Transcripts/Crypto Baron Live Stream Charles Hoskinson Jun 8 2017

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Crypto Baron - Live Stream w Charles Hoskinson, IOHK, ETH cofounder[edit]


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Original transcript author: Dennyb2010


IN = Interviewer
CH = Charles Hoskinson


Hey guys welcome welcome welcome everybody to the crypto times inaugural Livestream. I am your host the Crypto Baron and today we are absolutely privileged to be joined by none other than the Charles Hoskinson the chief executive officer at "Input\Output Hong Kong". Now Charles <...> OOPS sorry. Please.

CH: [00:00:26]
Please no, I was gonna say it's a pleasure to be on. Thank you for having me.

Global transformation brought by the blockchain[edit]

Oh it's believe me, the pleasure is all ours. But Charles it's my belief that technology has made a big world small In most ways has been a great development for humanity in others it's brought problems that were kept on the other side of the globe to our doorstep. It forced us to confront issues we'd rather pretend don't exist and all this has steadily built the political turmoil that we're seeing today, because the world is simply coming together faster than our change resistant sensibilities And culturally program beliefs allow. Now I want to emphasize political turmoil because I think political institutions are largely useless and counterproductive. Politics is just bluster and discussing problems. Economics is where the problems are actually solved. And I strongly believe that what the Internet has done for the flow of information and technological innovation, the blockchain will do for the flow of value in the global economy And on that note, I really truly am honored to be hosting one of the men at the forefront of this innovation every day he's in the trenches building the infrastructure to eventually solve these global problems the man fable from across the kitchen table Mr. Charles Hoskinson. Now Charles right now you are receiving eight enormous global standing ovations from our three billion live viewers.

Ha ha ha ha

Yes, it's largest audience that YouTube has ever had this even eclipses the two billion people that attended Emperor Trump's inauguration in Washington DC

CH: [00:02:10]
Right. Right. Ok, well thank you for that that introduction. I'm not sure I'm deserving of it but of course this is the pleasure to be on you know it's funny you bring up the global transformation that blockchain technology is is bringing to the financial markets and what's really cool about it is, it's just my view, a natural continuation of the Internet. You know, before the Internet, you know I'm old enough to remember some of those days, you know, ride my bicycle to the library and go checking out books all the time and I'd have to ride it back and bring them back and so what does that mean? The movement of information took time, effort, money.

So we tended to build society around repositories of knowledge and repositories of knowledge keepers. That’s where you build the palace around - the universities and so forth. And then when suddenly the internet came out and the cost of moving information and storing information and curating and analyzing it went to zero effectively and it became global so then people started asking, hang on a second here, if there is no cost to moving information, why should there be a cost to moving money or value and you know, that's where digital currencies came from, and now we're starting to realize that emergently there's a heck of a lot more than just the movement of value.

There's also this notion of trust and reputation and identity. There's this idea of ownership of property, what does it mean to own something, and transfer that value. And it's kind of like a fundamental reimagining of Commerce in a more global capacity where one doesn’t need central entities to control the process. Furthermore there's a fundamental disintermediation occurring where people are starting, for the first time a long time, to be in control of their value and their property and their identity, and in some cases they're they're personally identifiable information. And what's so exciting to me about this is that we kind of get to, ah, with a very small team of people relative to impact fifty or a hundred people, have a tremendous influence on this on this new, new dynamic. On how things ought to work. So it's a privilege of a lifetime to be here and to work on these things and make our small mark wherever we can.

That's great stuff and a lot of that we're actually going to dive into in a lot more detail throughout the interview. But this is interesting Charles, in my notes here it says that, on top of being the CEO of i/o HK that you are actually the co-founder of some obscure alt shit coin, I guess called Ethereum. I've never heard of it.

CH: [00:04:44]
<…> (00:04:44) Terrible project. never, do it. no, no. Ethereum is a great project <…> (00:04:44).

Yeh, i’m kidding af course, yeh <…> (00:04:48) yeah is long-standing belief of mine that aetherium is a exceptionally powerful transformative technology is some view you in your current work as a user per I've got nothing but appreciation for the prominent role you played early in the project in your continued efforts in the blockchain community but let's let's dial things back what I, ah, talked about your first introduction to the blockchain.

CH: (00:05:17)
Okay. So the first time I'd heard about Bitcoin at all was quite early on I think it was 2010 or 2011 and somebody had sent me via an email copy of the white paper and so I looked at it, I read it, I said that's kind of really interesting thing and I said wow they got Merkle trees and this proof-of-work singing seems to be a really interesting consensus protocol. And from a technological standpoint it seemed like a pretty novel idea but I was very skeptical about the economics and very skeptical about them ever being able to get a kind of a scale.

So I put it on the back burner I ended up actually getting a lot of bitcoins. At one point I think I may have had 50 or 60,000 of them but they weren't worth a lot <…> (00:05:55) so I gave him all the way and you know it was probably less than a thousand dollars of value or something can’t remember the exact amount. But anyway, you know, it was, it was just a small fun thing.

Then around 2013 I started having some more free time and I remember the Cypress incident and Bitcoin went way up like $200 a coin and I said wow it looks like they've achieved some Network effect. And I started very carefully thinking about it.

I said this is a really interesting space and so I probably should do something in it, so I remember what an old professor of mine used to say said, ‘those who cannot do, teach. So the first thing I did in the space is I founded the Bitcoin education project and basically what I did is I try to get all of the people together who were involved in Bitcoin education and create some free content and just put it up on the YouTube and put it up on <…> (00:06:43) and other sources and releasee it under a Creative Commons license and the idea was to kind of establish some basic MOOC on a massive open online course that could kind of explain what is Bitcoin. Why is it special and what are the broader implications that this technology is going to have? So i created a class on big peter sellers fans, i called the class bitcoin or how I learned to stop worrying and love crypto and I ended up getting about 50,000 students which was just unbelievable.

So then they sent me emails because that's what students do. And I got about 5,000 emails and I answered every single one of them, which as you can imagine, was a tremendously time-consuming endeavor. At that point somebody from China approached me and said hey I love what you're doing, I'd love to fund you, I have some money I was a Bitcoin early adopter and now we're all doing quite well. Kind of wish I hung on to my Bitcoin because I would be doing quite well too, ah, you know.

He said I'll give you some money to start of Bitcoin venture and I said well that sounds like a grand idea but I have no idea what to do and he said oh you'll figure it out you're bright guy. I said okay. So I asked my students, I said what do you think would be the most impactful thing to invest some time and effort in, to build a company around. So I got a lot of replies back but I did get a bimodal distribution.

So one group of people said decentralized exchange is really important because it doesn't matter how decentralized the currency is if the aggregation points where you transaction between fiat and the crypto or digital to digital or regulated exchanges and basically government's can levy control over those entities for example if they don't like Zcash they can say you can't list Zcash or they don't like singular DTV because maybe it's a security in their mind and they'll just say you need a broker-dealer license to trade it they'll say so Poloniex will drop it and so forth. So one group of students said, hey let's do two centralized exchange, and the other group of students said, this is all great and all, but we're never going to replace traditional fiat currencies if we don't have value stability.

So what is value stability? It's where you know you have something where the price today for goods and services is probably about the same as the price tomorrow which is not the case for something like Bitcoin because the value goes way up and way down. Like when I came in at 2013 it went up to 248 and then at that point I think we were down to 80 or 100. So it's like, an under a year you lose more than 50 percent of your value.

That's not sustainable for things like credit? How can you give a loan when both the lender and the lendee have no idea what the underlying assets going to be worth, like just as a quick example if I said crypto Baron I'll give you ten Bitcoin and this was December 30th 2012 and you have to pay me back 11 December 30th, you know, 2013.

Under an ordinary stable currency that'd be great deal - and by the way a Bitcoin back that I think was ten dollars or something along those lines. So there was a hundred dollars of value at risk. And all of a sudden you have to pay me back in Bitcoin around December 30th of 2013 I think was around over a thousand dollars a coin so you get paid back eleven thousand dollars.

Let's say we made the same deal one year later. I would actually win that bet because Bitcoin went down considerably that year So the other group of students said hey let's do a value stable currency and I said okay would be really cool if you could roll these two things up and I felt that like if we could do these two things together it would make the cryptocurrency movement very resilient and invincible and so I remembered a Helmsley poem, ‘Invictus’, and so I said ‘project Invictus’ and I launched a Bitcoin talk thread and the very first person to post on it was byte master which is, people know that’s Dan Lambert and he had this idea of BitShares percolating in the back of his head.

And so we kind of partnered together and the Chinese put money into a company we set up in Virginia down in Virginia Tech at the corporate Research Center and I got BitShares up to a point where it was ready to to launch and Dan and I kept fighting and fighting because we both have very strong opinions on things and at some point I just took a buyout, left and went on to go do Ethereum with Vitalik and then Dan went on to build out the BitShares ecosystem and brought in delegated proof of stake and the graphene platform later did steam and now I guess he's doing EOS.

So he's been very successful and propagating these ideas. We didn't quite solve the value stable currency but we did get the conversation started and there was a lot of ventures that have come afterwards like maker, dow and tether there's a lot of thought that's going into that and in terms of decentralized exchange there's certainly a lot of thought that's going into that as well and I think we made a lot of positive contributions there, but what most people know me for these days is Ethereum so let's talk about that.

Ethereum was really the accidental project. It wasn't intended to be this 800-pound gorilla that was going to go take over the world, rather what happened was that after I left BitShares. I was kind of looking for something to do and Anthony Diorio had contacted me to do some educational content for the Bitcoin alliance of Canada because at the time he was the director and he knew me from the beacon education project and Anthony's like hey let's do something together and so we started working and he was a great guy, kind of sharp elbows, but that's his style, that's how he gets things done.

And he's very good at getting things done especially if you look at how fast Jax has grown. And he said hey, by the way, there's this brilliant kid that shows up to the Toronto Bitcoin meetups we have at the central, named Vitalik and he's got this crazy white paper. I can't make heads or tails of it. Can you read it let me know what you think? I said sure. So I looked at the paper and it was basically like a virtual machine taped on as an overlay protocol on top of prime coin, wasn't even a standalone cryptocurrency the basic idea was to add smart contracts to to a cryptocurrency.

Now the reason why Vitalik wanted to do this wasn't because he had this grand scheme of building a decentralized world. It was more a project in frustration for him because he was a core developer for color coins as well as master coin and he was getting into all this trouble trying to make the damn things work, and every little feature or functionality was this enormous effort and he was like, why can’t programming for blockchains do you like programming for the web where you have JavaScript with the browser and you have some degree of program ability?

So Vitalik wanted to attach a programming language to a blockchain and give people a much easier time building things like Name Coin or Color Coins and so forth. So it's really a novel idea but it, you know, the problem was that we didn't really know how to execute it so I said this is really interesting paper I think we can do something with it but we need to kind of start building a team. Anthony said well we already have kind of a team there was four other people at the time. There was <…> (00:13:30) Alesia, Vitalik, <…> (00:13:33) and Anthony. I was number five in that group and at the same time..

Sorry to interrupt. Sorry before

CH (00:13:39) Yeah I was going to get to that. So what happened at the same time Vitalik had set up a Skype group and a bunch of people started joining the the Skype group, so I don't know exactly when gab of York, that’s Gavin's name, uh, his Skype handle, joined but I think it was around November December of 2013. So I think we probably joined right around the same time but he wasn't in any of the initial meetings. Ah, instead what he was doing was just kind of figuring out how the heck would you implement this.

Now meanwhile Jeff had a Skype handle called obscuren and Jeff was ah, was ah actually anonymous. We didn't know who he was because he was actually a core developer of master coin at the time so I guess he was kind of hedging his bets and he was having a lot of fun building like a go version of it. Well anyway, after we started growing, because every week we would, grow by like a hundred people in a Skype room and it became very clear that this was something special. And Vitalik released a new version of the white paper where this was a standalone cryptocurrency. Still very kludgy was like proof of work with a core coin style distribution where most the currency would be mined in three years and it wasn't very, it wasn't very perfect from that sense but it was much much better and actually looked like it could work so that point Anthony said you know what we got to make some decisions here, so let's all get together.

So Anthony went ahead and rented a beach house in Miami and this was in January of 2014 and he said alright let's just have all the people who are going to come come and let's all meet each other, see if we're assholes or if we like each other and see what we can do together and kind of figure out what this project is going to be all about And at the same time we'll go and present Ethereum at the North American Bitcoin conference that was being held in Miami at the same time and see what the community reception was.

So we all just kind of bought our tickets and flew in there. Again, this was the first time that I met Gavin in person. Jeff didn't come. <…> (00:15:30) wanted to come but he couldn't get a visa because he’s Romanian and it's sometimes hard to get visas on short notice.

But we did pipe him in a few times in and Vitalik and <…> (00:15:39) know each other really well because they did Bitcoin magazine together. And the rest of us went there. I think there’s probably about 20 or 30 people who ended up going to that beach house yeah so we all got to know each other we all hit it off, it was really fun. I really enjoyed the conversations, some were philosophical, some were business oriented, some were technological and then the moment of truth was when we went to the North American Bitcoin conference and we did two presentations.

One presentation was done by Vitalik and the other was a debate which is still actually up on YouTube, the debate I did with David Johnston and Dan Larimer. So anyway Vitalik's presentation was incredibly well received and my debate was well received. And it became very clear that we had something tremendously special that the community really wanted this that the the idea of having a programming language on a blockchain and being able to create smart contracts. And to a greater extent this hold DAO philosophy, that we first started talking about it Invictus, we called it a DACs. Stan Larimer actually wrote one of the first papers and very shortly after Vitalik wrote some papers on dows in Bitcoin magazine but the idea been floating around since Mike Hearn presented at the Turing Festival, I think in 2011 or 12. So you this whole notion of an autonomous company running in the web which has no jurisdiction but can have legally enforceable contracts.

Was like super cool and the community was just like on fire for this type of stuff also you have to understand the environment that we were in. Bitcoin went from a hundred to over twelve hundred dollars in like a month and everything was just crazy, like hype was at maximum level when dogecoin just came out and everybody was making money on it. Nxt had just come out and everybody was making money on it so it was a very hot environment and Ethereum kind of looked like the sexiest most promising of all projects so we agreed to kind of develop a forked strategy so we would break ourselves apart into kind of three different groups and each group would handle a particular dimension of the project.

One group would worry about getting the project funded long, one group would worry about the underlying technology and getting it to a state of maturity where it was reasonable to fund the project. And one group would kind of be like marketing and community, advertising and business development - go talk to everybody, and, and see, kind of see what kind of strategic partnerships we could do. So I felt that the single most important component was the legal structure and the ability to get the company to a, the project to a fundable state.

So I took that plank, Gavin and Vitalik took the development side and then Anthony and others kind of took the biz dev and marketing along with Joe and, and they just went around into conference after conference and did interview after interview and kind of built up the hype and got people excited and brought in a great community. About a month later we also hired Stephan Tual because he was running a website that was very Pro Ethereum and we thought he’d be a good guy- a good figure. And he came in and took over community management as well.

We we had a very aggressive meetup group strategy that he helped execute. So I moved to Switzerland and we ended up setting up a gmbh there. And we worked really hard we got tax rulings and we talked to lawyers very extensively. We also had a parallel legal effort United States where we talked to a US law firm about writing ah, more likely than not opinion about exactly what would the ether sale constitute in terms of required regulation and so forth.

So I spent months of my life working on that and it was very tedious technical work and a lot of hard meetings that were long, like in Switzerland some of them lasted 12 hours just one after another after another. Gavin, in the meantime, formalized the EVM. He produced the yellow paper and it was ready by the the Toronto conference in April of 2014 and Anthony and Joe and Amir and others, they really killed it.

