Unlocking Privacy on Ethereum with Paul Brody

Paul Brody is the head of EY’s blockchain business. EY is Ernst & Young, one of the “big 4” global professional services and accounting firms. He’s been at EY for nearly 8 years now and before that he was a VP at IBM where he started IBM’s first blockchain project. Paul is deeply intertwined with the Ethereum community as well as enterprise use cases. If anyone is going to crack the nut of Enterprise use cases for public blockchains, it's going to be him. ------ Crypto Tax Calculator | Free Crypto Tax Calculator https://bankless.cc/CTCpodcast ------ JOIN BANKLESS PREMIUM: https://newsletter.banklesshq.com/subscribe ------ BANKLESS SPONSOR TOOLS: KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://bankless.cc/kraken UNISWAP | ON-CHAIN MARKETPLACE https://bankless.cc/uniswap ️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum EARNIFI | CLAIM YOUR UNCLAIMED AIRDROPS https://bankless.cc/earnifi ----- Timestamps: 0:00 Intro 7:00 Enterprise Blockchains 11:20 Public vs. Private Blockchains 15:00 Use Cases 18:36 Supply Chains vs. Digital Money 22:00 Disruption 23:55 Network Effects 26:40 EY's Nightfall 30:50 Low-Cost Transactions 37:30 Tokenizing the World 41:50 Real-World Assets 47:10 Transactions 50:44 Stablecoin Adoption 54:15 DeFi Integration 56:35 Operating Nightfall 59:40 Nightfall Roadmap 1:01:35 Why EY 1:05:15 Enterprise Blockchain Burn Leaderboard 1:08:40 Action Items & Disclaimers ----- Resources: Paul Brody https://twitter.com/pbrody ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:07Ryan Sean Adams?

  Bankless Nation, we're talking about privacy on Ethereum and enterprise blockchain. We have Paul Brody from EY, that's Ernst & Young, on the episode today. Paul's been a longtime, I think, member of the Ethereum community, advocate for enterprise blockchain, also has this project called Nightfall, David, that we want to get into, which is EY's

• 0:30David Hoffman?

  Software suite.

• 0:31Ryan Sean Adams?

  Basically, it's a software suite. It's a Layer 2 technology as well. I believe it's a roll-up that we can find out a little bit more, and it's privacy-centric. And so there's a lot to unpack here, David. What are we going to cover today?

• 0:45David Hoffman?

  The concept of enterprise blockchain is a big one. There's, of course, IBM Hyperledger that has previously captured a bunch of mindshare. There's the concept of putting supply chains on blockchains. But overall, just like enterprise blockchain is a big subject that has failed to start for so long now. And it's always been about like, why? Why is that true? And Paul Brody is, I think, the only person I think I really trust with actually being the correct visionary for this whole world of enterprise blockchain. He's been both straddling the deep core Ethereum community while also leading up EY's blockchain effort. And I think that, and that's why I kind of only believe that it's really Paul Brody to

• 1:30David Hoffman?

  really is the one that is building out this ecosystem, this universe of enterprise blockchain. So we're going to lay the foundations of what is enterprise blockchain? What does it mean? And why hasn't it gotten started yet? And what EY is coming to the crypto world today, this last week with a recent Nightfall release, hopefully is the key ingredient that really unlocks this vast, vast world of enterprise blockchain.

• 1:54Ryan Sean Adams?

  There we go. Help us, Paul Brody, you're our only hope here. Before we get in, I want to talk a little bit about our friends and sponsors. This is the Crypto Tax Calculator, because guess what, David? Like it or not, it's tax season, my friend.

• 2:06David Hoffman?

  Isn't it always tax season?

• 2:08Ryan Sean Adams?

  It's always tax season somewhere.

• 2:10David Hoffman?

  Yeah.

• 2:10Ryan Sean Adams?

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• 2:56Ryan Sean Adams?

  And I'm left just scratching my head because the complex transactions are actually the ones you need the most help on.

• 3:02David Hoffman?

  Right. And they're the ones you can't mess up. Yeah.

• 3:04Ryan Sean Adams?

  Yeah, you can't mess them up.

• 3:06David Hoffman?

  Doing them 50% is worse than doing them not at all.

• 3:09Ryan Sean Adams?

  Yeah. And like, look, you don't want to spend any time on taxes any more than you have to. This is like, this will save you many hours, I think, of work. And also, David, we do have a discount, I believe, that we negotiated with Crypto Tax Calculator. For the Bankless Nation, for the Bankless Community, how can folks tap into that discount?

• 3:30David Hoffman?

  There is a link in the show notes, first to get your, get access to Crypto Tax Calculator. That link is bankless.cc/cryptotaxcalculator. And then if you use code BANK30, you get 30% off. But if you are a Bankless Premium member, there is a link in the Discord for 40% off. So make sure to go into the Discord to get your extra 10%.

• 3:49Ryan Sean Adams?

  Secret links. All right. We're going to get right to the episode with Paul. And last thing before we do, David, and what should people be looking out for in this episode? What are some questions, I guess, that we want answered?

• 4:01David Hoffman?

  Yeah, I think it's pretty easy to make the claim that we are just at the very beginning of broad crypto use cases for the world. Like, we are maybe 1% to 5% unlocked of all total crypto use cases. One of the big untapped fields out there is crypto use cases for enterprises, for large-scale entities that straddle the world of digital online payments but real-world physical goods. How can blockchains enable commerce, especially when there's real supply chains on one end and digital payments on the other? How do these two worlds map onto each other? And how can we use blockchains to help facilitate this world? That is one

• 4:42David Hoffman?

  of the big untapped fields that crypto has yet to pioneer into. And asking why not, why haven't we gotten there yet, is, I think, a question only Paul Brody can answer. And so this is going to be the start of the rabbit hole that maybe piques the interest of many, many Bankless listeners.

• 4:59Ryan Sean Adams?

  All right, guys, we're going to get right to the episode with Paul. But before we do, we want to tell you about the sponsors that made this possible, especially starting with Kraken, which is our recommended crypto exchange for 2023. Thank you, Kraken.

• 5:11David Hoffman?

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• 5:16David Hoffman?

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• 6:00David Hoffman?

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• 6:41David Hoffman?

  You can also upgrade to Earnify Premium to unlock access to airdrops that are beyond the basics and are able to set reminders for more wallets. And for just under $21 a month, it probably pays for itself with just one airdrop. So plug in your wallets at Earnify and see what you get. That's E A R N I dot F I. And make sure you never lose another airdrop. Bankless Nation, I want to introduce you to Paul Brody. He is the head of EY's blockchain business. EY is of course Ernsting and Young, one of the big four global professional services and accounting firms. He has been at EY for nearly eight years. Before that, he was VP at IBM where he started IBM's first blockchain project. So he has been around the block and like I've said in the intro, I've had very high praise for Paul.

• 7:25David Hoffman?

  He's been straddling the world of Ethereum, deep core Ethereum and enterprise blockchain use cases. And you know, most people who work on enterprise blockchain, you know, private blockchains, like intra networks. In my mind, they don't really get it, but Paul has been deep into the weeds of the Ethereum community as well as enterprise use cases. And so if anyone's going to crack the nut of enterprise use cases for public blockchains, it's going to be Paul. At least that's my idea. Paul, welcome to Bankless.

• 7:55Speaker 02

  Guys, thank you so much. I really appreciate it. And thank you also for the kind words, not just now, but in the past. I, I know when you guys say like my name or the EY name, because my, my text messages start blowing up like, hey, Paul, I'm listening to the bankless. They're talking about like you guys. So I know, I mean, the people I respect, respect you guys and listen to you. So thank you so much for having me on. I really appreciate it. It's great to be here.

• 8:18David Hoffman?

  Well, cheers, man. There's so much to unpack, and I know there's a great world out there that we want to bring forth onto Ethereum. And that world is, of course, enterprise blockchain. But I think this could be, this could use some definitions because this is not really something that like the many or the community is really used to. This is an interesting new topic field for them. What is enterprise blockchain? Like, why is this such a big thing?

