49 - Moon Math: The Bull Case for Cryptography | Justin Drake

🚀 SUBSCRIBE TO NEWSLETTER: http://bankless.substack.com/ ✊ STARTING GUIDE BANKLESS: https://bit.ly/37Q17uI ❤️ JOIN PRIVATE DISCORD: https://bit.ly/2UVI10O 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 👕 BUY BANKLESS TEE: https://merch.banklesshq.com/ ------ AFTER THE SHOW DEBRIEF: https://shows.banklesshq.com/exclusive-justin-drake-debrief ----- GO BANKLESS WITH THESE SPONSOR TOOLS: ⭐️ AAVE - BORROW OR LEND YOUR ASSETS https://bankless.cc/aave 🚀 GEMINI - MOST TRUSTED EXCHANGE AND ONRAMP https://bankless.cc/go-gemini 💳 MONOLITH - GET THE HOLY GRAIL OF BANKLESS VISA CARDS https://bankless.cc/monolith 📱 DHARMA | MOBILE ONRAMP DIRECTLY INTO DEFI https://bankless.cc/dharma ------ 49 - Moon Math: The Bull Case for Cryptography Guest: Justin Drake Justin Drake is a researcher at the Ethereum Foundation and is leading the charge of the application of cryptography to Ethereum. Justin speaks about how far with come in the cryptocurrency industry, with only two extremely primitive tools: cryptographic hashes and signatures; the fire and wheel of applied cryptography. Justin leads us through a cryptographic-enabled world, where more recent breakthroughs in applied cryptography supplement hashes and signatures. Multi-party computation, fully-homomorphic encryption, SNARKs, verifiable-delay functions, these are all cryptographic tools that are yet-to-be harnessed by the Ethereum blockchain. Importantly, all of these new modern cryptographic tools are developed well beyond theoretical concepts; all that is left is for talented developers to put rubber to pavement. Justin walks the listeners through the user story of a user making a transaction on Uniswap, and discusses how cryptographic tricks can make the entire user process more secure and more trustless. We finish with a discussion about the long term fate of the Bitcoin blockchain, and its collision course with quanton computing, which threatens to break some of the crucial features that makes Bitcoin, Bitcoin. Justin provides a roadmap for the decoupling of BTC the asset from Bitcoin the blockchain, using a cryptographic two-way bridge between Bitcoin and an alternative new host blockchain, presumably Ethereum, and how BTC can upload itself to a new blockchain, and be rid of the baggage and liability of the Bitcoin blockchain 🤯 This is truly one of the most unique pieces of content we’ve produced on the Bankless program, and Justin deserves so much credit for leading this operation! Resources: Justin’s Uniswap Cryptographic Mechanism Solution spreadsheet and their theoretical application to any Ethereum app. https://docs.google.com/spreadsheets/d/1dyhNWMB6rVdmV3Xz-LlZlTt0f4tXfIW0YaoZVvenORs/edit?usp=sharing Below are the two papers Justin mentioned on long-term Bitcoin (in)security: "On the Instability of Bitcoin Without the Block Reward" by Princeton researchers. https://www.cs.princeton.edu/~arvindn/publications/mining_CCS.pdf There are two informal explainers: https://freedom-to-tinker.com/2016/10/21/bitcoin-is-unstable-without-the-block-reward/ https://medium.com/@bergealex4/bitcoin-is-unstable-without-the-block-size-size-limit-70db07070a54 "On the insecurity of quantum Bitcoin mining" https://arxiv.org/pdf/1804.08118.pdf ------ Don't stop at the video! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState ----- 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 we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case

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

• 0:06Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. I'm Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, this is the type of episode we've not done on Bankless before. What makes this one so special?

• 0:31David Hoffman?

  You know, I don't think anyone has done an episode like this. Justin Drake, who is a cryptographic researcher at the EF, he loves cryptography, and that is one of the harder subjects to do a podcast about, especially when, you know, you're generally non-technical, and Justin is extremely technical, yet he did a fantastic job breaking down cryptography to us, so we could help understand how it's going to fill some of the chinks in the armor that we have in this cryptocurrency industry, right? So the, we use Uniswap as like the premier example of the application that everyone knows and has probably engaged with, yet there are a few trust bottlenecks for engaging

• 1:11David Hoffman?

  with Uniswap. MetaMask is a trust bottleneck, the front end of the website is a trust bottleneck, and there's a number of other things that you are implicitly trusting when you use an application like Uniswap that aren't, add to anything to do with the Uniswap, the protocol itself, but are still holes in the armor when it comes to trust. And so what this episode was about was how we are just at the beginning of the cryptoeconomic revolution. We start off this episode defining cryptoeconomics, and Justin says, talks about how, you know, originally the cypherpunk vision was all about a cryptography-enabled world, yet that was super ambitious and perhaps never going to happen, and therefore, the integration of economic assurances or assumptions with cryptographic assurances

• 1:56David Hoffman?

  or assumptions, assumptions is really powerful, and basically what this industry stands on, and we have so much left untapped potential in the realm of cryptoeconomics that we have not yet applied to our daily interactions with the Ethereum blockchain, with the Bitcoin blockchain. So this is all about moon math, what we can do with all of these cryptoeconomic tools that we've developed, yet we have not yet applied. Justin is really bullish on The future of cryptographic crypto economic tools for helping improve the trustlessness of these systems that we use on a day-to-day basis. Really a fantastic episode. I think one of my favorites.

• 2:36Ryan Sean Adams?

  Yeah, and you know, part of the reason this is important, guys, is because Bankless is all about giving you mental models for how to think about crypto and ultimately how to guide what you do in crypto, how you use it, your investments, what you do in your kind of daily life using DeFi systems. And I think there are kind of two schools of thought about crypto that guide investing paradigms. One is sort of crypto is an economic movement, an emphasis on the money. Bitcoiners tend to be more that side. And the other is crypto is a software. It can evolve and change over time. Our episode recently, David, with Chris Dixon,

• 3:18Ryan Sean Adams?

  more expressed that mentality. And you know what the truth is, is it's both of those things. It's not just money and it's not just software. It's software money. You have to understand both sides of that coin in order to guide your investment decisions and have the correct mental models for this industry. And this was a beautiful blend of, I think, those two things. It really showed the the softerness and the upgradability and the enhancement potential of the software compute layer of crypto without sacrificing the economics piece of it, which is so important. Crypto economics. It's both of these things together.

• 3:58David Hoffman?

  In this episode, we talked about Justin's heuristics, his his rules of thumb for engaging with crypto economics. He says that if cryptography doesn't do it, doesn't solve the problem, you can therefore rely on crypto economics or add in crypto.

• 4:15David Hoffman?

  Add in economic assurances on top of your cryptography. But then he also says, if you can do it with just cryptography, you should do it with just cryptography. And that resonates with the protocol sync thesis. If we can relegate things to math, we totally should. That was one of my big takeaways. We end the conversation, this, this marathon of a conversation, over two hours long, our longest episode yet. We end this conversation with a thought experiment about how cryptography is changing and things in this industry need to change with it. And Justin believes in, and apparently crypto, the industry or the academic study of cryptography points in this direction that quantum computing will come to eventually break Bitcoin, the blockchain,

• 4:59David Hoffman?

  and Ethereum, the blockchain, unless we can pivot and put in new, new tools, new security mechanisms that prevent quantum from computing, from breaking these systems. We talk about Bitcoin's calcification and how it might not be able to pivot to a post-quantum world. And in that world, we could actually create a scenario where BTC, the asset, separates from Bitcoin, the blockchain, and uploads itself to the blockchain that does have these new, new holes, these security holes as a result of quantum computing patched, which we think, of course, is going to be Ethereum 2.0. That is a fascinating conversation. Imagine a decoupling of BTC, the asset, from Bitcoin, the blockchain,

• 5:43David Hoffman?

  and then it exists entirely on a new blockchain. That was a fan, that was an absolutely fascinating part of the conversation.

• 5:50Ryan Sean Adams?

  As usual, guys, we have a full debrief where David and I go over our thoughts immediately after the episode. So if you're a premium subscriber to Bankless, make sure you check that out. We will include a link as usual. Without further ado, David, we should talk about our sponsors.

• 6:08David Hoffman?

  If you are looking for a product that connects your fiat bank account with DeFi tokens and products, you need to download the Dharma mobile app. Dharma is a non-custodial smart contract wallet and comes with a bridge that connects you right into your bank account. Dharma is the fastest and most efficient wallet between your fiat in your bank account and any token on Uniswap, or even any vault in Urn. With Dharma, you can get over $25,000 per week into the DeFi universe, and you can do it non-custodially. If you or anyone you know is hot on DeFi and you're trying to get your money into a DeFi investment, Dharma is the place to go. Signing up and going through KYC is an absolute breeze.

• 6:50David Hoffman?

  It took me just under three minutes, and after signing into my bank account via Plaid, I am now just one transaction away from any token that Uniswap has to offer. Go to www.dharma.io, that's D-H-A-R-M-A dot I-O, download the Dharma app and get yourself unbanked today.

• 7:12David Hoffman?

  Aave is a borrowing and lending protocol on Ethereum, and just recently released Aave version 2, which has a ton of cool new features that makes using Aave even more powerful. With Aave, you can leverage the full power of DeFi money Legos, yield, and composability all in one application. On Aave, there are a ton of assets that you can deposit in order to gain yield, and all of those same assets can also be borrowed from the protocol if you have deposited collateral. Here you can see me getting a 200 USDC loan against my portfolio of a number of different DeFi tokens and ETH. I'll choose a variable interest rate because it's a lower rate than the stable interest rate option, but I could choose the stable interest rate option if I wanted to lock that interest rate in permanently.

• 7:57David Hoffman?

  One of Aave's V2 features is the ability to swap collateral without having to withdraw your assets, trade them on Uniswap, and then deposit them back into Aave. Aave does all of this for you, all in one seamless transaction, so you don't have to repay loans in order to change the collateral you have backing them. Check out the power of Aave at ave.com, that's A-A-V-E dot com.

• 8:19Ryan Sean Adams?

  Bankless Nation, we are super excited to have on Justin Drake, who is a cryptographer. He's a researcher at the Ethereum Foundation. And to say he played a key role in the development of ETH2 is probably an understatement. He's been a key force behind us. He's here to tell us all about how early we are in this crypto revolution, the advances that are coming in cryptography that are about to change everything we think we know about cryptography, crypto, and this entire industry. Justin, how are you doing today, sir?

• 8:54Speaker 02

  I am doing great, guys. Thank you so much for having me.

• 8:56Ryan Sean Adams?

  You know what? I've got to ask this before we get into the moon math and the really fun stuff. ETH launched in 2020. Wow, how does that feel, ETH2 launch?

• 9:06Speaker 02

  Amazing. I mean, I've spent three years of my life dedicated to this, and it was a great reward. And seeing that we have, you know, $3 billion, you know, staking, and that we basically haven't had issues so far is pretty astounding.

• 9:24Ryan Sean Adams?

  So, Justin, this is actually kind of a unique episode, I think, that's about to come out of the Bankless Podcast, because this is the first episode where you actually pitched the episode to us. And this is something that I would not have thought about to be able to, or the skills or the knowledge to produce this sort of conversation. So, I mean, and I know that you are absolutely fired up to talk about what we are going to talk about. Maybe you could kind of give us the TLDR, the elevator pitch, for what we are about to talk about and why you are so stoked about this conversation?

• 9:55Speaker 02

  Yeah, for sure. I mean, I was inspired by you because you had this bullish Ethereum, you know, series, and I'm just so bullish Ethereum.

• 10:07Speaker 02

  To, you know, reflect on why am I so bullish? And, you know, one of the big reasons is that the fundamentals are so strong, right? The whole space is built on cryptoeconomics, which is, you know, part cryptography and part game theory and incentives. And, you know, the cryptography part in particular, we're at the very beginning.

• 10:32Speaker 02

  There's so much room to grow and it's a story that I think will unfold over many years, possibly even decades. And there's just so many reasons to believe that the the the reality we live in today is very, very primitive. And, you know, it might sound like, you know, we're we're moving to to to to worlds, you know, when they describe, try and describe the future, it might might sound like sci fi, but I I really do believe that we're we're moving towards that that end goal.

• 11:04David Hoffman?

  So where does this conversation start? One of the the lines that you put into the agenda was that, you know, with with regards to cryptography and crypto economics, we are just in the most primitive age, the Stone Age, where we have like, you know, the fire and the wheel, but so much of the world's inventions are ahead of us. Where does this conversation start?

• 11:25Speaker 02

  Yeah, so I think, you know, one interesting, you know, starting point, I think, is the the the cypherpunk movement, right? So they had this amazing dream in the eighties, which is, can we try and rebuild all of society on really strong foundations? And specifically cryptographic foundations. And people back then were really fired up, you know, for ideological reasons, in a similar way that some people today in the crypto space are really fired up.

• 11:56Speaker 02

  But to to a large extent, I think that dream kind of didn't pan out the the way that people hoped. And, you know, we had a few decades of of of of silence there. And then, you know, we had, we had a few clues, you know, things like like BitTorrent, which basically allowed us to to have really strong foundations in the sense that BitTorrent, to a large extent, is just cryptography, plus, you know, peer to peer networking, and plus even a little bit of incentivization the early days. And then we had, you know, Satoshi's big breakthrough, Bitcoin, which to me is kind of the the birth of crypto economics in a in a really big way.

• 12:39Speaker 02

  And now we're, I guess, we're we're reaching a point where kind of this, you know,

• 12:48Speaker 02

  this this point in the in the exponential curve where it's the inflection point. Everything happened quite slowly, but now we're going to see this explosion, you know, largely driven with Ethereum.

• 13:00Ryan Sean Adams?

  Where does that inflection point come from? Like, what about the, what's different about Bitcoin and crypto economics that we didn't have before? Why is, why is there this Cambrian explosion going on now?

