Video - Andreas Antonopoulos At MIT Bitcoin Club

Andreas Antonopoulos tackles about technicalities on crypto currency. With the audience from MIT, he elaborates how technically Bitcoin invades smooth sailing in the economy.


Thanks for hanging out. I don't know if what's happening in downtown Boston is because of the snow or because of something else but it was crazy. I really apologize for the delay. It took me 90 minutes to make 3.1 miles. So, yeah, you can do the math. You're at MIT, right? So, all right. I'm the author of "Mastering Bitcoin" and so if you're wondering what is Bitcoin and how it works, I have a simple answer it's just three-hundred pages long and it will answer that question for you. You probably don’t need the full three-hundred pages to understand Bitcoin but it helps. And it is in fact rather complicated technology but it's a very exciting technology.

So, let me just get a feel for the audience. How many people here are familiar with Bitcoin? How many of you own Bitcoin? Okay, and how many are completely new to Bitcoin? All right, just a couple of people. So, the reason I'm excited about Bitcoin is because I'm a geek. And I find things like this rather exciting. I get excited over elegant architecture. I get excited over technology that expresses the simple truth in mathematics. And if you take that and you combine it with politics that disrupt the banks and allows Silicon Valley to do a frontal attack on the finance industry for the first time in history that makes me even more excited. Bitcoin is exactly that. It's a technology. But it's actually not just a technology. Bitcoin is based on a simple invention and the word simple is used ironically in that sentence or rather sarcastically. It's a simple invention created in 2008 by Satoshi Nakamoto and what it does is it allows you to build a fully distributed system that exhibits principles of trust without a central authority, without a third party, in between all of the transactions. Now, that may sound like a simple thing. We'll just take out the middleman from the middle of the network and then it will work. But in fact creating trust in a network without a central authority is a problem that has escaped the solution for probably 50 years since it was first expressed in the mid 60's in computer science and distributed systems.

Satoshi Nakamoto's solution is not a final solution. It's an optimization. But it's an optimization that has worked well enough and scaled well enough to create a network that can support up to ten billion dollars in financial activity. So, we don’t know how well Satoshi Nakamoto's invention will work or whether will scale, but we do know this it's scales a 10 billion. And that had never been done before. So, now the question is does it scale to 100 billion? Does it scale to a trillion? And then we go from an issue of does it work to simply how do we optimize it? And if you are an engineer, you start getting excited about that question, right? Because it's just a matter of scaling and optimization.

I get excited about Bitcoin because I like the simple elegance of using a mathematical solution to create trust. Bitcoin creates an environment where you can have hard guarantees about outcomes. So, the Bitcoin system itself is a network with a lot of computing power behind it. And this computing power is engaged in a game. A competition. A competition that uses the principles of Game Theory in order to align the incentive with playing fair. So, it's really a giant competition in which if you play by the rules, you win Bitcoin. And it's more profitable to play by the rules and win Bitcoin than it is to try and cheat because if you cheat you use up a lot of electricity and you don't win the Bitcoin. And it's really this simple elegant principle. Now, Game Theory if you look at it as a lay person, shouldn't work. So, well if anybody knows how the competition works or they rig it somehow and collude in such a way as to cheat the system. They would if they could suspend their own self-interest on a massive scale and humans don't do that. Humans don't suspend self-interest on a massive scale. In fact, humans have a tendency to follow their self-interest to get the outcome they want. And Bitcoin uses that in order to create the conditions where the miners those participating in this competition are all pursuing their narrow self-interest. And the easiest way for them to achieve the self-interest is to play honestly. And that really screws with their minds because it creates the conditions where trust emerges simply from a competition around these simple rules.

Now all of this is explained in the detail in the book. But I want to give you just for a moment a perspective of the scale of this. Bitcoin's primary competition is based around solving a problem. And this problem is a mathematical problem that depends on chance. Think of it like throwing dice trying to find a random number. But this random number has to look a specific way. Let me give you an example. If I take a Sudoku puzzle and I sprinkle some numbers on the surface of that puzzle, it will have a solution, right. That solution appears random but it isn't. It has to follow certain rules. And if you fill in the right numbers in the right places in a Sudoku puzzle, you find the solution. Now the great thing about that kind of problem is that if I show you a Sudoku that's already done, you can verify it in a matter of seconds just at a glance. You can see yep it adds up, right? You can add up the squares and see that everything adds up. And it doesn't matter how big the Sudoku puzzle is you can still add it up in a predictable time. But if I give you a half empty Sudoku puzzle and I say go ahead and solve it, it's kind of hard. It's hard when it's 10 rows by 10 lines. If it's 100 rows by 100 lines now it starts getting really quite hard. In fact, if I knew how fast you can solve a Sudoku puzzle and I make it 10 times bigger, I know it's going to you about 10 times longer to solve it and there's no shortcut. There's no way you can cheat and find the solution faster. And so, I can keep making that problem as big as I need. Now imagine when the giants auditorium kind of like this one. And we've got thousands of people solving Sudoku puzzles. And we can make them any size we want they can solve them on their iPads or whatever and then what we're trying to do is make sure that the problem can only be solved once every ten minutes. So, we set the challenge. And someone finds a solution. They find it in eight minutes. Everybody trying together someone finds a solution in eight minutes. Well, what do we know? It's not hard enough. So, we add some rows and we add some columns. We make it a bit harder and then the next round someone finds it in nine minutes. Still not hard enough. We make it even bigger. Someone finds it in 10 minutes. Okay now we've calibrated the solution, right. So, we can keep doing that. If it takes too long people start giving up. We start finding the problem, the solution in twelve minutes or we made it too hard. So, we're going to shrink the puzzle a little bit. Make it a bit easier to solve. Now if suddenly, a bus stopped outside and a whole bunch of new contestants came into the auditorium and started solving the problem. We'd have to add a lot of rows and columns to keep it at 10 minutes. And that's basically how Bitcoin works.

