Video - Bitcoin A New Species of Money - An Evolutionary Perspective on Currency

Using metaphors from biological evolution, Andreas examines the currency ecosystem and its development. Presented in Milan in March 2016 to the Milan Bitcoin Meetup community.

TRANSCRIPT

ANDREAS ANTONOPOULOS: Thank you all for having me here today. I’m really excited to be in Milan. This is a very vibrant community, lots of people. I’m really impressed by the number of people that came here tonight especially given the terrible weather. You can blame me and (0:00:24) with me on the play. And thank you to (0:00:28) and the rest of the team who worked so hard to organize this relatively quickly because they only set us up in the last month.

My name is Andreas Antonopoulos. I’m the author of Mastering Bitcoin and today I’m going to be talking about money from an evolutionary perspective. The title of this talk is Bitcoin A New Species Of Money.

So, this topic is something that I’ve been thinking about quite a while and I have a great interest in the subject of evolutionary biology but I am not a biologist and there are probably no biologists in the audience which is a good thing as I will say things that will probably upset biologists because I’ll get them wrong. So, I am speaking in general terms and this is more of a narrative to help understand worth going. We’re having some interruptions please?

MAN #1: I don’t know if somebody can check the microphone, maybe? Sorry.

ANDREAS ANTONOPOULOS: Oh, let’s keep going. We’ll manage. We’ll manage. If it runs out of (0:01:41). All right.

So, something really important happened on January 3, 2009, we’re changed. But as with many fundamental and significant changes in the world very few people noticed, almost no one noticed. That change started out as a small ripple and it started spreading and now we are here seven years later and that small change Bitcoin is radically rewriting human history and human society. We are part of something unique, we are part of something really special that started as an idea that even the author of this idea didn’t believe it would work. And all of the people who’d looked at the idea and looked at the theory behind Bitcoin had many, many things to say about how it wouldn’t work. And on the internet some of the most interesting things are things that do work in theory but do work in practice. My favorite example is Wikipedia. If you think about Wikipedia objectively based on what you know about human knowledge it shouldn’t work. Why would anyone spend their time for free writing an article about a single Pokemon card for months? That doesn’t make any sense and yet people do that. We underestimate human nature sometimes. Bitcoin is like that. In theory it’s difficult to understand how it works but in practice it has spawned a revolution. It has created something very new.

The era before Bitcoin can be characterized as short-lived period of time which started beginning of the 20th century with the introduction of central banking. And for the first time money became completely (0:03:56) commodity and became managed on a national basis by central banks. This was a very different model that we have before and it continues to this day. Many of us in Bitcoin believe that when we look back a hundred years from now we will see central banking as a short-lived and not particularly successful experiment.

What Bitcoin started is different not because it replaces central banking but because it opens the door to a new form of competition. A form of competition where money can be created on the internet by anyone and be instantaneously global, unforgeable, open and secure and with that new system. We not only created a form of money but we also created a new environmental niche for money to compete it. In my opinion with the invention of internet money we now start to see the first model for a network-centric evolution of money where different forms of money compete as species. And they compete by finding an environmental niche and adapting to that niche through simple competition. And this has never happened before. The reason this never happened before is because the environment was hostile to that form of money. Borders, geography, nation states limited the ability of money to spread and compete with other money on a global basis.

And what happened on January 3, 2009 was a very significant event because what it did is it fundamentally changed the environment in which money competes. The best counter example or similar example I can show is a very special moment for the history of this planet when the levels of oxygen in the atmosphere started rising and they gave the possibility of aerobic metabolism. Aerobic metabolism meaning that species could now metabolize with oxygen and before that all species were unaerobic. They metabolize without oxygen, they lived in an oxygen-free environment and for them in fact oxygen is toxic. Oxygen is an oxidizer. It’s poison to unaerobic organism. It’s like an acid, it destroys them.

What happen when the environment change to allow aerobic metabolism was suddenly a whole new environment opened up for species to compete. Species that would not compete were the previous species because they operate in a completely different niche and they have a significant advantage because aerobic metabolism is an order of magnitude more efficient and within a very short period of time the planet change. Unaerobic organisms got pushed into the deepest crevices of the world. They still exist at the bottom of the Mariana Trench buried in glaciers inside volcanoes and places where oxygen doesn’t reach. They still exist, they haven’t gone away. But this is now a planet of oxygen breathing organisms. The world changed.

And one of the interesting things about evolution is that it doesn’t work in a linear fashion. It works through a process that has been called punctuated equilibrium. Things have equilibrium for a long time and then suddenly there is a great rush of evolution. As a lot of things changed new environment open up and species evolved very rapidly in a short period of time and then they reach equilibrium again and persist for thousands, hundreds of thousands, millions of years and then again something changes – some environmental factor, some external stimulus, some advance in evolution, species able to create DNA instead of RNA, oxygen in the atmosphere or for the dinosaurs, a meteor or other geological event.

On the 3rd of January, 2009 a meteor appeared in the sky of our society and until that time banks were the kings of this planet like giant lumbering dinosaurs completely dominating for hundreds of millions of years with complete disregard even contempt for the tiny little furry mammals – for the tiny little furry mammals that they routinely stepped on as they walk around the planet. But something has changed and very soon those mammals will inherit the earth.