• 13:12Speaker 02

  Yeah, um, I mean, one of the, the, the big things, I guess, and it was the, the key innovation of Ethereum is, is programmability. So now we're in a position where Ethereum can absorb all the innovation that we, uh, we need to absorb to solve all these, these problems that we have. So in the crypto space where, you know, we're starting from the foundation, so we have to reinvent the whole stack. We're reinventing the wheel to a large extent. And so even though we have lots of superpowers, such as, you know, decentralization and, and trustlessness and things like, like that, we also have a lot of trade-offs.

• 13:53Speaker 02

  Um, and you know, the, the superpowers are so awesome that we're happy to live with the trade-offs. But oftentimes, um, in fact, you know, almost all the time, I believe that these trade-offs that we have relative, for example, to, to existing services like centralized exchanges in the context of decentralized trading. I think we can basically fill in all the gaps, um, that we have today and be at least as good as centralized services in every single respect. And in some, in some key respects, this totally outshined them, uh, you know, by, by a factor of 10 or 100x.

• 14:30Ryan Sean Adams?

  Can we, can we talk about this idea of crypto economics for a second in the context of, of Bitcoin? Because I just want to make sure that that's clear to all of our listeners, right? So, um, you know, the, the cipher punks were very much into cryptography and the revolution that it could bring, self-sovereign money, privacy, all of these things, but they were missing something. They were missing the economics part that made Bitcoin so special and that made Satoshi's white paper so special. Um, I'm not necessarily sure that that's completely intuitive to people. The sorts of things you can do when you blend not just cryptography, but it's cryptography plus economics.

• 15:12Ryan Sean Adams?

  It's both of those two things together that was the major innovation and discovery of Bitcoin. Can you talk about that for a minute?

• 15:22Speaker 02

  Yeah, so you know, one metaphor that I have is that cryptography is this very powerful tool, is a very powerful building block, like the brick, right? You want to build a wall and you have you have the bricks. But if you have bricks alone, that's not going to work. You need something to glue the bricks together. You need the mortar. And the the the economic part kind of fills in the gap and glues everything together so that you have a coherent system that breathes life. If you take cryptography alone, it's kind of somewhat dry and somewhat abstract. And once you bring in the economic part, which could be a relatively thin layer, but you know, a critical layer, then then then

• 16:07Speaker 02

  suddenly you have pieces of the puzzle that stick together to form a coherent system.

• 16:15David Hoffman?

  So before Bitcoin, the cypherpunks were really trying to solve this problem for almost decades, right? And they they innovated in many different ways. One of them was eGold. There was there's just a number of different like Bitcoin precursors that I think all relied on pure cryptography, right? And it was that integration of economics that really was what allowed Bitcoin and therefore this whole entire industry to flourish. Maybe you can talk about just the relationship between cryptography and economics and maybe tell our listeners like maybe when it when is it the better time to use cryptography and when is it the better time to use economics and how you think about balancing these two forces?

• 16:57Speaker 02

  Right. So I think a lot of the the previous solutions kind of had partial decentralization. They they used cryptography to the maximum extent possible, but they still had this somewhere in the system, some sort of of central party, and that led to attacks, for example, by by governments. Like, one of the, I guess, one of the big realizations is that cryptography alone. So let's let's look at the goals of cryptography. What is the goal of cryptography? It's basically to take a trusted third party that does some sort of functionality and replace it by pure code or pure pure mathematics.

• 17:43Speaker 02

  And it turns out that there's some impossibility results. There's some things that you just fundamentally cannot do. And so what you want to do is you want to relax the constraints a little bit. So you have this this spectrum of trust, right? So on the one hand, you have very low trust technology like mathematics. And then you can walk your way up. You have cryptography, physics, and then maybe economics. And then, you know, you have things that are very, you know, human rooted in in a human culture. Things like the legal system or the monetary system or even religious systems that are deep in in the narrative. And you know, you want to go as far as possible into the spectrum, but you want to be realistic, right?

• 18:27Speaker 02

  There's some things you just can't do with cryptography. OK, so if we kind of turn it down a notch and include economics, then suddenly this is the inflection point where you can breathe life into into the cryptography. And to be very specific, one one problem that cryptography alone cannot solve is the double spend problem. So it's this idea that you need to have some sort of entity that can remember that you've spent something so that it can prevent you from spending it again. And that's this notion of of state and consensus. So cryptography, the way I think of it, it it kind of solves stateless problems.

• 19:09Speaker 02

  So we can it can you can start with a state and then and then it will give you a valid state transition. It can prove to you that some things happened according to the rules or with possibly, you know, certain security guarantees like privacy or whatever. But one thing that it cannot do is take this graph of all the possible states and state transitions and collapse it down to one canonical one, which we call the truth. So basically, what Consensus does is that it it it anchors kind of it's a little bit like a quantum analogy, right? So you have in the world, in the quantum world, you have many different states that live

• 19:52Speaker 02

  in a superposition. And, you know, you kind of want to choose one, you want to collapse it to just one. And this is what consensus does. And in order to solve consensus, you need to move a little bit out of cryptography and dip your toe into, you know, things that are very economic. And more specifically, you know, we have assumptions like the 51% assumption in Bitcoin, or, you know, in Ethereum, we could have the two thirds assumption. And, you know, we can talk about these assumptions in many different flavors. You know, we have things like honesty assumptions, where we just model the actors as always behaving according to the rules. But

• 20:32Speaker 02

  we could also have, you know, maybe rationality assumptions. We can assume, and this is closer to the reality of things, where we can assume that, for example, two thirds of the of the players are rational, you know, that they're motivated by money. Money is kind of interesting. It's like this, this one of the things that really transcends cultures and and and and and boundaries. And you can use money kind of as one of the really strong layers to as the basis, as the foundation for for for building society.

• 21:10David Hoffman?

  So Bitcoin is famously known as a string of signatures. It likes the in the white paper, like Satoshi called Bitcoins as like a very long string of signatures. And that's all cryptography. But what you're saying is that Bitcoin as a system is a and determining what the correct string of signatures is, is determined by social consensus. And that that's and Bitcoiners are famously saying like, no, there is no social consensus to Bitcoin. There's only math. But a lot of things coming out of the Ethereum camp is like, well, at the end of the day, crypto economics is always one part secured by the social layer. So what you're saying is that the reason why

• 21:49David Hoffman?

  Everyone can come to consensus about what the correct string of blocks is is incentivized by economics, particularly by the Bitcoin hard cap. The BTC hard cap provides the economic incentive to and enables economic assurances. But in in your description, Justin, you were saying that, you know, originally the CypherPunks wanted everything to be run by cryptography. That was really hard. That was really ambitious, perhaps even impossible. And so therefore, we can compromise and instead of just relying on only cryptographic assurances, we also integrate economic assurances or assumptions as well. But to me, in my mind, that indicates a priority or a tier, right?

• 22:33David Hoffman?

  Where, you know, if we can do something with cryptography and without economics, we should perhaps do it with cryptography if we don't have to make that compromise. Is that a fair assumption?

• 22:46Speaker 02

  Yeah, exactly. So we do have this this spectrum of trust that I call it. But, you know, I think you call it the the Protocol Sync thesis, right? Like the heavy dense stuff. It wants to go at the at the bottom. It sinks to the bottom and that's the foundation

• 23:03Speaker 02

  for for your stack. Yeah, so that's exactly right. When you relax things, suddenly a whole world of opportunities appears. And I have this kind of heuristic, which is that if cryptography doesn't work, try cryptoeconomics and usually it will work.

• 23:20Speaker 02

  And this is actually in the, you know, in in in research for FM 2.0. This is kind of what helps us push forward. Like usually, like the very first solution that we come up with is cryptoeconomic. And we know, yay, you know, it's possible to solve this and, you know, at least we have one solution. And then kind of the next step is, okay, can we improve upon this? And then that brings me to my second heuristic, which is that if you can do without cryptoeconomics, if you can do it purely with cryptography, then that is going to be, at least in the long run, a superior solution.

• 23:54Speaker 02

  And so that's what you want to be aiming for long term.

• 23:57David Hoffman?

  That is one of the best mental models for understanding the Protocol Sync thesis that I've ever heard. And so that I think this is already a super valuable conversation. Ryan and I have described, you know, the Protocol Sync thesis as like, you know, trust minimized, decentralized, you know, credibly neutral. But at the end of the day, what's going on is we're just boiling back down to that's what cryptography is. And so the Protocol Sync thesis, I think, could be restated in systems that use cryptography more than they use economic or trust-based assumptions.

• 24:31Speaker 02

  Right. And actually, you can, you can look at this heuristic kind of in the fullest spectrum of things. So if you look at Uniswap, for example, you know, just to get started, just to get to the real world, it's made some compromises, you know, it relies on Infura, it relies on the graph, it relies on all sorts of centralized providers. But, you know, over time, you can kind of peel off these, these layers that are higher trust and kind of shift everything to the high trust realm. And, you know, with lots of engineering, lots of creativity and research, we will get there.

• 25:12Speaker 02

  And, you know, there's some good reasons to believe that, you know, the, the end goal is the moon, right? We will solve all our problems. We have extremely powerful arsenal of tools that have been developed in theoretical cryptography. And those will make their way progressively through applied cryptography. And then, you know, the final, the final boss, which is real world cryptography.

• 25:40David Hoffman?

  So I don't, I want to dive into this, Justin, because I don't think people fully understand the, the field of cryptography. And so what, what we've basically done in kind of the, the past couple of decades is we discovered this amazing thing called cryptography as, as humanity. And then with Bitcoin, we blended cryptography with economics. And that gave us the ability to get digital consensus.

• 26:07Ryan Sean Adams?

  On things. It was a huge unlock for humanity in that it helped us solve the double spend problem. So we can have this marvelous thing we call digital scarcity, which was not previously a layer on the internet. So that's cryptography plus economics, digital scarcity, right? And that is Bitcoin and Ethereum, of course, made that sort of a general digital scarcity compute engine. But here's the thing, cryptography is a changing field and an advancing field, right? So the cryptography that Bitcoin is based on was that built out in the like 1960s, 1970s? That sort of era of cryptography, maybe you can tell us on that.

• 26:48Ryan Sean Adams?

  But the exciting thing about this that I want our listeners to know is that cryptography is advancing too. In the, in the, in kind of a similar way where we had the compute revolution with Moore's law. We had the ability to put more transistors on a chip, right? With these cryptography advances, we can almost put like more trust on a chain, more consensus more. It's, it helps us, these cryptography advances help us scale consensus to all new levels. And it's a, it's a changing field. Can you talk about how crypto economics is just getting started because of these new cryptography functions?

• 27:28Speaker 02

  Right.

• 27:30Speaker 02

  So one of the things that I'll say is that, as I mentioned, there's these different flavors of cryptography, right? There's the theoretical cryptography, which basically asks, can you do something yes or no? And you know, usually the way you answer it is if the answer is yes, then they'll try and give you a specific construction. If the answer is no, they'll give you an impossibility result telling you it's impossible to do.

• 27:53Speaker 02

  But oftentimes, if the answer is yes, the construction that they'll give you as cryptographers is like, you know, pie in the sky. It's gonna, it feels very distant from the real world. For for decades, you know, we've had theoretical cryptographers who are, you know, passionately in love with what they do. You know, it's a very intellectually stimulating, but they're disconnected from reality. And it it turns out that in theoretical comput- um cryptography, we've made huge leaps and bounds. Um, and actually, this um kind of in a way culminated this year 2020 um with um the discovery of what's called code obfuscation. Um, so it's a very powerful cryptographic tool.

• 28:38Speaker 02

  Um, and now we know how to do it on very standard cryptographic assumptions.

• 28:43David Hoffman?

  And sorry, is this anything to do with the cryptocurrency industry? Or is code obfuscation something that is purely out of the cryptographic domain?

• 28:53Speaker 02

  So um code obfuscation is kind of this beacon of hope for um and it's kind of uh uh giving us a roadmap for the next few um, you know, years and and decades. And in short, what it what it tells us is that everything that we could wish to do in cryptography, we can do it. Um, and so it's basically the zero to one moment where whatever you want to do, you can do it unless um, you know, unless there's some sort of impossibility result. But i- if you can do it, you can do it with code obfuscation. Um, so at the very least, because we know how to do code obfuscation, we know how to do kind of the rest of cryptography.

• 29:36Speaker 02

  The the the term that we we have is that we say that obfuscation is crypto complete. This one building block gives us all the other building blocks, which is a really amazing thing.

• 29:47David Hoffman?

  That that my mind goes to Turing completeness. Is that an okay like metaphor?

• 29:52Speaker 02

  Yeah, so it's the same word, complete. Um, Turing completeness is basically, once you have a few basic instructions, you can run any program um, you know, that could be run on a computer. Um, and it's the same thing here where uh with code obfuscation, you actually need two primitives. You need, once you have hash functions and an obfuscation, these two building blocks alone give you the rest of cryptography.

• 30:17David Hoffman?

  And so this is fulfilling, or so what this answers is perhaps maybe the original cypherpunk vision of can the world be completely run on cryptography? And so if you're telling me that theoretical cryptography is quote unquote solved by code obfuscation, does that mean that the original cypherpunk dream of a cryptography run universe is still in the cards?

• 30:39Speaker 02

  No, I don't think it's in the cards. And you know, you kind of have these, these things that you just can't do with cryptography. And, and like, for me, the, the, the separating line is stateless versus stateful. So cryptography can do all the stateless stuff. And then, once you combine it with one further ingredient, which is, you know, blockchains or consensus, which will give you this state, then you can do everything. And by everything, I mean that you can basically simulate any trusted third party with, with just blockchains and, and, and math.

• 31:21Speaker 02

  I mean, when you, when you, just to give you a little bit of insight as to what code obfuscation is. So code obfuscation, the idea is that you can have programs which hold secrets. And these programs are public. So it's kind of this paradox where you have a, an open source program, but it holds the secrets in the program. So the, the secret is kind of garbled and obfuscated. And when you think of a trusted third party, what is a trusted third party? Well, if you think of it as a human, for example, that's just like a brain with neurons, and you can model that as a computer running some sort of an OS, you know, taking in as

• 32:04Speaker 02

  inputs, you know, these digital signals, you know, through your, through your eyes and whatnot. And then you, you can basically encode any, any rules that you'd want from this trusted third party into your program. And instead of running it in kind of... In on a brain, you're gonna run it in in in pure in pure math. And you know, you can kind of another kind of analogy is is trusted hardware. Right? So you have these these trusted kind of secure enclaves that are meant to run programs, but at the same time, hold these secrets is like a hardware wallet. Right? So you have the the secret embedded in the hardware.