They went to Silicon Valley. They went to the Paul Snow’s conference down in Texas and talked to a lot of people and they got a lot of people very excited about Ethereum. So at the, at the end of all of that we converged upon Anthony’s conference in Toronto and then we had to start making some decisions about what the future of Ethereum was going to be, because we had gotten to a point where the hype was there, the technology was there and we had divergent options on the business side, so there's kind of how do we want to run it and how do we want to fund it.

So how do we want to fund it? We had two options. One was to take VC money and at that point there was certainly a good market for it. Block stream at the same time was raising capital and I believe they got a twenty six million dollar investment, and so Silicon Valley was totally prepared to put equivalent amounts of money into a for-profit company if it looked like it had something very competitive. And frankly, it would have been one of the best investments of all time in Silicon Valley, had that been done. So we knew the VC money was there and we also knew that we could do a crowd sale and the only question was how would that be done, what entity would it be executed and so forth.

So we started those conversations in Toronto very heavily and my opinion was that the project had grown too large we had people in five different countries working for Ethereum. A lot of people had brought in their friends. We didn’t have clear contracts or command, and controls. It was a very flat structure, even though I was voted to CEO by the founders, because there's eight founders at that point, you know, it's like well what exactly does that mean. I didn’t have an official employment contract or any mandate of what I'm supposed to do. So I was just trying to be useful. So I said, you know, we probably need to do is start a for-profit company, take a VC investments, centralized in Switzerland and turtle up and build the protocol over six months to a year cycle

A, because bitcoins kind of been a downtrend and you know it'd be better to launch it at the bottom of the market instead of right at the top B, because the legal risk would be tremendously lower C, because everybody would have to do through due diligence that.

I think we have probably over 200 people floating around the Ethereum spectrum and we didn't know basically these people’s backgrounds if they were going to go and do their own things what the liabilities were what they've been promised it just grew so organically and so rapidly.

The other option was to just set up a foundation and have that Foundation conduct a crowd sale and then use it to fund a collection of companies to build up the ecosystem and let anybody who wants to participate, participate and have a horizontal power structure except for the fiduciaries of the foundation. So these were, you know, viable options. Both of them could do things my concern with the foundation approach was that if went down that road we'd have brain death, because there was no equity and nothing chaining people or vesting to this foundation outside of the appreciation of, let's say, the value of ether, which you'll get regardless, there's no reason for them to stay. So they're all gonna scatter and start their own companies and we would lose a lot of value then, so ,you know, as the debate is did you start the E.F and then consensus or do you start consensus and then the E.F you know and there’s, this was kind of ah quite essential debate.

Well anyway we fought and fought fought and then June of 2014 we converged upon Switzerland to make the final decision and in a board room for all my side lost and I left and Amir Chetrit left and the devs won and it became a foundation. And they went ahead a month later, did the crowd sale and then immediately set some of the money over to a new company in Germany, I think, or London, I can't remember really where they Incorporated it. I believe was called Eth dev and Gavin and Jeff and Vitalik kind of ruled the roost and built Ethereum and and launched it. And then most of the founders eventually left and started their own companies.

So that was the extent of my involvement in Ethereum - you know, some of it was just helping Corral of people together, some of it was philosophical advice and strategic advice and the advice and you know some of it was a lot of hard core business dev work where we were trying really to keep everything together and make sure that that which we had created, that had value, would not just scattered to the wind and the project would not become - grow too quickly for its own good or become too fragmented for its own good and gradually break apart.

But anyway that’s what happened there. Then I kind of went into the hinterlands, for a little bit, I, We’re kind of walking through history. I went into the hinterland for a little bit. i was pretty pissed off because I thought that, you know, Ethereum was a billion dollar company, which I was right about, and I really felt like, so much more could have been done if things were just done differently. That's my opinion.

Um, and so I went back to math for a bit and I was just studying things like analytic number theory and you know I was looking at some old problems that I had in my notes from years back and I was trying to make a decision like what the hell do I want to of my life and everybody kept calling me so you should come back to the cryptocurrency space. I still had a lot of friends from the Ethereum days but I was kind of burnt out, you know, I was like I'm <…> (00:24:40) - you know, I'm not so good at partnering with people.

I said no no no you're great. Just partner with the right people. So the pivot point for me was that I got invited to do a TED talk in Bermuda on crypto currencies and I try to actually kill that talk. I didn't want to go but they kept making it sweeter and sweeter, like they will fly out on first-class and get you a nice hotel room. That's how, that's fine, I'll go. So I went to Bermuda I gave my presentation and it was so well received, I said, alright you know what that's it we’ll bring the old crew back together and the people that I can work with and I’ll start another company but then I had to kind of decide like

I just wanted a quick insert. I've seen that presentation it is absolutely terrific. Make sure that you go watch this Ted Talk if you haven’t.

CH: (00:25:25)
Oh, by the way I didn't prepare it. I wrote it the night before, the the TED talk. This is like how anti presentation I was. So I, so like the night I arrived in Bermuda and Nick Trout, the guy who put it on, he's like, can I see your presentation. I haven't written it yet, and he has a face turned white and he’s like you haven't written it yet, this is Ted you can't just do this and I was like don't worry about it, it's okay I’ll, I'll think of something in the hotel room and put it down and that was a lot of fun. I thought I was just going to be able to wing it and like I was going to be the best speaker or something but actually the guy who spoke before me had spent 20 years on Easter Island studying those giant Moai Heads and he actually even built one in Hawaii and figured out how they moved them and they were walking the head


CH: (00:26:07)
It was like the coolest presentation <…> (00:26:09)

Was it not aliens? Are you trying to say Easter Island was was man-made ingenuity?

CH: (00:26:16)
They even have a youtube video man. You can, actually there's still probably his presentation on the web somewhere but it was like one of the coolest presentations and I was the, I was the poor schmuck who had to go after him but everybody's like okay what's this guy got. I was like, God I kinda wish I prepared for for this presentation but ah.

Yeah you send ah, you send that presentation before you do that ancient aliens guy. He's taking ah, he's jumping straight off a bridge

CH: (00:26:39)
Right. Alright, so anyway I did that and I brought the whole crew back together and Jeremy Wood and I, Jeremy worked with me at Ethereum. We decided to start another company. And I said well, you know, I've done this enough that if I'm going to do another company damn it I'm going to do the company I want to do so I said let, I really like building cryptocurrencies and doing research it’s a lot of fun so I said let's let's build a factory for cryptocurrencies, a company that makes them for a living but not just like implement something.

Why not just good engineers but actually let’s do protocols as well. Let's actually be researchers. So Jeremy and I said, well why don't we create a synthesis between research and development. We're on the research side. We start from first principles and we integrate ourselves in universities itself. We hire cryptographers. We retain professors and we do peer-reviewed research, actual peer-reviewed research. Not going to a cryptocurrency conference but going to like a proper crypto conference like Crypto or Euro crypt or ACNS or something like this and then let's build on the engineering side. People who do high assurance software. That’s, that's a very, that's a very particular type of software.

So we're talking about formal specification and formal verification. So you're talking about actual computer proofs and you're talking about rigorous mathematical definitions of what the software is supposed to do. This is only done in military software or aerospace software like if you're NASA you can’t, like if your Mars Rover has the blue screen of death, you can't go kick it and have it reboot. Damn thing’s on Mars so you just have to accept that it's gone. So it's probably good to make sure that before you shipped it the software is right similarly for satellites similarly when you're on an airplane you're looking at that rolls-royce engine on the side or GE engine.

You're hoping that it's not going to have the blue screen of death and shut down. You want the engine to keep running. So there are software techniques and methodologies, and they’re quite good, and there's even languages like coq, that's coq, it's a French language and Isabelle and techniques like liquid Haskell that can give you a high degree of assurance that your software is correct. So we said in addition, to being good developers, and doing things in functional languages with Haskell, this weird academic language that nobody’s saying should use, let's also do high assurance software.

And so let's build a beautiful pipeline where we start from first principles, we start with peer review, we start the hard problems of cryptocurrency and we can write papers, peer-review those papers, and actually prototype them and formally specify them and then implement them, and, a functional language and use a high order logic to verify the implementation is . No one's ever done that in the cryptocurrency space, so that was the core idea of IOHK.

So we said fuck it, let's do it. So we founded it in 2015 we built ourselves up now we operate with people in ten countries we have 70 employees. Revenue wise we're doing great and we have written several wonderful papers like Ouroboros which is a provably secure proof of stake, has been submitted and accepted the crypto 17. I think it's the first proof of stake protocol to be accepted at a mainstream cryptography conference

Ah, we've created a new random number generator that's based on Shawn Makers PPSS coin flipping scheme, which was the original quadratic time. We actually have a linear time version we've submitted. It's also been accepted for peer review we also have one of the largest Haskell teams, I think in the world. We have 25 full-time Haskell developers. We even have one of the guys who created Haskell working with the company, professor Phil Wadler, who works part-time and helps us with language design. And we have three research partnerships. We are partnered with University of Edinburgh, Tokyo Tech and University of Athens where we actually have our physical personnel in the university itself working alongside professors there to do peer-reviewed research.

So the experiment worked and IOHK is turned out to be a tremendous company and I'm having a hell of a lot of fun running it.

Yeah absolutely. You recently just brought on a game theory Oxford professor to contribute to the project too right?

CH: (00:30:40)
Yeah Elias. He wrote the price of Anarchy and he's won a girdle prize and that's a step down from the Turing prize so it's a very prestigious award, but basically he was one of the first guys to actually start saying listen these internet protocols that people are developing they need to have incentives thought out. So it's not about optimal running of the protocol. It's more about understanding people and what there’re incentives and motivations are going to be to run these types of protocols. And if you can understand that you can develop a much more resilient web.

Now this was in the 90s, well before BitTorrent dear cryptocurrencies or anything, so in many ways his research kind of inspired the the seed of thought behind you know maybe we should start thinking about tokenizing things or maybe should start thinking about why Bob and Alice are actually going to write a protocol.

So we brought him on board to actually be a mechanism design experts. So we have all these protocols, like Treasury systems and proof of stake and other such things where you got to pay people to do something or punish people not to do particular things but you just can't do that willy nilly. The problem with our space is that most of the parameters we've selected are magic numbers. They’re just picked out of a hat we hope they work they're not really incentivized or structured in a way that there's some you know rigorous thought that's connected to a model that may actually provide some value.

So Elias is going to help us add some academic rigor from the algorithmic (game theory side to our protocols. The advantage, ah, unique advantage of working with him is that, you know, most game theorists tend to be stronger in economics and less so in computer science or maybe they tend to be very mathematically inclined but they're not very good on the computer side side. He's actually really good on the comp sci side. He's also at Oxford. He’s a 10 yeard professor there. He’s got a very large research group so it's nice to be able to pick the brain of that group and work alongside them and co-author some great papers.

Ah, I think personally the only company though,, by the way that actually has managed to get people in Oxford and Cambridge. There’s some rivalry between those two schools.

Haha. Yes.

CH: (00:32:40)
We have, we actually have <…> (00:32:41) and his grad student <…> (00:32:42) working on a project where we’ re checking the proofs in some of our papers and then we have Elias working on some game theory stuff so maybe we can create some academic harmony you know bring the two universities back together after 800 years.

We'll see. I think the odds are pretty septic against you for anybody that doesn’t know

CH: (00:33:00)
It's been a hundred years.

Your aid of applications from everything from biology to the Cuban Missile Crisis in fact. But it essentially just boils down to the decision-making, down to logic through rational conflict interaction. So that's a little background on that

Charles we are.. It's definitely time to talk about the DAO hack.

CH: (00:33:24)
Yeah so I never thought I was ever going to go back to Ethereum, you know, I thought I was done, Ethereum’s clothed, you know, every now and then I'd be snarky on reddit or something and people said ah screw Charles, he's a bad guy

I’ve seen a lot of that.

CH: (00:33:36)
My snarky reddit, ah its great.

Snarky Reddit and screw Charles I’ve seen both.

CH: (00:33:41)
Yeah well I’ve just so loved, ah, but no anyway besides being Krypto Rodney Dangerfield uh I never honestly thought I'd come back to Ethereum, you know, I thought maybe 20 years in the future we do some reunion thing and after all the wars have been fought we either won or lost but outside of that probably not uh but what happened was that basically one of the guys close to Ethereum Stephan Tual -formed a company called and they created basically a decentralized venture capital firm and they said hey look at this amazing thing we've done and they made a lot of bold claims and they raised a hell of a lot of money and it turned out that there was a flaw and that flaw was exploited.

Well this is nothing new. There was a flaw with MtGox, there was a flaw with a lot of things. And a lot of money's gotten stolen in the past or lost in the past. There's plenty of wallet makers who fucked up and they accidentally burnt tokens or didn't preserve private keys and lost their money. This is the danger of using cryptocurrency and part of the social contract is when you make mistakes there's no one to show up to bail you out.

One of the problems though was that the people who started the DAO kind of had some close relationships with the EF and it wasn't clear that if the DAO was to fail what legal and regulatory impact that would have on the broader Ethereum ecosystem whereas things like you know MtGox failing with Bitcoin okay you know Karpelès goes to jail we're all fine but Bitcoin lives on you know. This was a back door that could cascaded into the EF potentially and basically for next two or three years, potentially longer, cause a lot of problems for them.

So I can understand the political motivation to say maybe we need to reverse this and kind of say this is the only time we’re going do backseats but you know let’s never do it again. But the problem is that when you take other people's money with a social contract you have to you have to be completely honest about that and when you say code is law illegality code can't fail unstoppable applications and you put a bold red letters that if you do something you are held accountable for your actions and then you make a decision to abandon that philosophy because of regulatory or legal convenience, this one time, in my view you've completely divorced yourself for everything that makes cryptocurrency special.

I mean you know 2008 is a great example where the government says okay we're going to bail people out and we’re going to fix all this stuff up and and then and we won't get involved again but we have to get involved this time to save the free market and save everything but the problem is that they just keep saying if they set it with the SNL crisis, they said it with long-term capital management, they said it with the the financial crisis the the mortgage-backed security issue and there’s going to be another crisis still and they’ll do the exact same damn thing.

The reality is the minute that you know you can cross that River it becomes too tempting to cross it again especially when you go from millions to billions to hundreds of billions of dollars of people's value and you go from you're a bad guy to being sued to going to jail in terms of the cost of not doing that. And if you have a small centralized group of actors who have the ability to do that then they're going to do it, because people are people and the point of cryptocurrencies is they're not people they don't have our values they don’t have our philosophy they don't care when grandma loses money they don't care when people are still.

Over four billion dollars worth of Bitcoin has been stolen over the history of Bitcoin. About 10% of the supply, if you add up all the thefts and account for the increase in market cap it's a big number, yet Bitcoin still here it still got strong principles it still got a lot of adherents people are still using it people are building businesses on top of it. So the point is that you pick the moral high ground so when I heard that they were potentially thinking about rolling things back I felt like they had defrauded the people who put the money in and a lot of people who work their asses off to build up the ecosystem, and it wasn't a matter of me thinking that if they fork that it would destroy Ethereum and somehow Ethereum would not be successful.

In fact I think it's quite the opposite. I think a fork actually made Ethereum much more appealing to banks and enterprise actors in government's because they realized that there was a consumer protection component now and they could intervene when necessary if necessary for the greater good of society potentially. And the community may be on board with that and sure enough post fork the EEA has been established the values gone from a billion to, think what is, a twenty billion?