• 8:42Speaker 02

  So I think enterprise blockchain is, is, is, and should be a big deal. Maybe I'll start with what is it? So in my mind, enterprise blockchain is really just enterprises using blockchains in order to run their business transactions. Right? So, and, and what I really mean is basically almost every business transaction kind of boils down to this. One party has money, the other party has stuff, and I can represent the money and the stuff as digital tokens. And I can represent the exchange under the terms of an agreement as a smart contract. And so when I think about enterprise blockchain, I think about all the things that can be done under that message. What I don't think of as enterprise blockchain is just like some specific blockchain only for enterprises.

• 9:25David Hoffman?

  Right. And that's always been the thing that has always raised a flag for me when it comes to these private blockchains that they haven't really been in conversation in a number of years now. But for a while, I remember in 2017, 2018, there was always this very big hype about public versus private blockchains. And a lot of the core crypto Bitcoin community was like, private blockchains, the whole point about these things are that they are public, that they are, they're cool. I'm wondering if you could just take us down memory lane about this, like the progress of how we've understood private versus public blockchains as a release to enterprises.

• 9:59Speaker 02

  So that whole history is, is a really fraught history because, and it goes to the heart of why blockchains haven't caught on very far inside the enterprise, which is a couple of things. Number one, private blockchains doesn't work. And all the people in the crypto community who are like, yeah, this is crazy, they're right. They were always right. Like this idea that you would want to have a centrally run decentralized ledger, it doesn't make sense if you spend even a couple of minutes thinking about it. So first of all, nobody wants to join these like private. Fully private sort of ecosystems. They're just like a web two dot of business model with a little bit of web three pixie dust sprinkled on top. That doesn't work, right? If we're going to do this, if the value prop is decentralization, no centralized monopoly. And then the second issue has been very simply privacy.

• 10:43Speaker 02

  Public blockchains, the way that I was explaining was this, the way they work, the way they work without central authority is I'm checking your work and you're checking my work. And so if we hide the work, by default, public blockchains are designed for a lack of privacy. And so you have to think very, very carefully about how you would design something for privacy. Because enterprises care a lot about privacy. They don't want to share all that information about what they're doing, how much they're paying. But they really do like the idea of a system that doesn't have a potential future predatory monopolist right in the middle.

• 11:17Ryan Sean Adams?

  So I want to make the distinction, Paul, between some of these words so that listeners aren't confused by this. So you're saying enterprises don't actually want pu- private blockchains. They want a public blockchains, the public infrastructure that they all use. An analogy here might be rather than kind of a, a local network, an intranet for your company. That really the, the value that, that enterprises unlocked was on the public network, the internet, right? And that's kind of the, the analog here. And you're saying yes to the internet, yes to the public chain, no to the private local blockchain. Like what is that? It's just a database.

• 11:57Ryan Sean Adams?

  But when you say private blockchain, um, uh, that organizations don't want a private blockchain. Uh, they, you're not referring to privacy because they absolutely do want privacy on their chain. So they want a public blockchain that includes privacy. And that has been somewhat of a constraint, I think thus far, because, um, okay, now we have public blockchains that are out there. Ethereum being kind of the most notable and most credibly neutral and most, uh, adopted. But Ethereum still doesn't have privacy on the base layer. And that is a thing that seems to be a core requirement. Is that a distinction you would make the difference between privacy versus a private chain?

• 12:40Speaker 02

  Yes, you've perfectly captured it, right? Enterprises, and by the way, I think individuals too, but enterprises who are very strategic, right, in how they think about ecosystems and they don't want to be trapped or kind of face risk, they want privacy for their transactions, but they want to execute them on a neutral, distributed, public infrastructure, just like the internet.

• 13:01Ryan Sean Adams?

  Okay, can we talk? Oh, go ahead, David.

• 13:03David Hoffman?

  Yeah, and can we just like make it really obvious as to why enterprises need privacy? Like, what happens if enterprises don't have privacy?

• 13:11Speaker 02

  No, I mean, they would never use blockchains if they don't have privacy. Think about like, you know, your smartphone, what you buy in Walmart, right? They, these companies negotiate deals with suppliers, right? And what they're buying, how much they're buying, where it is, how much they're paying, how many widgets they have, these are all like, first of all, they're among the most secret information that companies have, like, it's super secret, it's top secret, they're carefully negotiated. Secondly, if you're a publicly traded company, this is all what gets called material, non-public information. If I could look at what you've got and where it is, I know how your quarter's turning out, I know how your business is doing, I know who your suppliers are, I, I would be exposing so much information that it would, it would out, the, the damage of exposing that would

• 13:55Speaker 02

  far outweigh any benefits I got from using blockchain, which is why enterprises especially just can't deal with any form, they, they need some, they need a high level of privacy. It's not going to be perfect, by the way, right? We, you know, every time Apple or Samsung comes out with a new phone, people crack them open and look at who the suppliers are, we, we can all acknowledge that enterprise privacy is not perfect, and the same way that personal privacy isn't, but people, enterprises need some core information to remain relatively private over time.

• 14:23Ryan Sean Adams?

  So like, asking a company to use a public blockchain without privacy would almost be like asking them to like, release all of their emails to the public.

• 14:31David Hoffman?

  And showing their cards.

• 14:32Ryan Sean Adams?

  Yeah, it's showing everything, right? It's just like, this is what makes, you know, this is our competitive advantage, this, this, this collection of information, if we leak this, then we kind of lose our company.

• 14:45Speaker 02

  Exactly. And so, and as a result, it's not easy for them to get on board. They do, enterprises do use public blockchains in a limited way today. But they only disclose stuff that they're totally comfortable letting everybody know, which is frankly, a very small amount of information, right? At the end of the day, in order for them to consider other use cases, they need the privacy capability.

• 15:05Ryan Sean Adams?

  Well, let's talk about use cases then really quick. So the use cases for an enterprise, for a company of a public blockchain. Let's assume it has privacy. It's a public blockchain, but it also has privacy. So all the transactions are fully private. What sorts of things would an enterprise, a company want to do?

• 15:25Speaker 02

  So enterprises want to do a bunch of things. First of all, they would really love to automate all of their transactions. Like, if you think about any business contract, it's, if I have to set up a contract with you and I want to buy stuff, right? We're going to have some kind of agreement and there's going to be terms and conditions attached to that agreement. And every time I send you a purchase order for another batch of widgets or some more video games, you're going to send me back those products. And then I'm going to, you're going to send me invoice. I'm going to, I'm going to spend all this time like, okay, Ryan said he was going to give me, you know, this amount of money. But we agreed on this discount and companies spend, it turns out, a lot of money, like on average, a hundred dollars of time and effort every time they approve a payment. Like in the world of blockchain, people talk about, oh, payments are expensive, but we have a cheaper way of doing payments.

• 16:10Speaker 02

  The cost of actually doing the payment is nothing compared to all the verification that goes on in the enterprise. When they think about matching the terms of a business agreement with an invoice. With a smart contract, you can literally make that happen instantly and for almost nothing. And we've done this on private blockchains, like we did this for Microsoft. We took the amount of time it takes them to process their monthly transactions for the Xbox video game network from forty five days down to like five minutes. And we, we cut the cost of doing that in half because it just automatically checks like this is a smart contract. I know exactly how many transactions it makes it automated perfectly.

• 16:47Speaker 02

  And it also beautifully keeps track of everything because tokens on blockchains, the beauty of tokens on blockchains is that they sort of, I would say, tokenization does for anything. What banks do for money, which is it applies real control. Like if I have to remember how many widgets I've sent you or how many things you bought. Because of the way tokens work, if I want to give you one, I have to take it out of my inventory. And if I want to make it, I have special control over like which smart contract makes that token. Tokenization and smart contracts provide so much more reliable information and really automation and speed compared to all these other systems that exist today. Where everyone's trying to reconcile like 10 different pieces of information.

• 17:30David Hoffman?