• 32:46Speaker 02

  And the idea is that you're not meant to be able to extract the the the secret. And yeah, you can encode whatever rules you you want this trusted party to do or this trusted hardware to do in code. And then you can compile it to just pure math with this code obfuscation technique in theory.

• 33:08Ryan Sean Adams?

  So this is all theoretically possible, Justin. So what does it take for the theory to start to catch up to to the practical? Like, what is the cryptography that lives today in in Bitcoin? Right? And how is that caught up to to the practical implementation of of Bitcoin? Like, I guess I'm I'm wondering why we haven't seen the theoretical possibilities in practice yet.

• 33:33Speaker 02

  Right? So the way I think of, you know, the progress of cryptography is like this. There's three big quantum leaps that need to happen for. So basically, you need to go from zero to one, just say, yes, in theory, this is possible to build. And that's the realm of theoretical cryptography. Then the next big step is basically what's called applied cryptography. And the idea here is that

• 33:59Speaker 02

  basically, you want to look at the whole design space and and and look at all the different trade offs and try and and find constructions with, you know, all sorts of different properties that may potentially be applicable at some point into the future.

• 34:16Speaker 02

  And then you have this final quantum step, which is real world cryptography. And the idea here is that you have someone with a very specific use case, and they're gonna pick one single design in this in this design space. And they wanna make sure that it's good enough in every single property. And so oftentimes, there's a lot of legwork to do to basically,

• 34:42Speaker 02

  you know, just make sure that it's good enough across the board for use in the real world. And what Ethereum is, basically, it's a machine for turning applied cryptography into real world cryptography. And for a very long time, we haven't really had this massive,

• 35:04Speaker 02

  you know, force pulling cryptography out of the abstract and into the real world. And this is, this is why like cryptographers absolutely love blockchains. And kind of blockchain is eating cryptography, you know, you go to a blockchain conference and it's like, sorry, you go to a cryptographic conference and it's blockchain, blockchain everywhere. And you know, every time I email a cryptographer saying, hey, I read your, I read your paper, here's a few questions and hey, maybe we'll, we're considering integrating this into Ethereum. You know, they come back super enthusiastic, you know, they, they love it because, you know, we're giving meaning to their work and we're kind of basically giving them this, this possibility of

• 35:49Speaker 02

  of, of taking it from the applied cryptography into, into the, the real world cryptography. And I guess, you know, going back to one of your, your, your recent podcasts with, with Chris Dixon, right, he was talking about how there's this this virtuous cycle between the technology and the use case, right? As the use case grows, there's more demand for technology, there's more money, more attention. And that feeds back in to, you know, building more powerful technology, which

• 36:22Speaker 02

  Then unlocks more and more use cases. And you know, we've, we've seen this, for example, with, with computing, as you said, you know, we've seen Moore's law. You know, 20 years ago, you know, you didn't have, you know, GPS in your pocket, or you didn't have a camera and you know, all, all these little gadgets. And led to, to all sorts of, of new applications that we couldn't predict, like things like, like Uber. And over time, we're going to grow our toolset of cryptographic gadgets. And we're going to get, um, not only are we going to solve all the known problems that we have with decentralized applications, but we had to make a trade off. For example, we had to trade off privacy, or we had to trade off scalability, or we had to trade off, uh, front running, or things like that.

• 37:07Speaker 02

  But we, my guess is that we're going to see totally new applications, which were, you know, basically impossible to predict.

• 37:15Ryan Sean Adams?

  That's the thing I feel like Chris was saying in the podcast and that you're also echoing now is that.

• 37:23Ryan Sean Adams?

  Of course, these systems are digital scarcity engines and they, they, they produce monies. But they are also computers, right, that can be fundamentally improved from one generation to the next. They can be upgraded, they can be enhanced, you can go from a Pentium processor to something much more powerful. And these enhancements can bring about massive new eras of possibilities that weren't previously possible in the last generation of compute. I think what you're saying, Justin, is like Bitcoin.

• 38:03Ryan Sean Adams?

  It, as it stands right now, and Ethereum V2, this era of, of compute is just scratching the surface on what these computers in this new era is capable of.

• 38:16Speaker 02

  That is exactly right. And we're actually seeing, it's actually the beginning in three different places. So when you think of the blockchain space, we basically have layer one. Where, you know, we're cramming a lot of innovation into Eve2. And we have a whole roadmap for deploying this. And we're happy to talk about it. And then we have innovations at layer two. And like the genius of layer two is that once you have, you know, this so-called Turing completeness, once you have the virtual, if you're in virtual machine. And that's enough to do everything. You reach escape velocity. And so, you know, you're able to capture whatever comes to you.

• 38:59Speaker 02

  Like the EVM is a sponge for innovation. And then you have, you know, something where it's extremely early days today is all the auxiliary infrastructure, which I guess you could call layer three. You know, things like block explorers or, you know, search or, you know, basic things like syncing, like Infura and Metamask. Like all of this is just so, so primitive. We're kind of still doing it the traditional web two way. Now, if you want to, you know, if you want to build on Ethereum, you kind of, as in on the layer one,

• 39:40Speaker 02

  a decentralized application, you have this forcing function to make your decentralized, the core, the smart contract, you know, decentralized. But then what often happens is that you, today, you won't make the investment in all the extra layer three stuff because there's just, there's too many auxiliary services. And it's not your core focus. But over time.

• 40:06Speaker 02

  These technologies will get commoditized and we'll we'll we'll reach a point where the the whole ecosystem will be able to reap the benefits that they bring.

• 40:19David Hoffman?

  Now, I've frequently spoken of this industry as one of the few bright shining spots that I can find in the world right now. There's not, there's pretty, it's pretty easy to find reasons to be pessimistic about the state of the world, yet with Ethereum and Bitcoin and this whole entire revolution, it really is a shining spot on the hill to be really optimistic about the future. And for some reason, I've always said that I think the future will be better because of things like Ethereum. And when when we people use the metaphor behind like Ready Player One, where like there's infinite possibilities and it's such a rich futuristic environment, that seems where we're going. But I've never actually been able to articulate how we get there. And I think that's what we're doing here in this conversation. The the bridge between some

• 41:02David Hoffman?

  crazy awesome Ready Player One universe and the what we have today with Ethereum 1.0 and then also Ethereum 2.0, the beacon chain, that gap seems to be able to be filled by some of what we are talking about here. And before we before we get into that, you were talking about that cryptography as an academic study was kind of like locked in the classroom up until blockchain, right? Up until we had crypto economics. And now it seems to be that with the advent of, you know, crypto and blockchain and Ethereum, we've actually been able to actually have a real world place for that academic study to manifest itself in the real world. Would you

• 41:42David Hoffman?

  say that that manifestation is inside the EVM? And how does Ethereum just relate to the study of cryptography or cryptographers in general? Can you just expand on that relationship?

• 41:56Speaker 02

  Yeah, so I think we're gonna see crypto crypto everywhere, not just in the EVM. We're gonna see it, you know, deep in the guts of the, you know, the consensus engine. So for example, in E2, we have five pieces of cryptography, right? We have BLS signatures, which basically allows you to have so-called aggregatable signatures. The idea of aggregatable signatures is you have a thousand people signing a message. The naive way of verifying these messages, you verify them one by one, like a thousand times. And so if if each message, let's say, takes one millisecond to verify, verifying a thousand messages is going to cost you a whole second. And that's, you know, very expensive.

• 42:39Speaker 02

  The idea of aggregatable signatures is you can combine these one thousand signatures into a single one and just verify this one. And that's the same as if you had verified all one thousand individually. And just to give you like a scale of the power of cryptography with just this one primitive. So if you look at all the other proof of stake systems, you know, they have one thousand validators or less. We, you know, on on Eve two, we have right now sixty thousand validators. And we could even, we could support hundreds of thousands, potentially even millions of validators. And this has a real practical consequences, like right now. You know, in order to stake, you need thirty two ether.

• 43:24Speaker 02

  And, you know, we we tried really hard to bring this number down, thirty two ether. But it's still, you know, today, an insane amount of money. It's like, you know, forty thousand dollars or whatever. But before we had, you know, this this roadmap to use BLS signatures, we were gonna go with one thousand five hundred ETH to stake, which is like two million dollars or whatever. And that would be like a huge barrier to entry for decentralization. So. Yeah, that's one of the primitives, very powerful primitive aggregatable signatures.

• 43:56Ryan Sean Adams?

  So that's that that's a small example of of how cryptography can scale. Basically, you just scale decentralization with aggregated signatures, just like that. Went from a two million dollars stake, which would have been probably hundreds, maybe thousands if we're lucky, validators to now tens of thousands of validators, just with that simple cryptographic primitive. I I want to get back to to something you were saying, because this all relates, Justin, is that you you were saying Ethereum is is poised to capture this. Exponential of all of this cryptography progress, this new era of compute. And you're talking about like the three layers, like there's a layer one, there's a layer two, layer three. All of those areas can kind of capture some of this innovation.

• 44:40Ryan Sean Adams?

  But you know what I think is interesting is the question of why is Ethereum poised to capture this versus another crypto network, say a Bitcoin, is because of the layer zero. The layer zero is almost the the social layer. It's kind of a layer that David and I operate on on bankless. But you operate on in a sense too, Justin, in that the Ethereum social contract is very much open. It's very pragmatic, so it it is very much open to these types of innovation. Some will criticize Ethereum for that. So like we just had Lynn Alden on the podcast and she was talking about like, I like Bitcoin because it's a fully matured 100%. It's done, the project is done, right? It's solidified.

• 45:24Ryan Sean Adams?

  Whereas Ethereum, it's it's completely changing. But if this this theory of compute cryptography compute is right, you actually want some change because you want to incorporate these 10x 100x gains. And it seems like Ethereum has that on the social layer. Is that part of the reason you say Ethereum is perfectly poised to to capture some of this cryptography advancement?

• 45:47Speaker 02

  Absolutely, and I think you said it extremely well. Like this layer zero is absolutely critical. And you're right, like if if we are, if we are living in an exponential world and you know, we are, you know, it's really obvious when you zoom out a little bit. Then you know, you need to have some some way of adapting to this world. And you know, you can have like really clever tricks, you know, like the like the Ethereum virtual machine where you know, you you just have this, as soon as you reach the Turing completeness, then then then you're done. And you know, you can get the best of both worlds. You can get both the kind of the solid layer one, which doesn't change very often.

• 46:29Speaker 02

  And and kind of all the innovation that can be captured with programmability. But you know, going back to this layer zero, which is kind of the cultural thing, absolutely, it resonates very strongly with me. You know, we, in Ethereum culture, we have a culture of, of, of building, a culture of innovation, a culture of being at the bleeding edge, and not only kind of passively observing the bleeding edge, but actively pushing it forward.

• 46:58Speaker 02

  And, you know, we have a culture of being, you know, I guess, trying to predict the future, like trying to be, you know, placing ourselves 10, 20 years into the future, and, and, and, and thinking about, you know, long-term fundamentals, not just, you know, the, the, the present day. And, and for me, you know, being, you know, in this space for, for, for several years, you know, when, when, when I think back to the, the fundamentals of human motivation, what, what motivates humans? Well, I think Ethereum has everything. So it has kind of the intellectual curiosity aspect. It has the ideological aspect, where you want, you know, maybe to drive some, some change in society.

• 47:43Speaker 02

  It has the, the financial aspects. It has the explorer aspect, where, you know, you're discovering uncharted territory. It has the entrepreneurial aspect. And, you know, it's just a huge amount of dopamine going on.

• 48:00Speaker 02

  Just being in the space because.

• 48:02Ryan Sean Adams?

  I feel it, I feel it in this episode. I feel the dopamine rush as you're talking, Justin.

• 48:09Speaker 02

  Exactly, yeah. I think, and I'm, I'm not seeing, you know, I'm, I am seeing so much, you know, dopamine in, in, in, in the, in the whole space. And the bright red spot for me is Ethereum.

• 48:23David Hoffman?

  So Justin, we're going to get into the topic of, of Uniswap, and how more cryptographic tools can help, you know, kind of smooth out the rough edges around an application like Uniswap, and all other applications on Ethereum that have chinks in the armor. Because while everyone loves Uniswap because it's trustless and on-chain, there's plenty of supporting infrastructure. That needs to go in in order to use use Uniswap like Infura and Metamask. These are all central points that needs to be tackled by cryptography. Before we get to that conversation, however, I want to back up and talk about some of these extra new tools in the tool belt, these new cryptographic mechanisms that previously weren't incorporated with, you know, just Bitcoin or Ethereum 1.0.

• 49:06David Hoffman?

  You've stated that Bitcoin and Ethereum 1.0 and then also BitTorrent are just cryptographic hashes and signatures. And those are two tools, you know, the fire and the wheel, as you said. But there are many, many more tools in the tool belts. What new tools do we have that we didn't have when we first first got Bitcoin or Ethereum 1.0 off the ground?

• 49:26Speaker 02

  Right. I mean, one tool that you guys might be familiar with, which is absolutely mind blowing. And it's actually one of the reasons why I'm in Ethereum. Like, I was very attracted to these so-called snarks.

• 49:43Speaker 02

  And, you know, today, it's almost as if snarks are commoditized. You know, they've become boring, which is amazing, right? We've gone from mind blowing technology, you know, five years ago to something which is, you know, boring and deployed in the real world. So snarks, as you probably know, is basically allows you to take arbitrary computation and squeeze it down, squeeze down the validity of this computation down to tiny proof, which is constant size. So, you know, you can have, you know, a program and you can have some input. And then, you know, the program could take many, many, you know, minutes or seconds or whatever, days and years to run.

