 Good evening everyone. Thank you for coming. Welcome It's really a pleasure to be back here at plug-and-play Silicon Valley. I Believe this is my fourth or fifth presentation for this particular meetup Which keeps getting bigger and bigger every time every time I come more members How many of you RSVP'd for this meetup? Okay, a few people just showed up. I have some Some good news and some bad news some good news is if you just showed up you're welcome The bad news is that I drew Names from the RSVP list to give out ten copies of my new book the Internet of Money Oh, you brought it Three funds and returns So at the end of the show, I'll give out Ten copies if you're not particularly interested or you already have a copy Just let me know and I'll just call the next name in the lot if you're not here You can't get the book. So please stay until the end even if it's very boring Okay, so how many people here have been Fantastic and How many people do not yet have a Bitcoin and the difference is the people too shy to raise their hand. Okay, great The four or five people who raised their hands who said they don't yet have Bitcoin Remember the faces of the people who do have Bitcoin and do not leave here tonight Without getting them to give you some free Bitcoin and if they want I will the whole point of this is to Help you install a wallet Receive a small amount of Bitcoin so you can do some transactions and try it out for yourselves And it's always fun the first time you experience a Bitcoin transaction will be memorable All right, the topic of today's talk is proof of work and the monuments of immutability. I want to talk specifically about Immutability and what that means is this new Era of digital currencies what it means to have a digital system that is unchanging Immutability is a tricky concept First of all because it doesn't really exist Right everything changes. There is no thing in nature that is forever unchangeable the universe itself the vacuum Particles everything changes nothing is immutable So mutability is really more of a philosophical idea, but we use it in practical terms So what do we mean when we say immutable in practical terms? the way I like to think of it is if you have a scale of Something that's very easy to change all the way to the hardest thing you can possibly find to change the most Unchangeable thing the thing that is most difficult to change in Utability is that side of the scale right, so for practical purposes We'll define immutability in any sense to be the maximum of that scale of How hard it is to change something and on January 3rd 2009 that scale expanded significantly and A new maximum was defined a new maximum in terms of what it means to be immutable for a digital system Nothing is as immutable as Bitcoin so Bitcoin defines the end of that scale at the moment and So it redefines the term immutable Now that has some interesting implications including that You can't call the things to the left of that immutable You can't call them immutable wish You can't call them kind of immutable right immutable ish is like pregnant ish Right, it only makes sense as the maximum value Not the maximum minus one So immutable when once it's redefined the things below it can't be called immutable anymore And so why is Bitcoin immutable what gives The Bitcoin blockchain the characteristics of immutability. What is it that makes it unchangeable and The first answer that most people go for is the blockchain The blockchain makes Bitcoin immutable because every block depends on its predecessor Creating an unbreakable chain back to the Genesis block and therefore if you change something it would be noticed Therefore, it's unchangeable And that is the wrong answer Because it's not really the blockchain that gives Bitcoin its immutability And that's a really important nuance to understand The blockchain makes sure that you can't change something without anyone noticing and In security we call that tamper evidence Meaning that if you change it, it is evident you cannot temper it without evidence of your temper temper evidence But there's a highest standard in security what we call temper proof Temper proof is something that cannot be tempered with Not just will be visible if it's tampered with but cannot be tampered with immutable and The characteristic that gives Bitcoin its tamper proof capability is not the blockchain. It's proof of work Proof of work is what makes Bitcoin fundamentally immutable And that is a really important concept to understand because a lot of people are throwing around words like blockchain and Claiming that these things are immutable Even though they don't have a proof-of-work consensus algorithm or any kind of consensus algorithm that gives them immutability at best They offer a tamper evidence Meaning someone will notice but they are not unchangeable this distinction is Going to become historically important now you may think historically important. That's a pretty heavy term Why is it going to be historically important? Because if Bitcoin continues to work the way it's working today We are introducing a new concept Which is a form of digital history that is forever And if that history last ten years That's impressive if it lasts a hundred that's astonishing if it lasts a thousand thousand years It becomes an enduring monument of immutability an edifice of immutability a system of forever history unshakable history and that is truly a Monument of our civilization and we have to consider the possibility that that will happen I use the word monument, and I want to expand a tiny bit on that to talk about proof-of-work Proof-of-work was not invented by Satoshi Nakamoto You can see evidence of proof-of-work systems throughout human civilization There is some big pointy proof-of-work in Cairo the pyramids There is some big stone proof-of-work in Paris the cathedral of Notre Dame in Fact proof-of-work is something that our civilization does quite often. Let's think about that for a second The pyramids serve two purposes the minor purpose is as a religious artifact and To for the king But the even more interesting purpose is a declaration to every civilization and every human that sees it behold This is the measure of The Egyptian civilization. This is what we can build This is proof of work You cannot build this on the cheap you cannot build this in an order in a Civilization that doesn't have abundant resources. You cannot build this unless you can feed 20,000 people to not do anything but this you cannot build this unless you can guard it with soldiers You cannot build this unless you commit resources for decades or centuries This cannot be built cheap and the pyramids stand today as a testament of proof-of-work for the Egyptian civilization and anyone Without even understanding what this thing is Riding up in the desert on a camel going over that hill and seeing a stone monument That's a few