  And I think that you're what you're tapping into right now, Paul, is kind of illustrating why everyone knows that there's this world out there called enterprise blockchain. Like we've got all the puzzle pieces, we've got the tokens, we've got the smart contracts, we even have like DeFi apps if we need them. And everyone's like, all right, all these puzzle pieces are there, but like everyone's trying to figure out how to fit them together. I think we might have the final puzzle piece that we needed, it was called privacy, but this is why this world is so it's been talked about for so long is like what you're really talking about, Paul, is like, oh yeah, there's a bunch of business logic inside of enterprises that cost them a bunch of money. And what is smart contracts other than the automatization of business logic?

• 18:14David Hoffman?

  And so everyone knows these ingredients are out there. It's just like, no one's really figured out how to put the puzzle pieces together. Would you call, would you say that's a fair description of of the journey thus far in enterprise blockchain?

• 18:25Speaker 02

  Yes, where everybody is sort of aware theoretically of all the use cases, all the value propositions, they're struggling to find the killer one that's going to trigger and and all the capabilities required to sort of trigger this flood of of activity.

• 18:37Ryan Sean Adams?

  So Paul, I have a kind of a question for you with respect to that. So the business logic of of kind of supply chain, right? Moving that back and forth.

• 18:48Ryan Sean Adams?

  Don't existing enterprises already have some systems in place for this? And I don't know very much about this, this space. But I know a little bit. I used to be kind of involved in like healthcare supply chains. And there would be digital standards. EDI was a digital standard, for example. And you could use EDI message formats to connect one ERP system, you know, Enterprise Resource Planning System to another. And this is how organizations would communicate. And there'd be some sort of like business logic layer in between. Again, I don't want to go too far in this or else I sort of risk saying something like kind of that I have no idea what I'm talking about.

• 19:32Ryan Sean Adams?

  But in the same way, I think existing banks, when we talk about digital money or program money, like we already have that, guys. It's called like, don't you see what's in your bank account? And the digits on your screens are already digitized. And we're like, no, no, no, no, no. We're talking about digital scarcity, that's something different. And you can't enforce that at the banking layer. We're talking programmable money. And you don't do that with the traditional banking system. I guess my question is, is there some degree of for supply chain and business logic? And that sort of use case? There's already some sort of digitization that exists with existing standards that we have. And with existing middleware and Enterprise Resource Planning System. Are you saying that that enterprise blockchain can kind of obviate the need for all of that?

• 20:17Ryan Sean Adams?

  Or does it do something more? Does it make it more programmable? Help me understand that piece of it.

• 20:23Speaker 02

  So you've actually drawn a really beautiful analogy, right? So if you think about the world of electronic money, right? Supply chains are very similar, right? A lot of the data is already electronic. And it's already digitized, but it's in all of these little side lists. And so if you think about the banking system, right? SWIFT is a messaging system. SWIFT allows people to message back and forth. And indeed, EDI, which you referred to, is this like whole panel infrastructure that grew up around the same time as SWIFT. So SWIFT was moving money. And EDI was moving products and services and goods, right? And the two systems were separate. And then companies inside their ERP systems would spend all this time like reconciling, okay, I got this money, this bank account. And I think it was for this invoice which came from this supplier. And it becomes this very, very expensive, complicated game that goes on inside the enterprise.

• 21:08Speaker 02

  And by the way, it doesn't really work for the same reasons of like. Money messaging doesn't work particularly well. Asset and data messaging don't work very well because they're devoid of programmability. So I can't attach any business logic. I can only tell you something. And because of the way EDI works, right, it's point to point. Where you end up with these little islands of information. I know stuff that other parties don't. And if I am one or two layers away in the supply chain, I can't tell that like a fire burned down at a factory or a container fell off a ship. I can't see that information. So EDI, I always joked that like blockchain in this blockchain in the sense is a cure for EDI.

• 21:48Speaker 02

  In the same way that sort of programmability is a cure for a lot of the constraints of the more traditional money system. It makes the whole enterprise process across enterprises truly programmable.

• 22:01Ryan Sean Adams?

  So we could really almost, I don't want to say get rid of EDI, but like leapfrog it. Need less of it, maybe in the same way that crypto is promising that we'll need less of SWIFT in the future. And then also will we kind of disrupt this whole business logic layer, all of the ERP systems and that sort of thing? I mean, because I know that's very expensive to maintain. I don't know what what portion of your cost goes into that for traditional enterprises. But are you saying we kind of disrupt that whole business logic layer on the ERP side? Or would it integrate with with, you know, crypto? Or how would that work?

• 22:37Speaker 02

  I see ERP enterprises are going to keep maintaining their own systems. But what I think will happen over time is that anything that involves multiple enterprises will actually abstract, will actually migrate to the blockchain. That will become the system of record for anything that's about transacting with other companies. And if you were to go back like 75 years, 75 years ago, in the 1950s and 60s, the most kind of admired factory in the world was the Ford factory at River Rouge. And I'm exaggerating a little bit. Basically dirt went in one side and cars came out the other. Like a steel mill, like a rubber factory, glass, glass works, everything like so much of the car was made there. And the most important thing that that a company had to do was manage themselves. Today, if you ask like, what is kind of the prototype factory of the world?

• 23:21Speaker 02

  It would be like a phone assembly plant in Shenzhen, where hundreds of suppliers send stuff from all around the world. And all they do there is assemble. And what's happened over this last seventy five years is the important thing has gone from managing your own business, which is what ERP does, to managing all your relationships with your suppliers and your customers. And that's what you can do with blockchain. And that's what blockchain is so perfect for, is this ability to see an entire ecosystem end to end and coordinate all the pieces and share business logic and data across your enterprise boundaries.

• 23:52Ryan Sean Adams?

  Paul, how do you build that network effect, though? Right? Somewhat like the internet. It's a network in that it doesn't work until you get some critical mass. And then, according to Metcalfe's law, it gets more and more valuable the more network participants you have, the more nodes you have. So how do you get all of these suppliers and, you know, all of these very stakeholders in a supply chain to start using it at the same time?

• 24:16Speaker 02

  Well, I think there's sort of three things. Number one, you have to make it not scary. And by not scary, I mean a couple of things. Number one, because the internet, like the internet, Ethereum is public and open, which means anybody can join. And I can't lock you. And yes, you can come to EY and you can love our services and use our stuff. But if you, for some inexplicable reason, take a disliking to us, you can go anywhere else. It's a little bit like your internet service provider. They're helpful to you, but you're not locked in. You can always choose somebody else. So the first thing is you make it not scary, not scary strategically. Secondly, you make it not scary technologically, right? The reality is that blockchains, zero knowledge proof for privacy, these are like really, really hard and very difficult. And most companies are not going to want to hire

• 25:00Speaker 02

  all the engineers and mathematicians and stuff to do that. What you have to do for enterprises is what we've seen all these other companies do. You need MetaMask wallet. You need the equivalent of MetaMask wallets, kind of web browsers that are optimized for IPFS. You need all these bits and pieces. And so one of my goals is to make the easy stuff. That companies can just say, I, I, I can, um, uh, I can, uh, uh, just write to this API. It's super simple and I get private transactions. And then the last thing is you want to provide some interoperability. So one of the things that we're doing is like a lot of the stuff that we're preparing for our clients. We're actually using EDI messaging standards, stuff that's been around for 50 years.

• 25:43Speaker 02

  Right. Where like you know how to send an EDI, your ERP knows how to send an EDI. You can send us the EDI message and we'll turn it into a blockchain set of tokens or a blockchain based invoice, for example.

• 25:55David Hoffman?

  Okay. I think that was a fantastic set of background for just like the, all the broad use cases like, and it's, it's truly just using Ethereum, the way that Ryan and I have been saying, we've been using Ethereum. Like it's the settlement layer, it's the inter-party settlement layer, where whether those parties are individuals or large scale enterprises, it doesn't really matter. It's a settlement layer, uh, but like we've established privacy is the thing that really is a deal breaker for so many enterprises. They want to use settlement layers to facilitate commerce, but they can't show their cards in, in doing so, right? If, if it's publicly viewable about which company or which enterprise is trading, what with whom, uh, all of a sudden that kind of discloses too much to make companies scared. That makes them scared to, to what you're saying.

