Monero Means Money Transcript

Thanks to netrik182 for providing this transcript!


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So I'm Daniel Kim.


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I'm here from Boston, USA


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and I'm a full-time consultant in cryptocurrency.


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I help to bridge two separate worlds:


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one is that of nonprofit, OG, open-source


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non-commercial, grassroots cryptocurrency --


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and the traditional finance world.


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That includes institutional investors, trusts and


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basically people who are interested in cryptocurrency but need


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somebody who can speak their language


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and has walked in their shoes.


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Another one of my past jobs -- I was a head of research for a equity hedge fund.


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We managed about 1 billion USD in equity markets.


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So that's what I did for several years before going off on my own


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because I decided that


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in one's lifetime there are


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maybe only a few fundamentally


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important breakthroughs that come around.


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I'm old enough to have been a grad student --


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I was working on my PhD at Harvard during the dot-com bubble


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and I remember thinking,


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"Google, wow!"


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"This is something that people are talking about investing in."


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And I thought that it was


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kind of a silly idea


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to have such a thing because there were only like 20 websites in existence.


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Why would you need to go type your search into Google --


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there's only like 20 websites worth going to.


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Like, you know them all, they're all in your entire book.


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Basically everywhere worth going on the internet


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was like 20 bookmarks in your NCSA browser.


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That was a failure of imagination,


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and I think that when Bitcoin and blockchain came around,


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after really thinking about it


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and studying it for a long time,


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I decided to go full time into it.


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I'm going to talk about Fiat currencies


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which are central bank controlled currencies


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and then Bitcoin


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because Bitcoin was the first.


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It's been 11 years now -- the Bitcoin white paper came out


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Halloween 2008,


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and Monero is sort of like a little brother to Bitcoin


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and it's about almost 6 years old now.


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And there are four different aspects that I'm going to talk about


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for these three different kinds of value.


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One is scarcity


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because after all


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for something to be money it needs to be scarce.


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So how do people handle this problem of


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creating digital scarcity?


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There are very different methods in Fiat,


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Bitcoin and Monero.


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Next I'll talk about fungibility and privacy.


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Since this the


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CDC [Critical Decentralization Cluster] and the


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motto this year is "respect my privacy"


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I think I shouldn't have to


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work too hard to convince everyone here that


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financial privacy is a very important thing to have.


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Or maybe the opposite is easier to grasp --


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(is that) a surveillance state


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in which everybody's financial transactions are tracked


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and surveilled and looked at


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is not open society that we want to be living in.


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Next is Community.


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So each of these forms of money


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money really requires a community.


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It needs a group of people who


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all believe that


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the thing that is money, is money.


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If you don't have the community,


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you don't have money.


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And again, in Fiat, Bitcoin and Monero


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there are different communities that have come up to support money.


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And finally is correlation.


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The correlation part


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in my talk for here


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since the CDC is a kind of


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cooperative effort between Monero and some


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crypto economic groups.


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For this talk I


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upped the amount of content in the


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finance and economics part.


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Kind of putting on my hedge fund hat


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and looking at Fiat, Bitcoin and Monero as investments.


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What is the situation for scarcity?

Why do we even need cryptocurrency?


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Let's look at the everyday money that we use.


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There's the US dollar,


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the Chinese yuan,


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the Euro and the Swiss franc.


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And what I'm showing here is


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official government statistics as to


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the amount of money in circulation.


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This is M1, which is


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paper money, currency


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and also checking accounts and savings accounts.


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It's cash and things that act like cash,


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all together,


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and each of these plots is showing


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since October 2008, which is when the Bitcoin white paper came out.


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That is the left-hand scale of each of these four plots.


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This is 2008 and then this is the end of 2019.


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You can see that the money supply has inflated


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for everybody


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In just 11 years


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the money supply of the US dollar has gone up 2.6 times.


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In other words,


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the printing presses of money have been going on at that rate.


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We don't really notice it because


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every year the prices that we see go up a little bit


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but it's like the frog in boiling water, right?


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The frog doesn't understand that


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it's sitting in boiling water until it's too late


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and it's cooked.


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That's the kind of


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situation that we find ourselves in.


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The thing is that


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all of the global Fiat currencies are kind of


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turning on the printing presses at a disturbing rate.


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But what counts as victory?


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What counts as being sound and


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prudent with your particular country's currency?


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Well, it's inflating slightly less fast than the other guys, right?


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We still have this situation where


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if you zoom out,


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for example, for the US dollar


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you go to like a 50-year time scale


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you see basically an exponential growth curve.


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This is a problem that all savers face --


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anyone who has assets to save


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is up against this current that's coming up against them,


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in that they're constantly being diluted


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by new money that's being created.


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2008 is when the Nakamoto white paper came out.


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This is the Bitcoin white paper


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and the key insight to this


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I won't go too much into the


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geeky details, although


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I'm assuming that everyone here has an IQ of at least 140.


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It wouldn't take you long


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if you haven't already,


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to look at this paper and study it.


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But I would say that


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the Nobel Prize in Economics can not be given to an anonymous person.


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But were Satoshi Nakamoto (a) real person


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this clearly would be a


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Nobel prize-winning insight in economics,


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in which


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economics is just the study of scarcity, really.


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What Nakamoto consensus does


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is it synthesizes a method


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to create digital scarcity


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without needing a central authority


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to maintain that scarcity.


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In all of our national monies


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in the European Central Bank,


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the Federal Reserve in America


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these are all centrally governed bodies


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that decide what to do with the money supply.


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Now


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the macroeconomic theory is that


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the money supply will expand and contract


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to match the actual economic output of the society.


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In other words, if a society is really productive and it makes a lot of stuff,


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then the society is justified in inflating the money supply because they've been productive.


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But the problem is that


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countries get into trouble.


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They get into debt.


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They promise services to people


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that are too expensive and then they can't pay for them.


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They go into debt.


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The problem is that


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mismanagement causes this kind of fragile balance


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between the size of the money supply and the size of the underlying economy,


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to get out of whack.


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Why is it interesting to have


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a source of scarcity that doesn't require


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a central committee to be making decisions


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for that money?


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Is that it offers


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a way for people to opt out


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of the Fiat monetary system.


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It also provides a


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kind of a fire under the feet of the


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Fiat central banks to be maybe do a little bit of a better job.


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Maybe we


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might have


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fewer financial crises in the future --


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Maybe we won't have another


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2009 style financial crisis.


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The way that the Nakamoto consensus does this


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there are three ways.


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At the account level,


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in other words,


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how is it that one person's Bitcoin is not


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confused with another person's Bitcoin?


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It's that


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when a person signs up for a Bitcoin account, so to speak,


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what they're really doing is picking a number.


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They're just picking a number out of a


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256-bit field.


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People are really bad at


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imagining huge numbers


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but we're talking about picking a number between zero and 10 to the 77th.


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One with 77 zeroes after that.


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To understand how big that is,


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imagine the diameter of the Milky Way galaxy.


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Now imagine electrons


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being lined up


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right next to each other


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and I'm using just the classical electron radius here.


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For the entire diameter of the Milky Way we have electrons lined up.


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That turns out to not be enough.


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You have to take one of these electrons


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and blow that up to the size of the Milky Way galaxy


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and then get another set of electrons going across.


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Then even that's not enough,


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you have to take one of those electrons,


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blow it up to the size of this hall


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and then you have bacteria lined up one after each other.


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That's 10 to the 77th.


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That's how vast the space is of the random number that you're choosing


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and that is why getting a Bitcoin account doesn't require


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going to fill out some form and asking permission for an account.


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You just pick a number.


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You just pick a number,


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that's your private key and you need to


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kind of defend that


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because knowledge of that private key


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is what is needed to spend a person's Bitcoin.


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The aggregate level of scarcity, that is,


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how do we know how much of the Bitcoin there is in the entire monetary system?


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and how do we know that's not going to get corrupted?


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Well, the scarcity is


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enforced by an open network of miners


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which are really gossipy accountants


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and they are rewarded for behaving consistently with the consensus rule set.


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Finally, how do we know that the record of


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who sent what to who


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which is, what the blockchain records.


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The blockchain is a series of blocks.


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Each block contains transactions from


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this person sent money to this person.


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Who sent what to who and how much


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and each block is just a record of that.


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How do we know that that's not going to get corrupted over time?


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Because, as we all know, there's bit rot.


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There can be corruption,


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there could be some


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malfeasance going on with the state of the database.


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The database is maintained because each block


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has a small data field in it that the miner can change


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that's called the nonce.


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And each miner


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randomly changes the nonce so that the hash of the block is lower than a number,


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called the difficulty.


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Usually when we talk about hash functions


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we don't care about the actual value of the hash function.


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We just care that the hash matches some other hash.


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Like if you're checking for file integrity,


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then you would take the hash of the file that you downloaded


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and compare that with the hash of the file that you're looking for


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and you compare those.


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In this case, we're actually caring about the number of the hash.


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How small, how large is that number


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and the difficulty is a number that must be


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satisfied by each block.


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In other words,


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the hash of each block needs to be lower than the difficulty.


271

00:14:19,130 --> 00:14:21,330

To make a real world analogy of this,


272

00:14:21,330 --> 00:14:23,970

imagine that you have (an) accounting book


273

00:14:23,970 --> 00:14:29,470

and each page of the accounting book has 10 minutes worth of transactions on it.


274

00:14:29,570 --> 00:14:31,790

You want to make a way to make sure that


275

00:14:31,830 --> 00:14:35,250

each page is really rare in some way.


276

00:14:35,570 --> 00:14:37,950

One way you could do this is you could say


277

00:14:38,050 --> 00:14:45,670

the mass of every page of this accounting book has to be an even multiple of 1 million atoms.


278

00:14:46,630 --> 00:14:49,110

Each accountant is going to be


279

00:14:49,150 --> 00:14:50,790

kind of touching the paper,


280

00:14:50,790 --> 00:14:52,890

rubbing it, erasing little bits


281

00:14:52,970 --> 00:14:56,870

because at that level you're taking away or adding


282

00:14:56,950 --> 00:14:58,570

trillions and trillions of atoms


283

00:14:58,570 --> 00:15:01,010

so it's going to be a random number whether


284

00:15:03,170 --> 00:15:08,210

your page is actually a exact multiple of a million atoms.


285

00:15:09,310 --> 00:15:11,370

Once that's found,


286

00:15:11,370 --> 00:15:13,350

that's a very rare page.


287

00:15:13,350 --> 00:15:15,730

It's a rare page because it has an


288

00:15:15,730 --> 00:15:18,690

exact multiple of 1 million atoms to it


289

00:15:18,790 --> 00:15:21,370

and because it's now a digital representation,


290

00:15:21,370 --> 00:15:23,410

you can copy that exactly.


291

00:15:23,530 --> 00:15:26,170

Now you have a chain of blocks,


292

00:15:26,190 --> 00:15:30,070

each one of these has this rare attribute


293

00:15:30,390 --> 00:15:34,630

and the blockchain links them all together.


294

00:15:36,610 --> 00:15:38,550

Scarcity in Bitcoin and Monero --


295

00:15:38,630 --> 00:15:40,550

they both have an original code base.


296

00:15:41,010 --> 00:15:43,510

There are many, many projects in cryptocurrency in which


297

00:15:43,510 --> 00:15:46,410

Bitcoin was simply forked and modified a little bit,


298

00:15:46,410 --> 00:15:47,670

(but) that's not the case in Monero.


299

00:15:47,670 --> 00:15:49,930

It was written from scratch.


300

00:15:50,350 --> 00:15:52,250

The elliptic curves used are different;


301

00:15:52,530 --> 00:15:54,670

this is a form of technical hedging.


302

00:15:54,670 --> 00:15:58,470

In Bitcoin the secp256k1 elliptical curve is used


303

00:15:58,470 --> 00:16:01,730

whereas in Monero it's ed25519.


304

00:16:02,030 --> 00:16:07,010

Both Bitcoin and Monero, as I mentioned before, require a private key.


305

00:16:07,350 --> 00:16:11,590

Spending the cryptocurrency requires that you know a number


306

00:16:11,590 --> 00:16:13,030

and that's the private key.


307

00:16:13,030 --> 00:16:15,490

That's true in both Bitcoin and Monero.


308

00:16:15,990 --> 00:16:18,290

Where we start to differ is that


309

00:16:18,370 --> 00:16:20,930

Monero also has what's called a view key.


310

00:16:20,930 --> 00:16:23,210

The view key is another private key


311

00:16:23,210 --> 00:16:27,370

which is actually as kind of a subset of the spend key.