There's one subtle difference, the Sudoku Puzzle we're solving has quadrillion rows. But otherwise the principles are basically the same. And you can predict how long it's going to take a network of specific size to solve that problem. And then the entire network can calibrate so it will always take ten minutes. Now to give you an idea of how big this problem is, if you took your laptop and you tried to mine on the Bitcoin network your average laptop would be producing about one mega-hash per second. One million hashes per second. That means it can to do one million SHA-256 hash operations which are like throwing a dice or solving a single square in a Sudoku per second. The problem you are solving today takes if I'm not mistaken it's 40, 42 Pata hashes per second. 42 Pata hashes per second and it takes the entire network ten minutes to solve the problem. So, your laptop would fall short. You would eventually by chance if you just kept at it you would find a solution to the Bitcoin problem and win the competition.

Once on average every five to six and a half thousand years. I don't know if your warrantee on your laptop will last that long, whether we'll still have electricity around for you to do it but you could try. Now if instead of a laptop you use a graphics card, some serious power there and you would be cranking away at about a giga hash. So, one billion hashes per second. All right. Now your only three hundred million times short of the target of what the network is actually doing. So, you take a relatively sophisticated graphical processing unit, you crank it up, and you're only one three hundred millionth of the current power of the bitcoin network. In fact, if you take all of the 600 fastest supercomputers in the world they are thousand times too slow to even start participating in this. Where did this thing come from? How do you build in four years the fastest hashing supercomputer on the planet completely without anyone noticing? 

Honestly most of the world you think outside of this room how many people on the MIT campus know that the fastest supercomputer in the world if you allow for hashing is the bitcoin network. And it's not just fast it's thousands of times faster than all of the top supercomputers put together. And it was built by bunches of geeks trying to do this in their garage. And it was built in just the last three-years but because of its exponential growth really just the last year and really just last-six months, right? Exponential curve most of the activity happens now. In fact, we've reached a point where the week-to-week adjustments of the network are equivalent to the entire hashing power of the first-year of Bitcoin. This supercomputing capability is behind the security of Bitcoin. It guarantees that in order to cheat you have to do the computation than that sustained. And if you do that you will be able to take over the computing of the network for ten minutes and double spend the transaction. Which means that if you few buy a pizza you can use the same money to buy another pizza ten minutes later. It's really amazing stuff. You have to sustain that for ten minutes. It would cost you about three megawatts of electricity, do the math, it's not worth doing for a pizza. It's not worth doing for brand new SUV. In fact, there are very few things that it is worth doing. And all the network do is say hang on I'll deliver in an hour. And then you have to sustain that effort for an hour. That's called six confirmations. So, you can then statistically see how much security you buy, right? Rule of thumb. Zero confirmations assuming you're not going to attack this network to do basic small purchases. I'm going to buy a cup of coffee. I would sell someone a cup of coffee on zero confirmations. Probably more. One confirmation. I would sell someone a flat screen TV. Two confirmations. Maybe a fancy flat screen TV or a cheap car. Three confirmations a really nice car. Four conformations a fighter jet. Five confirmations an aircraft carrier. Six confirmations Opex budget for the year because it scales exponentially, right. So, you can see how you can make some bets. It doesn't quite work like that. You know if you were delivering an aircraft carrier, the good news is that most customers can't take delivery within sixty minutes and so they won't get very far. So if they did double spend that you'd catch them. But if you wait day a hundred forty-four confirmations mathematically. The computing power that would be required to undo that transaction is absolutely unfathomable, right. Never happened on Bitcoin at this point in the network's capacity unfathomable. So, now we've created a mathematical construct that can guarantee a transaction as fundamentally irreversible providing a core guarantee. If this transaction can be verified and any participant can verify that it's correct and it is correctly inserted into the network and the blocks start piling on top providing guarantee of computation, elapsed computation called proof of work. At some point, the weight of the proof of work on top of that transaction is so high that to rewrite that can be considered near impossible. Now the software allows you to rewrite at any point in time. We could rewrite the Genesis block theoretically, all you have to do is provide five-years' worth of proof of work in the next ten minutes to overwrite everything that's ever happened in Bitcoin. Theoretically it's possible. Practically it's not.

So, Bitcoin creates this hard guarantee. And once you have a Bitcoin transaction it's irreversible. Today someone tweeted me a really interesting tweet which was isn't irreversibility a weakness because the tractors of Bitcoin are saying that irreversible transactions are weakness of the protocol. Which is interesting because if you think about it at a very superficial level, if you're a consumer and you buy a car and that transaction goes through and you don't get a car and that transaction is irreversible. It's equivalent to giving someone a suitcase full of cash and then driving away. There's no recourse. You can't do anything about it. On a superficial level, you might see that as weakness. But you would have failed to understand that Bitcoin isn't just this hard core of a trusted irreversible transaction. It's also programmable money wrapped around that. So, for an example, of how you can overcome this. You can actually simulate a fully reversible transaction by using some of the technologies that exist in Bitcoin. 