• 26:39David Hoffman?

  So Paul, this brings us to why we've brought you on to the show today because EY has got something cool. It's been developing this thing called Nightfall for a very long time and something just finally got released last week. Can you walk us through what is Nightfall and what got released last week?

• 26:55Speaker 02

  Yeah. So, uh, Nightfall is a zero knowledge optimistic rollup that runs on top of Ethereum and can also run on top of the Polygon proof of stake network. And it's, it's a very simple thing. Everybody's heard of zero knowledge rollups, but this is different. This is zero knowledge for privacy, not zero knowledge for scalability. So, uh, what it does is it basically allows you to take any kind of ERC 20, ERC 721, or even 1155, uh, put it into the Nightfall Shield contract. And by the way, you can also mint under privacy and move them around with other business parties under privacy on public Ethereum. And, and to do so, because of the, the privacy enablement layer, the goal is that it is in it.

• 27:40Speaker 02

  You can do it because it's optimistic at a very, very low gas cost. So that's the goal.

• 27:45David Hoffman?

  And so this unlocks, this actually kind of does feel like an Intranet, except that it's hooked onto Ethereum. And so it is a rollup, which is open and permissionless? Question mark?

• 27:58Speaker 02

  Yes, yes.

• 28:00David Hoffman?

  Okay.

• 28:00Speaker 02

  And let me, let me.

• 28:02David Hoffman?

  Go ahead.

• 28:02Speaker 02

  Let me actually really address that particular point because that's a really important one. This is a rollup and it is only accessible to enterprises. To access it, you have to have an X dot 509 certificate, which is issued by, which is issued to enterprises by the certificate authorities. Now, this does not mean that it's a permissioned rollup. I want to be very clear, like X dot 509 is a completely open public standard. The certificate authorities will issue us an X dot 509 to any legitimate enterprise that submits their documentation and passes through the sanctions listing checks. But what we wanted to do was we wanted to make it genuinely open and decentralized and public.

• 28:45Speaker 02

  But we also wanted to make it genuinely unattractive for bad actors. Like this provides for privacy, I want to be super clear, privacy, but not anonymity, which is something that, you know, if you, if you look at kind of how the government is looking at privacy issues, right? And the situation with tornado cash, they've been very clear that, that they don't look kindly upon systems which might be misused for money laundering, for example.

• 29:12David Hoffman?

  Okay, so the X 509 certificate, that is something that is a standard, not a regulation. And I think Eric Voorhees had a fantastic, just like dive down the details between regulation versus standards. Standards are systems that are adopted bottom up. And it's just like a community consensus is like, this is a good standard. Regulation is top down, that's authority that is enforcement by jail time. And so when you say the word standards, it's kind of like, oh, humans kind of came to consensus onto what this thing is. And so this, this rollup, Nightfall, is pseudo gated in the sense that you need something to get on to that, onto that rollup. But it's that something isn't given to you by a nation state.

• 29:57David Hoffman?

  It's given to you by a collective body of people that we've all agreed are good and legitimate at issuing these certificates. Is that, is that a fair summary?

• 30:07Speaker 02

  Right. And, you know, we just really wanted to sort of take from the internet, right? The internet's public, it's open. Everybody has SSL certificates, which are what is the main thing that the certificate authorities issue. So we wanted the same kind of public, open, yet identified kind of value proposition in that process.

• 30:26Ryan Sean Adams?

  And Paul, I mean, enterprises don't really need anonymity anyway. And they don't, that's not really a use case necessarily. They definitely want privacy, but to say that, you know, you can't have anonymity on this enterprise blockchain network. I mean, they don't care about that, do they?

• 30:44Speaker 02

  They don't. They do not care about that. They just care about privacy.

• 30:48Ryan Sean Adams?

  And so how about, you know, transactions and gas fees for this sort of thing? So it's funny, we've gotten to this point in the conversation. I think the essential point we made earlier was that the reason enterprises haven't come here already is because they haven't had privacy, and that's certainly true. The other thing that we haven't had, at least on Ethereum, is low-cost transactions. So does Nightfall solve that too? Can you get into more detail?

• 31:17Speaker 02

  Nightfall is certainly cheaper than most other solutions because we went down the optimistic roll-up path. So we went CK for privacy and optimism for low transaction cost. And it's cheap. It's relatively inexpensive. It'll be like in the range of 15 to 20 cents, I think, on the mainnet. Much, much lower on the Polygon proof-of-state network. We're not quite to the level where I would like us to be for the simple reason that if you, we talked to our enterprise clients, we have one client, they're a really good example. They estimate, so they make about a half a million unique packages of medicine each day. Each one of those would be recorded as an NFT. So they would mint half a million NFTs a day. And then, then each NFT.

• 31:58Speaker 02

  Get transferred first to distributor, then to a hospital and then maybe to an end patient. So you're talking about, you know, an average of two million transactions a day. For that, you have to go on like a layer two or effectively be almost like a layer three, right? Because tens of millions or our estimate, for example, for the automotive industry is if you were to bring the entire automotive industry onto public Ethereum, which by the way, I want to see, I believe all these industries are coming here eventually.

• 32:26Ryan Sean Adams?

  You do.

• 32:27Speaker 02

  You're talking about three to five billion transactions per day from industrial applications. And that, that, that is layer two, really layer three type of, of activity. Um, but I think it all ends up there eventually. And Ethereum becomes that, that, that's fundamental settlement layer.

• 32:46Ryan Sean Adams?

  So we still have some work to do on the scalability front then. And you're implementing this as an optimistic roll up right now. I would imagine that proto Danksharding with EIP four eight four four will really help reduce the fees from like 20 cents to, to hopefully far less as well.

• 33:04Speaker 02

  Yeah, and, and our next version will be a ZK ZK. So we'll do a ZK roll up on top of ZK privacy. We're, we, we took, we, we worked with Polygon for about a year on sort of a lot of the scaling work. And we're very appreciative of the help that we got from Polygon on some of our scaling thinking um, and production sort of hardening. So this version, it's been security audited, it's been somewhat production hardened. The next version, we will, we'll sort of swing the pendulum, swing back towards optimizing the algorithm to drive cost down again.

• 33:32Ryan Sean Adams?

  I can't believe the kind of numbers you've been talking about with, with respect to NFT mintings. Like it's very hard for me to fathom at this point, like billions of NFTs necessary uh, to support the automotive industry. We're not there yet, clearly. Um, what, where are we? Like, are there still some lower transaction volume types of use cases? Where even at 20 cents per uh, kind of transaction, uh, that this can make sense?

• 34:01Speaker 02

  So we would expect sort of a lot of higher value items, finished products will work in this space. We would look for like a lot of financial services actually make a lot of sense. We're we're we're talking to a whole bunch of companies that want to just do things like have their proprietary trading strategies where they can't, you know, be everything can be seen, right? One of the challenges particularly in financial services is

• 34:27Speaker 02

  exchanges and other providers work great almost like mixers if you want privacy and you're using ERC20s. But if your financial asset or any asset that you have is an NFT, you can't you can't rely on kind of these mixer type models. You need to have a true shield contract where you can execute your trades under privacy. So anything that's really non-fungible, right? It kind of will, I think, will migrate underneath a privacy layer.

• 34:55David Hoffman?

  Paul, there's some very big questions that I think we need to address. It's a roll up. So who's maintaining that? What's in this for EY? Like, why are you guys doing this? If this is going to be a public kind of accessible network, like, how does that help? And then also, like, is that's there's a lot of privacy technology in this conversation. Is the nation state going to be cool with that? Like, we were there, we already got tornado cash deemed illegal. So I want to ask you all of these questions and a few more because you're talking about tokenizing thousands of items into tokens. That sounds like the conversation of like, can we tokenize everything in the world? So there's some very big conversations I want to get to. But first, we have to talk a moment to talk about these fantastic sponsors that make this episode possible.

