Transcripts/BLOCKCHAIN NEWS Full Version Mar 20 2018

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BLOCKCHAIN NEWS - [Full Version] Cardano(ADA) - Charles Hoskinson Interview (Mar 20, 2018)[edit]


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Original transcript author: Dennyb2010


IN = Interviewer
CH = Charles Hoskinson


Welcome to Blockchain News we are here with Charles Hoskins. How are you doing today?

Very good, thank you for having me on.

Yeah thank you for coming.

Charles' background[edit]

Can you tell us a little bit about your background in blockchain?.

I've been in the space for a while, so I've been an admirer of cryptocurrencies since 2011. In fact, the first Bitcoin meet up group I signed up for was in Denver Colorado and it was in 2011 and three people RSVP'd (aka pls respond). I was one of the three people and I was the only person that showed up, so I had a nice conversation with myself about the magic of blockchain and since that time I professionally entered this space in 2013 and I've started three companies: one was Invictus Innovations which created bitshares with Dan Larimer, second I helped create Ethereum with Vitalik Buterin and that's usually what I'm known for and now I run Input Output Hong Kong, and we are operating in 10 countries with about 130 people and we're most known usually either for Ethereum Classic or for Cardano.

Wow, that's very impressive I must say.

Not a lot of sleep.

What's 3rd gen blockchain[edit]

I bet! We've heard you were referring to Cardano as the third generation blockchain. Can you tell us what it really means?

Yeah so to understand what that means you have to really understand what first and second generation were about. So first generation was about creating what I like to call a collective delusion, and so what I mean by that is that you know, the reality is: money is only valuable if people believe it's valuable. So if you have something whether it be won or yen or US dollars, you believe that other people are going to accept that for products and services and the strength of the money is how much of those products and services you can get and how consistently you can get it. So what Bitcoin had to do as the first generation of crypto currencies is create the notion, that's a collective psychology, that these tokens that aren't backed by anything, they live somewhere in the cloud created by an anonymous hacker, should actually be worth real money. So it took about four years for that to set in. And then once that happened people said: well this Bitcoin thing is here to stay and we really like the idea, but the problem is, it's not very useful, it's just a push payment system so really all you can do is move value between two people and so forth, but you can't do complex financial transactions.

So in 2013 we started a conversation with a lot of different people. Color coins people, the master coin people and eventually Vitalik and I and others with Ethereum, about how do we go beyond what Bitcoin can do, so we asked you know it was kind of like when JavaScript came to the web browser that's what gave you Gmail and Facebook and all these great things we take for granted. So along that token we said can we take a programming language and attach it to a blockchain so now that we can have more complex financial transactions.

So that was really the second generation and you know Ethereum came out it was wildly successful and we have the NEOs of the world and all these other guys and everybody's trying to be the best smart-contract system, but the reality is that these systems have three collections of problems and everybody's trying to solve those problems in their own way.

So the first problem is the issue of scalability: while these systems work well when you have thousands or tens of thousands of users. When you start moving into the hundreds of thousands and millions and billions, they just simply break because of the way that they're designed. So they need to behave in a more organic way that as users join the system the system gains resources, similar to BitTorrent, for example if you're downloading a torrent; if there were more people downloading it you get it faster instead of slower. So that's the type of characteristic you need.

Second, there's just going to be lots of these systems, tons of them thousands of blockchains and there's also legacy systems like your traditional bank account and your credit cards and all of these things that we take for granted that are part of our day-to-day financial lives, but right now they're not integrated, they're not inter operable with each other they don't talk to each other. So there's this idea of well how do we get all these different block chains, all these different financial systems, to be able to be smart enough so that they can have conversations with each other and move value and information. So it's kind of like the Internet of blockchain, so that's the interoperability, and then the last part is the most difficult to resolve.

It's the who pays and how do we decide problem. The sustainability problem, in that these systems are supposed to be decentralized, e.g. no one person is in control, they're currently mostly governed by a central group of actors and we do things, like for example: ICO's to capitalize the initial development of the platform, but long term it's not clear how are we going to finance development, how we're going to finance development, marketing, adoption and things that these currencies need to survive and grow and evolve and also how do we avoid having Bitcoin Cash and Ethereum Classic and Bitcoin Gold and Bitcoin Unlimited and all these things, which are failures of governance where two or more groups of people have diverging opinions on where the platforms should go and as a consequence that forks and it creates strife and division and it creates a barrier to adoption.