Now a lot and there's a huge amount of enterprise and in government love even the PBOC is saying that maybe this is a good idea um but I felt that that betrayed what we were trying to do always being the guy in the minority and always being the guy on the outside. I philosophically supported e.t.c didn’t expect it to go anywhere I thought it was going to get killed in a few days and but when it got listed got developer support and it got momentum uh it looked like it actually would become permanent and I'm and I'm very glad that I got involved.

And frankly I care if it was a dollar or a billion dollars I still come in and make the same decision because it was about giving people who felt like they had been lied to or betrayed their original social contract and honoring that social contract. So that was then and that were we at today for for ETC. Well you can't build a movement on a protest and you can't you can't build something sustainable by defining yourself by what you're not you know you have to lead.

So now that the community is stabilized, we have two independent development teams one I control and one of the is more community-centric. We have good community management we have a podcast let's talk ETC, that's done by Christian Severino and Carlo. Carlos is also doing a very good job broadcasting the message. We have a great community now. It's getting to the point where we can actually start diverging and actually having discussions about what does the divergence need to look like.

We’ve already had several hard Forks just t clean things up like get rid of replay attack, changed the monetary policy to cap it make it much more Bitcoin like than Ethereum’s current monetary policy and now we're gonna have some discussions about what is the future consensus algorithm, how are we going to achieve scalability how are we going to have much more secure smart contracts, what poor programming languages are going to be used to create applications on ETC, how do we get ETC to talk to other blockchains.

These types of things. And because there's many different ways to do these things the decisions that our community make will ultimately be very different in many cases than the decisions ETH makes and you'll see the change kind of diverged very considerably and then they'll tend to be specialized and good for particular applications but one thing etc' will never do is violate its principles.

If I recommended rolling back a transaction or anybody else in the community that pitchforks and torches would appear and we'd be kicked out in 20 minutes. So that's one guarantee that you get. ETC is basically Ethereum with bitcoin style ethics and Ethereum is its own thing which is fine and you know if you bought Ether you can't really complain because you actually got positions in both chains so the social contract is preserved and now you got this other thing that's going on that's tremendously successful.

Now you mentioned the social contract and for you that's the the code is law philosophy…<…> (00:41:15)

CH: (00:41:16)
No, it wasn’t just me, I mean there’s videos of him on youtube saying illegality he invented new words for it. And and the Ethereum core team was perfectly comfortable going for over two years talking about unstoppable applications and saying how we're not going to roll things back and you know it's going to run the way it’s written. In fact I remember there's great paper from Elaine Shi, Ring of Gyges, which talks about all these legal smart contracts that can use for bad things like assassination markets and other things.

You’d ask the Ethereum community and you say that's not our responsibility we don't take a position the protocol doesn't care about the code just like Bitcoin if somebody uses Bitcoin to fund terrorists or buy child porn it's not the responsibility of the miners of the protocol developers because it's a neutral platform that doesn't care about the transactions and the whole philosophy was that whatever your smart contract is that happens to live on the protocol. That contract, whatever it is, we don't care, the protocol will ran it.

That was the original philosophy. It was incredibly crystal clear. Long after I left they were pumping it raising money on it getting hype on it getting developers on it holding meetup groups about it doing YouTube presentations doing Dev Con presentations the founders that remained. So you know wasn't my interpretation. Just use their own words.

And we would not have such a large community in ETC and be a billion and a half dollars and have people willing to work for free because no one's getting paid right now in etc' dev outside of donations and I paint my guys but that's a loss leader I don't make any money on it if we didn’t believe in that social contract so with all due respect no I don't think it was just a small a difference of opinion, I think it was a marketing message that people accepted.

They raised money on they built a community on and when it became inconvenient they threw away because of legal and regulatory reasons.

Absolutely I'm pretty Switzerland on this issue I understand Vitalik in the massive success of Ethereum, behind, in the argument of intent and the argument that this is clearly a bug obviously it's outside the Ethereum protocols, it was in the, but I also understand the very firm stoic code is law approach obviously I firmly agree with you <…> (00:43:39)

CH: (00:43:39)
Yes, but there’s a bug in the overlay software and there's a plug in the protocol. Bitcoin fixes bugs in the protocol. There was an error with Bitcoin way back like 2010 or 2011 where you could manipulate Bitcoin script in just the right way and create billions of bitcoins obviously you fix that it was fixed quickly that's a problem with the protocol and it violates the social contract. There was a transaction malleability problem with Mt. Gox software allows hackers to come in and steal all the Bitcoins. That's Mark's fault, that's Mt. Gox fault. And yeah a lot of people lost any money.

You know, some of the Bitcoin core developers had over a million dollars each in Mt. Gox. They still did not advocate a rollback and they lost millions of dollar of their own money so III think that that that the principles are expensive in their hard and I don't care if there was an intent I'm pretty sure Mt. Gox had an intent not to be hacked and added a tent for their software to behave in a certain way, probably did and I absolutely know that the guys at SLOC had had an intent for the DAO to work they were trying to build their brand and reputation on it and if it doesn't it's a disaster for them so I appreciate that.

But the problem here is crypto that you can't go ahead and fill advertise a certain type of development experience that says you are a hundred percent accountable for your actions, and the people that invest in you and work with you are at a hundred percent risk. There is no government there is no fallback there is no guy that's going to come and save you if that guy's a scammer or if the code doesn't work or you lose your private keys.

This is the world we've lived in in the cryptocurrency space since 2009 it’s the Wild West it's a harsh one it's like saying you're to go out in the desert you got to provision your supplies and if you run out of water you die hydrate and die that's on you. You didn't bring enough water, you didn’t, you didn’t prepare yourself properly. But you’re told that before you go into the desert. Similarly this is the desert now deserts got a lot of magic in it it's got gemstones here and perhaps there's an oasis and maybe long-forgotten city so there's magical amazing things that you can accomplish and see in this world but it's a dangerous world the minute that you say okay well certain people they get a do-over because it's just you know it’s too big and that person is too important or it has too big of a consequence then when you've basically said is well you know this guy who goes out in the desert because he's a celebrity I'm going to send the helicopter and and rescue him and prevent him from dehydrating.

Then what happens to all the other people who died in the desert in dehydrated what the hell did they die for so what's the cutoff point is it a hundred million dollars is it ten million dollars is it five million dollars. I mean how would you feel if you had two swimming pools and one of the swimming pools of child falls in the other swimming pool a child falls in and the lifeguard in swimming pool A saves the child and in swimming pool B says nah not today. Immutability, code is law and lets that child drowned. And they said well but the child in the pool A that was Bill Gates's kid so it's way too important. We get sued government investigation the Shelby how is some illegal immigrants kid who cares no one can do anything about it.

That’s the moral hazard and in the most concise of terms with what intervention does because you have no standard for when you intervene you you, it's all about political connections or outcome and then the people you didn't intervene for those people lose everything but why, what did they gain? I mean, at least when you have principles you can say I saved no one we all know that then and we all took the risk.

There's a cave that people love to go in scuba dive in and it's a very dangerous cave it's in South America and every year it kills dozens of scuba divers but it's a beautiful cave and they run out of oxygen they get lost and they you know they die in the cave and they have this little sign and has a skull on it and it says if you go on this cave you're probably going to die. This is in multiple languages but people every year they still go just that's that's that and when somebody calls and says hey my friends went in the cave them come back the authorities won't show up they said we put the sign, people knew the risk if if they did that well we'll hope for the best. And that is the world of cryptocurrency.

Ethereum has exited that world and has now entered some sort of mid-ground and i don't know what that is, but it's not crypto land. It's something different. Doesn't mean it can't be successful ripples tremendously successful it's at eleven billion dollars. Markets growing like crazy they have a lot of enterprise customers. I have tremendous respect for Arthur and for Chris and I think they’ve built one of the finest companies in the space. And I also have tremendous respect for the people at the Ethereum foundation, for the people at consensus and I think they do tremendously good work. They have a great gut at EF called Yoichi Hirai. He does a formal verification work. It's some of the best work and most systematic and rigorous work you'll see in the space. Okay? But I will not call it then a cryptocurrency!

Because I think what's happened is it abandoned everything that makes the cryptocurrency a cryptocurrency. It's a different kind of cave and it's lost any moral mandate

it’s hard to argue with a lot of that especially I as essentially in my past I have been Nigerian prince instead about about a hundred ether and i look quite frankly i'd love to have that forked back to me especially like the the more that ether rises. But that being said, Charles i think this question uh is is a rough one but i do i have to ask it. So there's a lot of people out there that do believe that a theorem classic is essentially an attack on the legitimacy of Ethereum by Bitcoin maximalist often specifically the silvered sermons mentioned. So how do you respond to this obviously you're very passionate about the subject so i'm looking forward to to your input.

CH: (00:49:42)
Well you know whatever okay so let's just look at where it was and where it is and so it doesn't really matter what the thing existed as it was when it was created, if you really think about it. It was a protest and it sure as hell a lot of people in that protest movement who had a lot of reason to be angry with Ethereum. Okay? So there was people who bought ether and they felt like they've been lied to. There were Bitcoin maximalist who probably thought this was a good Avenue to damage Ethereum and prevent it from overtaking Bitcoin. There were probably people there who said boy I missed the Ethereum boat and if I can join the ETC boat. If this thing can overtake it maybe I could get the asset at a tremendously under priced value, whatever the hell it is. That's what it was. It was a very chaotic and unstable time.

I was in the camp that felt the social contract had been violated. I came in and said I'm going to put in developers and community management and we're going to try to be good custodians of this project and help it along and get it past the crisis point. So now we're past the crisis point a lot of the short-term actors have left. A lot of people on the Ethereum side try to kill it by dumping their ether classic, which they got for free, and there was even tweets from certain people saying free money, I can’t wait to see the price go down, I can’t wait to see this thing collapse.

There were a lot of people said use the trademark to shut it down. A lot of people said we should sue Barry Silbert. It was a pretty vicious attack from the Ethereum side and sure hell there was a vicious attack home from the ETC side to the Ethereum so I was both ways, I’ll acknowledge that. That's fair but we are where we're at today and what's happened is the theory of classic has stabilized, It's built an independently big community that's very passionate and it's looking at the world a little differently and the division is less about let's kill Ethereum and more about we actually have differences of opinion about how smart contracts should be run.

I'll give you a great example one of them is proof of work versus proof of steak there are a lot of people who don't think proof of steak works. I happen to believe it does because we created a protocol that shows it does, Ouroboros, and we're very happy with it it’s received great reviews but there are some people that think proof of steak is a scam or it doesn't work or it’s just, for whatever reason, can't be used with cryptocurrency.

And they think Ethereum transitioning to a proof of steak destroys what makes Ethereum special where do they go there's nowhere to go right now bitcoin is not going to become a theorem so Ethereum classic is actually a great place for them to go. that's <…> (00:52:08)

Absolutely. Yeh.

CH: (00:52:16)
You know, another thing is the smart contract model. Let's really think carefully about the philosophy of move fast and break things; you can't go and say we're going to move at the speed of light and give you guys all these new features and go you know prototype and build stuff but then say when you fail nine times out of ten you're going to die in the desert. That's not really fair. So a lot of people in the ETC side say if we’re going to have ‘Code is law’, then we got to make sure that before you go into the desert there's a really good supermarket that's got great supplies and we’re going to make sure you're as provisioned as possible so you have the highest probability of success you have that extra air tank on your back when you go into the cave.

So what does that mean? It means tearing apart the EVM and modelling it with K semantics it means the sputnik vm project that ETC dev is working on. It means new programming languages which bring in concepts from type theory and functional programming languages to allow you to write contracts that have much much higher probability of not failing, okay?! Well that's a mandate that we have to satisfy if we're going to have this kind of philosophy. That is a mandate that you don't necessarily have to have if you’re in the Ethereum world because maybe you get a bailout, maybe a little fork, maybe mutability is coming down the pipe.

My point is that there's natural divergence points that are now based upon philosophy and technology, not about let's kill ETH or let's kill ETC. Those days are over. No one won. ETC survives despite the best difference. The people wanted to kill it and ETH survived despite the best efforts to the people in the ETC community that wars over, you know, there's no animosity on my side anymore as far as I'm concerned the ether buyer won. Why? Because ether classic is now worth more than what Ethereum was worth at the DAO fork. So it's like, even if that's your whole thing, you've broken even, you're feeling good about it, you got something and it's a stable Greek community that believes in the original principles.

And let's say that you're on the other side of the fence, Vitalik’s doing a great job with his eco system as is Joe Lubin and the EEA. They've really brought something special together so no matter what side of the fence you're on you're doing great, you know, everybody won. So why the hell do we even fight anymore and it's just like let it go and then let's make each other better.

Because by having a place for miners to go during a proof of stake transition, it means that there's less contention for Ethereum to execute and move to proof of stake because people will disagree, have a place to go in a peaceful way and still profit. B, we both have mutual benefit mutual interest namely with formal verification and getting a better smart contract model especially when charting comes.

So there's a lot of potential for cross talk and cross research where we're working on the same classes of problems. We're ultimately going to have different philosophies about how to solve them, but just the conversations alone can benefit us so one of my hopes is that this golf can be bridged at at some point and we can start talking to each other again. Obviously we can't do that if people are calling us a scam and we're horrible human beings and saying Barry Silbert and all this other stuff but, you know, that's only a small minority to be honest of people in, in the Ethereum world most people just don't care. They're like at whatever the classic was a thing or and some people actually like classic now because they woke up and suddenly they had these extra tokens that you didn't buy. They just appeared and now they're actually worth a lot of money. They probably may quite a bit on it and they're like oh well yeah why should I hate these guys they just made me a bunch of money feel pretty good about that.

So ultimately I think that we have more in common and we can do better things together, and frankly, we can grow in our own verticals and never actually have to fight each other. I don't believe ETC will harm or hurt Ethereum any more at this point and frankly I think Bitcoin maximalist have already put their eggs in a different basket they've put their eggs in the rootstock basket, which is actually a very legitimate threat to ETC.

You know bitcoin is getting very competitive all of a sudden. You got SegWit coming in, you got a rootstock coming in, we've created a new sidechain scheme which we're going to be publishing very soon, which massively improves the side-chains model and you know there's a lot of good things coming down the pipe that are very pro Bitcoin and it's going to get competitive and ETC and Bitcoin are going to have a hell of a fight but they don't exit the ETH in Bitcoin are gonna have a hell of a fight I don’t think ETC is going to get involved in that at all or just going to have our own little thing and be on the side and, you know, have fun in that space. And I think we'll be but very competitive in that let the Titans fight each other

That's terrific. So much good stuff. Uh there's a lot to unpack in that. First of all you saying no animosity. I obviously don't speak for the entire blockchain community but I personally would love to see both chains working together in a complementary manner, instead of just trying to compete and FUD campaigns trying to Delegitimise each other. So obviously that's you.

Have you consider just calling ETC a silver to Ethereum’s gold? like Litecoin did. That seems to have stemmed a lot of animosity there.

CH: (00:57:25)
Yeah but that implies that ETC will always be smaller than <…> (00:57:29) then.


CH: (00:57:31)
I hope is that ETC continues to grow it becomes its own like Leviathan in its domain

Yes. And I do. I want to talk about more about the technological innovation and some of the differentiators that you're looking at for Ethereum classic I also do want to dive more into SegWit, into Lightning Network, into rootstock and a little bit, but for now what I want to talk to you is about value. I'm big on this most certainly is not a bubble we are just scratching the surface on the potential of what this market is going to be. It’s not going to be measured in the hundred billions. It's going to be measured in the many many trillions when all is said and done. That's my own personal opinion.

I value how a blockchain derives its value and even how a entrance to the private blockchain increase the value of the public blockchain.