• 35:41David Hoffman?

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• 36:22David Hoffman?

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• 36:39David Hoffman?

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• 37:23David Hoffman?

  bridge your assets, and start building your first app. With Arbitrum, experience Web3 development the way it was meant to be: secure, fast, cheap, and friction-free. And we're back. We're going to unpack some of these very large conversations. And I think I want to start with this one, Paul. You talked about how like some use cases for enterprise blockchain will involve the tokenizing of thousands and thousands of individual items into NFTs in order to allow these enterprises to like do their supply chain management, their tracking, their commerce, their trade. That kind of sounds like the tokenization of everything conversation. There's like this meme in the crypto space, like, "We're going to tokenize the world." Is this how we do that? Is enterprise, is through enterprise use cases how we actually like put strawberries on the blockchain?

• 38:06Speaker 02

  Yeah, absolutely. It's funny you say strawberries. We actually did several years ago, we actually made a video. It's called Pizza on a Blockchain. We talked about fungible tokens, non-fungible tokens, what happens if the pepperonis non-fungible, but the cheese is fungible, that the tomatoes are fungible, like, but yeah, I mean, everything, everything that we buy, I think eventually gets tokenized.

• 38:26David Hoffman?

  And and we need to do that through the enterprise use case, right? Because like, who else is going to do it?

• 38:32Speaker 02

  Yeah, I mean, people are not going to tokenize their, I mean, they might do a little bit, but for the most part, yeah, I think, you know, if enterprises make stuff and they want to keep track of it. And if we think about the the things that we're asking companies to do now. So one of the things that you'll hear, if you're, you don't spend as much time in the world of enterprise as I do, but you if you'll hear enterprises talk a lot about the circular economy, right? I make stuff, I use it, I recycle it, right? Enterprises are kind of increasingly trying to tokenize and track everything because they expect to get it back and to recycle it, to renew it, to sell it again, right? And so if they do it right, it kind of potentially is very profitable for them because they're they're basically selling refurbishing, selling refurbishing.

• 39:12David Hoffman?

  That's one of the broader conversations that I remember listening to very, very early is like, one of the big reasons why this world is so unsustainable is because a lot of our supply chains are one way rather than circular. And we it's because we don't have the recapture mechanisms, we don't have the tracing mechanisms. And so one of the most like sci fi articulations of blockchain use cases is that we never actually lose track of our stuff. And so we never actually, we actually have to keep having to make new stuff in order to replace the stuff that gets lost because we don't have these viable tracking mechanisms. I'm sure blockchains are not just this silver bullet where all of a sudden we can track everything. But that was one of the original like, oh, my God, blockchains are going to do everything kind of moments that I think we all kind of have in our beginning of our crypto journey, where we need like enterprise use cases of blockchain so we can track all the things so we can be a less wasteful society.

• 39:59David Hoffman?

  Is this is this am I tracking something here, Paul?

• 40:03Speaker 02

  Yeah, absolutely. And we, you know, one of, one of the things I'm trying to get somebody to buy into at one point is you, you may know in some states, we have these, these laws that you can get money back for, for like aluminum cans, right? Or glass bottles, right? I would like a model where, you know, you, when you tokenize an asset and you put an RFID tag in it, there's money to be had for the recycling. And so we actually create, I believe, and, and blockchain is such a perfect example of this. Even though I'm sometimes a critic of the financialization of everything, I really do believe like if there was a financial incentive for recycling, we would do a lot more of it. Right? And if you knew that you were getting money back when you set your shirt back in or you took your, your mugs in or whatever, like we would do a much better job about actually recycling stuff.

• 40:45Speaker 02

  So at least in this case, I would like to see the financialization of recycling, leading to us actually renewing and, and reusing stuff.

• 40:54David Hoffman?

  Yeah, that, that reminds me of this one little like quip I like to bring up whenever this topic comes up. Paul, do you know the difference between recycling and garbage? Like what, how is that line drawn?

• 41:02Speaker 02

  I don't.

• 41:03David Hoffman?

  Well, it's simple. It's simple. It's, it's if it's economic to recapture it, it turns into recycling. If it's not economic to recapture it, that's garbage. And that is how that line is drawn. And so like if making things more economical to recapture makes things into recycling and less things garbage, that is an admirable and noble goal.

• 41:24Speaker 02

  Yep. And it's, it's one of the fact, like that whole category of like E S D, carbon traceability, one of the fastest growing categories of our business. Especially at the moment in the middle of crypto winter, the one thing that people don't necessarily want to do as much crypto stuff, but they, they still really are focused on it and growing that other part of the business. Although I, I personally have a lot of confidence that the finance side is going to come back. Like it's, it's a, it's down, but not out.

• 41:49Ryan Sean Adams?

  When we talk about some of these things that will be tokenized by enterprises, are they generally like real world assets? So do you know in, in crypto, we sort of make the distinction between things that, tokens that correspond to real world assets in the physical world, right? And they're sort of tokenized representation, representations of something in the space of. Adams. So strawberries would be an example of this. I think USDC is also an example of this. There's some real world asset off chain in a bank somewhere that every USDC maps to is $1 equals $1. Hopefully somewhere in Silver Gate Bank. I hope, fingers crossed, right, guys?

• 42:29Ryan Sean Adams?

  Are there also like native assets, token assets, that don't correspond to real world assets in enterprise? Is it more real world assets or are there just like chain only types of assets that you can envision?

• 42:44Speaker 02

  I think there'll be tons of chain only assets. One of the things that's kind of cool about Ethereum is it's becoming a true economic ecosystem. Right? It's not just that ETH is money and that we also tokenize stuff and put it on chain. But, you know, in the Ethereum ecosystem, there's all these digital kind of, I'll call it Ethereum native computing services, content distribution, decentralized computing, decentralized storage that that are, I think, are truly kind of chain native assets. And then it's funny, like you talked about USDC as a real world asset, but it's just another set of electrons in a different system.

• 43:14Ryan Sean Adams?

  Yeah, it is.

• 43:14Speaker 02

  One of the things that, one of the things that we talk a lot about, yeah, exactly. One of the things that we talk a lot about at EY, because we're historically an audit firm, is like, what could you tokenize in such a way that you could actually keep track of it? Right? So strawberry is a good example, right? We can't really barcode strawberries. We, they're tough to keep track of. But barrels of oil, also kind of a fungible item, but then again, you know, we do a pretty good job of keeping track of them. And there's like oil based stablecoins, gold bars, dollars, almost any kind of an asset. And to me, the candidates for best tokenization are things that we can keep track of, right? Especially that are sort of already digitized in some way, like a lot of manufacturing is already digital.

• 43:59Speaker 02

  So for example, we mint a token for Peroni, the Italian beer company, every time they complete a new batch of beer. And we do that for traceability. Yeah, for traceability purposes. And but to do that, all we have to do is plug into the Peroni manufacturing system and it tells us automatically, hey, I finished the batch of beer, please mint this token. So that's like a pre-digitalized thing, right? So if you think about a FedEx package or UPS package, right? It's got a tracking number. It's a beautiful thing to like digitize, create that token. When it gets delivered, you mark it as delivered and you burn the token or something. But there's, um, one of the questions is the, the limitation on tokenization is really is, can you, can you and is it worth tracking?

• 44:44Speaker 02

  Right? I can't really track, I can't track an individual strawberry, but I can and probably do care about tracking like an entire crate of strawberries. Or a, a million jars of strawberry jam, especially if that strawberry jam might contain like salmonella, right? So that, that of course, it's a little bit like the recycling question, right? At what point is it worthwhile actually tracking it? And as we get better and better at driving the cost down, it's very interesting. When we started in this business, we started with bottles of wine, like our first Italian client, they were, they wanted bottles of wine, you know? And, and not just cheap ones, expensive ones. Right now we're on to tracking, you know, cases of beer. We can do that because from Ethereum in the old days, right?