So that's really if you add these three things together they become the third generation of cryptocurrencies because once you solve them then you go from a curiosity that's useful for some to an actual useful system for many, for billions of people and eventually this can actually replace entire economies.

Oh, well, it was a very great analysis of the eco in this space.

And by the way, that's what Cardano's trying to solve.

Cardano in Korea and Asia[edit]

But we really need the space and is there anything in particular that interests you about Korea and the blockchain space here in general? It says that you visit here every six months.

Every six months to a year I try to come out here because I usually do an Asia tour. IOHK's a Hong Kong-based company and my co-founder lives in Osaka Japan so I'm in the neighborhood from time to time and it's not too hard to go from Osaka to Seoul. It's a quick trip, but Korea is a great place. You know, it has everything that you would want to do business and you have extremely well educated people who are very well disciplined. There's strong rule of law, the government's, generally speaking, is easy to work with. All of them have their quirks, but of Asian countries Korea is pretty good. The universities here are very strong and they do great research and the industrial partners here, I think, are some of the best in all of Asia. I mean Samsung's a phenomenal company amongst others here in Korea who really do care about blockchain technology, in fact: Samsung was one of the first companies in the world to run a pilot with Ethereum. It was called project Adept. They ran it with IBM and they were talking about how do you take BitTorrent tella hash and Ethereum and do an Internet of things play. So even back in 2014 heavy industry here was thinking very carefully about what does blockchain mean for their business domain. So that's only continued and we think that trend is going to be very prominent.

The other thing is that these are some of the largest speculative markets in the entire world. Korea has huge volume for lots of tokens and the exchanges here are considered to be some of the largest and world leaders. So they're very important to talk to because one of the mandates of IOHK, in addition to being an engineering and research company, we also have a law and policy side to our company. So we think very carefully about how will the fact that we have all these new capabilities and technologies, and things that we can do that we couldn't do before, impact existing regulations, existing law, and part of that is having discussions with exchanges, for example, and so it's nice to drop by and talk to them from time to time and say well what's going on in Korea. What are the problems you guys have been facing and so forth and how can we create better technology, better standards, or potentially recommend better regulation to make your lives easier in a global sense.

So do you think Korea has a potential to grow as a global powerhouse of the blockchain industry?

Yeah! So that's a good question. So it's important to understand that when your big multinational company like a Hyundai or Samsung or Sony or Toyota or Microsoft, that you're like a giant ship and you can't really turn very quickly, right? So what ends up usually happening is that the innovation happens through acquisition and through subsidiaries. So almost always they spin off small companies and they say okay this company is our strategy X, we even see this in the banking space you know I look at companies like Digital Asset Holdings as kind of like Wall Street's entry point at the blockchain space in that most of the people at DAH are very Wall Street friendly, some of which actually came from Chase itself, and there's a strong possibility that at some point they'll be acquired and brought back into a larger conglomeration, and I suspect that a similar thing is going to actually happen here in Korea as well as Japan and other places where we're going to see these smaller companies solve very particular problems, and these problems usually revolve around two things: trust in coordination, so an example I like to give all the time it's let's say you're a big multinational company like Maersk or Samsung; the reality is you have hundreds of divisions, you have hundreds of sets of books and how do you get a consistent State amongst all of those books like how do you know how much money the company has actually made and if there's been waste, fraud and abuse. To get that consolidation is a horrendously expensive task and the reality is you could actually do that using blockchain technology and not only could you do it better and more efficiently, you also get things like real-time continuous auditing, you can get proof of solvency and you can detect fraud in a much easier way than you would with conventional book keeping systems. So multinational companies are laden with these types of problems, whether it's in supply chain management, credential attestation, property registration, asset management and so forth and that's really where the permission Ledger space shines and there's a lot of great solutions like hyper ledger and Microsoft has something called Project Bletchley. We're coming out with something called Enterprise Cardano Frameworks specifically for that space and I expect to see Korea being one of the world leaders in that respect. They have a great industry here, they're really involved in global business and some of the companies here are some of the most innovative in the world so I suspect that this is going to probably be on par with Japan and if not even better than Japan much more so than China. I think you guys are way ahead of China.