hundred feet in the air looks at that and goes Wow And wow is an expression of believing the proof-of-work Right because they immediately and intuitively understand Something great to build that and there is no cheap way to do it The Cathedral of Notre Dame is the same thing Marshaling thousands of stone masons over hundreds of years to build a monument to the church a Monument of religion that made people stand in such awe that they could only even give it divine origin They couldn't believe that only a religious order could do something like that It says behold to the church what we can do That kind of Open expenditure of resources to make a point is proof-of-work and we see this again and again in civilization But until now we've only seen it in local environments for a specific country organization or civilization Bitcoin is the first planetary scale digital monument of proof-of-work and to those who come later We will be able to say Behold this monument of immutability built over decades Marvel at its function as well as its elegance Because it has function unlike the pyramids and the cathedrals It serves a purpose a practical purpose And that practical purpose is to become a record of history forever to become the definitive and authoritative source that cannot be modified the record of truth that cannot lie and Once a transaction is embedded into the blockchain The Bitcoin blockchain and secured by proof-of-work It becomes incredibly difficult to change This is a thing that most people don't understand So let's break it down a tiny bit and look at some of the technicals behind it But Andreas what if 51% of the miners decide to change it What if there's a consensus attack What if a well-funded government invests heavily in hashing equipment in order to go back and Change the blockchain So one of the interesting things you have to understand is the difference between changing the past and changing the future The consensus algorithm as it is determines the future of the blockchain if you have a majority of the hashing power on the Bitcoin blockchain you can Decide what gets recorded in the future But you can't so easily change the past And the reason you can't change the past is because every node out there is going to still validate every block and Is going to demand proof-of-work? That block still has to carry proof-of-work and there is only one way that proof-of-work can be generated You have to commit energy resources to a particular block When you read all of these articles in the media they say about how wasteful Bitcoin is because Bitcoin is created by burning energy They are completely missing the point mining doesn't Work to create Bitcoin That is not the purpose of mining Mining is not used to create Bitcoin. That is a side effect and The way I can prove to you it's a side effect is that one day there will be no Bitcoin No new Bitcoin guess what there will still be mining Even after the last Satoshi is mined Mining continues. It must continue because its purpose is not to create Bitcoin Its purpose is to provide security Its purpose is to provide validation of all of the transactions and blocks according to the consensus rules that is the purpose of mining and Generating Bitcoin is the side effect that serves as the mechanism of reward that Creates game theory incentives to make sure that the validation is done, right? Once you understand that and you realize what we're paying for is security it changes the perspective slightly But it's much deeper than that You see a Lot of different consensus algorithms have been proposed proof of stake is one of them and Many of these algorithms use the native asset to stake Into the the mining algorithm into the consensus algorithm meaning I'm going to commit x amount of my currency in Validating the next block and if I fail to validate it correctly, I lose that currency Right, but if I validate it correctly, I gain a small fee and here's the news proof of work is also proof of stake But proof of stake is not also proof of work Let me explain that to you for a second because this is a really important point When miners commit to a specific block, they're creating a candidate block They're stuffing in all of your transactions into that block after carefully validating them And then they take that block and they commit to it By hashing against it by doing the proof of work mining algorithm Essentially what they're doing is they're saying I'm going to stake $1,000 worth of electricity or $10,000 worth of electricity Behind the security work. I have done and if I haven't done it, right? I lose my electricity stake So proof of work is proof of stake because what you're staking is the energy investment committed behind the specific block That you're saying I have validated correctly and to prove that I have validated correctly I am staking an enormous amount of electricity behind that electricity that costs money But it's different from proof of stake algorithms in other currencies Other digital currencies and the reason is that what you're staking is not a native asset It's not something that is intrinsic to the chain whose value in future is determined by the chain What you're staking is something extrinsic to the system You're staking energy. You're staking something that has universal value on this planet The value of the currency tomorrow may be nothing in which case the value of the stake you made is nothing But the value of the electricity today tomorrow and into the foreseeable future is something and That means that when you're staking electricity, you're staking something that has a value throughout our planet proof of work Is a lot deeper than we initially realize? Let's take questions at the end So what if the miners decide to do a 51% attack to rewrite the past? Instead of starting from the current block and changing the rules into the future They can start from a previous block and mine for And if they have 51% of the hashing power, they will eventually Reach the current block and the minority chain and exceed it. They will win the race eventually So then the question is how long do they have to sustain it? Let's take a simple scenario. Let's say we want to go back and change history three weeks ago Three weeks doesn't seem like a long time in Bitcoin. It's an eternity every day 500 megawatts of electricity are used continuously to feed the mining process It's just a ballpark figure. It might be more. It might be less right now. Let's use that as a ballpark figure 500 megawatts in 24 hours is 12 gigawatts of electricity 12 gigawatts hours of electricity expended per day 12 gigawatts hours of electricity over 30 days is 360 gigawatts hours of electricity over 12 months. That's 3.6 terawatt hours of electricity in a year 3.6 terawatt hours of electricity is a lot of electricity But it's only a lot of electricity if you take it all at once If you take it on a daily basis