• 45:22Speaker 02

  Where, where transactions were like 30, 40, 50 cents, we can go to a polygon proof of stake network and we can, we can make, you know, basically, you know, we can track on cans of beer. Well, maybe pallets of beer and cases of beer at a level that's economical.

• 45:37David Hoffman?

  And so, uh, the, going back to that, my metaphor is like, all right, the, the more things that are, become economical, the more things are worth saving. Like it sounds like we'll start by like, anything that it sounds like there, there's always a broad cap question of like, all right, how do you actually put something on, on a blockchain as a token? When like, you don't know where that thing exists in the real world. Like your answer to that, Paul is like, well, we actually kind of already do that, but we already do that in like those web two non-blockchain way. And so because we already do create digital representations of physical items in some database somewhere. It's actually not that crazy to then put that on the blockchain. Again, we just need a little bit of privacy. Uh, and then perhaps it'll start with like these super high value items, maybe like gold, for example, a bar of gold actually has a serial number. Most people don't know that.

• 46:21David Hoffman?

  Gold is serialized, a barrel of oil, you, you don't lose that thing and it's pretty damn fungible. And we'll start with some of this high level stuff and then we'll start to get more granular and we'll go from like, you know, an entire shipping container of strawberries down to a crate of strawberries. That maybe down to an individual strawberry. I don't even know how, but the idea is that as we get better at this, as humanity, we can get more and more granular about just the goods of the world. And all of a sudden, literally everything becomes tokenized.

• 46:50David Hoffman?

  I'll pause. I don't have...

• 46:51Speaker 02

  Yeah, fully agree.

• 46:51David Hoffman?

  That's how this works? Okay, great.

• 46:53Ryan Sean Adams?

  It seems to be a function more of like, um, we've got, you know, we've talked about, um, Layer 2s being sort of Ethereum and crypto's band, high bandwidth moment, right? And it seems like the cheaper the bandwidth gets, the more granular you can actually get in kind of tracking this stuff. My, my, I have another question about this too, is it almost seems like, while there is some intersection between what's going on over here in crypto and the stuff that Bankless mainly talks about and over here in enterprise and some of that intersection is, well, at the end of the day, it all settles on Ethereum or polygons in these same chains, right? And I'm sure, um, you know, EY and Nightfall can benefit from things, services like Infura,

• 47:37Ryan Sean Adams?

  for instance, or, or MetaMask wallets and all of these things and some of the code libraries. It, it does also seem like there's kind of a parallel world that doesn't like intersect with the other. So there's no way for me to get like a pallet of beer, for example, in tokenized form, and throw that into a maker vault and use it to back one of my loans. But maybe it would be cool if there was? And so I'm sort of wondering if there's any intersection between enterprise blockchain cases that you're talking about and sort of the future of DeFi. Maybe it's simple things like, well, are you able to get USDC payments in the enterprise blockchain world? Can you kind of import a USDC token and start to use that for payment?

• 48:20Ryan Sean Adams?

  Can you tell us where some of the near-term intersection lines might be, if there are any?

• 48:25Speaker 02

  Yeah, so there are absolutely near-term intersection lines. Um, the USDC example is a really good one. So enterprises, for the most part, they want to be paid in the same currency in which they do most of their other core transactions. That means US dollars, euros, yen. So, uh, and we see big banks offering, um, uh,

• 48:45Speaker 02

  Stable coins. So, stablecoin payments, for sure, that's gonna be one of the very first things that they do after tokenizing assets on supply chain. Then, when I think when we get to higher value assets, so in the future, whether it's an Hermes handbag or your, your new car, right, your electric car. If it's tokenized and it's a representation, you should be able to borrow against the value of that asset. Eventually, it'll be real estate. But I, I, I foresee an environment where you take delivery of assets and then as an individual, you can put them into a, you can put them into a DeFi service. So ultimately, and, and by the way, for an enterprise, if you have inventory and it's high value inventory, you're either sitting on gold or oil or, you know, a hundred thousand DRAM memory chips.

• 49:30Speaker 02

  You should be able to borrow against the value of that asset. I see, I foresee lots of enterprise DeFi and financial services at fee of working capital. So, a lot of these things that consumers have pioneered are going to be available to enterprises over time, just not yet, right? It'll take a little bit of time. Enterprises, the one thing you have to remember about the way enterprises operate, they're just incredibly risk averse and very, very cautious. They're gonna sort of tiptoe into this. They're gonna start by tokenizing stuff, but not by taking payments. A really good example, we talked about this a lot, like, let's say you tokenize a bunch of stuff. And you get hacked, right? If you get hacked, they take all of your inventory tokens. They haven't actually stolen your inventory. It didn't cause a financial crisis. They caused a data corruption crisis.

• 50:15Speaker 02

  And so what happened is companies will start with the things that feel low risk, they'll get comfortable with them, they'll, after they've gone for quite a while without being hacked or sort of really be, you know, discovering any major problems. Then they say, okay, now we're gonna try adding a little bit of payment to some of these. And so it'll be a very, like, consumers are always gonna be three, four, five years ahead. Cause they just, they don't even worry about that stuff. They just read all the terms and they're like, click, okay, right? That enterprise is look at all the terms and conditions like we need to form a committee, right?

• 50:44Ryan Sean Adams?

  At the same time, what's interesting about enterprises, though they might be slow, they are Goliaths, aren't they? They are absolutely massive. So I'm just thinking of a world, even just take that slim use case of stablecoins. Let's say, stablecoins get de-risked. They're still somewhat, they feel somewhat risky right now. But let's say a few things happen over the next three to five years. There's some stablecoin legislation that comes into place in the United States. It's very possible. This could very well happen, right?

• 51:15Ryan Sean Adams?

  There's some kind of de-risking and some certainties that are provided by auditors around USDC, for example, even above and beyond what we have right now. There's some early kind of traction of enterprises having used this stuff. Right now, the stablecoin market is about 150 billion or something like this. It's tiny, little, and it's primarily retail. I've got to think that the types of payments that you're talking about, supplier payments that you're talking about,

• 51:45Ryan Sean Adams?

  absolutely dwarfs what retail would consider as high volume. I'm like, I don't know the actual numbers here, but like, if you're doing payments on a full automotive supply chain, I mean, how much would the USDC volume need to expand in order to support that? It's like, I could see us adding like, like hundreds of billions, trillions to USDC through enterprise use cases alone. Maybe that's an untapped adoption path that people in crypto aren't actually considering. Could you validate that by me? Are we talking about big numbers here?

• 52:23Speaker 02

  You're talking about very big numbers. So though, interestingly, the biggest number of all is always the consumer payments, right? If I, if I pay, you know, sure, because if I pay $50,000 for a car as a consumer, right? That car actually only cost a manufacturer about 40,000. So consumers actually, at the end of the day, consumers, we live in the consumer economy, it drives it. So consumers are the biggest ones, but they tend to be, they tend to be high volume, low value. The total value is enormous, but the, but each individual payment is much, much smaller. Enterprises are still going to be, you know, hundreds of billions and many trillions of dollars. Automotive is a great example, like the biggest auto companies. They have revenue of about $200 billion a year. Of that $200 billion,

• 53:07Speaker 02

  they actually spend probably in the range of $120 to $140 billion buying stuff from their suppliers, who in turn probably spend another, they they move that on, uh, this is called like the, you know, economist that is studied, they call it the velocity of money, right? Uh, tier one, two, two, two, three, by the time you're down to like a few billion dollars, it's probably been recycled 10 times. So you are talking about trillions and trillions of dollars. It's not as neglected as you think. I've talked to like Jeremy Allaire, who's a brilliant guy, who's done an amazing job over at Circle. He is absolutely aware of the scale and scope of the opportunity. But because actually Jeremy is a really good example, because he has a background in enterprise, he has been quite realistic about the amount of time that it takes.

