Transcripts/Charles Hoskinson LSE Cardano goals for Africa

From Cardano Wiki
Jump to: navigation, search
This page contains changes which are not marked for translation.

Charles Hoskinson at LSE, Cardano’s goals for Africa[edit]

Disclaimer[edit]

Transcripts are created and supported by community.
Text might contain some errors and inaccuracies - any help in fixing it is greatly appreciated.
Even taking 1 minute to fix a sentence or a name will be very helpful in the long term.

Authors are hired by community and receive very modest compensation for the time they spend on the transcripts.
Anyone can show a little acknowledgment by donating any amount of ADA.
Original transcript author: Dennyb2010

Transcript[edit]

CH = Charles Hoskinson
Others = self explanatory

Introduction[edit]

00:00:06

HOST:
if you'd all like to give a warm welcome to Charles Hoskinson

00:00:32

CH:
Hi everybody. Okay everybody a Londoner or didn't anybody come here to travel to see me? Make it a show of hands. Okay a few people. Let's play the longest route - anybody from Europe? North America? Asia? Asia! Where at?

00:00:54

ATTENDEE:
Singapore

00:00:58

CH:
Singapore?! You know when I spoke at MIT I had the same situation. How long is the flight from Singapore?

00:01:04

ATTENDEE:
14 hours.

00:01:05

CH:
14 hours. Okay we got to give him a good show then well first I'd like to thank the generosity of London School of Economics for hosting us as well as the Cardano foundation for putting the event on in particular Michael Parsons and his crew Michael's here tonight I think he's similar. Michael show hands! oh there he is there. Yeah there's Michael Parson, chairman at Cardano foundation. Wonderful guy. Okay. So like all my speaking I I didn't prepare anything so we'll talk extemporaneously and I thought for a bit, while the cobb cab ride over, what should I talk about and I said, oh well, you know, third-generation blocking. But you guys probably all heard that before and who cares about that? We're actually at an economic forum, you know, LSE. So in the spirit of that I'd actually like to talk about Cardano in the developing world. And I've never actually given this pitch before, so we'll just see where it goes and how it goes. How's that sound? I just hear your enthusiasm and excitement. It's thank you thank you. Okay, great. All right, let me put my phone over here and if I start rambling somebody stop me. By the way, this is our website. You can see we have these cool little colors and things like that nobody knows what we do but they love our website.

About difficulties in the 3rd world[edit]

00:02:14

CH:
Okay, so we're going to play the imagination game for a little bit. So imagine if you live in a country where your father he has some land it's a pretty good land its farmland ranch land whatever it might be. You've been there for a long time. You grew up there and then suddenly some people show up and they start surveying around. You tell them to get off. They don't and then suddenly they show up again and they kick you off of your own land and you say well you can't do this I've lived here for two generations. You're bloody mad. Who are these people, come here take my land away?! And then you go and find out that the government property register says you don't actually own the land. That this company apparently does. Why is that? Well, somebody paid the land register people a hundred dollars of value of the local currency to swap the record, and now you have to go to court and fight with resources you don't have to preserve the land that you grew up on.

00:03:10

CH:
You get all your neighbours to come and say, but the record says you don't own it. That's a reality that about a billion people or more live with. It's the same for war zones. You know, Syria will eventually have peace. It always comes back. And what happens? People come home. The millions of refugees. And they're going to be people living in their homes, people living on their land, the things that they thought were there is, that they abandoned due to war are now occupied by others. And they're gonna say that's my land, that's my house! And the squatter says, I survived the war. It spoils, it's fine. I said, well we'll go and settle this. So you go to the Land Registry. And you know what? It doesn't exist or if it does it's been manipulated. It's been shredded. It's been mutated in some way to meet the needs of Isis or whoever the heck came back. So who owns it? Person there knows that's a reality that every single war refugee lives with. It's just a fact of life it seems.

00:04:11

CH:
Then let's talk about identity Anybody ever been to Vietnam or Cambodia? Countries like this, come on! There's got to be at least one or two. Ok we got a few people. Cambodia in particular has a big problem with identity. You can buy a passport. In some cases a Cambodian passport for under $100. So we say, hey, renew KYC and AML. Ok that's exciting. Show me your passport and your birth certificate. Everything. And guess what? I can be a Cambodian citizen, guys, for less than the cost of a decent watch. So does that mean that we have a stable identity space? Does that mean that when you see these documents you can rely upon them and if they're no good how do you build reputation and try and if you can't build reputation, trust, how do you do business with people that you've never met? Is that person qualified for a loan? I don't know maybe, maybe not. Is that person somebody you'd like to sell a product to online or maybe they're an outsource or a freelancer and they want offer their services. Would you do business with them if they have no reputation? If you don't have identity you can't build reputation.

00:04:49

CH:
You can’t, build reputation you can't work you can't get credit you can't do global business. With people that's reality. Literally billions of unbanked people throughout the entire world suffer from. So, this is a known problem. Okay? So then we also have the issue that when you want to offer these services to people in these places the costs grow exorbitantly large, so there's remittances that's when you send money home. So let's say you're from the Philippines and you have a daughter and you send her to go be a maid in Tokyo or California or Hawaii or something like that and every single month she diligently sends a hundred dollars back to you. The average cost of that for most places in the Philippines about fifteen dollars for every hundred dollars. Fifteen dollars just to move the money. You haven't bought anything. You haven't done anything. That's the average rate according to the World Bank.

00:06:11

CH:
World Bank also estimates the cost of credit so a micro-finance transaction so this is a loan under $100 for the unbanked for $100 loan is about thirty five percent interest to eighty five percent interest. Can you imagine getting a loan like that? How do you survive? How do you get ahead? How do you build wealth? Furthermore you can't get insurance so what happens when the rain comes and destroys your crops? What happens when war breaks out and destroys your property? Who covers that? You do! And as a consequence even if you've built something that can be taken away by an act of God a fourth Missouri event and again this is the reality that billions of people live in. So you say well how do we then solve this problem? What do we do? It's a problem that's multivariate. It's an incredibly complex problem. If anybody comes to you and says we can solve your problem, they're there to steal something from you or they're a deluded and delusional. They're crazy. You can't solve the problem you know. There, there's if you go to places like Africa or South America or Southeast Asia it's literally littered with the bodies of millions of entrepreneurs and would be saviors over the centuries who have come in and said we have the solution. We have the ideas. Just adopt this way of governing, just adopt this way of banking, just adopt as government structure or democracy and then suddenly all your problems will go away and it never seems to quite get there. Does get better. All famine and disease have gotten better over the last century.

00:07:36

CH:
But what excites me most about cryptocurrency technology is I look at it and I say this is a collective tool just like democracy was. A collective tool that we now have available to ourselves to use to potentially actually start resolving this problem as a group, not as an individual, not as a company, not as a country, not as a savior.

Reasons why the Cardano project exists[edit]

00:07:56

CH:
So one of the reasons why the Cardano project exists. One of the reasons why I entered the cryptocurrency space was to explore what capabilities foundational capabilities are required for me to give this tool to people across the world so that they can solve their own problems. I'm a libertarian at halt heart there's plenty of socialists plenty of communists. There's plenty of people running around say the government can solve everything and you know what, they're very well represented and they're mostly in control over the Western world governments. So they have absolutely all the freedom in the world to continue trying to save everyone. But there's not many libertarians with a lot of power. And now we have something at our disposal - this cryptocurrency. So what do we have in mind? What do we think we can do? well first off, Cardano is nothing new. It's just an extension of the concept of a cryptocurrency. And what is a cryptocurrency? It's basically a way of accounting facts and circumstance. It's a way of accounting value. It's a way of accounting ownership. So all those problems I mentioned, things like property, if you can represent money on a blockchain, you can represent property on a blockchain. And nobody controls that there is no notion of a central registrar that decides who owns what. It's just whoever registered and how you put records in and there's a social process to decide what that means. But it's not mutable by the local government and they can't be bribed to change records.

Public ledger and identity[edit]

00:09:19

CH:
That's the power of immutability and audibility. Then you look at identity. You say well you can put property in a ledger. Can't you put identity in a legend. Sure, there's plenty of beautiful blockchain standards that are starting to emerge in great ideas. It's turning merge about how to do that and once you have a stable place that you can put identity in a ledger. Well doesn't that mean you can start talking about are those actors good people or bad people? Yes you can! Just like on eBay. Once you have a reseller rating, you can be a good seller or a bad seller, right? You have good content, bad content similarly. You can say I traded with Bob and Bob treated me fairly. And because you have a financial system connected to it, you can do all kinds of things like, you can bond. Say if they screw you, you get some money and there's a guarantee you'll get paid and the escrow somewhere else. There's there's complex transactions that you can put in and these don't require a government or a central third party, like Facebook, to decide how that's going to work,

Lending system via smart contracts[edit]

00:10:16

CH:
For lending smart contracts can do all of these things you can basically build an entire decentralized lending system. You take exactly what Grameen Bank is done or Kiva's done or any of these wonderful firms that want to go save the world or Lending Club and you can put it all on a blockchain. If you want you can even entertain the idea of building a value stable currency something that looks like a cryptocurrency but it's baked to something like the pound, or it's the dollar and then use that as a lending asset. So all of these things are possible and there are literally thousands of entrepreneurs floating around the world who are very well capitalized. They have billions of dollars and they have a mandate to build these things. A financial incentive to build these things. Not because they want to save the world but because if they do they get rich and that's how you know the stuff gets done. Not when you bet on altruism it's when you bet on greed that's kind of the magic of crypto currencies as they brought this to the forefront. So we in particular at Cardano, we said you know first things first. For this protocol let's start from bedrock on first principles. There was one actor that was not represented in the cryptocurrency movement and it was just amazing to us when we entered this space. The Academy of the University before we entered in, they had all these small research groups occasionally writing papers mostly scoffing at the ineptitude arrogance and lack of skill, of cryptocurrency engineers. They would publish attacks. They would publish models, showing things couldn't be possible, but for the most part, if you showed up at a cryptography conference in 2014, like crypto or euro crypt and you say I do crypto currencies you know what they would say is say like oh sure, get over there. It was really hard. They didn't take it seriously. Why? Because you have amateurs implementing crypto. And we've been burt by this for decades. And so very rightfully. So people understand that you probably shouldn't do these things and when you have people running around claiming infinite scalability, free transactions latency in the milliseconds instead of transaction anywhere in the world and it always clears and there's never gonna be a failure and all the models are right and there's no actual rigor behind it, there's no peer review behind them. The Academy doesn't take you seriously. They throw you out. They consider you to be an undergraduate mathematics who thinks they've solved the Goldbach conjecture. you're ignored.

First academic research contribution by the Cardano project[edit]

00:12:32

CH:
And so the first contribution we made with the Cardano project is, we were very humble, we went to creative Research Center's we went to Scotland to Edinburgh. Just there we went to Tokyo. To Tokyo Tech. We went the University of Athens and we set up actual labs. We hired a bunch of people people with PhDs. And we said hey let's do some first principles foundational research on cryptocurrencies, so we asked questions like what is a ledger? A blockchain?! What is that? Do we actually have a good definition for this do. We even know what properties it's supposed to have and we know when it's secure and when it's not secure. Turns out we didn't actually have an answer to this. So wrote a paper about it. Paper went through peer-review, then we said, okay, this proof of stake thing, it's kind of funny. Some people say it doesn't work. They say that doesn't work very loudly over and over again. Do we have an answer to that? Does it work or not? Is it secure and under what conditions is it here? Is it practical? Can it ever be fast? Did the economics of it work out? So we just started publishing papers. We published Ouroboros and Scrape and Ouroboros Prous and we have Ouroboros Prous let's here blockchain from a Bootstrap from Genesis so BG and then after that we'll have Ouroboros Hydra we have a whole list of papers we've written and it's taken me from California and in April I’m going to Israel to Euro Crypt. And we present these papers to the academic community and you know what's happened they're actually taking this seriously now. They're saying wow people are actually taking the effort to show that there are interesting problems to solve. We can augment our CV’s. We can get tenure from actually getting involved in this space it's not all just scams and ICO’s. There's academic merit to the things that we want to do. And now we've seen dozens of scientists start writing more papers. If you look at the amount of publications from 2015 to 2016 the 2017 to this year they just keep drawing up by a curve like this. There's tons of money being flooded into the space. So that's the first thing is, you have to get the academy involved. You have to get the adults involved in this thing and you have to actually understand what are the problems you're really trying to solve and they're not just technological problems.

