, too, one day aspire to be rich, so I don't want the rich to be taxed. I aspire to be powerful, so I don't want the powerful decisions to be questioned. I aspire to become an authority, so I don't want people challenging authority. That lie is the basis on which you sell a pyramid system to 100 million slaves at the bottom. That lie is the basis on which you sell sociopathy on a grand scale to entire populations. And until now, that's the only thing that you could scale to hundreds of millions of people. We can do better now. We can build systems of organization at scale with millions of participants that are flat. That do not create concentrations of power. That have no levers to pull. That have no position for a sociopath in them, because the sociopath has as much power, or if you think about it, as little power as everybody else. Now, as you can guess, some people object to this new arrangement of things. And the way they will object is by pointing out the inefficiency of the system. You can't make decisions fast enough. You're not efficient, they'll say, while pointing to the decentralized system. You can't even arrive at a decision to raise the block size limit. Look at us. We have a meeting every Friday, and when Miss Yellen says we're raising the interest rate, we're raising the interest rate. Simple, direct, efficient. Efficiency is great, unless you're one of the hundred million slaves at the bottom of the pyramid, in which case the efficient decision might be to just squash you a bit more, squeeze you a bit more. Efficiency is a trade-off. And the trade-off you're making is liberty. The whole point of decentralized systems is not to be more efficient, but to give you liberty, autonomy, independence, empowerment for everyone who participates. Not the lie, the one day you will rise a couple of rungs further up the ladder. So when the shit slides downhill, it's gonna pass you by, barely missing you, and hit some unfortunate soul on the rung below you. You're like, feels good to be part of the upper class. That is the lie. Now, if you think of these systems as architecture, then the architecture determines how power is attracted to that architecture. If you have an architecture of a system that looks like a pyramid, it will create a focal point that attracts power at the top. If the architecture is flat, it provides fewer opportunities for power to concentrate. And decentralization versus centralization is not a binary state. It's not 100% centralized or 100% decentralized. Most of the time, it's somewhere in between. But the degree of centralization versus decentralization matters, especially when you're talking about a battle for power. This architecture determines how power will evolve over time in society. We're presenting an alternative mechanism for organizing societies. At a very basic level, you might look at it and say it's a currency, it's a payment system, it's a system for supporting smart contracts, but that's not what it is. The technology behind Bitcoin is not the blockchain. The technology behind Bitcoin is the architecture of decentralization. That is the thing that's magical. That is the thing that gives us the opportunity to change the equation of power, to change the architecture of power. And the best part about it is that the scale between centralization and decentralization is asymmetric. What does that mean? If you have a system of power that's based on decentralization, you have to have 100% control. A little bit of decentralization really screws up the system. We don't need to be 100% decentralized. A little bit of decentralization goes a long way. Let's take a hypothetical. Let's say you have a stadium, and this stadium has 100 gates, and you're holding a concert inside that stadium. And you want to apply a system of centralized control in order to get paid for the tickets to the concert. Of the 100 gates, how many of those gates do you need to control and check for tickets for that concert to not be a free concert? 100. Because if you only control 99 gates and everybody knows which gate is free, your stadium will fill up even though no one came through the 99 gates. You have a free concert because you left one of the gates open. If you have a system of end-to-end control that applies identity and rules of control and censorship over money, how many doors do you need to leave open for everyone who wants to take the exit? One. Bitcoin. And you've immediately undermined the system of end-to-end control. In fact, the gatekeepers are then left with this incredible dilemma. If there is a way to exit the system and you don't have end-to-end control, who are you left surveilling and controlling? The innocent and the idiots, the people who couldn't figure out how to use door number 99, the one that was free. So you set up a system of totalitarian surveillance and control, and we open a little door on the side that says Bitcoin over it, and everybody who wants can take that door, and who are you left collecting identity? Who are you left collecting surveillance information over their payments? The innocent and the idiots. You've got a dataset that is useless. Centralization and decentralization are not equal architectures. If you decentralize a tiny bit and a system of control evaporates. If you have a dam that's holding back a lake, 100% structural integrity is the standard. 99% structural integrity means your valley is a lake. Bitcoin is someone drilling a hole in the dam of international finance. 