312

00:16:27,370 --> 00:16:30,510

The view key is what is needed to decrypt


313

00:16:30,510 --> 00:16:35,470

the transactions on the blockchain that you personally are involved with.


314

00:16:36,430 --> 00:16:37,610

If you have the view key


315

00:16:37,610 --> 00:16:41,310

you can see what transactions you were involved in on the blockchain.


316

00:16:41,370 --> 00:16:44,030

Everything else remains encrypted.


317

00:16:45,090 --> 00:16:46,770

The address spaces is different,


318

00:16:46,770 --> 00:16:51,170

in Bitcoin it's 10 to the 60th, in Monero it's 10 to the 76th.


319

00:16:51,170 --> 00:16:54,950

There are more addresses available in Monero,


320

00:16:55,030 --> 00:16:57,610

which means if you're worried about the birthday problem --


321

00:16:57,610 --> 00:17:00,010

the birthday problem is the problem in which


322

00:17:00,010 --> 00:17:02,010

if you have a group of 30 people,


323

00:17:02,010 --> 00:17:07,670

chances are much higher than you would expect that 2 people out of those 30 have the same birthday.


324

00:17:08,010 --> 00:17:12,250

If you extend this now to the problem of picking a random number


325

00:17:12,250 --> 00:17:14,270

and calling it your own for


326

00:17:14,270 --> 00:17:18,710

a cryptocurrency account, you have the same problem.


327

00:17:18,970 --> 00:17:20,390

There's no guarantee that


328

00:17:20,390 --> 00:17:23,570

the random number that you picked for your cryptocurrency account


329

00:17:23,570 --> 00:17:26,730

is not going to subsequently be picked by me.


330

00:17:27,070 --> 00:17:28,530

That's the birthday problem and


331

00:17:29,230 --> 00:17:33,950

the birthday problem is less of a concern the more addresses there are.


332

00:17:35,010 --> 00:17:38,590

The emission deceleration is another difference between Bitcoin and Monero.


333

00:17:38,590 --> 00:17:40,270

In Bitcoin it's step-wise.


334

00:17:40,270 --> 00:17:42,550

You might have heard of this thing called "the halvening".


335

00:17:42,550 --> 00:17:45,470

This is: every 4 years, in Bitcoin,


336

00:17:45,470 --> 00:17:48,770

the number of Bitcoins that gets rewarded to miners


337

00:17:48,770 --> 00:17:53,590

as a reward for finding a page in the blockchain gets cut in half.


338

00:17:53,650 --> 00:17:55,870

Which means that on every miners calendar


339

00:17:55,870 --> 00:17:58,130

there's a date circled in red that


340

00:17:58,470 --> 00:18:00,570

their income is going to get cut in half.


341

00:18:00,630 --> 00:18:03,230

And that introduces a bunch of


342

00:18:03,230 --> 00:18:06,630

needless drama, really, in mining.


343

00:18:06,730 --> 00:18:12,630

In Monero, we avoid this by having a continuously decreasing emission.


344

00:18:13,230 --> 00:18:15,470

Now another difference is in


345

00:18:15,470 --> 00:18:19,010

what is the emission rate of coins in the far future.


346

00:18:19,210 --> 00:18:23,210

In Bitcoin, the block reward eventually goes to zero


347

00:18:23,210 --> 00:18:29,470

and they anticipate using transaction fees to make up the difference.


348

00:18:29,490 --> 00:18:34,570

In Monero, there we have a concern that we want to always be assured that


349

00:18:34,570 --> 00:18:38,930

miners will have incentive to keep working for the system.


350

00:18:38,930 --> 00:18:41,630

And (in) Monero we have what's called a tail emission


351

00:18:41,630 --> 00:18:44,730

which works out to be 0.6 Monero per block


352

00:18:44,730 --> 00:18:46,570

that goes on in perpetuity.


353

00:18:46,570 --> 00:18:51,370

But that future money basically gets used to pay miners


354

00:18:51,370 --> 00:18:54,710

to continue to provide security for the network.


355

00:18:55,510 --> 00:18:58,470

What's the far future inflation rate then?


356

00:18:58,470 --> 00:19:01,890

In Bitcoin, they can say it's exactly zero.


357

00:19:01,890 --> 00:19:06,830

In Bitcoin they're fond of saying there's only ever going to be 21 million Bitcoins created


358

00:19:06,830 --> 00:19:09,570

and that's an easy thing for people to understand.


359

00:19:10,030 --> 00:19:14,170

But in Monero, we have constant linear inflation --


360

00:19:14,650 --> 00:19:18,750

but it's not really correct to say that this is "infinite supply" as


361

00:19:18,750 --> 00:19:21,270

that's what gets bandied about.


362

00:19:21,270 --> 00:19:24,290

Because if you look at the inflation rate, in Monero,


363

00:19:24,290 --> 00:19:27,110

it asymptotically goes to zero.


364

00:19:27,270 --> 00:19:29,790

If you look at any macroeconomic theory,


365

00:19:30,130 --> 00:19:32,690

what the relevant variable is


366

00:19:32,690 --> 00:19:34,610

is the inflation rate.


367

00:19:34,690 --> 00:19:36,330

Nobody really cares that


368

00:19:36,330 --> 00:19:41,430

the nominal amount of US dollars is going up by whatever trillions of dollars per year.


369

00:19:41,430 --> 00:19:43,430

It's the percentage that matters


370

00:19:43,430 --> 00:19:46,090

and in Monero that percentage is already low and


371

00:19:46,090 --> 00:19:48,330

it'll continue getting lower.


372

00:19:48,990 --> 00:19:51,010

Some curves to show what I'm talking about --


373

00:19:51,010 --> 00:19:53,050

These are supply emission curves showing


374

00:19:53,050 --> 00:19:58,330

how many coins of each type exist as a function of time.


375

00:19:58,670 --> 00:20:02,590

You can see that Monero had a later start here


376

00:20:02,590 --> 00:20:04,490

and it has a tail emission.


377

00:20:04,490 --> 00:20:07,830

This tail emission is this constant linear slope.


378

00:20:08,590 --> 00:20:10,490

The reason for this slope, again, is that


379

00:20:10,490 --> 00:20:16,250

the new coins that get emitted are being rewarded to miners who helped secure the network.


380

00:20:16,310 --> 00:20:21,090

Whereas in Bitcoin, they have an impending problem to deal with.


381

00:20:21,090 --> 00:20:24,370

And that their coin emission is coming up to this 21 million mark,


382

00:20:24,370 --> 00:20:26,090

it's going to go basically to zero.


383

00:20:26,090 --> 00:20:30,110

Then there are some papers out there that have


384

00:20:30,110 --> 00:20:35,190

proposed that the security of the network might be in jeopardy at that point.


385

00:20:35,290 --> 00:20:37,970

What if we take the first derivative of this curve --


386

00:20:37,970 --> 00:20:43,450

so, we look at how much more supply is there in this year versus last year.


387

00:20:43,450 --> 00:20:45,250

In other words, what's the inflation rate?


388

00:20:45,250 --> 00:20:47,570

Here's what you see.


389

00:20:48,990 --> 00:20:50,930

I'm comparing several different assets here.


390

00:20:50,930 --> 00:20:52,930

This is the inflation rate of gold.


391

00:20:52,930 --> 00:20:55,490

We usually don't think of gold is inflating


392

00:20:55,490 --> 00:20:57,310

but of course there are miners --


393

00:20:57,310 --> 00:21:00,570

there are actual physical miners digging in the ground and


394

00:21:00,890 --> 00:21:05,810

coming up with gold chunks to add to the world's supply of above-ground gold.


395

00:21:06,090 --> 00:21:11,030

That turns out to be about 1.5% per year of inflation in gold.


396

00:21:11,030 --> 00:21:13,710

So if you think of gold as being sound money


397

00:21:13,710 --> 00:21:20,370

then that 1.5% inflation rate is going to be sort of a line in the sand.


398

00:21:20,410 --> 00:21:23,170

As you can see - both Bitcoin and Monero


399

00:21:23,170 --> 00:21:26,030

this dotted blue line is showing where we are right now.


400

00:21:26,030 --> 00:21:30,150

We're coming to a very interesting point in cryptocurrency history


401

00:21:30,150 --> 00:21:32,750

in that, up until now


402

00:21:32,750 --> 00:21:36,230

there's been a lot of emission happening.


403

00:21:36,690 --> 00:21:38,950

In order to get these coins out there


404

00:21:38,950 --> 00:21:42,190

the block rewards have been relatively high


405

00:21:42,190 --> 00:21:45,550

but we're now coming up on a new kind of era of scarcity,


406

00:21:45,550 --> 00:21:48,470

if you look at this to the right of here.


407

00:21:48,470 --> 00:21:54,270

And in fact, the inflation rate of Monero is going to be lower than that of Bitcoin


408

00:21:54,270 --> 00:21:58,250

for the next 6 years, until 2025.


409

00:21:58,250 --> 00:22:01,410

Then there's going to be a 4 year period when they're about the same


410

00:22:01,410 --> 00:22:04,670

and then, starting in 2029, the


411

00:22:04,670 --> 00:22:09,030

inflation rate of Bitcoin will once again go below Monero.


412

00:22:09,030 --> 00:22:12,190

But then, again, this comes at with a question mark:


413

00:22:12,190 --> 00:22:17,390

how are those miners going to be paid, to be incentivized to support the network?


414

00:22:17,390 --> 00:22:20,790

Since that is a crucial feature of Nakamoto consensus,


415

00:22:20,790 --> 00:22:25,450

that game theoretically, all of the miners are incentivized to be honest


416

00:22:25,450 --> 00:22:29,570

and not to try to game the system for their own greed.


417

00:22:31,390 --> 00:22:34,190

There's a form of unwanted scarcity and that's mining hardware.


418

00:22:34,190 --> 00:22:38,490

And this is something that has been a big issue in Monero.


419

00:22:39,130 --> 00:22:43,110

In the Bitcoin white paper, Nakamoto wrote "one CPU, one vote"


420

00:22:43,110 --> 00:22:46,670

and that idea is that the reward that a miner gets


421

00:22:46,670 --> 00:22:49,410

should be proportional to their effort.


422

00:22:49,410 --> 00:22:51,750

It should be proportional to the expense


423

00:22:51,750 --> 00:22:54,650

that the miner incurred in mining.


424

00:22:55,910 --> 00:22:58,910

In other words, there should ideally be a linear function


425

00:22:58,910 --> 00:23:03,390

between the miners expense and the miners reward.


426

00:23:03,470 --> 00:23:07,430

Now, unfortunately, economies of scale in silicon manufacturing


427

00:23:07,430 --> 00:23:09,450

have destroyed this linear relationship.


428

00:23:09,590 --> 00:23:13,370

In other words, if you have about 25 million dollars


429

00:23:13,370 --> 00:23:17,230

to spend on a new fabrication facility in Shenzhen,


430

00:23:17,230 --> 00:23:22,850

then you can turn out your own silicon chips that do nothing but


431

00:23:23,470 --> 00:23:25,870

do the Bitcoin proof-of-work.


432

00:23:25,870 --> 00:23:28,690

These are ASICS, and


433

00:23:28,690 --> 00:23:32,430

they've been on the network, on Bitcoin for several years now,


434

00:23:32,430 --> 00:23:39,050

to the point that at this point Bitcoin mining is basically a Chinese oligopoly.


435

00:23:41,350 --> 00:23:44,390

This brings up centralization concern.


436

00:23:44,390 --> 00:23:47,890

It's not necessarily a problem that it's China that has all the mining.


437

00:23:47,890 --> 00:23:49,950

It's really more of a problem that


438

00:23:49,950 --> 00:23:52,590

it's one certain area of the world that has


439

00:23:52,590 --> 00:23:57,590

basically control of all of the world's Bitcoin hash power.


440

00:23:57,890 --> 00:24:01,770

There are further news items that are cause for concern,


441

00:24:01,770 --> 00:24:05,510

for example, the growing trade war between China and the West.


442

00:24:05,910 --> 00:24:07,970

There is a press article out that said


443

00:24:08,150 --> 00:24:10,930

the Chinese government has recently decreed that


444

00:24:10,930 --> 00:24:15,950

only Chinese computer hardware is to be used in government offices


445

00:24:15,950 --> 00:24:17,610

starting in like a year.


446

00:24:17,610 --> 00:24:21,690

There's some deadline by which all of the Dells and the


447

00:24:21,690 --> 00:24:25,690

American companies' computers are to be kicked out,


448

00:24:25,690 --> 00:24:31,070

so something similar could well happen for Chinese-manufactured Bitcoin ASICS.