on a 500 megawatts basis running forward It's enough to keep the Bitcoin network secure But here's the thing if you try to go change Bitcoin It starts adding up pretty fast You go back three weeks With 51% of the hashing power how long will it take to remind the blocks of the last three weeks? Anyone six weeks Yeah, not quite some interesting things happen in between the first Week of blocks will take you two weeks to mine and then at two weeks You're going to have a difficulty change which is going to drop your difficulty And then it's going to take another two weeks to mine the next two weeks at blocks So you're going to end up approximately At four weeks total to mine three weeks worth of blocks Here's the problem the other side didn't stop mining Right at 49% how long does it take them to mine? So by the time you get to where you were when you stopped mining the majority chain and you tried to rewrite the history They've also mined at least two weeks ahead If they got the difficulty change to they've mined even further So now you have to mine a bit more to overtake them meanwhile The miners who are doing this exercise are earning nothing presumably They're part of the same hashing power that mine the first time around Presumably they already had 51% of the power when they were mining the first time around and now that they're trying to Remind the last three weeks of blocks Well, they've already banked the rewards, but they banked them on the other chain Which they're making invalid So now they're going to get rewards on the new chain But only if they give up the rewards that they banked on the other chain, which means effectively They're going to spend three to four weeks at 500 megawatts Mining for free Meanwhile, what happens on the other chain? on the minority chain You're a 49% miner and You're now mining a minority chain. It's going to be hard first two weeks. It's going to be slow You're going to be doing blocks every 20 minutes, but Your share of the mining capacity just doubled which means your profitability just doubled So you're getting more reward For the same amount of mining and if that chain still has value You're making quite a bit of money because you now have a bigger market share In fact, the more people abandon the chain the more profitable it is for the minority and all you have to do is peel off 2% All you have to do is persuade 2% of the people who are mining for nothing To come mine on the chain where we're mining for double rewards. How hard is that going to be? Which means that actually sustaining a 51% attack For four weeks is Brutally hard now, of course, that means you'd probably only do it if you had 75% 80% Ethereum started with 19 at some point they went as low as 70% on the majority chain when they did therefore That's a pretty big drop so You have these economic incentives that make it very difficult Now please notice. I've been talking about three weeks Bitcoin is seven years old What if you wanted to change a transaction that was last year or a year and a half ago? Well now the math is really against you Because it's gonna take you almost a year to overtake that chain During which time you have to sustain that attack and not lose anyone from your group Otherwise you never overtake it and then you make even less money So now you've mined it twice and gotten zero reward on both times right, and this is the point that We really need to understand about blockchains. There is something inherently Interesting about the fact that you can show someone a number and they can calculate from that number How many Joules of electricity you consumed to create that number and it is absolutely unforgivable That number is in itself proof that you have done the work That is an incredible artifact for a digital system the fact that by presenting a number to a system that has never seen the history of the blockchain That may have joined later That may be seeing a false history of the blockchain But you show it's a block that has proof in it and you show that no that number and they know It's real and they know it took that much work to produce that number There's no way to fake it for a digital system That's as close to real as it gets This is a monument of immutability Built block by block and these blocks are now towering into the sky 420,000 of them containing a cumulative amount of work that is absolutely gobsmacked and It cannot be changed or forged without Not only the other person knowing it has been changed, but without you actually Expending the energy all over again. There is no shortcut and that is the difference between tamper evidence and tamper proof You could disconnect from the blockchain today Not look at it for three years Come back three years later. I can present you a single number and say do you believe this is an actual block from the blockchain and You would be able to say with complete confidence. Yes The amount of work evidenced by this block Could not have been produced any other way than if during the entire time I was gone You were expending energy at the predicted rate and you came up with this artifact I only mean to see the pinnacle to know that it's a real blockchain Only the last block one number and I know how much work has gone into it cumulatively Because it tends to have ever increasing work The longest difficulty chain wins Bitcoin is not just simply an system of accounting It is the first digital artifact that provides forever history that provides true digital immutability There is no other system that provides digital immutability at that level. It is a planetary scale thermodynamically guaranteed self-evident system of immutability Planetary scale because in order to do it you need to marshal resources that only exist in a planetary scale effort thermodynamically guaranteed because you can calculate the exact amount of energy it took to create it and there is no shortcut Information theory tells us that to flip that many bits takes this many jewels and there is no way to do it otherwise Self-evident because the number that is produced as proof of work tells you exactly how much work has been done cumulatively and it really is a monument now Then the interesting question arises Can we really afford this? Is this a waste of energy? There is no thing on the planet that produces a digital record that is self-evidently Immutable at this scale nothing It is the only platform on which you can embed data that will be guaranteed and mutable within a few blocks Thousand blocks after you put data in There is no going back That data is not going to change Okay, maybe if you put it in and it's only three blocks old maybe it can change six blocks old 144 oh this is getting tough and that's a day a Week old done Done it's part of permanent history. Our ancestor is said This is as good as written in stone Our grandchildren will say It is as good as written on the blockchain Because