For example, if you combine a three party Multi-Signature Escrow capability with a delayed transaction that is pre-signed by two of the parties. You basically tell a merchant here's the money in Escrow. It's going to sit there for thirty days. At the end of these thirty days here's a transaction that gives you that money. It's postdated. You can't cash it until the end of this time. But if nothing else happens you cash this transaction. That money is yours. No questions asked. Now you're using the verifiability and the trust core that nugget to make a future promise. You're taking that strength of computation and you're making a promise. The promise is this money is here today and this transaction will be redeemable in thirty days. That is absolutely guaranteed because it will be redeemable unless one of the parties in the multi-signature combines with the other party to reverse it. So, for example if you're using an Escrow party who's doing arbitration or you're using the legal process. If you don't deliver the car. The money to sit there for thirty days. But if you don't deliver the car I'll get the arbitration agent to sign the opposite transaction and get my money back. So, now you have a reversible payment. So, what you have done there is you've taken a hard guarantee of irreversible payments. And you've used it to simulate a pair of irreversible payments. One to the seller. One as a refund to the buyer. And then the decision about which one gets executed is up to a legal process or an arbitration process. So, you've taken an irreversible core and you simulated a soft reversible transaction for consumer protection.

Now think about that for a second because well in Bitcoin you can take the hardcore of trust. And you can soften it with programmatic guarantees. In the traditional banking system, you can take their soft mussy mess of intermediary counterpart is a risk and harden it. There's no way you can create and irreversibility guarantee in the traditional financial system. You can't create a transaction that is guaranteed irreversible. Now think about what that guarantees means for a second? There is no way in the existing financial system that I can make a payment to you other than cash in small unnumbered bills or maybe bearer bonds in the briefcase. You know this is beginning to sound like a James Bond. They kidnapped the queen kind of scenario, right. That's the only example you can make a irreversible transaction hard cash. Because anything else can be reversed. Think about the legal system. Think about the banking system. If you give me a wire than the bank can be sued to change that and back it out. Since, they control the money they can be compelled by law to changes. So, it's not really a guaranteed. There's no guarantee of irreversibility. You can't take a mussy financial system and create any kind of hard promise.

Now you're you begin to see some of the really interesting things that are rise out of this. You have on the one hand a financial system that gives you a hard guarantee on which you can simulate much softer levels of enforcement programmatically. And on the other hand, you have the existing financial system that is an institutional system of money that depends on checks balances counter parties and risk and that is inherently soft. It can be manipulated and guess what? It's not going to be manipulated in your interest. Because your little people. And the financial system doesn't serve little people. We are all little people when it comes to finance, right. Just ask Julian Assange whose organization WikiLeaks I can't donate to as a US citizen. Not because it's illegal in fact it's a constitutionally protected activity. Freedom of association and expression guarantees me the right to donate to WikiLeaks as US citizen. But I can't because Visa won't let me. And Mastercard won't let me and PayPal won't let me. And that has been engineered by the US government without any due process. Without any proof that Julian Assange broke any law but they can manipulate the soft financial system to get an outcome that changes my behavior because I'm a little person. So, I can’t donate to WikiLeaks. By the way you can you can use Visa or PayPal or Mastercard to donate to the Ku Klux Klan of Alabama. You can use Visa to donate to the Neo-Nazi Party of America. They don't have a problem with that but not WikiLeaks. And I have a problem with that. I have a big problem with that. So, I like the fact that you can create a currency that delivers mathematical guarantees to the people who own the money and should be in control of the money. Rather than a system that is soft and manipulated to deliver guarantees all for some and you're not part of that sum. So, that's what excites me about Bitcoin.

As I said is this combination of elegant architecture and mathematical proof that excites me as a geek. And the political process and promise of participatory networks trampling institutions and delivering guarantees in math that you cannot get this guarantees in law. And I would much rather trust in math. Thank you.


Antonopoulos: While we’re doing this paper thing. Let's take questions from the audience. Do we have a microphone for questions or should I repeat them?

Okay. Yeah, I think we will loud enough.

Antonopoulos: Okay, be loud and I'll repeat them for the video.


So, you mentioned about Dobermans and this using the system that coexists inaudible 0:23:57 donating to Wikileaks for example. Let's imagine that you can donate to Wikileaks using bitcoins, right. But then we have a system that is public ledge where find your address and we can look that public ledger, right?

Antonopoulos: Right.

That could end up being used by the government, also right?

Antonopoulos: Correct.

So, I know we haven't an anonymity options out there but today for example Bitcoin does not offer that. What's your opinion about that particular political question?

Antonopoulos: So, this is an interesting question. It's a political question. Let's say, I can donate my Bitcoin to WikiLeaks but then when do that donation a transaction from my address to the WikiLeaks address will show up in the public ledger and that can be mined by whoever to prove that I made a donation and therefore to create consequences for me. At the moment, Bitcoin is not anonymous. If you've heard that Bitcoin is anonymous that's not true. Bitcoin is loosely pseudomonas if you try hard. It can be made weakly anonymous if try really hard. A strong anonymity on Bitcoin is near impossible to achieve, right. Because as long as I can associate you with some address I can track that transaction. If that's what you want to do then I would suggest converting your Bitcoin to a coin that does all for strong anonymity at which point you can make a really strongly anonymous transaction with that. And because both are digital currencies converting one to the other is very easy.

inaudible 00:25:42 WikiLeaks to accept that?