• 53:52Speaker 02

  But if you look at the kind of stuff that Circle and others are building, they're building, they're building enterprise-friendly APIs, they're building kind of the sets of tools that are designed to sort of soothe enterprise fears about theft and fraud and and and and policy violations. Um, they're, you know, the, the, the best stablecoin providers are thinking strategically about enterprises and strategic kind of regulatory compliance.

• 54:17David Hoffman?

  I want to double click on that, this DeFi conversation, just one last time before we come to some of the more Nightfall specific ones. Uh, we're again, we're talking about like, okay, we can figure out how to tokenize oil and and gold and maybe more granular stuff. In what world can I, the normal Ethereum address on Ethereum, buy one of those barrels of oil? And can I also put that barrel of oil inside of a Maker Dow Vault? And would that Maker Dow Vault be on the layer one? Or would there need to be a custom Maker Dow Vault on the Nightfall layer two? Like, how, how should we think about like our individual relationship with stuff that's going on on Nightfall, how we can access it and how DeFi gets integrated?

• 54:57Speaker 02

  So I do think over time, if we're successful, people will start to create sort of privacy-enabled layer-two services that support that. You know, MakerDAO would be a great example, Uniswap, others. Because people want to transact under privacy, right? They want provable outputs, but they want to transact under privacy. So I would expect to see that. And over time, what I would love to see is for individuals, right? Today, you can only get X dot five nine if you're in enterprise. But I would love to see a model where we can make a future version of Nightfall. If we, you know, X dot five nine works great for enterprises because we have this accepted enterprise identity standard. There is no comparable accepted individual identity standard. But if there was, I think it would be great for the future versions of Nightfall to be open to

• 55:40Speaker 02

  individuals. And you ought to be able to buy a tokenized barrel of oil in the same way that you can go onto the stock market or the futures market and buy oil futures and coal futures and things like that. So you wouldn't expect to take delivery of your barrel of oil, but you would expect you could own it, you could put it, you could say, I bet that the price of oil is going up or down, and you should be able to make those financial bets yourself.

• 56:04David Hoffman?

  So the idea is that as this Nightfall ecosystem matures, as more enterprises come on to Nightfall, the assets that are created on the Nightfall layer two actually can become exported to the Ethereum layer one and used in broader DeFi?

• 56:17Speaker 02

  Yes. Any asset that exists on Ethereum, it's ERC twenty, seven twenty, or eleven fifty-five, you can migrate into Nightfall. It's a good shield contract structure. And any asset that you create inside of Nightfall can be migrated out of Nightfall into a standard ERC token structure.

• 56:33David Hoffman?

  Well, that is what we call bullish. Paul, who's operating Nightfall? Who's running this rollup? And like, should we consider this, other than the X five oh nine, like certificate standard, that's the main difference? Like, should we consider this Nightfall to be like shoulder to shoulder with like Optimism, Arbitrum, Polygon, Zkasing? How do we think about that? Who's operating the rollup? And how should we think about this in relation to other rollups that we know?

• 56:58Speaker 02

  So it's going to be fully decentralized. So we're not going to have control over it, but we are going to do the deployment. And we are going to maintain some of the server infrastructure required to support it, just to kind of make sure it goes on in a smooth and effective way.

• 57:14Speaker 02

  It should stand, it is intended to stand alongside all these other layer twos. But it's different in the sense that it is a privacy focused layer two. So if you want, if you want scalability, you're going to look for like some of these ZK rollups. If you want privacy, hopefully, you know, uh, uh, Nightfall is going to be your choice. So that's the goal. That's how you should think about it. It's just another one of your options for layer two on top of Ethereum. And we will also deploy a version on top of the Polygon proof of state network.

• 57:42David Hoffman?

  And this isn't going to be as simple as like, I mean, if you're building on Arbitrum or Optimism, you can just copy and paste your code and build it on the other. Because these things are both like EVM equivalent. And I don't think that's true with Nightfall. Nightfall has got its own developer suite of services that it's got its own. Can you talk about like, is there a different language? Like, because things are different on Nightfall, right?

• 58:04Speaker 02

  So Nightfall is not a full EVM, right? It's not a full EVM. It only allows you to mint, transfer, burn, and a couple of, I think we'll have swap and stuff like that. So it's a very, very limited set of options. It functions much more like a transactional rollup, not a full scale EVM. And there is, the way that sort of shield contracts work, you can have each piece of logic that's in there has to work for everybody. Now, one of the things that we're doing, we have a companion application to Nightfall called Starlight. And the idea there is if you think about sort of this, go back to the model of I got money, you got stuff, we're exchanging them under the terms of an agreement. If I have those two things, I need the business logic as well.

• 58:49Speaker 02

  And so what we did was we created Starlight. And what Starlight does is it lets you take a solidity smart contract, mark it up with the things that you want to be make, make private, and then it recompiles it as a zero knowledge circuit. And so Nightfall allows you to move assets, mint, move, transfer and burn assets under privacy. Starlight allows you to assemble custom business logic under privacy. And then we have a third thing coming called Starfall, which allows you to take business logic that you executed on Starlight and apply it to payments and transfers under Nightfall. And with those three things, you can take any business agreement, any set of business logic, and deploy it with full privacy on public Ethereum.

• 59:33David Hoffman?

  And so this is, this is the roadmap that, that you just gave us. It's like three-phase roadmap. And what you're saying is like, it's not a full virtual machine that we're kind of used to with some of these optimistic rollups, but you still get everything that you need to in order to execute a fully expressive business logic layer.

• 59:49Speaker 02

  Yeah, it's building privacy. One of the hard things is like, and this is just like, you know, all this gray hair I have, like, I, I really thought we would be here like four years ago. Honestly, we, we've been, you're gonna laugh, but you know, the first version of Nightfall, we showed in 2018 at DevCon in Prague. Like, we've been grinding away at this for, for like six years now. It's just really hard, like doing this right is really hard. Doing privacy rights, you don't leak information so that you don't have insane gas fees, right? Just to give you a sense, like the current version of Nightfall is a thousand times more efficient than the original version. A thousand times more kind of like gas efficient. But it's just, it's not like the first version of Nightfall,

• 1:00:30Speaker 02

  we actually had to string together two blocks on Ethereum to complete the transaction. Like, can you imagine what that, that would cost today? Like, you know, it, it's just crazy how, how hard it is and how much longer it's taken. But we, we are slowly but surely getting there. And we were also learning all these lessons along the way, like how to make it easier. Cause a lot of the stuff that we're doing, like Zcash, Zuko showed you can do quite a bit of this stuff for just Zcash. But we wanted to make it much more accessible. We tried teaching our developers things like how to use Zocrates, which is like a zero-knowledge circuit language. Like, they were like, no can do, do not like that. We created Starlight. So there's, there's, there's six years of like grinding away on this problem and learning some very painful lessons along the way.

• 1:01:14Speaker 02

  That's, that's all wrapped up in this, this roadmap. It's not, it sounds complicated, but that's because it is. And my goal is to get better and better at hiding the complexity in an easy user experience.

• 1:01:25David Hoffman?

  Well, Paul, we were promised proof of stake in 2016. So you're not alone in, in extended roadmaps.

• 1:01:33Ryan Sean Adams?

  This is another question I've been I've been wondering though, Paul, as you lay out that roadmap and talk about how long you've been at this. How are you doing this within EY? Like, that's probably the most impressive. I mean, all of this is impressive, but that's one of the most unique things about this is most companies, particularly ones as prestigious as EY, would be staying the heck away from this. And letting other people go first, yeah. Some cutting edge stuff, right? We're talking about like ZK Research and cryptography, spinning up your own roll up for the enterprise. Like, I am blown away that you're able to do this within a like a corporation.

• 1:02:15Ryan Sean Adams?

  And quite frankly, I'm impressed. Back to kind of David's question earlier of like, how are you? How are you able to do this? And what's what's kind of in it for EY?