it is the new standard of immutability and it is globally accessible Any application can leverage that capability other currencies other chains Smart contracts they can all check point against the Bitcoin blockchain And as long as we continue to build the monument Their little inscription like a piece of graffiti etched into the base stones of the pyramids will be there potentially for centuries and They can import immutability for the logo price of a transaction fee That if you consider it immutability as a service is an astonishing application It has enormous implications for software It has enormous implications for the Internet of Things for information security For other systems of currency for systems of record title registration birth records history Can be written on the blockchain for the low price of a transaction fee and it may well be there for a very long time But as long as it's there it cannot be changed and everyone can validate it That is not a waste of electricity That is the first practical application of digital immutability and it is expensive But it's expensive because it's giving us something on a planetary scale and we only need one really And it's probably too expensive to build to and that just means that the network effect is even more awesome Because we already have one and it's doing quite well That one could support all of the other applications the other applications could do much more lightweight proof of stake But if they really want immutability Not tamper evidence tamper proof They need to subscribe to a service on the Bitcoin blockchain They need to record their data on the Bitcoin blockchain if you're a banking consortium And you are assigning transactions in a distributed ledger technology by taking turns What is the cost of fabricating the past? What is the cost of rewriting history? of saying WikiLeaks never received any of your fund any of your funds any of your donations We reversed all of those transactions What is the cost of that? thermodynamically nothing In on-chain money doesn't matter we created the on-chain money. We can create more of it As long as there is no proof of work behind it the cost of rewriting A ledger like that is zero And if you can You will and if you can you'll be coerced to and if you can when you get to subpoena You must and so these blockchains are not in mutable These blockchains are mutable as hell they're fickle blockchains To go to the other side of the scale They're transient They're meaningless. They have no weight of history behind them. They are whatever The last signer says they are They have no weight This here We're at war with oceania Next year we will always have been at war with this east asia History is written by the victors Not on the bitcoin blockchain We don't do 1984 on the bitcoin blockchain History is written by the expenditure of real world energy And there is no cheap way to forge that history. Thank you Suppose one second, okay fun first Lawrence temlock, thank you so much for coming. Thank you. Sorry. I'm holding too many things frank freedman frank Thank you so much. Nice to meet you Ayako Thank you so much. Nice to meet you Valerian I've heard of you. You're standing behind the camera All right, I don't can't get that Thank you Valerian's copy John Bolton We know winner chicken dinner Darwin Ling Darwin didn't make it tonight As you're watching this video Shoulda come Alex Park also didn't make him. Oh, well Levi stroke Kiwoon Kang, is that you? Oh, no Is Kiwoon here? Kiwoon. Nope Fodio Nope, oh dear this random number generator works really well Abby Uh, Trin Gwyn Okay No, so me. I know you're here. Congratulations Meredith's pinkelstein Jake Tarno Chavez username will on the beat up Robert Schwechter Kim Are you signed up as Kim on the beat up? Congratulations Let's see. I think I have two more two more. I'm running out of names fast Fausto Dapuzzo Colin Belton Yeah, I have a copy already. Oh, thank you very much Colin Um wrong Just wrong Wrong. Congratulations. The last book Jeff Flowers You already have a copy. Thank you Um Daniel Fagan Ryan Charles all right for this Book giveaway, I would like to thank Scott Robinson of flood and play. He's the organizer of this meeting He made all of this possible and he also sponsored My expenses to come here and I ended up not Using as much of the money for the expenses And so I used the remainder of his sponsorship money to bring these 10 books today So please thank Scott Robinson. He couldn't be here today Now let's do q&a You had a question. Yes. So suppose the solar technology advances very well Yes, we will capture a lot of sun energy with very high efficiency. So marginal costs will become zero Then put the proof of work work in that case That's a good question. Suppose that solar energy advances with um, it's efficiency and you can capture a lot of the solar energy Would that make proof of work unworkable? Because the marginal cost of the solar energy is zero. Well Yes and no mostly no Even if you have really efficient solar energy, you have to consider three factors in that The first one is that You pay for the solar panels. So you have capital costs, right? The second is you pay for the mining equipment and so you have more capital costs, right? Competition depends on the marginal cost. Yes, but at the same Yes, but at the same time you're competing against people who are going to apply more and more capital But the third one and the most important one is that presumes you have Basically no opportunity cost meaning that there is no other use of the energy could go to other than mining Meaning that either you so far exceeded The demand for electricity that you have all of this excess capacity Right the problem is at that point we've solved the energy problem of the world And at that point if proof of work is the one thing that doesn't work You've gone to a star trek universe where money doesn't exist Right if you solve the fundamental issue of energy scarcity on this planet Completely solve it for the marginal cost to go to zero You have to have zero opportunity cost which means that you can generate abundant energy anywhere at any time and always have excess capacity You you've solved much bigger problems. I hope we get there Then we need someone as brilliant as Satoshi Nakamoto to come up with a new proof of work algorithm I would suggest Sudoku Uh It's works So Sudoku is an asymmetric algorithm Meaning that if you make the Sudoku puzzle bigger It still can be verified relatively quickly as to whether it's correct If you make it billions and billions and billions of times bigger Then it gets really really hard And you could make it to so that you only have to do it on paper with pencil with human beings So that would be a proof of well literally proof of work Algorithm just like the slaves of Egypt who built the pyramids Solve Sudoku hard Enough of that. Yes Well, it equalizes