449

00:24:31,070 --> 00:24:35,270

We kind of take for granted that there's a free flow of goods in the world


450

00:24:35,270 --> 00:24:40,670

but what happens if not only does one part of the world control the manufacture


451

00:24:40,670 --> 00:24:42,730

of all of the crypto hash power


452

00:24:42,730 --> 00:24:47,070

but then is unable to even export it due to a trade war.


453

00:24:48,090 --> 00:24:54,070

In Monero we tried to take this decentralization question quite seriously


454

00:24:55,090 --> 00:24:57,690

and we've done some changes to the proof-of-work


455

00:24:57,690 --> 00:25:00,190

to support the little guy who's mining.


456

00:25:00,190 --> 00:25:02,670

That is, when Bitcoin started


457

00:25:02,670 --> 00:25:06,550

it was possible for just a regular person running


458

00:25:06,550 --> 00:25:10,710

the Bitcoin client on their computer to actually have a shot


459

00:25:10,710 --> 00:25:12,770

at getting a mining reward.


460

00:25:12,770 --> 00:25:14,830

Those days are long gone because now


461

00:25:14,830 --> 00:25:20,810

the hash power is dominated by these massive farms of ASICS.


462

00:25:20,990 --> 00:25:25,530

It's just hopeless for any little guy to try to mine Bitcoin.


463

00:25:26,310 --> 00:25:28,750

In Monero, we're trying to change that


464

00:25:28,750 --> 00:25:31,090

and the proof of work has been modified several times.


465

00:25:31,290 --> 00:25:34,730

Now, as of just last month,


466

00:25:34,730 --> 00:25:37,030

the proof of work in Monero is now RandomX


467

00:25:37,030 --> 00:25:40,930

which actually uses every single capability of a CPU


468

00:25:40,930 --> 00:25:42,790

in doing the proof of work.


469

00:25:42,790 --> 00:25:46,470

There's a basically a random program that gets executed.


470

00:25:46,470 --> 00:25:51,550

Each core of the processor needs 2 gigabytes of RAM to run well.


471

00:25:52,510 --> 00:25:56,150

This was a design decision made to


472

00:25:56,730 --> 00:25:59,950

make it harder for botnets to control the network,


473

00:25:59,950 --> 00:26:03,330

because if your computer is infected with a botnet


474

00:26:04,690 --> 00:26:08,050

and 14 out of your 16 gigabytes of RAM are being eaten up,


475

00:26:08,050 --> 00:26:10,190

you're probably going to notice it.


476

00:26:10,190 --> 00:26:14,130

It was deliberate that design decision in RandomX to use a


477

00:26:14,130 --> 00:26:19,810

high required amount of RAM for processing.


478

00:26:21,270 --> 00:26:22,890

There's another source of scarcity


479

00:26:22,890 --> 00:26:25,890

that is not necessarily one that you want in a blockchain,


480

00:26:25,890 --> 00:26:28,070

and that is access to layer one.


481

00:26:28,070 --> 00:26:32,430

Bitcoin's 1 megabyte block limit caused a project fork.


482

00:26:32,430 --> 00:26:37,370

There was basically a civil war in Bitcoin over whether or not it was okay


483

00:26:38,270 --> 00:26:41,350

to make blocks stay at this 1 megabyte limit.


484

00:26:41,350 --> 00:26:44,690

It still rages on to this day. It's still a holy war


485

00:26:44,690 --> 00:26:48,930

and this is something that Monero has avoided thus far.


486

00:26:48,930 --> 00:26:52,330

Its solution to this is to use a adaptive block size


487

00:26:52,330 --> 00:26:57,250

in which the maximum block size of a Monero block is flexible


488

00:26:57,250 --> 00:27:02,410

and it can organically expand or shrink along with demand.


489

00:27:02,410 --> 00:27:04,930

With, of course, provisions in there


490

00:27:04,930 --> 00:27:09,490

to prevent the system from getting gamed.


491

00:27:10,130 --> 00:27:13,370

And there's ongoing research to reduce the transaction size.


492

00:27:13,370 --> 00:27:15,150

There's bulletproofs that went in recently


493

00:27:15,150 --> 00:27:19,910

that reduce transaction sizes by a factor of 10, that went in.


494

00:27:19,910 --> 00:27:26,450

And overnight the transaction fees for transacting Monero went down by a factor of 10


495

00:27:26,450 --> 00:27:32,610

because the transaction fee is based on the kilobyte size of the transaction.


496

00:27:33,410 --> 00:27:36,570

Moving on to fungibility and privacy.


497

00:27:37,050 --> 00:27:38,830

Bitcoin is transparent.


498

00:27:39,270 --> 00:27:43,790

If you are new to crypto you might be under the impression


499

00:27:43,790 --> 00:27:46,990

that if you have Bitcoin you're anonymous.


500

00:27:46,990 --> 00:27:49,250

It's this "anonymous magic internet money"


501

00:27:49,250 --> 00:27:51,250

that you might have heard about.


502

00:27:51,250 --> 00:27:53,250

Nothing could be further from the truth --


503

00:27:53,250 --> 00:27:58,070

the popular press continues to push this misleading narrative.


504

00:27:58,070 --> 00:28:00,050

Bitcoin is completely transparent


505

00:28:00,050 --> 00:28:02,750

and if you read the Bitcoin white paper, it's all there.


506

00:28:02,750 --> 00:28:08,630

It's specified that the sender, the receiver and how much got sent


507

00:28:08,630 --> 00:28:14,010

is recorded in plaintext and recorded in the blockchain.


508

00:28:14,010 --> 00:28:17,750

Which, because it has all this proof-of-work up behind it --


509

00:28:17,750 --> 00:28:20,750

remember what I was saying about each transaction in the block


510

00:28:20,750 --> 00:28:26,690

has a hash that makes it a very rare and unique set of data,


511

00:28:26,970 --> 00:28:31,170

it's the multiple of 1 million atoms thing, right --


512

00:28:31,170 --> 00:28:36,750

basically, these transparent details are written and etched into that blockchain forever.


513

00:28:36,750 --> 00:28:40,350

There is no escaping that


514

00:28:40,350 --> 00:28:45,290

it's completely incompatible, for example, with European privacy law, the GDPR.


515

00:28:45,290 --> 00:28:47,310

Which has this "right to be forgotten"


516

00:28:47,310 --> 00:28:50,510

that is totally non-existent in Bitcoin.


517

00:28:50,510 --> 00:28:54,230

Once a transaction gets put into the Bitcoin blockchain it's there.


518

00:28:54,230 --> 00:28:56,470

It's there forever.


519

00:28:56,470 --> 00:29:00,270

And the only thing that is not


520

00:29:00,270 --> 00:29:03,590

totally transparent is that the Bitcoin address


521

00:29:03,590 --> 00:29:07,490

is just a hex string - it's a string.


522

00:29:07,490 --> 00:29:08,270

I mean,


523

00:29:08,270 --> 00:29:10,250

when you come down to it, everything's a hex string --


524

00:29:10,250 --> 00:29:15,550

but the Bitcoin address is a sequence of letters and numbers that looks anonymous.


525

00:29:15,550 --> 00:29:20,030

But once that gets associated to your name and face,


526

00:29:20,030 --> 00:29:22,270

that association, that metadata,


527

00:29:24,070 --> 00:29:26,890

that marriage between a Bitcoin account number and your identity,


528

00:29:26,890 --> 00:29:28,890

that doesn't change


529

00:29:29,170 --> 00:29:32,190

because the blockchain is etched in stone forever.


530

00:29:32,190 --> 00:29:34,070

And it's constantly growing.


531

00:29:34,070 --> 00:29:38,930

The job of the people trying to identify and "dox" everyone


532

00:29:38,930 --> 00:29:40,990

is - it's just a waiting game.


533

00:29:40,990 --> 00:29:42,930

You have this blockchain every day.


534

00:29:42,930 --> 00:29:44,930

You get some little piece of information:


535

00:29:44,930 --> 00:29:51,490

"Oh, you know, Joe in Leipzig signed up with (an) exchange".


536

00:29:51,830 --> 00:29:54,930

Now their identity information is associated with this.


537

00:29:55,190 --> 00:29:57,750

Basically, this metadata just kind of


538

00:29:57,750 --> 00:30:02,050

continues to gather on this blockchain until you have a situation


539

00:30:02,050 --> 00:30:04,970

which is actually much worse than in Fiat.


540

00:30:04,970 --> 00:30:11,790

When you have a Fiat bank account you do not expect that your bank is going to post your monthly statement


541

00:30:11,790 --> 00:30:15,990

up on the bulletin board outside the bank for everybody to see.


542

00:30:16,650 --> 00:30:19,670

But that is exactly the situation in Bitcoin


543

00:30:19,670 --> 00:30:22,990

and it's not just the people out in your neighborhood who can see it.


544

00:30:22,990 --> 00:30:25,830

It's everybody. Everybody in the world can see


545

00:30:26,190 --> 00:30:29,470

who sent what to who and when.


546

00:30:30,170 --> 00:30:34,670

The unfortunate consequence of this, is that


547

00:30:34,670 --> 00:30:37,250

Bitcoins have a history behind them.


548

00:30:37,570 --> 00:30:41,110

Remember that in Bitcoin, every Bitcoin in existence


549

00:30:41,110 --> 00:30:44,810

first came into being as a reward that went to a miner.


550

00:30:44,870 --> 00:30:50,250

Once the miner gets that Bitcoin and then they spend it, it starts circulating in the Bitcoin economy.


551

00:30:50,250 --> 00:30:54,410

But because the blockchain is transparent, it's totally "see-through".


552

00:30:54,410 --> 00:30:59,370

The entire history of every single Bitcoin now in existence can be traced back


553

00:30:59,370 --> 00:31:03,330

to this person all the way back to when it was mined.


554

00:31:03,330 --> 00:31:07,250

It's as if you have a 10 euro banknote


555

00:31:07,250 --> 00:31:11,250

and on the back of that 10 euro banknote you see a nice list showing


556

00:31:11,250 --> 00:31:14,910

everyone before you who owned that.


557

00:31:14,970 --> 00:31:18,330

What could possibly be the negative consequences of this?


558

00:31:18,330 --> 00:31:22,030

How about innocent people getting falsely accused


559

00:31:22,030 --> 00:31:27,430

because they happen to have received money from somebody who unbeknownst to them


560

00:31:27,430 --> 00:31:31,550

was involved in something that was not very good.


561

00:31:31,590 --> 00:31:33,210

This is happening in Bitcoin.


562

00:31:34,130 --> 00:31:38,450

There's a reputation in Bitcoin that transfers as well as value


563

00:31:39,210 --> 00:31:42,350

and that is what is profoundly disturbing about having this.


564

00:31:42,350 --> 00:31:44,270

And I call it a surveillance coin.


565

00:31:44,330 --> 00:31:47,090

In a surveillance coin, it's not just value that transmits --


566

00:31:47,090 --> 00:31:49,250

it's also reputation. Which means


567

00:31:49,250 --> 00:31:51,970

if you're accepting money from somebody,


568

00:31:51,970 --> 00:31:56,870

you're also accepting their life history.


569

00:31:56,870 --> 00:32:00,550

It's coming to you too. It's not just value.


570

00:32:00,970 --> 00:32:03,490

In contrast, Monero is fungible.


571

00:32:03,490 --> 00:32:06,650

Fungible just means that every unit of currency is


572

00:32:06,650 --> 00:32:09,490

indistinguishable from the other units.


573

00:32:09,790 --> 00:32:13,610

If I have 10 Monero, you have 10 Monero and then


574

00:32:13,610 --> 00:32:18,470

we both trade the 10 Monero to other people, they still look like the 10 Monero.


575

00:32:18,470 --> 00:32:22,550

There's no history. It works just like a cash bill.


576

00:32:22,550 --> 00:32:25,890

It works just you think cash should work.


577

00:32:25,890 --> 00:32:29,450

And it does this by adding three technologies


578

00:32:29,450 --> 00:32:33,950

on top of what Bitcoin does that preserve privacy.


579

00:32:33,950 --> 00:32:35,810

One is ring signatures.


580

00:32:35,810 --> 00:32:37,370

In ring signatures,


581

00:32:37,370 --> 00:32:44,170

the sender of funds is lined up along with 10 other senders of funds


582

00:32:44,170 --> 00:32:50,670

and the only thing that you know happened in that transaction is one out of those 11 people sent money.