Antonopoulos: If they can convert it back to Bitcoin for them it's seamless. So, getting them to accept that. If the value of anonymity is an issue then it's not a problem. Now politically I believe anonymity is extremely important. An anonymity appears to be a privilege to those of us who do not live in countries where you get dragged off in the middle of the night disappeared and tortured for weeks for expressing an opinion. I can talk shit all day about Goldman Sachs and no one is dragging me off in the middle of the night, okay. That's one of the benefits of living in this country it's a privilege. So, that's five percent of the human population. The other 95 percent who live varying forms of less free than that. Some more free. Many quite less free. Anonymity is a privilege here but it's an absolute necessity in many places around the world. And of course, the problem with anonymity is that these transactions can be tracked forever. So, if I do something that is legal today in the US while the US is a democracy. What happens when five years from now Sarah Palin is elected to be the next -- the first fascist president to the United States and she decides that reading books of a certain type is illegal and she gets five robed people on the Supreme Court to agree with her and then she goes my mining in Blockchain for all the transactions that bought that book. Suddenly my anonymity is a problem expose facto, right. So, you have to think about this also from a time. And if you don't like that scenario, replace that scenario with whatever you think is more plausible. You’re someone in Venezuela and things were great. But then some dictator came along and changed things. or any country in the world where political guarantees exist now today but may not exist tomorrow. And your actions today will still be held against you tomorrow. Anonymity is vital human right. You cannot have freedom of expression and freedom of association without anonymity, not really. And so I would like to see Bitcoin deliver stronger anonymity guarantees. That won’t necessarily happen. Bitcoin men up being the gold reserve currency. Digital gold reserving value for other currencies. Hundreds of other currencies many of which will deliver a strong anonymity guaranteed through the protocol. You can do mathematically proven anonymous transactions in a number of these coins and you could use those instead. And as long as you have a two-way exchange between the value. You can very seamlessly move from one to the other. Think of it a bit like Bitcoin being the core TCP IP layer and once you have that you can you built tor on top. And it takes special software to move into and out of tor to get your anonymity guarantees. And that's probably not the best example because it's not very strong. Now imagine that tor is an out coin and TCP IP is Bitcoin and you can move from Bitcoin to the other coin and then down again. And use it as a protocol layering mechanism to deliver guarantees of strong and anonymity. I expect we will see a world where Bitcoin provides a core fungible currency value layer on top of which we'll have protocol layers that deliver micro payments fast transaction processing anonymity and all kinds of others programmatic guarantees depending on the niche application which is why there will not be one currency to rule them all. Because there is no one application for everyone. Next question? Yes.

Yeah, I'd like to ask you more about the practical applications. inaudible 00:30:01?

Antonopoulos: So, practical application of Bitcoin for various possible users of Bitcoin. Bitcoin is useful to me today. But that's because I use it in a very specific way. I'll give you an example. Recently I went to Germany to present at a conference with the German Bundesbank. And in my contract they had the obligation to pay me a small fee plus my airfare. So, then we started the SWIFT code dance, where they didn't have Bitcoin they needed to pay me via wire transfer. Long story short, it took 16 days. During those 16 days, the Euro had a hiccup and I got exposed to all of the exchange rate volatility of that. Among other things what was ironic about this was that the German Bundesbank was involved in this conference I was being paid by wire. My bank froze their funds for five days. Five business days because after all who knows who these people are. They just the Federal Bank of Germany shady characters. But that demonstrated to me kind of the utility. If you're in the import-export business. If you're doing work with hundreds or thousands of contractors abroad. If you're paying advertising affiliates like Google is paying ten fifteen thousand advertising affiliates around the world. The costs of doing business in that particular case are extremely high. So Google, for example, would be a good candidate for using that. But there are many businesses that do a lot of international business where the current system has far too much friction. Josh Mo who lives in Idaho. He only trades with people around him in Idaho and lives in a country where he has the world reserve currency and there's only one of those. So, sorry to the 193 countries that didn't get that little bonus. And he has the necessary documentation and credits rating to open a bank accounts. The level of education, numeracy and literacy to use a bank accounts. Then Josh Mo can use Visa in the US Dollar. And for 99.99 percent of cases at the moments where Bitcoin is with maturity today, Visa and the US Dollar is better. There's no question about it, right. It's accepted in more places. It's the less volatile. It's easier to use. Given a few years, you'll be able to do things with Bitcoin that you can't do with the US Dollar. You will be able to use it in more and more places. You will be able to use it less expensively even the Visa network and certainly more safely on online trades and e-commerce trades that you can't with Visa but that's really not the demographic. At least not for now. However, there are between four and six billion people who are engaged in international remittances which have a very high cost and a lot of friction. Or live in places where they have very little or no banking facilities at all. So, if you are a literate enumerate owner of a Nokia 1000 who lives in the Amazon River Basin and the nearest bank branch is a hundred miles away, you could probably do things with text messaging and Bitcoin in the next year or two that you can't possibly ever dream of doing with a traditional banking system. And I think that's a really exciting opportunity. So, you've got to understand what the audience says and what's the case. This is not something that has universal applicability yet. And that's okay. Bitcoin works for me today and there are plenty of me. And there are many more applications that it's working for every day. Yes.

When you flew to German for your conference you completely trusted the FAA the airline … if you are willing to trust third parties you can do Bitcoin should be much simpler and save a lot of power?

