Optimal mental this altitude I can run flat out for a half mile before my hands start shaking and oils my personal question. I'm a cybernetic organism living tissue over metal endoskeleton.
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That you'd dig it a lot and you can of course easily subscribe any time so easy peasy. Again, that's Tim blog forward slash Friday and thanks for checking it out. If the spirit moves you hello boys and girls, this is Tim Ferriss and welcome to another episode of the Tim Ferriss show where it is. Always my job to tease out the Habit routines. Philosophies favorite books Etc from world-class performers, so you can test each of those in your own life and
And guests range from say those in business Sports military all the way to the esoteric and sometimes the very unexpected and this guest checks a lot of boxes. His name is Nick Szabo. That's SZ ABO many of you may not recognize this name, but hopefully by the end you'll want to know everything that he puts out and read every essay that he puts on the internet. He is a polymath the breadth and depth of his interests.
Knowledge are truly astounding and I mean jaw-dropping. It's just beyond belief what this guy can cover he's a computer scientist legal scholar and cryptographer best known for his pioneering research in digital contracts and cryptocurrency and I have long been fascinated by cryptocurrency, but secretly not really understood anything about it or certainly the subtleties and this episode is really a master class. So we go from the very very basic all the way up to the cut.
Ting Edge and what the future holds Nick for instance developed the phrasing concept of smart contracts with the goal of bringing what he calls the highly evolved practices of contract long practice to the design of electronic Commerce protocols between strangers on the internet. Nick also designed bit gold which many consider the precursor to bitcoin this particular conversation is co-hosted by one of my favorite people know of all ramakant a mutual friend and one of the most successful investors in
Looking Valley who also happens to be one of Nick's biggest admirers. And for those who enjoy and of all here. You may also enjoy his first episode with me from 2015, which was voted on product hunt the second best podcast episode of the year across all podcasts with the exception of my Jamie Foxx episode. So you can listen to that if you like it's called The evolutionary Angel episode Tim dot blog /ne Vol but let's get back.
Back to how much we cover with Nick because it's a lot and you need not be intimidated. You don't need to be a computer scientist. I am not you don't need to know anything about currency. I know very little but we get into the history money. We talked about Bitcoin what it is what cryptocurrencies are and what problems they solve we Define social scalability. What is that? And why is it important? What is etherium what makes it unique strengths and weaknesses. We talked about different types of cryptocurrencies. We talk about things calling for instance.
Altcoin with the hell is that we get into it what are icos initial coin offerings? We talked about who might invest or not invest in certainly. This is not investment advice is for informational purposes only. So talk to your financial professional before allocating resources or money anywhere. Okay cover my ass good how will smart contracts actually get adopted or go mainstream, right? If you think of say Bitcoin is something that is very Fringe. When will it hit the Tipping Point what might the elements be
It would lead to that blockchain governance. Is there any existential risk could governments or Regulators shut down something like Bitcoin. What is wet code versus dry code. This is a super super cool distinction that I really enjoyed. What are Pascal's scams or Quantum thought we dig into all sorts of nooks and crannies including what Nick might work on in the future. What fields does he want to explore and so on so this was to me
Really really fun in mind expanding conversation. You do not need to be technical or an engineer to enjoy it and get a lot out of it because at the core we are really looking at how two people who are very very smart meaning Nick and Duvall process the world what lenses they use to view the world and how that dictates their actions and how they get better results. So if you want more from Nick and we'll talk about this at the very end of the conversation. Also be you have to check out the essays on his blog which is called.
Old unenumerated unenumerated Dot blog spot.com, but that can wait for later and then you will know why many of the thought leaders in Silicon Valley and around the world really pay a lot of attention to neck. So without further Ado, please enjoy this wide-ranging conversation with Nick Szabo.
All right gentlemen, I think the hour has arrived of all welcome
back. Thank you. It's good to be back. Once
again, Nick pleasure to meet you nice me and I'm very excited and also intimidated by the conversation. We're about to have its context for people listening. We're going to delve into some subjects. I have an acute interest in what extreme ignorance of so I will it and of all do a lot of the driving and
I figured a place we could start is at the beginning at least where you guys met. So how did you two First
Connect? Yeah, like most of my close relationships these days. I formed them on Twitter and I think of Twitter as the place where I go to have a great conversation when I can't have one locally which seems to be all the time and the more time that I spent on Twitter the more I sort of curate this incredible group of very intelligent people that I just get to know purely through the quality of their thoughts. And so I think
When I was getting into cryptocurrencies and blockchains doing my homework on it, I stumbled across a Blog called unenumerated and maybe Nick can go into what the origins of that word are but it was obviously written by a polymath someone who wrote about everything. I got into the blog and then I started following the author which was Nick on Twitter retweeted. Steve's tweet sand got into little bite-sized a hundred sixty character conversations. And here we are.
How is that relationship develop?
Opt in other words, how are we here today? And you can take a stab at that. Yeah, I'm Nick's can do plenty of talking so we certainly have him chime in but if you want to if you want to lead us to how we ended up here today.
Yeah. I mean it was just more and more tweeting back and forth reading Nick's articles. There's one that he put up recently around social scalability, which I thought was literally mind-blowing like it. I thought I knew a lot about cryptocurrencies, but it really just helped me reframe what I knew in a better mental.
Model, you know Charlie Munger talks about mental models. So I've actually picked up at least four or five mental models from Nick which I think is more than I may have from any human being other than Charlie Munger. I was tweeting out sections of that article then somebody said well Nick and of all should do a podcast and I was like, I'd never do a podcast with me and then Nick said sure I'll do a podcast. So here we are
Nick. Could you maybe help us with some definitions? So cryptocurrency. There are a number of other words. They're going to come up a lot.
And and these are words that I feel at many dinner parties and say Silicon Valley people will not ask about because they're afraid they're the only ones at the table who don't actually know how to define it. But since I can't play the part of knowing what I don't know in this case. What is cryptocurrency and how did you become interested in it or start thinking about it cryptocurrency as the name suggests is protected by cryptography and in particular the modern crypto currency like Bitcoin and etherium so forth
Protected by their integrity is protected by cryptography a structure called a Merkle tree that you can think of it as a fly getting trapped in Amber. If you say I shot JFK and then put it through this process of the Merkle tree putting it on the blockchain then it's there. You can't and you've signed it with your private key. Then you can't later deny. Oh, I shot didn't say that that allows you to like make a statement. You know, I'm paying such and such amount of Bitcoin to
somebody else and then put it there after a few Cycles called block times which take about ten minutes each it gets exponentially more difficult to deny or take back that that this transaction took place. How did you first begin thinking about this these types of constructs are any of this really where did the interest to begin? Well, we had a group called the cypherpunks back in the 1990's Tim and Eric use and John Gilmore and so forth and
Tim may had so partly. This is political that Tim may had a vision of galt's Gulch in cyberspace of any of your audience or Ian ran fans. They'll recognize the reference to galt's Gulch has is place you can go to get away from things and do your business without outside interference in the book. That was like a physics fantasy, but Tim goes well, we have strong cryptography now so we can do that and I thought well, yes, but you still want to do things like enforce contracts and protect property and so forth. So I
so I started thinking about and to some extent some other people started thinking about how to apply computer science to to protect your business and cyberspace this bleeds into I did just enough reading to hopefully have questions to ask and didn't want to read so much that I left out Basics fundamentals for people cryptography. If most people think that they hear that word maybe the exposure they've had is watching a movie that involves an Enigma machine or something like that.
But what is cryptography the original cryptography is if you saw that movie is keeping secrets this case in that movie the Nazis failing to keep secrets from the British and Alan Turing because there are cryptography wasn't strong enough but these days you have really strong cryptography. So breaking it and that Brute Force men are like they broke the Nazi codes is pretty unlikely these days. There are some other things you can do like take people's private keys and so forth, but the Brute Force attack doesn't work anymore.
More I mean there are some old ciphers where we're starting to work. But as long as you have the latest stuff like Bitcoin does and then you're fine.
Yeah, I would say it's like basically keeping secrets through mathematics and there are many many breakthroughs that enable cryptocurrencies, but one of the key things to understand in cryptography is this concept of one-way encoding one-way hash functions. Basically, I can take some data run it through a mathematical.
Shannon and what comes out of the other side is really hard to undo? It's really hard to work backwards. It's kind of a one-way thing.
So is when people send encrypted email through said pgp or something. Yeah, is that example of
that? Yeah, basically what I've done so in the old days if I was in crypting something we would both have the same key, right? And so or I would have a key that I would take your key. I would encrypt with your key send it to you. You have the key can decrypt with a key but the problem is how do I figure out what your key is? How do I figure out how to encrypt it and because your key
In both encrypt and decrypt. So if I had a hold of your key, then I could open the message. Right? So it's very unsafe to transmit that key. And so one of the innovations that came along with this idea of splitting the key into a public key and a private key. So private Keys what you hold onto that can decrypt and encrypt stuff your public key on the other hand other people can encrypt to it for you, but they can't use
it. I got it. Just right only it's a
right only that's a one-way kind of thing. So, I mean this is probably beyond the scope of this discussion, but it's worth
Digging a little bit into what are called one-way hash functions and public keys and private keys because they underlie a lot of cryptography and they seem like complicated Concepts but they're not that complicated and I would argue. This is one of those mental models that you kind of have to figure out start operating the modern technological world, but cryptocurrency is essentially used these one-way hash functions to make statements. Like I gave Tim $10, right? So if I said I gave you ten dollars, normally we need a central Authority.
Verify that the bank has to verify that in the central bank has to verified.
Well, this leads to the question of and I'm not going to yeah interrupt Beyond this but why why create cryptocurrency? Why is it important? What are the
benefits? Yeah. So I mean one huge benefit is we don't need any more a trusted third party to verify that transaction. We can do it in the cloud through a distributed Network, which is kind of what the cryptocurrency does, but I let me talk more about this, but he had a great quote that I think is very
Relevant where he said this is the dawn of trustworthy Computing right? Because before this computers are kind of untrusted like if I send you money from my computer to your computer, we're really relying on Visa and the banks and a bunch of intermediaries just actually say, yes, the money got to you and the money is no longer mine, but computers don't like to operate like that computers, you know computer code especially stuff that's running in the cloud on its own shouldn't have to rely on and off.
Line wet space meatspace institution to enforce that kind of thing. So cryptocurrencies taken the concept of money and they take a native into computers where everything is settled with computers and doesn't require external institutions or trusted third parties to validate
things just to try to paraphrase that for my understanding. So in other words, you don't have to say trust a stranger to do something don't have to trust a central authority to
be the Arbiter of whatever decisions end up being made or implemented. It's built into the technology itself. Yeah, why is cryptocurrency important to
you? So it's important
for I think the The partially political reason to gain more independence of your life from these institutions and it just creates new capabilities like somebody now in Guatemala can base somebody in Canada without using an intermediary New York City or something. That's just
Greatly advantageous for for Global Commerce. I think
yeah, so if I can just dig into that a little bit more
definitely dig in I also at some point because this word is plagued me for a few years now blockchain. I do not know what it means and I don't know why it's called
blockchain actually think Nick's earlier analogy of fly getting trapped in Amber is kind of brilliant. Like if you see a fly in Amber and it's got, you know, a millimeter of Amber around it. Well, that could have been done yesterday or you know a year ago, but if you see
See, the fly is trapped in a huge block of Amber. You know, it's been there for a long long time. It's been accumulating. So a blockchain is a series of blocks. Each block is a series of computations done by computers all over the world using serious cryptography in a way that's very hard to undo. So each block is like another thin layer of Amber I see and the chain of blocks represents the depth of that Amber how long that fly has been trapped in and therefore how you can trust that on a signal anything.
Deep down in the blockchain is mathematically cryptographically and just economically impossible to undo got it. Okay. I shouldn't you use words like impossible in cryptography is all
it was always having probable probable. Yeah, what are some other Core Concepts that people should understand just as the cryptocurrency 101 or currency 101, I mean depending on where I want to go with that even want to
start with like what is money
you sure because we're throwing around the word currency and money and people talk about gold and store a value and you know, Nick actually created bit cold, which was some would argue a a critical foundational predecessor to bitcoin Bitcoin had an additional breakthrough or to that implied that bit cold did not but gold was the Giant on Whose shoulders Bitcoin stands and Nick also created both the the phrase and the concept and the theory behind smart contracts which were now starting to hear about in the
Took some other cryptocurrencies like etherium, but I think we should just this is a complicated of topic that is worth just starting with like what is money if you ask 10 people on the street, what money is you probably get 10 different answers sure. So I think it's important just be rigorous about that.
And if you ask a lawyer you'll get an answer that's radically different than if you ask an economist as well. If you ask a lawyer, they'll say something like an official government currency. So of course Bitcoin and goal you can't write checks for those because those are not
Legal official government currencies, so that's that's the kind of narrow modern legal definition economists use the definition of medium of exchange which is a much broader definition, but that also assumes it, you know, the only important transactions are people exchanging things which in our modern economy is a good assumption, but if you actually go back to the origins of money, which I've like to study you find things like inheritance and compensation for injuries as equivalent to a modern lawsuit, but not necessarily with governments and courts more like Wars.
In force the force the verdict and bridewealth there's certain Fitness critical critical to darwinian Fitness that other animals can't do that humans can and that form of I like to call it Collectibles because now I've extended the definition money far broader than probably any kind of us would want to but so I call as Collectibles if it's very similar. So the yurok Indians for example use shells to and they would have tattoo marks on their arm. There are serious about their shells. They would have tattoo marks in their arm to measure the
lengths of shells and that told you the denomination the value of how valuable that show was which corresponds to how scarce it was in nature and they would use these for inheritance for injury compensation for bridewealth and so forth.
Yes, it sounds like you know as so I think the common theory is that humans have only been using money for a few thousand years, but I think some of the work you've done an origins of money shows that actually it's hundreds thousand years. Yeah. You can go back in the archaeological record and it's a puzzle
for
In years and our darwinian world that people lived in white people do something so frivolous, as you know, Adorn themselves with shell necklaces yet. Those are among the most common artifacts right up there with axes practical axes that you use to cut things in the archaeological record.