CH: (00:58:29)
Sure. Okay. Oo I've held a long-standing belief that the value of any cryptocurrency has nothing to do with the underlying technology or very little to do with the underlying technology if if it had to do with the tech there's just absolutely no reason for like coin to have any value at all because I mean it's like literally just take something you fork it from Bitcoin you quadruple the supply and you change the consensus algorithm none of the utility is different to be honest with you and most of the code is the same yet it's its own thing and has its own value its own community.

The value in my view of any cryptocurrency comes from the users and what they do with it the products and services that are participative the movement of value within that system. So when analyzing whether a cryptocurrency is going to be worth anything or not the first thing you do is you say; who's the community and how is that community going to grow, and are they stable, are they sticking around or are they kind of like a video game where you have 10 million people in month 1, month 2 eight million, months 3 two million, month 4 five hundred-thousand, right

Are they sticky, what's your churn rate in that community. And by variety is how fast can people recruit each other. So the first question is will these notions these protocols these ideas these these these mental infections these memes will they propagate to have millions tens of millions hundreds of millions billions of users and the under what conditions would such a propagation occur in what natural utilities what these things occur.

I believe that in the developed world probably not the reality is that these things are tremendously difficult to use they're not terribly consumer friendly and also they're too volatile to do traditional commerce them but in the developing worlds completely different story you don't have stable currencies. You don't have stable markets. You don't have stable identity. You don’t have stable credit. You don't have insurance. You don't have any of these things, but you have a cell phone and the very fact that I can put on that device something that now puts you at the same level or better than somebody in America or Germany or England.

That's an enormously powerful idea, so if we're looking to how do we get to three billion or four billion users and then at that point really would be a multi trillion-dollar ecosystem we have to ask ourselves what are the fundamental elements that are required to get these things to work well on cell phones. Well, the good news is that cell phones have become so advanced and their life cycle is such that even the best of the models end up in Africa and Asia in just a few years that I think the infrastructure will organically propagate its way into those markets without any input or help from us.

The bad news is that none of these protocols are typically user-friendly or appealing on on mobile devices, and it requires a lot more crypto, and a lot more brilliant ideas that have to be invented. Which is one of the reasons actually why we founded IOHK. A lot of the large research we do and some of the projects we work on are actually exclusively focused about what is required for getting these things to work in developing world, like how do you do regulated computation with principles and so forth.

And these are things that consume a lot of our mind-shared in time. Now I will warn you though we probably are in a bubble and I’ll tell you why I think that's the case because you have this rising tides effect. And I remember last time I saw this I saw it back in 2013 where Bitcoin went way up and then all the altcoins followed it. And I looked at and I started asking myself like what is the principal reason why we've gone from 1 to 10? You know, what's what where did we get this 10x from and why is everything else just massively going up? Why is this coin or that coin, which has no community and very limited development team and it's only been around for a year, going up and why are we able to do an ICO and then all sudden it gets a 20x right off the bat?

And people are able to actually realize some of that value. Um I think that our space has a tendency to get way ahead of itself and grow really really quickly and then that's followed by a die-off. And then you reach a plateau, you know, you reach a asymptote and then it goes back up and it weeds out a lot of the bad in and it makes the system tremendously more resilient and if you've been in Bitcoin long enough you can look at these trends and they keep going up and up.

So I think you're right in a long term that at some point somebody's going to solve the way to get this to billions of users and get this to work well on cellphones and this is going to become the financial stack of the developing world and work quite well with legacy systems because of the work of people like Ripple and others. And then at that point probably will be a multi trillion-dollar ecosystem but I do think it's also going to be one hell of a roller coaster and you have a lot of ups and a lot of downs and if you’re going to get involved in any altcoin, especially one that's gone way up very quickly, um the number one question you should ask is what the hell is the community going to do? What is what what is going to keep these guys together?

I have tremendous respect for DASH, don't even care about the technology. We did a 50 page report on their treasury system and it has its fair share of problems and even the core developers admit that but at least they're trying to fix them and they've made some good progress but the tech doesn't matter. What matters is the fact that the DASH ecosystem has somehow found a way to build a very stable community that is very strong and it’s very evangelistic, the same can be said for Ethereum. The same actually could be said for Steam.

I still don't understand the economics of Steam. Bob writes an article. He gets all this money for writing the article. He doesn't really believe in the money says. What's the first thing he does, he sells it off but for some reason it's it's working and it only works because the community lets it work. So you always have to ask yourself if you're really looking for value, who is the community, how does the community grow, what are the barriers to entry, what are the barriers to exit, what's the virality of this community and is the community historically been growing or is it staying stagnant.

The other thing is, idea flow, there's a great book called social physics from Alex Pentland and Alex is a is a professor at MIT Media Lab and he studies sociology in a very rigorous graph theoretic way. One of the things he looks into is if you put people into a network graph you send ideas through that graph what configurations are optimal? Optimal meaning that you have better outcomes let's say if you’re talking about investors are the isolated ones or the connected ones better which investment ideas get propagated and are these good ideas or not. But the longer the short of social physics is all just about idea flow this idea of how ideas are going to move and change and be manipulated and so forth

Productive communities are not echo chambers so how do you know you're in an echo chamber you walk in with a great idea and because it wasn't invented there or you're not part of a click when you announce the idea you're immediately shot down and burnt down to the ground. Like for example if you were to go into cryptocurrency X Y Z slack and say guys I have this new treasury system that's a lot better than the one you guys currently have. We’ fixed a lot of voting problems it's much more efficient it’s much more transparent it's lower cost to implement and here's this white paper all this code.

If your response is that’s really cool we'd love to see it you get all these pms for the core developers and they say we want to be part of that or at least we're going to give you the time of day to talk to you if it looks credible. That is a community that’s receptive to good idea flow. If you go in and everybody says you're a horrible troll, why are you trying to destroy everything we've done? Our ideas are perfect what the hell are you doing that is that is the community that is not receptive the idea flow and has a much higher probability of becoming brittle because they'll optimize around a particular scheme and the minute a flaw has been discovered in that it shatters and falls all apart.

If you compare Bitcoin to Ethereum, for example, and you ask yourself which one is more receptive right now. Ethereum is more receptive to new ideas to a certain extent they’re open to entertaining ideas of changing the consensus algorithm, monetary policy, the underlying cryptographic primitives in the system. Even basic things with Bitcoin when after years of study people have reached the unanimous conclusion on the academic side that you should probably change them like block size parameters or maybe so the ways that the network stack works or maybe the consensus algorithm has become overly centralized, it's becoming fragile as a point it's not.

It's like when you criticize people in a when you present these ideas you're brutally criticized because a holy war, so much so that some of the early adopters like Mike Current and Gavin Anderson and others have just left.

They've just been pushed out they’re just doing other things so that as a community is not receptive to idea flow as much as Ethereum. And so I think that actually makes Bitcoin significantly less competitive in a certain respect and I would hope that they can find a way to break their way out. So anyway in summary value comes from community you have to look at the underlying structure of the community how they talk to each other how they recruit when people leave what causes them to leave, how they negotiate and bring people together.

You also have to look at how receptive the community is the idea flow and if they are very receptive. Then there's a very high probability that that is a tremendously competitive resilient cryptocurrency because it's even if their tech isn't right or the configuration isn't right they’re open-minded enough to realize it and then very quickly evolve and adapt remember all your competitors give away their secrets for free. There is no nation of trade secrets here it's all open so you can very easily them all

well I don't think that there's a single thing that I disagree with there and I think some of what you had to say segways into talking about threats to the blockchain. I, it sounds like you agree with a statement I'm pretty concerned that we might approach that moment of critical mass almost too soon before the tech is actually ready before the scalability is ready and miss the chance to take that mass adoption leap because the industry simply isn't there yet for especially for a friendly mainstream user experience. Now some of the other threats I think especially external when we talk about mu government's regulatory authorities legislation national currency block chains now on that note I know in the past IOHK was doing some exploratory work with RS coin crypto with central bank regulation compatibility or something along those lines. I, so I guess my question here is what the hell man

CH: (01:09:06)
With Aris coin or what what?

Yes. What so what's happening here Charles?

CH: (01:09:13)
So, so that's that's that's a lot to deconstruct but I'll take the Aris coin part of it because that's pretty easy so we brought in a development firm from Russia called Sarah Keldin. We were acquiring a lot of their developers and we wanted to know if their developers were worth their salt or not. So we wanted to find some project that we could put the developers on that would give us a good indication of their skill set. So what I like to do is just pick some white paper that looks pretty interesting and give it to him say go implement this and then we had we have something to talk around.

So we were going to a conference in Corfu Greece the bitcoin summer school that Akka Luis and others were putting on. And we knew that the authors of RS coin were attending that Sarah Michael John and George Danezis, so we said <…> (01:09:56) we’re gonna have a chance in about a month and a half to talk to the authors of the paper it's a kind of an interesting paper and it's a different way of doing things and it's got some good ideas in it and it's a really good test to see if Sarah Kyle actually can do the job or not so we said go do it and we'll get you a speaking slot and corfu and it’s basically a trial by fire and the two people who be sitting in the audience questioning you are the people who invented the protocol so that's a pretty good test so we we signed that to them and we ended up building up RS coin and it became a pretty cool little experiment.

We did use it for an internal project but we actually haven't taken the code or sold it or contracted with anybody so you know it's just it was a pedagogical exercise more than anything else and if you look at our github report you'll notice we haven't updated it quite some time. Now, that said, regulated computation is a completely different matter and what is the relationship between the sovereign and the individual?

I happen to believe that you have kind of two topics that get conflated because people aren't thinking it through too much one is the supremacy of the individual and two is the the supremacy of the market. So what do I mean by that? So of the individual I believe that you own your value. If you go out bust your balls doing concrete work or working on King Soopers or Walmart you get your paycheque, that is yours. You earned it! I can't come and take it from you just because of what's going on. You have to consent to it.

It's a very libertarian views of things. Now if you’re socialists they say well circumstances trump the person so…

if you’re a Socialists stop listening and please exit my channel immediately

CH: (01:11:35)
Sure Sure. But sure you know but we've seen the result of that. You have these kleptocracy like venezuela where it's always a little bit more a little bit more little more well nationalize this guy nationalize this guy then you wake up your currencies done in the countries in flames and you have food lines and people are killing each other. So that's a failed experiment. Don't do it. But you need to have principles. And what are those principles?

In Bitcoin terms; privacy, people who ought not to know that you own it, or that what you’re doing with it. That's your that's your thing. And in that I think should be really secure. Second immutability. People shouldn't be able to go for political inconvenience and change history because we're going to do that a lot. Look at Syria. You know, like land registry there, it's probably been pretty changed as a result of the various different factions that have taken over. So after peace comes to Syria who the hell is going to come in and decide who owns what where.

All the titles are all screwed up so changing history is a real bad deal and no matter if it's good in the short term it's always bad in the long term so immutability is extremely important. Three; the free flow of value. No one should have the right to say that we’re going to draw this arbitrary line around a piece of land and say that your money only can stay within this box. I hate capital controls I think that they're immoral and they're so destructive to society. So I really firmly believe that you need to have a money system that allows you to send money to somebody else and that's your decision.

So these are some basic principles that I think should never be infringed or violated in our space. So that's the supremacy of the individual. But where it gets conflated is supremacy of the market. What does that mean? Well the marketplace is not you. It's a collection of people who have decided to reach consensus on rules to make the trade fair. Some of those rules are career by the market participants and some of those rules are created by the oversight bodies governing the markets.

Okay, so for example if your Walmart you get to say how much you charge for your corn but then there's some regulator that comes in and says some basic things about how you ought to do your business. For example when you give somebody on the cash register say it's $100 you can’t charge your credit card $200 unbeknownst to them or sign them up for an insurance product or something like that. That’s just fraud. You can't do these things. So I happen to believe that if an individual is going to enter our market, A, the individual needs to be told what the rules are, but, B, this is the side that gets conflated and missed, that once the individual agrees to those rules they have to be held accountable to them, even if they become inconvenient.

Facebook is a great example of this. They say, sign up. This is our product. We're going to give you all this utility and there's an enormous amount of utility in the platform but under the hood you have now consented to giving Facebook certain rights. Okay? So people can't complain that when they created a Facebook page Facebook now can look at their pictures and understand who they are and micro-target them for advertisement and sell that data the third party's because they got the value.

They walked into a marketplace they took something and now they're complaining that the person that they took something from wants something back and they signed a contract to allow that. o where do block chains come into this? Well for the first time ever we have a way of making it a lot more fair. We can encode regulation at the smart contracts we can create regulatory layers and we can create special domains that when you take your token and send your token into that domain and you consent to having it in there you can get all this value, let's say a decentralized exchange or a computation layer for gambling, but you must consent to whatever the rules are in that marketplace.

So for example, if it's a gambling domain maybe there's a KYC AML component and that information has to be sent to somebody, maybe there's an automated tax compliance component and that money is going to be sent to somebody. But this wasn't forced on you nobody could reach into your account and take your money out and just grab it from you and say it's ours. That's the supremacy of the individual and that always has to be preserved. But the minute that you agree to be in that because then you have to accept that now you have set aside some of your rights and voluntarily surrendered them and you’re giving them up for the greater good of the market.

it's just like the military when you join the military you said a lot of contracts and guess what you’re signing on some of your freedom away your son some of your constitutional rights away. The military can help pump drugs into you. They can now tell you to go into harm's way and get yourself killed. They can now take young long marches they can now change your job at a moment's notice. They can do a lot of things to you but you consented to that. You signed an agreement when you join the military. And similarly markets work the exact same way.

So I think we can reconcile both of these concepts and I think you do it in layering. I think you do it with strong cryptography. And I think you do it with a transparent smart contract based approach. And here's what happens people think, oh my god, I've just made the government so much more powerful. Actually it's quite the opposite. What you've done by decentralizing this is you've now made governments compete against each other, because you now have this idea of a global jurisdiction and there's all these instantiations in different domains.

So if you don't like what Singapore is doing you go to Switzerland. If you don't like what Switzerland is doing go to America or go to Canada whatever it may be - who has the best deal for you. Wait a minute here the old model was enormously expensive, because your value and your principles and the rules were all intermingled together. There was no supremacy of the individuals just the market. And so as a consequence if you wanted to move your assets from jurisdiction A to B, there was exit taxes in some cases capital controls in some cases just not even legal to do. But with a cryptocurrency now you can vote with your feet.

If you don't like A you can go to B, go to C, and so forth. There's not much governments can do. So what does this mean it means that they have to take a step back and either fight it which they'll try but they won't win. It looks like the RIAA fighting BitTorrent it's a vastly inferior model can't win against a vastly infinite superior model that people are behind. So what they're going to do is change the business model and say okay let's create some global standards and those standards will end up being significantly more fair and more transparent. Some people will still disagree and we will have gray and dark market. That's why God made Tor and that's why we have zero cash in these types of things. They will always exist as the final option when you feel that none of these domains are proper and that none of these markets are fair or properly assembled but the odds are they’re probably made many that are because of just competitive nature and a race to the bottom in terms of openness and also the fact that you're in control of your money and your identity and your reputation and it can't be taken from you as long as you've separated these two concepts. So that's kind of my my overarching philosophy and that’s reflected in a lot of our research work that we do at IOHK.

Terrific! Obviously a ton of great stuff in there. Let's let's dig in a little more about ETC specifically you are already alluded to this a little bit earlier. I completely echo the sentiment that the casper Ethereum proof a Stakes switch is going to be a tremendous opportunity for classic to inherit just a massive amount of that hash power and quite frankly I think very recently that hash power even surpassed the Bitcoin blockchain I'm not positive that's right but I think that’s the case.

CH: (01:19:00)
Yeh, but that’s apples to oranges because they have different consensus algorithms.

Okay. right fair fair fair fair. But you planning some smart pool movement to kind of make more efficient use of that hash power?