Antonopoulos: Yes, you could theoretically do a bitcoin that would be much simpler and save a lot of power and so could you. You could implement FedCoin. The beauty about the blockchain technology is that you could implement it with a more centralized consensus algorithm. You have the recipe and already 500 plus other coins are being created by others who think that they can do it better. And then the market can decide. To me, the most exciting thing about Bitcoin is that by creating the technological infrastructure for a global instantaneous unforgeable secure currency, it opens the possibility of private money to any person on earth who has a basic understanding of programming and some basic infrastructure. Will you create this particular completely decentralized scarce and diminishing supply, looks like digital gold, only 21 million coins monetary policy coin from that recipe? If you want to, sure. But you can create any other things and if it's good and useful to someone, it's going to get used and will end up with thousands of currencies. So there's nothing stopping anyone from doing that instead. I don’t think bitcoin is expensive from an energy perspective. It's only expensive because at the moment we need to be able to resist security attacks on a global basis, but we're only adopted on a tiny basis. Bitcoin could scale to support global adoption without the hashing rate going up at all from where it is today. It's already secure enough to resist global attacks today. And that has nothing to do with how many transactions are happening. Now, if bitcoin scaled up into millions of transactions and the hashing rates stayed where it is today, that would suddenly make it the least expensive financial processing network in the world ever. And also the most ecological. So does it look very inefficient today? Yes. How many miles per gallon does the Ford Model T get? Not as much as a Nissan Leaf. That's not a reason to give up the automobile. It wasn't designed to be fuel efficient. That wasn't the problem it was solving. In fact, at the time arguably it didn't solve any problems. It was a noisy, dangerous polluting machine that you couldn't run on hay and there were no roads. So we have to look a bit further than that basic thing. And when I do get on the flight to Germany, well, I am trusting in the FAA. I am actually trusting a lot more in the market conditions that creates the training infrastructure for air transport pilots around the world. Those market conditions that lead an airline to lose 50% of its seats when a couple of its planes fall out of the sky. I trust in that a hell of a lot more than whether a piece of papers says that pilot is okay. Because airlines can and routinely do vastly exceed the minimum standard set by industry. The reason they do that is market forces. Not regulatory institutions. When it comes to banking however, I would say that we have a massive regulatory failure that I think should and can be solved by mathematical money. Kevin?

So bitcoin's market cap is around 5 billion right now.


3 billion. If bitcoin ever became like a serious threat to Visa or MasterCard, what's to keep them from dumping a whole bunch of coins, crashing the market, spam the network, like doing everything they can just to inaudible 0:39:07 and then roll out mastercoin?

So what's to keep a large adversary from essentially manipulating the exchange rate market primarily by dumping a lot coins and creating sell pressure in order to dump the price, create a confidence crisis and kill Bitcoin? Nothing. One might argue that that is already happening. We don’t know who is selling? Why they're selling? Or what they're selling it for what reason? What stops that from succeeding is that there is a hardcore of people who find Bitcoin useful today and for the foreseeable future. [Audio Glitch] coin network requires two nodes. And a Bitcoin market requires two participants. Anything above that is gravy. And the Bitcoin price worked when it was five [Audio Glitch] down to that point doesn’t kill the currency. For those who believe it actually makes it cheaper to buy in again. So, it creates a second opportunity to get in. And we're seeing that right now. And the price is down to 250. I had a party the first time the price hit 250 on the way up. I see no reason to be horribly disappointed because I've been in it for the long-term. So, it really matters what your prospective is. But Bitcoin worked when I started buying it at $5 and I am not going to go anywhere. And I'm not going to give up. Now if you keep doing that on a global basis and the technology. And you apply it to people who have a lot more interesting use cases for Bitcoin. Then it's actually pretty hard to kill and we've seen that. just added its 42nd obituary for Bitcoin. So, according to the media Bitcoin has died 42 times now. It may end up being the zombie currency that refuses to die. And that's good enough for me. inaudible 00:41:37.

What about inaudible 00:41:37 like it changes like (inaudible 0:41:45)..

That's -- that's a really good argument. Actually, that is an interesting risk. So, to repeat the question what happens if there is discrimination in the processing of transactions by miners or exchangers but the changes really wouldn’t be able to do this effectively it would have to be miners. Whether they discriminate between for example making payments to one recipient for versus other. You start using whitelisting or blacklisting and then by doing that destroy the core fungibility principle of the currency. Fungibility is a -- is a principle of economics that says that a token of value such as a currency of coin is indistinguishable from any other coin. So, you know you can't say I will accept US dollars but only if their serial number is odd. If it's even that's devil money. I won't touch it, right. You say that you're breaking the law. You can't do that. The law requires you to treat every you can't say I don't like this serial number I won't accept this money, it's not real. And the government can't say that either so that creates fungibility. Every dollar bill is fully exchangeable for any other dollar bill and fully equivalent. That principle is fundamental to a currency. And if you destroy fungibility you destroy the means of exchange function of the currency and then it becomes very difficult. And for example, in Bitcoin you created whitelist or blacklist that said we found the empty Gox coins that were stolen. So, here is the list loaded on your computer. If anybody presents you with one of these Bitcoin that we're part of the Mt. Gox staffed then don’t accept it. And none of the miners will mine transactions with these coins will just cut them off the network. That destroys the fundamental value of the currency. Because what it does then is it imposes of burden on everyone. If you receive money now you don’t know if it's real unless you also checked it against the latest version of the Blacklist to see if it's not one of the bandh ones and you can't do that that doesn’t scale. So, it will fundamentally destroy the currency. If there was enough centralization in mining to adopt that kind of policy. That would be a destructive event for Bitcoin. We'd have to reboot another one more we didn't that. And I -- I think primarily because of that reason no miners would do that. The idea of putting whitelist, blacklist on transactions processing for miners is a part to the miners. Because it's fundamentally destroys their business. And so, they have every incentive to not accept such a change in the protocol. So, let's say the core developers proposed such a change implemented within the code and release Bitcoin 10.2 no one would upgrade to it. because they would know that upgrading to it would destroy the value of the currency. In the fact, we're seeing a big gap between the code that's being released and what's actually being use on the network because the miners are very conservative about upgrading. Bitcoin works as it is today.