In this new environment we don’t compete against banks with Bitcoin because Bitcoin is adapted to a different environmental niche. Bitcoin is not the money of the physical space; it is the money of the internet. Bitcoin is not the money of the nation state; it is the money of the world. Bitcoin is not the money of the current generation; it is the money of the generations to come. And it doesn’t compete against banking because for Bitcoin banking and borders and physical money are irrelevant just like to mammals dinosaurs were irrelevant and to aerobic bacteria unaerobic bacteria are irrelevant unless they’re suitable as food. When you look at this environmental niche you have to realize that it’s not just one species of money, not just one new species of money Bitcoin but an explosion in the ecology of money.

On January 3, 2009 there were 194 currencies today there are more than 3000 currencies. And of those all but 194 are the digital, decentralized internet monies they are the new species that live on the internet and most of them will go extinct, most of them will disappear but they will continue to evolve independently.

When you look at the evolution of money in this environment you have to realize that there are many factors that affect this evolution. One of the factors is us, human beings. We give these things life. This evolution is not evolution by random mutation, it is direct evolutions by designers. In this room there are people who are directing the evolution of these new currencies and in doing so they’re responding to environmental stimuli. Supply, demand, the need of customers, the applications that they have in mind, untapped markets and opportunities that traditional currencies can’t fit in and they direct the evolution of these currencies in that direction in order to take advantage of these new niches.

But there’s also a broader environment because at the same time that these new currencies are evolving the old currencies are in crisis. We are now facing an unprecedented currency crisis around the world that is affecting hundreds of currencies, hundreds of countries and it is affecting every central bank. We are in an environment that hasn’t happened in the last 200 years.

When I was growing up and I was studying just some basic macroeconomics economic orthodoxy said that the lowest you can go with interest rate is zero and you never go there, never go full zero. And yet now 20, 24 different central banks are zero and now just temporarily some of them for eight years, some of them longer. I think the Japanese bank is the longest at zero and some of them have also gone negative. Never go for a negative. (0:13:37) rates wasn’t orthodox economics until a couple of years ago, it is unthinkable.

Bitcoin is not going to destroy central banks. Bitcoin doesn’t give a damn about central banks. Central banks are doing a pretty good job destroying themselves. And the reason is because we live in a world where billions of people have no access to finance, have no access to banking, have no access to traditional financial instruments. They operate entirely in cash and a single currency isolated from the rest of the world and that is an environment into which Bitcoin can thrive. We’re not going after the environmental niche of traditional banking because there’s a bigger environmental niche.

The gray economy is more than 60% of the economy of the world. The unbanked, debanked and underbanked are the majority. The disenfranchised, disempowered are the majority and that is the niche that Bitcoin is tapping into. And we will continue to serve the needs of people who are not being served today some of us because that’s a matter of principle or ideology, some of us simply because it’s a matter of supply and demand and it is their prudent sensible and profitable thing to do.

In this evolution of currencies we’re going to see external stimulus and one of the most important things to keep in mind is that these new currencies will be attacked and they are being attacked with misinformation and propaganda and in some countries with direct attacks with legal attacks with extra-legal attacks outside of the judicial system. These new currencies remove power from people and organizations that are accustomed to power and therefore they represent a threat. 

Who do they represent a threat to? Really the question you should ask yourself is what kind of government and what kind of organization is threatened by the idea of people having independent financial control and empowerment over their own money. A government that is threatened by that is threatened by the fundamental concepts of the renaissance, of the enlightenment – freedom of association, freedom of expression, freedom of speech, freedom of commerce. A government that is offended by freedom is not a government I want to support.

Now, arguably most of the governments in the West today are not hostile to Bitcoin, they’re curious. They don’t understand it. They want to see how it can be fit into the status quo. They want to tame it, control it, co-opt it. And in other countries where it represents a more serious threat because it represents freedom Bitcoin is illegal with very heavy penalties. But one of the things about an evolutionary system is that it doesn’t stand still and if you introduce into the environment a predator then the system evolves to defend itself against the predator. If the predator is an attempt to identify every user of the system which is antithetical to the evolution of Bitcoin and other cryptocurrencies they would evolve to become more stealthy and more anonymous. If you isolate a cryptocurrency you trigger a specific type of accelerated evolution. We’ve seen this happen with species too. Species that became isolated for example, the continent of Australia with fierce competition for very limited resources evolve to be the world’s most venomous, poisonous and dangerous animals in the world. Everything in Australia is trying to kill you. And Australians actually love to remind to us that they even make up species that don’t exist just to scar tourists. But why did species in Australia evolve that way? Because they were isolated and pressured. And so when you isolate and pressure something it adapts and it adapts by increasing its stealth, increasing its venom, increasing its resistance.

Bitcoin already has an element of evolution that is quite effective. In the current regulatory system banks they tried to swallow Bitcoin gets indigestion. It doesn’t kill them but it certainly makes their tummy hurt. And so, Bitcoin can’t be adapted, co-opted and absorbed by the traditional banking system which is a huge advantage in evolution because it means that we can continue to do our own thing without worrying about that being swallowed by the traditional system and this comes as a huge surprise to traditional banking because over the past 50 years they’ve accustomed to swallowing any type of competition and it can’t swallow this one, doesn’t taste good.