12 billion dollars are now flowing through that hole, leaking out of the system, draining the lake, and the hole keeps getting wider, and they're freaking out watching this little hole get wider and wider, and what they haven't noticed is a thousand other cryptocurrencies drilling holes next to it, and so the system of centralization can be broken with a tiny bit of decentralization. But we also have to be careful. The centralized systems are subject to corruption and capture if you give them a target. If you create a point of control, if you concentrate power within the decentralized system, that point of control, that concentration of power immediately becomes a target. It becomes a target because in this battle between these two architectures, power is attracted to points of control, and the moment you create a point of control it will be attacked. If there is someone to serve a subpoena, they will serve a subpoena. If there is someone to censor, they will censor. If there is someone to persecute, to disappear, to kidnap, to assassinate, they will do that. Not in this country, maybe, but what happens when you offend powers in some of the other countries in the world? In order for decentralized systems to be effective, we have to guard against the concentration of power. We have to maintain decentralization to give no handhold, no lever, no point of control or concentration, though it will allow that system to be re-centralized. Every time someone says, we are going to fix this, we can make it more efficient, we can add identity, increase transaction rates, speed things up. What they are talking about is building a pyramid again. What they are talking about is centralizing power again. What we are looking at right now is establishing an architecture of freedom that allows us to change the nature of social institutions. This is not about payments. Payments, just the first app. This is about understanding that we now have through internet protocols the ability to redesign the mechanisms of social organization to create systems that are egalitarian, that provide autonomy, independence, freedom of conscience, freedom of expression, and empowerment for millions and billions of individuals around the world simply by changing the shape, simply by choosing decentralization. That's what is going on here today. This is why Bitcoin and other things like it are absolutely terrifying to those who are trying to preserve the architecture of power. Because if you're in the pyramid in a position of power and you look down, what do you see? You see 100 million slaves, right? You see the lowest rung of power in the pyramid. And if you think that the flat and decentralized system means that everybody gets to live like that, that's terrifying, right? That's terrifying because that's the only example you can see of the masses sitting under the weight of a system of power that is crushing people. But that's not what decentralized systems are about. Decentralized systems where everyone is up here are not about anyone being stepped on, they're about everyone being equal in representation. And so decentralization is not a scary thing. It's a promise of hope. It's a promise of hope for a form of organization of our society that can create new opportunities for everyone. And that's my message today. I hope you enjoyed it. Thank you. Do we have some time for questions? Or do you want to do some questions? I don't know. Try it. So Bitcoin is a really powerful tool for accumulating capital because it allows people to control their own private keys. It makes it harder for wealth to be taken away. And this is kind of like, I've heard Bitcoin is described as like a hypercapitalist kind of system. Now capitalism itself is an ideology and legal system that enables the accumulation of capital rather than like wide redistribution of capital. And this accumulation of capital concentrates power and resources into smaller and smaller, fewer, fewer hands over time. Do you think that capitalism is compatible with decentralization and accountability and some of the ideas you're talking about there with like reduced power and hierarchies? Or do you think that capitalism and decentralization are at odds with its concepts? I think they're orthogonal in that I don't think, I think capitalism in itself is a specific way of organizing the pyramid. And when you take away the pyramid and you create something different, then the label capitalism itself doesn't really apply to this new model. So it's as obsolete as agrarian feudalism is in an urban environment. You can't really apply that model to the new mechanism of organization. I think it's important to make a fundamental distinction between capitalism and free markets. The reason it's so disruptive is because Bitcoin represents free markets. It doesn't represent capitalism. It represents free markets at a level that has not been done before with an architecture that has never been done before. And none of the old labels apply. So trying to figure out through the political system how we rearrange the layers of the pyramid is precisely why this is so exciting, because we're saying don't try to decide who gets the top, remove the pyramid from the equation completely. That is really the proposition that has a lot of people excited. Network-centric systems of organization that are flat completely change the entire political spectrum, and labels like capitalism really don't apply anymore. So I mean, if in the system like Bitcoin kind of enables this