CH: (01:19:15)
Okay. So one of the foremost problems with mining is it's a very fragile system. What do I mean by that? It means that it tends to optimize around specialized actors and even Satoshi knew this was going to happen. So he said listen you're going to have CPUs turn into GPUs turned into FPGA’s turn into Asics. This is going to happen pretty quickly if there's money at stake, because people like money and then all of a sudden it's a race to the lowest cost of power.

Who gets that subsidized power in developing countries, China. So people who have first access to the tech, first access the algorithms, first access to the subsidized power are going to win the game and it becomes eventually a small federated market. In fact it was great at scaling Bitcoin. In Hong Kong there's this picture of all these miners together if you add up all their cumulative hash powers, it’s more than 51% of the network. You don't have a decentralised protocol when the guys who control the state transitions of your protocol can all be put in a single room and it’s supposed to be <…> (01:20:12)

So while mining gives you some magical things, that are really magical, that proof of stake actually can't give you, for example you have algorithmic weight with mining so you basically if you're a new guy comes into the blockchain never seen it before you don't trust anyone you don't have any knowledge you just run a calculation. Bob gives you chain A. Alice gives you chain B. Gene gives you chain C down the line and you run a calculation whatever chain you've gotten that has more work behind it that's your chain no checkpoints.

I don't know of any other system that has that kind of property as elegant and concise as Bitcoin does. Very powerful okay, but what we are paying right now is enormous cost of energy and what we're paying right now is the ever increasing amount of centralization around competency, subsidy and first access to things. So what things like smart pool are trying to accomplish is saying you can have your cake and eat it too.

What if you could create a decentralized mining pool? So say does it really matter if we only have 10 or 20 actors. If the only way they can mine is through some channel that's peer-to-peer and decentralized. So we don't have these private pools or even federated pools that have operators and said you have a decentralized pool people mine with that decentralized pool and the output is exactly the same you get all the security of Bitcoin has but now you can't have any one of the actors manipulate the behavior of the pool.

So as a consequence you've effectively defederated the federation. In a certain sense you're forcing them to play by certain rules. So this is an ideal that Lloyd Lu out of Singapore and several other people came up with and they wrote a lovely paper about it they've been implementing it in solidity as a smart contract to show how one would do that. But I would advocate for a lot of research along these lines to find a way to actually put this into a proof-of-work protocol as a permanent feature that everybody’s forced to use.

Then you no longer have centralization. You have a way of maximizing the decentralization system. A lot of things still have to be figured out like you know dust transactions and you know a lot of these other little things but the smart pool approach actually solved a lot of them. I think that lawyers done a very good job and I'm very proud of the hard work that they've done. I believe he's porting it to ETC and we're certainly going to take a look at that.

Now the other side of is the energy usage. The problem with cryptocurrencies that use proof-of-work is the energy usage never gets better. Because if the value goes up, the competition goes up the amount of resources expended increase inevitably the energy usage increases. We spend hundreds of millions of dollars a year on electricity for Bitcoin, the fact more than the nation of Ireland. There’s a paper from McDowell that actually shows that Bitcoin consumes more electricity than Ireland consumes.

So we're starting to get into like a serious consideration of that you have the small network all things considered compared to Visa or the global financial system but yet it's already become a very energy intensive network. Now the Bitcoin maximalist will say this is a feature and it's one of the reasons why the coin is so secure and there's some truths there but on the other hand if you like the environment it's probably noted not a good idea to endorse wasting enormous amounts of electricity.

So there are two philosophies on how to solve this. One is to change your algorithm to something that doesn't require enormous sums of energy so that's the proof of stake approach amongst others the other philosophy is to say if we have to waste the energy let's try to get something out of it other than just work so that’s it's called useful proof of work and there's been a lot of ideas floating around about how one would do this but the basic idea is you take some sort of problem and you find a way to take that problem and create a trapdoor with the problem that verifies that you've solved the problem, you've done the computations correctly.

So you go from an O event algorithm to a constant or locked with Bitcoin algorithm. And there are some platforms that potentially could do this one's called Pinocchio for Microsoft Research and they basically allow you to have an input and output program and a proof you don't have to look at the program you just look at the input the output in the proof and it actually tells you if you actually ran the program correctly and the proof is constant size it's only 288 bits and evaluates O 1 so it's very promising platform. Unfortunately it's still very inefficient there's a lot of little bugs and issues that Microsoft and other people are working on to fix.

There's also another great paper out of Berkeley which talks about useful work. So instead of doing proof work problems on wasted electricity with hashing finding reverse of a hash there's like all these useful problems that if you solve them would be useful for real problems in computer science, and the paper actually enumerates them and shows how to construct a proof of work system based on it. Another way is actually saying what do we shift from proof of work to proof of storage and then basically use a proof of work system to secure a decentralize database

So there's a great paper that was written by Ari Jules and a few others called Permacoin back in 2013 and Permacoin basically is an attempt to build a proof of work system on a database securing the database. So this is a line of research and there's been a lot of future research that's being done and I think there's a lot of promise there so I think in the future we have a lot of options first you can decentralize the mining process itself either by disincentivizing the formation of pools either by making it possible to create a pool or by using things like smart pool.

And then on the energy consumption side either you don't care or you care if you care you have to use a different protocol if you do care then maybe eat if you don't care but you know maybe it's a good idea to switch a proof-of-work to something that's at least more useful so you're optimizing the resources that you spend in that respect. So that's kind of how I see the debate forming and there's a lot of really good research that's starting to become prevalent. We're starting to see some good coins floating out that are, derivatives of that research

Interestig. Now one of the things that you China has been a very big driver for the ETC community I believe and on that same note they're obviously the preeminent space in mining so if you set to inherit so much of this mining hash power is this what was this planed or was just happened to be kind of a perfect storm for ETC?

CH: (01:26:24)
Well, you know, we don’t know and maybe Ethereum will abandon their plan to go to proof of sake and just stay on proof of work, or maybe the Chinese miners will all get shut down or maybe they'll all go and mined some other cryptocurrency. Miners tend to mine the things that are most profitable not necessarily the things that are most philosophically agreeable to them in the Satoshi days we all had laptops and we could leave them on at night and those were great so you could be a philosophy for in the mining days mining operations are businesses and at the end of the day it's cashing cash out so you're you're mining operation has to be profitable and so you can't exactly say I'm going to mine cryptocurrency A because I love and agree with cryptocurrency A unless cryptocurrency A produces enough money for you to keep lights on. So if B is more profitable I, I the rational decision for a miner is the pivot because they're assholes or bad people it's just because of economics and the fact that you have a fiduciary obligation to your business to do what’s best for your business.

So that's always been one of the challenges with miners is it's like this group of people that you're bribing to come into your ecosystem and do stuff for you but they're mercenaries and by design and so if somebody's paying more the the barbarians can turn on Rome and burn the city down you know so you have to be really careful when you create incentive schemes that are very sensitive to your competitors especially if your competitors can do bad things to you.

Which is why people are considering consensus algorithms that aren't even based on mining but based on things like trusted Hardware those ideas of like teaching and you know using things like a intel SGX and arm trust zone and TPM’s to build kind of a namespace and give people control where <…> (01:28:09) you’ve democratized the system now and there’s no cost to participation. So really you have a situation where people are going to participate because they believe in it like folding at home or these other things not because they built a business around it.

And this is one of the core arguments for proof of stake as well in that my financial interests are directly aligned with the survivability and value of the underlying network. I can't just point my miners to another chain and go play in that space if this chain starts failing. If I'm a proof of state coin and my coin start going down in value that's not good for me and so I'm going to behave in a way that always trying to maximize the overall value of the chain so there's a lot of you know good economic questions to ask there

But to answer your question in particular about you know are we going to inherit the Chinese, we'll get some of them we already have some Chandler Wow for example he's done a wonderful job and there's some great people there we love getting more miners it's a it’s an amazing thing but the end-all-be-all isn't mining it's more about the totality of the community what each actor in the communities and incentives happen to be to grow the ecosystem and make the ecosystem more vibrant more robust.

Excellent. Uh I mean let's look let's dive right in and let's talk a little bit more about that. Uh plans to obviously further penetrate the Chinese market a hosting ETC ICO of your own or in in fact you talked a lot about wanting to differentiate the Ethereum classic chain more so what are some more of those plans of differentiation? I know at one point that you were considering a proof-of-work proof of stake hybrid for Ethereum classic. So just kind of talk about the the technical development roadmap what you guys are considering differentiators and in where but all the big things we can expect from with your in classic?

CH: (01:30:02)
Yeah. So its first important understand that Ethereum classic is a true federation so i'm not in charge and i don't want to be in charge and that’s that's good it's very good for our ecosystem. So there are my opinions and then there's the community, and what no matter what i believe it has to be enshrined in an ECIP, EC, ECIP an Ethereum classic improvement approsal. And we have to go fight and convince people that it's a good idea and it all hell of a lot of people on the other side that probably won't think it's a good idea, and that's good for the community because it means it eventually you get down to that crucible of goodness.

So there's also ETC devs. Now where do we have consensus? We have consensus on proof-of-work probably being the path forward. What instantiation of proof of work, whether it should be useful or a hybrid or we should change ghosts to something else and add specter? There's a lot of open questions. There and these things are going to be fought over the next 24 months in my view I think it's a really good idea to institute a hybrid consensus algorithm particularly created one called twins coins with Hong Sheng at a Virginia Commonwealth University.

So what is it well it's a basically consensus algorithm that creates a checks and balances system where a miner will find a block which internal elects delegate from the stakeholder set and that stakeholder finishes the block and only then and then when these two have come together do you advance the network. And let's say the stakeholder doesn't do their job, people are still mining, another block will be found, another stakeholders elected.

So you have this lovely competitiveness and we created a mathematical model that showed that not only does it work and you should have liveness according to <…> (01:31:39) 15 that you get much higher resistance against a selfish mining and miners who collude and so forth because you have this checks and balances that's built in but you have none of the problems of proof of state you don't have long-range attacks you know I'm grinding attacks you don't have nothing at stake attacks and so forth so all that stuff is out the window.

So it's a really nice compromise where you're mostly still mining but then you also have this added layer of security which i think is a really productive way of getting people engaged. For free you also get a voting system because now you have all these POS mechanics you can then overlay systems to start making decisions about let's say maybe a Treasury maybe a forking protocol to change the protocol to a new configuration and so forth kind of like tesos style play so I think that's a line of research that's really good and we're going to eventually write an ECIP once our client <…> (01:32:27) is done.

For how one would transition to a hybrid consensus algorithm. T hen there are some open questions about the blockchain architecture for example what authenticated data structures should be in this thing. We have Merkel Patricia tries and ethereum. Bitcoin is Merkel tries. But there are actually others we created an authenticated dictionary paper that it's quite good with Leo Raisin out of Boston University. But there's all these all these kinds of authenticated data structures that you can put into your block header that give you some more features richness and functionality.

And perhaps better like client support and there's some really good ideas that are starting to brew up there so there needs to be some questions about that and there needs to be some questions about whether should we continue being this very crude directed acyclic lat graph by a ghost should or should be abandoned goes all together or go with a better version of it because there's been now four years of good research post ghost for that scheme.

So there's going to be some discussions around bloody and architecture authenticated data structures and so forth and eventually will come up I think with a reasonable community conclusion of either to stay the course or to pivot a little bit or pivot a lot and I think a lot of that has to do with whatever our scalability proposal happens to be. Then the other thing is how much decentralisation? Do we want to have on the mining process and do we want to change the underlying mining algorithm to either be a sick resistant or to be more decentralized like?

Put smart pole into the protocol itself and so forth but I think that’s probably more of a 20-19 fight or late 2018 fight there's just a lot of things in front of that to figure out now terms of other technology there's still an open question of how will we pay for things. So you mentioned icos in this is one of my problems actually with the ethereum model right now you had a lot of people really rich really quickly and they think they can't lose you know you have to understand something but you get 100 X or a thousand X in a very short period of time

You're not smart you're lucky and the biggest moral hazard in the world is when you don't know the difference between being smart and being lucky. Okay it may be just maybe your brilliant chemist came up with some new drug and you know this drug is going to work and you get FDA approval congratulations that's one in a million but when you get a million people buy something and they all get 100 X or a thousand X. They just got lucky on it.

So because people have gotten lucky they have a lot of loose money and so you have all these ICO’s that are forming on a theory I'm now which in my view have dubious strategies they don’t really fully appreciate the complexity of what they're trying to do in some cases are totally unnecessary to have their own token just use ether that are launching and raising 10 million 20 million 30 million and the offerings are just weird like 30 seconds to get 35 million dollars.

And people are spending $2,000 on the transaction for you just the front run everybody else so that they can get in or you have something like a 94 percent free mind a 300 million dollar market cap you know that's somehow a fair offering it just is just nuts so I think that in many respects the ICO model does prey upon irrational exuberance and it tends to lead to bad outcomes in the long term. But it is a very powerful model because it democratizes the raising of capital and it democratizes the funding of good ideas.

It gives people in bad jurisdictions access to money they would have never been able to get if you live in Africa and let’s say south ever you go to a great university there and you're a brilliant person you have an amazing idea you’re not going to be able to go and get money out of Silicon Valley. We're out of Europe just won't that's just the way the world works. Especially true if you're in a real bad jurisdiction like Venezuela where everything's falling apart.

So what does that person do when that person wants to raise money they don't now they have a new model where they actually conceivably do do that. So I think there's a both a good side of the bad side. I don't completely subscribe to this Chris DeRose everything is or tone vies view. We’re like everything is a scam these all guys are crooks I think a lot of them really do want to do something great it's just they don't fully appreciate what responsibilities they're taking on the fact that they now have a social contract and a relationship with people and also that that getting too much money too quickly can just be as hazardous is not having enough money to execute now what does this have to do with ethereum classic.

Yeah now that if you're ethereum classic is worth quite a bit of money people are probably going to start running ICO’s on ethereum classic is guess what our people got on 10 X 15 X now there's a lot of loose money floating around at theorem classics somebody's going to get in their head. That it's a good idea to launch an app coin and they probably will get well funded as a consequence of that doesn't mean it will succeed or fail it's a scam or not a scam.

It's just the reality of nature how I would like to see if you're in classic funded is via a Treasury. I think the time has come for that there's some great evidence that Treasuries are good from vivix to - to Zen to others who are actively trying to find a way to have the blockchain pay the bills we're one of the few companies in space it's actually rigorously pursuing it we have a team at Lancaster University doing a core-coin resistant liquid democracy and adding it to a treasury model that we constructed with our Veritas team in Ukraine.

And then after that we're going to have that game theorists come in and clean all the the model and after that we think we'll have a really good reference treasury model and we're going to fight like hell to try to convince people in e.t.c that this is a potentially really good idea and also it makes the system more vibrant and robust because now unlike ethereum, where the only way you can get money to build your dapps, create a token which you may or may not need and go do an ICO or take VC money.

But if it's an open-source project and you're running it with no toll road to give yourself a cut well then what's the VCS angle there's no rational way to fund that now you can actually send a ballot to a Treasury and the treasurer can fund you and you get your half million your million you go build that infrastructure.

So that's a competitive advantage in my view and I think it’s something that would make us very different from ETH in the way the community works the other thing is that you have the synergistic effect of people talking to each other which is so powerful I going way back to the beginning of the interview where I was talking about idea flow.

One of the reasons why Dash has grown so much whether you love them or you hate them is they have these ballots and people can talk about what the fund and what not to fund and they're always going about what is our mission what are our goals why are we doing what we're doing who's worth money who's not worth money to fund so similarly if you had an open process for that you can really start having some serious discussions about what poor infrastructure ought to be deployed on your platform.