So, when you look at the evolution of money we see this explosion thousands of new currencies and this will continue. We will have thousands and then tens of thousands and then possibly hundreds of thousands of currencies and you think about that and it doesn’t make any sense. If you look at it from the traditional perspectives of money how can you have hundreds of thousands of currencies? That doesn’t make any sense. How could they possibly have value? And what happens is fragmentation. They have value but to a smaller and smaller group which actually is the normal behavior of money. Money is something that emerges among small groups. The idea of one money for an entire nation is relatively new. If you watch children in kindergarten they developed their own money. They developed their own culture of money. They trade rubber bands and Pokemon cards and cubes, they use it as a language to express themselves. So, out of the hundreds of thousands of currencies that will evolve in the space the vast majority will have no real economic value (0:21:17) outside of the small unit that uses them. Maybe some will represent your most favorite football team which in this city is –

AUDIENCE: Milan.

ANDREAS ANTONOPOULOS: – Milan. In some cities that’s a dangerous question to ask because half the room says one team the other half says the other team and then fistfights break out. But fortunately this was not a problem here.

But you can imagine currencies that represent loyalty, currencies that represent loyalty to an artist, loyalty to a sports team, loyalty to a friend, loyalty to a business. You can imagine currencies that are used to represent commodities or assets, to represent share and tokens for taxi service, to represent all kinds of things that we haven’t imagine yet. This is a completely new space. And out of these hundreds of thousands of currencies we will see some that will behave very much like traditional money and that they will be use as the primary means of exchange, store of value for societies but this will not be geographic societies. These will be societies of common purpose. These will be adhocracies and groups that exist on the internet – beyond borders, beyond nation states. 

We now see the emergence of the first opportunity for the cosmopolitan class and the cosmopolitan-minded people to have a cosmopolitan currency, a currency that belongs to the world, not a single nation. And we will see these types of things emerged and they do not compete against traditional currencies. We’re not going to replace the euro with Bitcoin. In fact that would be a disaster. That would be even worse than the euro, arguably. And the reason is because the fundamental failure of that money is the imposition of monopoly and centralized control. And the fundamental of revolutionary characteristic of the new money is decentralization and choice and that’s why we do not compete for the same environment. We create our own environment.

When you think of these forms of new electronic money the instinctive thought at first is to evaluate them in the context of traditional money. How many euros is a Bitcoin today?

AUDIENCE: (0:24:06)

ANDREAS ANTONOPOULOS: Everybody in this room knows that question or that answer and that shows that we are still evaluating Bitcoin in the context of traditional money. We are still assuming that if we earn we will probably earn in traditional currencies, we will convert, we will then convert again and spend in traditional currencies. And with that thought you have to think about exchange rates and volatility. Well, I am one of the people who doesn’t do that much anymore. There aren’t many of us, probably just a few thousand.

For the last three years I have been earning my income in Bitcoin. For the last two I have been earning it almost entirely in Bitcoin. Gradually the vast majority of my spending also happens in Bitcoin. And in many cases it is priced in traditional currencies but as time goes by increasingly it’s not. Increasingly I’m using Bitcoin to buy Ethereum, I’m using Bitcoin to buy services, disk space, websites, bandwidth, VPNs and (0:25:31) and in those questions the only thing that matters to me is purchasing power which means that gradually in my mind Bitcoin has started to evolve from a simple means of exchange that are translated into another currency to store value that has its own purchasing power completely independently. One day this transition will happen completely for a few people and then for more people and then for more people and we will build an economy operating and denominated entirely in digital currencies entirely on the internet never exchanging, never touching the traditional banking system outside the system. And on that day the answer to the question how much is one Bitcoin worth will be 1000 millibits. We have made that transition. You’ll have to explain this to your children. They won’t have to explain it to their children. They will have to explain paper money to their children just like I would have to explain VHS and fax machine to younger people. Just like I realize how old I am when I get to a traffic stop and I want to ask the other person for directions and I go (0:27:04) and this doesn’t mean anything anymore because we haven’t had a window that opens like that in a car for 25 years. And if the person I am making that motion to is older they get what I mean but to a young person it’s like (0:27:22). These things are the relics of old thinking and the thing about this is that you don’t notice that you are bathe in the relics of old thinking until you have an opportunity to step outside of that context and Bitcoin is giving us that opportunity. Bitcoin is the vehicle by which we step outside of the traditional notions of money tied to geography and nation controlled by a central bank with intermediaries of trust. We step outside of this and we re-evaluate fundamental truths what does it mean to trust? What does it mean to have authority in a system that is network-centric? What does it mean to express value on a global basis? And as we enter that new context we are evolving as a society. We are now moving into the environmental niche of the cryptocurrency. Thank you.

So, thank you very much. That was a new topic that I wanted to present on video. I hope you enjoy that. We’re going to put it on YouTube in a week or so.