583

00:32:50,670 --> 00:32:53,070

It's as if every time you spend money,


584

00:32:53,070 --> 00:32:57,870

now you have 10 friends or 10 random people, 10 decoys


585

00:32:57,930 --> 00:33:02,250

and all that you know, cryptographically, is one of the 11 have sent the money.


586

00:33:02,330 --> 00:33:04,490

That protects the sender's identity.


587

00:33:04,490 --> 00:33:06,150

How about the receivers identity?


588

00:33:06,150 --> 00:33:12,270

Well, the receiver's Monero account does not appear unencrypted on the Monero blockchain.


589

00:33:12,850 --> 00:33:17,390

A one-time-use address is what gets put on the blockchain


590

00:33:17,390 --> 00:33:20,310

so that protects the recipients' privacy.


591

00:33:20,310 --> 00:33:23,350

How about the amount that gets sent? Because there are


592

00:33:23,350 --> 00:33:26,210

attacks that can be done by knowing,


593

00:33:26,210 --> 00:33:30,830

kind of observing your pattern of how much you spend.


594

00:33:31,530 --> 00:33:34,490

That is covered with technology, RingCT,


595

00:33:34,490 --> 00:33:39,870

which originally was developed for Bitcoin but actually first got implemented in Monero.


596

00:33:39,870 --> 00:33:43,810

RingCT stands for confidential transactions.


597

00:33:43,810 --> 00:33:48,550

And all these things (are) combined to make Monero's fungibility.


598

00:33:49,550 --> 00:33:51,230

The end result is that in Monero,


599

00:33:51,230 --> 00:33:55,230

coins are indistinguishable from their another or they have no memory.


600

00:33:55,230 --> 00:33:57,050

They have no memory of where they've been,


601

00:33:57,050 --> 00:34:00,730

which is really what you want in a money because the opposite,


602

00:34:00,730 --> 00:34:04,690

if you have money that has perfect memory, like it is in Bitcoin,


603

00:34:04,690 --> 00:34:13,170

that unfortunately gets used to falsely associate activities of people who had nothing to do with each other.


604

00:34:13,170 --> 00:34:18,930

Because Monero is fungible, users benefit by having privacy.


605

00:34:19,410 --> 00:34:22,750

The Monero blockchain is public just like Bitcoin.


606

00:34:22,750 --> 00:34:26,170

There is a publicly shared ledger


607

00:34:26,170 --> 00:34:30,070

of who sent what to who that everybody in the world can get.


608

00:34:30,070 --> 00:34:33,870

All you have to do is download the Monero software and you too


609

00:34:33,870 --> 00:34:39,390

can have a copy of this ledger, of that has the complete history of who sent what to who.


610

00:34:39,390 --> 00:34:41,730

The difference is that, in Monero,


611

00:34:41,730 --> 00:34:46,030

the details of this blockchain are encrypted


612

00:34:46,030 --> 00:34:50,290

so that if you just look at it, you see encrypted garbage.


613

00:34:50,290 --> 00:34:52,930

You cannot do what you can do in Bitcoin which is


614

00:34:52,930 --> 00:34:58,430

type in somebody's Bitcoin address and immediately see how much money they have.


615

00:34:58,570 --> 00:35:02,130

I represent high net worth clients, institutional investors --


616

00:35:02,130 --> 00:35:05,530

and for them this kind of feature is a showstopper.


617

00:35:05,530 --> 00:35:10,610

Nobody with wealth wants anyone in the world to type in


618

00:35:10,610 --> 00:35:14,650

their bank account and see instantly how much money they have.


619

00:35:14,650 --> 00:35:19,050

Or see instantly whenever they transfer money out or get money in


620

00:35:19,050 --> 00:35:20,750

as you can do in the Bitcoin blockchain.


621

00:35:20,750 --> 00:35:24,830

You can set a little automated robot to like,


622

00:35:24,830 --> 00:35:29,270

watch the blockchain for you and send you an alert on your cellphone


623

00:35:29,270 --> 00:35:35,330

whenever a transaction goes in and out of any Bitcoin address that you choose.


624

00:35:35,330 --> 00:35:38,770

This sort of kind of casual surveillance,


625

00:35:38,770 --> 00:35:41,270

this invitation to be creepy on your neighbor


626

00:35:41,270 --> 00:35:45,850

is something that is intrinsically part of Bitcoin.


627

00:35:46,310 --> 00:35:48,410

And the deeper (it) gets into society,


628

00:35:48,410 --> 00:35:50,270

the more insidious it is,


629

00:35:50,270 --> 00:35:55,250

the more of a threat it is to all of our privacy.


630

00:35:56,790 --> 00:35:58,770

A slander that happens is that


631

00:35:58,770 --> 00:36:02,170

"okay, so you have this money that doesn't have a history,


632

00:36:02,170 --> 00:36:05,850

sounds like only the criminals are going to want to use it".


633

00:36:06,450 --> 00:36:10,910

It is a slander I'm kind of tired of hearing.


634

00:36:10,910 --> 00:36:14,690

Monero benefits people who have nothing to hide.


635

00:36:14,690 --> 00:36:16,350

The chief benefit is that


636

00:36:16,350 --> 00:36:18,790

with the money that has no memory,


637

00:36:18,790 --> 00:36:22,670

there's no need to worry about being falsely accused of misdeeds due


638

00:36:22,670 --> 00:36:27,810

to being one hop away from a "bad person".


639

00:36:27,810 --> 00:36:31,550

Basically, when you accept a surveillance coin,


640

00:36:31,550 --> 00:36:37,030

you are accepting the risk that somebody unsavory will be sending you something.


641

00:36:37,030 --> 00:36:40,430

For example, let's say you have a business you sell stickers or


642

00:36:40,430 --> 00:36:43,670

t-shirts or something very innocent


643

00:36:43,670 --> 00:36:47,570

and you decide that you're going to accept Bitcoin for your business.


644

00:36:47,570 --> 00:36:51,490

Unbeknownst to you, you get a t-shirt order from a gangster


645

00:36:51,490 --> 00:36:54,990

or some drug dealer or someone like that.


646

00:36:54,990 --> 00:37:00,270

You had no idea they're a drug dealer, they're just sending you some Bitcoin because you're a t-shirt seller


647

00:37:00,270 --> 00:37:01,850

and this is how you make money --


648

00:37:01,850 --> 00:37:03,770

you need to get money from people.


649

00:37:03,770 --> 00:37:09,910

But because the people watching the blockchain and putting faces and names


650

00:37:09,910 --> 00:37:12,950

on addresses on blockchain, don't know that --


651

00:37:12,950 --> 00:37:15,050

they can try to program that in,


652

00:37:15,050 --> 00:37:18,790

but in the end, it's a probabilistic assessment of


653

00:37:18,790 --> 00:37:21,370

is this bad person really related to you.


654

00:37:21,750 --> 00:37:26,650

The only way that somebody finds out that they've been bitten by this is that


655

00:37:26,650 --> 00:37:31,830

"oh, geez, Coinbase just emailed me and my account's been closed."


656

00:37:32,310 --> 00:37:36,130

"Even the Fiat bank that I had associated with my crypto exchange"


657

00:37:36,130 --> 00:37:38,590

"now thinks that there's something suspicious about me."


658

00:37:38,590 --> 00:37:42,330

"Now my Fiat bank has frozen my funds for some reason" --


659

00:37:42,330 --> 00:37:46,470

and it had nothing to do with anything that the person in question did.


660

00:37:46,470 --> 00:37:49,570

It's just that the money itself has this


661

00:37:49,570 --> 00:37:54,910

fatal flaw of being totally, (of) having a history behind it.


662

00:37:54,910 --> 00:37:56,610

It's not really money,


663

00:37:56,610 --> 00:37:58,950

it's like beanie babies, it's like collectables.


664

00:37:58,950 --> 00:38:03,790

It's like collectible items with their own serial number that are getting passed around in this economy,


665

00:38:03,790 --> 00:38:06,490

it's not a real money.


666

00:38:08,170 --> 00:38:12,190

I want to leave with a Nobel Prize winning idea.


667

00:38:12,190 --> 00:38:14,350

I find that not too many people have heard of this paper.


668

00:38:14,350 --> 00:38:21,030

George Akerlof won the Nobel Prize in Economics for his work on asymmetric information in markets.


669

00:38:21,030 --> 00:38:24,150

Anyone here know this paper well?


670

00:38:24,150 --> 00:38:26,170

Okay. Great.


671

00:38:27,350 --> 00:38:28,690

I'll explain it briefly.


672

00:38:28,690 --> 00:38:31,170

There are two kinds of used cars.


673

00:38:31,170 --> 00:38:35,170

There are lemons, which are the bad used cars.


674

00:38:35,170 --> 00:38:40,350

Those are... you buy them and then they break immediately - those are lemons.


675

00:38:40,350 --> 00:38:44,010

The other kind of used car is a peach - these are the good cars.


676

00:38:44,010 --> 00:38:46,990

Those owners of the peaches, they did all the maintenance.


677

00:38:46,990 --> 00:38:52,350

They change the oil, they did all the work to make sure that they have a nice car to sell.


678

00:38:52,350 --> 00:38:57,330

Sellers know whether they're selling a lemon or a peach.


679

00:38:57,330 --> 00:39:00,650

The seller knows that. If you're selling a lemon, you know it.


680

00:39:00,650 --> 00:39:03,210

And you're just trying to make money off the selling of the lemon.


681

00:39:03,210 --> 00:39:07,370

If you have a peach, you know it because you've been doing maintenance on that car.


682

00:39:07,370 --> 00:39:10,730

However, the buyer of the car is ignorant


683

00:39:10,730 --> 00:39:19,250

because both lemon sellers and peach sellers make extra sure that the paint job on the car is extra shiny.


684

00:39:19,810 --> 00:39:22,370

The cars all look alike to the buyer


685

00:39:22,370 --> 00:39:25,750

so the buyer knows that they are vulnerable in this situation.


686

00:39:25,750 --> 00:39:29,790

The buyer knows that they could end up with a lemon.


687

00:39:30,430 --> 00:39:34,050

Because the buyer is ignorant but not totally ignorant.


688

00:39:34,050 --> 00:39:37,550

They are actually aware of their own ignorance.


689

00:39:37,550 --> 00:39:44,830

(And) because of that, the buyer then adjusts their offer price to be slightly lower than that of a peach.


690

00:39:44,830 --> 00:39:50,450

The asking, offer price for the car is going to be not quite at the peach price here.


691

00:39:50,450 --> 00:39:53,230

It's going to be slightly lower.


692

00:39:53,510 --> 00:39:55,010

What happens then?


693

00:39:55,010 --> 00:40:01,130

If you're selling a lemon and you see this pretty high price being offered for cars, you're happy.


694

00:40:01,130 --> 00:40:07,510

Because your lemon, which is worth this low price, can sell for this.


695

00:40:07,510 --> 00:40:09,530

So the lemon sellers are happy.


696

00:40:09,530 --> 00:40:13,630

There are more suckers out there to buy their lemons.


697

00:40:13,630 --> 00:40:18,670

How about the peach sellers? The peach sellers are the ones who did the work to have a good car to sell


698

00:40:18,670 --> 00:40:23,030

and now they're seeing this offer price which is less than the peach price.


699

00:40:23,030 --> 00:40:27,010

They're discouraged and slightly offended


700

00:40:27,010 --> 00:40:32,370

because all that work they did, all the good work that they did to keep that car good.


701

00:40:32,370 --> 00:40:35,310

And they followed all the rules with their car.


702

00:40:35,310 --> 00:40:42,470

That good behavior is not getting rewarded in the form of a high price coming from the buyer.


703

00:40:42,470 --> 00:40:46,490

So the peach sellers get discouraged, they leave the market.


704

00:40:46,490 --> 00:40:49,710

What happens is that peach sellers leave.


705

00:40:49,710 --> 00:40:52,350

Well, now the buyers figure out that


706

00:40:52,350 --> 00:40:55,230

their chance of buying a lemon has just gone up


707

00:40:55,230 --> 00:40:57,650

and the price that they're going to offer goes down.


708

00:40:57,650 --> 00:41:02,690

And you have this race to the bottom in which the offer price keeps going down, down, down.


709

00:41:02,690 --> 00:41:04,870

All of the good sellers leave the market


710

00:41:04,870 --> 00:41:10,930

because they are not being justly compensated for the work that they've done.


711

00:41:10,930 --> 00:41:14,090

What does it have to do the cryptocurrency?


712

00:41:14,350 --> 00:41:16,410

Surveillance coins


713

00:41:16,410 --> 00:41:21,450

which have a total record and a total history of who had them


714

00:41:21,450 --> 00:41:24,710

are the used cars of cryptocurrency.