Can you explain a little more about that?.

Well the problem with China is that there are certain companies that are tremendously innovative, but the issue is that: mostly the blockchain space there is in a gray area where the government seems to have a love/hate relationship with crypto currencies you know. On one hand they understand that there's a lot of money to be made and they have a mandate to explore and figure out how this technology is going to impact their economy and society, on the other hand they don't really like the freedom side of things too much. I think they have capital controls and they like having a lot of control over the financial autonomy of their citizens, but when you hand them crypto currencies these things are not compatible with that kind of philosophy. So they're kind of having these opposing forces pull and they're trying to figure out how do they make blockchain technology work for them. The other thing is that they haven't acted in a way to really attract international entrepreneurs to come, it's very easy for me to come to Seoul or very easy for me to come to Japan and talk to any of the blockchain companies, talk to multinational companies, there it's not quite as easy for me even running a Hong Kong company to go into mainland China, Shanghai or Beijing, for example, and try to figure out how do I work with the local companies and and do things. Usually I end up working with their international subsidiaries, you know, in Europe or something like that. I can't actually go to the mainland, which is strange. So I think, that's a certainly going to hurt them and slow them down a bit, they have a lot of people a lot of money and so that they'll certainly be a world player, a world power, but you know when there was an emerging industry and everybody's fighting for real estate you only have a small window of time like three years to five years for standards to be set and market leaders to be set and so forth and once that occurs everybody tends to follow them as opposed to compete with them and lead for them right, like Apple set the smartphone standard and very few companies have been able to actually match that, and that's probably going to be the same case here.

Challenges for Cardano[edit]

I see, and what is the biggest challenge you see facing Cardano.

So Cardano, well the way we wanted to build it is pretend like cryptocurrencies don't exist and say let's start from first principles and let's really try to build a financial system that could be the drop-in replacement for an emerging economy. So let's say Ghana came to me or Ethiopia came and said: Charles we're gonna throw away all our banks, or throw away all our payment systems, all our credit cards and build me digital money, a full financial stack that works for my people and by the way, also let's do property and voting and identity and reputation and credit and all these things.

It's an Herculean task right, it's a humongous endeavor, so what we tried to do is say alright if that's our business requirement: how do we put together a large enough group of people, all across the world so that we actually have a fair shot of solving that problem, even if I go away, like I get hit by a bus or something like that. So the very first thing that we did is: we engaged the academic world, we're one of the first cryptocurrency projects to do that. IOHK has three labs: one at the TokyoTech, one at the University of Edinburgh and one at the University of Athens. We work with more than 30 scientists and by extension dozens more on particular directed research projects and we're expanding those labs considerably and we're one of the first projects to do peer-reviewed research. So before we say anything is right we write a paper and that paper actually goes through conferences or through journals and we say hey it has to be seen by the world's top cryptographers and computer scientists and I have to say that this is actually a pretty good idea. Some of the conferences we submit papers to accept less than 20% of the papers that have been submitted to them amongst experts. So a lot of the core of Cardano has gone through peer review, like Ouroboros for example, or Ouroboros Praos which has been shown at Crypto and even EuroCrypt which are very competitive conferences. In fact I'm going to Israel next month to present work for Ouroboros praos in the EuroCrypt.

And so that's the first challenge that we had to overcome: how do we figure out how to hire scientists, work with scientists and get them to align their academic goals with our commercial goals, and then once we've done that how do we engage the broader academic community. So that once they discover our protocols they feel inspired to try to break them and try to build on top of them. Break them means I get free labor, it's like a free crypto analysis, and build on top of them. It means I get inspiration and new ideas, for example since Ouroboros was published back in 2017 over 50 citations have appeared for that paper and somebody's even built a sharding protocol on top of it: École Polytechnique, Luzerne, and Trinity College (USA). It’s called OmniLedger. The team never contacted us. They didn't send us emails, they just went took our paper and built something on top of it and so that's knowledge we get for free.