Yeah. So I mean on the money thing like I've also tried to wrap my head around this and as Nick said economists would say it's a medium of exchange as the historical record shows. It's a store of value. So even if you're not
Doing it. You just want to store value. You may not want to store bread or
rocks or houses. So you store them as you have a practical the
transport exactly and then it's also a unit of account. So in other words like you have to denominator prices and something I'm not going to tell you how many loaves of bread A car costs. So I need to be able to just pick a unit of account
to don't judge. I only have that occasionally.
So it is all of those things. I think one of the places where people fall down on cryptocurrencies. They say well no one's using Bitcoin to buy anything right now, so it may not be
Filling the medium of exchange function, but it is it may be fulfilling a different function like store of value. It might be the Swiss bank account in everyone's pocket or in their mind or it might be the defense against the cyprus style Bank
haircut or it could be the future that is here, but not evenly distributed and probably get some you can go to Palo Alto to Copa Café and by Convent Bitcoin right
now. Yeah and and within my Social Circle, there is a large group of people who will take Bitcoin as legal tender like you can go to them and settle debts in Bitcoin and they will happily take it.
It
or if you want to buy say scientific abstracts or articles from a Russian website, they may only take Bitcoin as well. And it
does it does seem a little bubbly which is as you know, you kind of say well it's only money because everyone believe this money but one definition I really liked of money is money is the bubble that never pops. So if we had if the Tulip bubble had never popped, we'd probably be dealing in tulips today. Now, it popped for Fairly good reasons, which is tulips make for lousy.
Neither hard to store their heart to transport their heart to subdivide but cryptocurrencies actually are the exact opposite end of that scale. They're easier to store easy to transport easier to subdivide cheaper in many ways and more defensible than almost any other form of money or gold or
commodity. Now, what makes since we're talking about money or currency what makes money valuable. I think this might be interesting to just dig.
To you for a second because you have say at certain points in time paper pegged to gold right and then the reading today because it's another word that I've seen a lot but aside from the car company. I was not sure what Fiat really meant. So if we're talking about don't even know if they're seemingly even around anymore what distinguishes say cryptocurrency or makes cryptocurrency valuable. Is it the Rarity? What are the factors that determine that? Well, I mean the scarcity is an essential essential part of it you if
Starts inflating on you then you're sure of it goes down. So the scared cities quite essential to it other things. Are you want it to be easy and secure to store and transport and and Bitcoin has the advantage that you can send to people all over the world and store it on a hardware wallet, which is a fairly secure way to store it and the most important part of it. What is a hardware wallet? So Hardware wallet so your normal computers are pretty insecure and that that's one of the stories of blockchains is that
This distributed system is a lot more secure than an individual computer. So your own computer could have malware viruses and so forth. So Hardware while it's a separate piece like on USB stick you plug in has its own chip on it and Bitcoin your private key gets stored on that chip rather than on the computer. So I got it.
Yeah, this is zillion ways to store Bitcoin you could do it on your computer, but then your computers connected the to the Internet Security hole. You could put it in an online exchange, but then you're just trusting an unregulated.
Bank you can put it in a hardware wallet, which says next a dedicated device. You can put on a piece of paper and stick it in your bank account.
Is that in cold storage or if it's cold
storage? Yeah, that's cold storage. Where do
you think is where I know the words but now we have I mean this is this is one of the
this is one of the crazy things about this concept because money and money and speech turn out to be the same thing money information math. They're the same thing. So in a Bitcoin world, I can literally write down my Bitcoin address and keys on a piece of paper and put in a safety deposit box.
Ox and it's basically in Cold Storage. I could even put it in my head. I can memorize the key phrases and I could cross borders with a billion dollars in my brain. So in that it's a very powerful but mind-bending literally Concept in that sense.
Is this a point where makes sense to talk about smart contracts or is that a non sequitur know I think there is there. Is there a good Bridge?
Yeah. I think we should get into it first. I want to make sure that we understand what blockchains and Bitcoin are right might be worth going into like what are the
Innovations that enabled Bitcoin
and I will leave you to dictate when this make sense or I love you guys. But the article that you sent me about the I guess fat protocol layer right
and get it that later.
Okay, we'll get there. That's a little teaser for Flex. I'll let you lead at them.
Yeah, so I think it's worth getting into like what is the Bitcoin computer right? Because there is basically that you can abstract and think of Bitcoin is running on a blockchain computer and maybe Nick could take a stab at
Defining what it is. By the way, this is one of those things where I think if you ask 10 different people and cryptocurrencies what Bitcoin is and what a blockchain is and what blotching computer is, you get 10 different
answers, you know, some people are more qualified than others. Well,
it's also just it's new it's hard to figure out these are very abstract Concepts ideas being turned into code and they are all Bitcoin is almost two computers what I want like quantum mechanics is the physics it throws a lot of people in the field
off. Well, it's also like quantum physics because you have a lot of
Well intentioned like hippies and new agey people who will miss appropriate and use it completely incorrectly. Absolutely not to say they're a lot of new idea could be people getting into cryptocurrency there might be but I think you also have that.
Yeah this it's just layers of understanding like I don't know how to write code for a Merkle tree. I don't know how to take apart a Bitcoin block and analyze it so in some level I'm still you know new edgy hippie trying to figure it out, but I think it's worth getting into like
It is the blockchain computer and how does it enable Bitcoin?
I guess first of all before I drop into that another important concept to the architecture that hasn't been mentioned yet is replication. So there's thousands of copies of these things running on what are called Full nodes all over the world and this is servers. Right? Right. So they're their servers they can be laptops or larger machines, but there are thousands of them running all over the world. So anybody who has a copy of this can their machine and do a full validation for itself and it's kind of the most secure way.
To run run a cryptocurrency. Yeah, so sorry to
interrupt you. But basically what's going on is if I give Tim $10 and then Tim gives Nick those $10 the way we you track of it is through a piece of paper or in the old days with the Europeans. It would be a shell of a certain measurement but now a Bitcoin there's a ledger we basically just keep track in a ledger entry that navall moved this $10 to Tim Tim move the $10 to Nick now the problem is who maintains the sanctity of that ledger. Can you just forge that ledger so
Historically the central bank would maintain the sanctity of The Ledger or the fact that you have a certain dollar bill with a serial number it maintains the sanctity of The Ledger but now Bitcoin has the craziest answer you can imagine but it turns out to work which is everybody has a copy of the ledger. So every one of the Bitcoin Network who's running a node keeps a copy of the ledgers from the dawn of Bitcoin till now and that is a testament to the computing power and memory that we have available in modern computers that people can do this at home.
You can run a full Bitcoin node where you keep a copy of every single Bitcoin transaction from the dawn of time till now and all these computers running together essentially validate with each other like are our letters are same are we using the same Ledger and whose Ledger is correct in case there's a disagreement and that's where kind of all the blockchain comes in doing all this cryptography.
And then another thing that's replicated besides the data and the Integrity cryptography we talked about is code computer.
Rooms and kind of the second definition of smart contracts will get into the first definition later, but the second definition is simply describing this code that's replicated that's running on all these nodes and that code can do things like and forth on bitcoin and can do some fairly simple things that add some sophistication like require multiple signatures to do a spend. For example, so like you can think of signature Authority and office were multiple people have to sign off on something you can set up your Bitcoin.
To do that using one of these smart contracts on these pieces of code replicated and might be taking us back or taking us ahead or neither
to a Wandering through the blockchain. It's
complicated. Yeah. It's a smart contract in essence. Are you taking what would rely on human beings and embedding it into the technology so that there's you don't have to rely on standard set of Ethics reliable set of behavior. Is that a smart?
Yeah, so to some extent there are some areas of contracts some kinds of contractual Clauses usually but not always associated with the financial aspects of the contract that you can they're really logically structured and you can code that into the computer put it on the blockchain and then it runs over the role of high integrity. And that means that somebody in Albania can do a smart contract with somebody in Zimbabwe and the extent that they can formalize their
deal mathematically with through this logic code. They don't have to rely on the Albanian authorities or the Zimbabwe authorities. They can just do business directly and you had a great term for this this is getting into the driver's as wet code, right so dry being computer-based wet being potentially the legalese in the head of a lawyer in Albania and the legalese in the head of a lawyer in Zimbabwe, which is going to be a whole whole just slew of mess potentially.
So I like to think all that needle easy seeing a contract is as a as a program that runs on the brains of a lawyer doesn't usually run on brains of normal people. This is going to be trying to take us to too far field or talking about. How did you become so interested in contracts? So it's part of I guess libertarian ideology, but it's also part I went to law school and it's also part of law school 101 that property and contract Lara that kind of two fundamental building blocks of our commercial.
Xiety, yeah, so I was interested in how do you enforce those in cyberspace? I don't meet many people. I meet people who have say JD MBA or JD PhD. I don't meet many people who have JD and computer science
degree and libertarian on top of the
eye and libertarian on top of that. Although I have heard. There are some Libertarians running around the Bay Area. Yeah JD. Apparently, I'm a Libertarian. I've been told the relatively to the average person so it can involve I live in San Francisco and own guns and they're like, you're a Libertarian. I like it.
It really that easy. I got my card. Okay, how did you end up doing both of those degrees? It's see. I haven't run into that before. The law degree is in large part based on Smart contracts and wanting to do a reality check of the stuff. I'd thought of as a computer scientist. I see so the computer science came first. Yeah, and then the JD was went to study the wet code then now that I know how a computer works. Let me go look at it Advocates and see what that's like, okay.
Very
cool. Yeah, so I think some of this is smart contracts which by the way as I said earlier Nick created not just a concept of the theory behind it. Smart contracts are essentially taking that wet code converting it to dry code and then putting it inside blockchain. So it's immutable after a while that it's it becomes a fly trapped in Amber if we made an agreement and the simplest smart contract by the way is just I gave you money and you got the money that's a very very simple contract that got fulfilled. So but you can put much more
complex.
Contract is promise and fulfillment of promise.
Or is there an easier way to think about it? Because when I think contract I think of all these Clauses are right termination arbitration term Etc. I think of all these because I look at waiter contracts now so you can think of the primordial granddaddy of all smart contracts is the vending machine. So vending machine in in contract law terms it verifies a performance you put in your quarter and it verifies you put in the quarter through its mechanical. I'm talking about old-fashioned but your machine it has a logic
And that says okay you put in 1/4 the soda cost a dime. So I'm going to give you a dime and a nickel back and the Saudis elected so you can think of writing this in a contract tediously that you know, if if the party of the first puts in a quarter, you know, the cardio II will give them back. But of course you want to do this in machine, right? So I'll get the lawyers any idea. It's verifying a performance on the one hand somebody it's observing that somebody did.
Their payment for their other performance of a contractual deal and on their hands automating performance. It's dispensing dispensing the goods. So the colors are kind of the two basic things smart contracts can do they verify somebody's performance and they automate performance. Now, the third thing is if you have another there's a bunch of stuff. That's inherently wet. Most of the stuff that you can code into smart contracts as those two kinds of things are like payments and various Financial conditions. You can do a lot of financial stuff like options and clutter.
Is loans and so forth Futures, but for things that are inherently wet that nobody's figured out how to have the computer verify our automated performance yet. You can you know invoke an arbitrator a signature structured like multisig to have humans approve certain steps in what will be an example of where you are. Someone else might want multi 6 in that Universe if you're doing something with an escrow for
Sample that you have the person or persons responsible for the collateral verifying that the contract was performed. Then they can free up the collateral got it. So if you want to buy a house that had to do inspections in one of these Bitcoin, right? Yeah be a good
situation. Yeah, and there are things you can do now with smart contracts which you call on chain where you can have all the money and a collateral and the escrow and the data as close to computerized as possible. So the stuff that people are starting to do with smart contracts now, it's
Mind
blowing. Can we talk about the article? You sent me? I know it seems like it might not be the right. Yeah, it was very helpful to me. Sure. So do you want to dig in?
Yeah, so there's this there's this concept of what Bitcoin and etherium and these other cryptocurrencies are doing is they're they're the new protocols. And what is the protocol a protocol is kind of like a God now, I'm going to get trapped in definitions but a protocol is sort of how computers it's a standard for how computers exchange information. So for example, you and I speaking the English.
Wish language is a form of protocol. But then also like HTTP. Yeah, I'm supposed to pause every 5 seconds and then you're supposed to get a chance to speak. That's part of the protocol. We say hello to each other's a greeting as part of the protocol. So we have verbal packets like this. Yeah, exactly and also another protocol. Yeah, and then the internet these Protocols are TCP IP HTTP SMTP, every time your email gets sent from one server to another it's using the SMTP simple mail transfer protocol and these protocols power the internet and the assumption that was
In the early days of the internet was that well been with this cheap servers are cheap Hardware is cheap. So it's free. If I want to send you a packet it's free. If you want to receive the packet, it's free doesn't cost anything but those assumptions are breaking down. We have denial-of-service attacks, which is basically your computer demands resource for my computer that I'm saying. No, but you're asking so many times for free that it just overwhelms me spam is another example, I can send you a zillion email that hardly any cost, but it cost you a lot of
Attention. So these free Protocols are becoming poor assumptions. The worst place for a poor assumption on a protocol is a protocol for exchanging money. If I say Tim, I want to give you ten dollars that has to be scarce in some way can't just be it can't be a free transaction, right because it's money this exchanging hands. So we need a concept of protocols that underlies scarce resources that that allocate scarce resources and what's going on is cryptocurrencies and blockchains are creating these what are now being called.
Fact protocols
and we'll put an article in the in the show notes about this but fat Protocols are protocols that actually exchanged scarce value and the keep data in the protocol. They
maintain data. That's the key piece right or in a way.
Yeah, there's two key pieces one is scarcity, which is a regulated by a token. So in the Bitcoin protocol the scarce pieces the Bitcoin itself, and the protocol is about the exchange of money in the token is Bitcoin and then there's data that you can put in the blockchain.
Chain, like I could for example take an article that I wrote I could hash it the one way crypto hash put it in the blockchain prove that it came from me and then it gets trapped in the Amber again like the fly and no one can undo it later and as and secured by the value of the blockchain, so these new protocols. These fat Protocols are very different. They're going to exchange their going to enable a new kind of Internet that we did not have before. That's the thesis of kind of the fat protocol
argument.
