 We're ready to get started. My name is Jerry Brito, and I'm the executive director of Coin Center. Coin Center is a research center that's based in Washington, DC, and we're focused on the public policy issues facing cryptocurrencies. Our mission is to make sure that folks in government, whether it's in Congress, regulatory agencies at the states, have all the information that they need when they're looking at this new technology. And as this technology sort of outpaces the law, we help develop some of the policy thinking that will help inform decision makers. And what informs us, a lot of what informs us, comes from academia, places like the Berkman Center. And so we're really happy to see that Bitcoin and the blockchain is becoming a focus for the Berkman Center. So let me just say off the bat that this discussion today is being live streamed on the web, and it will be recorded. And there is a Twitter hashtag. If you want to tweet or ask any questions out on the web, it's hashtag BTC property. So for purposes of this discussion, we're going to assume that folks understand what Bitcoin and the blockchain are and how they operate, because we want to dive in into some more specific issues related to them. But I will say this by way of explanation. There's an economist at the Chicago Fed called Francois Valdes. And I heard him once describe Bitcoin this way. He said, Bitcoin is a system for securely and verifiably transferring Bitcoins. And so that sounds crazy, that sounds redundant. But what he meant is this, is that Bitcoin, capital B Bitcoin, the network, the peer-to-peer network, the verification system, the cryptography, all of that is a system for securely and verifiably transferring lower case B Bitcoins, these tokens. These nominal, no, notional tokens called Bitcoins, and you can move them around. And to date, these tokens have mostly represented money. So one Bitcoin today is worth about $250. So if I want to send you $250, I can send you one Bitcoin. But there's no reason why these tokens must represent money alone. We can choose to have these tokens represent anything that we want to announce of gold, a share of stock, a particular house, a particular car, just about anything. And this ability to move around assets is completely new. We've never been able to do this before. And this is why Mark Andreessen wrote in The New York Times just over a year ago, he wrote, Bitcoin gives us for the first time a way for one internet user to transfer a unique piece of digital property to another internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate. And so what he's saying there, which is really profound, is that before Bitcoin, we could only ever copy digital assets, right? I could send you a Word document, but I would retain a perfect digital copy of that document. But after Bitcoin's invention, we can now transfer digital assets, right? The consequences of this breakthrough are really hard to overstate, I think. And as a result, we can, for the first time, think about property and digital assets, right? Not just intellectual property in expressions or inventions, we can actually think about real property in digital assets. So this brings up many new questions of law, and so this is an exciting development for legal academia, and so there are a lot of folks who are rushing in to try to fill the space. And some argue that while Bitcoin's technological innovation may be breathtaking, the entire system is fatally flawed because its use does not fit into existing notions of property law. Specifically, they will cite Article 9 of the UCC and make the case that almost any Bitcoin in circulation is likely encumbered by a lien or security interest on it by some previous possessor or some third party. In other words, Bitcoin cannot be fungible and so therefore can't serve as a medium of exchange and that the entire system is a tangled web that will collapse as soon as folks begin to ask courts to settle some matters. So wither Bitcoin. And so luckily for us, we have here at Berkman, someone who has spent a lot of time thinking about this issue deeply and pragmatically and taking the technology and how it really operates into account. And he's gonna share with us his thoughts on the subject. So with us today we have Patrick Merck. Patrick is one of the leading legal thinkers in cryptocurrency, having been there since the very beginning. He was the co-founder of the Bitcoin Foundation where he served as general counsel and later as executive director. He has been involved in a number of digital currency and fintech startups as an employee, entrepreneur and advisor. He is a fellow with the Berkman Center where he conducts research on the law and policy implications of Bitcoin, distributed ledgers and smart contracts. And recently he joined sort of the powerhouse digital currency practice at Pillsbury Law. So with that, Patrick, you wanna come up and give us your thoughts and later we'll have a conversation and go to Q and A. Patrick. Well, thank you Jerry, I appreciate that for sure. And from someone else who's been there from the beginning, we fought many battles together so it's always fun to see you again. So property law on the blockchain. I've been thinking about this for a few years. I have a friend, Ryan Strauss, we've been batting these ideas around. He has some legal conspiracy theories that are always fun to listen to sometimes. One of them revolved around what are the property rights here? And when I was thinking about them, and I often do, I'll talk to some of the developers who are working on Bitcoin and the actual software and the code and ask them how does this thing actually work? And a lot of times I'll get back and I hear the same thing over and over. Bitcoin, a Bitcoin is like a bar of gold and when you transfer it, I melt the bar down and then I form it into a gold coin. And then I melt the coin down and I reform it into something else. And that makes me think of some of these old cases. And what's neat about the law is that you get to go back and talk about Bitcoin and at the same time canoes from the mid 1800s. That's a very property law thing to do. But it's true, so there's this case and they say if I take a tree off of somebody else's property and I don't own that tree and I convert that into a canoe, then that original article is destroyed. The property right, the title to the canoe is not colored by the previous ownership of the tree. That doesn't make sense. They're two completely different things. And so that doesn't mean I have no responsibility. I have responsibility to the owner who owned that tree as if I had burned that tree down. In other words, there are economic damages that flow, but the title that flows to that canoe is not colored by it. All right, so we're talking about Bitcoin and we're talking about the blockchain and the blockchain