00:14:32

CH:
The reality with crypto currencies is that while cryptography is the interesting part and that it's actually the least important of all the parts because once it's done it's done you have sociological problems, you have cultural problems, you have legal problems, like we all love DAO’s decentralized autonomous organizations. Why aren't those cool? So can you sue a DAO Canada on property? Maybe, maybe not. Who knows when something bad happens, like the DAO owns the chemical plant and it spills into the river killing a bunch of people. Who's liable for that? there's a Bhopal disaster from Bhopal Dao. I don't know. We don't have any answers to any of these things. That's a legal question. That's a regulatory question. That's a cultural question. And there's gonna be a lot of answers and opinions. So OTT we go and engage people to answer That. Thought we can go and engage policymakers to answer that, you kind of need to have that notion because it's not really different from these problems of the developing world when a bank says you need a credential to do business with us and that satisfies compliance, satisfies KYC and AML. Know Your customer and Anti-Money Laundering wouldn't it be nice to. Say that this block chain based ID that we've built which is unfortunate, which actually has a high degree of assurance behind it, which is global, in that you can move from country to country and use it is just as good as a US passport or a British passport. Do you think that there's a technology chuckle solution for that? No! I can come up with the most secure, amazing, beautiful thing in the world, the government has to adopt it. It has to be accepted in some capacity or merchants have to accept it. That's a social process ultimately. So the first step was that we got the academy evolved and we created a very broad research agenda with Cardano with the help of the Cardano foundation and distributed futures with the help of our university partners with the help of a lot of independent researchers throughout the community. They just came to us and said hey we'd love to write papers with you and we just started writing papers and we said boy that's interesting. Are we done yet? No! Not even close! The next step is you actually have to go talk toeople in countries you want help. That's a novel idea. You know I was in Silicon Valley, not too long ago. I saw these kids with their hoodies were going around say oh man this is gonna be so great for Africa. I say that you might be right. You ever been? No I never been. It's just insane. Rich kids in California think they can go save the whole world for places they don't know anything about, don't speak the language never been have no material connection to.

How Is Cardano going to change the world?[edit]

00:17:02

CH:
The only way you're gonna change the world you have to go there and you're not gonna be the one doing it. You have to be humble enough to let the people there do it. So how do you do that? Well I'm an academic and I tend to believe that most solutions are in some way education related. So you go teach people how to use the tech. So we said alright let's create an education department on IOHK Let's actually go teach people Haskell. That's the first step. Gives them a tuned with our stack and then eventually we can talk about blockchain tech and smart contracts and these things. But we have to just get used to teaching people. So we said let's run a pilot course in Athens because we have a very strong base there to get the curriculum right and then we immediately went to Barbados which structurally speaking is has a remittance culture. It has credit problems it has banking issues but we have very strong partnerships there and right now we have a whole cohort of people in Barbados with partnerships, with the University of West Indies learning Haskell. First time it's ever been taught ever in the history of the country. That a class of this was actually brought in and one of the creators of Haskell even flew out to Barbados to teach people. Phil Wadler, he's a resident professor in Edinburgh. Wonderful guy. They call him lambda man whereas a big lambda like Superman on a shirt. So we sent them out and you know what the next class will probably be done in Ethiopia. That's the next step we're already in negotiations and conversations with people on the ground. In fact one of the people doing that is even here today. His name is John O'Connor and that's just the beginning. Once we have that model we'll train a large group of people there. Some we’ll hire, some will be able to go on, some will get access to capital through venture capital and things like that. And teach them how to crowdfund and then they'll be able to deploy software on our platform so that's one side of it is that you have to create a base of people in the country who have an incentive to care and actually understand how the tech works and you actually have to go.

00:18:50

CH:
Myself, I'm going. I was going to go this month but traveling too much, so maybe April but now first half of this year I'll go and I'll just keep going back and back and back and till I either I get it done or die. So we'll see which one happens first. Okay? But are we done? No! No! Not even close. See, once you have infrastructure, once you have substance in the jurisdiction, the next thing you do is you go and talk to the local government. They're not mean, evil, oguri people and they're all super corrupt and they go from door to door and steal. The reality is this is their community. They care about their people. There are problems and there's certainly endemic corruption but for the most part people want to do the right thing. So you go and talk to those people and say, you know, we all really want to solve this Land Registration problem, don't we?! And they say, of course we do, you say let's run a pilot. The advantage we have is we're gonna have this beautiful peer-reviewed technology written in Haskell with formal methods that really is top-notch. It's the type of stuff that you would expect to see from NASA. It's the best software. The absolute best! But we can then actually have local people on the ground implement this for the pilot so you say I'm gonna run a pilot program and a hundred percent of the developers are going to be people in Ethiopia, for example, or Ghana or Kenya. That's not something you can do in California, can you? And that's not something you can do in New York or London. You actually have to be there and so you run pilots, you say we're going to start putting land registration on a blockchain. It's, oh that's so cool. You know what happens? It becomes so much cheaper and more efficient to maintain and manage. The government ask, God why aren't we doing this? And there'll be a huge amount of resistance and pushback but eventually you'll get there. It's the same for identity, it's the same for voting, it's the same for a litany of service and features.

00:20:29

CH:
So you kind of grow in that particular direction but then you have to create a financial incentive for people to adopt these things. Well guess what? There's a wonderful economist named Hernando DeSoto Pilar, and he writes all these lovely books and articles and things talking about the liquidity crisis so it's not that Africa's poor or South America's poor. Venezuela is actually resource-wise, one of the wealthiest countries you can find. They have an enormous oil deposits. There's a lot of potential there. They're just poorly managed. So would anybody here give credit to someone? No? Why? Because they don't think they’re gonna get it back. Would they buy something? No, because they think that the government's going to seize it. Okay, so this is a credibility problem, it's a governance problem. Well guess what? What if you can disintermediate the government, the middleman from these types of things and you can tokenize natural resources? You can tokenize labor, you can tokenize property. So you can securitize all of these types of things and you can do it with blockchain tech. You can do it with these tokens. ICO’s aren't just good for auger. And they aren't just good for..uh Tokens aren’t just good for crypto Kitties. It turns out you can do real things with these platforms. So, let's go and try that. And if you look at Hernando DeSoto Pilars work he says if you count the locked up liquidity in these countries, it's in the trillions of dollars. So it's a great paradox where there's tremendous potential value in places, that if only it could be accessed, if only it could be securitized, if only it could be released and given to the people in some efficient and fair way then actually the poverty would melt away very quickly and these could become some of the wealthiest countries in the world.

00:22:10

CH:
So that's the other thing we're really going to explore as we enter these jurisdictions and we start training people and we do pilots with the government. We're going to go to places like for example Guinea where they sell bauxite. They have about 1/4 of the world's supply of aluminum. Good figure. And they sell it to Rio Tinto and to China for two cents on the dollar. They get screwed you can go to these guys and say hey for a small deposit over here why don't we securitize that and make a futures token that's connected to the total supply of it you say ah but Charles what about these corrupt Politicians? Well, guess what? We have corrupt politicians in the cryptocurrency space they're called token founders. So you what does the token founders get? They get a pre-mine. So why can't we just give the politicians a pre-mine with the tokens? Give them 5%, 10%. They'll make a better deal. I can outfit China with this deal. So you can leave some of the corruption and if you have to and you can still actually be much more fair, get a much better price and once the system is known, it's not my system. It's known. People know they can make money from it. When we started Ethereum, guys, it was at the time the largest ICO in the world. 18 million dollars. Today that would be a failed ICO. Think about that! For a half billion I think have been raised. I went to the ICO summit in Zurich just to walk around and talk to people. At the time I went, last year, there were 46 ICO s going on that day and we were one of the first and one of the largest and now it's actually one of the smallest. So when people learn that they can raise money, when people learn that they can use a tool to enrich themselves, what do they do? They go and use the tool. It's just like being an iPhone app developer. As soon as people realize, people bought this stuff. There were customers to sell to. A lot of people went into the field and they did pretty well for themselves. So that's the key is that you don't actually need to solve it globally you just need to do a proof of concept. You need to show em why it's faster, why it's better. You need to show that people on the ground can actually solve that particular problem. You need to show that you can get it rolled out and make it understandable and then you need to show people can make money from it a lot of money and then everybody says me too and competition drives a tsunami wave of people in including my blockchain competitors. If we're successful no doubt EOS will come in and boy Dan Larimer will claim you invented it and then Tezos will come in and all the others will come in too with their billion dollars of capital and say boy this is the market to go with. Man I'm excited about this stuff, all right!

Solving the intermittency issue and the cash-in-cash-out issue[edit]

00:24:41

CH:
Okay, so are we done yet? No. N! We're not done yet. We need to solve two more problems. We need to solve the intermittency issue and we need to solve the cash in, cash out, problem. I suppose three, the value stability as well. So we'll get we'll get to all three of those. So for the intermittency issue, what does that Admit. Say you don't have consistent internet all throughout places with bad infrastructure. So you go and say ah I will solve all the problems of Africa using a system that requires you to have 24/7 reliable internet and power. Yeah, okay. In 25 years maybe that's a good idea, but guess what? You don't have it. It was the same from the people who wanted to bring vaccines to Africa. What was the issue? Well, they couldn't refrigerate them, so they spoiled all the time. So you could pay for them, you could create distribution channels, you could get them into the right places and you couldn't get the people to the right place as fast enough. The vaccines went bad because he didn't have power to refrigerate them - just that simple, right?! Too expensive to give everybody a generator. Similarly it's too expensive to go and put fiber-optic cable all throughout the country it'll come in time, but it comes as a consequence of prolonged wealth of a nation. They can improve their infrastructure. So how do we solve the intermittency problem? Well, there are two ways you can do it: One is you don't solve it, but you still get away with it, and the other is you solve it cleverly. So the don't solve it but get away with it part is to say wait, wait a minute here? Do these transactions really need to happen online? No they don't!

00:26:14

CH:
So this is a cellphone. Anybody here have one? A few people, okay. Well guess what Sony and all these other guys they apparently like this thing called copyrights and software licenses and they want to rent you movies and stuff like that. And when you have DRM it's real hard to do in software. So they said, boy wouldn't it be so cool if we built special circuits in your phone for DRM and we'll, we'll wrap it in security and everything to make it more consumer friendly, but, you know, basically it's I want to do key management so when you rent a movie the decryption key deletes in 24 hours. Simple concept. Big economic incentive to get it done correctly. So what if those circuits were programmable? What if other people could use them? And guess what? You can! It’s called Intel SGX. It’s called Arm TrustZone. These hardware secure modules exist and here's what they allow you to do. It’s hardware that can't lie. So when you run code on it it's just going to run the way it is and it's signed by the hardware vendor not by you. So you as a user of the device don't have control over how that code executes. Trusted hardware is really amazing like that. Well, it turns out that we could repurpose trusted hardware to do offline off chain transactions. Well how would that work? Well here's what you do: You create a special address on the phone. you load it up and it's basically one-time use and then when you want to transact it you move the private key to another trusted Hardware Enclave and once the transaction settles the key is destroyed on your phone. Another person you've sent it to is the only person with a copy so from the blockchain’s perspective no transactions happened. It’s as if nothing occurred but what you've done is you've move access from one device to another device and the device receiving gets a guarantee of uniqueness and a guarantee of destruction and this can be done over Bluetooth, so that means anywhere in the world you can have instantaneous settlement movement of funds without being online. And the party receiving those? They've actually received the money and it's totally anonymous. Think about that! Trusted hardware lets you do these things! It’s pretty magical like that. So that's one way of solving it.