Just for people listening who like me were trying to find their way their way through the darkness with a lot of this stuff when I read that piece, which is on the Union Square Ventures website. Yeah. Hi Fred and guys, I'm blanking on the name of the author, but very good still want to- there we go. Yeah, and the the before-and-after example that was given or one of them was you have these thin protocols HTTP X etcetera and then you have the services belt on.
On top of them that become silos of information whether that's Facebook Google whatever it might be and then they develop their own means of authentication and so on. So you have these captive stores of information you have security risks on top of that. So now perhaps you're doing your banking through a web server and conversely when you then have the and I hate to use this word, but sort of democratized data that is built into the protocol itself.
In the case of Bitcoin or now, you have all these nodes that have for the purposes of illustration every transaction start to finish. It's more secure your less captive and conforms to the libertarian / Ian Rand ideals that were talking about earlier and the illustration that was given that I thought was fascinating and may or may not hold true for for decades but was that you have protocols that they're necessary but not valuable right there available.
Well, they're like utility to the public and then you have these these billion dollar multi-billion dollar companies built on top of it Facebook Google Etc. Then you have conversely Bitcoin which has a market cap of X. I don't know what it is five billion today. Okay, and then the companies built on top of it are intentionally small be in the tens or hundreds of millions at most right? So it's complete flip in terms of
yeah. The value is getting captured by the fat protocol the I do recommend this article. It's actually John so Joel money grow. I got his last name wrong, but he wrote a brilliant.
In peace on this but the thesis is that because these Protocols are storing your identity and data on the on the product in the protocol itself. The applications don't capture you as much you're not stuck in the applications and the value is captured by the tokens in the protocol.
Does that mean this is this is just putting on the investor hat for a second that people are going to be incentivized to just create more and more different types of cryptocurrency and then reserved.
Try to capture that as
exactly what's happening. So I wrote a post on this call the Bitcoin model for crowdfunding and I this is a couple of years back and I thought these things called app coins would show up but for every application rather than going and raising VC money, you just attach a token to it you crowdfund it and that's kind of what's Happening Now with what they call icos Initial coin offerings and there's been hundreds and hundreds of these and you know, it's a little bubbly. In fact, it's very bubbly. A lot of them are getting bit up out of control. Some of it comes from the fact that a few of these protocols do need their own.
In token, they can use Bitcoin but most of the times it's really just the developers have an incentive to create a token bolted on and try and capture the value but it's an interesting model for funding open source software and protocols that didn't really exist before
our bubbles bad thing. And this is this is something I've also been reading about that. I'm really I don't know if you have any any thoughts on this but in many people's minds bubbles are a bad thing, but I read a counter argument for the first time today, which was you know after about
Will bursts then you have out-of-the-money investors who are incentivized in reek in regaining the value of what has declined by creating services and applications that are now these sort of thin applications which then preserves the sort of long-term viability of X, whatever that might be which I hadn't really considered before. Well there is a sense in which many bubbles are unavoidable because the future is a genuinely uncertain
Place. Yeah, especially this is these are reflexive Industries where
You know, the notion of reflexivity is like my prediction alone changes the potential outcome and you know, the extreme example is like a prediction Market predicting the death of somebody if there's enough money on that it turns into an assassination market so bubbles are inherently I think just a part of any system that involves Network effects. If I think then my money is the ultimate Network effect. I accept US dollars as money because you except you thought
It is money and so on if we all believe that if we all believe tomorrow, the two of us were valuable again, we'd be trading in tulips, right? So if I believe that you're going to accept this as money, then I want to put more money in and you want to put more money in the network effects sort of creates a bubble. And as Nick said the Futures uncertain place. So sometimes we'll be wrong or with step back. They'll be a little bit of a releasing of it energy. I read something a couple of years back. That's that showed that as the stock market is becoming more efficient. It's actually becoming
Volatile it's not becoming less fall at that's becoming more volatile because it's reacting faster and faster to information
changes. That's like the story why when the you can look at long-term Capital Management over there all sorts of high frequency trading you so you have not only humans right who are increasingly interconnected, but you also have
computers right now. There's a there's a big train derailment in China that caused a political change that causes the Futures Market in China to shift that causes the US Stock Market to go down right computers are getting
Better and better at absorbing that information extrapolating it out the consequences and and so the markets have become more and more volatile. So over time we should see bubbles form faster pop more quickly and I think they'll fall into a power law distribution like there they'll be ones that will be really large. They'll be ones that will be really small and but this idea that the future is going to be very smooth and linear and predictable is a human illusion.
Yeah. Yeah, I think
Fair assumption Nick, what are the biggest misconceptions or common misunderstandings related to cryptocurrency or Bitcoin or like what is smart people get wrong? If there's anything where you're like God this like X drives me nuts if I hear one more person who should know better. Well, we could get into the whole block side issue because there's this parameter we shouldn't but I probably will talk about it a little bit. There's this there's this
It's a technical security parameter. It's called The Block size how the general public glommed onto this. I do not know but there's there's an obsessive group of people who think of this as some kind of artificial barrier to more transactions per second on bitcoin really its job as its its offense preventing people from overwhelming flooding the network with lots of transactions at the full nodes. I talked about can't handle that that transaction history keeps building and building.
Building yet a very simple level if if every computer stirring a copy of every transaction, then you can't have an infinite number of transactions because right pewter explode and so what you do is if you if you keep increasing the number of transactions to quickly then you only allow a smaller and smaller shrinking set of computers to run the code which
reduces who's
actually in charge of security before you might have had a million computers. Then you're down to a hundred thousand big computers then
There's only a few thousand large players than eventually down to five people who can store the entire history. Then you're basically back to central banks. Right? So the debate is should we keep allowing more and more transactions because what if people everyone wants to buy Starbucks using the Bitcoin or should be only limited to very high-value transactions and instead preserve the diversity of people who can who can run the
code. Yeah. I mean, this shouldn't even be a public debate. It's like the public debating and voting on The graphite reactor.
Setting or graphite things settings that prevent a nuclear reactor from overheating and melting down. I let them debate the bike shed. Yeah, and there are certain things. You should let the engineers the side and this is one of them and for some reason there's just a whole group of people who want to want to pull out those graphite moderator rods and have it going full steam.
Yeah, one of the problems with the Bitcoin is that because a lot of people hold a little bit of Bitcoin.
Everyone has a financial incentive and they're all talking their own book and they get really emotional about it. Nick had this great tweet that I like said best way to destroy your investment in Bitcoin is to gather an internet mob to go and redesign Bitcoin, right and that's a little bit of what's happening
right now. Well you were saying, you know before we started recording that a lot of you've you've never seen so many scientists be uncivil towards one another.
Yeah. I think I think the worst Twitter is Trump Twitter everyone's getting outraged or politics all the time, but the second worst Twitter right now is blockchain Twitter.
Where you will have phds from Cornell and University of Maryland all kinds of credential places literally calling each other horrific names online casting aspersions other people's moral cat moral character calling them trolls dragging it through the mud and they each have their little local tribal mob behind them over things like the block size debate which has Nick says, you know, it's like changing the parameter settings in a nuclear
reactor. Well, it's I mean, it makes me think of their bunch of sort of
ones that jump to mind your saying talking there on book. So the uninformed has to be very careful about asking a barber if they need a haircut, right? You need to know what the incentives are because I and I'm sure people have heard the expression. It's not very flattering but a man is as loyal as his options since might be a scientist or someone who is otherwise civil is as civil as their incentives, right? Yes. Once you have enough to gain or
lose. Yeah incentives are everything. It's like Charlie Munger says if you can be working on the sentence don't work on anything else and it
You know going back to bitcoin the Bitcoin design for a second Bitcoin is brilliantly designed because the underlying Game Theory and incentives. Yeah, could we talk
just for a second about what is bitcoin? So we talked about cryptocurrency what makes big what made Bitcoin of what makes Bitcoin unique if that's if we could maybe talk about that you can think about it in a couple layers the most important fundamental layers of computer science later layer where we proved that it would take 51 percent of the computational power the hash rate.
It to attack this thing and do things like double
spend basically changing that ledger, right? Yeah. It's like you can't change the Ledger. The beauty is the fly and Amber analogy is a great one because once we you and I have done a transaction, the network is agreed on the transaction going back and I'm doing it is nearly impossible. But while that Amber is being laid down you can still be some Mischief, right? So one of the big misconceptions of Bitcoin is that well, if 51% of the computers in the network the which are run by people call miners the called miners this the old announcer digging
Gold's they're digging for Bitcoin. But really what they're doing is they're laying down that Amber if 51 percent of these people collude then does that mean they can go back and change The Ledger? No, they can't change the existing Ledger, but they can cause Mischief with the current transaction or the current layer that's being laid down is one of the big misconceptions. So
sorry to interrupt. Yeah, that's one of the the computer science limitations of it and the other one is doing software upgrades software upgrades kind of change the rules even
More so yeah, and so those two things end up getting especially the software upgrades end up getting very politicized.
Yeah Bitcoin fundamentally. What what's going on? It's a Nick first create a bit gold right. Do you want to talk about what the Innovation and bit cold was or how the Big Goal system work that we can layer on
bitcoin and driving by called was inspired by a kind of this origins of money research. And how do I and also there was an error called private banking or you could take your your bank note and go up to bank window and get gold and the
I think the paper money we have today looks very much. Like these banknotes did nothing. I call Authority resemblance or sort of Faking and pretending to that. This is still really valuable stuff and the illusion Works apparently for the most part. But but they used to work very differently used to build to go up to window and get actual gold for your paper. Yeah, and
this is two of us. This is green to Green flat until
laughs. Yeah was debt now. It's just the paper itself. You gotta just trust the paper itself in the Federal Reserve. But in any case I was inspired by what peaches a fiat currency and
were actually right fiat currency is just
a paper that's backed by nothing. So before it was shells then we went to Gold then we went to Gold back paper and now we're down to just paper
creating that banknote itself is easy enough to do that's basically what PayPal and Company I was working for called. Did you cash with David Chapman stuff for doing that trust-based paper note that was issued by some Central Authority but I became dissatisfied that because in the end of the day you want to go to that window and get something else. That's more what I call Trust minimized.
So gold is valuable all over the world. If you go back to these more primitive tribes the gold and the shells and the so forth, you know, you can pay them to next time next time over all your neighbors would accept them as well. They wouldn't accept your IOU because you know, you're not going to trust people you could go word war with tomorrow, but they would accept the shells or the copper beads of the gold beads. The first gold artifact by the ways of being the first copper artifact was apparently the most important earliest uses of metal not
Knives or weapons or tools or so forth in any case so so I was looking for this trust minimizing like how to do this in cyberspace since I had read stuff. I know it's not just some magical property of gold that makes it valuable and other things aren't or something or some intrinsic, you know, it started off you can use it in let you know electrical circuits are so forth. Now there's something about what I call the unforgeable costliness of at the scarcity of it the natural.
He trusts minimize scarcity of it. You don't have to trust somebody to keep it scarce. I try to recreate this in cyberspace using proof-of-work Adam backs, hashcash. And so basically the bitgold design did that and then it used a replication technique which had originally been developed that I apologized to backtrack. But the proof of work would eat. What do you mean by that? Okay. So proof of work is a mathematical puzzle of computation that the computer does that says, okay, you have to solve this and we know from computer science it will take so long to solve.
but we also know from computer science that it's
It's a kind of a problem that you can improve the hardware which is why everybody uses design specialized hardware for it. Got it now because unlike normal orthography. It's well, that's not even unlike normal cryptography in that way, but it's something that you can do a lot faster. If you have
Hardware proof of work is basically you have to you have people here who are basically laying down the layer of Amber on the fly, right? And so they have to basically commit resources to do it. It has to be costly to
To do that you need scarcity in the system, right? So that's that's scarcity is created by the costliness of the computing power that you throw at it. So basically the more computer power you want to throw at the Bitcoin Network the more seriously the Bitcoin Network takes your vote and we have to know your computing power is dedicated to bitcoin Network. It's not you know off surfing the internet or doing something else. So you have to commit to doing work just for the Bitcoin Network and the proof is through mathematical functions got it. So you basically have puzzles to solve the Bitcoin Network the
Rhythms give the computers puzzles to solve if the computer solve the puzzles. They can prove that. Yes. I put economic value time heat power computation into solving this problem. So now I get a vote on what The Ledger looks like and I get a chance to be paid in coin. So this what the minor do the miners do the work to secure the network using computers. They provide that proof to the network the network pays them in new coins. That is might there's minting got it
anyway, so that's the toe. She had an innovation.
We're uses this proof of work as part of the security for people who don't know who is Satoshi who that name? Well, it's some unknown character out there that has disappeared in our group.
Yeah, whoever created bitcoin, you know, obviously built on Nick's work built on Health in he's work way. There are a couple of great computer scientists who did this work, but whoever actually built the working implementation because I think Nick you had you had the theory of Big Goal, but you're not a serious in a program.
Create bit cold war. I'm serious programmer, but to
didn't get around to programming bit cold. So yeah, it was a
design and a so whoever created bitcoin probably a group because it looks like a very sophisticated effort. Did it pseudonymous lie or anonymously and thus the name that they use with Satoshi Nakamoto
where gold was a design on the theory to use this proof of work as a like all unforgeable costliness order to constrain the supply curves, you know, it's scarce.
And satoshi's big innovation was to let me backtrack and describe one more big old. So there's a protocol design for to keep airplanes from crashing because you don't want your computer to go crash on an airplane and cause the airplane to crash right you want to be your computer to be able to crash an airplane that The Airliner itself going on. So what you need is to distribute the surrounds you have several chips all around the airplane and then they talk to each other and then if they get contradictory information they do what you might.
Voting they'll take the majority and consider that to be the correct one and that turns out to be they mathematically prove that this was the optimal model given those assumptions that you know, how many chips there are and so forth and this is called Byzantine consensus. So I took that and used it for this replication business to replicate the data Around The Ledger round with a Merkle tree for the transaction history and so forth. What's that? Oh, she did was a really big innovation besides of course actually.