is a really cool thing. And Jerry alluded to this, that this money aspect is one aspect of it, but there are many others, right? It's like a Lego set. You can build lots of things with the blockchain and Bitcoin. You have distributed ledgers. Have you heard of these buzzwords before? Distributed ledgers, they're really cool, right? Blockchains, they're super cool, right? And smart contracts, like the coolest. And you use these elements and you can use them to create networks, networks that have value and scarce digital property and put them back together and do really neat things with them and create new marketplaces. I had to put this slide up because I really just want one of these Winklevye mini figurines, like that's fantastic. So I hope somebody makes that. But when we're gonna talk about this today, we're gonna talk about Bitcoin specifically because it's the most widely used application of those principles. And there's just the most research has been done in it and there's the most understanding of how it actually works. And it's out there in the real world, in the wild. And when you think about Bitcoin, let's think about how that was designed. What was it designed for? It was designed for a very specific purpose. It was designed as a transaction network that settles payment obligations like physical cash. And what I mean by physical cash is quickly, securely, and with finality. Now, is it exactly like cash? No, there's a little bit of difference there, but that's how the system was designed to replicate as closely as possible a gross settlement system like cash. And so this has led people in the legal space to have some assumptions about how this actually works. And this guides some of the thinking that Jerry brought up about the UCC and applying it to Bitcoin. One assumption is that there are discrete and identifiable coins that are transferred across the network from one account to another account. But there are actually coins there. Here's my coin, I'm gonna give it to Jerry. Jerry's gonna take that coin, he's gonna give it to somebody else. The other is that these coins are traceable. That you can see the coins move across a public ledger from transaction to transaction. That you can actually see, hey, that was Jerry's coin that's now my coin. So as we kind of think through these things, let's explore this deeply, how this actually works. Because I'd posit that those assumptions are wrong. That actually those things don't happen on the Bitcoin network and that it's misinformed a lot of the legal thinking as far as property law to date. So when you think about transactions, many of you may have seen this diagram. Transactions are traceable. They're very traceable across the blockchain. I can see one transaction to another transaction to another transaction. In fact, if you read in the white paper, a Bitcoin is described as a chain of digital signatures. It's all these signatures, all these transactions linked together. But coins, less so. So when we look at how a transaction happens in a little more detail, we see that what we're really doing is we're taking outputs from previous transactions and we're converting them to inputs into a new transaction. And a lot of the time, we're taking from multiple previous transactions. And so that makes the question, when I have a transaction like this, where I'm essentially taking 0.002 Bitcoin from one output and 0.008 Bitcoin from another output and I'm creating two new outputs, 1.003, 1.006, where did the 0.002 Bitcoin go? If I'm trying to trace coin in coin provenance and ownership of a coin, where did the 0.002 Bitcoin go? Did it go to the output that's 0.003? Did some of it go there? Did none of it go there? How much of it went to a minor fee? What you're not seeing here is these numbers don't add up, right? I've taken 10.01 Bitcoin in total and I'm outputting 0.09 Bitcoin. So where did the extra Bitcoin, 0.001 Bitcoin go? And that's the transaction fee. So how much of the 0.02 Bitcoin went to quote unquote minor who's processing this transaction as a fee? If we can't figure that out, then how can we say that these coins are actually traceable? We can trace transactions, but can we really trace coins? And if we can't really trace these coins, how can somebody come later and say that output contains my coins in any sort of way, except probabilistically, like there's a 40% chance. That's not really the basis for equity. Okay, and then so we've got how the transaction work. We can trace those. We kind of see how outputs are converted to inputs and how value is shifted from transaction to transaction. So how do I prove ownership? How do I say that those outputs are my outputs and not Jerry's outputs? What gives me the right? What allows me to assert dominion over those outputs, those coins that makes them mine? And so Bitcoin's really interesting because we're talking about smart contracts. It's all based on smart contracts. Every block contains a transaction and every transaction is really a smart contract. And it's a very simple contract. It's a non-revocable unilateral contract. And it says, okay, I'm going to take those outputs and I've got this little script, this little piece of software that's going to create a condition around those outputs. And that condition can be met in a number of ways or by a number of people or by a number of things, but only in one way, which is by providing the unlock script, the script sig. So you have this thing called the script pubkey and that's the lock. And the key to the lock is the script sig. And so when I'm thinking about how do I prove ownership of outputs, I'm thinking this is a unilateral contract that's non-revocable. And by meeting the terms of that agreement, I have asserted ownership over those Bitcoins. I've converted them into something new, some inputs that I can then use later. It's kind of like, does anybody know what this is? It's a tally stick. So you gotta go way back to think about tally sticks, right? But back in the day, when we used to record debts or when they recorded debts in common law England, right? You'd have these things called tally sticks. So you take a piece of wood and you notch it. And then after it was notched, you'd split it in two. And when you split it in two, the debtor took one and the lender took the other. And you knew that debts were being paid because you'd put them back together. And at no time could you take two separate sections of two different tally sticks, they wouldn't match. They wouldn't work right. And it's very much like how a Bitcoin transaction works. So you put it back together, you carve out a notch. You know that that part of the debt has been satisfied. You go about your way. There were secondary markets that developed around half of these tally sticks, of course, because that's what people do. They create markets and secondary