• 50:28Speaker 02

  And then it finally will produce an output. And basically you can prove that the output is valid, so it corresponds to the input and the program. And you can verify that in in in constant time.

• 50:41David Hoffman?

  So that's scale, right? So if it takes, you know, years to compute something, we could put it at the base layer of Ethereum, but that would be a terrible idea because then Ethereum would take years to compute that, especially on a distributed network. And so if we can compress down what is needed to put into the base layer, that scales things, right? And is that is that basically the underlying pattern for all of these new tools?

• 51:08Speaker 02

  Um. No, so there's like, um. There's very different vectors, like different tools do totally different things. Um. And you're right, on the topic of scalability, basically, you should think of the blockchain as being this very weak verifier. So it can verify cryptographic tools, but it has very limited computational resources. On the other hand, the real world, kind of the external world outside of blockchain, is a very, very powerful prover. We have huge and huge amounts of computational power and, and basically, we can leverage this um extra computational power to, to squeeze things down, to compress it, a little bit like, um, you know, compressing a file, I guess. Um, uh, to its minimal form.

• 51:51Speaker 02

  And it turns out that for computation, the minimal form is basically zero or very close to zero. And then you feed that small amount um of, of, of, of information on, on, on, on the blockchain. And that's, yeah, that's how you get scalability. Um, in terms of other directions, just to give you a little bit of, of, uh, of flavor. So one that I'm, that I'm quite excited and it, it, it's, it's actually um very reminiscent of, of proof of work. Um, is, is um cryptography, which is related to time. So, and I, I, I call it um crypto-physics. So it's kind of um cryptography meets physics. So in the, in the, in the world of Bitcoin, we have a proof of work.

• 52:36Speaker 02

  And what is proof of work is basically a proof of energy expenditure. So it's like this, you know, really cool thing where cryptography, which is like, you know, very abstract mathematics, suddenly meets reality through energy consumption. And it turns out that we can do a similar thing with time. So we can have um cryptography meet time. And the way that it works is through computation. So if you think of proof of work as being massively parallel computation to, to connect with energy, it turns out that it's the, the dual for time. So by dual, I mean inherently sequential. So if you have a, a piece of computation.

• 53:17Speaker 02

  That needs to operate one step at a time and it can't jump ahead some steps. Kind of you need the result from the previous step in order to move to the next step. Well, if every step is going to take some amount of time, you know, a few nanoseconds or whatever it is. Then you can string these these steps and you can use inherently sequential computation to mimic time. And that will give you some really cool, you know, cryptographic primitives, like for example, one is what's called um. Time lock encryption, so you can have a message and you can encrypt it for some amount of time, let's say one minute. And after one minute, kind of automatically it decrypts itself.

• 54:00Speaker 02

  Um, so that's kind of a really mind blowing cryptographic primitive. And it turns out that, you know, it could be used, for example, in the context of Uniswap to remove front running, right? So Uniswap, we have this this this problem right now, which is that if you. It because you're trading in in, you know, in in in public daylight and everyone can see your trades. Uh, and anyone can place trades ahead of you and behind you just by um playing with with the the gas price. Um, you can get front run. Um, and so uh, one way to solve front running, which is uh, really cool is.

• 54:40Speaker 02

  You, when you make a trade, you got, you will encrypt it for a very small amount of time. You broadcast it, it gets included on chain and then once it's on chain, it kind of automatically gets decrypted. And that makes it impossible to front run because the front runners don't know what they're front running.

• 54:59David Hoffman?

  That is insanely cool. I I want to get into the details about the time element. Because to my understanding, if if you're doing a computation that takes time. Can you throw more computation at it and speed up the time that it takes? Or is it actually locked into some sort of time unit that we're familiar with? Like this will take, you know, five seconds and it will always take five seconds or five minutes and it will always take, you know, five minutes. How does that time element work?

• 55:26Speaker 02

  Yeah, so basically you wanna, you want your, your, the time lock encryption where, where the delay is based on inherently sequential. And what does inherently sequential mean? It means that even if you own like all the computing power in the universe, that's not gonna help you. Like you're gonna need to do step by step and it's gonna take time to, to do the whole computation. And one way to, to think of it is, for example, a hash chain, right? So you start with some sort of, of number and then you just hash that and then you hash that. So you're repeatedly hashing in a sequential manner, not in a parallel manner, but in a sequential manner.

• 56:06Speaker 02

  And you know, the idea of hashes is that the output of a hash is meant to be some, some random looking number, right? So you can't predict random looking numbers. So your only way forward is just to keep on hashing.

• 56:19Speaker 02

  And you can't parallelize it, you can't get speed ups. One of the things you can do, on the other hand, is that you can try and design very specialized hardware that will do the inherently sequential computation, you know, faster than using, let's say, a CPU, which is not optimized for this particular operation. And so one of the kind of the, the crazy projects that we have at the DFM Foundation is to try and build the best possible hardware that, that humanity can build or this inherently sequential computation up to like a small margin of error.

• 57:02Speaker 02

  And then distribute this hardware for, to, to the whole world. And that will give you basically a, a, a very decent way of mapping computation and time.

• 57:18Ryan Sean Adams?

  Is that the VDF project that you just described, Justin? Okay, so some folks might be familiar with that. Well, so you just described snarks, which gives us a way to compress trust, essentially, increase transactions per second, trusted transactions per second. And then you just described sort of a time lock sort of tool that gives us almost an alternative to proof of work in some ways, because just like it's very difficult to get energy in the real world, it's, you know, no one knows how to time travel, so we can't go back in time. So that could be a very strong base primitive for lots of other things. Once we have certainty of a given timestamp, what else is there out here?

• 58:02Speaker 02

  Yeah, I mean, just to give a small note on the time thing. So it turns out that when you have this notion of time in cryptography, you can do perfect randomness, unbiased of randomness. So, you know, when you, when you think of Ethereum as a computer, it can do everything, well, it can do many things, but one of the things it couldn't do, which is super basic, is randomness, right? And that's one of, I think, one of the reasons why we don't have, you know, things like lotteries, like we could have a billion dollar lottery on Ethereum. The only missing ingredient is that we don't, we don't know how to do, you know, good randomness. And, you know, it turns out that there's a very deep connection between time and randomness.

• 58:46Speaker 02

  Okay, moving on. So in terms of other primitives, one that is, you know, quite, quite cool, and it follows, actually, is quite related to the snark, is zero knowledge, right? So zero knowledge is this idea where you're doing computation, and this computation involves secrets, and you don't, you want to prove that the computation was done properly, but you don't want to reveal the secrets. And it turns out that once you have the snarks, where the S, by the way, stands for succinct,

• 59:25Speaker 02

  you're almost, you're almost have, you're more than half the way there in terms of zero knowledge. And the reason is that if you have your computation and it compresses everything to a tiny amount of data. So your, your amount of leakage, you know, kind of information theoretically is very, very small. You know, to, to, to start with, because your proof is tiny. So, you know, if you started with lots and lots of secrets, the, the most you could leak is like the, a, a, a small portion of your secrets. But it turns out that you can easily get zero knowledge from snarks. So this is one of these, these very powerful things. And, and if you, if you think of it in the context of, of, of DeFi and Uniswap, it basically solves privacy.

• 1:00:12Speaker 02

  And, and, and, and you know, this, this, this is a big deal for DeFi, right? Like, can we really have large, you know, players, large institutional players, or even the retail, you know, participate in a big way on DeFi where every single transaction is for the public to, you know, to analyze and, and, and see. It, it just, it just won't work, right? So we, you know, privacy is a necessary step. It's coming and, and we have the tools to, to address that. And I guess in, in the context of, of Uniswap, you know, we have,

• 1:00:51Speaker 02

  we have, we have this, this, this on-chain, a privacy aspect where not only can we, can we match what the centralized exchanges do, right? So in the context of a centralized exchange, you don't tell anyone, you know, all you see is kind of the order book and, and the trades, but you don't know who's making the trades or who's adding orders to the order book. So, but the, the, the one trade off is that you have to share who you are with the exchange. So not only can we match this in the sense that the, all the public information is only the trades and the order book, but we can go beyond that. We can be in a position where not even the, the exchange is aware of, of, of who's doing the trades.

• 1:01:38David Hoffman?

  So Justin, are there any other tools that we should talk about before we actually go into the Uniswap deep dive? We're kind of blending these conversations as it is anyways.

• 1:01:47Speaker 02

  Yeah, so there's, so you know, there's actually so many tools out there. So let me try and pick, you know, two.

• 1:01:54David Hoffman?

  Yeah, just fire them off.

• 1:01:58Speaker 02

  So one, which is really awesome, is this idea of fully homomorphic encryption. Right? So the idea here is it's kind of off-chain privacy. So if zero knowledge solved the on-chain privacy, what about off-chain privacy? So on off-chain privacy, you have a different problem, right? So you, you're as a user, you're, you're very constrained, right? You're using DeFi on your phone or on your browser, you know, you're not running a data center with, and so what you do is you're relying on a service provider and you're basically making API queries, you're, you're sending them information and they're giving you responses. And every time you make

• 1:02:43Speaker 02

  a query, you're basically leaking the query. So for example, if you do a Google search and you, you know, you type in some rather, you know, personal information, then Google will know that. And it turns out that this, there's this magical primitive called fully homomorphic encryption, FHE, which allows, and this is mind blowing, which allows a service provider to respond to the query, any query, without knowing what the query is. So imagine Google being able to, you know, give you like the top 10, you know, hits on whatever query you make without being able to know what the query is.

• 1:03:27David Hoffman?

  Yeah, that is absolutely insane. And I think the, the need for that in these days is pretty obvious with all the, the topics of surveillance and surveillance capitalism going on. I think that applies to so much of what, you know, modern society talks about as some of the problems that we are trying to solve in, in today's society.

• 1:03:47Speaker 02

  Right. You know, if I were to, you know, make this a little bit more concrete in the context of Uniswap. So we have, you know, a service called The Graph, which is basically backend infrastructure to Uniswap. And what it does is that it gives you kind of all the, the, the, the trading metrics and whatnot. So you can say, okay, give me information about the if die pair between this date and this date. And it will, you know, pull in all the information and, and, and display it to you on the screen. So you can make kind of an informed trading decision.

• 1:04:23Speaker 02

  But you know, you're also using other services like Infura, for example, or that, that also have like similarly similar kind of API query points. And you know, when you're leaking this information, you know, you could potentially, you know, these service providers could potentially link kind of addresses to like Ethereum addresses to IP addresses. And they could, you know, even further the anonymize you beyond what you're already leaking on, on chain.

• 1:04:54David Hoffman?

  If you want to live a bankless life, you need to get a Monolith DeFi Visa Card. Monolith is a one-two punch of both an Ethereum smart contract wallet and an accompanying Visa Card. That lets you spend the money that you have in your Ethereum wallet everywhere where Visa is accepted. When you swipe your Monolith Visa Card at the grocery store or at a restaurant, it actually makes a transaction on the Ethereum blockchain that spends some of the money you hold in your Monolith wallet. It's insanely cool and it's one of the best tools out there for living a bankless, but still normal life. Monolith also offers on-ramp services for getting your fiat money into the world of DeFi. So it's trivial to top up your Monolith Card if you ever need to.

• 1:05:36David Hoffman?

  And your deposited money goes straight into your non-custodial wallet. So your money is never held by a centralized intermediary. Because Monolith is native Ethereum infrastructure, the money you hold in your Monolith Wallet still has the power of DeFi behind it. Swapping assets on Uniswap or earning yield in DeFi is at your fingertips. Go to monolith.xyz and sign up to get your Monolith Visa Card today.

• 1:06:03David Hoffman?

  Gemini is the world's most trusted cryptocurrency exchange. I've been a customer of Gemini since I first got back into crypto back in 2017, and it has been my main exchange of choice to make my crypto buys and sells. Gemini is available in all 50 states and over 50 countries worldwide. And on Gemini, there are markets for over 30 various crypto assets, including many of the hot DeFi tokens like Wi-Fi, Aave, Uni. And also, they are one of the few exchanges that has liquid day markets. Having both the option of logging into the Gemini.com website or instead opening the Gemini mobile app has allowed me to be able to access any and all exchange and on or off-ramp services that I've needed to on a moment's notice. With instant deposits and fast withdrawals,

• 1:06:48David Hoffman?

  I'm able to make my money do the things I want it to when I want it to. You can buy crypto safely and securely on Gemini with the peace of mind of knowing that your investments are insured and protected with industry-leading cybersecurity. You can open up a free account in under three minutes at Gemini.com/go-bankless. And if you trade more than $100 within the first 30 days after signup, you'll be gifted a free $15 bonus. Check them out, Gemini.com/go-bankless. So we've gone through a number of different cool new tools and applied them to Uniswap. And so I kind of want to actually formalize that conversation. Justin, when you see people interacting with Uniswap, what are like the low-hanging fruits that maybe people don't think about

• 1:07:33David Hoffman?

  that they are actually trusting, you know, centralized choke points, centralized, you know, points of trust? And which are these tools applied to help add or remove trust from that whole process? What should come first in this conversation?

• 1:07:49Speaker 02

  Right, so one actually which I haven't mentioned, which is which is low-hanging fruit in several ways is is this idea of custody, right? So just to zoom out a little bit, custody, I think, is a big reason why we're having this bull run right now. You know, it's kind of like a technical detail hidden in the background. But what has happened is that over the last few years, custodians such as exchanges, but also other custodians have built

• 1:08:25Speaker 02

  Really high-grade custody of crypto assets. So what does it mean to custody crypto assets? It simply means being able to secure a private key. And so what they've done is that they've they've designed systems where the private key is split into multiple shares. And then these keys can be kind of can work together, kind of somewhat recombined, but not really, to compute the output of a function. And this function is the signing function. So basically, it's you know, custody has been sold for

• 1:09:10Speaker 02

  for large financial players. And I think we're going to see custody being solved again for retail. And for retail specifically, there's it's kind of surprising to me that this hasn't happened yet. But basically, if you're if you have funds on Metamask, you know, on your desktop, on your laptop, then they're pretty vulnerable. And the reason why they're pretty vulnerable is that there's any number of ways in which an attacker can get your funds. And one of the reasons why it's scary is because not only are you as an individual vulnerable, but the whole space is vulnerable.