Making software people could use which I never did. He's the proof of work and security settings on the internet. You can't count your chip securely. You don't know. I have a chip in the tail and a chip in the wing and so forth. There's a sock puppet problem people one person can be pretend to be a hundred and we're one computer can pretend to be a hundred Satoshi based it on proof-of-work basis security that voting like if the preponderance of the hash rate tells me that the transaction is history's been updated in such and such a way then that's that's it. And again that's good up.
51% that's where the 51% attack comes from
busy one computation one vote is the way to think about it got it. And actually, you know, one of the one of the problems that people have with the Bitcoin network is designed. So basically a Bitcoin you have all these computers around the world that are joining together to create this shared blockchain computer. They get votes in proportion to how much CPU power they're allocating. They vote on what the valid transactions are that then go into this Ledger and get sealed in the Ember of the block.
Chain, and the whole system kind of works but a naive person looking from the outside as you said like the hippies coming to blockchains. One of their first objections is you're wasting all this computer power, you're wasting all this energy, you're wasting all this network resources because they're constantly chatting with each other and network. These computers are broadcasting packets. These are all the time and they just say it's wasteful but and I think that was an argument that a lot of people make and even I kind of fell for that one where I was like, okay,
You know eventually someone will come up with a better solution than proof of working go to proof of steak or a few other kind of ideas are being thrown around and then Nick just recently wrote This brilliant piece on social scalability and by you got a doctorate recently an honorary doctorate. Oh, yeah, the
university Universidad Francisco. Marroquín. Yeah and Guatemalan. What is your doctorate in its in social sciences? And also an honorary professorship is also yeah, it's great. It's a
very long live the only social
a scientist. I think that could talk at this level.
Well, I mean, that's the kind of honorary doctorate they give yeah, but yeah, it's nice great. Let's of luminary. So yeah, I'm very honored to
have that you decided your social scalability article. And so the social scalability argument I thought is a really powerful one. I don't know if you want to try and summarize that for the listeners.
I'm sure so the idea basic idea is that if you look at a graph of human capabilities, it's basically flat where the same IQ as we had, you know.
The small thing on the Flynn effect butter net, you know a hundred thousand years ago our brains for the roughly the same size as they are today and computers on the other hand have been you know, doubling every few years their capabilities in various ways their memory their CPU power Network bandwidth and so forth. And so and you can think of this in the future and get into all sorts of speculation about the future but what I like to think of it as we have this whole Surplus we built up of resources and yet we're still doing things and
Institutionally with armies of bureaucrats and stuff very similar to what we're doing, you know and computers were you know, thousands of the power they are now are millions of the power they are now or they're doing in the Mongol Empire. Yeah. So in any case, so can we do some substitutions? Can we substitute take advantage of this great Surplus? So computer scientists are normally an engineer's are normally trained to think optimize the machine make the machine itself really efficient. But what I'm saying is that you can think the other way are there ways to make the machine a lot less.
Shouldn't and give you some greater capability. So that such as for example the ability of somebody in Albania to pay somebody in Zimbabwe without going through a trusted intermediary human bureaucracy ways to do that, you know, even if they cost a lot more and look really bad to an engineer likes to think about efficiency. So and Bitcoin is a great example of that. It's a proof of work as part of its security and in my mind to create that
at that
scarcity. Yes, Dad stepping back for a second what separates humans from other animals is that we are social across genetic boundaries. So, you know, even the end of the thals you can have a hundred fifty neanderthals on a battlefield because they're all genetically related, but you can have 5,000 Homo sapiens on the battlefield because they believe in the abstract idea of Christianity and they can communicate that story to each other. Right and so Bitcoin enables a form of social scalability where it allows now humans who don't
Know each other who don't trust each other who may never see each other again and don't even reveal their identities or locations to each other to still transact securely not just with money but also with contracts any complex logic they can dream up that they can code up they can do it through this very slow and very inefficient computer but it removes all these layers of humans bureaucrats and toll takers from the
operation. What right so you're able to exceed the Dunbar number right? Exactly the tea. Yeah the
hundred fifty people.
Dunbar number so you're basically trading computational scalability for social scalability. Well, it's
and just to maybe put it another way and I'd love to be corrective. This isn't right. But there's like there's another quote
of yours Nick that I really
like trusted third parties are security holes. Now, I think relates to this very nicely and there's a bit on blockchain computers that I think is relevant. So why why make the trade-off why allow all this inefficiency, and I'm not going to
This entire thing but it's the blockchain computer this distributed blockchain computers much slower more costly than web server. I've won very rough estimate about 10,000 times slower more costly. But since on the blockchain, you're running the portion of an application that needs to be the most reliable and secure what you call a fiduciary called encode because the downside risk is so high you can afford to have tons of inefficiency particularly with Hardware that is
dropping and cost and increasing and capability year-on-year right now. We've accumulated this great great Hardware capacity Surplus that that were only starting to take advantage of and so you can use that to do like the proof of work the very the strong security protocols it take some computational effort and the also the making the copies we have lots of memory lots of disk space lots of bandwidth not vast amounts, but enough to you can you can take a small transaction and replicate it around the world make thousands of copies.
That helps create stuff flying Amber. In fact where you can't deny it later because everybody's got copies of it
in a way. Like I think you had a definition of social skill that in your article. It's not precise but close enough where you basically said one way to estimate how socially scalable technology is is by how many people can use it right and when it comes to cash today like the US dollar it's you know accepted probably the most widely accepted currency in the world, but we're still talking.
Hundreds of millions to maybe a billion people can really use it in their everyday life. Whereas Bitcoin in theory when it said when it's adopted can be used by anyone to pay anyone as long as you're connected to the internet and everyone's connecting to the internet. It's scales
better. I'm going to ask a question that came up a lot and it's one that I don't have any any ability to answer. Is it possible to for any government entity to regulate Bitcoin or cryptocurrencies out of existence if
Where would you put the likelihood of such a thing happening or being able to be
implemented wiring because these copies are all over the world.
They're never going to get rid of these copies. Somebody's always going to have the transaction history and can start it up again. Yeah, so at that and it's sense makes it very difficult to regulate. There are easier parts of it to regulate such as the exchanging of fiat currency your local currency to bitcoin back and forth those still happen through centralized it.
Exchanges which both makes them fairly easy to regulate and also makes them insecure trusted third parties or security holes. So if you want to get in and out of Bitcoin, you're usually doing it through these centralized exchanges and that's where the vast majority of of thefts and hacks of a Bitcoin of occurred these
excited the exchanges essentially end up like Banks there honey pots for Regulators or honey pots for thieves
there. How do you buy or sell say Bitcoin without going
through today you do that through a central at through an exchange.
Inch there's also sort of local meetups is like there's a sites like localbitcoins and there's a few others. There's a big one coming up in China. Now, we can just sort of coordinate a meet up with somebody in a dark alley and exchange cash for Bitcoin. So people can fall back to that and and the volume on those kinds of distributed exchanges has gone up a lot. If you look a bit torrent, which is the file sharing Technologies or accounts for like ridiculous amount of internet traffic Bram Cohen invented it, you know,
That thing on given day can account for being a quarter to half of internet traffic and you can bet the government's that have been trying to shut that down because right now the government's are overzealous and nothing and so much than forcing copyright law. I mean want to drive, you know, you want to drop the full weight of the federal government on you you either engage in you know, terrorist activity or you violate copyright there like roughly equivalent, right? They'll drop helicopters in your house in New Zealand, you know, ask him that
calm for violating copyright law, even if you never set foot
You'll is such an understated lifestyle you and you're so subtle
caught on to him. But yeah, so I don't I don't think government can really shut it down. Not only that but any government that really Embraces Bitcoin or any of these cryptocurrency doesn't have to be Bitcoin, they could even kind of start up a new one if they wanted to is this going to benefit so much from really owning the money that's native to the internet. You know, I called Bitcoin the internet of money because it's
It's really native to how code works. So if you really want to future-proof yourself, it's like it's like the imagine if the u.s. Crack down on it and said no more cryptocurrency. That would be saying like saying no more HTTP, right and the country that did adopt HTTP. And by the way, this is the HTTP of money would end up so much better off that used to be shooting yourself in the head. So I think smart people smart money in the u.s. Already recognizes that and so it's seeping up into the government where they're figuring out that yeah, we could we could
Be Draconian about this will just drive it out of the country. It's already happening to some extent a lot of the ico's that are happening or happening out of Switzerland or Gibraltar. Those teams are leaving the u.s. Actually because especially place like New York have been very heavy-handed in the regulations. So you're just driving out
Innovation. What is the incentive for say New York to be supportive or at least maybe cast a blind eye to development of
this type of Technology just like the internet took out Hollywood with Netflix and you know Spotify and it took out newspapers with publishing and Twitter and Facebook and it's taken out, you know, all kinds of Industries. The internet is going to fundamentally change and possibly take out the finance industry as we know it and the new Finance industry is going to settle wherever the home of innovation is for smart contracts and cryptocurrency.
My belief obviously not investment advice, but I think this is silicon Valley's replacement of a lot of the infrastructure of finance. And so if New York chooses to drive that out the New York will no longer be the center of Finance got it. I every time I go to New York. I'm actually highly entertained because I see all these huge Towers. I see all these peoples in suits and I know that ninety percent of them will be obsolete within 20 years.
Nice horse and buggy Bell. I like
the yeah, I would I would not be thinking about going into
in banking right now because a lot of that job is going to be automated Commercial Banking automated, you know, the bankers were the miners of the last generation. They got paid in the currency to secure the currency. So when the FED wants
to yeah, they weren't even the minor. So the Traders.
Yeah when the FED wants to distribute currency at give it to the banks and guess what the banks of the banks have sticky fingers and then they allocated out to the rest of us very sparingly and the new Bankers are the miners. The new fed is the cryptographers but really the new owners of the infrastructure or the
There's of the coin which is everybody or could be everybody
is cryptocurrency or let's say Bitcoin inversely correlated to any particular other asset classes. For instance when people are fearful of say currency devaluation. They might run to gold right seen this in places like Argentina seen in the u.s. Seed all over it do see that also with Bitcoin and in a particular pattern.
Yeah, they definitely are store of value because Bitcoin there's only gonna be 21
I'm million ever the whole way. The protocol is designed. You can create a single one more and a bunch of been lost. So because they're hard to secure.
Hold on they get
lost. Well, you could lose your key. So you can go I Somerset come up with some really cool. Forget your goddamn or you're trying to defend it. You're trying to hide it from hackers. You come up with some really elaborate scheme and how to secure it and then you lose it or people have lost the computer that it was on, you know. So what is the have you heard any their catastrophic story? I'm sure their stories of people would like, you know digging through.
Garbage dumps with bulldozers trying to find that old computer which they threw out which had you know, 10,000 Bitcoin on you need
to get a hardware while at the makes encrypted backups so that you're neither stolen from nor lose your key.
Yeah. So, I mean there there's a finite number of Bitcoins. So I Bitcoin is electronic gold. There is a generation of kids who will grow up that as long as they've been alive like my son when he's older as long as he's been alive. There will have been gold and there will have been
Bitcoin you think the likelihood of Bitcoin
in any way Falling Out Of Reach for people like your son is close to zero. I don't I think Bitcoin
itself may suffer because it has governance issues and another currency like we should talk about etherium and some of the others that are coming up might take its place but the idea that blockchain computers are gonna go away is ridiculous. That's like saying the internet's going to go away. It's just two fundamental of a technology borrowing a total mathematical breakthrough that obsolete.
Encryption which would also be the end of the commercial internet as we know it. I think that some kind of blockchain computer will dominate currency store of value contract law and any kind of financial instrument prediction markets all kinds of things in the future. So to Mike to my kids, they will choose electronic gold. They will choose bit cold and it's successors over real gold
Nick. What is this is another one of these words that comes up at dinner.
Parties and various conversations and I kind of Nod along some embarrassed to ask questions fearing. I'm the only one at the party kind of like everybody goes to summer camp and they'll miss their mom but no one wants to talk about it and admit the theorem what is a theorem. So so we talked about the blockchain computer so Bitcoin and if your audience can harken back to the beginning of Apple Apple computer where Steve Wozniak was working at Hewlett-Packard on a scientific calculator and it had a certain Limited
Scripting language that you know specialized for that. It wasn't a full-fledged general-purpose language that you can do lots with but what he did was he got excited that his circuitry, you know chips were getting cheap enough that you could do the full fledged what they call turing machine after Alan Turing because he's one of the inventors of it. I'm a full-fledged general-purpose machine that can do any mathematically feasible computation. And so Bitcoin is like a restricted computer does certain things.
Specialized like the multisig I talked about in certain other other things that can do but ethereum is a much more general purpose computer and it also stores long-term State better which is a technical thing, but it's an important difference. So basically the theorem has great potential for this reason. It has potential to do smart contracts much better than Bitcoin does the drawback going to this is it also increases the attack surface at its what the therms doing is riskier.
The attack surface attack surface so you can think of your house is having a tax surfacer the windows and doors and places where people can get in. Right? Well, the ethereum thing has more surfaces that people could potentially get in because people are doing more things gotta just more vulnerabilities that correlate to more functionality right so much more
flexible computer so you can talk to it in many many more ways. You can inject bad code and you can hack it and many many more
things. Another thing that makes it risky
is that it's a newer it's it's not much more advanced than we're in terms of its maturity and getting out all the bugs and stuff as Bitcoin was when people are paying 10,000 Bitcoin for a pizza and yet what's the theory of market cap now? I think he's just
crossed like eight or nine billion today. Yeah. So the market caps are fuzzy because if you calculate a properly based on the future issues of the coin of might actually be approaching Bitcoins market cap. It might be in the 20 billion range once you take inflation into
account any
Even with just the ten millions out there or eight Millions out there now, that's that's a lot more money than Bitcoin had it at the same stage of maturity. So I definitely say it's at a riskier state. It's also much greater potential.
Yeah. I mean, this is so now we can I think we've done a lot of backgrounding and I think what people really want to hear from Nick about is a little bit more of the advanced stuff right because you did bit Goleta smart contracts, so they kind of want to know where you think the future is headed and I know the future is impossible to predict them against not investment advice, but
Very generically. What platforms are you most excited about? Where would you spend your time? If you were like a young fresh person walking into this space.