markets and derivative markets and all sorts of crazy stuff. So it's much like that. It operates in a similar way, which takes us to this other kind of principle in law, that if something is so changed that you can't restore it to its previous state, then the owner has also tried to it. It's like the canoe. If I take a tree and make it a canoe, then the title has changed. So if we're thinking about all these different elements that leads us to another question, which is, okay, that sounds great, but then where do property rights attach in the system? Do I ever own any Bitcoins? Do I have any right to them? How does that work? And so I kind of put this together to just draw out a stack of like rights a little bit. And it's kind of clunky, but it gets us there a little bit. And we can think about, okay, you have these Bitcoins. The blockchain kind of manages them. And then you have this like governance by contract that sits on top of the blockchain. That's the script pub key and the SIG script. So where do rights attach? If I wanna take a security interest in a Bitcoin, where would my rights attach? Can I attach my rights to the Bitcoins? Can I attach my rights to the script pub key? Can I attach my rights to the SIG script? Where does that security interest attach? And then where do my rights and duties flow from there? It's an interesting question. And when I was thinking about this, I was talking to a friend and he mentioned, well, what if you just re-imagined Bitcoins as Bitcoin Inc? And that was a good point. If we stop thinking about this as like esoteric software and we just say, okay, well, there's Bitcoin Inc, and Bitcoin Inc has something of abstract value. It has a ledger and it says, this is what something is worth and these are the participants in the system and things like that. And then it creates rules around transfer of those things. And it says, here's how you can transfer those rights that I have on my ledger. What would that be? If we had a Bitcoin Inc, it would look like that. It'd be a stock certificate. I bet that Napster stock is pretty volatile, by the way. It would look a lot like that, I think. It'd be a stock certificate issued by Bitcoin Inc. The people can then, they can use it. Samir has a stock in Bitcoin Inc. He redeems it. And then the Bitcoin Inc issues new stock to me, right? And I have a different certificate that's mine now, right? So what are the legal implications of that? Well, usually when you think about investment securities and things like that, Mr. Rogers makes a good point here, like say Mr. Rogers, that it's not negotiability that protects subsequent purchasers. It's the idea that the rights between the seller and the buyer are established such that the owner's claim after the purchaser walks away or somebody walks away with a stock certificate are terminated and transformed into a claim against the issuer for wrongful transfer. So if Bitcoin Inc, if Samir transfers to me but he meant to transfer to Jerry, and he has a grievance, he doesn't take that up with me, he doesn't take it up with Jerry, he takes it up with Bitcoin Inc and says you've transferred to the wrong person, make me whole. Now how does that apply in a system where Bitcoin Inc is an algorithm? Or it's a piece of software? Well, that's what makes life interesting, I think. But when we think about how that plays out as we're thinking through, okay, how does that apply to a piece of software when Bitcoin Inc isn't a real Inc and it's a piece of software instead, we have to keep in mind certain fundamentals, right? One fundamental is that the script pub key and the SIG script are a unique combination that form the basis of every Bitcoin transaction. Every transaction is unique. No two are the same. The second is, while transactions are traceable, the coins attached to those transactions are not traceable, right? You can never with certainty know that those coins went to another except in some rare cases, right? So then it leaves us a series of questions that maybe we can talk about, right? What property right can one claim in a blockchain asset in the first place? So going back to that stack. Where do these rights attach and when? And by what means can I enforce my rights and against whom? I think those are the three fundamental property questions that are before us right now and if we keep those fundamentals in mind, I think we'll be able to answer them in a way that is satisfactory to participants throughout the system. Thank you very much. Thank you, Patrick. Thank you, Patrick. Do you wanna join me over in the fun chairs? So we dove in really deep to the deep end of the legal pool right away. I think it might be helpful to sort of lay out what are the practical implications of this? Why does it matter? Can you give us a practical example of where this confusion would matter to somebody? What's the case? So if I'm lending a Bitcoin mining company money to help them facilitate their operations, I will want to take a security interest in something that company has to secure my loan and to make sure that I'm paid back in full. So when I'm taking that security interest, what are the ways that I can do it? I could just write, I take an interest in your Bitcoins and that has happened. But what does that mean? If you actually tried to go to court and force that right to the Bitcoins, especially if they've been spent, who do I apply that right to? Do I have any right at all? Do I have nothing? Did I take in a security interest in air? And I think those are the questions that practically need to be answered because there will be businesses and people who are using this who need financing and who want to give some security to their lenders and we need to figure out a way to construct those agreements so that people understand exactly what their rights are and what their duties are to other people. I think maybe even more practically, you have a situation where maybe you exchange some dollars for Bitcoins at Mt. Gox, which is an early exchange and that exchange collapses. Those Bitcoins have moved. We can see those transactions where they move from the exchange to some other addresses. We don't know really who did that. Police are still investigating. Who do you have a right? Who do you have a claim against? Do you have a claim against the current possessor? You're saying no. I think the answer is clearly no, that you don't. And I think the law supports that too. Because you're not tracing the coins and because the transactions are unique, the title to those Bitcoins is not collared by some prior ownership because you could never fully establish that in the first place. But you do have an economic harm. They were stolen, something was stolen from you and it caused you economic harm and you do have a claim of economic harm against both the exchange that let them go and the