715

00:41:25,370 --> 00:41:30,150

Whenever you buy Bitcoin from somebody and you don't know the history of that Bitcoin,


716

00:41:30,150 --> 00:41:33,150

you are the used car buyer in this situation.


717

00:41:33,150 --> 00:41:35,530

You don't know if you accept this Bitcoin...


718

00:41:35,530 --> 00:41:41,950

"Am I going to be just fine or am I going to be falsely accused of some who knows what?"


719

00:41:41,950 --> 00:41:47,890

Who knows what possible crime could have been done with the person who used to own that Bitcoin.


720

00:41:47,890 --> 00:41:49,870

You don't know if that's going to happen to you.


721

00:41:49,870 --> 00:41:57,430

As a Bitcoin receiver, you are in the position of the used car buyer.


722

00:41:58,610 --> 00:42:02,350

What in this paper is identified as


723

00:42:02,350 --> 00:42:07,150

a means to avoid this race to the bottom -- is a signal.


724

00:42:07,690 --> 00:42:10,310

So in the car market, for example --


725

00:42:10,310 --> 00:42:12,810

and there's probably something similar to this in Europe,


726

00:42:12,810 --> 00:42:16,190

where you can type in the serial number, the VIN number of a car


727

00:42:16,190 --> 00:42:18,410

and then you get a report...


728

00:42:18,410 --> 00:42:20,550

you can see if it's been in an accident... --


729

00:42:20,550 --> 00:42:23,350

this doesn't exist in Europe? Okay, well.


730

00:42:23,730 --> 00:42:25,650

Business idea for somebody...


731

00:42:25,730 --> 00:42:28,570

It exists in the United States. It's called Carfax


732

00:42:28,570 --> 00:42:33,450

and you type in the serial number of a car and all of its kind of past history comes up.


733

00:42:33,450 --> 00:42:39,110

That information can equalize the playing field between the buyers and the sellers of cars.


734

00:42:39,110 --> 00:42:41,230

This also happens in the job market.


735

00:42:41,230 --> 00:42:43,950

Education is a similar situation.


736

00:42:43,950 --> 00:42:48,890

If you are a boss, you're hiring a worker... you have a hundred workers out there applying for jobs.


737

00:42:48,990 --> 00:42:50,970

They all look the same to you because it's like


738

00:42:50,970 --> 00:42:52,530

everyone starts looking the same.


739

00:42:52,530 --> 00:42:55,190

All the resumes look the same after a while.


740

00:42:55,190 --> 00:42:59,730

So how are the sellers of their labor going to distinguish themselves?


741

00:42:59,730 --> 00:43:01,370

They're going to have a signal.


742

00:43:01,370 --> 00:43:07,230

Education is a signal just like information in the used car market is.


743

00:43:07,370 --> 00:43:11,930

Basically, the sellers of labor take it upon themselves to get


744

00:43:11,930 --> 00:43:17,150

educational credential to signal to the buyer of labor


745

00:43:17,150 --> 00:43:20,510

that their labor is going to be worth more.


746

00:43:20,610 --> 00:43:24,850

Unfortunately, what happens is that the sellers of education then figure this out


747

00:43:24,850 --> 00:43:27,030

and then they just start selling education


748

00:43:27,030 --> 00:43:31,470

because they know that the people coming for the education are just going


749

00:43:31,470 --> 00:43:33,530

to get an employment signal.


750

00:43:33,790 --> 00:43:37,750

The actual purpose of the education gets lost.


751

00:43:37,750 --> 00:43:41,670

This is happening in non-fungible cryptocurrencies as well.


752

00:43:41,670 --> 00:43:45,350

Right now, anybody who signs up for an account


753

00:43:45,350 --> 00:43:46,950

at a centralized exchange


754

00:43:46,950 --> 00:43:50,690

has to do all sorts of degrading things.


755

00:43:50,690 --> 00:43:52,850

You have to hold up a picture of your ID,


756

00:43:52,850 --> 00:43:56,730

you have to make a little handwritten note that says this "this is my name".


757

00:43:56,730 --> 00:44:01,210

You have to basically submit all this stuff just to be deemed worthy enough


758

00:44:01,210 --> 00:44:04,990

to participate in this cryptocurrency economy.


759

00:44:04,990 --> 00:44:07,950

That is a signal in this sense too.


760

00:44:07,950 --> 00:44:10,930

But what's interesting is that in cryptocurrency,


761

00:44:10,930 --> 00:44:17,350

currently, the exchanges bear the burden of due diligence on their customers.


762

00:44:17,590 --> 00:44:22,110

It's an expense for the exchanges to be doing, to check all these people out.


763

00:44:22,110 --> 00:44:26,710

It could be that in the future that just like in the education market and in the car market.


764

00:44:26,710 --> 00:44:31,050

It's the seller who's going to have to increasingly go through hoops


765

00:44:31,050 --> 00:44:36,090

basically to prove their worthiness in this whole system.


766

00:44:37,750 --> 00:44:39,730

Just to take a step back,


767

00:44:39,730 --> 00:44:42,130

I've gone over scarcity in Bitcoin and Monero


768

00:44:42,130 --> 00:44:45,610

and I've gone over fungibility and privacy in Bitcoin and Monero.


769

00:44:45,610 --> 00:44:46,970

And if we step back,


770

00:44:46,970 --> 00:44:51,990

I can identify what I think is a reason why crypto is not going to go away --


771

00:44:51,990 --> 00:44:54,410

why it's here to stay.


772

00:44:54,850 --> 00:44:56,390

Now we have the internet,


773

00:44:56,390 --> 00:44:59,570

we have mobile telecommunication --


774

00:44:59,570 --> 00:45:03,630

everybody here has at least one device


775

00:45:03,630 --> 00:45:07,110

that is extremely good at copying packets.


776

00:45:07,390 --> 00:45:10,590

That's what cellphones are. They are just packet copiers.


777

00:45:11,090 --> 00:45:12,390

When you fetch your email,


778

00:45:12,390 --> 00:45:17,030

you are copying packets from the email server to your phone to check.


779

00:45:17,030 --> 00:45:23,470

We've become just extraordinarily efficient at copying ones and zeros globally.


780

00:45:23,590 --> 00:45:27,370

The marginal cost of shuttling these bits around is zero.


781

00:45:27,570 --> 00:45:29,810

What is rare in that world,


782

00:45:29,810 --> 00:45:33,850

what is rare in a world where every human on earth basically


783

00:45:33,850 --> 00:45:39,610

has the ability to copy ones and zeros anywhere around the world for free?


784

00:45:39,610 --> 00:45:42,970

Well, it's going to be digital scarcity


785

00:45:42,970 --> 00:45:44,390

and digital privacy.


786

00:45:44,390 --> 00:45:46,710

Digital scarcity in the sense that


787

00:45:46,710 --> 00:45:50,030

there's a sequence of ones and zeros that only you know


788

00:45:50,030 --> 00:45:52,910

which is cryptocurrency - that's the private key.


789

00:45:52,910 --> 00:45:54,890

And privacy in which you


790

00:45:54,890 --> 00:45:57,530

have a sequence of ones and zeros also you only know


791

00:45:57,530 --> 00:45:59,610

and that you haven't shared with everyone


792

00:45:59,610 --> 00:46:03,950

like you've shared the contents of your lunch on Facebook with the entire world


793

00:46:04,450 --> 00:46:09,310

and other details of your life that are basically copied around.


794

00:46:09,310 --> 00:46:12,890

These are the two things that are going to be scarce in the future:


795

00:46:12,890 --> 00:46:16,330

digital scarcity and digital privacy.


796

00:46:16,330 --> 00:46:18,590

Cryptocurrencies offer both.


797

00:46:18,590 --> 00:46:20,670

And cryptocurrencies like Monero


798

00:46:20,670 --> 00:46:24,890

especially offer both because they offer privacy as well.


799

00:46:25,010 --> 00:46:27,710

Next I want to talk about community.


800

00:46:29,230 --> 00:46:31,790

In the past when we've had Fiat money,


801

00:46:31,790 --> 00:46:34,890

basically, your nationality


802

00:46:35,610 --> 00:46:39,370

told you what community you belong to for purposes of money.


803

00:46:39,370 --> 00:46:42,610

If you're born in the Eurozone, well, you use Euros.


804

00:46:42,610 --> 00:46:45,730

I was born American, so I use the US dollar.


805

00:46:45,910 --> 00:46:48,250

That kind of gets told to you at birth


806

00:46:48,250 --> 00:46:50,850

as an accident of where you were born.


807

00:46:50,850 --> 00:46:52,210

Now with cryptocurrencies,


808

00:46:52,210 --> 00:46:59,650

because the system of bookkeeping is a decentralized network of computers that can be worldwide


809

00:46:59,650 --> 00:47:03,650

this idea of association is now fluid.


810

00:47:03,650 --> 00:47:09,970

It's more open, it's really like the Reformation of the Church.


811

00:47:10,890 --> 00:47:13,930

Another famous German, Martin Luther


812

00:47:13,930 --> 00:47:18,830

who liberated theology from the kind of


813

00:47:18,830 --> 00:47:21,050

centralized control of the Catholic Church


814

00:47:21,050 --> 00:47:26,130

and liberated this ability for people to elect


815

00:47:26,130 --> 00:47:29,370

to worship in the way that they chose.


816

00:47:29,590 --> 00:47:35,230

A similar sort of thing is now possible, because of Nakamoto consensus,


817

00:47:35,310 --> 00:47:38,710

almost 11 years and a month old.


818

00:47:38,710 --> 00:47:43,490

Now it's possible for each one of us to kind of pick a group,


819

00:47:43,490 --> 00:47:45,710

"pick your own church," pick your own...


820

00:47:45,750 --> 00:47:47,310

like, that's not really quite right


821

00:47:47,310 --> 00:47:48,310

but I think you get what I'm saying.


822

00:47:48,310 --> 00:47:52,350

You can pick your own group of people who agree


823

00:47:52,430 --> 00:47:56,650

on certain characteristics that they want their money to have


824

00:47:56,650 --> 00:48:00,990

and you are free to associate with each of those groups.


825

00:48:01,110 --> 00:48:05,590

Bitcoin is one such group that apparently doesn't


826

00:48:05,590 --> 00:48:08,950

really, is not too bothered by the fact that


827

00:48:08,950 --> 00:48:14,270

the currency has this perfect knowledge of history for every single coin that's out there.


828

00:48:14,270 --> 00:48:20,410

And that is a large association of people all of whom have the shared belief


829

00:48:20,410 --> 00:48:26,190

that the token that they are keeping track of on their blockchain is money


830

00:48:26,190 --> 00:48:29,090

and there's a similar sort of community,


831

00:48:29,090 --> 00:48:34,290

sort of formation that happens with the cryptocurrencies.


832

00:48:35,630 --> 00:48:38,150

I'd like to share some of my observations about the Monero community


833

00:48:38,150 --> 00:48:41,910

and by the way, I'm volunteering to be here.


834

00:48:41,910 --> 00:48:44,930

I've paid my own dime to come out here from Boston


835

00:48:44,930 --> 00:48:49,470

to kind of share what I think


836

00:48:49,470 --> 00:48:53,290

my understanding of the current status of cryptocurrencies with you.


837

00:48:53,290 --> 00:48:56,770

Monero is basically, it's run like a charity.


838

00:48:56,770 --> 00:48:58,570

There is no company behind it.


839

00:48:58,570 --> 00:49:04,230

There's no pre-mine, there's no scammy way for people to get rich.


840

00:49:04,230 --> 00:49:09,290

All of the Monero in existence were given in the past to a miner


841

00:49:09,290 --> 00:49:13,750

who was doing the accounting work to help support the network, just like in Bitcoin.


842

00:49:13,970 --> 00:49:16,790

Both Bitcoin and Monero have the positive aspect that there's


843

00:49:16,790 --> 00:49:21,530

no central company steering things to kind of make a profit.


844

00:49:21,530 --> 00:49:25,550

No, it's totally open-source grassroots.


845

00:49:25,950 --> 00:49:30,550

Just normal everyday people choosing to run some


846

00:49:30,550 --> 00:49:32,650

peer-to-peer network software on their computer


847

00:49:32,650 --> 00:49:37,390

and join this community who have this shared


848

00:49:37,590 --> 00:49:41,330

ethos in what they think that money should be.


849

00:49:42,390 --> 00:49:47,850

The Monero community, I find it to be idealistic scientific and yet very welcoming.


850

00:49:48,230 --> 00:49:50,010

It's very chill.