• 1:09:52Speaker 02

  So it's kind of a systemic risk where from one day to another, you know, everyone using Metamask could lose their funds, which would be, you know, devastating. It could be like a $1 billion hack. So if you think, for example, of if there's like a remote code execution vulnerability in the browser, which happens very frequently, or your operating system has a remote code execution vulnerability, or maybe there's some sort of malicious employee within Metamask, or malicious employee within the Google Play Store, or the Apple Play Store, that will, you know. Push forward a malicious update or malicious code. You know, you're extremely vulnerable.

• 1:10:36Speaker 02

  And so what you want to be doing in the context of custody for retail is very simple is just two FA.

• 1:10:43Speaker 02

  And we have that for exchanges, but we don't have that for decentralized exchanges. So what is two FA is very simple is you take your private key, you split it into two parts. One part on your laptop, let's say the other part on your phone. And then you read, you need, an attacker would need to hack both. You know, your phone and the desktop in order to, to, to, to get the, the, the two. And like the, the best way to do two FA in a decentralized fashion is using a notion called MPC, multi-party computation. And the idea here is that you have multiple parties, each with secrets. And that want to compute the output of a function. So, yeah.

• 1:11:26David Hoffman?

  And in this case, the two parties are your two devices. So while there's one human, the two parties in question are like your computer and your phone. Or maybe, you know, maybe you want to be even more secure and like your computer, your iPad and your phone. And, you know, maybe something else. Uh, and, and so, um, when I ever like login to Apple, Apple says like, hey, is this actually you type in this code? Perhaps there's some sort of mechanism where, you know, my phone and my computer are both doing a little bit of computation to produce that private key. And then there's some sort of relay of communication between these two devices. So even if there's a malicious person inside of MetaMask or who got a bug on my computer, uh, it's isolated. Is, is all of this correct?

• 1:12:09Speaker 02

  Yeah, that's absolutely right. And the great news is that this can be, you know, largely transparent to the user. So, for example, you know, your, your phone, so you're going, you're going to trade on your laptop, right? Because you have a big, a big screen, uh, and your phone is just going to be sitting there in the background. And you can, you can give it some rules, which you say like, if I'm only trading, let's say, you know, a hundred dollars or less. You know, within a day, then just automatically sign it. Um, and only if certain rules triggered, then, you know, just send me a notification and I just need to tap yes, and then it's done.

• 1:12:43David Hoffman?

  Where are those rules housed? Those aren't rules built into Ethereum, that is off-chain rules. Where, where are those rules stored?

• 1:12:52Speaker 02

  Yeah, so this is basically an opportunity. I think a low hanging fruit opportunity for someone in the ecosystem to go build this. And it's basically, they would build apps, an app which runs on your phone where you can, you can, you know, just tell it what kind of rules. And I think, you know, things like wallet like Argent, try to do this to an extent. Projects like Zango do this to an extent as well.

• 1:13:20Speaker 02

  Yeah, I mean, as, as Vitalik says, you know, that I think there's, there's, there's a lot of opportunity and

• 1:13:28Speaker 02

  and not only security, but also the UX of security is pushing this forward.

• 1:13:34Ryan Sean Adams?

  I want to underscore how important custody is, in particular self custody. That is the thing that keeps this entire money system economy decentralized, right? The, I mean, we, we chose the name bankless for this movement. Because we want to do more without banks. And the way banks centralized historically has been primarily through, through custody. Even with gold, gold is inherently a decentralized, you know, store of value money technology. But it's very hard to defend and protect your gold, isn't it? That's why it accrues or to move it and these sorts of things. That's why it accrues in banks. And then once it's centralized in, in, in banks, you use, lose that decentralization.

• 1:14:19Ryan Sean Adams?

  You, you lose that self sovereignty. So what we're talking about here is applied cryptography, basically. If we can make private key management easy. If we can incorporate, you know, social,

• 1:14:35Ryan Sean Adams?

  the ability to store things socially or across multiple devices and have a great user experience. Then we don't need crypto banks to the extent that we need them now. Which is a great thing for the decentralization of this movement and our ability to go bankless. That's how cryptography plus economics leads to an incredibly powerful tool for good for the world.

• 1:15:01Speaker 02

  Absolutely, yeah. And there's like no fundamental reasons for not having both security and UX. It's just a matter of time.

• 1:15:08Ryan Sean Adams?

  Justin, when is this coming? Like, why haven't we seen it yet? And when is this coming?

• 1:15:13Speaker 02

  I think this is this, this one in particular is a low hanging fruit. Um, and I, you know, I really want to see it in 2021 and I'm more than happy to talk to people who, you know, are in this space and you know, want some, some, some ideas about how, how to actually deliver on that. Um, yeah, it's, it's, it's low hanging fruit like, and, and part of it is because all the heavy lifting cryptographic work has already been done uh for, for these institutional players. That are now custoding, you know, you know, billions of dollars um and, and, and have allowed uh for, for these more regulated institutions to, you know, to, to come in.

• 1:15:58David Hoffman?

  Okay. So Justin, let's continue with the Uniswap case study. And again, we're just using Uniswap because everyone is familiar with it. We're not picking on it in any particular way. Let's say we solve the multi-party computation issue for private key management. We've got that solved. Our MetaMask is now secure. Um, what is the next low hanging fruit that is a vulnerability that you see people engaging with when they currently engage in with Uniswap in its current state?

• 1:16:24Speaker 02

  Okay, um, another one which I think is, is coming soon and is actually, you know, Uniswap have really done their best to push this forward is this idea of authenticating the front end. Right? So when you're downloading a website, like, how do you know you're downloading the right thing? And it's, it's, it's actually shocking how, how brittle the web two uh infrastructure is. Like you have this notion of a, of a registrar which will custody your, your DNS domain name. They get hacked, they can do whatever they want uh with your DNS.

• 1:16:58Speaker 02

  Or, you know, even if there's some sort of rogue employee within, and, and that's happened many times. Um, there's a whole infrastructure around SSL certificates and these so-called certificate authorities. And

• 1:17:14Speaker 02

  And basically, we can remove all this trust with IPFS and ENS. And this is just plain old hashes and signatures, but it's kind of on the off-chain side of things. And we're already starting to see browsers do the integration with ENS and IPFS like Opera and Brave.

• 1:17:39Speaker 02

  And this is just a relatively incremental and slow rollout, but it's happening much faster than I expected.

• 1:17:49David Hoffman?

  So what does that do for the end user? Does that just mean that there is a www.uniswapipfs URL that I can go to? That is always persistently available so long as I have the internet connection?

• 1:18:03Speaker 02

  Yeah, so what that gives you is anti-phishing, right? So someone, you know, like the Uniswap front end is extremely valuable to an attacker. They get hold of it for some period of time. They can fish maybe tens of thousands of people into basically signing the wrong transaction on their MetaMask and just losing their money. So they could, for example, authorize, right? You know, with ERC20, you have this authorization step that you have to do, and then you can trade. They could authorize all their funds to the wrong contract instead of authorizing it to the Uniswap to some sort of rogue contract.

• 1:18:47Speaker 02

  And that will potentially allow them to steal all their money. So this is really is a security thing, not a liveness thing.

• 1:18:56David Hoffman?

  And so if I remember correctly, Uniswap does have a IPFS website. Do you know if that's true?

• 1:19:03Speaker 02

  Yeah, yeah. So they push, you know, their website to IPFS.

• 1:19:10David Hoffman?

  Should we be using that one instead? Or does that, does that one not have all of the solutions that what we are talking about right here?

• 1:19:17Speaker 02

  Yeah, the, the, the, the problem is is there's still intermediaries and more specifically, there's, there's Cloudflare. So Uniswap has actually done a great job in what I call kind of assumption consolidation, right? You want to try and minimize the number of parties that you're trusting. And what they're doing is that they're using Cloudflare as both the registrar who controls the URL and as the IPFS gateway. So the gateway is kind of this bridge between the old Web 2 world and the Web 3 world.

• 1:19:51Speaker 02

  And it's, it's, it's a very thin layer of infrastructure, which is not necessary for some, for some browsers like, like, like, like Brave and Opera, but it's still required, you know, for, for the more mainstream browsers like, like Google Chrome.

• 1:20:08Ryan Sean Adams?

  So what's, what you're talking about here too is not only anti-phishing, but there's, there's a criticism that the user interface of Uniswap is a centralization vector. And a, a third party could shut, just shut down the, the interface. And then it, it, you know, shuts down, not smart contracts' ability to use Uniswap, but users' ability to, to use Uniswap.

• 1:20:31David Hoffman?

  Specifically, the non-technical users, right?

• 1:20:33Ryan Sean Adams?

  Yes. And if it's persisted to IPFS and you have an ENS domain name behind that and Cloudflare starts using that. By the way, we, we saw a press release this week that, that Cloudflare was looking at how to incorporate more IPFS and ENS inside of its content delivery network. I'm not sure if that's totally related, but it feels like what this means is you could have unstoppable user interfaces, basically, that are always available.

• 1:21:03Speaker 02

  Yes. And like, this has real practical implications for millions of people. Like, if you think, for example, of, and this is, this is a topic which really grinds me the, the, the wrong way is, you know, is, is sanctions. Like, for some reason, right, the US government thinks it's all-powerful and it can impose sanctions on other countries. And then you have millions of people suffering in these countries. And.

• 1:21:31Speaker 02

  Like it turns out, and this is unfortunate that that you know, and that there was some sort of mini controversy on Twitter that the Uniswap front end just doesn't work in some countries like Iran or Cuba or whatever.

• 1:21:44Speaker 02

  And you know, it's very unfortunate and I think it's linked to the fact that, you know, at the end of the day, there is a legal entity behind Uniswap that is based in the US and they have to comply with sanctions. If we were to have this, you know, really good native integrations, then suddenly we're opening up this technology to some of the people in the world who need it the most that are under these sanctions.

• 1:22:12David Hoffman?

  Okay, so we've solved the custody issue with multi-party computation and using multiple devices. We've solved the persistent front-end accessibility using things like IPFS. What's next on the low-hanging fruit? Where should we go next?

• 1:22:29Speaker 02

  Okay, I think another really cool one is this idea of sync. So basically, you're on your phone or on your browser and you haven't been connected to the Ethereum blockchain in some amount of time. So you're out of sync, right? And what you want to do is basically sync up. And the piece of infrastructure that is very common here is called Infura. And basically you can go to Infura and tell me, okay, what is the head and sync up? And this is bad for several reasons. The first reason is liveness.

• 1:23:10Speaker 02

  Infura goes down and half of DeFi, the front-ends go down, not ideal. But there's maybe an even worse problem than that, which is around Infura being malicious and feeding you wrong data. So it tells you that, you know, this is the real state of Ethereum, but actually it's something completely different. And this kind of goes back to the whole phishing thing where it's like, you know, you have slightly different attacks going on. But basically, they can trick users, especially the less sophisticated users, into doing really bad things, including losing their funds.

• 1:23:49Speaker 02

  Um. So one possible attack on on Uniswap if if if Infura is compromised is that Infura could tell you that you you you've made a trade when actually you didn't do the trade. Like, you know, your your your slippage protection kicked in and, you know, you actually didn't do the trade. So you you think you hedged or you think you're in a position when actually you're not. Or, you know, vice versa, it could tell it could tell you, oh, your trade didn't go through uh because of slippage protection. So you you try again. You know, you redo the trade and it turns out you you're now overexposed because you've made the trade twice. Um. And, you know, for Uniswap, I guess that's not too bad.

• 1:24:31Speaker 02

  Um. But, you know, for some applications, it's devastating if if Infura um happens to be happy, happens to be compromised. And so the technology um that basically solved this, uh which is which is very cool um is one uh like clients, uh but um. So that's that's infrastructure that we can pro- I I can provide at the at the layer one, um making the layer one friendly to like clients. And then another one, which is very cryptographic uh heavy, but uh we've made big, big strides in in the recent months even, is this idea of incrementable, verifiable computation.

• 1:25:11Speaker 02

  And the idea here is it's it's it's a snark um where you you can kind of always keep on building on it. So you have, imagine, imagine the the tip or what's called the head of Ethereum. Every time there's a new block, the state progresses. And so you can imagine that for every single block, there's an associate associated proof that proves that not only is this state transition valid, but all the previous state transitions, all the way back to Genesis, are are are valid. Um. And you can do that for like clients in such a way that the syncing process is kind of instantaneous.

• 1:25:56Speaker 02

  You only have to download this one snark and it will tell you that, you know, this is the valid chain. And you don't have to trust, you know, uh an entity like Infura for both liveness and for safety.

• 1:26:10David Hoffman?

  So is this using that same sort of principle of compressing computation using cryptography down to the bare minimum? And that makes it really easy to say, I don't know what block number we're at in Ethereum right now, like, you know, some 10, 20 million, I don't know. But, you know, 10, 20 million blocks takes a long time to download, takes days to download. But what you're saying with this light client mechanism is you can just download the latest block and then you're trusting whoever you're downloading it from. But in that latest block, there is a header that can verify every single block in all of history. So in that instantaneous moment, you get a complete verification that you are actually indeed communicating with the Ethereum blockchain. Was that correct?

• 1:26:53Speaker 02

  Yes. Not only are you communicating with the correct blockchain, but also from there onwards, every query that you make to different blockchain, for example, if you want to read some state in the blockchain, all of that is authenticated and provably secure.

• 1:27:08David Hoffman?

  So Infiura is a very common criticism from people outside of Ethereum because people say, quote unquote, Ethereum is centralized around Infiura. Is this the direct counter argument for saying like, well, even if that's true, this light client innovation is the thing that's going to solve that? Is that what this is?