But that would (inaudible 0:45:18).

So, if there was black on the exchanges or market places that refuse to exchange Bitcoin that have been involved in certain transactions. And that's a pretty serious risk especially for regulated exchanges in the US. What I would do in say it would create an arms race for people to start using various forms of mixers and tumblers to (inaudible 0:46:02) the source of these coins. But what happen is that the bad coins are blacklisted coins would simply be traded for other currencies on other exchanges. You'd would go and sale them for Euros on unregistered Romanian exchange for example and then use those Euros to buy clean Bitcoin from somewhere else. And it would push the market to implement that because the actual exchange infrastructure and the Bitcoin infrastructure so widely distributed you can go jurisdiction shopping and in fact you can do that algorithmically you can route Bitcoins to destination where there most likely to be accepted. That kind of move would start an arms race which would make Bitcoin a much more hostile currency to regulation. And that's an arm race most government don’t want to start. Because then it makes Bitcoin behave like some of the more venomous and fang based coins out there. It's basically the exact same idea with the music industry should have taken a deal with Napster. Because not only did they lose to bit torrents but Apple took their business away too. And in the end, Napster was much friendlier than what they evolved themselves by attacking. So, if the regulators attacked Bitcoin as it is today and do things like that. what they're going to do in this petri dish of six seven hundred old coins is they're going to cause Bitcoin to evolved very rapidly and it can to an extremely stealthy version. That will route around like that like it's not even there. Yes?

Kevin: As a Bitcoin insider what would you say at the top say three five (inaudible 0:47:43)

I -- I wouldn't say I'm insider because they are no insiders in Bitcoin. We're all are outsiders in a participatory network that's the beauty of it. But as -- as someone who is really interested in paying a lot of attention in Bitcoin will beginning to see some movement in the remittances markets around Bitcoin and I think that's going to accelerate in 2015. Will still seeing an enormous amount of basic infrastructure developments. And so well a lot of the geeks are very interested in Bitcoin 2.0. Most of the interest most of the profitable and importance and groundbreaking stuff happens in Bitcoins 0.8 if you wanted to put it that way which is building basis services, exchanges market places wallets. Like the three core infrastructure components for bootstrapping a Bitcoin economy. And I think 20 2014 was very much the year of exchanges. We went from a handful of one or two to more than 50 quite functional exchanges today plus a proliferation of white label exchange software that's being deployed in many countries. And then we're going to continue to see that it's very much like the build out the internet service provider infrastructure place in the mid 90's. And we're also going to see further development in the wallet space. I think more development of hierarchical deterministic wallets. I'm really excited to see developments in the payments protocols space near field communications, Bluetooth low energy and other forms of a much-improved payment interactions where your average user will not have to see a QR code or a 32, 37 characters unintelligible address any more than your average web browser user knows what an IP addresses is. So, I think those are we -- we need to do a lot of basic stuff. And it may seem boring but it's where the real future of Bitcoin lays in. I think we're going to see a lot of that in 2015 infrastructure. Yes?

So, Bitcoin has taught us a lot about value (inaudible 0:50:00) right so, we understand we don’t need to via currency to exchange value with somebody or some entity. And we have these things call the stock exchange the financial system where after IPO (inaudible 0:50:13) based upon the speculation of future earning or speculation of the (inaudible 0:50:20) who is going to buy the stock afterwards. Do you see an intersection with crypto in terms of being able to raise money for a companies through crowd sales being able to do perhaps the financial system redo that? Maybe more based upon the utility of (inaudible 0:50:41) say for example rather than the speculation of -- of the stock market that isn't that relates to stock price that could be fluctuating based upon the price in china let say or whatever global event has (inaudible 0:50:54)

So, I -- I absolutely do think that the consensus mechanism at the core blockchain technologies that creates the currency app of Bitcoin is just the first app. And

decentralized exchanges for trading stocks, Cloud sales, Cloud IPO's or whatever you want to call them. the idea that you can create global equity markets that are completely decentralized that don't give specific advantages to -- to inside our players that are much more transparent much more fluid much less costly that can settle more quickly with more transparency for all of the players involved. Not only do I -- I think that's happening I talk to and hear from banks that are very interested in using blockchain technology to rip out some of the clearing houses and intermediaries of the stock exchange because if you're a smaller player you don't get the advantage, right. So, it's it's better to think about how to disintermediate them. All of that said however that's not going to change the underlying human nature. And the cycle of greed and information flow that creates these pumped and dumped skiing greater. Full crazy market manipulation and speculation because that's not the market mechanism. That's the human condition using the market mechanism and you don’t change to human condition. There will always be greater force. There will always be Ponzi scheme. There will always be get-rich-quick scheme. There will always be greedy people. And there will be always be an information mismatch on the market. So, some players will know more than other. And will take advantages of that information.