So that was the first challenge. The second challenge is we wanted to build Cardano like Nasa builds its software or as Boeing builds its software. So these are high assurance systems in that if they fail the plane falls out of the sky or the Mars Rover doesn't turn on and in both those cases you've either lost a lot of money or people die, and so you can't afford to say we'll fix it with a patch, it has to work the first time. So that's a classification of software that is called high assurance software or certified software and basically you have to use these techniques called formal methods to actually write the software. So you get a computer proof that the software is actually correct, but the issue here is that you have to use very specialized tools, you have to use very specialized knowledge. So instead of available developers who can do these things, the cost of doing these things is very extreme.

So one of the great challenges that Cardano's trying to figure out is how to find that sweet spot where we're not necessarily as critical as the Mars Rover, let's say, or SpaceX launching their rockets, but we're not just like a normal JavaScript web application, which is what we're seeing and why the DAO occurred and the Parity Hack occurred and so forth. We're somewhere in that middle spot and so how do we find the right talent, how do we find the right tools and techniques and so forth. So this is why we've done things like for example used Haskell to develop our protocols; in fact we even hired one of the creators of the programming language, his name is Philip Wadler, he's a professor at the University of Edinburgh, and we invest very heavily in translating old formal techniques and bringing them into the cryptocurrency space.

I think a final challenge is trying to pull the entire stack together, so when we did our initial analysis in 2015, saying how do you build a third-generation cryptocurrency that could be a drop-in replacement for an entire economy, we said well it's not good enough to build something that's only gonna be around for a few years and then there's the next Cardano. Oh that's really a bad way of doing things; rather we'd like this to be like the web, where you have tcp/ip and it was built back in the 70s and that protocol has now been around for five decades. So we'd say what can we do to design a protocol that will be here five decades from now, so when I'm an old old-man and I have long white beard and I'm completely bald and I can't hear, already not being able to hear, but you know that's okay when that happens you know Cardano will still be around in some shape that's somewhat familiar to me even though it's so old. So to get there we decided to build Cardano in layers. So we separated, things like accounting from value.

So in Ethereum everything is kind of coupled together so your assets and your computation kind of live in the same system and it's a very complicated interconnected system. Whereas like Bitcoin and RootStock they're separated. So we did that and we moved into a three layer model where we said there's core services that you need for decentralized applications like Oracle's and multi-party computation or random number generation, let's do that one place, we said another grouping is accounting, so you want to issue assets, like an Ethereum, they have ERC 20 tokens, let's create a zone for that.

And then you're gonna have different opinions on how you should do smart contracts. There's the Ethereum model, there's the model we've developed for Cardano, and there's other models like what Tezos has done or Neo has done and so forth and who's to say which one's the best, especially if you're a developer and you want to be agnostic about this and you're just thinking about what's best for your customers. So by having a multi-layered architecture what we've been able to do is support multiple models at the same time. So that's kind of what we've done, is we've built our stack like tcp/ip and we've created layers. We've separated concerns, we've made them sufficiently modular that we can over time plug in new functionality, but getting all that to work right is a big challenge because there's a lot of opinions how to do it and it's not completely clear what's the best way, and it's entirely possible to design a protocol that's beautiful, it's useful, it does everything that's promised and no one uses it. A good example would be PGP, came out in the early 90s, it's a great protocol it would make all your email secure, prevent tons of waste, fraud and abuse and even get rid of passwords on the internet no more usernames or passwords, but no one uses it and it's been around for more than two decades, but it just didn't get user adoption. So we're very aware that these things can happen. So it's trying to find that right balance of how do we get an architecture like things that have been successful in the past, but then make sure that they're usable enough and useful enough that there's actual real adoption for the protocol.

About staking[edit]

I see, my last question for you today is going to be: a lot of Korean investors and others are very interested in staking, what would be the best way for the average investor to start a staking?