• 1:27:25Speaker 02

  Yeah. So admittedly, the If1 design is horrible for light clients. It's not light client friendly. It is possible to do it in theory, but it just in practice is very, very messy. In If2, we have made a huge effort to make If2, the beacon chain, light client friendly. And it's extremely, it beats Bitcoin by an order of magnitude in terms of light client friendliness. And Bitcoin is extremely light client friendly. And then you can, on top of that, you can have this kind of optional layer of infrastructure, which is, which is the incrementable incremental verifiable computation that I was talking about, that compresses kind of these relatively lightweight proofs, but that still grow with

• 1:28:10Speaker 02

  the amount of time. So if you've been disconnected for two weeks, it's going to be 14 times greater than if you were disconnected for just one day. But you know, you can compress these two weeks down to, to, to a single proof or any amount of time down to a single proof using this incremental verifiable computation.

• 1:28:30David Hoffman?

  Okay, so we've solved custodianship with multi-party computation. We've solved, uh, we've solved syncing and being able to trust which, what is the correct blockchain with, uh, light clients. Uh, what was the first one? We also solved, um, uh, front-running. Yes. And so where, where do we go next? What's the next lowest hanging fruit? These are some of the biggest problems that people, I think, appropriately critique Ethereum in its current state for, yet what you are saying is that we have the cryptographic tool to solve all of these problems. Where should we go next? What's the next lowest low hanging fruit?

• 1:29:07Speaker 02

  Yeah, I mean, you mentioned people criticizing and, you know, very often when, when, you know, Hayden, you know, makes a tweet, you have like the, the, you know, maxi trolls that come down and then they, they, they try to list all, all the downsides. So what I've done is I've gone on Twitter and I've, I've tried to find every single criticism of Uniswap and every single one so far can be solved with cryptography, which is, which is amazing. So we talked about also on-chain privacy, off-chain privacy.

• 1:29:38Speaker 02

  One which, uh, which is, which is cool is this idea of composability, right? Like one of the big power of DeFi is that you have these, uh, money Legos and you can compose them together. Well, it turns out that, uh, before money Legos, we had cryptographic Legos. And specifically we had the, we have a framework in cryptography called universal composability, the same composability word. And the universal, what that, what that means is that you can, if, if, if you have a primitive which fits within this, this framework, then you can compose it with any other cryptographic primitive and you're guaranteed that it's not going to break. Which is very much unlike DeFi nowadays where you take two money Legos, you put them

• 1:30:22Speaker 02

  together and then there's an explosion, uh, some of the time.

• 1:30:27Speaker 02

  And so I'm, this is a little bit more, you know, nebulous and a bit more of a kind of open research, but I think there's a, there's an opportunity out there for someone to come up with a similar uni- universal composability framework, which is generalized to cryptoeconomics, not just cryptography, um, so that we can have very strong assurances that if you're going to build your, your money Lego, it's, it's not, it's never going to blow up and it's going to play nice with the other money Legos.

• 1:30:58David Hoffman?

  So the word compartmentalization comes to mind where we are have all these DeFi money Legos. And while they can be composed together, when in their current form, when we compose them together, they start to meld into the same thing. Yet what I think you're saying is that we can still have those same benefits, but we can actually compartmentalize each money Lego to be kind of in its own ecosystem. So that and as a result of that, the composability accidental accidental interactions that create explosions can be controlled. I'm still a little bit unsure as to how that control comes from. Maybe you could expand on that. How do we get stronger assurances that when we combine two money Legos that were accidentally not creating TNT?

• 1:31:41Speaker 02

  Right. So, so one of the features of composability is that you kind of you kind of naively have this exponential explosion of complexity, right? You start with with, you know, one body, you know, there's this famous body problem in physics, which is like the three body problem. You start with with one body and two body and three body, and then the complexity just blows up. I mean, it's kind of similar with with with these money Legos. Like you have one money Lego that's all fine and good. Now you have two, complexity has increased. Now you have three and it's it's kind of Melkaff's law, right? Which is like the it's it's quadratic, like for for every node can can talk to every other node and then you have this quadratic thing going on.

• 1:32:26Speaker 02

  And really, the the genius of universal composability is that if you prove local properties, if you're one money Lego, you prove that it has certain properties kind of locally, then that gives you global guarantees about the whole system, the whole universe. If you were to compose them. So basically, it's a way to limit complexity and facilitate the security analysis. You just need to analyze one one money Lego at a time as opposed to analyzing the whole system with which could have all sorts of weird, complicated emergent behavior that is impossible and chaotic.

• 1:33:10David Hoffman?

  What's a theoretical problem that this solves? Maybe you could give us an example that our listeners and myself could relate to.

• 1:33:18Speaker 02

  Yeah, I mean, you could think, for example, you know, we've seen one Money Lego, which is flash loans, right? You compose it with, let's say, Uniswap, which is going to be, you know, used as a price oracle. And then there's like a third DeFi Money Lego, which is like, you know, Synthetix, right? The way you build a synthetic is you use the oracle. So individually, each of these DeFi apps is secure. But when you put the three together, the oracle, the synthetic, and the flash loan, you get an explosion.

• 1:34:00Ryan Sean Adams?

  And then how does this solution prevent that from happening? Or prevent something from blowing up?

• 1:34:08Speaker 02

  Right. So basically, and this is kind of an open problem, but you know, the reason why I'm optimistic is that we have a solution for pure cryptography. Like, the open problem is basically to come up with a set of properties for Money Legos, which will tell you that if you adhere to an interface, to an API for these Legos, which have certain properties, then you'll have like a universal composable oracle, for example. And that will be kind of secure regardless of if you have some sort of, you know, flash loan infrastructure.

• 1:34:50Speaker 02

  Yes, this is maybe the most nebulous kind of idea, but I think it's a good challenge for someone listening.

• 1:34:57Ryan Sean Adams?

  So what you guys can't see here, or you can if you're watching this on YouTube, is, or actually, no, you can't, but we will share this. This is a spreadsheet that Justin put together of objections that are in place. I think like, you know, definitely you've heard some of these. If you've been on Twitter, if you've been in crypto circles of Ethereum is centralized around Ethereum. No one's going to be their own bank and use private keys. You know, it's impossible to download and sync a node, all of these things. Justin is going through this line by line, row by row, and talking about how cryptography solves this. We will actually share this spreadsheet, Justin, assuming it's okay with you that we share this spreadsheet.

• 1:35:39Ryan Sean Adams?

  Okay, we will. We'll share the spreadsheet in the show notes so you can see what we are working from. What haven't we covered still, Justin? What's next?

• 1:35:47Speaker 02

  Okay, um, there's at least two, um, so, um, one of them is latency, right? So, um, when you're making a trade on, on, on Uniswap, you know, it, it, it could take several seconds, um, for, for your trade to go on chain. Um, and, you know, we've made huge leap in bounds, right? So we have, for example, Bitcoin, where the average block time is 10 minutes. And ETH1, you know, the average block time is, is only 15 seconds. But there is this one caveat where, because it's proof of work, sometimes it's like one minute, sometimes it's one second. And, and, and this variance really hurts, um, user experience. So we have, you know, in ETH2, we're making, um,

• 1:36:31Speaker 02

  a kind of another big breakthrough forward is that we have these fixed duration slots. So there's like this 12 second slots. And so you have much more, um, control over the, the duration. But 12 seconds is still an eternity, right? Um, you want, you want hundreds of milliseconds because that's, that's the speed at which the internet operates. Um, and the, the, the good news is that, um, is that we, we, in, in, in ETH2 and in with sharding, we're gonna be able to get, uh, this kind of latency. And the, the, the trick that we have here is, um, what's called, uh, staggering. So we have these 64 shards, right?

• 1:37:13Speaker 02

  This is where transactions get, go on chain in, in the shards. And what we can do is, instead of having all 64 shards be aligned in time, we can stagger them a little bit by, let's say, 200 milliseconds each. So shard zero kind of will have a block, you know, every 12 seconds. And then shard one will have a block every 12 seconds, plus 200 milliseconds relative to shot block zero. And then basically, if you stagger all your, all your shards, um, then basically every 200 milliseconds, you have an opportunity to include your data on the, on the ETH2, um, you know, system.

• 1:37:57Speaker 02

  We'll be able to get a kind of uniswap um latencies like um uh that down uh by by by by a huge amount, you know, down down to basically internet level uh latencies.

• 1:38:11David Hoffman?

  That's just a really clever mechanism for, you know, keeping the throughput the same because we can't increase throughput. That's that turns into centralization. But since we have sixty four shards, we have some optionality with the timing of these shards. So that actually gives Ethereum the L one some uh maybe it's an illusion, maybe it's not, maybe it's actually more of a of a special trick up the sleeve. But having a having a base layer blockchain with two hundred millisecond uh block times, perceived block times uh is pretty powerful. That's a that's a UX that is been has been hounding this entire industry since Genesis.

• 1:38:47Speaker 02

  Yes, um yeah, it's a really cute trick and it's one of the the advantages of sharding in the sense that you have different people working on different shards at any given point in time. And so basically you can just assign tasks at at you can schedule everything so that, as you said, the perceived latency is is very, very small.

• 1:39:09Speaker 02

  You know, one of the the the the problems with this with this idea is that it's it's potentially not um crypto economically uh incentive aligned. And the reason is that um when you're when you're building a block, you have various incentives to either publish your block early or to publish late. So, you know, one one incentive to publish, you know, early, for example, is that it it gives your block more time to propagate through the network. Uh, one incentive to publish your block late maybe is so that you have more time for transactions to come in and then you have more transaction fees.

• 1:39:50Speaker 02

  And so um one of the tools that we're considering using is is these these VDFs. So the VDS, remember, they they they link cryptography and and time and they basically um allow us uh to to limit the extent uh by which a a block proposer can can can play around, can manipulate when the block comes out. So you're kind of forcing it into a very specific schedule for for broadcasting and creating these blocks.

• 1:40:23David Hoffman?

  That's absolutely insane. Justin, you said you had two more. Do you have another one for us before we move on to what I think will be the most mind-expanding part of this entire episode?

• 1:40:33Speaker 02

  Yeah, so I think, I think this is a great segue over the last one. So, one of the criticisms of the Bitcoin maxis is that Uniswap is great and all, but the only thing you can trade there is ERC20 shitcoins. And they're correct to an extent, like, you know, like, they will say, "Oh, you can't even trade Bitcoin really, because the only thing that you have is like shitcoinified Bitcoin, which is rat Bitcoin." And it turns out that with, with very fancy technology, you can build, you can have Bitcoin, the real deal, the native Bitcoin,

• 1:41:15Speaker 02

  totally trustless, can live on Ethereum using pure cryptography.

• 1:41:19Ryan Sean Adams?

  And Justin, when you say the native Bitcoin, you're talking about a Bitcoin that is tokenized on Ethereum that has the same trust assurances as native Bitcoin on the Bitcoin network. And I know our listeners will be familiar with, with the differences there. That's what you're talking about though, right?

• 1:41:35Speaker 02

  That's exactly right. Yeah.

• 1:41:37David Hoffman?

  And maybe you could also talk about the comparison between a system like that and TBTC and how a native token is actually an improvement upon something like TBTC.

• 1:41:48Ryan Sean Adams?

  Yeah, it seems like TBTC uses the crypto, the economic part to supplement for the cryptography that it's not doing.

• 1:41:57Speaker 02

  Exactly. Yes. So this, this fits in, you know, the heuristic that I said before, like, if cryptography doesn't work or is too difficult, try crypt economics. And that's exactly what TBTC has done. The problem with TBTC is that it's, it's too collateral intensive. So basically,

• 1:42:17Speaker 02

  The idea of TBTC is you're gonna create a Bitcoin synthetic. And the way that you do synthetics is with over collateralization. And so if, you know, if you wanna have, you know, ten billion dollars of Bitcoin on Ethereum, you're gonna need, you know, fifteen billion dollars of Ethereum. It just doesn't scale.

• 1:42:41Speaker 02

  Or at least it's extremely expensive. And then you have, you have another, you know, very interesting project called ren BTC, where there they actually use, you know, multi-party computation. And but they, they also have a very important economic aspect where they have this ren token. And it turns out that if an attacker buys out a majority of the ren tokens and participates in these MPCs, then they can, they can basically break the system. And so it's, it's a very similar consideration where the, you know, for ren BTC,

• 1:43:23Speaker 02

  the market cap of ren needs to be at least as large as the, as the tokens that are being, you know, bridged over from, from Bitcoin over to Ethereum. So that also doesn't, doesn't, doesn't scale very well. And then, you know, just to go through all the, the interesting, I guess, versions of BTC, we also have the wrapped BTC. And wrapped BTC is basically like a centralized custodian, specifically BitGo, which is, which is, which is trusted. And that's, that's obviously not ideal. So it turns out that if you,

• 1:44:03Speaker 02

  if you use code obfuscation, which is this very powerful technique that I was talking about earlier, then you can do a really cool trick. So just to give a little bit of context. The Bitcoin blockchain is kind of stuck in the Stone Age. If we kind of extend this metaphor in the sense that the only thing that the Bitcoin scripts can do, the only thing they understand is hashes and signatures. And this is kind of unfortunate because you, in order to build a two-way bridge between Bitcoin and Ethereum, which is trustless, you want the Bitcoin blockchain to be aware of the Ethereum blockchain.

• 1:44:45Speaker 02

  So the process, basically, of having these bridges is like a four-way process. So you have your Bitcoin, your BTC on Bitcoin, you're gonna lock them on Bitcoin. The Ethereum blockchain sees that they're locked, and then it's gonna mint an equivalent token on Ethereum. And then, once you've had enough playing with your BTC on Ethereum, you're gonna burn the tokenized version of Bitcoin. And then, and this is the hardest step, you want the Bitcoin blockchain to see the Ethereum blockchain and see that they have been burnt, so that you can unlock them on the Bitcoin side

• 1:45:28Speaker 02

  and kind of redeem them one for one in a trustless manner. But the problem is, how can you make the Bitcoin blockchain aware of Ethereum using just signatures and hashes? And it turns out that with code obfuscation, you can do a generic snark-to-signature reducer. So what does that mean? It means that you can take any snark, and instead of verifying the snark the usual way, which involves advanced cryptography that the Bitcoin blockchain just doesn't have the capability,

• 1:46:06Speaker 02

  you can distill it to just a signature. Basically, what the program does is that it's gonna verify the snark internally. So the obfuscated code will verify the snark, and there's a secret key inside the program, which is obfuscated. Remember, that's the superpower of code obfuscation, is that it has a secret inside it. And then it's gonna use this secret to sign off on the fact that the statement that is being proved by the snark is correct.