thief who stole them. And so just to be clear, it's not that the interpretation of the law is maybe correct, but we need to change it, is that you can't possibly interpret UCC article nine this way. Yes, that's right. That's correct. Well, I'm sure people will interpret it however they want to interpret it, but I would say that I think you have a fantastic argument that that is the case. Okay, so going to the questions that you were asking, when does the property right attach? Yeah, so I think this is really an interesting question and I think it's, I don't think that I have a clear definitive answer on that or anybody does, but to me, it seems like if we're dealing with these contracts, stock certificates, whatever you want to call them, that potentially the right attaches at the script say, that that's the thing that you're using to prove dominion and ownership over those coins, over those outputs. And so that's where the rights attach. So if I took right, if you wanted to give me a security interest, I would want to assert my right against that and I would probably want joint possession of that as well through some sort of- How do you accomplish that? Yeah, so technically you can accomplish it through a multi-signature arrangement where you can split that key up, that secret up into multiple components where I hold part of it, you hold part of it, and hopefully we can come to a contractual agreement and the security agreement is designed in a way that there's a third party who can mediate if there's a dispute between us with the third key. So I think I want to get to how big a deal is this because some people in the commentary that I've read who are making the case that the entire system is completely flawed, sort of views pretty apocalyptic. And I see some merit to their argument. If you see article nine is held to apply the way they think it is, it does pose a problem. But how big a deal is it? Because it seems to me that a court looking at this, looking at the equities would not rule in a way that would destroy this amazing new technology that's been created or the value in that technology. Yeah, yeah, I think I agree with you on that. But if you're gonna have a flaw, it might as well be fatal, right? So I don't think it's a fatal flaw, even if it were held that my interpretation is completely off base here. But for many reasons, including that, I don't think a court measuring the equities would do that. Also, I think it's very limited in application and reality. Like how many of these cases will actually come up? And in which cases could you actually prove that, again, that those coins were sufficiently yours to merit some sort of judicial intervention or a lien or a security interest going forward? Suppose a court was sort of could see it either way. And I think imagine at that point they would look at, well, what are the policy interests here, what analysis would they do and how would they balance those interests? Yeah, so I think that the interest at balance here would be your creditor, right? To making sure that if you create a security interest that creditors are made whole, right? That people live up to their obligations and their contracts in principle. The other balancing, the thing that would counterbalance that would be the idea of reducing information costs in marketplaces. The idea that having title that passes with certainty where you don't have to know a lot of information or dig into a lot of information that's maybe not native to the system, reducing those costs makes markets function smoother. It increases value for everybody and it generally creates more public good. So balancing the two, my guess is they would come out in favor of saying reducing information costs, having some certainty of title passing between people is more equitable than protecting one creditor's possible harm, especially when they have economic redress. Could the court avoid all of this by simply looking at Bitcoin and treating it like cash, treating it like money? Because money is, title does sort of stop at that point. It is sort of the elephant in the room, right? When we think about this, when we describe the system and we do a lot of legal gymnastics to think about what it really is when we could just say, well, it kind of looks like money, right? I have a dollar bill, right? The value of that paper is not a dollar, but yet we treat it as though the value is a dollar because there's some abstract value there. And when that dollar bill is stolen from me, right? Or if somebody puts a lien on my dollar bill, they don't put a lien on the dollar bill, right? Because the actual paper itself is unimportant. It's uninteresting. It's the abstract value that people want to lien against. And there's also sort of a policy rationale why you wouldn't do that, because otherwise, cash would be fatally flawed as a system. Cash would be fatally flawed as a system. And because of that, there's a long line of jurisprudence that says it's the currency of the thing, right? That the abstract value is not subject to the same sorts of property, personal property laws that, say, trees are, that we treat it differently. And that's been actually codified in the UCC and other places as well. So the pragmatic answer to your question would be a quote we just looked to the UCC statute and say, well, money's carved out, so we don't deal with that stuff, right? So you think a court might call it money someday? Well, they can't call it money under the UCC definition. Why not? It's just a very clear definition. I have it right here. Great. The UCC definition is a medium of exchange currently authorized or adopted by domestic or foreign governments. I would just point out that the Uniform Law Commission, which writes the UCC, is currently looking at developing a model statute for digital currency technologies, which might be interpreted, if adopted, to authorize digital currencies. And I think that's a great venue to start pushing and saying, just built in suspenders, let's put a, let's alter this definition, or let's create a definition for digital assets, scarce digital assets, or something to move the ball forward in the statutory language. At the same time, getting 50 states to pass a Uniform Law is not trivial. And maybe it's like, what, six months? Nine months process? Yeah, you only need one state, though, to have it be authorized by state. But let me ask you this, where it stops looking like money, though, is, as I was saying before, the moment you start using it as something beyond just a cash settlement system. When you begin to say, this 100 millionth of a Bitcoin, this Satoshi, represents this car, this house, how does that complicate matters? Well, in some ways, it proves the point a little bit. Because you're sitting, as you think about that, is it the one Satoshi of Bitcoin value that is of