everybody so then it's about access to minors access to internet capacity access to storage to put the blockchain on There's still costs You're limited by 2000 watts per square meter, which is the maximum energy you can get on the surface Which means mining in space Actually, that's not a joke There are many reasons why mining in space could become a very interesting possibility solar panels No atmosphere. No obscuring anything Yeah, all right Yes Yes Because it's so secure and that's the only blockchain that gives that but the proof of stake is let's say not as secure But nearly as secure secure enough Is that not far superior? And is that the case like I mean the cereals as they will move to group of stake in the future I wonder why they don't have yet. Yes. Um, and I don't know if there exists a proof of stake system that really works um Okay, so so let me paraphrase of it. So Um, if I say proof of work is not a waste. What if proof of stake achieves A fair approximation of the level of security Without uh, that cost would it then not eclipse proof of work? And the difference that I think that's what I was trying to emphasize today Is that you could use it to make sure that the security of the transactions going forward is correct But proof of stake cannot give you robust immutability And the reason it cannot give you robust immutability is because what you are staking is the currency that's on the network And if you have control of the network, right, you can issue more of that You can do many things to violate the loss that you suffered Whereas if you burnt electricity outside the network, you can't get that back by rewriting the blockchain Similar cost proof of stake. I have to have let's say 51 percent of the market capitalization So that's pretty much I have to buy up most of the coins and then if I really take the system The market capitalization goes to zero. I lose all of that mine For a bit coin if I would invest so much capital and so much energy that I can I could probably stop the network and then destroy the market capitalization as well 51 percent I could not change back time, but I could probably You could change the future, but not the past. It's not effectively to a hole You could do denial of service Yes, both systems are susceptible to the service if you get the majority of the consensus mechanism I would argue that getting a majority of the capital is a lot easier than getting a majority of the manufacturing facility And sources of electricity that are widely distributed and controlling those Um Than getting a majority of the capital in fact theoretically you might find I don't know just to say a random thing a bug in a smart contract and steal Just to say a random number 14 percent of all of the currency in circulation And if you had a proof of stake system You're 46 percent from your goal. Sorry 36 percent from your goal. So Um That's the problem the problem of using something that is intrinsically native to the blockchain is that I cannot simply steal The mining equipment that is Out there, right? It's tangible So and I can't simply access these enormous amounts of energy overnight these take a long time to marshal these Energy contracts which makes it more robust to that kind of interference How much more is that security differential worth it? I don't know I don't know if that is enough. I think it is I think this is a unique platform with a unique set of application characteristics and mutability as a service That is not only worth spending that amount of electricity, but which will create a monument to immutability Now that means that proof of stake is also good And they can both coexist in the market where they compete for resources for slightly different applications There will be applications that require robust historical immutability guaranteed by thermodynamic Cost and there will be applications that don't need that and those applications may not need the proof of work algorithm I think there are plenty of applications that do need that and Now that we have that We're going to invent a lot more applications that need that that we didn't know about before And I think that's where it gets really interesting What can you do when you have an immutable historical record that you couldn't do before haven't thought of doing before That you can now Yes The immutability can really be transferred to any external system because any system can simply encode A digital fingerprint and embed it in the blockchain by paying the fee There's a function for it called opera turn that simply creates Digital fingerprint and time stamps into the blockchain So that means that other things can anchor themselves and checkpoint themselves at different blocks leaving little trails behind And you can say at that time this was the fingerprint that was embedded and that is guaranteed because it can't change Proof of payment could be part of another blockchain I'm not sure what you mean by proof of payment exactly. Is this another consensus algorithm? Or is this proof that you paid the transaction fee proof that I paid the transaction That's part of the consensus algorithm if you're a thing got mine, then you paid sufficient transaction fee Which may have been zero at the time, but most likely wasn't So you have to still follow the rules to get into the line that puts you on the blockchain You have to create properly form transactions pay sufficient fee And validate properly propagate those across the network and then you have a good chance of getting into the block Yes Proof of capacity is interesting. Um, and I think there's a couple of interesting Different approaches to this I'm not familiar with burst point I know there are some things that are for example Disk intensive so that for example, you have to proof of storage. I guess you might call it There's various forms of proof of resource that use different tangible resources. So Memory footprint you can create a consensus algorithm that in order to validate and to prove you have to produce Randomly selected data elements from an enormous data corpus Which may be terabytes in size and the only way to have that Is either to store that enormous corpus or to buy the specific data elements from someone who does store that data corpus You could do things with bandwidth and other resources perhaps I'm interested in seeing all of those There's proof of work initially to create capacity and most of those are hybrid proof of work systems Yes, yes So in many cases these algorithms are hybrid algorithms and we're going to see a lot more come out Yes Against hypothetically a well funded say government or like a some consortium objective wasn't necessarily to get Like to get benefit financial benefit from it, but to actually inhibit its existence or for whatever would that be a concern? I would argue that that is already happening I mean, you know little bitcoin is currently poking