For example what if Lulu comes and says I wanted to play smart pool on ethereum classic and at the same time some guy let's call Bob comes and says I want to build a relay system so if ethereum classic can now talk to ethereum and you can call a theory and contracts on a theorem classic these are great projects and then let's say you can only fund one how would you reach that well if you had a Treasury system there'd be a formal process. They both proposed ballots.

And now they're fighting each other and there's an intellectual discussion about priorities there's a discussion about what's going to create the most value for the community there’s a discussion about who do we think is going to be best to execute and each side has an incentive to make the case for themselves with ICO’s. The incentive is do I think this is going to make me a good return?Not necessarily. Are they actually going to deliver the product? Not necessarily. Are they the best team to deliver the product?

It's more on macroeconomic circumstances well everything is going way up and I’ve already made a hundred X so I'll put some money into this and hope I get into there ten or twenty X that's a very different mindset and has nothing to do with about what is best for the ecosystem what is best for the project you're not differentiating anything it’s all just about ROI and many of these ICO’s that are occurring. So I think it’s a dangerous model from that angle that said it's a great model for people in countries that don't have access to capital.

And it's an alternative way of doing things. Um I won't add one other caveat to ICO’s one thing that does disturb me is that in ICO’s people aren't heading kyc and AML. And I know the more libertarian people say, like you don't have the right but you know the reality is that when you offer something you are taking another human beings money okay you have to know who those people are whether they be investors, donors, customers, ya know, who they are because when bad things happen you have to know who to talk to. You have to know who to say I’m sorry too you have to know who to put in consumer protection for.

Now I'm very old-fashioned in that respect, but I believe when you have a business and you have to have relationships with your customers you have to inform them you have to treat them fairly and you have to work hard to be in their best benefit you're not always going to be perfect you're not always going to be completely accurate you're not always going to execute as well as you should but one of the things that does bother me is that all these ICO’s are raising huge sums of money and they're not doing kyc AML

There's a philosophical problem as I just mentioned but there's also a practical problem. So if somebody does an ICO and the inventory all sells out in 15 minutes how do you know that the founders of the project didn't put in 50% of the float. If you've been in the space long enough remember NXT when they had that little crowd sale and it’s very small very selective and they closed it very early. Probably not a lot of the Gini coefficient was probably pretty bad there.

Okay so what does this mean it means that any value appreciation you have may be utilized by the very early people the founders to make a windfall profit and have nothing at all to do with whether they've actually executed the project or not and it's not transparent you don’t even know because I can just if I'm an investor in ICO just chop my offering into 25 transactions or 500 transactions and make it look like it's 500 people if you do KYC AML.

That's not possible because you got the guy's passport you got is a proof of address you've got his number so you know it's one person or 500 people and so forth so at least you have an added layer of protection there and I think that's actually better for the investor in a certain respect because you know it's an organic participation you know what the average transaction size is you know who owns what and there’s much lower possibility of a pump and dump in that in that particular respect.

So that's a personal pet peeve of mine I think there's also going to be some, regulatory problems for people with ICO’s namely because. let's say it's not a security. well what if you're a money service business? Yeah you now have to do that kyc AML if you didn't do that that's not just a fine it's jail time.

There was a Bitcoin trader actually United States he was selling stuff on local bitcoins and he was running an unregistered money service business I think he got nine years in jail. So who’s to say that a token issuer is not an MSB I mean it's really think about it it’s like all were decentralized and everything we'll hang on a second here is there a team is there a legal entity or does the team have access to the funds or the legal entity of X is the funds it seems pretty centralized if all the money is coming into one pot, right?!

Oh. I totally agree. Unfortunately I think the ultimate byproduct of that is going to be seeing a lot of innovation flee the United States and unfortunately, you know, I think anybody who watches my channel knows that I try to talk a lot of foreigners and and love the U.S. We are number 1!

CH: (01:43:38)
We are number 1. I love the United States. You know, I’ve been to 31 countries the last two years and everybody always asked me like what is your favourite country. What's like the best country? I always say United States. You know, we have the best people. Why? Because they come here it's not necessarily that they're born here but we're country that's built on the backs of immigrants and everybody has a story and everybody has a culture and they came here and they all mix together and we got the best.

50 percent of the fortune 500 companies in America tech companies have been founded by immigrants or the children of immigrants so that's a very powerful thing, and that's what makes America so incredibly great. And why we're so damn innovative, because we can't make it at home we’ll get it from somewhere else but they come here because it's the best environment.

Now with respect to what you're saying about innovation leaving the United States to a certain extent we've already seen it happen the reason why Crypto Valley is in Switzerland and not in Silicon Valley or anywhere else is not because I went to Zurich and made all these backroom deals and something, I mean, we certainly work like hell with the guys in Zurich, set up an SRO and all this other stuff and now there’s we companies there.

It's because Switzerland created the best regulatory environment for crypto currencies and they had open arms and they said if you want tax clarity in two weeks you'll get it you'll get a ruling okay you can’t get that in the United States and it’s incredibly frustrating. So I do think that these regulations do strangle innovation and they're built in a way that tend to benefit incumbents. That’s more true in the financial industry then frankly any other industry in the United States.

On the other hand regulations don't exist in a vacuum they don't exist for no reason whatsoever and they're not always incompetent you know there are basic principles behind when you take other people's money you got to tell them what you're going to do with it you got to do the things that you say you’re going to do you got to honor the contracts that you sign and if you just take the money and it's all just a game to defraud people and run away.

There needs to be recourse there and that recourse can't just be economic because what if they spent all the money you consume but there's nothing there so you need to have some criminal recourse in that respect but where do you draw that line and also when how should the regulator's step in especially when when you tilt your head to the right. These things are securities when you tilt your head to the left or not. And they can be used in many different ways.

It's really a huge challenge which is probably why none of the regulatory bodies have taken a very firm stance on anything yet. They’re just kind of letting the market organically grow and keeping a tally of the moral hazards. But I will remind every single person in the cryptocurrency space that statutes of limitations are long in the securities world and just because you've done something a few years ago and nothing happened it has no bearing on reality yeah I think it's seven years they can come at you so they can still do something with master coin if they wanted to and

Yeah. I can. I can a hundred percent confirm. It's it's seven years on the dot

CH: (01:46:29)
Yeah, and so and so that’s something you have to understand. If you go and do an ICO in US jurisdiction that at some point there will be some form of an event and this will not be a forward-looking event because what a regulator does is it doesn't say we’re just going to interpret the law moving forward they say the law has always been this way and we have just decided to start enforcing it.

And now let's look at everybody who's out of clients and some will be needed example Silk Road is the greatest example in the world of that where you know some politicians say let's make an example out of

Chuck Schumer. let's call him out by name filthy son of a bitch free Russ Albrecht

CH: (01:47:05)
He uh he's a horrible guy but you know he goes and says I don't care about the historical separation of the intelligence services in the law enforcement that we've had since the damn Church Committee. Don’t care about it. NSA work with the FBI work with these guys and find out who the hell is running slow crowed and then build a parallel investigation to throw the kid in jail. That’s what they did!

There's a lot of evidence of it and they structured the case so brilliantly that even when it was blatant than misconduct of the case. They were still able to win it and put him in jail.

That’s a international law they, I mean they did this through fucking Iceland.

CH: (01:47:41)
The investigators the investigators stole money. In ordinary circumstances your case is done your case is done. You get a lawsuit against you when the people investigating you are criminals themselves. But not only they get away with it, they’ve through the kid jail for life. So my point is..

it's staggering that any of this held up in court or like appeals getting denial denied I'm sorry.

CH: (01:48:04)
Yeah and that's exactly right. So my point is that if the government wants to crack down on something the law doesn’t matter it's all matters is what is the opinion they want to propagate they will find somebody to crack down on and they'll crush the son-of-a-bitch. That's what they do that's what they’ve always done. Nothing new.

Back in the 90s we had eagled and paypal and all these other money processors on the web and a long time they didn't think they need to have money service business licenses some of them managed to get them the ones that didn't they ended up going to jail. And they weren't bad people. They weren't criminals. They were innovators. It's just they were on the wrong side of regulation. So I agree completely with you that not only can regulation stifle innovation in some cases it can victimize innocent people and it’s incredibly wrong.

One of the reasons why I got involved in Bitcoin is actually because of civil asset forfeiture. I was involved in the Ron Paul movement back in the 0708 campaign and running around knocking on doors saying Ron Paul’s greatest guy ever. But it was the first time i’d ever even heard that phrase was in that movement.

This whole idea that a police officer can just pull you over you can have some cash in your back seat because let's say you're a drywaller and your clients pay you in cash and he can say oh that must be drug money, take the money and then you have to fight in court for months two years to get some of it back that. Where I come from that Steph t' plain and simple that's theft. But if the government dues it, doesn’t, apparently it's right.

So I love the fact that I now have money that they can't do that and if they're going to try they got assuming and I'd love to have the court decide because a judge usually is going to rule in my favour in that particular case and then I have to consent even after the judge rules that's great world to be in . So similarly smart contracts with regulation, I think, are going to have the exact same impact that Bitcoin has had with value and money and and frankly I think that if we push that hard and keep our integrity and our ethics and put our noses to the grindstone and we build some great business models and we get all this value into the cloud and we start getting some jurisdictions to recognize it.

Now we have more leverage and we can't get <…> (01:50:08) like Ross did and we won't be the drywall having the officer come and take our money. We actually have some more control and that's another reason why America is the greatest country in the world by the way because we were the guys the first guys to realize that the citizens actually can take control and we don't have to accept whatever the hell the state is telling us to do we're great despite the fact that our country sometimes is not great not because our country is great.

I also think it's fascinating that our country was essentially founded on government Bitcoin principles of a decentralized more states rights that we seem to have over time gotten rid of and created more larger centralized government but that's a that's a conversation that you and I can have at another date. I want to dive more into some other blockchain innovations and kind of dovetail off something that you were just talking about a seizure of property here one of the things that scares me about Bitcoin about blockchain technology is kind of that transparent open mutable ledger where if we get to the point where states can kind of link you to the wallet addresses or or they can look at a coin and they can say hey at some point along the way this was used to fund terrorist activities or something along those lines with a lot of the overstepping of rights that we've seen with the Patriot Act.

It's not unrealistic to say at one point a Bitcoin was used to fund terrorist activity a couple years down the line you have it and somehow it gets seized from you uh that's a scary thought one of the one of the best solutions that I have personally seen to this and I know that you actually spoke to the pivots developers approximately a month ago on Zero coin protocol. What did you talk to the developers about and what specifically are your thoughts on Zero coin?

CH: (01:52:05)
Alright so let's start with the abstract and move to the particular I always like doing that problem interviewing a mathematician is that’s the route we always go in the abstract privacy is a really interesting concept and in that you don't even know what ought to be private until you know that I'll give a great example of that so let's look at Iraq. So during the reign of Sadam Hussein, the only way you could be somebody is being a member of The Ba'ath Party.

Okay and what did that mean yet be very public about it you know wear the uniform show up at the rallies make sure that everybody knows you're a member so then you can get the good jobs you can go to the good colleges your children can have the good future. Okay then all of a sudden America takes over Bremer and the rest of the crew come in they de pacify the country and they say if you're a member of The Ba'ath Party you can't serve in the government.

It's the same thing happened to a lesser extent in Nazi Germany where you know the only way be somebody is to be a Nazi and also we DeNizified the country and now that hurt your opportunities especially the higher up the party you were so you go from a paradigm where being public about your affiliation your beliefs or are some characteristic about you is beneficial so you broadcast it as much as possible.

Then the paradigm shifts and now you’re on the other side of history and it’s actually a massive detriment you wish you could erase that history. So it’s extremely important to understand that privacy is not just a snapshot today in this part of history privacy has a long arc and things that you think are totally fine to be public today may end up destroying you in the future.

So what does that mean it means that by default things about you as much as possible especially your financial history ought to be anonymous and the only way to get De-anonymized is with your consent or in circumstances where the market demands it and you’ve consented to that ahead of time. Okay that's a very libertarian way of viewing privacy and there's certainly a large spectrum of people that have feelings one way or the other you know we've had this debate many times.

Now let's talk about cryptocurrencies and privacy in general okay so it's not just good enough to say that I have made my cryptocurrency private by strengthening the link ability the lack of the delink ability guarantees. In other words connecting that pseudonymous key to Alice or Bob is that such not good enough why because you might not know that this particular dress belongs to Alice of Bob but you'll know Alice is a user? Because she has enough.

Who skated the network stack? You'll know that Bob is a user and just by being a user could potentially be incriminating you know is for example let's say you live in a country where homosexuality is illegal you might not know what Alice is doing in the gay club but the very fact that you know she went into the gay club might demonize her and/or you know a subsidy your favourite religion.

Let's say you're in Egypt then they're going anti-christian on people. The very fact that Bob goes into the church maybe he went and asked for directions who knows? But fact is there now you're going to get killed or arrested, imprisoned. Okay, so you also have to anonymize the use of the protocol and someone. Then the other thing is who do people target so if you're an official and you're looking to crack down on people make an example. You don't pick grandma who's done five dollars worth of damage you pick some very visible very sexy target that’s flaunting its nose so what you do is just order things you see who's the worst offender the biggest tax cheat the the biggest theft whatever. Okay so you also have a situation that when you are on a blockchain you sent value from Alice to Bob we know how much money is being transmitted from Alice to Bob. So if I'm going to selectively isolate particular transactions and look very deeply at those transactions I'm going to look at the highest value ones. So it's good to also anonymize the amount being sent and there are schemes like confidential transactions for example which can do this so link ability the use of the protocol and also the amounts being sent.

These are kind of your three pillars of anonymity and all of them are incredibly important and I think that there's some great protocols being developed which give you some or all of these things. Like dandy-lion helps you a little bit on the network side of things there's been advancements in confidential transactions which are good and Link ability is really the domain of things like Zcoin and Zcash.

Now what in particular did I talk to the pivots team about it was more of a courtesy call anytime anybody's involved in privacy and intended anybody's involved in Treasury I want to meet the team because we're in the Treasury business we're also in the privacy business and we may have some open source protocol that we've created that I would love to share and have them implement especially a Treasury because that's a great funding model.

For me it's like creating a bunch of miniature National Science Foundation's where I can now propose ballots to fund research and things and I don't have to have a corporate sponsorship or a government give me money. So I want pivots to be successful I want DASH to be successful I want to ETC to get a Treasury and be successful and then for the rest of my life I can run IOHK just off of working for blockchains. Most honest business in the world. Then I feel real good about that. Um but we did have some conversations about the philosophy of privacy. About their direction in their roadmap and where they want to go, and I think they have some good ideas. But honestly I think the problem with any of these start based schemes whether they be zero coin or zero cash is we're not just quite there yet the underlying cryptographic primitives the way Starks are constructed the efficiencies of the scheme is the size of transactions and so forth, they're all not quite optimal and that's because the technologies generation.