interest in putting a lien on? Or is it the car that's being represented by this system, by the Satoshi? And clearly, where you want your lien to attach it, that circumstance would be the car. But it would be pretty, it would be a funny instance if your car, you suddenly lost possession to it because somebody had a lien on a Satoshi. What if you could only turn on the car ignition with access to the Satoshi? The cryptograph, what is it called, the six script? Yeah. Is what turns the ignition on the car? Yeah. Yeah. It's not by signing a transaction, but not spending. And that enables you to prove ownership of the asset and then make the car run. Yeah. I mean, let's do that. There are a lot of things that are very forward-looking as we think about these things. But that's a method of proving ownership just on the blockchain. Again, it's a similar construct with just different elements of property. And that's why it's important that we think about these issues and get them right now. Because that's the stuff that potentially is coming. All right, we'll open it to the audience. If anybody has any questions. All right. Should I say my name for the record? Please. Yeah. Vivek Krishnamurti, Breffman Center. So I'd like to make a controversial proposition, which is that Bitcoin and blockchains are uniquely unsuited to being currency, i.e. they're not good mediums of exchange or stores of value. But it seems to me, and we talked about this at the Festival of Ideas, that the best use case for something like a blockchain technology is actually as a Torren's title system. Why did you set up a blockchain that had all the property in the United States? And you had a verifiable architecture for passing title, either entirely or fractional interests in a real world asset. It seems like a lot of the esoteric UCC Article 9 problems that we were discussing is because you're trying to treat something that we view as currency as a tangible physical asset and to create this interlinking between the two of them that doesn't really make sense. Because we use currency to denominate the value of things in the real world to facilitate exchange. And to say that, OK, because the car is worth one Satoshi today, that somehow encumbers the car or the Bitcoin, or who knows what, loads too much into the system, leaving aside the deflationary aspects of Bitcoin, which I think make it a really bad currency. But why don't we just take the technology and apply it to me? It's a limited universe of items. So it looks like stocks. It looks like title. It looks like the stock of cars in the United States. So I'm going to take a part of that and cover as much of it as I can. If we want to design a new blockchain, and we wanted it to be a title system for cars, and that's a reasonable thing to say. The Bitcoin is good for transferring bitcoins. So let's make a blockchain that's good for transferring title to cars or on mocking cars. And that's something that people are thinking about now. I think fundamentally, you have to look deeply into how you're structuring those transactions. And you have to do the analysis that we're doing right now with Bitcoin to make sure that you are passing title the way you expect to pass it. And if there are encumbrances, you're making them visible. You might design a blockchain in a slightly different way to handle those cases. Or you would layer some of that information on top of what's existing as the Bitcoin network for making the transfers happen. Because Bitcoin is good for transferring assets and settling them. And it doesn't have the additional information that you're talking about. So the idea of adding a data layer that sits on top of the Bitcoin blockchain that contains much of that data, that's something that is actually in development that people are working on right now. To fill the gaps on the information that's necessary to make those transactions happen in a practical way for other types of assets. Other questions? And Bitcoin's a great currency to run. Other questions? Come on, right here. Hey there, Jeff Godel. A question for you on this concept of what happens when the Bitcoin gets created and gets transferred. It seems that there is an issue of trust with respect to the non-repudiability of someone on one side being able to make the same kinds of signatures and transactions as the someone on the other side. Which would seem to lend itself by analogy to banks in the world of money to some kind of escrow. So if you wanted to give me bitcoins for something, we would need to go through some mutually trusted or some partially trusted third party who ultimately I would have a relationship with such that I could have claims on it, right? Now when I think about that with respect to assets, I mean, if I were to put my money with say MF Global and they were to spend my money on something else, I mean, there are real cases in the world where this is a problem with money as it is. It would seem that Bitcoin can't solve all of these problems. So where do we draw the line as to what kinds of analogies to the existing systems that makes the most sense? Right. And so we're clearly working with white space here a little bit, right? So we try and make analogies to wrap our minds around it, but there is a lot of white space here too. Bitcoin can't solve every problem, right? It can solve counterparty risk as it relates to transferring the Bitcoin asset from the actual tokens from me to you. But if we're going to layer other things on top, then you'll have to design systems that are either trusted and incorporate that trust back in or create another layer of trustless system. There's no way around that for sure. So if I wanted to take, again, create a separate contractual right on top of my existing contractual rights on the blockchain, like with security interests, things like that, then we'll either have to get into a situation where we create trust through contractual agreements. The traditional legal system, believe it or not, lawyers aren't being eaten by software, maybe, or we'll have to build other trustless systems on top. Yeah. Other questions? Over here, okay. Hey, Chris Crawford, I'm a law student. This might be slightly a field, but could you talk about how my property right in a Bitcoin might be impacted by a subsequent legal determination on the validity? So let's say that I have come into position of some Bitcoins that turns out were involved in money laundering or something of that, of the sort. Do you have any comment on that? I mean, it all plays back into the same concept, right? If those coins, if there are coins and they are traceable, right? So the same coins that were involved in this criminal activity six steps ago are the same coins that you have now, then that creates a problem with title, potentially, right? Now, when we look at it, those really aren't the same