851

00:49:50,410 --> 00:49:54,970

There's like a lot of alpha geek happening in some other coins,


852

00:49:54,970 --> 00:49:58,950

in which people are just really out there on Twitter


853

00:49:58,950 --> 00:50:03,470

and they just really want everyone to know that they're the "alpha-est" geek out there.


854

00:50:03,470 --> 00:50:06,110

That kind of thing is refreshingly absent in Monero.


855

00:50:06,110 --> 00:50:07,410

It's very chill.


856

00:50:07,410 --> 00:50:11,250

It's one thing that kind of I like about this whole vibe here at c3.


857

00:50:11,250 --> 00:50:14,290

It's very chill, there's just like a lot of people lounging


858

00:50:14,290 --> 00:50:18,610

and that sort of shared relaxed atmosphere is something that I've


859

00:50:18,610 --> 00:50:22,290

personally observed at the Monero meetups that I've been to.


860

00:50:22,470 --> 00:50:25,670

Monero Research Lab - we have full-time PhDs


861

00:50:26,010 --> 00:50:29,450

who do nothing but cryptographic research.


862

00:50:29,450 --> 00:50:32,150

There's sort of a pipeline of research in which


863

00:50:32,150 --> 00:50:34,930

pure science gets done at Monero Research Lab.


864

00:50:34,930 --> 00:50:38,090

Then, implementations of the promising idea get tested out


865

00:50:38,090 --> 00:50:43,750

then there's an audit process that we actually employ --


866

00:50:43,950 --> 00:50:47,130

external auditors to look at implementations of code.


867

00:50:47,130 --> 00:50:51,710

Once those are clean, then we go to release.


868

00:50:51,710 --> 00:50:56,530

There's this basically pipeline of technology from science to engineering


869

00:50:56,530 --> 00:51:00,070

that gets pushed out in the actual release of the Monero


870

00:51:00,070 --> 00:51:02,530

core software.


871

00:51:02,530 --> 00:51:08,030

The LMDB database is another kind of interesting example of how far Monero has come.


872

00:51:08,030 --> 00:51:09,810

In the early days of Monero,


873

00:51:09,810 --> 00:51:13,190

the entire blockchain was stored in RAM


874

00:51:13,190 --> 00:51:14,690

if you can believe that.


875

00:51:16,450 --> 00:51:19,550

So, that kind of puts a hard limit on how big your blockchain can be


876

00:51:19,550 --> 00:51:21,290

if it has to fit in RAM.


877

00:51:21,290 --> 00:51:26,210

The LMDB block database - which was the brainchild of Howard Chu


878

00:51:26,210 --> 00:51:29,450

who is one of the very frequent contributors


879

00:51:29,450 --> 00:51:37,570

and sort of an open-source Linux guru - was added to Monero.


880

00:51:38,090 --> 00:51:40,990

Monero is actually number three in terms of developer effort


881

00:51:40,990 --> 00:51:47,090

if you look at the... if you rank the coins not by market cap but by actual developer effort.


882

00:51:47,090 --> 00:51:49,610

It goes Bitcoin, Ethereum and then Monero.


883

00:51:49,610 --> 00:51:51,570

It turns out that,


884

00:51:51,750 --> 00:51:53,010

well, in my opinion,


885

00:51:53,010 --> 00:51:56,470

the killer app of Nakamoto consensus is money


886

00:51:56,470 --> 00:52:01,930

because you have a ledger of scarcity that's being shared.


887

00:52:01,930 --> 00:52:05,350

And what's a more natural thing is there for


888

00:52:05,350 --> 00:52:08,930

a shared idea of scarcity, then money?


889

00:52:08,930 --> 00:52:12,550

But it turns out that money is non-trivial to get right.


890

00:52:12,550 --> 00:52:14,370

It needs to be thought through.


891

00:52:14,370 --> 00:52:19,410

These things like... should the money have a complete history behind it


892

00:52:19,410 --> 00:52:22,350

or should it be fungible?


893

00:52:22,350 --> 00:52:24,250

Like that kind of basic idea that


894

00:52:24,250 --> 00:52:28,250

basic engineering design decision has to be made early on


895

00:52:28,250 --> 00:52:34,130

because the technology that's needed to bake in fungibility to Monero -- it's highly non-trivial.


896

00:52:34,490 --> 00:52:36,750

Monero has been added for 6 years now


897

00:52:36,750 --> 00:52:38,890

and has made great improvements in that.


898

00:52:38,890 --> 00:52:42,510

And the way that the social contract is,


899

00:52:42,510 --> 00:52:47,030

I just can't see this happening in Bitcoin.


900

00:52:47,030 --> 00:52:50,270

There are volunteer workgroups for community outreach


901

00:52:50,270 --> 00:52:52,010

and, as I said before,


902

00:52:52,010 --> 00:52:59,550

all of the funding to support all of this is completely 100% shaking the tin cup


903

00:52:59,550 --> 00:53:02,990

and asking for people to donate out of the kindness of their hearts.


904

00:53:02,990 --> 00:53:06,150

And the people in the Monero community do that.


905

00:53:06,250 --> 00:53:08,170

They actually step up to the plate


906

00:53:08,170 --> 00:53:10,510

and they fulfill these.


907

00:53:10,510 --> 00:53:13,230

But if you look at the annual budget --


908

00:53:13,230 --> 00:53:16,150

if Monero were a company, which it's not --


909

00:53:16,150 --> 00:53:19,710

but if Monero were a company and you looked at its operating budget,


910

00:53:19,710 --> 00:53:24,290

you would be astounded at how minuscule, how tiny it is.


911

00:53:24,290 --> 00:53:27,550

And that's because you have idealistic, passionate people


912

00:53:27,550 --> 00:53:31,610

working on this project in true open-source spirit,


913

00:53:31,610 --> 00:53:34,410

often on their spare time.


914

00:53:35,900 --> 00:53:37,820

All right.


915

00:53:41,190 --> 00:53:42,190

So, just to summarize,


916

00:53:42,190 --> 00:53:47,290

Monero is what Bitcoin newbs think they bought.


917

00:53:48,430 --> 00:53:51,090

I'm going to switch hats a little bit.


918

00:53:51,090 --> 00:53:54,830

As I mentioned, one of my jobs before going full time in crypto --


919

00:53:54,830 --> 00:53:57,230

I was head of research at a hedge fund


920

00:53:57,230 --> 00:54:02,610

and the question of thinking of cryptocurrency as an investment comes up.


921

00:54:02,610 --> 00:54:07,190

And of course because there have been these spectacular gains in the price of Bitcoin,


922

00:54:07,190 --> 00:54:08,970

it gets discussed a lot.


923

00:54:08,970 --> 00:54:14,010

One thing that is positive about Monero's culture is that it is generally


924

00:54:14,010 --> 00:54:17,390

gauche to talk about prices,


925

00:54:17,390 --> 00:54:21,470

and returns, and the price going to the moon.


926

00:54:21,890 --> 00:54:24,110

I hope that, well --


927

00:54:24,110 --> 00:54:28,070

I have some background in academic finance;


928

00:54:28,070 --> 00:54:32,270

there's a paper that I co-authored on the effect of liquidity on asset prices


929

00:54:32,270 --> 00:54:36,830

that won a "paper of the year" award in applied finance;


930

00:54:37,150 --> 00:54:40,590

and that, coupled with the Nobel Prize that I just explained --


931

00:54:40,590 --> 00:54:46,950

hopefully, I can put a respectable enough academic sheen on the discussion of


932

00:54:46,950 --> 00:54:53,650

the finance and economics to be forgivable by the Monero community.


933

00:54:53,650 --> 00:54:57,350

But the fact is that this project is going to attract investors,


934

00:54:57,350 --> 00:54:59,050

it's going to attract <i>hodlers</i>.


935

00:54:59,050 --> 00:55:01,250

It's a socioeconomic hedge.


936

00:55:01,250 --> 00:55:04,090

There are lots of investment, there are lots of ETFs out there.


937

00:55:04,090 --> 00:55:08,490

If you believe that companies should be environmentally sustainable


938

00:55:08,490 --> 00:55:12,150

and that their corporate boards should have official policies that


939

00:55:12,150 --> 00:55:16,250

mandate sustainability in one sense or another,


940

00:55:16,250 --> 00:55:20,350

there are ETFs that will only invest in those companies.


941

00:55:20,430 --> 00:55:23,850

It's possible to be basically an ideological investor


942

00:55:23,850 --> 00:55:26,290

if you really care about sustainability


943

00:55:26,450 --> 00:55:30,490

and there's an investment for you.


944

00:55:30,490 --> 00:55:33,750

If, for example, like say Islamic finance --


945

00:55:33,750 --> 00:55:37,910

they are not cool with the idea of interest being paid on loans,


946

00:55:37,910 --> 00:55:41,890

so you have another subset of Islamic finance investments


947

00:55:41,890 --> 00:55:45,410

that don't involve paying interest on loans.


948

00:55:45,630 --> 00:55:51,890

Monero - if you look at it in a similar lens - is basically an ideal hedge


949

00:55:51,890 --> 00:55:54,710

for people who have two characteristics.


950

00:55:54,710 --> 00:55:58,570

One is that they're concerned about mismanagement and corruption


951

00:55:58,570 --> 00:56:02,210

on the part of central banks managing Fiat


952

00:56:02,210 --> 00:56:08,370

and two, they're gravely disturbed by the state of surveillance capitalism


953

00:56:08,370 --> 00:56:13,150

in which everything about all of us is recorded all the time


954

00:56:13,150 --> 00:56:15,910

and will stay forever,


955

00:56:16,150 --> 00:56:20,350

and we have little or no control over that.


956

00:56:21,210 --> 00:56:22,950

It's done in the name of security


957

00:56:22,950 --> 00:56:26,950

but unfortunately, if you push that line too far,


958

00:56:26,950 --> 00:56:30,290

you cease to become an open and free society.


959

00:56:30,290 --> 00:56:37,270

There are reasons that we, in the West, have put limits on the powers of government


960

00:56:37,270 --> 00:56:43,750

and that is because of an awareness of what happens when there are no limits on the powers of government.


961

00:56:44,310 --> 00:56:46,710

A project like Monero is a hedge --


962

00:56:46,710 --> 00:56:51,230

it's basically a "put your money where your mouth is" kind of thing


963

00:56:51,230 --> 00:56:55,030

for people who have strong feelings on those two points --


964

00:56:55,250 --> 00:56:57,990

it's just going to attract investors.


965

00:56:57,990 --> 00:57:03,670

Gresham's law is an economic concept that the best form of money gets hoarded.


966

00:57:03,670 --> 00:57:05,910

People keep the best kind of money


967

00:57:05,910 --> 00:57:09,750

and the inferior form of money, they're going to use that to spend.


968

00:57:09,750 --> 00:57:13,130

But the good stuff, they're going to keep for themselves. That's Gresham's law.


969

00:57:13,390 --> 00:57:15,450

So with Monero, this tends to happen.


970

00:57:15,450 --> 00:57:18,190

A lot of people in Monero used to be in Bitcoin,


971

00:57:18,190 --> 00:57:20,830

but now, whenever they deal with Bitcoin,


972

00:57:20,830 --> 00:57:27,430

they find their heads consumed with all these worries about traceability


973

00:57:28,710 --> 00:57:30,390

and so on.


974

00:57:30,390 --> 00:57:32,070

It's refreshing to come to Monero


975

00:57:32,070 --> 00:57:33,330

where you don't have to worry about that


976

00:57:33,330 --> 00:57:35,430

because the currency is actually fungible.


977

00:57:35,430 --> 00:57:38,650

And because it's fungible, it becomes a superior form of money


978

00:57:38,650 --> 00:57:41,030

that gets hoarded by Gresham's law.


979

00:57:41,030 --> 00:57:46,050

That's another tendency that's going to happen to people:  to want to keep the Monero


980

00:57:46,050 --> 00:57:48,230

and spend the other stuff.


981

00:57:48,310 --> 00:57:50,230

Also, capital gains taxes:


982

00:57:50,230 --> 00:57:52,790

at least in America, and I believe in Germany too,


983

00:57:52,790 --> 00:57:57,090

if you hold an asset for over a year in Germany, you don't have to pay gains on it.


984

00:57:57,090 --> 00:57:59,930

That's what I've read. Is that right in Germany?  (nods)


985

00:58:00,370 --> 00:58:03,250

Basically, the tax law


986

00:58:03,250 --> 00:58:07,790

promotes looking at those cryptocurrency projects that are solid


987

00:58:07,790 --> 00:58:10,750

and have a real reason to exist


988

00:58:10,750 --> 00:58:14,170

and so that is also going to attract investment money to Monero.