massive accumulation of capital, you know, it's really that accumulation of capital that leads to this imbalance of power. And so do you think that the hierarchy might not be arranged politically, but it would be arranged through market forces? Possibly. In which case we should use another decentralized network to disrupt Bitcoin 30 years from now. I'm a disruptarian. Given 30 years once it gets corrupted, start again. And one of the great things about decentralized architectures is they now give us an engine, a template, a recipe for continuously disrupting the accumulation of power. That is the primary force of these decentralized systems. Right now we're disrupting a system of power where the accumulation of wealth is based on how many thousands of people your grandfather killed. And if in 30 years we have to disrupt a system of power based on how many early blocks you mined, your grandfather mined, that's still a better system of power than what we have today, and maybe we'll need to disrupt that one too. All right, thanks, Andreas. Hey, Andre. Hi, Andreas. Thank you for the talk. I think this is what Bitcoin is doing looks to me like just another leap of the spiral. And examples of the previous leaps that we've seen already are PayPal 10 years ago has allowed people to pay over the internet pretty much without any regulation. Or if you take it like 20 years back, internet has disrupted the structure of power by allowing free flow of information and control of information as one of the methods of control. And if you look even like 100 years back, banking system I guess has done something similar by introducing an alternative to transferring the physical world. And people tend to reproduce the same system where they are getting screwed again and again, no matter how advanced instruments you get into them. What do you think is the root cause of this behavior? That's a great question. I mean, I think the root cause of that behavior is that humans are prone to tribalism. And so we tend to make assumptions and have cognitive biases that are self-destructive as a species. But if you look at all of these periods of disruption, going from a system where only royalty has access to what we now call banking, to banking that is available to the broader population starting in the 15th and 16th century, to fiat, to the internet, to PayPal, to Bitcoin, one of the things you notice is that every time we have a halving of power to use a Bitcoin metaphor, and the period keeps accelerating. So what we're doing is we're accelerating the time during which we can apply a new disruption to the previous disruption, and power is diffusing more and more and more and more. Some people look at the past and say, oh, it was a glorious time. But to me, I think today the world lives in a time where the vast majority of people have more freedom than ever before, access to more resources, access to more information, a higher standard of living than ever before. We're just accelerating the cycles. And again, I'm not married to the specific implementation of decentralization that is Bitcoin. I'm looking at decentralization as a trend. Bitcoin is the current incarnation that is achieving success. And when it stops fulfilling the needs of the people, we'll do something else if it stops fulfilling the needs of the people. Michael. So I was curious to, I love your analogy of the hole in the dam getting wider than other little holes. So what happens if, you know, 50-50 chance, I mean, obviously there's a lot of stuff propping up the stock market and everything else right now. But let's say we have a black swan moment with, like, say Deutsche Bank going under and dragging down 20 times the apothecation of the European economy. Does that dam just break? And what does that mean for the average person in North America and Europe? Oh, that's a really good question. First of all, I don't think that's a black swan moment. That's a white swan moment. We've seen it before. We know what it looks like. We know it's coming. I mean, there's nothing surprising about Deutsche Bank going belly up at this point. Once every newspaper you've ever read has predicted it, it's no longer a black swan. So it's probably going to come from somewhere else that we don't expect. Like, you know, the third largest Italian bank you've never heard of. I hope that doesn't happen. And I hope it doesn't happen anytime soon. And I'm actually perplexed by people in this community who wish for and see Bitcoin as thriving in a moment of chaos and collapse and traditional currencies. I've lived in a country that has had a currency crisis twice. I've visited many countries that have currency crisis. It is ugly. A lot of really good people get very hurt. Generations lose their future overnight and do not recover in 30 years. And so we should not be wishing for that. If we do have a global economic crisis at this point, Bitcoin is not ready to absorb anything. Let's be realistic. There is no exit valve. Even if everybody in Bitcoin actually gains an advantage from having some diversification, that's not going to make much of a difference to anybody else. All of the investment in Bitcoin, not just in companies but also in individuals and entrepreneurs and startups, dries up instantly overnight. And we're all set back across the board by a decade. So I don't wish that on anyone. I hope that doesn't happen. Unfortunately, the system is very fragile, so there's a good chance it might happen. So we'll see. We'll see how it