things, right? You have something that's different from that thing. And so the harm that happened then is captured there. Now, if you know of a crime, you should report it because that's just what you should do. Patrick, is there any other example where we have something similar to this where we've seen sort of, you can see the transactions, but there's no actual underlying that we can point to? I mean, all of intellectual property sort of operates this way. If I'm going to patent a formula or something like that, there's always this notion of abstract systems, right? But even just your simple checking account sort of operates like this. The only difference is that there's less transparency to you, but for the bank, there's lots of transparency in all the transactions. There just happens to be a Bitcoin ink at the bottom of it. So the ledger that the bank is keeping is just as abstract as these notions of coins. And we don't think about putting, attaching certain clouding title to your ability to withdraw money from the bank because that notional entry in a ledger somewhere may have been colored somehow. So that's one way of thinking about it. Of course, stock markets are a way of thinking about it. Any sort of commodities markets function in a way. The difference here is these are much more transparent marketplaces than what you see in the traditional sector. Maybe things like oil, right? So do you have a property title over a particular sort of barrel of oil? And if that gets commingled? Yeah, or grain that goes into the grain silo, right? Once you have commingled goods, there's a question of, you know, the UCC actually has a provision for commingled goods, but not commingled personal property or general intangibles. And so there's some case law, but of course if the goods are commingled, it goes back to the trees and the canoes and those types of things. If you can't tell that this grain was your grain, then how can you assert some sort of claim of title or ownership or lien against that? The other one that comes to mind, and again it's because of the background in telecom is, electromagnetic spectrum, right? There's this common resource that's out there called spectrum and nobody owns it. I can't take a lien against Verizon's block of spectrum, right? I can't perfect a security interest in it either, but I couldn't potentially, if the FTC will let me, which is questionable, perfect a security interest in the license that they have to use that spectrum, right? And to me, that in some ways is very analogous to what's going on here as well. Yeah, I was wondering, what are your thoughts on who or what would assume liability if the Bitcoin system itself breaks? Like, someone breaks a cryptography or they discover that there's some flaw in it and anyone can manufacture the signature part at their will. I guess that's sort of like saying, who's liable when the Colorado River dries up, right? You have this resource that's common, and nobody really controls it. It's kind of sounds weird to say that the blockchain is a natural resource, but in a way it sort of acts that way. quasi-natural resource, maybe. If the Colorado River dries up, who's responsible? I mean, potentially if somebody broke it, right? If somebody upstream diverted all of the water of the Colorado River to their almond farm, then you might have a cause of action there against that person. But if it just broke because it naturally happened, then if the river dried up because it evaporated, then you don't really have a claim against a person because it was an act of nature. Patrick, in your talk, you said that you can't trace coins, you can only trace transactions, except in rare circumstances. So is there an exception that proves a rule? Yeah, I mean the rare circumstance would be if say, and I don't want to get into mining and coin-based transactions, we're already deep enough down the rabbit hole, but if I have a transaction that has a single input and a single output to another address, then potentially you could say, well, all of the coins went from this output to this new input to that output, right? There are no other outputs being mixed in there. So for that small section of a transaction, you can say, with fair certainty that- How rare are those, is that? It doesn't happen, most wallets, the big software that actually controls your keys and all those things when they select the UTXOs, the unspent transactions, don't usually use whole amounts and then send it in whole amounts. How often do you send 10 whole Bitcoin from one address to another? It's usually you're splitting things up, you're creating change, you're doing other things. Have a question here. Matt Zagaya here at the Berkman Center. Patrick, I was just curious, since we spent a lot of time kind of wondering about, I guess, the essence or soul of the Bitcoin and how it transfers and the probabilistic, is there something qualitatively special about one specific Bitcoin that might be a reason you might want it over a different Bitcoin, or are they all kind of pretty much the same? It is, that's a really good question and it kind of gets to some of the stuff Jerry was talking about too a little bit. So in pure blockchain terms, as far as the Bitcoin network is concerned? No, right, except again rare cases of Coinbase transactions or some Bitcoins or a lot of stuff that too far down the rabbit hole. No, is the answer. Now, if we go a layer up and we've attached the deed to a car and somehow hashed some proof of ownership of that into a coin and that started getting transferred around, then yeah, that coin has a different value. On the blockchain network, it's exactly the same. In reality, where we live, you would say that's my car. And so it would have a different value to you. Patrick, just to follow that thought, you keep mentioning Coinbase transactions and I know you don't want to go too deep into the rabbit hole. But aren't sort of virgin coins that are brand new? Aren't those maybe valued more by some people? Right, and so when I say Coinbase transactions, I'm not talking about the company and using their services, although I'm sure they're wonderful. I mean, when a block on the Bitcoin network is created by the people who are validating the transactions, they're paid a fee from the people using it and also they're subsidized by what's called a block reward. They can, a new Bitcoin are issued to that transaction validator and it's called a Coinbase transaction. So they create the block and it's full of all the transactions that happens plus one little transaction at the bottom that says, and I'm getting 25 Bitcoin for me. Thank you very much, right? And that's how the rewards work on the Bitcoin network to make sure that everything is processed. So those transactions called virgin coins because they've never been touched before. They're locked up