So I am excited about ethereum and a theorem classic and there's a what's called a side chain for Bitcoin called root stock that they hope to combine together the best of ethereum with with Bitcoin on the Chain so you can trade the Bitcoin currency, but do the Turing complete full-fledged smart contracts the potential there is that and there
Very well could be other turn. I mean there's a few other Turing complete ones out there and probably quite a bit more in the works as well. Anyway, the potential for this stuff is that doing cross-border things and other things where you're crossing a trust boundary and you don't necessarily have access to good legal legal account affordable legal counsel for financial contracts, especially as the low-hanging fruit because those are usually very well defined and bureaucrats.
Like to make complications and at all sorts of epicycles to them but really an option in the future and stuff. They're they're logically and temporally pretty simple things to do. And once you get more of the underlying assets, you can do options and Futures, you know, as for example exchanging Bitcoin for ethereum, and we're getting all these other tokens that are going to be on these blockchains. You'll be able to include in that now if you go off blockchain, you got to kind of take a different tack the
words if you're
You're smart contract to the real world. You need to you need to know what happened in the real world and decide whether or not to execute your smart.
Right? So if you're doing an Apple stock, for example, because that's that's a traditionally defined thing depends on traditional systems to make it work incentivize Apple to pay the dividends and and do what they do. In any case if you want to do that, then all of a sudden you're back in the traditional Financial world and the traditional Financial people know that right now there's like a cultural disconnect that Bitcoin
It'll have a really cool technology and but they hate the people in the financial Community don't want to talk to him don't wanna learn from them and the same to some extent with the Syrian people as well. And on the other hand the financial Community people hate and don't understand blockchains and cryptocurrency fact, there was this whole bunch of very dubious startups that raised a bunch of money to do things. They call block chains that were they didn't have blocks. It didn't have chains. They weren't didn't have the security I was talking about but the marketing people want to call them blockchains they can pretend
Like Bitcoin and you know the price going way up fifty million dollars in financing later. Yeah,
these like most of the private blockchain company.
I'm not going to name names. I've got ya so the the financial people don't understand that and they've gotten burned by some of these companies. So they hate they hate it but really I think for the entrepreneurial opportunity and some of your listeners want or looking for an entrepreneur opportunity is to marry these two so pick the best of traditional Finance take the best of the block chains.
Theorem if you're doing sophisticated smart contracts and willing to take some risks and Bitcoin if your main thing is cross-border payments take these and and marry them together figure out ways to securely reflect assets on the blockchain using both traditional Financial controls and bureaucracy and taking advantage of technology. I think that's the that's the opportunity people haven't done yet because of this cultural disconnect, what would you say are some of the most important or valuable components?
Of the traditional Finance world, like where would you start the traditional paper world was really good. It had a thing called separation of Duties where it's we talked about multiple people signing off on things and looking things you have to go through multiple stages. Like if you get an order the salesperson has to give the order to the accounting department and they have to give the order to the manufacturing people and everybody records it so it's like a little mini mini paper blockchain that that people used to have with computers. That's kind of gotten messed up and hackers.
As can know what they're doing can take advantage that these systems don't work as well now, but if you to a great extent you can make them work and people do make them work, you know with stock clearing and settlement and issuance and so forth. So anyway, yeah there there are experts in the financial community on do that. If you can if you can make them love instead of hate blockchains, then you'll have a great great skill set combination. If you can get the blockchain people in those guys together.
Yeah. You're a interesting.
Because you combine law in computer science, you do unusual things and you're basically saying is you can combine traditional finance and now computer science you do unusual things and write somewhere in that intersection set. You can take a process that's entirely paper and move the part of it that belongs on the blockchain on the blockchain. Well plugging in the paper part or or
used to be paper and somebody just naively ported it in some naive and secure fashion to computers and now you can use blockchains to make it signature more secure and Trust minimized. Yeah.
Yeah on the side of educating oneself. So let's say there are people and I'm sure there are listening or part of the the traditional Finance world. Is that sounds like a great idea. I want to learn how to love Bitcoin and cryptocurrency. I want to learn about this. How would you suggest they choose reliable sources of information because as we've noted before it's a bit of the Wild Wild West in some respects when you don't have not everyone is making disclosures about
What their their own portfolio might look like so there are there a lot of to Barbara's telling you should you just get a haircut and how would you suggest people think about that? I mean if your Technical and want to dive into the engineering and the technology of it the Bitcoin white paper is still by far the best place to start and metallic beaut. Aaron's etherium white paper also, what was that name again?
Vitalik butyrin. He's a guy who created it would easily developer honest.
Miriam he's actually interesting guy young Prodigy probably like 20 or 21 now started when he was 18 absolutely brilliant.
There is a guy named David Orr was written some great papers. One of them is on ghost, which is what ethereum is based on and he's got a follow-up to that whose Name Escapes me and he's also written a co-authored a great paper and attacks against Bitcoin from the underlying Network. So he's one of the experts on the security of Bitcoin, which is a skill and knowledge that.
Your supplies. Mm.
Yeah, one of the one of the problems and opportunities here is that you know going back to that earlier thing is about money being the bubble that never pops Bitcoin is kind of a Ponzi scheme scheme that starts with smart people. So the smartest people understand it first, then this sell it to like the people who need the cryptography explain to them like me and then we sell it to the people who need the next level down and the whole thing could pop in end badly. So I'm not saying go put all your money in Bitcoin, but I think to
Understand blockchain computer users. Are you sort of have to get into the math and the code and the hard stuff. But if you wait to figure it out by the time everyone can figure it out with the same tools. It will kind of be too late from an investment or earning
perspective. It'll be too late from an investment perspective. You're not for me from the utilization standpoint. Of course, you'll be able to use money just as we use dollars, but you're not going to be investing in something that is going to hockey stick.
Yeah, the challenge for the industry is like today Bitcoin has all these advantages of our goal.
You know, it's more easily transmissible. It's more subdiv Isabel. It's more easily stored. It can be communicate by computers. But to the average person that means nothing all they need to do what they need to experience is they need to receive some Bitcoin in a transaction and then send some Bitcoin transaction had the experience be so much better than every other experience. They've had with money or with gold and the tools just aren't there yet like right now securing your Bitcoin for yourself is still difficult to Hardware wallets are getting better, but it's still kind of a nightmare so
I think the industry still has a decade of work to do to make cryptocurrencies live up to their potential and the idea space is so large. They're all these companies working on it. But every year it gets a little easier to use. It has a few more use cases. It gets a little easier to store and and the smart contracts that are built on it become a little more interesting. So that is a process and eventually you'll be able to use Bitcoin without knowing anything about it. Just like you can use u.s. Dollars without knowing how the Federal Open Reserve.
But Market Committee Works in you know, does lending and issues treasury bills and all that stuff. There's only a few Geeks you need to know that in the world of finance and you can just use money like it's money
just to clarify one thing. You said it said money is the bubble that never pops you're talking about the concept of money. Yeah the concept of my because individual
currencies glossary, like sure I mean
tomorrow lived in Argentina between like mm.
Mm. Yeah, I've tomorrow we all believe that the u.s. Dollars is a green piece of paper and I can't eat it. I can't do anything with it or if like aliens came and took over the
world and you know, we offered them little green pieces of paper. They just use them to start a bonfire something right. So it's the money it's just a concept and you have to agree on what that scarce element is and today that scarcity is enforced by governments with guns and central banks and it's breaks down National borders and the people who secure that money for you take a huge tax roughly a third of the economy in exchange for it. And eventually it will be a distributed network of computers acting in self interest who are going to
Secure that the scarcity of that money and hopefully their tax is going to be a lot
lower. What else would you're obviously much more on the pulse of this but what other topics could be beyond my paygrade it probably is but should we explore with with
neck? Yeah, I think you know just talking about blockchains in general. So we started with Bitcoin the blockchain which is around transferring money. There's etherium blockchain and others like it which are about
out computation and running like a very slow but very trust minimize reliable contracts. What other uses can you see for blockchains coming up that you think maybe a little far-fetched maybe 10 years out, but what's you know, what's a possibility space?
Well, I mean one of the possibilities is that I'm really excited about the cross-border thing to have say grandmother's in India and teenagers in somebody's basement in Indiana doing what people nor formerly thought were
Just created Financial contracts such as options Futures and Cetera, you know through this online vending machine in the cloud. That's blockchain. So that's an exciting and probably too many people disturbing possibility that I think is going to be coming up in the next 10 to 20 years.
Yeah. I mean so you could have like people loading each other money or creating credit instruments or engaging in prediction markets and things like that.
Yeah, what you mean by prediction markets. Well, I'll talk about one that that the insurance people are working on which is it.
Elated which is parametric contracts. So normally an insurance will pay out, you know, if you get damages from a flood and they have to come estimate your damages which is basically a wet human exercise and you know eyeballing how moldy or wall is and how much you got flooded and stuff. But another dryer way to do this is called parametric contracts where like if you're a hotel and an area got hit by Hurricane, you can measure how much business you lost on your accounting books and you can parameterize that and basically
You
have your smart contract pay off. If your books go below a certain time or pay you more as the for your books go down. So that ensures kind of what you really want to ensure. They tell really wanted in sure which is their business and it's also dryer can be done by software verifying you know with the books are so you can make a smart contract out of that and there are other parameterised contracts as well based on other things that computers can sense and measure yeah and prediction markets are
you know, people can actually make
Make predictions and get paid if their predictions are correct or lose money if their predictions are wrong, and then these prediction markets can also serve as arbitrators of Truth and pricing into these smart contracts. So for example, you know in next case next example the you tie in directly to the hotel's books the hotel's lost revenue and so, you know, whether or not to pay the hotel, but if there's a flood I want to say was the hotel in the affected area.
Was the hotel itself affected you need now what's called an oracle? You need someone who's basically going to go in there and say like yes, this happened. No, they didn't and prediction markets through very sophisticated engineering which I think is beyond the scope of this conversation basically try and pay that person for telling the truth in a reliable way. And so you can use that to cross the Divide between the wet space and dry space or from the real world into computers that have them do these things. You can see you can see the insurance markets being completely over.
A halt by blockchain computers and insurance the huge industry. It's gigantic a lot of that this belongs in the blockchain. I don't think you're going to have like, you know Bankers in Bermuda doing this 20 years from now you do nothing. I don't think yeah
because of the technical barriers to understanding or challenges. Let's say lead I think the space to be susceptible to say charlatans for very smart who can fool people who don't understand technical
aspects a lot of scams in the
How do you what are the characteristics of charlatans or scams in the space?
You know it used to be easier to spot the louder. They talked the scam your they were now I think it's they've the scammers have gotten really sophisticated. Some of these scammers are like version 5 of their scam. So they'll be selling some coin and they'll be talking about how I'd like enable some functionality when reality the code doesn't or they have some back door where they're selling you a scarce coin, but they can print a lot of them. So in that sense, you know.
So there's there's a couple of coins that are sort of in the top set that are regarded as Top Flight that will legit but you what are those a Bitcoin etherium a kind of the best known ones then there's sort of a second-tier contender list of you know Z Cashman Arrow Litecoin Etc, you know this new ones coming up like tasos to these see more legit, but you have to know your stuff and do your homework. It's not something where I'd recommend you just run out and buy and then there's a long tail of coins.
There's a diamond in the rough here or there but there's a lot of junk to but what's attracting people to just how much money you can make in the space, you know Bitcoin has basically doubled in value every year since its founding it's good and you know, you do that for eight ten years and you end up with a very very steep curve something like aetherium. If you bought it when it was sold in original presale today and just a few years later you'd be sitting on hundreds and hundreds of times your money and you'd be fully liquid, but this is not unrecognized the space has increased in value. So
So much the market cap of all the cryptocurrencies is more than double just in the last quarter. So there's a lot of hot money flowing in. Well the flow back out possibly. Are we in a bubbly environment? Probably will this bubble pop? Nobody knows what pop across the board or will it pops electively
or will it pop later than a different pop so it won't matter because I'll be a flight of money from one asset class soon
exactly or will the value switch from Bitcoin to etherium. Will Bitcoin Fork into two competing coins because people are arguing over whether the block
I should be increased or not. There's so much craziness just to just to
pause on that word because this when I was attempting to educate myself and doing a pretty mediocre job of it this word fork came up over and over again and so in my mind, I'm envisioning something reading a lot about the so the making of the modern world and Jiang is Khan and all this stuff Imogen. And anyway, thanks Dan Carlin for the Hardcore History. You would always eat would have these internal factions that would then.
It off as two or more separate groups in this context that what is for coming and how should how should I think about it in
a coherent way? This is this is open source code so I can take Bitcoin. I can create a copy tomorrow and it can change this at all. The benefits go to Nepal and right and that's a fork of Bitcoin that I'll call Nepal coin now in reality people hopefully do more interesting Forks. So there's a fork of Bitcoin called Litecoin which use a different mining algorithm the different way to authenticate the miners. There's another
For calls e-cash which uses different privacy routines to basically allow for private
transactions other people can't look in The Ledger know who spoke today. We got it. So not every node has full Ledger correct?
Well and every note of the full Ledger, but it's cryptographically hidden so you can't tell who sent who how much money
no, no in the forks. You just talked about Z cash and Litecoin they started over from scratch. They started their own transaction history from scratch. There's another more
Troublesome kind of fork where you don't start from scratch or just upgrading the current software with the same transact with a ongoing transaction history and you're trying to convince people to follow and it's become a very political political process to be writing over the people and so too and since you know Bitcoin has, you know, the the 20 plus billion billion dollar value, you know, people would much rather, you know, make put their favorite idea into Bitcoin then go off and start their own.