For the next part of this evening we have two things – one, I’ll be happy to do an extended session of questions and answers with the audience. Anybody wants me to answer a question I’ll happy to do that. And then at some point after let’s say forty-five minutes to an hour we’ll break – are there any people here who have a book that they want me to sign? Okay, I see two.

MAN #2: Three.

ANDREAS ANTONOPOULOS: Three.

MAN #2: Four.

ANDREAS ANTONOPOULOS: Four, okay. So –

MAN #3: You just sign books? Did you make (0:29:35)

ANDREAS ANTONOPOULOS: Yes, I –

MAN #3: (0:29:37) sign

ANDREAS ANTONOPOULOS: I sign – Nobody has asked me yet to sign a PDF with a digital signature but I’d be happy to try. What I’ll tell you is that it won’t take me a nine-page block post full of screenshots to sign a single document with a single (0:30:06) because that would be absurd. All right, come and see me if you want to sign a book. If you’re leaving before we end the Q&A just interrupt me, come up here I’ll sign it quickly and then we’ll continue because I don’t want you to leave without it. So, thank you so much for buying my book.

All right, questions from the audience? Who wants to ask a question?

MAN #4: I’ll do the (0:30:29)

ANDREAS ANTONOPOULOS: Okay.

MAN #5: When you mean banking I find that sometimes it’s not only payment system, you think that there are lending and other stuff on banking not only payment system. So, you think bank can still add a value trust on the layer of payment system on Bitcoin?

ANDREAS ANTONOPOULOS: For now yes. But I think a much more fundamental change is happening in lending because fundamentally and this may come as a shock to people banks don’t lend money. They certainly don’t lend their money. They lend your money. And for that privilege they give you 0.0.00018 (0:31:29) while they charge the borrower 29% compounded. That’s a nice business to be in if you’re an intermediary. I think lending itself is changing and not just because of Bitcoin but Bitcoin and other currencies will accelerate and I think we’re going to see the emergence of massively global peer-to-peer lending. And I think that type of peer-to-peer lending will require a lot less intermediation. So, will banks still have a role to play? Absolutely, I think they will. They can act – especially at first of the transition period as guarantors, as underwriters, as providers of reputation matrix and things like that that are required in the early days of the system. And over time I think their role will be diminished, their power will be diminished then their profit margins will be greatly diminished until what comes out at the other end doesn’t look anything like what we understand to be bank based lending today but it might still be a bank. It just won’t look like a bank. Just like phone companies today are internet service providers and I don’t have to pay five euros to call my family for 10 minutes on a payphone. They didn’t go away but they lost a lot of their power, a lot of their profit and a lot of their control in the process of transforming themselves into what they are now which is unrecognizable in some ways from what they were then. So, their business model is not a pay by the limit anymore, it’s a multi-rental basis. They have a lot more competition that competition is getting global. Some of the biggest providers today are companies that were phone companies in the past. Google, Apple etc. that have a lot of control. So, we may see for example in the future banks will exist they will offer lending function, it will be a very different lending function and they will be competing with companies that were never in that space. Maybe Google, Apple, Facebook or maybe one of the companies incubated in one of these (0:33:29).

Man #4: Thank you.

MAN #5: Thank you, sir.

MAN #6: Thank you. You know I just wanted to agree that (0:33:46) the middlemen will be cut out in terms of peer-to-peer lending and all that – I said middlemen maybe I should have said men in the middle – but the reality is that even if we get to the point where we can have peer-to-peer lending and all that there’s still a huge problem in terms of authentication and basically reputation more than authentication, sorry. Yes, just one second, the point being that when you start doing lending peer-to-peer from an anonymous people and when anonymous can really work well there because of reputation. So, what are your ideas there?

ANDREAS ANTONOPOULOS: Well, I think again, we’re going to see this evolve gradually but, you know, I think the vast majority of lending today happens in ways that are secured on future income, secured on bank accounts or secured on other assets pure unsecured lending I don’t think is the vast majority but his may change.

What I also think we’re going to see is a redefinition of what it means to do secured lending. One of the things I’ve been toying with is an idea is this concept of redefining both the timescale and the granularity of what we considered secured lending. So, for example, today we talked about secured lending on an asset like a house over 30-year period etc. Yesterday you have the Lightning people here (0:35:18). Yeah, so one of the things to think about is that Lightning payment channels in themselves are a form of extending microcredit over milliseconds. Secured microcredit based on a hashlock time contract redemption or confiscation or… system. But what it does is it allows for example, someone who’s streaming video to extend you microcredit for one second of video secured by asset held in a multi-sig on a granularity of Satoshi and milliseconds. So when we’re doing this redefining the very scale of secured lending down to something that is completely unrecognizable in traditional sense and if you extend that to other areas I don’t know what that does. Now, it doesn’t change the fundament –

MAN #7: Sorry, do you mean credit or debt? Because what I see in payment channels and we’re not (0:36:14) I mean –

ANDREAS ANTONOPOULOS: I do see them as credit. I see them as credit collateralized by the multi-sig balance. Because the multi-sig balance actually maybe held by an intermediary which then acts effectively as a bank extending payment channel credit based on that.

MAN #7: True but that’s another trust point.