00:28:15

CH:
So we set up a trusted hardware lab at University of Edinburgh and we'll make an announcement about it soon but boy it's real special. We got some very good people there and we're doing it in partnership with several hardware companies and we're gonna dump a bunch of money into it but the beautiful thing is once it's done it just runs on your phone it just runs in your laptop because these capabilities have been given to us by arm and by Intel. So that's one side of it is solving intermittency through offline off chain payments but it would be nice to have internet connection if anything because there's a democratic element to these systems. You'd like the vote, we'd like to do these things. So why don't we give people a second internet called Mesh Nets you can do that or you can use satellite uplinks block streams. Experimenting with this so it turns out that apparently it's getting cheaper to launch things and it's apparently getting cheaper to rent satellites back. I'm gonna, Apparently it's getting cheaper to connect to these devices that for not a huge insane amount of money like 50 to 100 million. You could get reasonable satellite coverage of most of the impoverished areas of Africa. As an example, Tezos has raised, what, a billion euros. The same. So these are in striking distances for our projects, given the capital that we have at our disposal in the market capitalizations that have been granted to us. People say why is Cardano worth as much as SpaceX? Well I guess we have to go and do a SpaceX thing if we're gonna be worth that much. So, guess what? These things are in the striking range and once you have that, it means then you can talk about being completely off the grid, just connecting pretty much anywhere you'd want to connect, relaying transactions into these networks and because their proprietary, because they can have custom hardware, well, that means you can put all kinds of cool things in. You can put trusted hardware in the satellites you can put RINA native support into these things so you get all this beautiful second Internet crap. It just makes it magical. So one of the goals of the Cardano project is to explore things like Mesh Nets and explore things like satellite connections with partners and some local innovation to figure out how are we going to resolve the connection issue.

00:30:16

CH:
We’re not the only company in this space. There are dozens and there's dozens of really good ideas that are being proliferating. And UAB tests them. aAd the advantages, guess what? We’re already going to be in the jurisdictions. We already have local partnerships. We already have government relationships by the time we get to this. So it's real simple for us to go and run this in five, ten countries and see how it works out. And if it does, we have an economic incentive to continue to roll out. Now the other problem is cash in cash out. What does that mean? Well you have this thing called a Bitcoin and have you ever tried to actually buy anything with a Bitcoin here in England? Anybody actually buy something with a Bitcoin? Show of hands. Okay, there's a few people in a relatively well-educated cryptocurrency friendly audience in London who have actually tried to use a cryptocurrency to purchase something. So outside of the economics of it, you're just not going to get efficient exchange for these crypto assets If you send them to people in countries. So for example, if you're in the Philippines, you're in your Manila and your daughter's in California, she sends home $100 worth of a crypto to you. Every single month she gets it, that's great! Now, how does she convert it to pesos? Who does she go to? The local Bitcoin trader in her neighborhood? Yeah, there you go. Some hustlers man. Right. And what rate do you think they're gonna give her? And she can get robbed. Okay. Yeah. So that's one of the fundamental problems. Is that even if we have the second parallel beautiful crypto economy worse left with two options one is to grow so insanely large that people just start accepting it for products and services. We might get there. That’s going to take a while.

Creating exit points for ADA[edit]

00:31:54

CH:
The other way is, we could go about creating exit points. What are those? Exchanges. ATMs. These are exit points. Make sense. So how about we do this how about we go and invest some time effort money into building a really low-cost ATM that can operate off-grid. That can act as an open source exit and entry point for people who want to trade. And let's try to get it under five hundred dollars for the price point to build one deploy one get it installed. That’s a sweet spot. If you do that I can put a thousand ATMs for a half million dollars that cover most of a country, for most places if you're strategic about it. Okay. So once you have that then it can run off grid. Once you have that it can act as a lending point where people can withdraw money and for a microfinance loan. It can act as an identity hub or it can create cryptographic credentials and sign them up. Once you have that it can act as an exit and entry point and you can partner with networks of traders and market makers to give people the best possible price on the assets they're selling, relative to the local currency. And I won't a have to own them. You give them to small business owners. Well, who are these small business owners? Well, they're the relatives, friends and in some cases students of the classes we host and of the meetup groups we set up. It’s very simple. And for them it's just another product. For them it's just another thing to make some money from. So that's an example of how we can go about thinking about the cash in and cash out point. Well there are regulatory issues. There’s infrastructure and logistical Issues. So it's not an ideal solution, but once these things exist they can service at least some subset of a population who in turn can actually act as local traders. Kind of like local bitcoins in that respect. And you can at least get slightly better cash in and cash out points. And they're sufficiently cheap that I can deploy thousands of them, without breaking the bank. And if you have satellite connection that you can connect them directly there, and they're online 24/7, with a very high throughput, with Reena and trusted hardware. You get hundreds of thousands of TPS on these systems for a network. So the that's the cash in cash out point.

00:33:58

CH:
Now there are other firms that think about this like BitPesa and you know this is a big topic at Davos and so forth, and again, we're not the only player in the space, but the goal of Cardano is to try to meet these aspirations and goals with academic rigor. All the things I mention are things born of science. We can start there. We can start with the cryptography. We can start with the distributed systems theory. We can write papers and work our way gradually up to the actual hardware and work our way gradually up to the social processes and then it's just a matter of experimenting. It's just a matter of playing around and getting good allies and having fun with them. When I start in the Bitcoin space guys there weren't a lot of people. I've been in this game for a very long time and guess what when I had my first Bitcoin meetup group, well the first one no one showed up. It was three people registered, nobody showed up. The second one five people showed up and two of them really hated each other and they sat in different sides of the room and look how big we've gotten in just a very short period of time because people get it. They’re in charge of their own destiny now, their own property, their own money. It’s pretty magical when you really think about it this idea of having a payment system that no one owns and by extension a voting system that no one owns and a Land Registry that no one owns. That’s magical. And so we have a moral obligation to try to explore and proliferate this technology to as many people as possible, because then at least somebody is going to figure out how to get it to everybody.

00:35:20

CH:
Now the last problem is the most difficult. It's one we actually as an industry don't know how to solve yet and that's the value stable currency problem. And this is the most common complaint amongst anyone who actually knows what they're talking about. They say, Charles, Bitcoin will never stabilize, it's kind of like gold. It’s a commodity and in certain price respects you have relatively stable supply at any given time. And demand is all over the place of the price fluctuates? Right?! So it's some pipe dream that somehow magically off into the future, off into the distance, that Bitcoin will achieve some low volatility, much lower than the dollar. It's not gonna to happen. Not with the way the supplies function works. So you can't do credit with it. Why? Well, as an example Bruce. You’re gonna be my volunteer for the day. We’re gonna go back in time. It is December 30th 2012. Okay. Now I need another volunteer and show of hands. Okay. You guy. What's your name? Alex. You got a phone? Okay. So, look up. What it was the historical price of Bitcoin December 30th 2012 and so the interest of time while you're calculating I'll estimate that. I think was around $10. Okay Bruce so I make a deal with you. I say, all right, I'm gonna give you a 10 Bitcoin loan. Are you ready to go? Okay! All right. You got to pay me back 11 bitcoins as of December 30th 2013. No, that's not too bad. Maybe 10%. Okay. So I think the price of Bitcoin was around $1,200 at that point. Yeah. So how did you come out on that loan? So he said, oh well, this, this was.. Yes sir…

00:36:57

ATTENDEE:
<…> 00:36:57

00:36:59

CH:
Well, hang on. The Q&A it's coming next, so we'll talk about that. So then you say ah well, we'll go in the other direction. Well, let's go to December 2014. Obviously he's still winning, right? No. Bitcoin went way down. It's like two hundred, three hundred dollars. Okay so it, you lose in both directions with lending when you have an asset that is unstable. So you can come up with schemes, like you say, okay, we're going to create an overlay asset in derivative. Some party takes the risk. The other party gets stability, like a contract for difference. You can create central authorities to issue value pick currencies, like Tether, and say, okay yes, we promise we have the USD, ask our auditor. When we get a new one you can do these types of things. Sure, but at the end of the day would be so nice to have an asset that's just like Bitcoin. It's decentralized. There's no promise, but it has a reasonable degree of stability. So that when Bruce enters into that loan he knows that he's repaying with relatively stable value that is the hallmark of modern economies. Economies don't work when you don't have credit, because you can't buy things that you need to buy to get ahead in life. You can't buy an education. You can't buy a car. You can't buy a house. You can't buy heavy equipment. You can't start a business. The basic things you need to do to get out of the cast your in into a higher caste you can't acquire, and so it's no coincidence that in countries that have unstable money the social pyramid is a true pyramid. There’s a few people at the top who have no need for credit or can easily get it because they're the powerful people and everybody else can't and so they can't get ahead in life. So that's the last mile of cryptocurrencies and that's the one thing Cardano hasn't quite gotten a good strategy or philosophy around, because it's an industry-wide problem. Now we've seen tons of ideas. There’s maker Dao and for lending there's things like salt and when I was with bitshares bitusd and then this steam dollar came later and everybody has their favorite solution, their favorite idea bout how to do these things, but you know what, what we entered into space in 2015 we didn't really know about consensus. We said we think we know what a blockchain tends, but we're not so sure and we think we know what proof of stake is, but we're not so sure.

00:39:16

CH:
So we aggressively wrote a lot of papers and now we have a really good idea about these problems. So we're starting a research agenda this year about value stable currencies and that's something we expect it makes some headway and progress on by probably next year but it's the last part of the system you, like some of the infrastructure you get the education, you get people into the jurisdiction. There is no silver bullet. It's just a series of experiments. It’s a series of hard work and hard labor, and it's a serious travelling and meeting people, talking to people, getting to know their stories. There’s no difference. So that's what Cardano is going to do for the developing world. And we are already starting to do is that we're thinking real hard about how can we make the crypto work best. And we're thinking real hard about how do we make this platform scale to a huge size so that when we get the users we can support them and then we have education initiatives, hardware initiatives, all these things that we're starting to roll out that we think will help solve problems like cash in, cash out intermittency and eventually we hope to be able to solve the hard problem of value stability. You know, even if we don't, people know it's a problem to solve. Someone will get it done. So that's Cardano for the developing world.

What is Cardano? A brief explanation[edit]

00:40:17

CH:
Cardano is a project. In general, for those who don't know, who came and said God, he's been talking about Cardano for 40 damn minutes and didn't even tell me what it is, it's a cryptocurrency. See, and it's a cryptocurrency IOHK is building, working with the Cardano foundation, Emurgo and others. And we're building in a very rigorous systematic way, and a wonderful language called Haskell and with formal methods and we have some great engineers here actually. If you want to talk to them after the presentation who can tell you a bit more about how the tech works and so forth. We have a wonderful website called Cardanohub.org You can go there and learn more about the project and you can always follow me on Twitter. So here begins my favorite part, that Q&A. Thank you guys so much for your patience and listening to me ramble in my extemporaneous presentation. I hope it was somewhat good and I'd love to have your questions. Thank you.

00:41:02

AUDIENCE:
Applause

Q&A[edit]

00:41:07

CH:
Yes sir. Thank you. You introduce yourself first

00:41:12

Thoughts on China[edit]

CLIFF:
Right. My name is Cliff

00:41:12

CH:
Okay


00:41:02

CLIFF:
I'm originally from China. I've lived in London for since 2003. So my interest is about China since you talked about developing countries, which China is the biggest. But I think China's different from those ones you talked about because it's got Internet, it's got banks, and it's in some, to some extension it's the.. high tech is even more advanced in China than some of the developed countries so…


00:41:43

CH:
You can pay with WeChat

00:41:43

CH:
Yeah exactly. Yeah. So you don't need to use cash. You don't need to use credit card. It’s all mobile payment - the share economy. So there's huge power from China as well because if you see, look at that, like top three exchanges in the world, like three of the top five are from beautify Chinese people. They’re not necessarily based in China for example..

00:42:08

CH:
Or Hong Kong. Hahahaha

00:42:11

CLIFF:
Or Hong Kong or Tokyo right yeah and so right now it's very like everyone's asking what's going to happen in China next? You know, they've banned ICO and, and they, basically I've got lot lots of friends who are interest in this and this but putting so much money but they are not sure so what is your view of this and I, especially in the long term, what's going to happen in China in your opinion.