for a small amount of time before they can be spent. When they're spent in the marketplace, it's actually interesting. Those generally are more highly valued because you're certain of title, right? The idea being those are clear title, Bitcoins, right? So if I buy them, they're worth more than a Bitcoin that's been transacted a million times over. I actually think the market's backwards. If I were gonna go buy a Bitcoin in a peer-to-peer transaction, I'd want one that's really mixed up, right? Because that's actually the clearest title I can get. Those virgin coins, they might be encumbered by somebody who has a lien on the miner's equipment and the miner and that kind of thing. Those are the ones that might be more encumbered. So I think the market is actually backwards in terms of how it's valuing these Bitcoins and transactions. Okay, I think there's a question over here. Hi, I'm Ariel Eckblatt from the Media Lab. How do you think about the stability of property when your ability to execute a transaction in regards to your property that's encoded on the blockchain depends on your trust that a miner will actually validate and include that transaction in a block? And you could say you think that there'd always be at least one miner that would include that transaction for you until you think about the fact that in 2016, the block reward will have, and so there's a lot of expectation of weird miner behavior happening when they get half the reward for mining. And then once 21 million Bitcoin are in circulation and they're only getting transaction fees, again, you have to worry about the unpredictability of their behavior. So what do you think about the stability of property when you're depending on that? Yeah, so we're talking about miners, we're talking about those transaction validators on the network. And this is a really interesting topic. This is like another presentation, right? The rights and duties between miners and participants on the network, right? And it's a big topic and it's really interesting and it's not something that's just going to happen when halving occurs. It already happened. Some transactions are censored, right? Some miners have policies that say we won't process certain types of transactions, right? And I think the solution to that is that miners need to be blind, potentially dumb, right? The idea that it sort of gets back to, again, to think telecom terms like common carrier, right? Like you're providing a neutral service and should miners have the ability to discriminate against traffic? And if so, on what basis? On a fee basis, you can make the argument that makes sense. But on a I don't like these types of transactions basis, that seems to be one outside the ethos of the Bitcoin ecosystem in general and harmful to the marketplace. But again, that's a long conversation that we could have about that. Thanks. Is there a question here? Mary Gray, I'm a Berkman fellow. I still struggle with the bigger question of what's the problem this is trying to solve. I'll just set that up there. I have a little existential crisis about that. But this last thread of questioning really brings up. For me, it seems like there's a set of assumptions. I feel like minor is such an unfortunate term. I agree. But there is an assumption there that computational power is just kind of there. And it's equally distributed, that we don't have a pretty severe digital divide, that there's going to be equitable access to this peer exchange. So can you just talk about if there's been a conversation about the assumptions that are there, that there really is an equitable network and everybody could participate if they wanted to, that we all are sitting with that kind of computational power and network connectivity that we know doesn't exist. Yeah, and so you've touched on, I think, the heart of an issue that is, I want to say, like, holy war territory in some of the development circles. But basically that is one of the issues, right? What kind of computing power should you be required to have to be a full participant on the network? And how can we keep that low enough so that Bitcoin is open access for everybody, so that anybody can access the network and participate fully? And I don't think there's a real answer to that. I think that's always, there's a range of options, right? Because at the same time, if you limit the compute power, then the system doesn't scale as fast as some people would like. But it is kind of holy war territory there. The point of Bitcoin, though, like getting back to your existential question. For me, when you think about Bitcoin, blockchains, any of these things, why I do this, these questions are fun. But it's because I see that somebody, some group of people, has created a system that actually works, that provides everybody open access to a global financial system that's never existed before. And it's pretty revolutionary. Think about it. It creates a right for people that they haven't had before, a right to access to financial system, to a global financial system, to financial services in general. And so to me, what's happened is we've created this opportunity in it. I think it's a unique opportunity in history to move people who are trapped in local cash based informal economies and help them transition themselves to a globally connected digital economy. And that will only happen if we preserve open access to the system and equitable participation. Any question over here? Samer Hassan from Bergman. I would like to know your take on coloring the coins. I mean, to improve debtor's ability, there is proposals of coloring certain coins to know if they come from money laundering or not. Oh, tainting. Neat, yes. And but you could have different types of colors, have more control to trace. Yeah. Red coins versus black coins. Red coins versus black coins. So when I think of coin tainting, I think of pseudoscience. Because that's what it is. It's this idea that, well, there's a 40% probability that some of the coins I held in this address might have been involved in something bad at some point. Well, you haven't really said anything. And I don't think that we really want to live in a world where we're saying that there's a 40% chance that maybe something bad might have happened with something you might have now that you had nothing to do with. Or you should pay a price. We don't need to shift the harm from one victim to another and create new victims in the process. Just because somebody's coins were stolen 20 transactions ago, that there's some loose connection there maybe. But therefore, we'll create a new victim over here just because it's convenient based on weird probabilistic scoring that, again, is pseudoscience. Today, I know that I've seen on Block Explorers that you can see the taint of a particular set of amount of. Where, what is the database of past