plays up. I certainly don't want people to think that just because Bitcoin can act as a safe haven investment, just because it can act as an exit valve, just because we see that when things like Brexit or the yuan devaluation happen, Bitcoin spikes up. There's a big leap between that and saying, I hope the world burns so I can make money on my Bitcoin. Part two of that is the more likely scenario, which is when it burns, the fire is put out by several trillion dollars with the helicopter money. That's not even the done with bonds. I mean, they're talking about maybe IMF doing like a hundred trillion dollar bailouts and things like that. Now, would that have a different effect in terms of the size of the holes of the wall? Not really. To me, I think, and again, I'm not an economist, which probably means I can speculate with complete immunity from criticism. But if you consider that the world economy is on the floor and flat lines, and you've already delivered a hundred electroshocks and three EpiPens in order to wake it up, a larger dose of adrenaline is not going to help at this point. So helicopter money? How many times does that work? What happens when it doesn't? So I'm not very optimistic for that particular one question in the back there. I also like the analogy you gave about the hole in the dam. So given that truth, the state and international financiers don't like that money leaving their system, how do you think they're going to respond in the coming months or years in the target particular future? But how do you address that more all? Well, I estimate that they're going to go through five stages of response. Stage one is denial. Bitcoin can't work. Bitcoin won't work. Bitcoin isn't working, except that it is. Stage two is anger. Bitcoin is for terrorist criminals and pedophiles, just like they said about the internet, until of course it isn't. Stage three is bargaining. We can do blockchains. We're at stage three now. We can do blockchains, and that will fix everything. We'll just take the open, borderless, transnational, open innovation, open, permissionless system, and make it closed, jurisdiction-specific, permission-based, and take everything good out of it, and then we have a blockchain, which is a bit like the horse and carriage association of America saying, listen, we've studied this new-fangled automobile, and it seems kind of sketchy. We don't think that's going to work. But we are now heavily invested in pneumatic tires. Pneumatic tires, the technology behind the automobile, is the thing that we believe makes all the difference. So we now present the new horse and buggy carriage with pneumatic tires, and that will preserve our investment in stables, veterinary doctors, and hay. That's bargaining. After bargaining comes depression, and after depression, finally, acceptance. And acceptance is when the climate financial system gets re-engineered to work on open, borderless, public ledgers, and it will. There is absolutely no question in my mind about that. So in analogy, do you see the 14-animary transistor limit as being a good thing for decentralization or a bad thing? I think it's a really good thing. So to repeat the question, if you didn't hear it, do I see the 14-nanometer limit of transistors? Basically what this means is that we've seen this enormous increase in the hashing capacity of Bitcoin, specifically the proof-of-work network, because it's been catching up to Moore's law, and now it's slammed into Moore's law, and Moore's law appears to be like a wall. It's a very good thing for decentralization. What it does is it extends the shelf-life of mining equipment from two to three months of usable lifecycle to almost two years, which levels the playing field across all of the participants in the system. Until now, the determinants of success in mining was how many kilometers you were from the fabrication lab, how fast you could get that stuff out of the lab onto a truck, from a truck into a warehouse, and hooked up to 50 megawatts of electricity. That means that all of it was within about 100 kilometers of the semiconductor fabs, or 500 kilometers. That's it, because if you try to put it on a ship and move it across the water, it leaves your shores as a fantastic mining equipment, and it arrives in California scrap metal three months later. But if you have a two-year shelf-life, you can now re-decentralize mining to take advantage of differences in electricity costs. One of the really interesting opportunities is renewable energy that has cycles of demand in it. For example, you have production from solar or wind or hydro. That production is fixed. You get this many megawatt hours coming out of your pipe all the time, but the actual consumption in the distribution network changes over the day. What do you do with the excess capacity? One opportunity is to think about taking that excess capacity and using it to mine Bitcoin when it's not being used for consumption. Essentially, that's energy you would be generating anyway that would be completely lost. Now you can convert that into Bitcoin. Effectively, Bitcoin is a battery on a virtual blockchain. Shall we do the last one? One more last one. Andreas, thank you for your good presentation. Thank you. What would you say? I'd love to hear your thoughts on a lot of people. When I talked to a lot of people about Bitcoin, they bring back the whole like, yeah, well, a large majority of your decentralized system is now mined almost centrally in China by very few