989

00:58:14,170 --> 00:58:20,190

The question is: can these new investors integrate into the community?


990

00:58:20,430 --> 00:58:23,450

Part of what I do as a consultant is I try to bridge these worlds.


991

00:58:23,450 --> 00:58:27,150

I try to take these new investors


992

00:58:28,070 --> 00:58:32,310

whose inclination might be to want to talk to the "manager of Monero"


993

00:58:32,310 --> 00:58:35,310

and have a word with them about the release schedule.


994

00:58:35,310 --> 00:58:37,590

And they want this, and this and this feature


995

00:58:37,630 --> 00:58:39,590

built into the next release --


996

00:58:39,590 --> 00:58:41,230

basically, this whole mentality of


997

00:58:41,230 --> 00:58:46,310

"I own some tokens therefore I'm your customer and you have to do what I say"


998

00:58:46,310 --> 00:58:50,550

which of course falls completely flat on its face in any open-source project


999

00:58:50,550 --> 00:58:53,650

as that's not how changes happen in Linux.


1000

00:58:53,650 --> 00:58:56,130

Nobody goes to Linus and demands,


1001

00:58:56,130 --> 00:59:00,810

makes ultimatums on what they want to see in the next rollout.


1002

00:59:01,090 --> 00:59:03,470

Basically, one thing that I'm doing is


1003

00:59:03,470 --> 00:59:06,730

trying to bridge these worlds of the traditional investment world


1004

00:59:06,730 --> 00:59:10,450

and that of the OG, cryptocurrency open-source world


1005

00:59:10,450 --> 00:59:12,450

that's surrounding us here.


1006

00:59:12,450 --> 00:59:13,770

Community investors,


1007

00:59:13,770 --> 00:59:16,930

I posit are kind of a subset of investors that


1008

00:59:16,930 --> 00:59:21,530

can be valued members of the community.  Instead of being


1009

00:59:21,530 --> 00:59:23,690

entitled and thinking that they're customers,


1010

00:59:23,690 --> 00:59:27,230

they'll take the attitude that they're helping to bear financial risk


1011

00:59:27,230 --> 00:59:29,130

on behalf of the project.


1012

00:59:29,410 --> 00:59:33,270

They will do things like take self-custody of their coins


1013

00:59:33,270 --> 00:59:36,710

and not just leave them on exchange - which lots of people do.


1014

00:59:36,710 --> 00:59:39,450

Lots of people leave their crypto on exchanges


1015

00:59:39,450 --> 00:59:41,990

then the exchange gets hacked, they lose their money.


1016

00:59:41,990 --> 00:59:44,630

The reality is: if the money is on the exchange,


1017

00:59:44,630 --> 00:59:46,930

you don't own the private key and it's not your crypto.


1018

00:59:46,930 --> 00:59:49,430

It's actually an IOU that you own for crypto,


1019

00:59:49,430 --> 00:59:51,850

it's not crypto that you own


1020

00:59:52,550 --> 00:59:59,090

and there's a kind of a list of aspects that I think are proper for


1021

00:59:59,090 --> 01:00:06,670

a community type of investor to be a solid member of the Monero community.


1022

01:00:08,030 --> 01:00:10,910

One thing to do, also, is to make sure that


1023

01:00:10,910 --> 01:00:16,150

there are proper legal structures around one's ownership of cryptocurrency.


1024

01:00:16,150 --> 01:00:24,470

One of the subsets of the traditional finance world that I help to bridge with cryptocurrencies is that of trusts.


1025

01:00:24,470 --> 01:00:28,070

In a statutory law kind of regime like Germany,


1026

01:00:28,070 --> 01:00:30,330

the whole concept of trust might be a little foreign


1027

01:00:30,330 --> 01:00:32,490

because it comes from English common law.


1028

01:00:32,490 --> 01:00:36,390

But the idea is that a trust is a legal entity,


1029

01:00:36,390 --> 01:00:37,370

it's a legal thing.


1030

01:00:37,370 --> 01:00:38,930

It's kind of a company


1031

01:00:38,930 --> 01:00:42,510

but it's a different category of legal structure.


1032

01:00:42,510 --> 01:00:44,910

A trust is a


1033

01:00:44,910 --> 01:00:48,690

kind of a holding vessel for funds that


1034

01:00:48,690 --> 01:00:53,890

a giver wants to give to beneficiaries but not immediately.


1035

01:00:54,250 --> 01:00:55,870

Basically, there are three people involved.


1036

01:00:55,870 --> 01:01:00,310

There's a grantor who has wealth and wants to transfer it to the beneficiaries


1037

01:01:00,310 --> 01:01:03,830

but not just outright, they want the money to go into a trust.


1038

01:01:03,830 --> 01:01:07,290

The grantor will work to make the rules of the trust


1039

01:01:07,290 --> 01:01:10,670

and then transfer property into the trust


1040

01:01:10,670 --> 01:01:13,170

as part of the document that defines the trust,


1041

01:01:13,170 --> 01:01:17,450

you have a list of beneficiaries who could ultimately benefit from the property


1042

01:01:17,450 --> 01:01:20,190

and then you have a third party which is the trustee.


1043

01:01:20,190 --> 01:01:24,430

The trustee is the legal owner of the assets that are given into trust


1044

01:01:24,430 --> 01:01:27,710

but the legal owner is with conditions.


1045

01:01:27,710 --> 01:01:30,530

The legal owner cannot do whatever they want with the property,


1046

01:01:30,530 --> 01:01:35,110

they have to follow the instructions that are in the trust document.


1047

01:01:36,230 --> 01:01:40,530

In effect, this is what crypto people would think of as a smart contract.


1048

01:01:40,530 --> 01:01:44,770

It's kind of the original old-school legal contract


1049

01:01:44,770 --> 01:01:50,090

and if you're careful with


1050

01:01:50,090 --> 01:01:54,270

which jurisdictions you place the various players in the trust,


1051

01:01:54,270 --> 01:01:57,510

there are advantages that can be had --


1052

01:01:57,510 --> 01:02:00,330

which are very dependent on jurisdiction,


1053

01:02:00,330 --> 01:02:04,350

and it's just completely impossible for me to spell it out


1054

01:02:04,350 --> 01:02:06,110

because of the complexity of this --


1055

01:02:06,110 --> 01:02:10,710

but possible benefits are legal tax reduction,


1056

01:02:10,710 --> 01:02:12,790

protection from being sued.


1057

01:02:12,790 --> 01:02:16,350

In other words, if money is in a trust,


1058

01:02:16,350 --> 01:02:19,870

it's not the giver's money anymore,


1059

01:02:19,870 --> 01:02:22,970

it's not the wealth owner's money anymore, it's the trus't money.


1060

01:02:22,970 --> 01:02:26,830

If somebody sues the wealth owner, the wealth is gone.


1061

01:02:26,830 --> 01:02:29,290

It's not theirs anymore, it belongs the trust.


1062

01:02:29,290 --> 01:02:34,290

And then there are trust laws that protect that money from lawsuits as well.


1063

01:02:34,930 --> 01:02:38,210

Most people think "well, you know, I'm at low risk.


1064

01:02:38,210 --> 01:02:42,230

I'm a nice guy I don't hurt anybody, nobody's going to sue me".


1065

01:02:42,230 --> 01:02:46,230

But one glaring exception to this is divorce.


1066

01:02:46,230 --> 01:02:53,410

People routinely get robbed by people who they only recently married


1067

01:02:53,410 --> 01:02:57,730

and it turns out that irrevocable trusts made before marriage --


1068

01:02:57,730 --> 01:03:00,190

you have to do it before or otherwise it won't count --


1069

01:03:00,190 --> 01:03:06,210

but it's one of the only things that can survive a challenge.


1070

01:03:07,430 --> 01:03:09,190

Also, legal enhanced privacy


1071

01:03:09,190 --> 01:03:12,330

so depending on the jurisdiction in which you place the trust,


1072

01:03:12,330 --> 01:03:18,550

you could benefit from enhanced privacy protecting those assets.


1073

01:03:18,550 --> 01:03:21,890

Actually, relevant to people who are not Americans,


1074

01:03:21,970 --> 01:03:24,350

you may or may not be aware of this,


1075

01:03:24,350 --> 01:03:29,130

but there's a saying within estate planning and wealth management


1076

01:03:29,130 --> 01:03:32,010

that "America is the new Switzerland."


1077

01:03:32,210 --> 01:03:37,030

And this is because America has laws that are asymmetric.


1078

01:03:37,030 --> 01:03:40,970

America has a law called FATCA, which was put in by Obama,


1079

01:03:40,970 --> 01:03:49,110

which requires worldwide financial institutions to send data on Americans back to the IRS.


1080

01:03:49,110 --> 01:03:52,950

This is why it's almost impossible for an American to get a German bank account


1081

01:03:53,030 --> 01:03:55,790

because the German bank account


1082

01:03:55,790 --> 01:03:59,670

will have a whole bunch of burdensome reporting requirements


1083

01:03:59,670 --> 01:04:03,390

to the IRS to take on this American customer.


1084

01:04:03,610 --> 01:04:05,450

That's why Americans have a lot of trouble


1085

01:04:05,450 --> 01:04:09,110

when they go overseas to work.


1086

01:04:09,550 --> 01:04:13,910

In reaction to this, the other countries of the world came up with what's called CRS


1087

01:04:13,910 --> 01:04:16,070

which is the "Common Reporting Standard."


1088

01:04:16,250 --> 01:04:19,830

The idea is the same, for example:


1089

01:04:19,830 --> 01:04:22,950

one European government wants to make sure that


1090

01:04:23,130 --> 01:04:27,190

its citizens are not trying to hide money in Australia,


1091

01:04:27,230 --> 01:04:30,630

so they sign this like agreement


1092

01:04:30,710 --> 01:04:34,190

for all these countries to share financial information with each other


1093

01:04:34,190 --> 01:04:37,510

to make sure that nobody's cheating on their taxes.


1094

01:04:37,770 --> 01:04:41,370

There's basically a bunch of countries that have signed on to this CRS


1095

01:04:41,370 --> 01:04:44,210

but America is not one of them.


1096

01:04:44,730 --> 01:04:46,550

Thus lies the asymmetry


1097

01:04:47,250 --> 01:04:53,170

that for US citizens who doing affairs abroad,


1098

01:04:53,170 --> 01:04:55,170

like legitimate businesses abroad,


1099

01:04:55,170 --> 01:04:58,010

all of that information gets sent back to the IRS.


1100

01:04:58,010 --> 01:05:03,570

But for a non-US person who sets up financial affairs in the US,


1101

01:05:03,570 --> 01:05:08,330

there is no obligation for the US to send the information back to the home country.


1102

01:05:08,550 --> 01:05:13,510

So, thus the saying, "America is the new Switzerland."


1103

01:05:15,630 --> 01:05:17,530

My reason for going into all that


1104

01:05:17,530 --> 01:05:22,470

is that Monero is a project that is important for humanity


1105

01:05:22,470 --> 01:05:28,950

and I think that for people who are in custody of Monero,


1106

01:05:28,950 --> 01:05:31,110

it's an important job for them


1107

01:05:31,110 --> 01:05:33,750

to basically sort this stuff out.


1108

01:05:33,750 --> 01:05:37,230

Figure out what's going to happen when you die


1109

01:05:38,510 --> 01:05:40,750

and ideally, figure that stuff out,


1110

01:05:40,750 --> 01:05:42,290

maybe make a trust


1111

01:05:42,290 --> 01:05:45,550

that kind of executes all these things while you're alive --


1112

01:05:45,550 --> 01:05:49,890

then you have more control over it while you're alive than when you're dead.


1113

01:05:50,050 --> 01:05:55,250

Basically, that's going to avoid this kind of situation where a lawsuit causes


1114

01:05:55,250 --> 01:05:58,910

Monero to be handed over, liquidated,


1115

01:05:58,910 --> 01:06:01,190

basically, things that are not good for the network --


1116

01:06:01,190 --> 01:06:07,930

this stuff needs to be kind of held and taken care of.


1117

01:06:09,250 --> 01:06:12,590

I am over time.  So unfortunately,


1118

01:06:12,590 --> 01:06:18,670

the section that I had on asset correlations is...


1119

01:06:18,670 --> 01:06:23,550

I'm just going to maybe show one slide.