harms? Who keeps that? And where is that? Who decides why that would be tainted in the first place? I'm seriously asking, do you know how that's determined? I don't pay much attention to taint because I don't think it's that useful. Question over here. Colored coins is different, though, I should mention. Colored coins is a whole different type of thing, which is useful, not pseudoscience. I saw 10 of them. First, I think there's this sort of lack of creativity about owning certain bitcoins. I mean, these are really large numbers and you could see if this becomes ubiquitous, people looking for patterns in the numbers and thinking that some bitcoins are more valuable or have some magical properties because that's what human beings try to do. But I'd like to sort of push back on the open access issue a bit. On the one hand, you started an analogy of Bitcoin and the blockchain being the Colorado River a force of nature that human beings don't really have control or there's no traceability of why did the Colorado River go dry? On the other hand, you're trying to, when you talk about open access, make sure the river's always running and that water is provided equitably to everybody. Where is that dividing line? And how do you actually push on the blockchain Bitcoin ecosystem to make sure there is actual open access? Yeah, so when I say open access, I mean, anybody in the world can connect a computer to the Bitcoin network and participate. I don't mean equitable distribution of all the bitcoins. So the market is there to establish who has what in terms of the resources that are available on the blockchain. And yeah, and so making sure that everybody has access to be able to go to the beach on the river and kayak or do whatever they want is different than saying everybody gets a bucket of water. And I'm not saying that everybody gets a bucket of water, but you don't need a bucket of water to make the Bitcoin system useful when you start layering other things on top, which are interesting. Patrick, I think folks in the Bitcoin ecosystem are very proud of the fact that it's sort of a self contained system that's self executing. The moment you introduce mining neutrality where miners are gonna be held to a different standard, you introduce some kind of external regulation. Is that, is there a contradiction there or a question? I think that will be determined by the miners, the miners. Again, I agree it's an unfortunate term. I think that'll be determined by the miners and how they act, right? Whether they will bring regulation upon themselves or not. And this isn't me saying this is what I want or don't want. I think just as a realist, I think this is what will happen or not happen. If the system is self correcting and keeps miners honest and processing transactions for the benefit of everybody, I don't think you'll see a big regulatory push. If miners start deciding, hey, we're gonna censor these types of transactions that I think opens the door to saying, well, why don't you censor those types of transactions which the public finds not useful or beneficial? I don't think that's a door that people wanna open. Okay, a question over here. I'm Lana, I'm a Berkman Fellow. This is sort of a provocation. Can you make a strong analytical distinction between, okay, so if the kind of interest that you have in Bitcoin is to kind of provide a public good and provide for the public interest in payments and in interacting in an economy globally, can you make a strong analytical distinction between the efforts you see coming through Bitcoin towards that end and efforts that have long been administered by say the Federal Reserve's payments department and more generally the Federal Reserve to say in the 19th century ensure that money didn't pool in certain urban centers and could be pushed to the hinterlands or more recently ensure that the ATMs were functioning the day after September 11th when an I-beam cut through most of the exchanges that would have allowed that to happen. And so just can you elaborate a little bit more on the statutory and also political distinction that arises from who provides the public interest in payments? Just a small question. Generally speaking, I don't spend a lot of time thinking about the political dimension of this. I'm not like an anarchist or a libertarian even. I know it's like blasphemous to say that. So I don't spend a lot of time thinking about the political dimension other than the things that I particularly care about like the open access piece and ensuring that that actually comes to fruition. Will Bitcoin and our algorithmic overlords take over the whole world and the payment system probably not, right? I think that it's again, it's white space. It's over here. There's a traditional system that serves a group of people pretty well right now. And I don't think it's going to be magically displaced by some new technology that's coming in called Bitcoin with its own political agenda. I think that Bitcoin will exist over here in a separate space and it'll serve a different set of people with a different set of needs. And if I could help answer it a little bit. I think those other attempts are permissions and Bitcoin's permissionals. And so that creates different kinds of opportunities. And I think there's a question right here. Yeah, I can ask you to clarify. Thank you. I'm going to ask you to clarify a little bit about what you meant by open access. Do you mean the ability of anyone to go and open a Bitcoin node and have a copy of the blockchain like enough space on their computer just to have a copy? Or do you mean enough access to actually be a miner or to be an effective miner in a pool? I mean, to me participating on the network does not necessarily mean mining but it does mean running a fully validating node, right? So having been able to connect to the network, download a full copy of the blockchain and know that when you send a transaction, you can verify the security of that transaction for yourself. I think we have time for one more question. One more. Or not. OK. Can you describe that permissioning difference in terms of constitutional law? No, because I'm not a constitutional law scholar. You don't have to give her the mic. But just from a technological or just structural way of looking at it, these different systems that the Fed have created or that different companies create require permission of a central entity or a central consortium to have access to them. And then what are the equities about whether you get access or not? I don't know. With Bitcoin, they're really, at this moment anyway, structurally anybody can participate without asking for permission. So it sort of avoids that question. But Patrick's bringing up some interesting possibilities. So with that, let's thank Patrick for this wonderful discussion. Thanks for coming. Thanks, man.