ANDREAS ANTONOPOULOS: That’s another trust point, yes. So, again, I’m not saying the trust points don’t necessarily change. Some of them will but a lot of the other parameters of what is secured lending and unsecured lending change quite dramatically. I think smart contracts allow us to address default risk much more directly than the way we do today. So, today default risk is the thing we’re trying to control for. Instead of controlling for default risk we control for reputation which is a derivative of default risk if you think about it on a timescale because it’s based on future earnings and we don’t actually do reputation itself. We take the proxy to reputation which is identity and past behavior which is a second derivative right, and try to do that to control risk default. So, it’s a different risk. And so when you’re touching something that’s two steps away from what you’re trying to affect that introduces a lot of inefficiency egress. I think smart contracts may actually allow us to address default risk much more directly than through the proxy of reputation based on identity based on past behavior.

Let me give you an example. Reputation systems have colossal failure almost. Bernie Madoff had the highest possible reputation the day before he had zero. That is the failure mode of reputation systems and in fact that’s exactly how they fail. And so, again, I think we will see a lot of change in this space. And we’re not talking about simply changing the means by which we pay all the currency in which we pay. We’re talking about restructuring the relationship between lender and borrower, the power and positioning of intermediaries, the timescale and granularity of payment system and credit systems that exist in between and the means by which we control for default risk, that is a very disruptive and fundamental change of the entire structure credit systems. So, it’s a lot more exciting than just Bitcoin. All right, let’s take another question. Thank you.

MAN #7: Thank you.

MAN #8: And, I was wondering to your envisioning of a future where there will be many different currencies competing within each other, each trying to target a specific need of a segment of the market, for instance, and I guess that those currencies, or cryptocurrencies will be having some kind, some sort of monetary policy linked inside the protocol –

ANDREAS ANTONOPOULOS: Yes.

MAN #8: –right? So, do you envision the link between the monetary policy of these protocols and the needs of people?

ANDREAS ANTONOPOULOS: Yeah. Well, that is a really, really interesting question. I think monetary policy is one of those genetic traits that really, really focuses the environment in which a currency or token can compete. So, you know, I’ll take a slight twist on this because a lot of people asked me this question does Ethereum compete against Bitcoin? And I think not. And I think one of the reasons not is because each one has traits that are focused on very specific things. Bitcoin has a monetary policy trait that makes it more suited towards fitting into a niche of reserve currency, global trading standard, point of reference for medium of exchange and things like that. Ethereum obviously is much more focused on maintaining state within contracts in order to be able to enable smart contracts. And those are differences as much as the difference between a shark that has skin that allows it to glide through the water faster than any other fish and a human that has bipedalism, two feet that allow it to walk upright. And to say, you know, do you compete against sharks? Well, if I go to the ocean I certainly might compete against the shark and I will lose and if I took a shark into a boxing ring on land I will win but our domains are entirely separate. Our traits, the very things that make us top successful predators or competing species within one environment automatically select us out of all of the other environments in which we could fit. There are no universally successful species. Species are specialists. And so, by definition monetary policy is one of the critical characteristics that determine where you fit as a niche. It’s what defines Bitcoin. Bitcoin is a brand but what Bitcoin is fundamentally is a decentralized limited issuance system. Twenty-one million coins. It’s not 21 million coins, it’s not Bitcoin. You know you can say that part of it (0:41:53). That is what defines it. Many of the other things can change but not that. And Ethereum is smart contracts so many other things can change including its monetary policy but not that. So, yes, I think it’s really important to look at monetary policy as one of the characteristics but also the degree of decentralization; the flexibility of the scripting language but also the security and conservatism of the scripting language in order to decide where do you think this fits. And here is another piece of news, where you think this fits isn’t where it’s going to fit because no matter what you do as someone who’s involved in this space you don’t define the future or the potential evolution of this thing. It’s moving. Society is moving at the same time and everything is changing around it. It will fit where it fits and we have yet to discover exactly where that will be and part of the big debate we’re having in Bitcoin in other places is where exactly does it fit? And you can express an opinion but you cannot direct at least in a predictable fashion where it’s going to fit.

MAN #4: Thank you.

WOMAN #1: Andreas, (0:43:11) leaders of the internet era and think about (0:43:18) are saying Bitcoins are nothing (0:43:24) Blockchain. In those gatherings Bitcoin and Blockchain go together. Which is your view, can we have Blockchain without Bitcoins?

ANDREAS ANTONOPOULOS: That’s a question that comes up a lot and I’m going to talk about that (0:43:39) tomorrow so, I think there’s a lot of misunderstanding as to what Blockchain is, what Bitcoin is, how the two relate and what each can do. So, I’ll have to call Bitcoin the open Blockchain with the emphasis on the word open and that qualifier is the all-important one. Bitcoin has an open Blockchain which is global, decentralized, borderless and allows anyone to participate and innovate without asking for permission. Those are the characteristics of an open. It’s also a system that works by anonymous submission of proof-of-work which is also a very key characteristic of Bitcoin. Now, you can create other Blockchains however if you create a Blockchain without a currency you have to come up with an alternative way of reaching consensus that doesn’t lead to centralization. And the other thing you have to realize is that some of the characteristics that you see in Bitcoin do not exist but for the anonymous proof-of-work system. One of the most important to those is immutability and you will hear a lot of people tell you that we have a Blockchain where we can record things that cannot be changed. The reason things cannot be changed on Bitcoin is not because of the open Blockchain, it’s because of the proof-of-work – meaning that even the miners with 99% of the hashing power colluding together cannot rewrite history for more than a few thousand blocks. A hundred and forty-four per day they can affect an afternoon. Beyond the scale of an afternoon Bitcoin is immutable and it’s immutable because you cannot forge proof-of-work. You would have to recalculate proof-of-work for all of these and that is physically impossible at certain scales.