00:42:39

CH:
Right. Opinion. And I suppose I should have an opinion on this because the HK and IOHK is Hong Kong so we might have some knowledge of the jurisdiction. I don't know. I don't promise. So China is a difficult nut to crack and as a non-Chinese person it is a very alien culture to me. I tried very hard to understand these things like I, I went and watched this whole lecture series on the history of China and I learned about the Mandate of Heaven and all the dynasties and so forth. I said I understand China and then I go, go to Shanghai and I'm like, no, I do not. So that's the first part is that China is going to decide its own destiny. It always has, throughout all of human history that's the one country that seems to have the right to do that. And China currently has a government that likes to have a tight grip of control over the financial autonomy of its citizens, so they're okay with WeChat and they're okay with the People's Bank of China issuing its own cryptocurrency because at the end of the day there's a, a change function. At the end of the day. There's a KYC AML component. The end of the day if somebody's doing something they don't like who is disruption cultural harmony, I think is the term, that they can address that issue in a very Chinese way. So and you can infer what that means. So you know it's kind of funny because I saw the same thing you saw. I saw the surge of Chinese Exchanges and Bobby Lee and the other guys. They were doing very well. <…> (00:44:04) was doing great. They were making a lot of money man and, and I said, you know we're not gonna go into mainland China. And all my competitors thought I was crazy. They said, oh come on man, you're right there, it's across the pond. Go do it. So well, yeah, but what happens when they figure out they're gonna fake capital controls with this, and it's not just politicians doing it, it's actually everyday people sending it to their cousins in Toronto who then sell the Bitcoin. Yeah, it's not gonna last too long. The other thing they have this thing called the ‘Great Firewall’. Yeah. They like their big walls there. They went from physical to digital. Trump should learn some things so, so what do they do? Well, that wall can filter Bitcoin traffic.

00:44:39

CH:
You can filter a cryptocurrency traffic and the other thing, all that mining power can, you guys, move a mining pool easily. Is it simple process? So you just like grab the miners and take them in the middle of the night, you know, Washington style. You know, moving as troops. Fleeing fleeing into Manhattan. No, no you can't. It’s hard to move these things and they often run off of stolen or subsidized power. So it's a difficult question of what is gonna happen there. If I had to guess hazard a guess, what's gonna happen is that state-controlled industry will nationalize the exchanges and they'll reopen. That's the first step, is that there'll be a transfer of power. Maybe some of these guys like Bobby will stay around but they'll stay around with a new member on the board, who happens to be connected to some bureau somewhere KYC AML will get much harsher and they'll get a much cleaner clearer sense of who are using these currencies. And then there'll be some form of a social stigma that they silently pushed their way through. And for a while the innovation will do what it always does. China doesn't give up, they just go into the shadow. They'll do it in Macau, they’ll do it in Hong Kong and they'll do it in Japan and so forth. But this technology has a great way of teaching people things. You know, when Bitcoin came out everybody thought it was crazy. They said these magic internet tokens that aren't backed by anything, created by an anonymous hacker on the Internet and you want me to buy it? They give you a look like you're a green-eyed monster. Now the question of can a Bitcoin have value is a silly one. Of course it does! Everybody agrees that in fact so much. So we have Forbes with crypto billionaire list, yay, right? Right? We just all assume these things have real value but they’re still the same magic crazy tokens they were ten years ago. But somehow they just changed, right?! So it has a way of changing people's perceptions about money. It has a way of changing people's perceptions about how money should work, like why do we have capital controls? What use is it to you to have a capital controller? You'd have a capital control not so much it's a limitation of your freedom for that greater good, right?

00:46:41

CH:
But if you don't have to follow the greater good, well, people just don't. And so I think what's going to happen is, we'll have an underground economy that will run kind of like a pachinko style economy and it'll just do its thing and it will continue to fester and grow and fester and grow. And this generation of leaders probably will deem it very harsh but eventually there'll be a sea change there was in China used to be under Maoist philosophy and then they decided to become capitalist in their way and eventually China will embrace it and they'll do it in a very Chinese way. It's a different Chinese way than the other Chinese way and it'll end up becoming a powerhouse and I feel that China will, in the long term, be one of the strongest cryptocurrency countries around. But if in the next five or ten years it's going to be dangerous, if you're a Chinese entrepreneur in cryptocurrencies you have two options: you just don't make a lot of noise or you move and you live in exile for five or ten years. But that's okay. It’s how the world works and they'll watch South Korea and Japan gain greater prominence and greater competitive edge. They'll watch lots of cool innovations and technologies come out in those countries and not in theirs and eventually some people will find ways to get it embedded, and once it's there it'll be there forever and the good news is that everybody uses a cell phone so the adoption curve will be very dramatic. Next question. Wow whoa. All right Tom you got a hard decision.

00:48:04

TOM:
The guy in the red.

00:48:04

CH:
All right. Magic Mike

Transaction fees in Cardano[edit]

0048:08

LUCAS:
My name is Lucas. I have a question. You mentioned you can make transactions on Cardano. Is there any fees involved when you make a transaction on Cardano?

00:48:20

CH:
Yeah that's a great question. So do transactions need fees or not and we get this question a lot so transactions always cost a fee. ALWAYS!

00:48:29 LUCAS:
But when you…

00:48:30

CH:
Hang on. My tern to talk now Joost. Transactions always cost a fee because somebody has to store the transaction. Somebody has to broadcast the transaction. Somebody has to process the transaction. Is energy free? Are CPU is free? Is network bandwidth free? Is hard-disk space free? No, so the question isn't is it free. The question is who pays. And we had this debate a long time ago with credit cards. With credit cards there's a processing fee for accepting a credit card. So the first question is, should the customer pay that or should the merchant pay that, that processing fee. It's a good question right?!

00:49:07

LUCAS:
But the question is like those days you can send an image you can send the voice message you can send an email for free to anyone.

00:49:07

CH:
Hang on. Hang on. You’re not. You have to pay to access the Internet and somebody has to pay to store that email. So how does Gmail do that? By having access to all your emails and reading all your emails and being able to serve ads to you. So how is that free? If it's free you are the product. That’s always been the truth. So how do we pay for it with EOS and these other guys? They pay for it with inflation. Somebody at the end of the rainbow gets compensated with it, or it can build a business model for it, but they have to pay out of their pocket, some way or another. Now you can also do it with transaction fees. But here's why I think this is such a silly silly thing. It's not a USP. It’s not a competitive differentiator. You know how I can reset transaction fees in Cardano? One parameter! It’s not hard. So if there it turns out another model is more competitive for adoption, which so far it has not been, the dominant transaction system is Bitcoin, is Ethereum, then we can just go to a felis model where we compensate processing using inflation, as other people do. It's simple! To do this it's not a USP. The second point is that you have to understand that this is a more complicated issue than just interaction with business. There are all kinds of non-financial transactions that people would might want to do. Let's say, you want to use the blockchain as a storage broker like you want to put a check point on the blockchain. Should you just be able to do that for free and put kilobyte here kilobyte there kilobyte, and include it with a hundreds of gigabytes?

00:50:44

LUCAS:
So that is a decentralized network. So who’s getting that fee?

00:50:50

CH:
It goes to the people who maintain the system and also if you have a Treasury it goes to the system itself. That’s the other point of transaction fees which are so nice. Inflation always hurt you. My grandfather bought a house long time ago for $5,000. How many people here can buy a house for $5,00? In Detroit maybe. Bute it's not gonna be a good house, okay, but his house was great. 2,000 square feet, half acre land, beautiful white picket fence - the American Dream! Why can't he do it anymore? Because the Federal Reserve debates the dollar and eroded all of its value over an arc of time. So if you achieve global large-scale adoption and the only way to sustain the system is to print money and print money we already have that it's called the dollar. Why would we want to embrace that kind of an economic system? It’s better. It’s managed by a big army there's like good people behind it. It's not decentralized Network Kabuki. So that's my first point but I could be wrong and I freely acknowledge that. Actually the credit card example I was bringing up supports the free list transaction model: the consumer doesn't pay the merchant pays. And that model worked, so maybe that model makes more sense. There’s a reasonable philosophy behind it but to me if I'm gonna have a Treasury paid for by transaction fees, and I don't want it to debase my money over and over and over again, it might be good to embrace some zero economics where when you do something you consume something as opposed to debasing everybody's money equally

00:52:15

CH:
The people who use it should pay. Now you also can build overlay protocols which have free transactions. It’s entirely possible to build something like lightning and allow a person to use these types of things and live in these types of networks and create special hubs that when you send money to them and back they're free. I can build a special transaction type for that. So I can say this is the slow high fee settlement system and this is the high speed free system that people can use subsidized through some other methodology, may be a compromise of privacy and Facebook get your data or maybe inflation. There’s plenty of ways to do that but the point is it's a nuanced conversation and it's one that comes out of market dynamics and it's one that comes out of empirical evidence after you roll out a system and once you do that, if you're wrong you change and everybody. Software is supposedly open source so you can borrow whatever innovation your competitors have as they can mind. And if you're right okay, you keep it. But that's the point about this and I think this is what people miss about the economics of these systems they're not set in stone. The payment models aren't set in stone. None of the things I come up with are right. The only person who gets to tell me if it's right is you, the audience, the market. Over an arc of time, based on the price of the token, the adoption of the token, the utility of the token, the merchants who have adopted it and used it. There's been, the world is littered with beautiful elegant protocols which are more right than the ones we use. For example PGP. It is great encrypted email. It's free to use right, under that mall. We should use it but we don't. Why? It’s too hard.

00:50:50

LUCAS:
Who is controlling actually the, the, the fee?

00:50:57

CH:
Ah, that's a good question. So how do you have decentralized governance? And this is where it all stems down to. The problem that hasn't been solved in the cryptocurrency space yet, which is one of the planks of Cardano. The sustainability plank is the idea of sustainability, Treasury and voting on changes to the system. So who should vote? Well, the people who own the system i.e. the people who have the tokens. Create a democratic system that people can propose changes to the parameters of the system, whether it be block size or it be transaction fees. To go to a fee system or felis system and guess what, Charles Hoskinson can lose that vote. If it's truly decentralized you don't need me and I shouldn't be able to influence one way or the other. Similarly, if you have a Treasury component connected to it, which is filling up from those transaction fees, that money now is a toll for the common good of the system. It’s a toll that allows you then to reallocate funds to subsidize development events, competing clients, research, all of these things without having to do an ICO and trusting a central entity or without having to result to believe in the beneficence of man and hope that somebody's just going to donate a lot of money to solve your problems. If you're going to build a serious global scale system with billions of users, that system by definition needs a decision-making system within it. And that system by definition needs to have a way of paying for itself. And if it doesn't you're dead in the water because you're gonna get them anyway, but you're gonna get the wizard behind the curtain. The dictator who actually controls the whole thing and that's what we have right now. We have a shadow banking system. We have all these central banks around here that we don't elect and we don't have a lot of control over who make decisions that we're not even privy to that control the value of our money. Control the price of our credit, whether our country fails or succeeds. We don't vote for them but they're there and we feel them. So the magic of cryptocurrencies is we get the same system in terms of utility as the old system, if not better. And I argue it is better. But it's all out in the open now and you guys control it not me. I just pushed the first domino, that's it. And it's a cascading reaction. Next question.

What about compliance?[edit]

00:56:10

STEFAN:
Hi. Stefan. Thank you for, thank you for your time this evening. I've spent the last decade and in the

FCA regulated FinTech industry…

00:56:16

CH:
Okay

00:56:16

STEFAN:
…in London

00:56:16

CH:
I'm so sorry. How is compliance for you?

00:56:21

STEFAN:
I've learnt to love compliance.

00:56:23

CH: Hahaha

00:56:21

STEFAN:
One of my specific areas of interest around blockchain and crypto is how can we launch, build, launch, you know, one of the world's first FCA regulated businesses whether it's financial transaction processing on the banking side trading side in the inshore tech space or even other solutions are the crypto based solutions like you know a POS solution. ATMs and speaking to the different vendors at the moment I'm trying to see how we can create the bridge and go to market and go mainstream under the umbrella of the FCA. Can you please comment on some of the challenges you've seen or you're seeing in this area and how as an industry, and I would say the 2.0 of FinTech, how we can address these issues and go to market.