Okay so the way Ouroboros works is that anybody who holds ada is technically eligible to participate in staking. There is no minimum threshold. So basically we have this idea of what's called an epoch, they happen about every five days and they have a bunch of slots in them and before an epoch begins an election is held and so some source of randomness comes in and there's a distribution of ADA. Let's say Bob has 25% and Alice has 50% and Jim has 25%, so what happens is that randomness feeds into that distribution and it starts selecting slots sequentially. So it says okay, well Bob should have a 25% chance of winning the lsot because he has 25% of the stake. Runs the election and either Bob Jim or Alice, one of them wins and then you repeat that process. So technically any body who holds ADA could win and be one of those 20,600 slots for every epoch. Okay so the reality is that the vast majority of people are probably not going to want to stake because you have to leave your computer on and there's some logic you have to have for that so we created a delegation system as well.

So when your slot comes up if you've won, you have three choices you can show up and do your job, you can not show up or act maliciously in which case you are called a Byzantine actor or you can give that right to someone else and that's called a stake pool. Okay and so what we want to do is make that process as easy as possible for both sides, both for the people who want to delegate and the people who want to run a stake pool. So as we get closer to the Shelley release, what's going to happen is we're going to turn on features within Daedalus, so there's going to be a delegation center within our wallet itself, so if you want to run a state pool you can register that state pool on the blockchain and then if it's registered on our blockchain, people can find your pool, they can click it and they click delegate, that's all they have to do and then it's staked and there's no more work. And then not only that we've come up with innovations like cold staking, for example, so you don't actually have to have your private keys online in the Daedalus wallet to be able to do this. You can create a proxy key so you can have your keys for example on a ledger or Hardware wallet device or a paper wallet and you're safe and then you can have a proxy key within Daedalus that actually can allow you to manage your staking and so forth.

Then on the stake pool side we're going to create a docker image and create a system to try to incentivize a group of 25 to 100 stake pools to kind of come in just so we have a starting set and help them get set up and help them get configured so they can kind of run this as a business model. And so the hope is that we can see the network architecture kind of consolidate around a collection of a few hundred stake pools and then we'll get that kind of best of both worlds where we have the technical decentralization of proof of stake, but then we have the speed and efficiency of a federated quorum like you would expect with Praos or competing algorithms. So then you can optimize around that and get really fast speed and so forth.

So these things are coming, they'll come in stages. On the stake pool side we're gonna have a registration form and anybody who's interested can fill it out, send it to us and then we'll have a series of communications and invitations and winnowing to get to a set that we would like to launch with and put them on the test net so we can verify what we think is running is running correctly. For the everyday user it'll just wake up one day, your Daedalus will update, you'll see the center there and then you can decide: do you want to run a stake pool? If so you can register it and download the docker image and deploy it if you're more sophisticated, if not you just click stake and that's that. So it'll be very simple, and the hope is to make it as simple as possible for people. It is an experiment, I mean no one's quite done it this way before and Ouroboros is a very new protocol, so part of this is also having some patience and understanding that we're probably not gonna get everything right in the first go. So there'll be updates and changes and so forth, based upon what we discover from the data.

About too much rush[edit]

And lastly is there any other words that you'd like to share with viewers in Korea?

I'd like to tell the viewers in Korea that there is no rush, you know when you see emerging great new technology come you have this implicit gut feeling of oh god I need to do something now or and if I don't do something now I'm gonna miss this great market opportunity or something like that. The reality is if blockchain technology and crypto currencies are here to stay and here to change the world it does not matter if you get in today or two years from today or three years from today they're still going to be around and there're still going to be plenty of opportunities. I can go start an internet business today and still become a billionaire and the Internet's quite old right? So there is no notion at all if I didn't get in in 1994 there was no way to start the next Amazon and so forth. So the reason why I bring this up is that if you're rushing you're bound to make mistakes, so the single most important thing is understand what you're going to take things very slow, make sure you have kind of a base line of knowledge and if that takes two years to accumulate, it takes two years to accumulate. So take things slow, don't rush, diversify, and have fun, and never put more than that you can afford to lose.

Thank you for being here with us today.

Thank you so much for such a pleasure. </translate>