• 1:02:26Speaker 02

  So what's in it for EY? And the reason we're able to do this is we've actually built a really great business in the world of blockchain. And a big, big chunk of it is just financial statement audit, right? There are lots of companies out there like exchanges, others that need financial statement audits that have material quantities of crypto assets. And we are one of the major audit firms and we're the only ones that have really invested in technology. Very early on in my time at EY, I convinced our leadership of a couple of really important things. Number one, blockchain and crypto could be a really big business for us, right? And so if we wanted to do it well, we needed to take it seriously, which means a couple of important kind of follow months. First, do you really want to sign off on a financial statement audit?

• 1:03:09Speaker 02

  And then admit that you don't have a single mathematician inside of your company? The answer is really is no. If you if you really sit down and think about it, a lot of our other, a lot of the other companies in this business that are signing off on audits, they don't have any cryptographers. They don't have any mathematicians. I personally think they're embracing way more risk than we are, right? So so you've really got to deeply understand the process. Secondly, one of the things I convinced them of is that if we wanted to build a long term business, supply chain, all this other stuff, we would not be able to do that on a private blockchain. It would have to be on public. And if we were going to be taken seriously in the world of public blockchains, we had to actually be contributors to the ecosystem, not just like free riders. And

• 1:03:50Speaker 02

  What's surprising is we've maintained a pretty good consensus inside of EY over the years. That number one, if we want to be taken seriously, we've got to have the real technical chops to do this. Like, you know, we have, the clients have to look at our people and say, okay, you guys really know what you're doing. Number two, we have to be seen as positive contributors to the ecosystem. We can't just be seen as free riders. We have to make a contribution. And then number three, if we want the world, you know, it really is kind of as simple as if we want the world to do blockchain transactions that require privacy. And we don't see any, everybody has been focused the last years on scalability, staking scalability, that kind of thing.

• 1:04:29Speaker 02

  Right? We were like, hey, we, we gotta, if we want to do this ourselves and we want to do it right, we're going to have to go build the privacy tech. And, and we just have to admit that if we want to do it right, we're going to have to give it away so that everybody uses it.

• 1:04:42Ryan Sean Adams?

  Yeah, well, I am really impressed in a, in a world where I think a lot of companies just don't have the attention span um, or kind of the stamina to figure this whole crypto thing out. Um, you guys certainly are, and you've been right on a lot of things that um, have been hard to discern in advance and you really have to be plugged in to kind of know, for example, uh, five years ago, it was certainly not consensus that public blockchain was the best bet. And even just to be right on that um, is, is massive. Uh, so, uh, yeah, congratulations on all your progress there. Um, Paul, I have kind of one question for you as well because um, we of course, we're big fans of a little asset we call ETH.

• 1:05:23Ryan Sean Adams?

  Uh, and um, what I've got in front of me is the burn leaderboard on ultrasounds dot money. So this of course is the current set of applications and how much block space uh, demand they have, how much block space they are consuming, how much of Ethereum's settlement uh, product that it sells, which is block space uh, is being purchased by all of these different consumers. We see OpenSea on the top, we see ETH transfers, we see Tether in there. Um, what do you think about enterprise blockchain? Is that going to make an appearance on our top 10 list at some point in time? How much Ethereum block space demand might enterprise blockchain deliver in a future where

• 1:06:06Ryan Sean Adams?

  all of this is tokenized, where the, the vision of nightfall is, is fully realized? And uh, the enterprise is fully invested in the public blockchain ecosystem. What do you think?

• 1:06:19Speaker 02

  So I'll share with you the predictions that I've made and I'll give you and I'll give you a little bit of reasoning around it. I mean, for sure, the answer is yes. My expectation is this, I believe that companies will adopt public blockchains at about the same rate at which they adopted the public cloud. And so if you go back to 2006, I think of like, that was a starting gun on public cloud. Amazon launched AWS and they they took public cloud had been around for a long time, but it wasn't easy to use. Amazon like made it easy to use a graded APIs and suddenly you were doing storage and it was simple. Right?

• 1:06:54Speaker 02

  It took 11 years from the GO signal before more than 50% of all new business applications were deployed into the cloud. So my benchmark is this 11 years after the GO signal. And we'd have to agree like, when is the GO signal? How, when has it gotten easy enough? And maybe we'll say it's 2023. So 11 years after 2023, we should get to more than half of all new major enterprise business relationships transacting on public Ethereum. So my guess is that sometime around 2033, 2034, enterprise transactions will represent 50% or more of all kind of ETH burn demands. Right?

• 1:07:36Speaker 02

  And it'll, it'll probably be a bit of a, a, a, an exponential because it'll start slowly. And, and then as it gathers pace, just like the cloud, it will start to grow 30, 40% a year.

• 1:07:48David Hoffman?

  And I'm bankless listeners, my thinking like 10, 11 years, that's forever. But I'll remind you that the scale of what enterprise is, is massive. So of course it's going to take forever. You get a lot inside of that, that 10 to 11 years that, that Paul's predicting. And of course, I think Paul's ETH nativism, Ethereum nativism is coming out right there in the understanding the, the relationship between enterprise and the ETH burn.

• 1:08:16Ryan Sean Adams?

  Paul, this has been a lot of fun.

• 1:08:17Speaker 02

  Yes, I've been plenty of times accused of being an ETH maxi.

• 1:08:20David Hoffman?

  Yeah, same. Yeah, we've also been accused of this.

• 1:08:23Ryan Sean Adams?

  It's, you know, what the, like, the predictions and the way you're building this have largely been the most correct, I think, of all enterprise blockchain strategies. So you're not an ETH maxi, you're just, you're just trying to be right.

• 1:08:36David Hoffman?

  That's all, Paul.

• 1:08:38Speaker 02

  That's all, we definitely all, yes.

• 1:08:40Ryan Sean Adams?

  This has been a lot of fun. Thanks for walking us through all of this, Paul. Is there any way folks can get involved? So like, people who are listening, what are, what are some ways that they can get involved, find out more about Nightfall?

• 1:08:53Speaker 02

  Yes. So Nightfall is available. You showed it briefly before. It's a, it is a public domain. Both Nightfall and Starlight are public domain, open source products. Anybody can use them, anybody can contribute, you can fork them. All you have to do is go visit our, it's github.com/eyblockchain. Nightfall 3 is the current version that we're on. And if you go back up to the eyblockchain layer, you'll see some of the other stuff that we're doing specifically. There's Starlight, which is the other really kind of important one. It's, we call these things ZAPs, right, for ZK apps. But it's a transpilot that lets you take ZKP work, so the contracts turn them into zero knowledge circuits. So those are kind of the two big ones. We've got a few other bits and pieces in there as well.

• 1:09:37Speaker 02

  The ZKP challenge is kind of funny. That was from 2018. We made a zero knowledge based supply chain prototype. And we threw down the challenge, which was, can anybody tell us who sold what to whom in this prototype model? And of course, in all the years, nobody has. We created it just to prove to enterprises that if you put your data on public, if you, or if you put, you know, your core information on public Ethereum, that it would be secure and safe. And, and, and it has, no one has ever come back and cracked our grand challenge. So that makes me pretty happy.

• 1:10:11Ryan Sean Adams?

  Very awesome.

• 1:10:12David Hoffman?

  That's a challenge to all the listeners out there in the bank of nation, if you can crack it. What's the reward? Is there a reward, Paul?

• 1:10:19Speaker 02

  There, there is. It's our public humiliation. Now, granted, it's five years ago.

• 1:10:25Speaker 02

  You know, I don't know if the other three of the big four will set the heart of work of this, just for the, the, the points on us. But I think, you know, it, it's just, it just sort of demonstrates, it was intended to give enterprises confidence. And, you know, I think if you can guess what somebody's supply chain was five years ago, that's probably not that helpful.

• 1:10:44Ryan Sean Adams?

  There you go. Paul, thank you so much for introducing us to this world. It's been a lot of fun. Thank you for having me. Risk and disclaimers, guys, of course. Got to let you know, as we always do, ETH is risky, so is crypto, so is all of DeFi. This is about enterprise blockchain, so not as risky as usual, but also a lot of upside. Lots of fun. Maybe there's some risk. We're headed west, though, as usual. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.