00:57:14

CH:
That's a great question and actually you get two answers to that question. One that comes from me and there's Michael Parsons up there who's an expert with British regulation. So he either today or later or during the, the meet and greet you can talk to him. Okay so I get this question a lot and what I think about is what happened in Switzerland, because that's my personal model, so when we came to Switzerland with Ethereum the percentage of Swiss lawyers, the percentage of Swiss bureaucrats that understood Bitcoin was like zero. You go and ask them what is Bitcoin. They say, I read some stuff in the papers. Didn’t that used to buy drugs for something? It's like we started from there. That was our, that was our model. Okay. It was tough. Okay, so what do we do? Well, we found a lawyer in that jurisdiction who was very well-connected, named Luka Müller, and he runs MME Partners and Luka was a trooper man. This guy had a soldier mentality. He came in and he said teach me everything about crypto currencies. I want to know. So we start with Jerry Brudos papers and we just went through this whole thing, right. And he come in everyday like four hours a day and then I had this panic attack about a month into it because I, just dawned on me. I was walking to get something to eat I'm like oh god, are these billable hours? Oh no. Four hours a day. Prominent Swiss lawyer. I'm ruined! Okay, I thought that. And then I said, oh, you're billing me for this, right?! Oh no. No he did it of his own free time. Partner, The M in MME, one of the M’s. I think it's the first or the second, I can't remember. Well anyway, so what did Luka do? He just kept chipping away and he created a self-regulatory organization. Then he kind of helped create Krypto Valley by advising a lot of people and so forth and then FINMA came to him, say, hey you're the guy who really knows what's going on, amongst a few other people, and they say, write up some guidelines for what is a security token, what is a utility token. You know, how do we figure out this whole ICO thing, how do we figure out compliance? And so he did.

00:59:03

CH:
And guess what? If you go to CoinDesk you can actually look at the fruit of those labors. Now we entered in 2014 and it's 2018. This is four years for a conservative banking country. That's extraordinary speed. It’s small, okay, and there's value and they want to, you know, replace displaced industries because of global changes but at the same time it's an inspiration for how you do these things. You start by educating the well-connected the lobbyists the politicians and these people who have an open mind. Then you lay out well what is the value proposition for you the regulator. Why would you care about this? Well, okay. You know, that you're gonna get time-stamping for free, you're gonna get auditability for free, you're gonna get immutability in your records. Second, you can even have a discussion about transitivity with AML, which is notoriously difficult, okay. And as an example, I love doing this. I brought a dollar with me because I love dollars. All right Bruce here's what I want you to do. I want you to go ahead and take that dollar and just pass it all the way down, just starting with him and just hand it to your neighbor behind you and then make a ‘U’ and then come back for It, and he'll eventually get it. Maybe I'll get my dollar back. Some presentations I do some presentations that don't. Never present in France. I'm kidding Vincent. I'm kidding. Hahha. All right. Now pass it forward. Now, come on now. This is another way waking up the audience. It’s a parlor trick. keep going, we're almost there. I should develop like a cool joke or a story I can tell while the dollar is being passed. Next time I do it. I will. I'll tell you about the three-legged chicken. Well ok, it didn't get to the right person but that's all right.

01:01:06

CH:
All right. So here's what I want you to do. Well that's another failure of compliance. Tell me every person who touched that dollar. Exactly! And what if one of those people was a bad actor who was a politically exposed person or associated with embargoed country or something like that. Well, guess what? With Bitcoin, if that was a chain of transactions we'd have that whole record, would we?! You know, we would. Okay, so the game is a little different with the flow of money. When you're talking about a blockchain based system, than when you're talking about cash or even digital banking, because these records are siloed. So that's the next step is you start showing them examples like that and the wheels start turning in their head and then they start realizing that they get much more granular control. They can also ask things of entities that they don't necessarily have total dominion over. You know, big buzz words Bank of England had in 2008 and beyond with macro micro-prudential policy. Why? Because we Americans kind of destroyed the whole world financial system. We do it a few times. You know, we said, hey we hadn't done in a few decades let's go back to it. And guess why they said, well we need to solve systemic risk what does I mean you need to see the ledgers of everybody to know who is over-leveraged, right? Why is everybody gonna give you their ledger. No, no. Not gonna happen. But what if you had proof of solvency? What if you had real time continuous auditing? What if you had private Ledgers, but you could query things about the ledger like it balances or, you know, the level of exposure? Do you think you can get other countries to adopt that and share that amongst central banks and so forth? Of course you can, because it costs them nothing. Just upgrading the technology. So, the fact that compliance can be done in a much more automated way. You have the whole transaction graph, the fact that you can have it look at someone's books without actually seeing the books and getting proofs that certain properties are there. Once they get that then it's no longer a question of do you want it. It's a question of how do we get it. And that's exactly what happened in Switzerland. It was a series of conversations stemming from this is all about buying drugs with cypherpunks in Eastern European criminals to, we are now going to be the first country in the world to actually talk about utility tokens in a very serious way and create regulations or at least advisory or clarification about it that other countries will start copying.

01:03:23

CH:
That's the first answer to your question, I think. The second answer is a bit more nuanced and delicate. It’s a answering of sandboxes. No one wants to be the first mover but if you're a small country and you have the whole world against you, you have to be. If you're Gibraltar, Isle of Man, Barbados, these types of places you have to encourage somebody to come out and it can't just be the warm sunny beaches because Isle of Man doesn't have them. Maybe you like motorcycles, I don't know, so what you do is you say we're gonna be a regulatory sandbox and we're going to give you some special features. Well, that's not like alone and isolated. The FCA watches that, <…> (01:03:56) watches that, the SEC watches that and they see what are the outcomes. You collect the data and you see did good things happen, did bad things happen, did systemic risk happen etc etc. And then you use that as another part of that story. One is a capability story and one is an outcome story. You combine those together with the right connections and you can change things. Now, one of the reasons why I like the developing world is that it's not a rigged game, but it's rigged in America. You know, Obama got elected, I was so excited I said these bankers, 60 democratic senators and the most socialist wave we've had since the New Deal, my god, the things that Obama is going to do these guys it's going to be an inquisition. I fully expected to see guys in red robes marching down Wall Street, you know, holding the grand inquisitors there to burn these bankers after all the incredibly illegal things they did. Emails saying we know we're selling them bad products, ha ha ha. Emails from Goldman Sachs and Chase. Public record. Not a single one of the bastards went to jail. And their reward for blowing up the world was to get more money by getting bigger or getting golden parachutes.

1:05:06

CH:
You can't tell me, with that administration, the political leanings of it the populist rage against the things they've done, that this is a fair game and then it's it's built for us. It’s not. So you can't compete with these guys. You can't. How you compete with them is you go ahead and you go to a country that doesn't have it that they don't care about. It’s not that they're racist and evil. It’s that it's a cost per customer. The reason why there's only 2% of people back in Cambodia is because the value per customer is lower than the cost of banking the customer. So they don't expand into the market. But if I can go and get 2 billion people into a new system that's free, fair, transparent, democratic and it's not controlled, then the only way to access that now humongous wealth is for the legacy system to change itself and grow out of where it's at. And you can say no to me, you can't say no to 2 billion people. That's a revolution. So I think that's the long-term solution for all these things. The short-term is embrace sandboxes. It’s to educate people about what you can do, it's to show people the success stories and you're gonna have small victories, like now you can do a security token and you can do it with reggae and sell it in this t-zero sandbox or something like that. Huzzah great, Silicon Valley has yet another fundraising mechanism but if you want true progress you're gonna have to look to more ambitious grounds, as we are doing with Cardano. Next question. Tom. did I tell you I'm a political firebrand did anybody pick that up gather that I'm very not very conservative.

01:06:51

Who is the gatekeeper ensuring the quality of the data that goes on the blockchain?[edit]

ATTENDEE:
Thank you. Hi Charles, thanks for the talk it’s really interesting so far.

01:06:54

CH:
I hope I'm not rambling too much.

01:06:56 ATTENDEE:
No no. A story behind everything. It’s awesome.

01:06:59

CH:
Okay.

01:06:59

ATTENDEE:
So we took. We know a lot about how the blockchain is immutable. How the information, once it's on there, is secure and what we're missing is how do we how do we filter the information that goes onto the blockchain in the first place? You know, what are your thoughts on making sure the quality of the data that goes on there in terms of title deeds when we're talking about land or identification, you know, who is actually the gatekeeper, making sure that all the information that goes on there is, is valid in the first place?

01:06:59

CH:
Right. The Oracle bootstrap problem. Yeah. How do we? How do we actually know that the record and the chain is correct? So I can go in and say that Bruce Springsteen wrote Purple Rain. And I can put that as a record in a blockchain. And guess what? For the end of time the blockchain will say that. Maybe thousands of years from now in the far distant future, it's the only archaeological thing left and Bruce Springsteen unfairly gets, gets credit for writing Purple Reign, right? So it's not a question of just can you safely store the record and is the record immutable and auditable. It’s how do you know the record is correct to begin with? So this is a multivariate problem. You can solve it many different ways. One way is to say, I trust Bob. Bob is amazing. So in addition to the information that's being appended to the chain Bob shall sign it as an attester and say this is correct and that usually is done with identity. So you go and identify it with Estonia or your favorite source and they say yes you are who you say you are. I saw your passport. I sign it and then it's referential. Who the hell is the guy signing it? So you have some sort of root of trust or identity and that's how the internet basically works. How do we know google.com is Google. There’s a certificate authority. This DNS system. There’s a way of sorting out who's who and we trust I can and we trust the CA’s. Okay. So that's a practical system. it scales to billions of records as we've seen with the internet but it admits some degree of centralized control, which potentially could be resolved through Federation. Okay, another example is a probabilistic notion of correctness where you say ah this is what augurs trying to do is PCA.

01:09:13

CH:
They say, ah okay, okay i have a data feed here for the price of bitcoin and a data feed for here for the price of bitcoin on December 30th 2012, by the way did you ever get that for me? What was it $32. That was awesome. Off by a factor of three, shame n me. 32. Well Bruce you gotta learn how <…> (01:09:28) a little bit better. I'm sorry. Okay. Alright. So we have a probabilistic notion where he tells me something. Maybe she tells me something and we waited and maybe we figure out the composition is the version of truth, whatever that means. Okay? So that's another way you can go about the problem. Now, one of my favorite ways though, and it's seldom discussed, it's the idea of trusted hardware. It comes up a lot in IOT. So IOT is real sexy. I mean if you want to get money in Silicon Valley, here's what you do. You walk up and be like, dude I I've got this social IOT machine learning blockchain product and they're gonna. they're gonna be like, whoa, I don't know what it is. Are you gonna do an ICO. We've already done an ICO. Whoa! Add an airdrop to Bitcoin. It's called Bitcoin God. It’s actually already taken by Chandler Guo.

01:10:20

CH:
So anyway, where was I? The trusted Hardware. Trusted hardware. Well, guess what? Well trusted hardware knows where it's at and it can't lie so when you enter a geo stamp, say I'm in America, you can actually have your trusted Hardware sign that and it can impend a chain and you actually know that the phone is there. There’s a lot of conversations about how do you create records. When humans have incentives to lie, when humans have incentives to manipulate and usually it involves finding a trusted party, finding a federated party, getting a probabilistic notion of truths or disintermediating the truth telling to a trusted device that can't lie, in some capacity. Now, those are your four core options for these things. So you also have social pressures. So let's say, that example I opened with this idea that somebody lives on some land for two generations. He’s been there forever. That dude's got neighbors and those neighbors under my system would be identified. So they would contest the property ledger that the government claims to have. And all the neighbors would be able to do that digitally at a very low cost cuz they're all on a cellphone, right? And they'd be able to say, hey we're identified! You know we live here, and we've lived next to this guy for two generations. He owns the land! This other company, there was no transaction none of these things. It’s a false record and then you can build decision systems within your system that say, is it right and you can even have a point. Scale this many points then the record is accepted as trusted. Bitcoin actually works this way, if you think about it. It’s a probabilistic notion of immutability. It’s not absolute! I send you a transaction, there's theoretically, like amount of atoms in the universe, theoretically a chance that somebody could have built an alternative version of history. After, you know, sufficiently many blocks, they could have done it because they had a secret blockchain. They were mining in their closet and they had enough hash power for it or something like that, you know. So there's always a chance that you can unwind history but at some point it's like good enough, you know. Uh, and I won't tell that story. That one's too.. Nah, I won’t tell that story. So anyway that's uh see my PR person, Jane, she's all like, thank god, he's learning. Alright, so anyway that's the best I can give you. That's the best non answer I can give to your question. Those are the four things you can do and we can talk about particulars later. Next question. Wow lots of hands. This is fun. That's John O'Connor by the way. He’s the one in Ethiopia. Hey John, come up here. Here, introducing yourself real quick.