The currency from scratch. It's like Bitcoin only better. Yeah. Yeah. So there's there's tremendous political fights over over upgrades in the space. Just so it's where the bad but come
is a huge debate right now in the Bitcoin world where they're fighting over and and the basic question is do you increase the sides of The Ledger? It's the block size debate. Do you increase the size of the blocks to hold more transactions? So then you can bring down the cost of each transaction so that I can go and buy coffee and
Bitcoin or do you leave Bitcoin alone and treat it more as like a Swiss bank where you only move around money rarely in large quantities, and the smaller transactions are done on another layer on top where you create another software layer on top. They call it like lightning network is an example of that layer that which can be used for very small very fast transactions and micro payments or even micro but even like paying five dollars for you know at Starbucks because Bitcoin literally every time you do a transaction there thousands to tens of thousands of
There's all over the world that are recording that replicating that and storing that for all the time. Right? That's a lot of work. Yep. Whereas you could probably run all of these has computational power on a single iPad today, but it's much more centralized systems are much more efficient, but they're much less secure. That's kind of the trade-off. Yeah. And so
this yeah, I mean the First Choice isn't for the Block Chain itself really a viable choice in terms of scaling is it scales from you know, 10 times the value of transactions?
Value per second of transactions is today because the capacity is limited to these full nodes that are running that require certain bandwidth. They have to talk to a lot of people make a lot of copies to replicate the stuff around and so there's a second layer and of all was talking about that really the people buying the coffee are going to have to transition to and this caused a lot of friction because people are going to have to transition for the small everyday purchases from Bitcoin that Block Chain itself to this second layer and
And there's competing designs for the second layer and so forth. And so there's there's plenty of things to cause political
friction. Yeah going back to the Monday to definition. The debate is is Bitcoin really a store of value or is it a medium of exchange and and so Nick I know you don't want to get into the middle of the politics of it, but just from Pure computer science perspective, like if you were designing, you know, if you're redesigning a bit goal today and you want to incorporate some of these learnings, what would you fall in on would you go for a larger blocks?
Did you go for a second layer?
Oh, no, I definitely go for a second layer. I mean I design Bitcoin gold with two layers because in can you explain just I must have lost something just what that second layer is one more time. The first layer is the Block Chain itself the Bitcoin we call the capital B blockchain doing a secure transactions and the ones you can do from Albania to Zimbabwe without a trusted third party going through the blockchain and the second layer and the ability to grow the
For second on that is very limited. You can grow the value per transaction quite substantially, but the ability to grow transaction for second is limited because those have a certain size and you have to make copies of them around and so forth. I see so the second layer would be for the coffee the pizza. Yeah, and so as this grows as more and more people start using this they're competing for that that limited block space and the fees are going up. And so if you want to have a cup of coffee without having to pay as much
These you paid for the coffee, you know and two or three or four years from now, you're going to have to use one of these side chain what I call peripheral Financial Network that it's collateralized on the blockchain. It's almost trust as press minimized as the Block Chain itself, but it's for lower value transactions. It only periodically settle on the blockchain. We talked a little bit about the suppose third-party tools of application layer exchanges and so on the user experience.
Prince being suboptimal currently, but what if you could wave a magic wand and make certain things happen make certain people invest in say Bitcoin. What is what would be required to help Bitcoin cross the chasm to be become much more mainstream. Maybe it's just inevitable and it's a matter of time that could be it. But if you wanted to accelerate the process and it was like, okay we can make wave a magic wand and you can choose any group of people to invest say 10 billion dollars into Bitcoin or whatever. The number is and then
fix X Y and Z that would help Mass adoption and the crossing the chasm. What are the things that come to mind?
Well, I mean currencies have
traditionally been associated with governments because especially in the modern times are the largest creditor and the largest debtor and so they they have the plurality of the say and what is the, you know, the the money other people are going to use so right now Bitcoin is being used for a snitch purposes where the Fiat system which is a very well.
All permission system to Blacklist people. I've met people at Bitcoin conferences. They've got plenty of money and stuff but they've been blacklisted. They can't open bank accounts and so forth. So
there's actually the heart the hardest thing.
No, not necessarily. It could be just there, you know, they're suspected of something or the money laundering laws are such that you know, if somebody does something that looks suspicious you have to block it. And so there's a lot of years of that kind of very erroneous error-prone.
Permissioning that goes on with the bank system. That doesn't go on with Bitcoin. Yeah or PayPal. I was just thinking of friend from New Zealand for a host of sort of coincidental factors just had a huge huge nightmare and sand it took months to
resolve. Yeah the way I participate in cryptocurrency investing these days because I don't want to have to worry about how do you procure it? How do you secure it or even what to buy is I invest in hedge funds in the space, and I've actually joined one Loosely the venture.
And the biggest problem they have is getting bank accounts because The Regulators just dig in too much if you're sending money in and out of Bitcoin or a theorem exchanges. It's just something they haven't seen and they don't to deal with it because Banks don't they don't have a sister to charge you more for new weird stuff. So just plugging into the existing banking infrastructure is hard and that's probably where if their company if countries do crackdowns, it'll probably happen in that
area. So how do you fix it or
If if if you had close to infinite resources and could just make certain things happen to ya facilitate good things or prevent bad
things. Yeah. I mean first I would plug them into the existing banking system in a much better way the existing Banks, you know should accept that if there's a legitimate player here, they're only working with currency that aren't scams. Maybe they have some you know, bonded collateral or something like that and they're legit actors. They should
For the banking system because this is the future of the banking
system must be Banks because banks are all shaped
since I do exist. They do exist. It's just they're much harder to find that you would think so there and they're
more Romania down the street from 20 Western Unions,
and they're warming up to if the forward-looking ones are warming up to it. But we're talking about going from like One Bank in the country to like ten banks in the country, you know or five so it's still not a large set. These are small Banks generally feel like
Singapore should get on that, you know, it has kiss.
This is why some of these companies are going to Singapore actually and at the
Actually, they the the worrying Trend that I'm seeing is a lot of the more interesting development teams and companies are all locating overseas
fleeing or say is one thing is that Bitcoin and the other cryptocurrencies. They operate under such different principles of the banking system that people in the banking system. They look at you know, these debates about block size and the people calling each other names in the basically low level of trust that exists because it can exist in the Bitcoin community and there are horrified because you couldn't run a bank that
You have to you have to be much more polite and careful. And because they're wet word. Right right because it's a wet social system rather than based primarily on dry computer science. Yeah, you have a you have a
system here that allows Anonymous trolls to engage in complex Financial transactions, so they can they can scream at each other in college the names while still doing business. Yeah, exactly. That's the power of the system but it looks it looks horrific than anyone
else from the outside. And that's why you have this cultural Gap is people in the banking system looking has an ago this
Is this is terrible? You can't possibly
work but to actually answer your question as to like what infrastructure needs to exist to make this space happen security is a big issue. I think your average person today if they buy coin they don't know how to deal with what's called custody, which is this how do you hold on to it in a way that if you if you don't go overboard and security you get hacked and if you go overboard and security are going to forget your password or lose the private interview bulldozing. Yeah, you're gonna bulldoze going through a garbage dump, you know or your kid
Playing with the computer and wipes out your wallet file and there's no way to get it back. Yeah, so I think the secure the custody has to be solved and as Nick mentioned early their Hardware wallets that are out there. They're starting to get pretty good. They're getting good enough. Now that you know, the sophisticated people can use them, but eventually they'll have to get so good that the average person can just use them without having to think too much. Yeah, one of the interesting things here is that Nick's blog is called unenumerated and I'm going to let him
Explain what that means? Well, yeah for the tagline is an
endless variety of topics that might it's going to come to an end someday, but I don't limit myself basically is what it means on the topic. If I if I think of something it'll probably be relevant somehow but it doesn't necessarily have to be so I don't want to like Peg myself as a certain into a certain subject matter basically is what I mean.
Yeah. And so I think the larger point where Nick doesn't pigeonhole himself in his interests are as
And so that allows them to be more free and explore a wider range of intellectual topics. And so that's why I really enjoy reading the blog and so that gives me sort of the next set of questions which are all around just random things and your blog's that I've read or things that I've heard you talk about which may not necessarily relate to Blink Bitcoin or blockchains. Now, you are the first to really convincingly argue and this goes way back about why microtransactions on the internet were much less likely that people
You thought because when I was growing up on the internet and then late 90s, everyone thought microtransactions were just around the corner.
What would be an example of a micro
transaction? It's like every time I hit a web page with a with an article, I paid 10 cents to read that webpage or every time I listen to a song I pay a penny to listen to that song.
Well, it goes to a distinction. I made earlier the computational costs versus our mental cost in the computational cost of gotten a lot cheaper and our brain still the same size. So when you're doing
A transaction you're doing a thought in your brain about is it worth it and that thought itself is costly and it's as costly known as it's ever been modulo, you know, you get a few extra market prices and some more information, but the the our brain is still the same size. So just because computer scientists were thinking well because we've reduced the cost so much now we can do these really tiny tiny things because we can do things much tinier in a penny, but the trouble is the bar.
Our brains can't handle it computers could but our brains can't so that's what the idea of mental transaction costs the mental burden, right? And so there's a quote that I really enjoyed and I'm going to try to not take us to off track, but there is no track. That's the good news, right? This is Alfred North Whitehead. So quote. It is a profoundly erroneous truism repeated by All Copy books and by eminent people when they're making speeches that we should cultivate the habit of thinking.
King about what we are doing the precise opposite is the case civilization advances by extending the number of important operations, which we can perform without thinking about them and quote is this applied elsewhere in your life outside of blockchain thinking about code and so on. I mean, do you are there ways that you minimize cognitive burden and other ways in your life minimize cognitive burden or other way making these small decisions sort of cognitive microtransactions.
Yeah, I would have to think about that for other things. I know but I was thinking they're also that's a he was being quoted by Frederick Hayek who is talking about how knowledge is distributed and markets and so markets have traditionally been a tool we can communicate what we want and how much we have for it and stuff and that really economized. We're only accumulated, you know are only using a few numbers instead of you know going on and on about what we want and how much we need and how much we do more deserve it more than the other guy and so forth so that
Right there. It's a tool of social scalability because it reduces what could be a long and drawn-out argument over, you know to a few numbers that was asking we obviously don't have to get into it because there may not be a ready answer but because I was I was with a friend very very successful investor close buddy of mine. We were walking through the airport is having a conversation and he said no I've realized that I optimize now. I used to optimize everything. He said now, I optimize one or two things and for everything else. It's just good enough.
I basically D optimize everything else and it's made me so in his mind incredibly more effective by actively D optimizing which which I find interesting
concept. Yeah, I mean, you just can't focus on everything like Charlie Munger is a famously bad driver. He's a probably a menace on the road. It's a good he probably takes over and I'll hopefully but what's the point of being a good driver today? Right, especially if you have some other scope in your life where you can add unique value
Yeah, in fact So reading your blog there are all these other Little Gems that I've found that
can we go back to word or or name origin for one second, sir. Does unenumerated have anything to do with the Ninth Amendment of the United States Constitution. It does relate to that too because unenumerated rights meaning, you know, there's new things going to happen with technology and other unexpected things in the future and you need to Define writes about around those and so you don't want to limit yourself.
Self to just that old list of you know, we have a right to a free printing press but we don't have a right to speak freely, you know on Facebook or Twitter or so forth. And so you you have to adapt old ideas for future
Yeah. So basically just because the right is not explicitly listed there doesn't mean you don't have it. In fact, all the unenumerated rights you have by default and it's only the ones that are actually restricted to the ones that are restricted and that's a
That I think our government and Constitution Scholars of the day just completely forget as shown by the whole surveillance debate mean shouldn't even be a debate. There's no the right to privacy is very clear. And even if it's not explicitly spelled out or phones or private and our computers are private and our conversations are private the ways of thinking, you know, the the process of thought itself is kind of interesting right after a while you get introspective enough in your like how am I doing on my thinking itself and one of the things
That we run into online a lot is people jump on any little contradiction right if I say something on Twitter and if I said something different a year ago or maybe out of context in a different conversation people jump on me and say yeah. Well, that's not what you said. And so and so it's like a big gotcha, right? So I think we have this false consistency that we all try and throw up when the reality is were always changing our minds and you know, I forget who said it was somebody said when the facts change I changed my mind. What do you do?
Hate so I've gotten I've got okay with this concept of contradicting myself, right Walt Whitman all said like I contradict myself very well. Then I contradict myself. I am vast I contain multitudes, right? So I've gotten used to that but then I encountered a concept in your writing Nick that I liked which is it which is called Quantum. Thought I don't know if you even remember this. Do you do remember what I'm Tasha? Sure, so well that comes from law school. So
lost law school, they teach a very different
Way of thinking in that you need to take, you know, both the defendants and the plaintiff side of the issue both sides of the issue and run down the arguments as if each one of them through they contradict each other, of course, or at least the conclusions and some of the sub arguments contradict each other. And so I compare this to Schrodinger's cat. Maybe it's alive maybe it's dead. Maybe the defendants guilty maybe had in the Box. Maybe they're not and you have to
Keep both of these in your mind at once.
Yeah. So I mean this is not how we are socially taught to think socially we are taught you have to have a point of view. You have to have an answer. You have to pick a side pick your tribe fit in and then defend it and be consistent but the reality is really complicated. And so if you're really smart and you're operating on the edge of any field or trying to figure out anything new you probably need to have Quantum thought you probably have to hold both States in your
Ed and constantly waiting probabilities and if you're not shifting back and forth then either you're not doing something cutting-edge, you're not being able to actually honest with yourself. Mmm.
So I've question for you about this and I'll just start with just an anecdote which was I was at a friend's house recently and it was gathering of 20 people or so and there were some structure to the weekend and people were broken out into groups to have various discussions everyone. They're very intelligent normally highly rational.
And politics was the topic of the day and it just devolved into acid-spitting and craziness almost immediately with the exception of one session. And the reason that session was different is that the moderator said before we get started. I want to go around the room and everyone needs to pick one piece. It could be a tiny piece of the opposite side the person
They disagree with and just argue for its validity for even 60 seconds and go around the room and did that and it took 10 minutes and then everyone was much more open-minded and patient and productive in the conversation. So my question for you leading off of that is how have you trained yourself to practice Quantum thought or how would you recommend someone develop that because it's not something that most folks think about
Certainly something historically. I didn't dedicate a lot of time thinking about I was always more concerned with defending whatever position I
feel like everyone else should be engaging in it actually stick the way
no, I'm it's good it took, you know quite a few loss takes a few law school tests to get used to it. So one thing you can do is take the first year of law school and learn how to do this. But imagining that you're the other person certainly in going through their arguments and you might even imagine it as
as a courtroom and you trade places you argue for one side and then the other so you can think of it as a courtroom in your mind. I think might help some people seems like people who have either self-selected by gravitating towards debate or taken debate where they're forced to take opposite positions and
counter-arguments helpful as well. Now, this is a classic Socrates, right? He would always he would always just keep digging and arguing the point and you could never pin him down on his beliefs because he was always exploring the thoughts.