• 1:46:37Speaker 02

  And then, now that you have this snark to signature reducer, you can take the signature and and put it on the Bitcoin blockchain, which which it will understand because it's just a plain old signature. And that is sufficient to for for Bitcoin to be aware of the Ethereum blockchain. Basically, you can build a snark which tells you this is the state of Ethereum right now. This is a proof that this is the valid state, you know, going back to to the previous discussion around incremental incremental verified computation. This is the the state of the Ethereum blockchain. And now you can verify it. And now you can close the loop and build a totally trustless Bitcoin on Ethereum.

• 1:47:21David Hoffman?

  A a two way bridge between Bitcoin and Ethereum is the gold standard that I didn't know was possible. And so what you're saying is that it is theoretically proven to be possible. It's just that we need to actually apply the cryptography. How big of a challenge do you think that is to actually get something like this up and running? Like, where are we now and where do we need to be to get this to actually work?

• 1:47:45Speaker 02

  Yeah, so going back to the, you know, the the three big stages of cryptography. You have theoretical, applied, and then real world. We're we're just basically leaving the theoretical. We've answered positively the answer, can we do this? But, you know, it's kind of comical how far away we are from practicality. Like, right now, if you were to try and and use these techniques of code obfuscation, you'd have a program which would run, you know, for for longer than the age of the universe. It's like the the it's so impractical that it is laughable. But it's actually, you know, not so laughable in the sense that this is the journey that cryptographic primitives take.

• 1:48:27Speaker 02

  So if you if you look at snarks, for example, snarks, you know, were kind of sold theoretically thirty years ago. And back then, they were it would they were comically impractical. And, you know, over over time, with with lots of dedication and research and and developments, we now have snarks which are extremely, extremely fast and and and practical. And so my kind of with my optimistic hat on, you know, in in this exponential world, I'm I'm very hopeful that, you know. In twenty years, you know, maybe thirty years, we will have this primitive and it will be

• 1:49:07Speaker 02

  practical. And one of the interesting things is that it actually allows us to run the EVM on Bitcoin, which is kind of an interesting consequence. But yeah, we will still be, I guess, limited by the one megabyte block.

• 1:49:22Ryan Sean Adams?

  Yes, we will, for eternity, I think.

• 1:49:25David Hoffman?

  So the mental model I've had with this is we've experienced Moore's Law's growth in computation, and that has scaled computation. And it seems to be that the optimistic case for a cryptography-run universe is that we get comparable levels of growth in that scale in computation, but we get it scaled in efficiency in cryptography. And so if we do see that like Moore's Law-level growth in cryptography's ability to scale computation and compress it, then that's actually how we do get that two-way Bitcoin-to-Ethereum bridge. Is that the right perception to take, Justin?

• 1:50:02Speaker 02

  Yeah, yeah, I think so. I mean, in, you know, in the real world with transistors, we have Moore's Law, which is maybe like a doubling of the transistor density every year or so. In cryptography, it's much, much faster. You have a primitive like snarks or I/O, and it's more like, you know, you have a hundred x improvement or a thousand x improvement every year. You know, you started so far away, you know, like astronomically far away. But, you know, over a decade, if every year you improve by a factor of thousand, then eventually you'll get there.

• 1:50:39Ryan Sean Adams?

  This is because it's software changes primarily. We're not talking about like, you know, physics constraints as we were with Moore's Law.

• 1:50:47Speaker 02

  Exactly. It's pure software. And even more kind of abstractly, it's like these cryptographic protocols and mathematical tricks and whatnot.

• 1:50:59David Hoffman?

  So Justin, say we have this two-way bridge, we've solved that problem. Let's talk about the incentive to actually get BTC onto Ethereum. And I think people kind of forget that there's two different versions of Bitcoin. There's BTC, the asset, and then there's Bitcoin, the blockchain. In the same way that there's Ether, the asset, and Ethereum, the blockchain. Yet, there's just this obfuscation with Bitcoin because it's the same name. But there's actually two different things going on here. So after we establish this two-way bridge, Justin, maybe you could illustrate why people would migrate their BTC, the asset, from the Bitcoin blockchain to the Ethereum blockchain?

• 1:51:38Speaker 02

  Right. So, you know, as you said, there's two Bitcoins. There's Bitcoin with a capital B, which is the blockchain, and Bitcoin with a lowercase b, which is the asset. And just for the sake of clarity, when I refer to the asset, I'll actually say BTC. So we have Bitcoin, the blockchain, and BTC, the asset. And I guess there's, you know, in the short term, there's various kinds of reasons to migrate BTC onto Ethereum. You know, for example, to make use of yield, you know, in the context of DeFi yield farming.

• 1:52:15Speaker 02

  But I actually believe that long-term, if you look at a few, you know, mega trends that, you know, we can dig in, I actually don't see a future, you know, in 20 to 30 years for Bitcoin, the blockchain. I think that there's going to be what I call like a decoupling of the asset and the blockchain.

• 1:52:41Speaker 02

  The asset is going to outgrow its shell. The shell is kind of going to crack and break. And there's going to be an uploading of the BTC, the asset, onto Ethereum. And when the Bitcoin blockchain does break for reasons that we should go into,

• 1:53:05Speaker 02

  then at that point, we can declare...

• 1:53:09Speaker 02

  You know, any BTC on the broken Bitcoin to be, you know, burnt, lost forever, which is great for scarcity. And then, you know, we can then declare Ethereum as the new, more secure, more friendly home for BTC.

• 1:53:27David Hoffman?

  What you're talking about is back to your comment about state. You're just migrating state here to a better computer.

• 1:53:34Speaker 02

  Yes, I mean, the important thing here is that we need to do it in a trustless and scalable way. And unfortunately, none of the existing solutions, you know, for tokenizing BTC allow for that. But in the future, we will have this, you know, migration process, which is aligned with the values and culture of Bitcoin. And I think, I'm hoping, I think that in 2023 years, it will be, it will be obvious. And it is actually a win-win for everyone, both the Bitcoiners and I guess the Ethereum.

• 1:54:12David Hoffman?

  Yeah, not for the miners, though. The miners tend to lose for some reason in both camps. Justin, why do you say that the Bitcoin blockchain is destined to die? What is these mega trends that's going on in cryptography that would indicate that the Bitcoin blockchain has a countdown timer on its lifespan?

• 1:54:31Speaker 02

  Right, so I guess there's this kind of three, three big reasons. Like, the first one is kind of a bit nebulous, which is that the Bitcoin blockchain is ossifying, or I should say is already ossified. And I guess culturally speaking, it has this maximum viable ossification. It will be as ossified as it can be. And, you know, we've talked about this, it's somewhat at odds with the greater macro picture of an exponential world. And, you know, if you go back to the root of ossification, it means, you know, becoming a bone. And I think, you know, the way I picture it is that Bitcoin is becoming stronger and stronger.

• 1:55:16Speaker 02

  You know, there's layers and layers of bones, but the environment, the context is adding more and more pressure. At some point in time, the bone is going to go crack. Now, why, what are these kind of external pressures? There's kind of two, two flavors. Like, the first one is around quantum computing. So we have this kind of quantum mega trend, which just changes the rule yet again of computation. Right? If, if blockchain is a innovation computing, quantum is as well. And there, there is some non-trivial intersection between, between blockchain and quantum, which we need to, to take into account seriously.

• 1:55:57Speaker 02

  And then the other kind of big mega trend, I guess, is, is the flip side of the 21 million Bitcoin limit. Whereby, and this, this kind of moves us away from cryptography into the economic aspect of cryptoeconomics. Whereby, it, it, it's been shown that basically, the, the incentive alignment disappears once you only rely on, on, on, on fees as opposed to, to subsidies. So with the 21 million limit, the, the, the block subsidy goes to zero. You're left with only fees.

• 1:56:37Speaker 02

  And this is problematic because, basically, the, the, the main issue is that fees can be stolen. In the sense that if I'm a Bitcoin miner, I build a block with transactions. Today, you, you're kind of expecting all the other miners, once I find a block, to build on top of my block. And they have an incentive to do this because there's this baseline inflation in, in terms of the reward. But if you have no inflation, actually, the, the, the, the thing that a rational miner would do is that it would not build on your block, instead it would steal all the transactions that pay, that pays fees. And, and, and then try and, and, and build and fork off, basically, and...

• 1:57:22Speaker 02

  And and then and so you have a a team from Stanford, which basically analyzed this and and built, you know, models and they wrote a paper, um, basically explaining why um it's it's an unstable kind of crypto economic equilibrium to only rely on transaction fees.

• 1:57:39Ryan Sean Adams?

  We made this, we've made this argument a number of times on Bankless, the very, the second argument that that you're making. And I think one of the interesting things about it is Bitcoin is memed as digital gold. And there's an element of of truth to that meme in that it helps uh and somebody wrap their mind around the concept of digital scarcity. So that makes sense, right? But one major difference that always seems to be overlooked is that the fact that gold in the physical form does not have to pay for its security with transaction fees. It paid for its security costs in like the supernova of a star. Like it's a it's a chemical

• 1:58:19Ryan Sean Adams?

  element, right? Um, and it doesn't have to, its security is not dependent on some sort of transaction fee for me to give a bar of gold to David, right? Whereas Bitcoin totally is. And in fact, that's the model. It's getting away from its in, you know, issuance meme as creating the security, which is its core strength and moving to this this transaction fee. That that makes it not very much like gold. And I do also agree, this will become more apparent to people. The breakdown of that digital gold meme will become more apparent to people as time goes on and block subsidy every four years uh gets diminished and and cut uh further. But what does that mean? Bitcoin is left with. It it kind of means it's left with what its

• 1:59:03Ryan Sean Adams?

  core strength arguably is right now, which is it's a it's a meme. It's a it's kind of a property ledger, right? And I don't mean, like, when I say meme, I I actually don't mean that in a condescending way. Like, I have uh David and I, I think, have high reverence for memes, right? Like, money is a meme at some some level. It's a social coordination tool. But um.

• 1:59:24David Hoffman?

  You can't only have memes.

• 1:59:25Ryan Sean Adams?

  Exactly. That's a it's a very different Bitcoin than the future that I think many Bitcoiners imagine today. That that's kind of the future that that you're painting.

• 1:59:36Speaker 02

  Well, I actually don't think it's that different in a way, because um.

• 1:59:42Speaker 02

  I think a significant portion of Bitcoiners love BTC the asset, but they hate the blockchain.

• 1:59:49David Hoffman?

  They don't even use it.

• 1:59:51Speaker 02

  It's not very evil, like um right, the real, the real purpose of Bitcoin is all about the asset. So I think we're fairly aligned here, right? We're, we're giving Bitcoiners the opportunity to take their, their, their precious BTC and, and like house it in a very secure and friendly environment.

• 2:00:14Speaker 02

  And kind of a little bit like a butterfly, I guess, you know, it's, it, it, it comes out of the cocoon and then it, it finds emancipation as, as a butterfly, starting from a caterpillar.

• 2:00:27David Hoffman?

  So this is an economic argument. This is talking about crypto economics. However, what's new to me in this conversation is that there is also a purely cryptographic argument that the continuation of the Bitcoin blockchain might not be able to continue as trends in cryptography improve. Can you, let's rehash that part of the conversation because I think that's the novel part of the conversation to me. And then we can actually go into perhaps the migration process from BTC on Bitcoin to BTC on Ethereum.

• 2:00:58Speaker 02

  Yeah, so there's actually three different ways in which Quantum potentially affects, you know, a Bitcoin. So the first one is the most well-known. So in, in, in Quantum, you have this, this

• 2:01:13Speaker 02

  this algorithm called Shaw's algorithm, and it allows you to do things like factoring large numbers. But it also breaks the cryptography on Bitcoin, which is basically based on elliptic curve, the discrete lock problem. Anyway, long story short is that Quantum breaks the cryptography in Bitcoin. And what that means, there's actually like an economic

• 2:01:37Speaker 02

  consequence, which is that all the lost coins, at least the lost coins for which the publicly has been made public. And Peter Woller, who is one of the core Bitcoin developers, did some statistics and he found in 2019, I believe, that thirty-seven percent of the Bitcoin supply was

• 2:02:00Speaker 02

  Um, kind of liable to these kinds of quantum attacks. So basically, the, they, the, the, the public key is, is public as opposed to just the, the address, which is the hash of the public key. And with that information, a quantum computer, a large enough quantum computer could basically um, find the private key and then spend the funds. And this is bad. Go, go ahead.

• 2:02:23David Hoffman?

  Yeah, I, no, go, go ahead. Finish it, finish your thought.

• 2:02:26Speaker 02

  Okay, yeah. And, and this is bad for the same reason that the DAO was bad. And it led to a fork. Right? The DAO basically was, oh, God, we have an attacker who's now in control of 10 or 15%. I forget exactly of the supply. That, that's just not gonna work. Um, is it? And so, um, you know, imagine having an attacker with, you know, even 10% of the Bitcoin supply. You know, if Bitcoin is a multi-trillion dollar asset, that, that's just un, un, untenable. And so.

• 2:02:56David Hoffman?

  It ruins the credible neutrality of the asset. Because some attacker got their hands on Bitcoins that wasn't theirs.

• 2:03:04Speaker 02

  Yes, exactly. You have, basically you have a flood of Bitcoin which pollutes all, all the rest. Yeah, yeah.

• 2:03:12David Hoffman?

  And so that we have assurances that this is a possible thing and likely to happen in maybe the next 30 years? Is that about right?