John O’Connor’s role in Cardano[edit]

01:12:48

JOHN O'CONNOR:
Hello everyone. It’s a pleasure to be here. Its sad to be standing up with Charles. Charles talks a bit about the work which we're doing in developing countries and how Cardano is is gonna make a bit of a difference there. My role will be to fly off to Ethiopia next week to start negotiating on some of the contracts and some of the work that we've already begun, but we're, we're hoping to make a big difference and we're very excited. Thank you.

01:13:14

CH:
Thanks John. And of course he has to have an Oxford connection because we have a bias there. Personally I prefer Cambridge but we just keep hiring Oxford people for some damn reason. Okay, next question

How Is Cardano going to change the world?[edit]

01:13:28

ALEX:
Hey my name is Alex. I'm a master's student at UCL and following on from the main theme of the talk, I was just wondering as to what sort of research is going into ensuring the funding for state-run institutions in these countries you're working in, isn't being damaged by the kind of tax evasion properties that come with crypto currencies generally.

01:13:52

CH:
So the problem is, that's another one of those multivariate problems. So you you have an issue of chronic starvation via under taxation people just simply who have an obligation to pay choose not to pay either because they're geopolitically in a position that they don't have to or they hide it abroad or they just simply hide in general. Guess what? There's nothing new. The American Revolution, we won that one, the American Revolution was plagued by this problem. We would have won a long time ago if not for the fact that our army was chronically underfunded, so much, so they ate their own shoes. Because why? Well because the states were not collecting enough tax revenue to fund and field an army. So there were technically taxes on the books but tax evaders and profiteers would just simply not pay, and so that meant we had to slog it out for seven, eight years and have a heck of a lot of fun freezing every winter and having a third of our army dissipate every year. It was tough, and it's absolutely no different hundreds of years later. many jurisdictions where tax evasion is common, well in my view, I think cryptocurrencies in general are going to fundamentally change taxes, in that it's going to become harder and harder and harder to know how much you actually make. If you're talking about a system that has strong built in privacy and talking about a system that I can remember twelve words and walk across a border with a billion dollars. Guess what? Income tax doesn't make a lot of sense, because the people who tattletale on you, the bank,s who have to file SARS and have to report their ledger's to the regulatory bodies, they don't exist anymore when you've disintermediated them. So it's just you and your government. And on our system.

01:15:32

CH:
So, I believe what's going to end up happening is we're going to move to alternative taxation systems. Things like consumption taxes. Things like supply chain taxes. You know, higher property taxes, these types of things. Because you can't really move land, you know, merchants generally comply. They can't really relocate themselves. Those are generally going to have a higher compliance rate,. in my view. So in America we keep talking about the Fair Tax and I'm sure every country has their version of it. But I think crypto currencies are going to be the straw that breaks that camel's back. The unintended consequence of this is that you no longer have a system where you actually know how much people make, which is pretty magical. Now, what can we do to ensure that money's collected? Well what we could do, we're not going to do this, but what we could do is build a central bank token and force people to use the central bank token and put in a backdoor into the token that tattles on all the people and the government at any time has a global ledger connected to identity and they can just query a person, and they'd have their entire financial history.

01:16:30

CH:
That's what PBOC is doing - People's Bank of China. That is their goal, is to know at any point whomever they want who that person is, their social history, their financial history, their voting history, and then you can throw AML at it. And then you can say, who's the cheater and who's the bad actor and so forth. I believe that this is, will be 1984. If we go down that road. So I think there's a trade-off here. The things you can do to make crypto compliant with income tax over the long arc, will also inadvertently build the capabilities that could institute a tyranny. So we have to make a philosophical decision, are we okay with a bit of evasion, are we okay as a culture with a bit of cheating for our privacy and our liberty? Or do we want to get rid of all of that for our safety. And for the good of the government. You can't have it both ways. There is no silver bullet that somehow is going to make all of this stuff work, just perfectly. You can build better systems where you federate control and you have checks and balances and, you know, what an intelligence collection we tried to do with the FISA courts. After the Pentagon Papers and after the church committee we Said, we ain't here to reform the CIA. We need to reform the way we collect intelligence because it's been abused by powerful people. And those are, never again will we see the Intelligence Agency spying on the American people.

01:17:55

CH:
And we go to Bluffdale and they built a 50 megawatt power plant just to power all the hard drives and store all the information they've stolen from us. Four Yoda bytes of data harvested from Facebook and Google and all these other things by the intelligence agencies for our safety. And you think they can't query that to find out who good people are, bad people are? I don't like it! I think it's fundamentally against human rights and I think it's a recipe for disaster. On the other hand total anarchy is a bad idea. Well, guess what? You don't have to take one or the other. You can embrace crypto currencies which have rules. They have laws. It’s built into the ledge here it's built into the contracts and then we can have a social discussion of where of that spectrum we want to live and how much privacy ought we to live. What I can do is create more capabilities. I can write papers and implement protocols that give you maybe a little bit. For example, if you want a backdoor, I can build backdoors using quantum cryptography that are one-time use. That's within the realm of that technology. So maybe that's a fair compromise. You can build backdoors that tell you if something's been tampered with publicly. If you ever go to a classified facility like a skiff, the skiff actually has special boxes, that if you break into the box, you know the box has been tampered with and broken into into. hey're designed that way. So while the lock itself may not defeat somebody who broke into it people know that the records been accessed unlawfully.

01:19:17

CH:
So similarly you can create a system where you have a backdoor that's one-time use with a tamper key and if somebody pulls that lever the entire network knows. What’s the first thing the government does when you give them the power? They make warrants illegal to tell people about. That's why we have warrant Canaries. That's the first thing they do, because they don't want anybody knowing they're looking into something. There's probably a dozen or so investigations going on right now in the cryptocurrency space by the SEC and other actors. I guarantee you, people have been served with papers and they probably can't talk about those things. So I believe that we have the technology and the opportunity to think about this a bit differently and choose a third path that's a balance between anarchy and total regulation. But I also believe we have to enter into this conversation with some practicality and some principles. We have to accept that no matter what we do some people will get hurt. You create a justice system, you're going to convict at least one innocent man. It's gonna happen, unless you let every murderer free. Anyway I won't introduce you to somebody. Come on up Michael. So this is the man of the hour. I want everybody to give him a hand.

01:20:24

AUDIENCE:
Applause

Micheal Parsons[edit]

01:20:25

CH:
This is Michael Parsons the chairman at the Cardano Foundation. He’s a good friend and he's one of the guys that make Cardano happen. He's been here since the very beginning. Here you go Michael.

01:20:36

MICHAEL PARSONS:
Okay. Again, thank you Charles for a great speech and I really appreciate what you've done and ah very nice speeches again. I'd like to add to your speech if I may. You began to be very beginning how you wanted to bring in the great unbanked, the 3 billion 5 billion people into banking. But let me just tell you why they can't come into the system, why you shouldn't be in the system yourself. Here’s a credit card. How many people have got credit cards? Put your hands up.

01:21:02

CH:
Don’t show that card

01:21:04

MICHAEL PARSONS:
No no no. do not photograph it. No no.

01:21:06

CH: Hahahahahha

01:21:07

MICHAEL PARSONS:
All. Right. And how many People of you use credit cards to do to online purchase? How many? Hands up. 95%. Do you know what? You’re about to be hacked. You're committing, your party to a fraud. Credit cards are unfit for purpose, total and for online purchases. So why does the world need a Cryptocurrency? I'll tell you why. Because when you produce your credit card to a merchant, here it is, here's mine, don't look, finger over the top, the merchant asks you for four or five things, right?! He says, what's your name on the credit card, yeah?! So he's got that. Number two; what's the 16 digit number on the credit card, yeah?! What’s the expiry date, right?! What’s the number on the back? Secret, right? And finally, might even ask you what your address is. Now, with that information he can do one of five things. He's supposed to do one thing. The one thing he’s supposed to do is take out the amount of money you've authorized him on the phone or internet to take, only that amount. You trust that person implicitly 100%. You've never met him. You don't know him. He’s on the internet, etc. Whether it's by phone or internet, you trust that person. What you can do is one of five things. The first thing you should do is take out the exact amount of money. He could take out the wrong amount of money, either by mistake or by intention. He could take out the payment twice. He could take out, he could copy your credit card. He could then clone your identity. He could clone the card or do all five of those things.

01:22:38

CH:
That’s why 45% of people in the USA and in Great Britain have had their card compromised at least once, if not twice. Forty five percent! That's why the interest rates you pay are between eighteen point nine percent and twenty nine point nine. Why twenty nine point nine? Because thirties sounds such a big number, usual story. That’s why you pay an interest rate, to cover the fraud. So why does the world need a cryptocurrency? Because debit cards, credit cards were not intended for other than person-to-person transactions, never ever, never can be. They're broken. Never intended to be. But we're using nearly nearly. Most of the use of credit cards now is for online purchases by value. Now, if we had a credit card, if we had a cryptocurrency and istead of me giving you all the information and exposing my entire wallet or bank balance or credit card limit to the merchant, whom I have to trust I don't, he doesn't ask me for information. I ask him for his information. I say to mr. merchant, Bruce you're a merchant, please give me give me your Bitcoin or your ADA address and then, and then I will transfer to you, the merchant, that amount of money. And that's it that's it. that's why the world needs a cryptocurrency. And that's why we can't give the unbanked people credit cards. Because they'll be used. They'll be part of this massive fraud going on with credit cards around the world.

01:24:05

CH:
Right. Yout know, that's such a great point.

01:24:07

AUDIENCE:
Applause

01:24:16

CH:
Michael brings up such a simple but such at a powerful point. Isn’t it funny that there's a system that we all accept, we all use, we all have, and 50% of us are going to get screwed by it, and we just say that's ok. And then we're told that the legacy currencies are such of these great things and we should inflict it upon the other 3 billion who don't have these things yet. It's madness! It’s absolute madness. And it's such a valid point.

01:24:16

MICHAEL PARSONS:
And it’s worst. If you deal with real proper cash, without credit card, you still get screwed, it's called inflation. I mean, I mean the US dollar in in the year 1900 you could Buy, I could buy a house, well I wasn't around then, but in 1914 you could buy a house for 100 pound in England. Now, yes, in 1940, yes. And in 1962 you could buy a house in Devon for 200 pounds. Now that same house is two hundred thousand pounds. It's called inflation. It's the ,it's the worst tax in the world, which we don't vote to pay and we're paying it.

01:25:07

CH:
Right. And there's no political consequences for inflation, because the people who commit it they get all the upside. They get the good economy. They get the economic growth and acceleration. By the time we feel the effects and the consequences, it's the next guy who's in office. And it's so politically easy because who do you ask to do inflation? You ask people to raise taxes. There's a big debate. Man it's tough these tax debates, right?!

01:25:30

MICHAEL PARSONS:
I’ll show you the third thing.

01:25:32

CH:
Ok.

01:25:30

MICHAEL PARSONS:
This piece of paper, This piece of useless paper, it costs 17 pence to produce, right?! Now, the only reason that you accept it, you accept a bit of paper, is because you, know that you know that you know that some other idiot will take that off for you as value. That's all. Otherwise got no value otherwise otherwise it's worth 17 pencil. Now how does this money get created? I'm an ex-banker and I'll tell you the secret. The secret is this: this money gets created because the Bank of England goes to De La Rue, who is one of my audit clients, to print this money. And Barclays Bank say, oh we've heard about this, imagine there's no money in England, no paper money, and they've heard the story from America. Oh in America they've got this paper money. What's that? Oh, it's paper money and it's got pictures of dead presidents on it. Well, we'll have pictures of live Queens on our money. So we do that. So they go to the Bank of England, can you print some of this money that the American's got, but put, put our Queen and Not, not dead Queens but proper Queens on It.