Basin well, let's also I mean this practice just read what people are like I don't want to be open-minded. But okay, they're not going to explicitly say that but if you want to be maximally persuasive, you know Charles Darwin actually did this very very well. What I'm about to say in the Origin of Species is instead of straw Manning and I think Sam Harris is used this expression steel Manning. So in other words, he would he would try to anticipate the objections that people would have and then he would not
Take the sort of weak and flimsy version of their argument. He would build it up and make it as compelling as possible before he would counter it in his own
writing. That's the intellectual the honest way to do it, which is the honest way. It's
also very very effective way,
right? Yeah, because then you're actually then you're actually arguing on the real merits not on what you not on the anecdote. You pick the right piece of it that you pick to attack.
So Neil Strauss isn't a time New York Times bestselling author has been on the podcast, but he said every time he edits his own work first.
From self so keeps the wants to keep it interesting fun for himself second yet. It's for his fans. Make sure everything is clear and then he had it's for his haters so that he can steal man and bulletproof things to the extent
possible. Twitter's taught me that mean you have got a hundred sixty characters everything you say a hundred forty most of the time everything you say will be taken out of context and are used to attack you so you really just have to boil it down. You have to you have to hone it and I tweet mainly because it helps me clarify my own thing.
Going it's quite the exercise actually. Yeah, I think the accidental limit from text messaging days turned out to be a huge bonus for Twitter. Yeah, I mean, so just kind of moving moving on a little bit there these other little phrases your coin that helped me crystallized my own thoughts. So there's a class of things that people seem to worry a lot about these days whether it's an asteroid hitting the Earth or you know,
A pop-up apocalyptic scenarios floods, sign it Skynet AI, you know, let's just say even like near term climate change predictions. Like I think we're all supposed to be underwater by 2020 or something. Right? But there's definitely a class of people who will take anything on the internet and blow it out of proportion. Sometimes it can be a warning sometimes can be good. Sometimes can be bad like the general a I think is another one of these and you summarize this whole class of
statements under what I thought was a brilliant little moniker Pascal scams. And where does that come from?
So that comes from Pascal's wager and it can be applied to any any claim that there's an infinite or very large reward or punishment or outcome of positive or negative nature and their argument goes that even if it's very improbable because this this reward or out
It's so large. You should pay attention to it.
Right and Pascal originally basically said you have to believe in God because just in case because if you're wrong, you're speaking for eternity. God doesn't
exist. Who cares right? I've got does exist. You don't
believe exactly so you should believe yeah, that was the
argument the basic flaw in this kind of thing is there's an infinite number of of infinite outcomes. If you expand your space to Infinity, there's there's an infinite number of things that can happen. So you can't the the odds of any one of them happening her infinitesimally right? So you
Don't get a large expected value when you multiply infinite by infinitesimally, it's some undefined thing. You can't really reason about but but people do anyway, but people try anyway, so they say well even you know, we so this precautionary principle kind of stuff you can only take it so far and the other problem with improbable things is there are bars on the probability. You don't know if it's you know, one in a billion or one in
Quadrillions or something. So right there that changes your expected value many orders of magnitude and usually, you know, people are trying to get attention and so forth or you know, they have a job that depends on scaring you and they're trying to they're trying to make you believe the probability is higher.
Yeah. It's using the same two Labs language and you should definitely get him on the podcast some point. By the way.
That's that I can do that should happen. I've had dinner with him a few times. I
think that would be highly entertaining.
Oh, yes. I want a front row seat them aliens who would be honored but it's used tellabs language, you know, some Black Swan is likely to happen. But any particular Black Swan is very unlikely to happen. And so people are just trying to scare you with a particular Black Swan and because it can end your world even in phantasmal probability has to be taken seriously and you can waste your entire life worrying about these things whether it's suitcase nukes or you know, another financial crisis or the world exploding or imploding or cooling off or whatever
now,
To just to touch it back on the Black Swan though the seam and I first met if you can imagine the circumstances the day that Lehman Brothers fish Ali should be imploded right highly improbable. At least if you're looking back sir few years prior and he has done very very well financially by not betting on all black swans, but betting on a few select black swans and bleeding in small chips for long periods of time before
only having some type of windfall like that, right? So in when you're considering some of these improbable events, how do you decide which to hedge by certain behaviors or not? For instance in San Francisco? The the I've really went deep into training with the Police Department fire department for Disaster Response, right looking at the potential consequences of say a high magnitude earthquake.
It's like okay. It probably makes sense for me to spend a hundred bucks on Insta cart and just get
one in reality. I get a strip on your stairwell and
but well Heather no, no, that's more likely but the point I'm making is like you most people have a fire extinguisher in the kitchen that they will never use right you wear your seatbelt beef broth. Never been in a high impact Collision. So there are certain classes that are low cost very easy. Yeah in terms of preventative. So, how do you think about how do you how do you personally think about this? Right? I mean but not a Rex not and no that's not a problem.
I'm not so that thing happens a lot of pets not an asteroid right destroying the planet. It's a probability thing. Yeah,
we're words from the probability spectrum is it if it's one out of 10,000, you know, you should probably worried about it or at least take basic precautions if it could if it has never happened yet, but could happen and would wipe out all of humanity or like once a generation then it's sort of in the sphere. We just can't think about it or you just go insane. Well, I take an upper lot of people do guns. You know, if for
some more crashing on a magnitude 10 quake in San
Could happen the odds are low. It could happen. You could keep that fire extinguisher around you can add some water you could add some things but you know, you're the building or in will just collapse on you anyway, so well, yeah, I mean there's
this well the extreme example this the one that you know, a lot of people in our Social Circle are constantly peddling is a singularity example, it's very seductive one, you know, even Elon Musk who's otherwise absolutely brilliant seems to be taken in by it and and you know, I give him credit for
worrying about it and thinking it through and so on but it's just another one of these Pascal scams. It seems like well,
can I come back that just because I know we're gonna that's right. We're about to like really smack the pinata with this
Hornet's
Nest. Yeah exactly is not full of kitty. I don't know depends I guess and I go bad it but before we get there Nick, is there anything that you worry about that many other people don't worry about things. I worry about that many other people don't I don't know people worry about so many things.
But I mean people worried about privacy, but that seems to be going the wrong direction. Anyway, you talked about the singularity. I heard somebody coined the phrase. I forgot who it was creepy alera T that were slowly life is getting creepier and creepier is More Strangers are appearing in on mourn more personal parts of our lives. So I worry about that got it. I did you podcast won't help do you take do you take preventative any particular preventative measures that other people might find helpful.
Well, I do but a lot of them are security through obscurity, so I can't a guy was understood. All right, so Singularity lead the way novel
actually before we get into that. I think the privacy issues really interesting one because physical privacy is being utterly destroyed and I don't think people realize the extent to which is going away because cameras are essentially ubiquitous and face Rec and everyone can track everything except privacy is possible in
One realm but it wasn't possible before it was his digital privacy. And that's encryption. That's the story of blockchains and Bachchan computers blushing computers can enable digital privacy to a level that you just couldn't get otherwise. So one of the sets of things we didn't talk about is things like Z cash and when arrow and other block chains that are all about privacy and if you want to touch on that at all, yeah, there are a couple
so you can achieve because Bitcoin doesn't require identity. You can achieve some
normal amount of privacy, but once they track, you know go to go to the again the Bitcoin Fiat exchange they can tie the address to an identity that way and trace it back and there are some
minimal basically if you buy on an exchange they'll know what account that it the money was sent to or the coins were sent to and then every time the coins moves someone can analyze the blockchain because they have a copy to they can say went from a context to account why account-wide accountant Z and they might loose
You somewhere along the way but I even heard someone say that law enforcement started to refer to bitcoin as prosecution Futures sometime in the future. They will be able to unwind I
sent that it'll be like was doing be like analyzing Lance Armstrong's blood Ten Years Later. Yeah, like oh we do have
that but we still have a copy and now the technology is gotten better.
Right? So Keisha future a guy named David Cham invented mixes and applying a mixing and blinding and applying this technique to money.
Any tour is a version of applying it to Communications, but applying this to money so you can do a little bit of mixing or tumbling in Bitcoin. But mineiro you can do it quite a bit better and then Z cash has an even more advanced privacy features. Yeah,
essentially the Monaro I don't to the Monaro Community is very acidic and they fight the Z cash communities like in the battles with each other, but they are different.
Is like one approach is I'm doing a transaction and their five other people do transaction. We all pull our transactions together and then so someone who's trying to analyze the blockchain will just see that five transactions were done and these were five participants, but you've lost they can't tell what went to whom and something like Z cash takes it a step further and just the entire Ledger is opaque. Like it's all cryptographically protected. You can't tell who exchanged what and there are these crazy complicated proofs that go into proving who still has what
Money and in Theory Z cash is much is very private. It's sort of the extreme edge of privacy, but it's computationally extremely expensive and it's brand-new cryptography which hasn't yet withstood the test of
time what makes a particular currency appreciate in value. I know this is probably a stupid sounding question, but I guess there's because on one hand you have these nuanced sort of technological features.
Someone might Focus or say as a particular currency my focus more on privacy and then another my focus more on XY and Z then you have supply and demand right? If Kim part if Kim Kardashian gets up tomorrow morning and decides that she's read a lot about Bitcoin and wants to Instagram about it for the next 10 days straight. I would imagine that would have an impact on
prices. I think you can look at a framework of you can say first of all is this doing something novel and useful like it's for the is this useful?
Is privacy useful is computation useful is exchanging money useful then you can say is this the right technology solution because it's probably 20 other blockchains competing for it then is it being adopted? Is there a network effect do people have in their wallets as the infrastructure exists or they using it and then supply and demand and and that gets game to lat. Sometimes the developers of these coins are pumping out more coins of the background. You don't know or they reserve the right to read the source code to figure it out. So that's why investing in some of
Extreme so-called altcoins. Our app coins is very scary. But there are other applications coming up that are really interesting. So there's like a one coming out called file coin where I'm a small investors or disclaimer, but there are others this Storage storage and others like that. Also that are basically trying to create a network of distributed computers that will do storage for you. So instead of uploading your files to Dropbox or Amazon, you can upload massive files into these distributed storage networks, that will take your
R data encrypted split across thousands of machines and then they'll test to make sure your file still available the network if you ever need it back and then you'll pay people in the coin and so people who you don't know grandmothers in India might be holding a piece of your file and waiting to serve it back to you when you need it as a backup or just for storage or serving and you'll be paying them fully anonymously and from far away and the whole transactions handle to the network. There's another one called block stack, which is building an infrastructure.
For the decentralised internet including domain names named serving them to distributed fashion today all the name servers are controlled by I can and verisign and so on but what if you could split that out amongst the distributed network of computers, you could pay people and coin on the networked Fort we're doing that. So these kinds of applications are coming up and for each one of these you look at like is it novel is it useful? What's the competition is the code secure or the developer scammers are there back doors with Supply and
and so it's still completely Wild West which is both the opportunity and the terror of it. I mean, I think the average person who's investing in coins on most of them is probably going to lose their shirts over a long enough period of time because the scammers are really sophisticated but I think the really smart people who know what they're doing and maybe get a little bit luckier going to make generational fortunes
Nick. What are your thoughts insecurity?
So well, I will get back to Pascal I was going I
was going to try to do something clever with Generations, but I was like, you know what?
I can do this. A lot of the ico's are scams and Pascal scams are these big scams were like, you can't calculate the probabilities because you're dealing with affinities and the most recent of the Pascal scam that's making the rounds is a singularity
movement. Yeah. So I mean the idea of the singularities is seen this exponential growth and Computer Resources, and the fact that computers are outstripping humans, and then they sort of impute from that that and you can also see computers take over, you know.
That used to be considered a sign of intelligence to be able to add and subtract quickly and now computers can do that billions of times faster than humans. So and and the Gap keeps growing and growing once you computer can do something the gaps just going to keep growing and growing but the idea of the singularity tends to be the you get a general intelligence like it at some point computers can do everything humans can do and also, you know very quickly they can do it faster and faster and faster. They start designing improved versions of themselves, and it's a runaway effect in humans.
Soon become obsolete there are pray for Terminators and what I would can't predict and so one of the one of the conceits is the idea that oh, well no longer be able to predict the future. The thing is that's that's basically true today for a lot of things. You can't you know, you know the stock markets and ongoing running Singularity. You can't predict day-to-day if you could you could make a fortune. So
yeah, you let out a lot of arguments against it. I mean another one that's just what is this general intelligence thing? Like humans are highly adaptive specialized machines and every other animal that's around.
Today for the including the Cockroach it just as evolved as we are just different Fitness functions. And so it has a different concept of intelligence that needs to survive and machine intelligence that we've developed so far is extremely specialized. So there probably is no such thing as general intelligence instead. What we have is machines that are brilliant at calculation but terrible at other things and now they're getting brilliant to face recognition, but that doesn't mean they're going to be really great at me solving my next debate with my wife
well, and it's something else you touched on.
That I appreciated and as a non-scientist non engineer who sometimes pretends to do such and let physical performance and whatnot quote. There is as Fineman said sits Richard Fineman. Everybody should read surely. You're joking. Mr. Feynman, but I digress there is as Fineman said quote plenty of room at the bottom end quote but it is by no means infinite given actual demonstrated physics. That means all growth curves that look exponential or more in the short run turnover and become S curves or similar in the long.
Run unless we discover physics that we do not now know as information data processing under physics as we know it or limited by the number of particles we have access to and that in turn can only increase in the long run by at most a cubic polynomial and probably much less than that's in space is mostly empty. It seems underlying The Singularity is the assumption that exponential continues to be exponential in definitely right? And we've had exponential growth for computers for most of the last century. Yeah.