That won't change. Well what changes that you can do this? You can break down the barriers between stock exchanges around the world and create global equity pools with the centralized exchanges that are much more fluid and transparent that we have today and incremental improvements. Yes.

Why are hardware wallets important? And what (inaudible 0:53:06) do you want to see in hardware wallet?

Why a hardware wallet is important to what features do I wanted to see in hardware wallets. Hardware wallets are importance because we socket information security. We've been doing physical security for give or take four and a half million years. The first caveman who hid something under rock so the other caveman wouldn't eat it was doing physical security. They didn't even know they were doing it. They just watch a squirrel do it previously. We've been doing information security for 50 years and we suck at it. There is not a company or government entity or secret super-duper lab or the NSA and CIA themselves. Who can keep information secret. As long as those share it with one person it's no longer secret. And in order to use information we collaborate across multi people and then it's even lesser secret. We don't know how to keep information compartmentalize. We don’t know how to keep secrets, secret. We don't know how to keep hey secure. We certainly don’t know how to do that on a Windows machine or Mac that's connected to the internet. Or even a Linux machine that's connected to the internet. I have more than 20 years of experience in information security. My laptop has a sticker over the camera because I assume accurately that the chance of that machine being completely and totally compromised in a way that I can't even tell is high. So, when I could spend three-weeks doing a forensic analysis of my laptop. Secure it from all risks. Proof that I owned and contract machine. And that would be good until I connected to the internet again at which point I'd have to do that over again so that's not practical. An Internet connected general purpose operating system cannot be secured from compromise not with the technology we have today. So, the safe assumption from a risk perspective is assumed that your laptop is compromised. That everything the camera sees. Everything the microphone hears. Every keystroke you typed. Every website you visit can be seen by everyone all the time. And so, I put a sticker on it. And I puts a no plaid into the microphone and I'm very careful about what I type on that machine. And I keep all of my Bitcoin keys either on paper or in hardware wallets. I do not put Bitcoin keys on general purpose computing devices. Because I cannot secure them. And I've been doing security for 20-years. If I can secure them most of us can't secure them. And certainly, the average consumer cannot secure keys. Now Bitcoin has actually accelerated the rate of developments in Information Security by a couple of orders of magnitude. We've done more in the last two-years in information security because of Bitcoin then in the last 25 years through things like PGP and SSL. So, I'm hopeful one of those developments is hardware wallets. Tamper proof, special purpose devices that do not connect to the internet. That have very limited and contained interfaces harden hardware modules that do all of the keys generation, key management and signing within the in capsulated hardware device where the key is never leave. Now this isn't some kind of weird you know Star Treky device. It's a little USB dongle that's about this big. You can buy it today for less than $100. And you can run all your Bitcoin off them and it can be stolen. It can be hacked. Even if you lose it no one can access the keys that's -- that are on it and you can use that. And that's a great solution. I'd like to see it become easier for consumers. We're still in the very early ages. Some of the most difficult things about the use of Bitcoin (inaudible 0:57:07) all of the terminology is weird and incorrect. And all of the user interfaces have been designed by engineers who don’t know a lick about design. So, a wallet doesn’t have any coins because they are no coins in Bitcoin. There are no coins in Bitcoin. Wallets hold keys. We should call them keychains. But someone call them wallets. And now we're stuck with it. you can't photocopy your wallet and store backup. But you can with your Bitcoin wallet. So, it doesn’t behave like a wallet. So, the word wallet doesn’t tell you what it does. How it behaves or what to expect from it. It misleads you as to what it's going to do. And it helps you misunderstand what's about to happen. Terminology really matters in design. We need a Steve Jobs to take that messed and turn it into a user interface my mom can use. I am hopeful because when I first started using the Internet. It was a messed that was much messier than Bitcoin is today. And we did get a Steve Jobs. And he made it easy enough that my mom did eventually use the Internet. It took more than 20 years from the day I sent my first email to the day my mom sent her first e-mail. I did it on UNIX commands line. My mom did it by swiping her finger across the screen of an iPad. We need to do the same thing in Bitcoin and hardware wallets needs to even the one we have today have a lot of way to go before they get to that level of sophistication. Even the hardware wallet that is an extremely secure device when it says on the screen confirm you want to pay 0. 000123BTC 2 1KF2 WC134X your average consumer will look at that and go oh I need to change the language settings to English. Because apparently this thing was preset to Russian at the factory and -- and so we're not going to get mainstream consumers like that but that's okay because if you look at that as a problem you're not a entrepreneur. If you're entrepreneur you look at that and you see an opportunity to build the billion dollar business right. All right I'll take one last question and then wrap it up. Okay I'll take two or three last questions yes?

Male: Is Bitcoin a (inaudible 0:59:42) compatibility with that?

Antonopoulos: That's a good one. Is Bitcoin true compatibility with that? No, it isn't. You can create fractional reserve structures on top of Bitcoin. They require you to trust third parties to conduct off blockchain transactions. Given the fact that one of those third parties recently received 70 million dollars in funding from the New York Stock Exchange base in San Francisco and pretty much everybody in the US who uses Bitcoin uses them coin base. And all of their transactions are off blockchain unless you're doing a withdrawal outside of Coinbase. The only way you know that -- that is not a Fractional Reserve Database System where Coinbase has created that is by trusting Coinbase. And that's not Bitcoin right. So, there's fundamental difference. The core decentralize protocol of Bitcoin is fundamentally incompatible with that but the layers we built on top of it can dilute that promise quite significantly. Great question, thank you. And two more. Yes.