01:26:26

MICHAEL PARSONS:
So they do that and then Barclays Bank said well we want this money and how much does it cost. And The Bank of England says well it's um 17 pence our note. So they pay 17 pence a note for digital, for this paper money and they receive it. And the The Bank of England says well hang on a minute, this is not quite right. They’ve just given them a hundred million dollars of money at seventeen pence a note, so the Barclays Bank will then produce an IOU to the Bank of England for the money. That’s how paper money is created. Printed it, just like that. The other way is that they do quantitative easing. They create electronic money to buy back their own debt. Now I've put it to HM Treasury, about four years ago, they should create quantitative easing for the people. So everyone in there in this country with a social security number should receive at least a thousand pound month of free digital money to pay back their credit cards. Oh no, we can't do that. Well, why not? The government does it all the time. hat’s how they create inflation. That's how money is created. It's a fraud. A complete fraud.

01:27:26

AUDIENCE:
Applause

01:27:26

CH:
It’s sometimes as simple as points that are the most poignant right?! Thank you so much for that much. Well, here's another point, is the quantitative easing for the people? let's say you've identified everybody in a jurisdiction. Well if you've done that well, why can't you use it for universal basic income or for foreign aid? There’s a big problem, like let's say a hurricane happens. Let's say you're even a semi develop, Porto Rico, it's just technically America, my god, we should have the highest standard of living. We're the richest country, supposedly and yet people don't have power. It's hard to get money to people. We're having to have refugee camps. It's a very difficult situation so wouldn't it be so cool if everybody was identified that you could then deploy foreign aid through those identities, digitally to everybody. You don't know where they're at but you know they got it, because you send it to the accounts, you know, they have access to. For the most part. This is what you can do with this technology. It’s very powerful. Senior rich to the people which is dangerous idea so we will speak no more of it. Next question.

The stance of banks to cryptocurrencies[edit]

01:28:37

ATTENDEE:
How do you think banks will respond to the future cryptocurrencies and do you think they're gonna embrace it or oppose it?

01:28:45

CH:
Well they're already embracing it, in a very banker way. There's R3 sev and people are looking at the hyper ledger and people looking into enterprise Ethereum and so forth. The tech itself is good and it's neutral. Tech is always neutral. You can split the atom for power you can split the atom to destroy a city. There’s no notion of good or bad there's always something you can do with these great capabilities. So banks look at it and say my compliance costs are astronomical. It's usually one of the largest items on their budget. It's one of the reasons why banks can't get small. They get big because it's really easy for banks to. It's really easy for banks to consolidate those departments and get economy of scale, but when they're small there's fixed costs and compliance. So the very first thing they're looking into is, can we lower the cost of compliance with blockchain technology. That’s a very high item on their list: get rid of systemic risk and these types of things. Great. So they're excited about that, they're excited that they can have different kinds of relationships with their clients, for example banks take the risk of holding your money so if something happens it's on them. Today it's less of an issue than it was in the days of gold and paper, because people could go on rob and steal it - the old western bank heist. But there are still issues and hacks occur and, you know, we are littered with these types of things. So they say, wait a minute here! I can offer banking services, but my customers can actually hold control of the asset. That’s kind of like what blockchain does. If you think about it, it's a cloud wallet. But the customer has some sort of control over that asset that is above and beyond what you would have with a bank account.

01:30:19

CH:
So banks are liking that. They say, wow, we can have very granular account by compound, account business logic that's customizable, that's a smart contract. We can give the customer control over the asset. We could have multi signature control. We can have decay of multi-sig. We can give the government audit access, like for example, I give my auditor our Bitcoin public Keys. I'm an audited entity, you know, we're in Hong Kong. We have to have an independent auditor, every year. So we give the auditor our public key, that you can see real time how much cryptocurrency the company has, you know, it's pretty cool. Couldn't do that before. You'd have to give them access to the bank ledger and maybe there are issues there. So they love it, from that perspective. But then the question is, what do they hate about it? Okay. Well, they hate the people. They hate the environment and they hate the environment because we do all the things that they wish they could have done. Back in the day, man back in the 19th century, during the great Gilded Age, right up until the Knickerbocker crisis 1907, every sin you could commit was committed. Transitive boards where people would sit on 50 boards, have access to inside information, trade on that. You have asymmetric markets where certain people could trade before other people. So when they knew something was coming they could get out first. You had fractional reserve. Everything! You had rampant speculation and margin Trading. You had boiler rooms, damn near everywhere and of course all that eventually got shut down. Does that remind you of any current state of an industry, where certain people may pay a different price for a certain ICO, be able to exit the ICO before other people, they may know that there's something coming about their project and suddenly the markets always seem to crash before the news item hits, instead of after the news item hits. Yeah, so they hate us because we as an industry are committing the sins that they can no longer commit which are horrendously profitable.

01:32:12

CH:
They also hate us because they know that a lot of people are gonna get hurt they see BitConnect. They see OneCoin. They see the ICO mania and they now at the end of the rainbow value is conserved. It doesn't just magically come out of nowhere and we haven't just magically created 500 billion dollars of wealth and these numbers are real. If you have a billion dollars of something and you can only sell $100 of it, do you really have a billion dollars? And that's the situation we're in, is that a lot of these assets are illiquid and when the markets crash these people bought in at this high price level thinking they're gonna get a 100 X or 200 X or 300 X and none of them will. Very small group of people will, the insiders who are committed to scam. Well they see these things and it irritates them. It irritates the regulator, irritates me. I've over and over again, from the highest mountaintop, said that this is a moral hazard. It's an agency failure, yet it just keeps happening. Why? Because it's so profitable for people to do these things and they'll continue until they're forcibly stopped to continue. The last part is that they're concern. They're scared. They're scared because it's a technology that they don't fully grasp, will take the future. Because I don't know no one knows and I'm in the middle of all of it.

01:33:25 I have the best scientists. We have the best people. So I'm in a position that predict better than most and I don't even know where this is gonna go. How it's gonna transform the world. And they're sitting on a multi trillion dollar business model and they're asking themselves, is this gonna be like we're making horse whips, and the car comes out. Is this gonna be good for us or is this just going to be something like when the internet came and newspapers found a new business model and they were able to survive. Some consolidated but, you know, the New York Times probably is not going to go anywhere. They'll find a way to survive, right?! So they're trying to figure that out. And they're also concerned because the regulator is incredibly concerned. They're deeply concerned. Here is what you do when your regulatory body you have this thing called a suspicious activity report. When you're fin sent or the SEC or even the IRS, you don't have ten million people at your backend call. Anytime there's an issue they'll go and find it proactively. They're small by design and what they do is they have the bank's tattletale on the bad actors and they say, hey bad actor, you know, you, if you have somebody in your a ledger that you think is bad, report to us and then we can look into it, put the Eye of Sauron on them, right?! Well, when you cut out the middleman, compliance doesn't work so well.

01:34:36

CH:
So they're having all of this value that's living in this dark world that they don't fully understand and they sure as hell know it doesn't conform to normal generally accepted compliance. At anytime a little praction of it could have touched an embargoed country, like North Korea or Iran. At any time it could have been in the hands of a criminal, at some point in the chain and there's no de-minimus clause for it, anti-money laundry. So it's not like they agree with the laws but they're subject to the laws and the laws are old and archaic, and it causes them to get very scared because the fines are huge, and they really want to keep their business model going. So I think from one dimension they love it. I think from another dimension they're sickened by it, because of the excess and bad behavior that they see and that they, because they're trained professionals, know how to spot these things and know them for what they are. And I think they're deeply concerned about these things and they're afraid about where we're gonna go and how we'll get there. My personal opinion is, I think they will start getting diminished over time and not be as relevant to society, because they won't control the levers of society, like credit, as much as they used to, but I could be wrong. Maybe they'll take over. Maybe they'll figure it out and then we'll live in dystopian 1984 land and I'll be reprogrammed, to love my government. Okay, next question.

01:35:56

HOST:
Guy in the red jumper.

How is Cardano going to be relevant as time goes on as more projects are based off the Ethereum protocol?[edit]

01:36:12

TOM:
Thanks Charles for everything you said. Super super interesting. My name is Tom and my question is about timescales. I think that the way that Cardano is approaching the whole, you know, new ecosystem from the ground up academic review all of that kind of thing is, is super exciting. But I just wondered if you had anything to say about the fact that you know you've got projects like Vechain which have a very specific, you know, functioning products. You've got Ethereum, which, you know, you know pretty well, which has a fairly significant, uh Bitcoin, which has a significant first mover advantage. So how is Cardano going to be relevant as time goes on as more projects are based off the Ethereum platform how does Cardano's start to eat into that ecosystem and and stay relevant when the academic review process that takes so long.

01:37:16

CH:
Well you know there's a couple of misconceptions. The first misconception is that peer review somehow dramatically slows down the development time. I argue is it slows it down on the front end but you actually get huge accelerations on the back end and I have a real-life example of this. Ethereum has been wanting to go to proof of stakes since 2015 as far as I can tell. That's about three years that they've been working on this problem, diligently. Not following a peer-review process, following more of a traditional engineering, well let's just think about it real hard and keep redesigning and keep redesign until we come up with something interesting approach. We started Ouroboros’ research in mid-2016 okay. So they had a significant lead on us. So far we published now 2 and soon to be 3 three major results, that in our view, solve all the problems of proof of stake. It's dynamically available. It bootstraps from the Genesis block, just like proof work does. We proved it in global Universal composability. It's fast as hell and it's got all these beautiful features with it and we've already implemented in Haskell and RUST. Meanwhile have they launched Casper? No and we have a version of Ouroboros in a live system with ten billion dollars of value behind it. So I followed a peer-review process and I went to California and showed it off at Crypto 17 and we’re going to Israel to show it off at Euro Crypt 18. We introduced it to all of our academic peers and now they're thinking about it, trying to break it, emailing a suggestions, so we've activated the academy and we're getting great feedback from people all around, and we spent about half the time they've spent and we've done it all in the open for anybody to see. It's all up on ePrint. For as most of the in preliminary work there was done in a closed setting, So I think the first thing you have to recognize is, while it is harder to do peer review we have to live with these protocols for generations. We've had to live with the sins and the glory of tcp/ip now for a long time, and I do not, like Michael’s example, with credit cards want to laden the world with a broken inferior system that only succeeded because of first mover advantage, not because of the merits of the <…> (1:39:20). So if I can move just as fast or faster in some cases than my competitors, sure, do it. So that's the first point.

01:39:20

CH:
The second point is that how many people have actually adopted crypto currencies for real things? and the answer is none. There’s trials and pilots and other Things. You can't point to a single functioning economy with a majority of the economies in a crypto currency, because it's not ready for primetime. There are no distributed truly systems here. They're all replicated at the moment - which is why crypto kitties killed Ethereum, and it's the same for Bitcoin. You can't have 10 dollar transactions. You can't have systems built like this, and even if you can get a reasonable technological headstart, where's the governance side of it? How do you get to influence or control these projects, or modify them and avoid having Bitcoin Cash in Bitcoin Gold and Bitcoin God and Ethereum Classic and so forth? How do you decide? There’s no real holistic thought about the interdependencies of these systems. The other thing is that they're just missing basic computer science in their view. If you can do ten thousand, a hundred thousand, a million transactions per second, let's say you can, where do you store it? And who stores that? If it's only a small group of actors, who are service providers, aren't they like the kings of the system then? They can just decide not to provide you history. What recourse do you have? So you have shard it. How do you do that? Who's doing that? Well, there's all some ideas, but nothing prevalent yet. Same, you have to move the data. If you have a hundred thousand transactions per second, a million transactions per second even if they're a kilobyte large. You're talking about hundreds of megabytes to gigabytes of data that you're just moving around, every second. How do you stay up with that network when you're on a 1.5 megabit connection?