1120

01:06:24,870 --> 01:06:27,330

This is kind of a complicated one but


1121

01:06:27,330 --> 01:06:33,010

this is showing the degree to which the monthly ups and downs of Monero


1122

01:06:33,010 --> 01:06:35,910

versus the monthly ups and downs of Bitcoin


1123

01:06:35,910 --> 01:06:39,590

versus the monthly ups and downs of the US stock market,


1124

01:06:39,590 --> 01:06:42,690

the US bond market and gold.


1125

01:06:43,790 --> 01:06:46,810

For example, this square here


1126

01:06:46,810 --> 01:06:50,130

is showing the intersection of Monero and Bitcoin.


1127

01:06:50,130 --> 01:06:53,530

On this axis you see the Monero return,


1128

01:06:53,530 --> 01:06:56,210

on this axis you see the Bitcoin return.


1129

01:06:56,210 --> 01:07:00,110

You can see that on months when Monero does well,


1130

01:07:00,110 --> 01:07:02,110

Bitcoin also tends to do well.


1131

01:07:02,110 --> 01:07:05,250

You have this kind of pattern, this correlation.


1132

01:07:06,030 --> 01:07:11,530

Here you can also see that there's some really extreme outlier months for Monero in the positive though.


1133

01:07:11,530 --> 01:07:16,950

This particular month, Monero basically quadrupled in one month.


1134

01:07:17,470 --> 01:07:18,930

This is part of owning crypto --


1135

01:07:18,930 --> 01:07:22,390

that you're on this really wild rollercoaster ride --


1136

01:07:22,390 --> 01:07:25,590

and you need to kind of be able to deal with that.


1137

01:07:25,590 --> 01:07:27,130

But what this is showing is that


1138

01:07:27,130 --> 01:07:30,890

there is a correlation between the returns of Monero and Bitcoin.


1139

01:07:30,890 --> 01:07:32,230

That's a .4 correlation.


1140

01:07:32,230 --> 01:07:35,270

A 1.00 correlation is perfectly correlated.


1141

01:07:35,270 --> 01:07:37,070

They go up and down together.


1142

01:07:37,070 --> 01:07:41,150

Negative 1 is the opposite. If one goes up, the other goes down.


1143

01:07:41,310 --> 01:07:43,210

In Modern Portfolio Theory --


1144

01:07:43,210 --> 01:07:47,110

and this is true for also your own personal portfolio, it's an idea to think about --


1145

01:07:47,110 --> 01:07:52,250

if you have two assets who you expect to do well in the future


1146

01:07:53,650 --> 01:07:56,410

and they're uncorrelated, in other words,


1147

01:07:56,410 --> 01:08:01,110

when one asset goes up the other is flat or maybe the other one goes down,


1148

01:08:01,110 --> 01:08:06,510

in other words, the ups and downs from day to day of these two different assets


1149

01:08:06,510 --> 01:08:08,630

tend to cancel each other out.


1150

01:08:08,630 --> 01:08:10,510

If you have that situation


1151

01:08:10,510 --> 01:08:14,170

then if you make a portfolio out of both of those assets


1152

01:08:14,170 --> 01:08:17,890

your combined volatility is going to be improved.


1153

01:08:17,890 --> 01:08:19,510

It's going to be reduced


1154

01:08:19,510 --> 01:08:24,590

because the components that you're adding are anti-correlated.


1155

01:08:25,250 --> 01:08:27,710

This is a very big deal for Wall Street investors


1156

01:08:27,770 --> 01:08:34,530

because it turns out correlation structure tends to be more dependable and long-lived


1157

01:08:34,530 --> 01:08:37,050

than predictions of outperformance, so


1158

01:08:37,050 --> 01:08:39,710

correlation structures tend to persist.


1159

01:08:40,590 --> 01:08:44,330

Wall Street is always looking for sources of uncorrelated alpha.


1160

01:08:44,610 --> 01:08:52,010

For example, if you look at the correlation of Monero with traditional assets like US stocks, we have 0.01.


1161

01:08:53,130 --> 01:08:55,830

An idea to think about is that


1162

01:08:55,830 --> 01:09:00,150

putting together assets that wiggle in different ways can be


1163

01:09:00,150 --> 01:09:02,990

a positive force for your overall portfolio.


1164

01:09:02,990 --> 01:09:06,270

Now again, as I mentioned, this is only talking about correlation structure.


1165

01:09:06,270 --> 01:09:09,610

This is like the ups and downs. This is not talking about


1166

01:09:09,610 --> 01:09:11,590

"is the price going to go up in the future."


1167

01:09:11,590 --> 01:09:14,430

That's a different question.


1168

01:09:17,010 --> 01:09:19,310

Let me show this and then I'll finish.


1169

01:09:19,310 --> 01:09:24,230

I'm sorry, I'm going over -- but I guess there's no one after me --


1170

01:09:24,230 --> 01:09:26,570

but I'll try to make it quick.


1171

01:09:27,830 --> 01:09:32,890

I think what I'm showing here is pretty much the only asset price chart you need


1172

01:09:32,890 --> 01:09:35,050

and that is a very long term view.


1173

01:09:35,170 --> 01:09:40,090

This is showing from the beginning of cryptocurrency, 2009 to 2020.


1174

01:09:40,090 --> 01:09:41,770

This is 11 years of history


1175

01:09:41,770 --> 01:09:46,610

and you almost never see this in the crypto bloggers


1176

01:09:46,610 --> 01:09:48,870

or people on YouTube blabbing about crypto.


1177

01:09:48,870 --> 01:09:51,770

They're always focused on what happened yesterday.


1178

01:09:53,350 --> 01:09:55,730

It's totally a distraction


1179

01:09:55,730 --> 01:09:58,150

for anyone who has a long term view.


1180

01:09:59,190 --> 01:10:04,610

So, I would suggest whenever looking at crypto as an asset, to zoom out on the horizontal scale


1181

01:10:04,610 --> 01:10:06,910

and also zoom out on the vertical scale.


1182

01:10:07,430 --> 01:10:12,930

What I'm showing here:  each of these [y axis] divisions is a factor of 10.


1183

01:10:12,930 --> 01:10:17,370

Here we have 1 cent, 1 dollar and 10 thousand dollars.


1184

01:10:17,450 --> 01:10:25,150

This is an initial investment of one euro becoming 10 million euros, that's the scale.


1185

01:10:25,150 --> 01:10:26,950

And on this sort of scale,


1186

01:10:26,950 --> 01:10:29,490

all of these ups and downs


1187

01:10:29,490 --> 01:10:32,530

which seem big, disappear.


1188

01:10:32,530 --> 01:10:35,250

For example, let's look at the S&P 500,


1189

01:10:35,250 --> 01:10:37,130

the US stock market.


1190

01:10:37,130 --> 01:10:39,070

If you're involved at all in the stock market,


1191

01:10:39,070 --> 01:10:43,390

you know that December 2019 has been a very good month.


1192

01:10:43,390 --> 01:10:45,890

We're talking 15% up


1193

01:10:45,890 --> 01:10:48,230

which is really big for the stock market.


1194

01:10:48,230 --> 01:10:53,630

But if you look on this scale, it's like a pixel.


1195

01:10:56,850 --> 01:11:00,210

I think this underlines the decision


1196

01:11:00,210 --> 01:11:05,110

that anyone has when thinking about cryptocurrency as a possible investment.


1197

01:11:05,110 --> 01:11:08,350

It's this baby. It's still a baby.


1198

01:11:08,350 --> 01:11:12,370

It's amazing because it's gone up orders of magnitude


1199

01:11:12,370 --> 01:11:16,750

and yet compared to other assets, it's still a baby.


1200

01:11:16,750 --> 01:11:18,430

This next chart shows that.


1201

01:11:18,430 --> 01:11:20,410

What I've done here is --


1202

01:11:20,410 --> 01:11:27,150

it's hard to understand if somebody tells you that the price of Bitcoin is $7,000.


1203

01:11:27,150 --> 01:11:32,330

It's hard to know whether that's high or low. Who knows?


1204

01:11:35,990 --> 01:11:37,430

It's just really hard to know


1205

01:11:37,530 --> 01:11:39,790

because it's just one Bitcoin


1206

01:11:39,790 --> 01:11:41,790

and it's hard to put that in perspective.


1207

01:11:41,790 --> 01:11:43,790

What I've done here is I've taken the


1208

01:11:44,130 --> 01:11:48,010

value of all of the Bitcoin in existence.


1209

01:11:48,670 --> 01:11:53,270

Starting from the beginning of Bitcoin, as time goes on,


1210

01:11:53,270 --> 01:11:56,210

more Bitcoins got rewarded to miners


1211

01:11:56,210 --> 01:11:58,550

so there have been more Bitcoins in existence


1212

01:11:58,550 --> 01:12:01,110

and the price has been going up and down.


1213

01:12:01,110 --> 01:12:04,470

I multiplied the number of Bitcoins in existence by the current price


1214

01:12:04,470 --> 01:12:06,750

and that gives you the market cap.


1215

01:12:06,750 --> 01:12:09,630

What I've done with that is I've divided that


1216

01:12:09,630 --> 01:12:15,930

by the value of all of the gold, above ground, in the world.


1217

01:12:15,930 --> 01:12:19,510

All of the gold that has been already been dug out of the ground


1218

01:12:19,510 --> 01:12:22,110

and is sitting in vaults around the world


1219

01:12:22,110 --> 01:12:24,150

and owned mostly by central governments,


1220

01:12:24,150 --> 01:12:26,370

but also a good amount is in jewelry, and so on,


1221

01:12:26,370 --> 01:12:28,370

and there are estimates of this.


1222

01:12:28,750 --> 01:12:33,450

Basically, there are estimates for how much gold there is in the world at any given time


1223

01:12:33,450 --> 01:12:36,670

so I've divided the value of all the world's Bitcoin


1224

01:12:36,670 --> 01:12:39,090

divided by the value of all the world's gold.


1225

01:12:39,090 --> 01:12:42,190

And I've done that for 11 years.


1226

01:12:42,190 --> 01:12:44,250

What you can see here is that,


1227

01:12:44,250 --> 01:12:49,530

currently, the value of all the Bitcoin in the world is about 1% of that of all the gold.


1228

01:12:49,530 --> 01:12:53,770

In other words, all the gold is worth a hundred times what all the Bitcoin is worth.


1229

01:12:53,770 --> 01:12:56,470

And if you do that for Monero --


1230

01:12:56,470 --> 01:13:00,610

and, arguably, this analogy is even more apt for Monero,


1231

01:13:00,610 --> 01:13:04,670

because when you turn a bar of gold over,


1232

01:13:04,670 --> 01:13:07,890

you don't see a list of everyone who owned that bar of gold,


1233

01:13:07,890 --> 01:13:09,130

you just see gold --


1234

01:13:09,450 --> 01:13:12,530

Monero acts more like actual gold than Bitcoin does,


1235

01:13:12,530 --> 01:13:16,490

therefore, it makes more sense to make a ratio of all the world's Monero,


1236

01:13:16,490 --> 01:13:17,670

how much is that worth --


1237

01:13:17,670 --> 01:13:20,250

divided by how much all the world's gold is worth


1238

01:13:20,250 --> 01:13:25,650

if you do that, we're looking at 1/100 of 1%.


1239

01:13:26,690 --> 01:13:32,930

That's what I mean when I say that this asset class is still a baby, it's still early.


1240

01:13:33,050 --> 01:13:37,210

Things could go well for it, things could go very wrong for it.


1241

01:13:37,350 --> 01:13:39,790

There could be a bug that nobody knows about.


1242

01:13:39,790 --> 01:13:42,690

There could be governmental action which a lot of people


1243

01:13:42,690 --> 01:13:44,050

I think overly worry about


1244

01:13:44,050 --> 01:13:50,190

because I think we geeks tend to think of governments as being like Reddit moderators


1245

01:13:50,190 --> 01:13:52,050

with ban power.


1246

01:13:52,050 --> 01:13:54,110

And that's not really how governments work,


1247

01:13:54,110 --> 01:13:56,110

it's a bit more deliberative --


1248

01:13:56,110 --> 01:14:00,110

and if an unjust ban happens, there are things like the Supreme Court


1249

01:14:00,110 --> 01:14:04,190

that might be asked to decide whether, for example,


1250

01:14:04,190 --> 01:14:09,850

Americans have a fundamental right to transact value in a private manner.


1251

01:14:09,850 --> 01:14:14,630

This could be a court case that comes up in the future


1252

01:14:15,210 --> 01:14:16,290

put forth by people


1253

01:14:16,290 --> 01:14:20,190

who really care about privacy as a fundamental human right.


1254

01:14:20,870 --> 01:14:24,440

I'll leave with that, and thanks for your attention.