That characteristic comes directly from the need to present proof-of-work and a lot of people who use the term Blockchain, not open Blockchain or decentralized ledger technology which is the new one, they’re not talking about things that use proof-of-work yet they assume immutability as one of its characteristics and it doesn’t have immutability. It has unforgeability to a certain extent and that if the five banks that are part of the consortium of the Blockchain that have signing privileges decides to go back rewrite the last two years and zero the balance of WikiLeaks because government ordered them – not that that would happen, of course not. We live in a democracy. That will take a big court fight – they could do that. They could do that instantaneously without presenting any proof-of-work but they couldn’t do that without it being noticed. That’s the fundamental difference whereas on the Bitcoin open Blockchain they could not do that. That is immutability. These two characteristics are very different from a security modeling perspective. And there are many other characteristics that are very different. 

One of the fundamental aspect of having proof-of-work system and you can say that Bitcoin is more centralized than we would like and the miners are less anonymous than we would like but they are still decentralized and anonymous more so than many other systems, certainly more so than any other systems at that scale. By being anonymous they can’t be coerced and that is another very fundamental aspect of this.

If you know who has permission to write on the permission ledger then you can extort, hack, steal the keys and take away that permission for yourself. So, I can’t imagine all of the systems running as permission Blockchains with full identity of ever participant because they also put identity KYCAML on top of it with full identity of every participants in a system where all it takes is one set of keys or several set of keys to be stolen or one copy of the Blockchain to be stolen for every single transaction to be visible to the world and the ability to disrupt the operation of that system. That’s Panama papers on a magnificent scale, right? So, if they want to build a Blockchain where it’s completely controlled by five entities and it can be leaked and provide forensically secure evidence of every transaction that every corporation put on there like bring it on that’s like anonymous is going to have a field day, we’re going to have so much fun hacking these decentralized ledger technologies. So, I am very skeptical until I’ve seen what is the security model and what are you trying to achieve. Bitcoin sacrifices transactional efficiency to give you freedom, global access, open access, permissionless innovation and most importantly censorship resistance. If you don’t want those things then why you’re sacrificing transactional efficiency and what do you really get. Now, there’s no question that a distributed ledger technology is probably better and more secure than a single entity clearing house but that’s only because a single entity clearing house is ridiculously anachronistic an insecure idea that should have died two decades ago. So yes, they will replace Swift with a decentralized ledger technology and they will reduce their operating costs by a certain percentage. And to me that puts me to sleep because what I’m working on and what many people in this room are working on is the open global Blockchain that fundamentally changes the nature of trust and authority in a global level empowers billions of people to participate economically and provide censorship resistance and individual freedom and for that I’m willing to sacrifice transactional efficiency.

MAN #4: (0:50:14) one second but I’m going to explain here the question a little bit more. So, now many financial institution are studying the topic kind of and they started to understand that if you have permission and identified actors, maybe federated actors validating the chronology of the Blockchain, they don’t need proof-of-work. And many of them are also understanding that they don’t need blocks because they just sign every couple of transaction and they don’t a chain. So, when they understand before they (0:50:51) a Blockchain they don’t need blocks and they don’t need chains. Do you think it is worth the terminological battle for sake of clarity to tell them what you are not doing in Blockchain or we should strategically just leave it be okay, you’re doing a Blockchain I will keep Bitcoin (0:51:12). Isn’t it – wouldn’t it be more honest and more useful for clarity just to stress how much a replicated multi-master database with digital signature without blocks and without chain is not a Blockchain?

ANDREAS ANTONOPOULOS: I mean, you know, I don’t really – I don’t really care about terminological purity. You know defining the term simply to enforce purity of action and say, you know, “Oh, what you’re doing isn’t what I am calling what I am calling.” What I really want to do is clarify the issue. So to me when I use the term open Blockchain I’m clarifying the issue by saying open is the characteristic that matters and here is why and here is what you get with it and the Blockchain part is really an implementation detail. The Blockchain is the best way we have found to do open decentralized global consensus but as a technology itself it’s not that interesting. The Blockchain is the least interesting part of Bitcoin. What is interesting is not even – the proof-of-work is much more interesting. But what is really interesting is when you combine all of these things together and then make something that is non-national and independent. But again, I am okay, right? And so, when you are presented with the word Blockchain that is not an answer, that is a prompt to start asking a lot of questions like what is the consensus algorithm? How decentralized is it? Is it open to innovation? Is it open to permissionless innovation? Does it afford anonymity? Or does it afford privacy?