Male: You (inaudible 1:00:47)

Antonopoulos: Already has. Bitcoin entrepreneurship is already moving overseas and moving at an accelerated rate. Given a month and New York will be a waste land in terms of Bitcoin innovation. Because it will be deserted as soon as the Bit license start up with the exception of one or two banking players who are going to find it a very fertile environment to create Non-Bitcoin Bitcoin lookalikes in New York. But everybody else is going to leave. And they're already leaving. That is the risk in the global environment where you can juristic your shop and people can work remotely from anywhere in the world and talent exist globally. We don’t get to keep the jobs. So, yeah it's already happening. I don't think it's going to happen that fast. Because as much as we see the perhaps the US regulatory pressurize hostile to Bitcoin. It's not as hostile as Putin, right. So, you know regulatory pressure in Russia against Bitcoin is much harder as it is in China and other places. The US continues to have the right mix of really -- really vibrant entrepreneurial spirit, liquidity and relatively open regulatory environment that Bitcoin is still thriving here but that may change. Yes.

Male: You said that there are no coins in Bitcoins?

Antonopoulos: Yup.

Male: What is your opinion of like the Bitcoin (inaudible 1:02:27)?

Antonopoulos: I'm not sure what you mean by that.

Male: Well they're -- there are Bitcoin (inaudible 1:02:40) right. and they will sell you what coin that has Bitcoins both (inaudible 1:02:47)

Antonopoulos: Right.

Male: Right. Well (inaudible 1:02:49) the pocket change of Bitcoins.

Antonopoulos: Yeah. I mean you can physicalized Bitcoin.

Male: Right. But --

Antonopoulos: But that's symbolic. It's a symbolic abstraction to help our primate brains handle the exchange of value in a tangible medium that doesn't make it a coin. And --

Male: (inaudible 1:03:16) they are coins.

Antonopoulos: It instantiate yes. But again outside of the blockchain itself there are I mean even in the blockchain there are no coins.

Male: (inaudible 1:03:26) look like you (inaudible 1:03:27) the point is that once you get to the point of where you can't put all the (inaudible 1:03:33) on the blockchain any longer. Because --

Antonopoulos: When do we get to the point where we can't put all transactions on the blockchain.

Male: Well, if not (inaudible 1:03:43)

Antonopoulos: Nope. Not at all not as far as I am concern. It is exactly as likely as --

Male: Maybe don’t want to put them on a blockchain. Or there's no further (inaudible 1:03:56) so small.

Antonopoulos: Again. You've got to understand what is the blockchain offer? The blockchain offers us global instantaneous unforgeable currency that is valuable. Doesn't matter how small the transaction is you may want to put it on the blockchain physicalizing Bitcoin is useful for certain applications. But what it does is it removes some of the characteristics of the currency. So, you get to more limited version of that currency. And it doesn't have the capabilities that had before. So if I have a physical Bitcoin coin in my pocket I can no longer email it to Thailand in five seconds. Which I can do the other type. So, it's a less bitcoin alternative. That doesn't it doesn’t have an application or use. It's just that you're taking something away in order to tie it down to a physical medium because Bitcoin isn't physical. And you've got to persuade me that there is a specific application where it's worth making that sacrifice and there may very well be. For some applications the physicality, the tangible exchange of value as a user interface is really good. I'd really like to see those tokens have some kind of Bluetooth low energy thing where you're physical active giving that causes a transaction to happen on the blockchain in the background. You know so then you can have your cake and eat it too. You can do your monkey brain tangible here's a banana and at the same time have it all fully authorized on the global transactional blockchain. Yes.

Male: Do you plan to celebrate in 2016 for having reward you've have (inaudible 1:05:44)

Antonopoulos: Oh having party. That's not a bad idea actually having party. It's going to be really interesting to see although and so having party for those who perhaps don’t understand what's the question is about? Bitcoin reduces the reward that is given to miners for creating a new block in half every four years approximately. I don't remember the exact number I think it's 800 and 10,000 blocks.

Male: 210.

Antonopoulos: 210, thank you. I got into computers because I can't do math on my own. 210,000 blocks so every 210,000 blocks everybody in the network does a calculation for the 210,000 one block to estimate what the new reward will be from that moment on by dividing the previous reward by two unless it's as low as a Satoshi and after sixty-four divisions it goes to zero. That's the algorithm you can see it in the source code. The bottom line in 2009 Bitcoin gave you 50 Bitcoin per block as reward in November of 2012 that went down 25. And in Novemberish, Septemberish 2016 we don’t know exactly because it depends on how fast blocks have been calculated but approximately in the fall of 2016 it's going to go down to 12 ½ Bitcoin. This will have a ripple effect in the network. Because if you're miner and you're paying electricity in dollars and you're converting Bitcoin to Dollars to pay for that electricity and you get half the Bitcoin which will convert into half a dollar that's going to change your profit margin. The good news is first, you can see that coming years in advance. And you know exactly how it's going to play out. The better news is we did a sneak preview dress rehearsal of that having two months ago. When we went from $500 per Bitcoin to $250 per Bitcoin that was a reward having for all the miners. The difference was they didn’t see this coming. They had no way to prepare and they survived it anyway. So, I'm pretty confident it's going to go fine. We can have a party afterwards. Yeah, great thank you so much. Thank you.

Written by Andreas M. Antonopoulos on February 17, 2015.