You know it's kind of like if your car guy remember when Nissan came out with the CVT the continuously variable transmission. It's this brilliant idea amazing idea a great piece of technology. First generation of it. We call it the shop technology cuz you're always sending your car in for some damn transmission problem but then generation 2 was a lot better and then generation 3 is like okay now the thing works and we're starting to realize the value so similarly we're in the second generations of snarks the first generations were very primitive it was a proof of concept and it showed that the idea actually works the second generation are things like Zcash and Zero-coin work you know and out not only works but it can actually build a practical money system on it the third generation will have all the bells and whistles the security will be better it'll be dramatically faster and we’ll have a lot of other little ancillary benefits and things like that so I’m glad to see the emergence of smart coins in general and I'm glad to see that a lot of researchers are taking it really seriously and restarting it and all-you-can-eat buffet of ideas about how to make these schemes even better and there are some related schemes that are kind of working their way in there’s like homomorphic encryption there's verified computation and so forth and these are all they like kind of in the same club and all of them are getting better very quickly so ultimately I think it's a it's a good thing and we're certainly going to publish a lot of great papers on Starks at some point and our hope is that we can get that tech where it needs to go now where does it need to go privacy by design keep everything anonymous and let the customer decide one 2d anonymize and this is where that going back to the middle part of our interview the supremacy of the individual in the supremacy the market paradigm really works well because now what you can do is you can have your private ledger you have your private token and then when you enter this marketplace you expose some information about where you got it maybe some of the AML and all this other stuff to certain people in that space they see it the general world doesn’t see it and you might even get kind of a great zero knowledge situation where they can't prove to other people that that's actually you but they know it’s you

So they've satisfied their due diligence. They've satisfied the requirements to actually regulate you in a certain respect, but you've been regulated in a way that doesn't actually expose your privacy. And there's some great papers on potential schemes to do this for example one is a paper from Cornell on sealed glass proofs where you provide facts to an enclave in trusted hardware and you can verify things about those facts but the facts themselves can't escape the Enclave and get destroyed, kind of like a perfect forward secrecy style scheme. So what does that mean? It means that the person's done his job and made sure that you're not a terrorist or a bad guy but you've never had to surrender your personal privacy and we have a much better balance in these particular markets.

So privacy by design use things like sealed glass proofs and try to minimize the exposure of your PII and your history and particulars other people and ultimately I think that results in a much much better world and if the paradigm shifts on you you don’t find yourself like a Ba'ath Party member now saying oh god what do I do I can’t even get a job as the dog catcher because I've been ostracized you have a kind of a do-over a right to be forgotten and a certain respect.

Okay so I just kind of put a nice little neat bow on that you talked about Zcash some of the Zero coin stuff being second-generation, this custom-build the press tab seven hacks Spock those guys are doing would you view that as kind of the 2.5 or the generation 3?

CH: (02:01:25)
No. I just love this is your point no it's still second generation that you can count on your hands how many people understand stark technology. I mean, it’s like like you got a lot of books.

Yeah that's why I asked.

CH: (02:01:38)
Gotta a lot of books about this you know that are really thick and filled with tons of math that you have to read before you can even comfortably understand what the hell is dark is I don't even fully get it and I invest in these types of things and and really there's only a small group of people that I really believe are competent in that respect. And then this is the problem with cryptography in general it's really easy to use it it's really easy to fuck it up and it's incredibly hard to build it incredibly hard to make it right. That's why they always say don't implement your own crypto library unless you're crazy and that's why people are professionally skeptical of any new cryptographic idea you know like we know because of Shor's algorithm that we're going to have to get away from RSA and DLP and in elliptic curves and these things we know we're going to have to leave these things behind they’re wonderful things.

But they're just not going to last too much longer if count of computers are going to come and yes but then the problem is the next generation stuff like the latus crypto stuff and the hash space crypto stuff and these other things they're not necessarily as well thought out or necessarily as well studied as they need to be and the assumptions artists necessarily secure as they need to be for us to actually pivot to them and you.

This is a situation where you have the best minds in the world like seriously brilliant people who spent all day just sitting in a room looking at a whiteboard talking to other brilliant minds still not being able to figure it out. So I don't care if you’re a rockstar developer you're not going to invent better Starks it's just not you're going to something up and the problem is you're going to it up in a way that you don't know you it up until somebody else figures it out and then your whole scheme falls apart and everything gets really really bad and especially if people are betting their lives on the privacy of your system.

There have been many cases where anonymous messaging systems have been used by dissidents political dissidents third world countries where it turned out that there was an exploit in the system that allowed the secret police of the third world nation to now know who people were and then take them and put them in prisons in some cases kill them.

Okay, so I I think that you cannot be naive when you get involved in this game and the only way we're ever going to get where we need to go is you have to marry the academic world in the engineering world in a very very tight bond and move in a very systematic deliberate methodical process and only use code that has been very thoroughly reviewed and ideas that have been peer reviewed and not peer reviewed saying that we submitted it to some cryptocurrency conference or to some peer-reviewed journal that the cryptocurrency people put up know the place that RSA was presented at real conferences.

Okay that have people who have spent a lifetime professionally trying to break other people's stuff and have gone through extensive training and have been brutalized by process themselves and make it their business to tell you why you're wrong that is that is really the key and that's this that we need to hold for all of our crypto systems especially the systems that we rely upon for privacy so that’s that's one of the dangers I think that we have with anybody who's tinkering you're playing around with snarks.

I admire the gumption I love the passion I know they're doing it out of a position of philosophy and love and I really think that's a great thing but on the other hand I will caution everybody that if a process is not properly followed, it will probably result in failure and that failure could have catastrophic consequence. It's equal to including up to death.

That is nothing but terrific stuff and obviously a ton to unpack. Just to keep things moving let's let's go on to another big blockchain innovation and talk the biggest one the Bitcoin scaling drama. Charles you are obviously..

CH: (02:05:31)
Running out of time.

Aah. What do you need to uh you need to switch to a quick Q&A? How much time how much time do you have.

CH: (02:05:39)
We can do another 30 minutes that's fine but but I mean we’ve been going for over two hours now and I have another meeting in a bit.

Yes alright sorry uh ok.

CH: (02:05:49)
That’s the problems with running a global company. You have calls to Asia and unfortunately they take place at night. So you can't really sleep because you have calls in the day and call tonight but anyway yeah let's do let's do another 30, That's the best I can do.

Uh. Okay. All right so we'll do real quick. Let's just do one thorough question a Bitcoin scaling drama what's your position?

CH: (02:06:08)
Okay, so scaling is actually not as hard of a problem as you think it is. So there's two types of scaling your scaling of data and their scaling of transactions. Okay, so the vanity metric that everybody looks at is what is my TPS? So Bitcoin 7. Paypal is this and visa’s this and so forth. And people love the brag and say I'm at 10,000 transactions per second or something like that like elastic coin is a great example, or bitcoin NG or any of these things that can potentially improve your your scaling.

So it's like usually a sharding scheme, where you say I'm going to process different transactions on different threads and then we have some way of putting them back together, and that's fine and it's great, but the big thing is the blockchain itself needs to be partitioned. And what do I mean by that? Well, right now we live in a replicated world where when I put a byte of data into the blockchain is replicated by N full nodes. It is not a sustainable system.

You are creating the most competitive sacred database in the world and if you're going to end up being used for many applications like auditing checkpoints and voting and other things and these things have to be committed to the blockchain. It will necessarily grow to petabytes in size, not because you want it to but because the system has to grow to that point to meet the need. What does that mean? Means that the only person who can have it is a very small group of people who have gigantic hard drives, right?!

So you need to be able to break it up and say Bob you get a chunk and Alice you get a chunk and there's some erasure code we put on top when we chop it all up, there's a way of putting it all back together with some availability guarantee. So I think that the sharding debate and the partitioning debate is what's underlying scalability and we have to have a philosophical discussion of Bitcoin about what we want to be. If we want to be a settlement layer for large amounts of value that are mostly a unit of account then it's perfectly okay to have a low TPS rate and it's perfectly okay to have a very expensive database because basically you're just this settlements layer for industry and all your real cool stuff is going to be an overlay protocol like the Lightning Network.

Or if sidechains works than some some you know sidechain where all this magic happens ok but if you want the underlying network to be like really cool and really fast and have a high TPS rate you have to both be able to shard the transaction space you have to be able to partition the blockchain you have strong availability guarantees now what's the state of the art we can shard the state space that's easy a lot of people figured out how to do it plenty of good papers the blockchain partition probably going to be not too hard to do but you won't have the same level of security and availability that you currently have in a replicated model so it's a game of trade-offs.

So that's that's that with that now in particular the block size debate I wrote an article when Mike Hearn left the space. I think it was a year year and a half ago right when scaling Bitcoin was occurring in my opinion was adopt segregated witness because it's a decent idea. Fixes transaction malleability and it's useful for other things okay and also increase the block size to two megabytes then go ahead and create an organic growth metric based on two factors. One is the rate at which disk-based tends to increase over time and two is the rate at which network capacity tends to increase over time, okay?! We go from 56k modems to DSL to cable and we tend to get more bandwidth over time and similarly we go from 100 megabyte hard drive to a gigabyte hard drive to 100 gigabyte hard drive. Now we're in the terabytes and so forth.

There is a way to model that. So why don't you model those things, and create a mathematical metric like we have with difficulty retargeting or the monetary policy that over time after so many blocks we organically increase the block size then you never have to have the conversation again because you know that you're always going to be growing on par with technology and you're always going to get that that real 2 megabyte value at that time and so I think that's a much more elegant way of solving the block size debate in particular.

Then you need to pivot the conversation to the underlying philosophy of the ledger whether it's going to be a slow unit of account, like slow store value that's used for a large settlement or if it's going to be this fast-paced super competitive system that's sharded and has high TPS and everything's done on chain. There's camps in both directions and they need to fight it out and eventually the community needs to reach consensus and by the way they have no right to be the world reserve currency, and no right to claim that they're going to replace Fiat if they can't reach consensus I'm sorry! You can't come to me and tell me your system’s better if you can't make decisions in your system. Only when you found a way to get people who disagree to find a way to agree can you say your system is better. Or else my system is better because I can at least get people to agree. Might not be optimal but we can move forward when we have to and when we have to make changes

Incredible! Terrific! Uh before we shift gears just do a quick rapid-fire question round. Um, NEM. Any thoughts on NEM? Obviously you've already mentioned transactions per second there's this through the roof but ?what do you think about their proof of importance in what they're building over there in Germany?

CH: (02:11:25)
Extremely little about NEM and I haven't really invested a lot of time into looking into them. I've talked to some people in the NEM community years ago but it's just one of those projects that I don't have the time or desire to really look into and maybe sometime in the future I will but I have no opinion on them.

Okay. Terrific. Now, Charles, before we open it to the live audience for a quick Q&A. We're just gonna do a quick rapid-fire round. I'm going to give you a few options you try to pick the right one, okay?! So we've got five questions and I have some really exciting news if you can answer all five correctly; Roger Ver himself has pledged to donate 1,000 BTC to help feed starving children in Africa.

CH: (02:12:15)

I'm pulling for you Charles. Are you ready?

CH: (02:12:20)
Okay. No pressure or anything like that. hahaha. Go ahead Crypto you there? Crypto?

Oh, Charles can you hear me?

CH: (02:12:40) yeah I can hear you

Terrific. I'm so sorry. Uh first question ETH or ETH? ETH or ETH?

CH: (02:12:49)

Correct. All right. Second question: DC or Marvel

CH: (02:12:55)
Oh come on man. Marvel!

Absolutely! 110 fucking percent correct. Number three: Wayne or Garth?

CH: (02:13:05)
Well that one's hard man. I like Wayne a lot

Excellent! Correct! All right. Satoshi Nakamoto, was it Hal Finney, Nick Szabo or the NSA?

CH: (02:13:16)
Uh. It was not Hal Finney. If it was anybody it would probably be Nick Szabo, but doesn't matter, he's dead

Correct! Family matters or Full house. Final question one thousand BTC two starving children in Africa on the line here we go, Charles.

CH: (02:13:33)
What you talk about, crypto?

Family Matters or full house?

CH: (02:13:36)
Uh, come on. Family matters

Oh, I am so sorry Charles. The answer our judges were looking for was the Fresh Prince of gel, of the Fresh Prince of bel-air.

CH: (02:13:49)
The Fresh prince of Bel-Air? Hahaa.

I wish there was something I could, do but Roger demands five for five

CH: (02:13:54)
Alright. Right, Right.

Better luck next time. Starving kids in Africa

CH: (02:13:59)
That’s ok.

IN Charles, I’ve watch a lot of developer interviews. Generally they put more people to sleep than the Texas prison system. I've had a really good time tonight so thank you so much for your cando,r your sense of humor, your insight in most of all putting up with some of our nonsense. Right now if you have some time I'd love to open <…> (02:14:18)

CH: (02:14:18)
You guys have been listening to me ramble for over two hours. We gotta at least give them some questions.

Yes. Absolutely. That. And that's what I'm uh I'm going to do so uh feel free to pick some from the chat box or if you want me to throw some at ya.

CH: (02:14:33)
I'm not even looking.

whatever you like.

CH: (02:14:33)
Jou just pick whatever. Yeah you just go ahead and pick whatever I'm not even looking at the chat box I never I never do. Thanks.

Okay Charles, so what do you think about the IOTA’s tangle consensus algorithm? Do you know anything about the…

CH: (02:14:54)
Tangles like a directed a-cyclic graph where instead of using blocks use transactions you link them together and it's paid by some mathematician so there's probably some good research there actually one of the guys who works with me Alex Chepurnoy knows the guy who created tangle pretty well so I haven't read the paper in detail but anything in the dag ecosystem is pretty interesting because what you're basically doing is saying you don't care as much about Forks and you have some way of like turning your whole ecosystem into like a nice little graph is it's less useful I think for a traditional Bitcoin style system and may be more useful for smart contract type of a system where you have these little computation domains and you want to chain them together so yeah I'm inclined to say it's probably good research but I haven't done enough serious review on it but I do know the authors are credible people so I suspect that it's probably pretty good product. Next question.

All right, let's see what we've got available. Anybody if you have any questions, feel free to open them up, one of your few opportunities to get Charles’ attention real quick. let's see. I mean there are some random questions made safe do you have any opinions on made safe?

CH: (02:16:04)
You know, they've been doing this for a really long time. Like seven years. Now I think and maybe eight years and there's certainly a pretty motivated team. I wish him well and and I hope that Dave and his guys over in Scotland can can get it done I like storage a lot and also I like ipfs but the underlying tech have made safe I haven't spent too much time looking at but you always got a root for the underdog I mean they just kind of like persistently have been chipping away at things and so I do hope they succeed and that they can get some impact. Next question

Absolutely. So I think I already know the answer to this on maybe you put some more time looking into it but what about the the basic attention token and their advertising model? I know your previous stance was why not just make some BOTS to view ads and and stack money but how do you feel now?

CH: (02:16:56)
Yeah. I'm gonna defer because we have a due diligence team looking at Steam, Ad token and BAT and they're going to do a roll up report similar to how we did a report with the DASH Treasury model, so it would be unfair to that team to bias anything we have coming out so I'll defer that until the report is released and then as soon as it is I'll send you a copy that you can share with your audience and we'll have a session on what we think of bads the good the bad and the ugly and I'm sure Brandon will have a lovely time debating it.

Terrific! Now what about the <…> (02:17:2) platform as a whole specifically and as well as thoughts on their ICO coming up?

CH: (02:17:34)
I haven’t really spent much time with it. There's a lot of these new next-generation platforms that promise to have like super scalable smart contracts with proof of stake and all these other things and maybe they work maybe they don't work I don't know and I don't even know where in the spectrum those guys fall you know I tend to pay attention to projects that have three criteria one that the team has done something. like I pay attention to Zcash because you have Zooko and Andrew Miller. Zooko and I happen to be neighbors. I live pretty close to where he lives and occasionally we go for sushi. I always buy it, which is great but, but Zooko is a really nice guy and actually we both want the same University and we can have great conversations even when we disagree.

So I have tremendous respect for how he does things and how he thinks sometimes we disagree but we have respect. Same for Andrew Miller and other people. So, One, I have to kind of know something about the team and what they've done and you know where they're coming from. Two, the customer acquisition side of it, the community acquisition said if it has to make sense to me. There has to be a growth model that's built into it, that says people are just going to want to use this thing. And then Three, um, the actual governance structure of how they execute and do things that has to make a lot of sense to me too.