MAN #4: So we have to remain to open Blockchainlab?

MAN #5: Is it censorship resistant?

ANDREAS ANTONOPOULOS: Is it censorship resistant and is it also coercion resistant? And so, the important thing to me is this – in the next 20 years we will live in a world of entirely digital money. This is not a possibility, this is a certainty. We will live in a world where the vast majority, if not all transactions, will be entirely digital and so we have a choice. We can live in a world where the norm is one in which identity is tied to every transaction and we voluntarily gave the power of complete financial surveillance to whichever government we elected last week hoping that this one’s a good one and knowing that the next one could be just as crazy as the one before. Or as many countries knowing that there is not a good thing about them, that they are evil in action. We gave the power of full financial surveillance over every human being on this planet to centralize the authorities, we are walking down a very dark path. A path in which when you say the wrong thing your bank account disappears. When you go to the wrong protest your life savings disappear without judicial process, without question, without answer, without recourse. That is not a world I want to live in. And the alternative choice is a world that we establishes the fundamental balance between the governed and the government and that is a world in which individuals have transactional privacy as we have had for millennia without horrible things happening because most people use their money to buy food, shelter, healthcare, clean water and to express themselves. We can live in a world where we have complete privacy and governments have no secrecy to hide behind. They are forced transparency which is the way the balance should work. We live in a world where there are no borders for our ability to trade and do commerce with the people of this planet and a world in which everyone can participate. This is the choice we face today. The future is digital money. The question you have to ask yourselves is what kind of future do I want to live in and that is a really important question.

WOMAN #2: So, if you would have your own Bitcoin startup and you would be selling point of sale how would you market? Would you be going from shop to shop, from office to office?

ANDREAS ANTONOPOULOS: I think point of sale is very difficult. If I had to look at all of the applications for Bitcoin I think retail, in-country, in-person transactions are probably the least useful transaction you could do with Bitcoin. Part of the reason is because we live – most of the people here would assume live a life of financial privilege. We have access to debit cards and bank accounts and courtesies (0:56:38). We are not prosecuted or persecuted by our government for a simple retail spending and we don’t live in fear of our government and so in that environment why the hell would you need to use Bitcoin to buy a couple of coffee other than for the ideological principle. Which means you better be prepared for a very kludgy experience involving QR codes and delays in confirmations and fee uncertainty because this is still an early stage experimental system. The other thing to realize is that to do retail point of sale what you’re doing is you’re nailing down both supply and demand to a narrow geographic area which means that in order for it to be successful you need a high density of merchants who accept and a high density of customers who will transact for it to spread. Otherwise you have a merchant who accepts Bitcoin but there’s no customer to buy anything. Or you have a customer who has Bitcoin and there’s only three merchants in Milan who will take it which is the model we see today. And the reason is because you need a network effect of density of adoption that is a much higher degree of adoption than we have today. It’s for the same reason that you couldn’t do Facebook on the internet in 1992 because nobody had internet in 1992, we could barely do e-mail. The first question people ask me when I was installing e-mail is (0:58:01) like great, who am I going to send e-mail to? I don’t know anybody who has a – Andreas, you’re the first person I’ve ever met who has an e-mail address. So, other than communicating with you why would I need e-mail? And that change, right? And then you have to go through stages of adoption where you have enough density of people who have enough density of people who use it from a broad enough sector of society, enough people with mobile access, enough people with permanent access, enough people with investment in it before you can start doing these things. It’s going to take I would guess probably the better part of a decade before in-person point of sale retail is going to be really interesting Bitcoin application. There are far more interesting Bitcoin applications right now where there are serious (0:58:47) points. Cross-border remittance by immigrants to their families, supporting international charities and NGOs, import and export trade companies that operates globally, companies that do outsourcing or insourcing or personnel and need to pay suppliers, trade associates or providers all around world in 150 currencies, those companies need Bitcoin right now and they can see real benefit because on the internet you don’t have the problem of density, you have enough people who have enough people who use it that you can actually start deploying these applications. Think a bit as a matter of scale. The killer application for Bitcoin in the beginning was speculation because for speculation I don’t need anybody else to have Bitcoin. Just me find somewhere to buy some, done, right? Now second scale application is e-commerce. Now, I need to have Bitcoin and the store needs to accept it. So that takes order two, right? And gradually we’re going to start increasing the complexity but unfortunately point of sale is not where it’s at yet. Thank you.

MAN #6: I want you to get back to the privacy and transparency you touched on – I mean we all have in mind the (1:00:15) resistance to FBI request of providing the cryptographic backdoor to the IRS (1:00:22) and oftentimes when I talk with regulators I make the point that – I make the point that in the near future monitoring communication and that subject allow our communication with our financial transaction would not be possible because even with cryptographic backdoor the honest people will have their privacy exposed and bad people will just use backdoorless cryptography and (1:00:51) so we will be facing a new different society in which the transparency for world agency that we have been used for will not be available anymore and we better get ready. Do you share some ideas on this?