the hundred Trillion dollar banking industry going aim. We want that So yes, well funded opponents The best funded opponents we have The greatest so If they use some kind of internal consensus attack to attack Bitcoin and to thwart its ability to develop new blocks essentially the dollar service attack That would be a very interesting scenario. First of all, it would be noticed pretty quickly And second it would immediately lead to creating counter measures Um and when a something attacks you and you develop counter measures, that's a form of immunity Uh and through immunity you have form of evolution, which means that bitcoin will evolve resistance to that kind of attack And then it will get attacked again It will evolve resistance to that kind of attack and it is being attacked today And it is evolving resistance not to those kinds of attacks yet But when they come it will evolve resistance to those two Why because it is a massively decentralized system with a lot of independent actors who are guiding its evolution towards Protecting the system against these kinds of attacks. So it's going to evolve much faster than a biological system And it's going to evolve immunity Meaning that what the wealth on the opponent is actually doing is training bitcoin On how to win right they're inoculating it against those attacks Um and whatever doesn't kill it only makes it stronger So that's not the way you want to go after a decentralized system I don't know that there are any good ways to go after a decentralized system, but I know that will backfire badly Yes In your opinion, what is the best practice to build exchanges in the knowledge of the world and I mean personally I love bitcoin, but I'm not comfortable with this central bank of big coins that we call exchanges Yeah, um, so this question is about supporting the other four billion or the other six billion depending on how you count um and What is the issue is? Exchanges are very centralized. They're custodial Which means they hold bitcoin for people and that represents a significant risk for Bitcoin users not bitcoin itself, but certainly bitcoin users who can lose their money We don't have too many perfect solutions right now. There are a few small-scale decentralized systems Bit square for example is one it's still in beta. It's still very small scale. There are some More decentralized systems local bitcoins right which allow you to do person to person cash transactions And the one thing that cash has that's similar to bitcoin Is that it can be verified upon presentation. It doesn't depend on any counterparty. You hold it. You own it, right? So exchanging cash for bitcoin is the most secure way to get bitcoin But actually the best way to get bitcoin is not to buy The best way to get bitcoin is to earn it By the expenditure of your labor So dedicate your labor to bitcoin and you achieve two goals at the same time One you're earning bitcoin from the people who can pay you in bitcoin and two you have removed your labor From the machinery of the state Which was using your labor to build bombs That's my personal philosophy. So two birds one stone I'm in on the good side. I'm out of the bad side Yes An update on alternative currencies. Oh, this is a minefield for me That's fantastic If I say a name of a shill If I don't say a name i'm a bitcoin shill either way i'm going to get threatened on twitter go all right Ripple is still Out there. It's being used. I think a lot of the banking consortiums I kind of interested in bitcoin because it's a more centralized more controlled version of ripple So ripples still there a white coin is still a third fourth by market capitalization I think probably fourth now that the theorem classic has climbed So it's there. It's definitely there. There's a few other interesting ones That are doing a variety of things and I get a lot of slack when I mention them I get a lot of slack when I don't mention them ethereum Which is the second market capitalization system out there, which isn't really a currency It's a system of programmable smart contracts that are very flexible I'm extremely interested in that as with bitcoin. I don't see it's an investment And you shouldn't play around with high-risk assets like that because you will get burned unless you're very experienced There's a couple of others which are really interesting dash Again, I'm not recommending for investments. Just giving you some information Dash is a system that has a very interesting decentralized governance model and an interesting privacy model Monero which is A descendant of the crypto node system and monero is a very high privacy system And recently it emerged in the space is zero cash Which is a currency built on zero knowledge proofs To provide extremely robust cryptographically secure anonymity and all of these kind of float around in a constellation around Bitcoin and they're all interchangeable for bitcoin one of the things that's happened in the currency markets and the digital currency markets that is really interesting I have no fiduciary involvement in this. I'm just interested as a user is shapeshift shapeshift.io is a website that allows you to do Kind of instantaneous exchanges between currency pairs without even setting up an account You just say I want to change this to this and this is okay. Well, whatever you send here. We'll get exchanged and go there So you set up a little pipe and you say I want to exchange Bitcoin to Fed coin and Why not? And so then it says, okay, give me your fed coin address and you put it in So you give me an address for the refunds of your bitcoin if something goes wrong You put it in and this is okay. Here's a bitcoin address if you send bitcoin to this We will send the equivalent amount of Fed coin to your address quick easy You can swap between two currencies interestingly enough What that means is that you can treat all of these currencies as liquid and fungible to each other You can basically get in and out of any of them Including bitcoin and go back and forth very easily just for a single purchase And some websites include shapeshift So that you can pay in any of 100 different Say currencies and it will just convert it into say bitcoin in the back For your payment. So that's interesting. It's opened up a lot more possibility makes a lot easier for more of these alternative currencies to experiment and develop features And maybe some of them will be wildly successful. Let's hope I'm not a bitcoin maximalist. I don't believe that bitcoin should be the only chain or will be the only chain that exists I think it will probably be the dominant chain in a power law distribution It will have 60 to 80 percent of the market share and then there'll be a long tail of 10,000 currencies behind it Have different uses and different values And I like many of them Okay cue the twitter threads. Let's go Next yes So the question was based on the incentives