So we have this vast resources that I've already talked about to take advantage of but the future you're going to face these physics limits, you know limits on the heat that your circuits give out. They turn into toasters and and so forth. So yeah, and it's the limit set by quantum mechanics and we're we've reached that in some I don't think Moore's Law really applies to transistors necessarily anymore. The original Moore's law that the number of transistors and that's already the physical.
It's
of how far transistors can go then there's a question of our transistors. Even the right medium like maybe to exhibit Our Kind are variation of specialized intelligence. It needs to be on wetware like it needs to be on tissue and we have not yet gotten the growing brain tissue and then programming that's a long ways off and then you have to deal with the fact that our brains evolved in our or intelligence involves in reaction to our environment and even genetic algorithms evolved in reaction to Fitness functions, so you not only
Would you have to create a computer that could run on our tissue to inhibit exhibit our kind of intelligence but then you would also have to put it in our kind of environment and it's rate of learning would be limited by what inputs are environment can provide and if you going to go do all that work, then just have a baby takes nine months and we already know how to do anywhere and save yourself a lot of
time. Well on that point related to environment this is and you've written quite a bit on this but I underlined one portion quote. So these evolutionary techniques in other machine learning techniques are often interesting and
useful, but the see this severely limited ability of computers to simulate most real-world phenomena means that no runways and store just potentially much more incremental improvements which will which will be much greater in simula below Arenas and much smaller and others and will slowly improve as the accuracy and completeness of our simulation slowly proves just to underscore what you just said you need access to the environment or the ability to create
there's also a probabilistic argument against general intelligence, which is the universe is so vast and so large
That if gentleman said it's the same it's the same people who make the general intelligence argument also make the world living in a simulation argument. Well the kind of both can't be true because if we're living in a simulation then that means that at some point we already invented a general intelligence like when you get the technological capability to invent a simulation of this complexity probabilistically and you believe general intelligence that are possible through the mechanism described in the singularity, then we probably already hit that along the way so that
it means that whatever that General in AI is already exist and we're just living inside its Sim. So why do we have to worry about it? Some of the emerging here then killing us all so the people who are both holding the simulation believe hypothesis in their head and the singularity being on the corner and their head are sort of at a deep level contradicting
themselves particularly. If I don't know, I guess the the simulation. I wish we had Sam Harris here to talk about Federal. I've mentioned so many times just talk about free will he isn't it? He's interesting talk to about that but
The the idea that something would come to be that is thousand a million times a billion times more generalizable intelligent than we are and their priority would be killing us. Yeah, it's just like my my my directive and life being running around killing cockroaches. It's like not even cockroaches. I don't really care so much about them, but it seems odd that that
yeah, I think that movie Her actually did it pretty well, which is you know, when the general AI evolved in that movie it just left.
Yeah, yeah, it didn't care about this world at all
soon the Vault you've mentioned a bunch of things. You're not worried about. I'm curious to ask you the same question. I asked Nick which is what are the things that occupy your mind more than perhaps other folks are many other
people. I try to keep a very low level of mental surface activity for anything other than whatever I'm directly dealing with in the moment and one of the ways I'm trying to do that is by stripping away layers of
Identity so I don't want to over they identify as Indian or American or libertarian or are Democrat or any of those kinds of things because one that sort of keeps me from actually engaging in thinking is I need to it's all preconceived beliefs. It makes me more defensive because once you have the reason you can't talk about politics anybody's because it attacks our identity at a core level every tweet. I put out. I now know that even if I attack a general class of activity all the people who are engaged in
that activity will respond. So like I put out a tweet about how you want to do, you know value investing in Venture investing or both long-term investing and trading is just a quick get-rich-quick scheme, which doesn't work. And so of course all the people who got really angry about that. I just click through the Bayou and sure enough their Traders like that. That's what they do. They trade all the time on for Wall Street, and that's how they make a living. So if you attack someone's identity your shut down all conversation with them. That's why politics political conversations don't work. So conversely if you want to be rational
And open-minded you should not have an identity and the less of an identity you can absorb can adopt the better.
How do you train yourself to identify less as Indian as X? That's
why human consistency bias the powerful things. So just when someone asks you are you libertarian to say I'm not anything, you know, they say like religious, you know, the don't say any like look like krishnamurthy is one of my favorite philosophers when he met the pope, you know, the pope said to him like, you know, I'm Pope blah blah blah.
Laughs, you know from this lineage and so on. Who are you and Christian World, he's just said, I'm nobody right but he was being serious. Like I don't even know what I am. I'm just thing that's here right now in this environment reacting to the inputs from the environment according to my conditioning and I'm trying to be as unconditioned as possible. But that's why my my Twitter my Twitter Avatar is like a sketch of a human face because it's trying to remind me to be unconditioned. You don't want to be over conditioned and you don't want to be
Really strong with your identity you guys mentioned Twitter earlier. So one of the things that you may have noticed I do this but I routinely put out things on Twitter and Facebook that I used to call my audience of hypersensitive people were that I know will just kick The Hornet's Nest enough to force people to self select one way or the other. Yeah, and I have to be careful not to then accidentally create a group where they all have sinned.
Exactly. Come
on. Would you want to prune? Thank you want to prune the trees in the
forest not prune the trees a little bit. But also what that does is it gives me more I feel I perceive having more freedom of speech or willingness to speak my mind because I'm progressively creating less and less of a reputation to protect does
that mean? Yes and so that's right. Yeah, I do the exact same thing, which is I would say every every couple of months my tweet stream gets a little edgier.
Right at the flow pushed out the people who can't deal with what I'm saying, and I've muted them or block them or just a one followed me or what have you and I didn't used to block but now I've had to like it's just because there's always somebody who's strong man, whatever you're saying get outraged and try and sort of fire and assemble a mob around it to like burn you at the stake. And unfortunately, it's a lot of the best people on Twitter have left because of that issue right the key Market probably being the most famous, but you know, you can put out a hundred tweets a day and you say
One thing wrong in one of them and they're trying to burn you at the
stake. It's always the most controversial ones of mine to get on put on Reddit and spread beyond the footer. Absolutely. Yeah Pete marker for those interested. That's Mark injuries.
And I think this is a general phenomenon, which society has not yet figured out how to deal with social media. I think like in my kids generation, they'll be saying all kinds of crazy things and Twitter. Nobody will care. Nobody will lose a job over it. Nobody will get worked up over because everyone was saying everything crazy all the time, but right now and we're transitioning from a world of our thoughts being private.
Thoughts being public people are still getting outraged. But to me like the people who get outraged or sort of the most anachronistic least intelligent members of society and I'm happy to leave them behind the more easily outrage. You are the less I want to have to do with you be gone. If you think words can hurt you you're going to live in a world of misery and pain your entire life.
So on that note, I'd like to wrap just kidding. So what I want to gear shift for a second and ask a few questions,
It's of unique that are not directly related to they might be they might Edge into it, but not directly related to cryptocurrency. The first is if people want to explore your blog and you have some very extensive writing and where we might you suggest they start. Is there a particular piece or a few pieces that might be a good diving in point for people. Yeah, so for blockchains and cryptocurrency and smart contracts, probably the two best ones.
Money blockchains and social scalability is a recent blog post of mine and then a somewhat older blog post called done of trustworthy Computing. What are some of the subjects that you enjoy exploring outside of the ones that we've already heard about in terms of the we understand the fascination with money currency law. What are other interests that might not be immediately evident that people if
They're reading your blog. Yeah, we also mentioned the origins of money origins of money being interesting related interest in mind and history in general. I ra lot of history any particular economic and legal history mostly so are there any particular resources or books that you've enjoyed and that area so Alfred Crosby's the Columbian Exchange, which is basically what Jared Diamond ripped off when he wrote his book.
Alfred Crosby wrote the original better
version. I know you just really Jared Diamond for me. It turns out he was so popular.
Yeah Jared Diamond's hypothesis on what happened on Easter Island also turns out if not, that's right. I've heard not huge
lapse words. Not that
yeah, but yeah, do we all we all make our mistakes the one of the questions I asked guest on the podcast oftentimes is what books have you gifted the most other people and I don't know if you have any of the come to mind.
So Richard Dawkins the selfish Gene is sort of on my Essential. Everybody should read this list. Yeah, definitely one of the
classics all that Dawkins is getting outraged on the internet a lot these days.
He's he's good at that the same kind of outrage according our range. Oh my God. I saw a public speak public talk of his in Los Angeles not too long. It was fantastic, but I was just like every given second. I'm like, I wonder if this room is going to explode like not with
Rager Applause, like literally any other books that kind of mine and I mean Matt release written several good books on evolution social Evolution and couple in genetic Evolution as well. You spell his last name met our ID L ey
weirdly. Okay. Got it. Yeah, I think three or four my top 20 books of all time are all read these rational Optimist genome Red Queen origins of virtue,
which is your favorite all if you had to recommend one if you had to recommend one rational
Missed it has evolution of everything which I haven't read yet.
If you were teaching a this for you neck if you were teaching a let's call it a
High School freshman class or seminar could be on any topic. What would you teach? Well, I just gave some lectures at my honorary doctorate University on related lectures on the origins of money and blockchains and cryptocurrency. So to me, those are three closely related topics that I like to end. However, really what period of time did you teach that class or was it handling hour-long?
Sure, so I tried to cram way too much into that. What would you hope people would take from those lectures if they only remembered two or three things? Is there are there any core critical takeaways that would help them. So money is not arbitrary. If you look at the history origin of the money see all sorts of different things textiles and Yap stones and this net so forth but indeed is not arbitrary. They're very consistent things like unforgeable costliness the demand for secure Supply and the durability people.
And durable objects so that that sort of realizing that by reading that is partly. Well help me figure out. Yeah, you could do this in cyberspace as well. So what does in your in your life what does money buy you and then emit sound like an odd question in my life? And yeah, yeah not as much as one would have thought because I find myself consuming time to
Do things that I would I would like to substitute money for but can't I have to take the time to do them anyway, so what drives you to write as much as you do, well partly that's what I want to do in life. So you enjoy the process of I like the freedom of thought and stuff and so I'd much rather sit at home thinking my own stuff and then you know thinking what my boss wants me to think what are things you'd like to write about the you haven't had a chance to explore yet.
Or that you have on Deck. So I've written some things about the Industrial Revolution that I have some mini thoughts on but I'm so busy with other things. I'll probably never get to and on what I call the exploration explosion how Europeans were able to go around the globe and and take over the world's trade routes and so forth, you know after Columbus so and there's all sorts of those those are two of my favorites but there's there's plenty of others as well. Never have time to do.
Can you can you give any teaser Snippets or concepts from the Industrial Revolution? Well, I don't I don't know if this made it on the recording but The Hourglass is mentioned earlier is an underrated invention this humble glass thing was sand in it. So Europe invented like the mechanical clock and which I think most people recognize it as an important invention, but they also at the same time and not coincidentally that it happened at the same time. They invented The Hourglass and The Hourglass keeps you know time.
Between one hour and another and then the clock which at the beginning was only in the bell tower, you know Chimes the hour for the whole city. And so it's The Hourglass that people would time their, you know, their activities with and so forth and professors would time their lectures and people would you know agree to meet at certain times and just that temporal coordination was happening quite a bit more in Europe than anywhere else and they also turn it into a navigational technique called dead reckoning where
You would you would look at your not slipping through the water and then you'd use The Hourglass to measure the time and then you would also use that hourglass to record the time record when you made the measurement and so you keep track just dead reckoning of how far you're going. And that's a technique Columbus used and Magellan used and so forth so that our glass was used in all that stuff and underappreciated underappreciated. Yeah, there's some
poor guys job. It was flip it every hour exactly on the hour.
If you had a gigantic billboard put anything on it just a message to get out to millions of people or more. What would you potentially put on that thing? Come to my gigantic billboard? Well, the phrasing of all quoted me earlier trusted third parties are security holes anybody in the blockchain space. I would I would like to get that in their head that that's basically the key to the whole design why the whole design is like it is and so forth navalny of any
Questions before I wrap up with a few
no, I mean I would just really encourage people to go read next blog. He is a true polymath. He's written about stuff as he mentioned ranging from the our glasses and clocks the Industrial Revolution to blockchains to law and policy and privacy and rights and Singularity and freedoms, and I just learned something every time I go to as blogs are probably not finished about half the pieces on there and they're always
Highly inspirational
education. Yeah, people often ask me to listeners ask me a question related to the maxim that you here in Silicon Valley a lot to the yearly average of the five people you associate with most what do I do? If I don't have access to five people. I want to be the average of the answer or one of the answers is read choose your reading sources very wisely and I would agree the depth and breadth of what you cover is really really astonishing
my smartest teachers mentors.
Is peers these days are all on Twitter and blogs and there is they're mostly autodidact. So like they might have a there self-taught right fancy word, but they might have a degrees and whatever but reality, but the reality is they're curious people and the internet is the myth of the Library of Alexandria writ large like you can find anything and everything. You can become an expert anything you can talk to anybody. So I used to feel guilty about spending so much time on the internet, but now I don't as long as
Them reading interesting things from the people that I think are really smart. What's the downside?
Agreed on Twitter where can people say? Hello. What is your Twitter? Yeah. My Twitter handle is at Nick Szabo for okay, and that's an IC K SZ. Yes, ABO the number four number four. Yeah, very cool. Well that I think about covers it for a first gathering at cousin of all and you can get a 25% discount on Duvall coin if you go to Tim Bob blog for exhaustion.
Getting that is that is hence Isis are going up prices are
going up but wait, that's not all I will have hopefully more few guys soon. This was a real blast. Thanks so much for the time Nick. Thank you. This is really fun. And the Vol always a pleasure. Thank you for helping put this together.
Thank you for having us
fantastic and to everybody listening. We will have show notes links to everything. We mentioned next blog books as many resources as we can think up. Probably cryptocurrency one.
Oh one a handful of Articles will recommend in sequence as well in the show notes. So you can find those at Tim blog for / podcast and that will take you to show notes for every other episode as well. And until next time as always. Thank you for listening. Hey guys, this is Tim again. Just a few more things before you take off. Number one. This is five. Bullet Friday. Do you want to get a short email from me? And would you enjoy getting a short email for me? Every Friday is
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