Where's the money coming from how are they spending the money if they're Federation in that or is it a dictatorship where our decisions being made how are those decisions being made and so forth so very few projects in the space happen to satisfy all three of those criteria. So I don't tend to pay a lot of attention to them, unless they get really really big, like they grow to several billion dollars and they have this incredibly evangelistic community and they do something to drag me in like I didn't even pay any attention to DASH until Amanda made a video about me. I was like that as like Dash I think that was dark coin or something I was like so checked out of that and then I went and talked to the community and I found the Treasury so fascinating that we ended updoing a paper on it so if they deliver something the market that's really compelling or us or any of these other guys will certainly do due diligence on them, just like we're doing with Steam, Bats and Ad Tokin.

Great! Our next question comes from Timothy Weber seems to be fishing for a sound bite house what do you think of Chris DeRose and his pessimism?

CH: (02:19:52)
You know <…> (02:19:54> and Chris and all these other guys, they serve a very valid role in the space. Um we can question their methods in their bedside manner but when everybody's making boatloads of money and everybody's seems to look like they're winners you have to have somebody on the other side of it saying let's slow down a little bit maybe this isn't right a great example be Peter Schiff during the mortgage-backed securities build up. you had all these people making colossal amounts of money off of a house of cards and they were doing it legally and they were doing it in plain sight.

You have people like Peter chefs saying, this is wrong it's not going to work and this whole damn thing is going to come collapsing down. so I look at Chris DeRose and Tone and others is kind of just an extension of that long line of people uh in you know they've chosen for whatever reason to be a little bit more sharp elbowed and caustic about it and they've certainly sent some very nice things about me and other people but that's fine because that's their base in their audience and there is some truth behind some of the things that they say I will say though on the other side of it when you argue from a position of dogmatism meaning that you're not actually looking at the facts as they are, but rather you're looking at a belief and applying that to everything you do.

Tend to miss a lot of opportunities, yeah, and this has always happened in business, for example, look at IBM. Their paradigm back in the 80s and the 70s was hardware. Where all the money is, so they didn't care at all about who controls the software or all these other things. So the prospect of letting some college dropout control the license to DOS, it let's do, it who cares, it's just a thing right because your paradigm is I make my money by selling units and that guy went on to be Microsoft and build up this enormous Goliath.

And by the way the same dogmatism that made Microsoft so valuable made Microsoft also missed the open-source revolution, the social media revolution, the search revolution, and the mobile device revolution, and they couldn't move to a hardware company fast enough. And now their lunch has been eaten by Google and Apple. So the other side of the Chris DeRoses and the Tones and these guys is if they're just arguing from a position of dogma they will be right where the dogma applies but they will miss legitimately useful great things I think the thing they missed was Ethereum they believed it's a scam because of the way it was funded because of the growth model whatever it may be but if you're objectively to look at both of these ecosystems they different things they have different philosophies and they both contribute a lot of value that's not just me talking that's over a hundred companies that have joined the Ethereum Enterprise Alliance talking.

That's researchers from places like Princeton in places like Yale in places like Cornell who have invested a lot of their time in some cases their professional reputation to say that there is something real here to say this is all a scam because somebody raised some money and that one day the page is going to turn it's all going to come collapsing down I think is enormously naïve.

Going back to our ETC - ETH debate where maybe ETC had some actors in it in the beginning who did not want to actually build an ecosystem they just wanted to punish ETH but they're gone and we're here where we're at now and et sees its own thing and we're building our own ecosystem so similarly maybe there were some people in ETH who wanted to make a lot of money and you know what happens is they go about their way, they've made their money and now you still have the community.

There you have millions of people you have all these developers you have all this infrastructure and people are doing real things with it so you can either live in the past and hold whatever happened in your view was wrong forever against the platform or you can realize that in the future and in today you have to assist the facts on the ground and you have to ask, are they producing value, do they have a good community, do they have a strategy for actually realizing some of the claims that they're making in the case of theory, and they are, but this is totally denounced and completely dogmatically thrown out of the winDAO with people like Chris and Tone. And that's where I think they're weak.

So I think they're valuable by being the contrarian and being the guy that says maybe we need to be a little bit more careful and that's really important, especially when you're in a bloom cycle, because it protects people but then also on the other side of the token I think they tend to be a bit too much resistant to change and ultimately, uh, personally miss a lot of revolutions that occur as a consequence.

Terrific. What about Cardano, ADA. How is the progress coming on that?

CH: (02:24:27)
So Cardano is actually one of our greatest project. We’re having a hell of a lot of fun on that. Um so I'll give very briefly the back story and we have a lot of announcements coming out, so I won't spill all the beans there, but basically when I, way back in the project mentioned, I mean podcast mentioned

You spill all the beans don't mean interrupt you but feel free

CH: (02:24:45)
Alright okay. Well actually some of which were still under embargo on it so even if I wanted to be a good idea but anyway what I've mentioned regulated computation with principles we took a contract to build a platform where we feel that we can actually do that and do that in the developing world so we started major coding work last year on it there's 25 full-time developers working on it that's our entire Haskell side and we have a lot of white papers we've written a lot of things we've done we're just about to open up our fifth Test net we have our test wallet out it's called Daedalus and actually returning Daedalus into a universal platform so you can bring wallets in so like pivots can put a wallet on or other people.

So we'll have a plug-in system at an app store for that and we'll be able to add a lot of really cool things but I don't want to spoil it but it is a great project and we're really excited about it and blockchain Explorer is up our test net is up and soon to be version 5 and we anticipate we'll be releasing the first main net version but there'll be many hard Forks planned along the way some time probably July or August I think but you know you know factors depend on today our leader back in February but we had a hell of a lot of engineering problems with Haskell.

We underestimated the just the cheer pain and complexity of DevOps we also underestimated the maturity of network stuff in the Haskell ecosystem and we ended up doing a lot of the spoke work which bit us in the ass so it slow down development time tremendously and we had to bring in a lot of really strong people like practical network solutions as well as a company called well-typed to work with us and help augment the platform so overall we're really happy we're at and there's a lot of really good people in that ecosystem and it's going to be a fun announcement when we make it and I think a lot of people are going to be surprised by it.

And you know it's something we're going to be working on for quite some time our contract is until 2020 for Cardno. and all the tech will open being the open domain in fact go to our website to read more about it. it's one of our project tabs has it you also look at our github repo and take a look at the 6300 commits we've made for Carano SL and actually that's why we created Ouroboros. The provably secure proof estate paper that's the consensus algorithm that Cardano's using.

It's terrific. So what about the new emerald wallet? How's that coming?

CH: (02:26:59)
Oh, for ETC? You see you know I've talked to Spliks when I was in New York at Barry's event we also ran into each other at consensus and it seems to me like that's coming along quite well but I don't know exactly where they're at in that lifecycle or development flow so I suspect probably sometime during the summer something's going to come out and it's going to look pretty good and actually kind of fun because it's gonna be a little competition because growth and deke is coming out in July as well so I suspect that people in ETC community are going to get a lot of new toys to play with over the summer and it's going to be good for all of us.

Excellent. Next question is... Uh let's see.. Oh yes. Scala vs Go and will that encourage more coin developers to choose ETC over ETH?

CH: (02:27:47)
Yeah. So they're very different languages and they have very different thought processes and very different paradigms. Okay so Go is a direct reflection of Google's frustration with C++ and C. They say we have all this infrastructure that is in C and we hate it with unrelenting passion. It just like kills our souls inside so they did what all great companies do when they have a lot of money a research division they went and got to the best PLT people they had available and they said go build us a really good programming language and that's what the good it has incredibly fast compiled times and you know all these great little features under the hood uses a lot of stuff that Tony Hoare came up with called CSP and go is a great language for implementing a cryptocurrency in fact we I think Ethereum was one of the first if not the first to use go to implement a altcoin there was a go BTC client called I think it was just BTC.

I can't remember the name of it but there is a go Bitcoin client but I think we were the first altcoin to actually do a do a client so goes great now why Scala well Scala I really better Java and it's a marriage of two different worlds you have this massive enterprise JVM ecosystem which is incredibly powerful billions of devices live on it is the foundation for Android in its app model and you're never going to get away from it and frankly not why not because it's a good platform it's pretty performant it's now secure you have historically a lot of problems but they've cleaned it up a lot and they have a good road map JVM 8 was great they added lambdas to it and JVM 9 is gonna have all these great modules I think it's sawtooth or whatever it's called.

So there's a lot of magic there but then you're saying functional programming has a tremendous amount of value as well functional programming has a tremendous amount of value as well and functional programming gives you all these things you can't get in the imperative world especially when you start talking about concurrency especially when you start talking about distributed systems programming where you have all this non determinism in your system and all these raised conditions in your system and so forth and if every single thing in your entire world is mutable and has state and can change unpredictably especially change in ways that you couldn't even see because somebody else did it you didn't know they did it the whole damn thing is just so hard to program and this is one of the fundamental drawbacks of things like C++ and go and other systems.

So given that with functional programming what you've done is you've taken state and you've put it into its own little box like with Haskell you have the monad and it's its own little box and you're saying this is the only place where that's going to change and everywhere else we're just doing computation and we understand that world and its really deterministic it's really magical.

So what is Scala? Scala says I am going to take the functional world and I'm going to marry the functional world to the JVM and I'm going to do it in such an elegant way that you can write really concise really nice really beautiful code that also works and sometimes especially in GUI and network and other things where you really need to be imperative or procedural you got that it's there you got your mutability button other times when you want to be really dogmatic and play with types and do real functional stuff you got that as well you leave it up to the developer to decide what side of the spectrum they want to be on and it can be done on a case-by-case basis. Plus you don't give anything up from the JVM world.

You can call anything in the Java world. So if some guy created the world's best message broker, if you like Kafka, it's there! You got it! It's ready to go. So I think that if you're building a cryptocurrency and you're really thinking about enterprise clients that are going to be used in the private setting, we're going to be used with legacy infrastructure. You should pick dotnet or the JVM and build something in that world if you're in the dotnet world. Use F-sharp if you're in the JVM world. Use Closure or Scala, and these things will get you home. You'll have a great development experience. You'll write really concise easily testable code. The performance will be really good.

You don't really need to be cutting edge and bleeding edge. Rust or C++ or C level performance, you know, if you're a 90 percent who cares, it's, it's good enough because you'll make it up on the concurrency side of things, right. So in particular how is this relevant to ETC? Well you have choice. All great projects have choice, so you have guests, let's go, you have parity with rust and growth and <…> (02:32:16) coming out. We're going to have a scholar <…> (02:32:19) and you get to decide the consumer, which one of these is best for you, and which one's going to fit into your paradigm. With growth indeed we're really concerned about developer experience, enterprise applications, IOT and other things.

We've made a strategic bet that the JVM is going to be the horse to ride, to make that really appealing, but, you know what some people are going to say the JVM is not secure some people gonna say, it's not performance. Some people don't say, I just hate Java, I hate the JVM all you guys, and that's fine because they have Go and they have Parity, you know. And that these things will work just fine for them and those will be great ecosystems for them to live in. You have to have choice as a consumer.

Terrific. Charles, do you have time for another question. If, I will warn you that I think this question is going to tie you up for a little bit.

CH: (02:33:13)
I'm already over my time budget but if it's a brief question I can answer but I can’t..

I don't know about that I'll let you be the judge I'll pose the question, you can decide if you want to be briefed or postpone it obviously you are welcome back literally any time you want so the question is, What is the point of decentralized consensus when a small bunch of actors owned a large amount of tokens and is this problem solved? I think this specifically relating to the bad ICO and kind of as well

CH: (02:33:39)
That's actually not a hard question to answer, so I'll ask you a question when Microsoft was started how many people were there and how much of Microsoft they owned?

Ohh,, 2 in like 90% right?! Something along those lines?

CH: (02:33:55)
Actually it was a 100%. And it was 64 -36. Bill Gates had 64%. Paul Allen had 36%. Two guys! Now how many people own Microsoft stock and how many people work for Microsoft and how big of a company is Microsoft? It's perfectly okay to build a movement where that movement has very small group of people in the beginning. If the way that you set up the movement is to organically decentralize, organically federate that's fine. So you have to ask yourself, is that set up that way? Well, you have to allow easy exit, you have to allow easy entry, you have to ask how are decisions being made and at what point will those decisions be decentralize and so forth. And if you have a lot of those characteristics and those elements baked and built in to your system then you end up actually getting a really good system.

A great example be Wikipedia. When Wikipedia started it's not like Jimmy had a whole bunch of people just sitting there ready to go. And like 5 million people say, I'll write me an encyclopedia, no it was a very small group of people writing very biased articles, but it had baked into its model, the ability to grow, and now we have Wikipedia that we've come to know and love and we ended up actually getting pretty decent articles. Are they perfect? No. But it's a lot better than what it was.

So similarly all of these things are judged on that spectrum. So it's okay to start mostly centralized. It's ok to have a small group of people on it, but then the <…> (02:35:23) is on those group of people to tell me and tell the community and show the community through their acts, through their protocols and through their use of capital, a gradual to decentralization and if they can do that then I think the system is, is viable and will gradually decentralized.

But it's not easy kind of like evolution where the most likely outcome is death and failure, similarly the vast majority of these projects will fizzling out and failing. And from their bones you can learn a lot of lessons and inevitably one will succeed and then it becomes the model that all of us can use just like DigiCash failed and BCash failed and all of the end Bitgold failed and all of these other ideas for 25 years with digital tokens before Bitcoin came out. And similarly thousands of all coins will fail before you get the next Ethereum and then you just kind of move on from there.

Well, Charles thank you so much for all of your time. I know we went nearly an hour over and I still only got to like 10% of my notes and questions. So if you ever feel like being charitable and coming on our fledgling broadcast again you are literally welcome every time. Thank you so much for appearing on our show. Thank you so much for what you're doing to help build the community and what I feel is the infrastructure of the future. Your contributions have been nothing shy of Titanic and that should be at a blockchain accepted belief, whether somebody is the staunchest, Ethereum Charles as a mutineer kind of guy or or not. Thanks for coming on and I hope you have a terrific call with China, communist or not.

CH: (02:37:12)
Well actually it's not Chinese, it’s Japan. We have an office in Osaka, it's Input Output JP.

Oh terrific, terrific I love Japan.

CH: (02:37:22)
Yeah. it will be also, have people in Hong Kong right now so I'll probably end up calling them to. It could be a long night. Anyway, Crypto, this has been such a pleasure and thank you so much and also to the audience thank you so much. I wish I could have answered more of your questions and next time we'll probably set up a format where we can and demand all the other guys get on we need to get Roger and Erick and all these other guys on the show so where we can actually get some of this philosophy documented and make sure that there's a good dialogue so have a wonderful night thank you for your time.

Yo, no. Thank you, again.

Have a great one and yes I will be doing everything in Candace, start setting up these live streams to everybody else and like I said, constant invitation whenever you would like have a terrific evening and thanks again.

CH: (02:38:10)

Here have a good one Charles and to the audience thank you for appearing. I know a lot of you are now watching this live and you're watching this on a pre-recorded version and I hope it comes across as eloquently and passionately as Charles is about the community. Thank you very much for watching our live stream thank you very much for watching our recording and I'm going to be starting a new ICO of the month feature that will probably be the next episode and it probably won't happen till early next week but there's hours of information to unpack here and I know personally I'm going to be unpacking this for months to come. So again, I know he's already offline, but thank you again to Charles Hoskinson and thanks to everybody who showed up to our first live stream. All right guys have a great night. Talk to you soon.