that exist in the network. What happens when the reward For a senior rich for generation of new coins drops to zero and the only reward is fees. Will miners keep mining and Will the network fees be reasonable? First of all just to give you some perspective. This happens gradually between now and 2141 by that time People on mars will have to decide if they want to go into mining with their solar panels um So who knows I like I Hesitate to make predictions for bitcoin three months out You're asking me to make some 136 years out. So I'll try The important thing to realize is this happens very very gradually and it happens in an environment where The reliance on senior rich drops while presumably the number of transactions and activity rises Which means the transaction fees rise and what it should do if you look at it in the graph is it should do kind of a curved x right, so fees go up Reward goes down and fees go up not because fees are getting more expensive But because you have more and more transactions paying more or less the same fee or less So if you imagine a block today, which has 12 and a half bitcoin In it and let's say a tenth of a bitcoin in fees So it's a 120 to 1 ratio in favor of the senior hbs Now let's construct a block in 2141 What's the minimum reward? What satoshi Right. Okay. Now. Let's say this block has 10,000 transactions Just pull the number out of my head probably have more but let's say 10,000 transactions And what's the minimum fee they can pay? One satoshi Right, so if you just had the minimum issuance and the minimum fees you'd have 10,000 satoshis in fees And one satoshi in senior age So now the ratio of senior age to fees went from 120 to 1 to 1 to 10,000 And this didn't happen overnight. This happened over 140 years in a gradual curve Somewhere in there. There's a crossover point that crossover point is the day as one to one Where now miners know that for the future they're going to focus more on fees and that happens way before you get to 2141 So i'm not worried because it's not going to be a surprise This is the same kind of question that happened with the having what will happen when the having happens Well, we've been kind of we see this coming four years in advance Um, everyone's prepared for it. This is part of living in a deterministic currency Is we don't have to wait until the friday Spokesperson from the federal reserve open committee meeting to come out and tell us what our interest rate is Mining doesn't stop Will the fees be the same as visa if they are we have failed badly Because quite honestly the fees already for many transactions most transactions They're above like five dollars are lower than visa and We're getting better at optimization If we introduce things like lightning network and other layer two technologies If we increase the block size and do all of the other optimization and scaling things We can do visa We can do much more than visa and we can do it cheaper So i'm i don't think we're going to have any problem. There's the capacity issue for bitcoin will be a problem All the time, but it will be a problem that we will manage In a way that is not fatal And gradually make it better and better So failing to scale gracefully for 25 years. That's the goal Yes currencies have markets, um, which reflect the time value of my interest rates How about bitcoin and other Are you aware of interest rate type markets for bitcoin and other currencies? Yes, I mean there are interest rate markets for bitcoin You don't see them that often simply because a lot of these markets are over the counter But if you're in the mining industry and you're going to have a steady stream of bitcoin But you don't know what its value is going to be and you have bitcoin now You may want to have various contracts futures contracts to Protect yourself against volatility and out of these futures contracts. What emerges Is various forms of interest payments. Yes, that would be a market In reference to some other currency. I just mean within the bitcoin itself Bitcoin now versus there. Well, there are actually some investment funds that invest Funds that are in bitcoin into companies directly in bitcoin and presumably generate returns in bitcoin These investment vehicles pay some kind of rate to return And therefore that is represents interest rates future value of money doesn't change if you change the currency It still exists as an economic concept nothing changes What we don't have yet is the mechanism To carefully and quickly discover the correct market price for the future value of money in this economy yet So you'll see that mature. I mean if you remember in the beginning of bitcoin We didn't have a a market mechanism to discover what the price of bitcoin was How much do you want for two pizzas? I don't know 10 000 bitcoin each sure That was uh march 2010 I think Yes, who else? Yes, so I know you don't want to predict things in the future, but The uh If you fast-forward say five years or so, what do you think we're going to be building on what applications we've been building on Bitcoin as compared to something like theory Yeah, that's impossible to answer. I can't even answer that a year out If I fast-forward five years, my voice will sound very funny But other than that, I can't tell you anything else What applications will we build on top of bitcoin? What applications will we build on top of the theorem? My general attitude is this The designers of these systems do not get to decide what niche their system will fit in They may have an idea about where they want it to fit in But inevitably the market decides what applications are best suited for each one of these systems And it may be very different from what the designers had in mind The designers of the internet were creating a network to survive A strategic nuclear attack against key routing elements in the network and to maintain connectivity of military sites Cat videos was not part of the brief And yet here we are One billion instantly accessible indexed cat videos with artificial intelligence software that can identify which ones are cat videos So what they built it for what it ended up being not exactly a match Um, I predict that we will be building cat applications on there Just human nature Yes, so what's happening with the interface between bitcoin and the traditional financial system and why are there not more ETS there's only one at the moment that has come into existence. I assume you mean gbtc Um, and it's trading at a significant premium. And what happens? Why haven't they been more? well it's because bitcoin is sufficiently alien that It can't be swallowed by the traditional financial system. They really have no idea how to handle it It doesn't conform to any of the expectations the entire financial system is an edifice of counteracting controls counterparties risk management layers Um, and checks and balances all of which assume custody