• 2:03:19Speaker 02

  Yeah, 30 years is a very conservative estimate that is usually given. Like, like, everything moves exponentially, including quantum. And, you know, we have an equivalent of Moore's law for quantum computers. And so far, it's very much on track. And basically, uh, you know, every year, we're gonna get better and better quantum computers. And in 20 to 30 years, assuming this, this, this law, um, remains, then, you know, we'll be, we'll be able to, to break the, the, the crypto. And it's kind of interesting because it, the time scales, like 20 to 30 years align with the economic argument that I put before, right? Like, in 20 to 30 years. Like, one of the reasons why the the first economic argument didn't kick in is because

• 2:04:04Speaker 02

  even though the the inflation reduces by by two every four years, the price more than increases by two every four years. But if you look over very long time scales, you know, you can't have an asset which just grows exponentially forever, like exponentials do end. And in in in thirty years, over ninety nine point nine percent, like ju- just about uh over that will be will be mined. And and like, one of the one of the other things is that the basically, the the ratio of the security budget and the asset should be just totally out of whack. You know, you're gonna have, you know, like a a fact of of one to a thousand. And so it's it's

• 2:04:49Speaker 02

  it it just doesn't, that doesn't make sense there.

• 2:04:51Ryan Sean Adams?

  Justin, is this quantum problem not a problem for Ethereum?

• 2:04:55Speaker 02

  It is. It is, absolutely. And I think Ethereum will go through the the same migration process that I'm that I'm uh that I guess I'm I'm happy to describe. But ma- maybe before describing this migration process, I should kind of flesh out the the other two quantum attacks that are relevant to to to Bitcoin. Okay, so the the other basically two attacks are are based on what's called Grover's algorithm. And this actually affects proof of work. So in in you know, very famously Satoshi wrote one CPU, one vote, right? And what he meant by that is

• 2:05:39Speaker 02

  that your computational power is going to be linear with the number of of transistors that you have and the amount of energy that you're spending. So you can kind of think of it as as one transistor, one vote, or one drool, one vote. It turns out that in in quantum computing, you have these really non-obvious effects where you have a superposition of things and you have quantum entanglement. And and these very, you know, cool kind of quantum effects mean that you actually don't have this this linear rule, one one transistor, one vote.

• 2:06:20Speaker 02

  Instead, you have more like, you have this this quadratic effect where if you if you run a computation for N steps, your your computational power is kind of actually more like N squared as opposed to N. And so what that means, it has two consequences. The first one is that at some point in time, it's possible that, you know, the the the very first person who's able to make proof of work on a quantum computer be more more more efficient, economically efficient than than using traditional computers will have

• 2:07:02Speaker 02

  such a large advantage that for some period of time, they will totally dominate the proof of work. So, you know, it could be the NSA, for example, that, you know, for a period of one year, because they they have the only quantum computer in the world that can do that, will be able to totally control the Bitcoin blockchain. So that's kind of like a short-term attack. But what happens with proof of work is that, you know, there's a difficulty adjustment, right? And so the the difficulty will adjust, and then other people will start getting quantum computers. And then you you enter this new steady state, and all is good, right? It's only a temporary attack. But actually, that's not the case.

• 2:07:45Speaker 02

  So it turns out that there's a paper from from this year, which was titled something like "On the On the Insecurity of Quantum Bitcoin Mining," which basically made the made a very similar point to the to the to the to the first one around the the the instability of the Bitcoin mining when you have when you rely only on fees. So it turns out that this quadratic effect makes the the chain even more unstable because of these these.

• 2:08:20Speaker 02

  Because it it it just changes the the the nature of mining.

• 2:08:25Speaker 02

  So yeah, Satoshi, you know, quite understandably couldn't predict and forecast and think through all the consequences of of proof of work, you know, forty years into the future. But yeah, it's it's it's a possible future whereby in in thirty years, mining will be will be truly, truly messed up.

• 2:08:46David Hoffman?

  So this episode is centered around the combination of cryptography and economics, which creates crypto economics. And when you can't use cryptography, you use crypto economics to fill those gaps. But what you're saying, Justin, is that Bitcoin, over the long term, has both flaws in cryptography and in economics that, you know, no one could have predicted at Genesis. But now that we are twelve years into this revolution, we actually do see, you know, things on the horizon that we don't actually have the problems for. And without a migration plan, without being able to pivot. And your concern is that, you know, the Bitcoin blockchain is trying to become as ossified as possible when there are still obstacles that we can see down the road.

• 2:09:31David Hoffman?

  And so that has always been my, like, why my interest is always on Ethereum is that there's no way that we understood the power of crypto economics, the first blockchain, the first crypto economic system that this industry ever invented, which was Bitcoin. And so I'm much more interested in the system that comes after we understand that there is so much untapped potential in crypto economics. So you you you earlier, you said that Ethereum one and also is also Ethereum two, perhaps, has the same problem that Bitcoin does, yet it has it hasn't ossified yet. It has a migration plan. Maybe we can talk about what that migration plan looks like for both Bitcoin and Ethereum 1.0 into a future that does not fall to these these cryptographic attacks or economic failures.

• 2:10:17Speaker 02

  Right, so I guess the migration plan is in two steps. Like, the first one is you want to upgrade your cryptography to be so-called post-quantum secure. And, you know, that's something where a lot of progress is being made, a lot of enthusiasm. And, you know, we have, this is something that's essentially been solved, at least at the theoretical level. Because we know how to do quantum secure SNOWs. You know, for example, the stocks from Stockware, they're quantum secure. And then, when you have that, you can do a very, very large part of the cryptography needed for blockchains.

• 2:11:01Speaker 02

  So that's step one, and that's just, you know, an engineering update. The other thing that we need to do is more of an economic or social update, which is that we need to find a way to bail out, to discard the lost coins, because they're a liability. So we need to have a mechanism to say, okay, these coins are lost, and we're just going to forget about them. And my suggestion is as follows, and I think it's kind of optimal in the sense that it gives people the most time to migrate. But you don't, it's kind of awkward if you're going to say, okay, in one year,

• 2:11:46Speaker 02

  we're just gonna, we're just gonna call any coin that hasn't migrated lost, because that would be extremely controversial. But what is much less controversial is anything that is forced to us by technology. So basically, there's going to be a breaking point, and anything that hasn't migrated after the breaking point, well, obviously, is lost. And so what I suggest building is basically this two-way bridge between Bitcoin and Ethereum that I was talking about, 100% trustless. And then there's a little kind of feature, which I call a quantum canary and a quantum bomb.

• 2:12:29Speaker 02

  Okay, so what is a canary? The canary in the coal mine, the canary in the coal mine is able to sniff out kind of as an early detector, some, something, something bad. And, and this quantum canary would be able to sniff out that quantum computers are here today. Maybe not quantum computers large enough to break, you know, the, the, the cryptography, but it's kind of a, an early sign. And then this quantum canary would basically trigger a, a bomb which would destroy the bridge. And once the, the, the bomb has detonated and the bridge has collapsed,

• 2:13:09Speaker 02

  anything that's remains in the old world is considered lost and anything that has migrated has, has now found is now in what in the canonical home.

• 2:13:22Speaker 02

  And one thing that you can do is you can incentivize, you can attach a bounty to this canary. So whoever is the first one to present proof to the blockchain that quantum computers are real and are a threat, they can receive a very generous bounty for, for doing so.

• 2:13:41David Hoffman?

  And so, go ahead, Ron.

• 2:13:43Ryan Sean Adams?

  Oh, I was, I was, actually, what if you're going to close this, go, go for yours first.

• 2:13:49David Hoffman?

  And so this is the formalization of the separation between BTC, the asset, and Bitcoin, the blockchain, where the Bitcoin blockchain is actually forgotten, yet BTC, the asset, is able to remain. If, and, and, and Justin, I want to get, get your question on this. A lot of Bitcoiners might listen to this and throw up a flag saying, you know, we don't want that. Like, we don't like Ethereum, we don't want our Bitcoins on Ethereum. But yet, is this an option regardless of consensus? Like, do we need consensus behind, you know, a majority of BTC holding individuals for this to work? Or is this something that we can build and establish anyways without needing to have some sort of consensus among stakeholders?

• 2:14:33Speaker 02

  Yeah, I think it's a little bit between the two. So we can have Bitcoin, the asset, in a very native way, come on Ethereum and many other blockchains. So in a way Bitcoin will not just live on Ethereum, but it will, you know, probably live on many different blockchains. And so, you know, there is a social aspect where, you know, I think that whichever blockchain has the most Bitcoin, you know, these native Bitcoins, will hold a claim for being the new home.

• 2:15:13Speaker 02

  Basically, we need to be able to define some sort of canonical home. And the reason is that when you have Bitcoin on multiple blockchains, if the consensus of that blockchain blows up, then you want to basically preserve the integrity of the asset. So you want to have some sort of root notion of trust. And, you know, I think, and that will have to be determined socially. But I think Ethereum has a good shot. If it holds most of the tokenized Bitcoin and has very high-grade security consensus, it has a shot as being deemed a new home for BTC.

• 2:15:51Ryan Sean Adams?

  It very much strikes me that we've been talking a lot about, like, difference between Bitcoin and Ethereum is kind of ossification, right? But there's also the layer at which you ossify, right? And one of the challenges maybe is that Bitcoin has kind of ossified its layer one, when really the thing it needs to ossify more is its layer zero. Because the social contract around Bitcoin as a fixed-cap asset, store of value reserve, the Bitcoin movement can remain ossified in sort of in spirit, in soul, in social contract. But it can move its body, and its body...

• 2:16:36Ryan Sean Adams?

  Being the kind of the layer one, the network is sort of a rickety old computer. It's aging really fast. It's aging really fast. And so what you're talking about is some, you know, connection that may maybe some Bitcoiners haven't made yet is like, ossify your layer zero, ossify your your social contract and your meme layer. But you don't have to ossify layer one or layer two or layer three, because this is compute technology. And we've just entered this new era and there are going to be waves of innovation that provide 10x, 100x improvements. So why in the world would you ossify your layer one? And that seems to be the the more the pragmatic approach that Ethereum is is taking.

• 2:17:18Ryan Sean Adams?

  And I do actually see in Ethereum some more ossification around these these core values in in layers here, which is exciting to see. But now with Ethereum, we have kind of layer one that we can continue iterating on and and improving. You know, so much so that we're creating a whole nother network. This ETH two thing that lives in parallel and we're taking the layer zero and we're migrating it over. It's um, i- i- it seems to be a very winning strategy. And I guess this, this is why, Justin, this um, this episode fits very much into our ETH bull thesis series of episodes here.

• 2:17:56Speaker 02

  Yeah, I agree. It makes sense for Bitcoiners to solidify their the um, layer zero and and get ready, at least psychologically speaking, to um, to consider options on on layer one. But I think they've also already solidified their layer zero, or at least they're in the process of doing it. Like, we hear people on Twitter or whatever um, saying that anything that doesn't have the 21 million limit is not Bitcoin. And they will use very, very strong language. And I think it's being ingrained in the DNA of what it means to be Bitcoin. And I think that's that's perfectly fine.

• 2:18:38Speaker 02

  But there are trade offs to that mentality. There's like a Another, there's a flip side to the coin. And in a way Bitcoin can get the best of both worlds. Bitcoin can get the best of both worlds. It can not only have the this amazing scarcity, which is with the 21 million limit, but it can also, and even for free, kind of latch on to the security guarantees that Ethereum will provide with a very different model, which is the the minimum viable issuance. Enough to provide security.

• 2:19:20Speaker 02

  But minimal to keep basically the economic waste to to to a to a small amount.

• 2:19:29David Hoffman?

  It does seem to be the best of both worlds. It really is up to the social layer of Bitcoin to say if they actually want that or not. And, you know, I guess at any point bias could be included in this conversation, but it would seem to be that it would be in Bitcoin's best interest to not go down with the ship and admit that Ethereum might be a great new host to upload BTC the asset to, because as we all know Bitcoiners love BTC the asset and the Bitcoin blockchain is more of an afterthought. Justin, this episode has been absolutely fantastic. In addition to talking about the the obstacles and optionality between Bitcoin and Ethereum, we talked a ton about the power of cryptography.

• 2:20:12David Hoffman?

  And at least with the bankless thesis, banklessness is about power to the individual. And cryptography has always been about putting power back into the hands of the of the individual. And my own Twitter handle, Trustless States, talks about the state of being trustless, which cryptography is inherently involved with. We would have never been able to produce this episode without your help and without your amazing agenda that you helped put a put together for us. Thank you so for so much for coming on the Bankless Podcast and telling us and telling and showcasing the future of cryptography and what can it can do for the average individual and what this crypto economic revolution can do for the world for returning sovereignty

• 2:20:56David Hoffman?

  back to the individual. Justin, thank you for coming on the Bankless Podcast.

• 2:21:01Speaker 02

  Guys, thank you so much. It's been an honor. Bankless is one of my favorites.

• 2:21:06Ryan Sean Adams?

  That is awesome to hear. Okay, guys, action items. We are going to include a spreadsheet to the research that we referenced as Justin was going through those cryptography solutions and kind of the problems that we solved. We'll include that as a link in the action items in the show notes. Check that out if you want the detail. Justin also mentioned some research papers, so we're going to ping him after this show and see if we can get links to a few of those. Finally, bull market. David, what do we need in the bull market?

• 2:21:38David Hoffman?

  We need five star reviews. If you thought that this episode was interesting and informative, and you think other people should listen to it, I think other people should listen to it. We need five star reviews to get Bankless to the top of the iTunes podcast charts. We're trying to scrape our way to the top of business and investing categories. We are not yet in the top 50. I don't even believe, Ryan, we're in the top 75. And so it's up to the Bankless Nation to give us those five star reviews so we can get to the top of the iTunes podcast charts.

• 2:22:07Ryan Sean Adams?

  Your likes on YouTube help as well if you're watching it that way. Guys, risks and disclaimers. ETH is risky, so is Bitcoin. All of crypto is risky. You could lose what you put in. We are headed west, though. This is the frontier. It's the frontier of cryptography as well. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.