01:41:10

CH:
You can't! So, so you have to trust somebody to stay up to date for you, unless you have a different network model, okay?! So I think that first many of these blockchain ventures, the smaller ones, are focusing on a very particular thing that they know is low-hanging fruit. They know that they can have quick early victories with to show that they've made progress. They can get pilots with. But what happens is always the same, people who are serious, get serious about using their technology and when they use it they discover it's not as good as they claimed. Every single successful application on Ethereum is looking at off chain ways of handling their load, whether it's a ride-sharing app or crypto kitties, I've talked to them all because they want to come to us. And guess what? They all say the same Thing: we have a two-tiered system. What we do with Ethereum, which is super expensive and really annoying, and then what we do on our private servers. So how is that a decentralized grid that's going to provide people the service they want? It's not! It’s a fantasy. t's a mirage, okay?! So that's the first thing, is that it's, it's a holistic system and it's a system that requires you to think very carefully about how you keep everything in balance. And there's a lot of protocols you have to build at the same time for to actually scale to millions to billions to users.

01:42:26

CH:
The other thing is that even if you've accomplished it, you have to convince people to use it. That's the problem of PGP: perfect protocol, no one uses it. Does exactly what's intended. Why does no one use it? let's say you can teach them. You have mailvelope. It's super easy to use malevelope. I can teach my lawyer to do it in 20 minutes. So it's not a technical competency thing. Yet no one encrypts emails. They don't even talk about it. And it had we done that, we'd have a password free internet right now. No usernames. No password. Just click the log in. It just works as secure. An attacker can't Forge it, but yet no one adopted it. So there is a usability and a user adoption component to this as well. And I'm sorry, I have not seen any example in the cryptocurrency space yet of large scale adoption. Varality outside of replicating existing experiences, like a video game or something like that. So I think that we see great potential. I think that we see great technology in certain isolated settings, but I don't think we see a holistic approach yet. So what I'm trying to do is trying to offload the enormity of redesigning, basically the entire Internet, to the university system and incentivizing hundreds of academics, hundreds of university partners and eventually industry partners to say, hey there's merit here and this is all being done open-source patent free and we all have equal footing to it it's a common goal.

01:43:49

CH:
And then we have billions of dollars from the NSF from the EU from DARPA. All these places that will pay for these projects to get a kick in the ass and grow. Government funding is already coming and it's starting to come like a river and the same thing happened with AI. People got together. They really pushed it out. That got it into the Academy at a very deep level and then we saw CALO at DARPA. Anybody know what CALO is? Cognitive Assistant that Learns and Organizes. It ran from 2003 to 2008. Anybody have an iPhone? You're using their tech. You have something called Siri. That's where Siri came from. So this is the key, is if you want to solve big problems you make the problems small by breaking them into thousands of tiny pieces and handing those pieces in a distributed way to many many different people and by aggregation all those people together can solve that big problem. The other thing is we're committing the great sin of Microsoft, all over again. It's so pff. It's so crazy how history rhymes. It's so predictable. They say, oh you can't compete with Ethereum because they already have all of the developers. I heard this before: you can't compete with windows because they have the platform and all the developers and for a time it was true. You can't compete with Yahoo or you can't compete with MySpace, because they have all the people. You know, isn’t it funny that we're trying to build a decentralized system where you the developer are looking at what is best for my customers, my application, and where I want to deploy but then at the same breath we're telling you to get locked into one system and one token that you have little control over, and that's decentralized.

01:45:27

CH:
Now, what's going to happen is we're gonna have an Internet of blockchains. What doesn't matter is the particular chain it matters the standards it's why the second color of Cardano is interoperability. How do we talk to all these block chains? We have thousands of them, even if two are perfect they'll disagree because they come from competing cultures and they don't want to get along. Korea is gonna have its own thing, it's just gonna happen, as is China. And there's no technological or market momentum argument I can make that can change their mind, because that's what's wired in - let's build our own. And probably the same for India as well, the way things go. So my view is you have to take a holistic view. My view is that you have to take an intranet of blockchains view and my view is you have to take a freedom view and say to the developer, to the user you're not loyal to Bitcoin you're not loyal to Ethereum. You're loyal to the utility of the protocol and just like pipes if you can't use A because it's too expensive and congested you can use B. Could you imagine the internet constructed the way cryptocurrencies are, where you have the Bitcoin circuits and you have the Ethereum pipes, the etherium fiber-optic cables and so forth. And then you, when you get an internet subscription, you can only use the Bitcoin network. They only use the Bitcoin fiber-optic cable. Could you imagine that? And that gets congested and that's just your user experience. You're locked in. You can't switch, so sorry. That’s the world these people are trying to inflict upon us by this centrality. Why? Because they want to make money. If you use their token the token gets valuable and they have 10% of the token and that's why people are on Forbes now, okay?!

01:47:05

CH:
So we have to be smarter. We have to learn from history. We have to see how the internet evolved. Have to see how operating systems evolve, an application development evolved. We have to see how science works and we have to understand that the only way we're gonna get our way out of this mess without centralizing, without cursing the next generation to yet another bad standard, but this time it works on a cell phone. So it's okay, is by embracing a multi blockchain environment where everybody has a fair shot at it, and sometimes on up and sometimes I'm down. I didn't sign up to make Cardano the best blockchain in history and everything's wonderful I signed up to get this technology in the hands of every single person. So maybe we're too slow and some other standard beats us to it, but at the end of day I go home with my head held high, because we changed the world and we made it a good place. That's what it should all be about. Not about how big is my house or how many Ferraris do I have, which is how some people are rating themselves right now. Okay do we have time for one more question or, okay.

01:48:18

CARL:
Hi. Its uh, name’s Carl. So just two very quick questions.

01:48:21

CH:
Hang, Hang on. I have a question for you.

01:48:23

CARL:
Okay.

01:48:23

CH:
What is the airspeed velocity of an unladen swallow?

01:48:26

CARL:
Oh, you got me there. I don’t know.

01:48:30

CH:
The proper response is; African or European and then I get flung into the river. Come on, no Monty Python fans here? Shame on you sir, no national pride. Okay

Is Cardano considering helping police workers in teams of bad actors?[edit]

01:48:41

CARL:
As I said just two very quick questions. One is, what you're creating, would you look to police. The network, in term of the bad actors. In terms of bad ICOs. That's one quick question. And the other one is if you do put it out there for voting, are they gonna maybe move away from your vision.

01:48:58

CH:
Sure

01:48:58

CARL:
In terms of maybe crazing something that's different to what you want to create.

01:49:02

CH:
You know, the founding fathers had the same problem. They said, wow we just won this revolution we can do whatever we want and so they headed this grand vision of what America is going to be and then, Hamilton's like, wait a minute, if we give it to the people won't the people just change everything and you know be Burton to the whims and fancies of the future living and they'll just throw away everything that we've done and inflict another tyria on us? And that is unfortunately what happens. You have to accept it that you take the chance that society couldn't vote you out. That society can decide that what you've done is no good and embraced tyranny and that's the way it is. And in some cases the people in charge, the leaders, they become corrupt, fat, ineffective. They become old. They don't understand society the way it is, not as it was, and so they need to be removed. So death in many ways is one of the most magical things. And voting in many ways is one of the most powerful things as long as it's properly incentivized and people participate. So the challenge is not are we worried about democracy. The challenge is have we built a voting system in a way that we have slain or could slay the demon of rational ignorance. That is, that the incentive to vote, is less than, or that should say, the incentive to be informed about the things you're voting on, is less than the value. As an example, you can learn all about healthcare, very complicated topic.

01:50:23

CH:
For 70 years my family's been in healthcare. My grandfather, my dad, my brother, all in healthcare. Doctors, nurses, wonderful people. And they have devoted their lives to becoming domain experts in this field. Their vote counts exactly the same as my vote does. And as does the hobo on the street who's never thought of it. So then you have to ask yourself what is the incentive is a regular everyday citizen to get that level of mastery and expertise about that topic if it. The reward at the end of the rainbow is that you get the same privilege. Aow from egalitarian standpoint you'd say, well but there are human beings and all humans have equal potential. That's true, but from a practical standpoint it creates apathy. It creates bite shedding. It creates frivolous debates where we worry about persons color of their hair and how tall they are. We worry about build a wall instead of actually talking about real things. And then the elections devolve. Blockchains are not immune to this. If we create a democratic system and inflicted on everybody it's very easy for people to come in off of mantras like million transactions per second and 300 millisecond latency and free this and free that and we can do this and that that guy sounds better I trust him and I like him and they're focused on people. And they're focused on rhetoric instead of process, instead of rigor, instead of facts, because facts are hard to learn. Facts are hard to parse. They're hard to validate.

01:51:50

CH:
Critical thinking takes time. If you get nothing for it, outside of the privilege of voting, well the system will devolve into chaos. So the hard part for us is figuring out how do we ameliorate that and it's not an easy part. And it's something we think deeply about. The advantages we've copulated the printing press with the voting ballot so we can incentivize it with cash but that alone is not good enough. And then you also have to have some exogenous notion of, who ought to vote, but I can't decide that. You asked about regulation of ICO’s. Who am I to decide what is a legitimate ICO or not? If I was an external watcher of Ethereum I probably would have said, no bloody way in hell. It's a not-for-profit, sitting in Switzerland, led by a group of people who don't have strong software engineering background. These guys don't have vesting for their pre-mind ether. These guys don't have federated control so as a consequence they can tap into the for-profit elements whenever they do and bias the protocol or recommend this or that. They don't have a clear business strategy about how they're gonna roll out the protocol. No one is there to hold them accountable. There's not even a real board of directors. Any normal venture capitalist, looking at that event, would say, no way no how - and that's why they didn't get VC money apparently. They didn't want to have those controls. They didn't want to have that oversight that adult supervision and boy did they get lucky. They lost nine million, just a market volatility and nearly spent the other nine that they raised, okay?!

01:53:19:

CH:
So I'm not in a position to look at an ICO and say, that's bad, the market should do that, but we should have a fair playing field where people have standards, It’s what project Brooklyn is about and a lot of these other projects that are cropping up about ICO standards and rating and the market should provide some of these things. Regulators will provide some of these things. But if we were to build a capability into the system to restrict behavior, that would be so powerful that it could stop an ICO, that capability will be abused, by basically anybody who wants to. That's the reality, right?! So, I think that you have to solve the voting problem. It's a hard problem. It's a shared problem. There’s been enormous progress in a hundred years in voting theory. The e-voting revolution has really created a lot of great ideas from liquid democracy. There’s fundamentally different ways to vote than just Bob or Bill or Jane or Erick. You can do linear preference Ordering, like <…> (1:54:12) and you can create all kinds of a really exotic set of schemes and you can also localize votes. You can make them global votes. You can do approval voting. And now we're in a position where we actually experiment with these things. And the magical part about it is that we get to run hundreds of experiments concurrently and it's an evolutionary thing, where we get to see which systems tend to survive and keep their principles the longest. And those are the ones that we can steal, bring into our system and then we have them for free.

01:54:39

CH:
That's the magic of this. It’s Darwinian in the nature, but it's Darwinian at the speed of light. So systems evolve very rapidly. So that's the best non answer I can give you to your question because the reality is there isn't a good one. There is no good answer, just like the question about data on a blockchain. There are ways you can go about getting higher assurances of a potentially good outcome, but there is no silver bullet that you can adopt that somehow some way will magically make the system work and when you turn over control to the next generation that the next generation won't muck it up. They didn't live the lives of the people who built the system. They didn't suffer the pains of the people who built the system. So they don't understand the nuances of the system and they'll take it for granted and eventually start changing it to accommodate the, the things that they run into in their day-to-day lives. Sometimes that's necessary. I don't think England needs a law anymore, paying somebody to watch for Napoleon. That one kind of, that one kind of past. But sometimes it still is necessary. If we didn't have a constitutional amendment for freedom of speech it would have already been taken from us long long ago, okay?!

01:55:45

CH:
And so the key is to balance those two things: the will of the dead and the will of the living. And you have to find a way to incentivize good behavior, and because you don't know what that actually is, you just got to measure it and see outcomes, and be Darwinian about it and ruthlessly change when necessary. And if you don't like the system I've built, there are their systems and you can go right to them and if you don't like the system I built eventually you'll be able to vote to change it and fire me. I have a habit of getting fired. I'd like to be fired again. It'd be great because the ones I get fired from tend to do well. Anyway you've been a great audience I really enjoyed this this was a lot of fun thank you so much

End[edit]

01 01:56:25

AUDIENCE:
Applause