organizations. What's the Andreas response to that? Well, the Andreas response is that in order to understand the consensus mechanism, you have to understand that there are five constituencies of consensus. None of them has complete control over the system. All of them have to agree. You have the developers, you have mining, you have exchanges, you have wallets, and you have merchant services. Now, if you're a miner and you decide to take your chain in a certain direction and none of the economic activity follows you, merchants, exchanges, wallets, users, and developers stay on the other side, now you're mining a chain that has no economic value for Bitcoin that you cannot exchange, sell, or use to buy any products and services. So really, there's a balance there. And in fact, one of the significant points of balance is that the vast majority of development, the vast majority of startups, and the vast majority of users are in the Western world, and the vast majority of mining is in China. That's a beautiful balance, because that means that not only does that mean that the Chinese miners can't take over, it also means that the Western developers can't take over. It creates a balance of power. I think that's a good system. Now, I don't think it's healthy to have all of the mining centralized, and I think there's a lot of centralization in mining, but as I mentioned before, I think that is an artifact of the very rapid increase, almost a million-fold in performance over a period of the last four or five years, from CPU to GPU to FPGA to ASIC, and from 40 nanometer down to 16. And now we hit a wall. And now when you have 2x every two years, that changes the system dramatically. Everybody slows down, and we're going to see a redecentralization of mining, I think. All right. Yeah, one more question. So today, like 10 hours ago, there was this hard fork in Ethereum, and opinions are going away, or are differing. So some people say, well, now they shifted towards something that is centralized. As I say, well, it shows, give them a completely decentralized system is capable of making such decisions and reacting to a kind of emergency. So what is your opinion here? Was that the decentralized process, or was it decentralized? What's your take on that? I think what this proves fundamentally is that you can have opinions, and then you have to follow what the market is doing, because the market will punish your opinions if you fall on the wrong side of that fork. So you can have opinions, or you can have money. And that's how mining works. That's how the consensus mechanism works. You hold on to your opinions until it becomes destructively unprofitable to hold those opinions, and then you change your opinions. And we saw a few of the miners say, we're against the fork, or it seems to be succeeding. Okay, we're with the fork. And that is a really powerful statement, because we saw one of the scenarios that is a nightmare scenario for a hard fork is an even split, or even a situation where you have 70% of the power on one side, 30% on the other, and the 30% is able to continue to grow. That's a nightmare scenario. That's where you have opportunities for arbitrage and transaction replay between the chains. What you want is a swift art decision where one of the forks dies as quickly as possible, and you get closure. And what we saw as predicted by many is that the economic incentives are so enormous that you really have very quick closure on the issue. And I hope that's what it demonstrates. We're going to have to wait a few more days to see how it plays out. But I think that's exactly what we're going to see. That's very instructive for hard forks that are going to be done, perhaps, by other chains in the near future. And you can say that Ethereum is more centralized today than it was, or has demonstrated to be more centralized than we thought it would be, and is demonstrating a different type of immutability, that is, a community consensus-based immutability rather than a code-is-law immutability that they claimed to have before. But that's not a bad thing. It's exploring a different niche for different types of applications that don't need that level of hard immutability, but that need the flexibility of a community response. And my primary argument has always been that with all of these cryptocurrencies, what we're doing is we're experimenting to see what fitness for purpose each of these species of money has, and what is the application space that they fit best. And you can say this currency is X, but the market might disagree with you. And it may end up being something else once market tested. Satoshi Nakamoto said that Bitcoin was supposed to be a payment system for digital cash for every transaction with one CPU, one vote. Turns out they were wrong. He was wrong. She was wrong. We don't know, but it seems like Bitcoin is evolving in a slightly different direction. Ethereum was supposed to be a completely immutable code-is-law smart contract system. Turns out it isn't. We'll see what turns out, right? So again, you can have strong opinions about what something is, and the market may prove otherwise. And the best thing about this is that now we're running experiments on a scale of $1 to $12 billion in real life with real actors, with real stake, and those experiments are delivering mountains of data that allow us to refine our models, build better systems, and learn from these things. And no one else is doing that. That's the beauty of this cryptocurrency.