and oversight and control Of which bitcoin expresses none So how do you take something that is this alien and put it in this type of environment? This is exactly like asking It's the early 1900s and the automobile is out Why are not more pony express routes being replaced by automobiles? There's no roads And they've built a series of stations that have lots of hay Which can't be used for the automobile So everything they have doesn't work with what is new And that is basically the issue Bitcoin is quite capable of having an etf Etfs are quite incapable Of encompassing bitcoin into the current regulatory system at the moment. They're finding it very difficult to swallow And that Is a feature not a buck I hope they choke on it All right, next question. Let's take the maybe two more. Yes Can I get one of the spare books and can I get a picture? I'll be happy to do pictures afterwards. All the books have gone that were given out by random Pick from the rsbp list. I apologize. The book is available on amazon.com as pay-for-back Kindle as e-reader But also on kindle unlimited for free on kindle lending library If you remember prime for free on open bazaar For bitcoin and you can buy it for bitcoin using per stout i o and it's currently available in About 40 countries Thank you Okay, two more. Who hasn't asked the question. Let's try you You mentioned One Yes, no To repeat the question I mentioned layer technology. So big point is layer one or layer zero wikis. It's layer zero and Layer one is lightning network. What's layer two? Have I thought about other layers? It's really difficult to see how the layers involve and what the interfaces between the layers are and which functions end up In which layers and keep in mind there will be more than one stack Above ip there were multiple transmission controlled stacks including the osi layer and below ip There are multiple stacks underneath that most people never see so software defined networking and before that fiber networks etc etc so It's impossible to know exactly how it's going to play out What I can tell you is the protocols are not built monolithically We're not going to do everything in a single layer. That doesn't make sense from an architecture perspective That doesn't mean we don't scale big way. We will scale big way, but we will scale it so that the layers above it scale even further Not because we want to do everything in a single layer. It doesn't make sense to do everything in a single layer It doesn't work Uh, yes last question Okay, um, so make it good Let me see how I'm gonna phrase this A lot of the core team there they seem to be really gunk all on Going with the off-chain scaling solution at least prioritizing that first so much so that I have a quote here on red Recently that's it. We should not change bitcoin to accommodate more users And that's one of the things that they were talking about in the irc so As a put so they were going with like the said with soft working rather than let's say going with the hard working And they were also criticized notably like by other people like jeff garzik Of the risks that are inherent by going with the more complicated solution So how can you compare this with let's say um tom zander's uh flex cap proposal of you know taking the hard work approach and How might cores roadmap be wrong? I mean this would take an hour to answer and More importantly, I don't think my opinion matters at all to any of the parties involved nor should it This debate about Big blocks and small blocks and how we scale bitcoin first of all, I don't think it's accurate to say the core Is focused on not scaling the core layer It's as you said, it's a prioritization issue. Which one gets prioritized first now I have I have a nuanced opinion on this which pisses off everybody Because if you're if you have a nuanced opinion, then you're sitting on the fence and both sides could throw eggs at you For not taking a side and I'm not going to take a side because I think that both sides have merits and and really the question is a matter of prioritization and sequencing and Conservatism versus a more aggressive approach to to scaling From time to time my opinion has changed As I've seen new data more recently two days after the ethereum fork I thought whoa that went extremely well a clear 95 5% splits technologically executed beautifully This is going to put a lot of pressure on core to come up with a similar solution for bitcoin I was wrong I was very wrong because a week later actually two weeks later We discovered that even though technologically the fork work politically had failed and suddenly you ended up with a 70 30 split And that was a disaster because there was not enough provision in the software to deal with replay attacks It costs a lot of exchange of some money. I think there's some people from coinbase in here Who may have you know suffered some losses because of that Because of the replay attacks. I know other exchanges did too or I heard that other exchanges did So now after that my opinion was revised, you know, and I think in bitcoin politically a hard fork is a hell of a lot more difficult And will cause a deeper schism So I don't think it's as easy as one team is right. The other team is wrong I think we're going to have to let this roadmap play out And for the time being it seems that the majority of the participants in the system Are continuing to put their trust in core as long as core continues to deliver on their roadmap to A certain approximation I'm not worried because I think in the long term what we're going to do is we're going to scale in the second layer And we're going to scale the core layer with a block size increase And we're going to do network optimizations And and and the scaling options are not either or they're and and and you just have to decide which comes first I think a lot of this drama is unnecessary and Honestly in terms of segregated witness soft fork versus hard fork Uh, I think soft work is a better way to go I do I think we're going to get to the cleaner and quicker than uh, a hard fork I think a hard fork given the current political situation in bitcoin is way too dangerous Even if it was for something that everybody agreed on like segway, which I don't think you can even get that agreement So that's probably a very nuanced answer about a very nuanced question, and I'm sorry if I didn't give you More of a direct answer I don't think there is a simple black and white answer to that problem All right. Thank you all for coming. Thank you to our host for plug-and-play I'm going to hang out here chat with everyone. Unfortunately, we're out of pizza So I don't expect everybody to stay for very long if you want your book signed I'll be happy to do that over the next 10 minutes if you want to take photographs I would like to do that after I've done the book signing and Thank you so much for coming tonight. Thank you