ANDREAS ANTONOPOULOS: Law enforcement never have visibility to our finances until probably the mid 1970s and the beginning of the 1980s. Until then most of our finances were completely invisible to law enforcements, somehow they were able to enforce law. In fact they reduced crime quite significantly without visibility. The actual tool of having visibility into finance has proven to be not a very effective law enforcement tool, it’s a very addictive law enforcement tool. It certainly gives a lot of power and with that power comes great addiction to power but it doesn’t actually demonstrably change the fundamental requirements of law enforcement. Most law enforcements still operates with very traditional mechanisms. If I want to find out what Bitcoin transactions a company has been making you find someone who has done something wrong, you take them into a room and you say “Well, 20 years for you or you tell me everything about your boss’s Bitcoin address.” Then you go to their boss and say “Well, 20 years for you or you tell me everything about your boss’s Bitcoin address” and you keep (1:02:25) them. I believe that was invented here in Italy, that system.

The point being that law enforcement has never had full access to all of our finances and we should be skeptical about the idea that in order to be safe we have to give away privacy that we’ve had for thousands of years completely in a way that has no accountability. I think that is a terrifying idea. I think what it does it actually endangers security.

Privacy is not the antithesis of security. Privacy is security and security is not the absence of crime, it is the presence of justice. And you don’t create a secure world by removing crime. You create it by increasing justice. And if we allow full financial surveillance we are not increasing justice. In fact the price we pay for full (1:03:21) financial surveillance is the economic exclusion of four billion people from the world financial system because without access to sufficiently credible ID and proof-of-assets they are the unbanked. The price we pay for the (1:03:39) and pure illusion of security that we have bought with totalitarian surveillance is condemning four billion people to poverty. That is not a price I’m willing to pay and so that’s what we should be asking. What is the price you’re willing to pay to create this little totalitarian dream of yours where you can surveil everything because it doesn’t make me more secure? I think we are actually winning this particular battle. A lot of the people who got involved in the battle for crypto in the last decade probably see us losing but I was there in 1991 where they tried to ban it worldwide and put backdoors in every chip and we won then and we’ve got a lot more crypto now and a lot of more people who can write crypto now. So, you’re right not only is it not a good idea but also it doesn’t work and we should resist it because it is evil.

MAN #7: Andreas, it’s great to have you here. I would like to know what you think about proof-of-work sustainability in the long terms and that if you think that Bitcoin developers are trying to implement proof-of-stake in Bitcoin.

ANDREAS ANTONOPOULOS: Well, I’ve always said that I see Lightning a bit has hyper of proof-of-stake – wow!

MAN #4: Oh, (1:05:18)

ANDREAS ANTONOPOULOS: Here we go. I’ve always – I’ve always thought that some elements of Lightning actually look a bit like a proof-of-stake systems so I find that very interesting. It’s still very theoretical obviously and how it plays out we won’t know but there will be some opportunities to do some interesting things with – I don’t think Bitcoin to see a major change to proof-of-work. I think proof-of-work in Bitcoin as it exists today is one of the fundamental traits of what is Bitcoin and if you change that it’s not Bitcoin anymore. And in order to change it you would have to get the consent of the very people who that change affects the most, the miners. So I don’t think that’s ever going to happen. But at the same time here’s the thing – we can talk about how proof-of-work isn’t working, isn’t scaling, isn’t decentralized enough, isn’t, isn’t, isn’t… but the problem is that in practice, in real life right now it is. It still is. It has been running continuously without interruption for seven years delivering security transactions without having the fundamental algorithm and security compromised ever. Name one bank that say that. Name one system of security that is centralized that can make that claim. So, proof-of-work works today demonstrably and it continues to work and so (1:06:47) judge claims that say that proof-of-work is not working with some degree of skepticism. I’m interested in seeing how they can be improved but I don’t think we’re going to fundamentally change that. That is Bitcoin. And if you want to do something different or bad or there are plenty of opportunities, there are hundreds and hundreds of coins that do proof-of-stake and hyper proof-of-stake and delegated proof-of-stake and proof-of-work with proof-of-stake and proof-of-work with different algorithms and CPU, GPU resistance for now and –

MAN #8: For now.

ANDREAS ANTONOPOULOS: – for now and, you know, all of those things are very interesting. If you think about consensus algorithms as a domain of science that came into existence in January of 2009 and is only seven years old, the number of Ph.D. level papers that are being written right now is astonishing and it’s developing very fast as a scientific domain in its own right and I look forward to see all the incredible amazing advancements we’re going to make. Thank you.

MAN #7: Thank you.

MAN #9: Well, I was wondering now the real (1:08:00) smart contracts and what do you think about decentralized oracles and in particular what are your opinion on proof-of (1:08:08) oracles. If you –

ANDREAS ANTONOPOULOS: All right. That’s – that’s a tough one. There’s a reason why the fundamental trust model that operates where consensus works on the transactions and tokens that are on the chain best and that is because it can validate and those are validated on chain best in a decentralized way. One of the problems with trying to validate externalities that are by definition external is that you may have problems with maintaining consistency of the historical perspective of those externalities. Let me give you an example, let’s say you’ve got a smart contract that says I will pay farmers in Italy if during three days in December the temperature remains below zero Celsius for three days and we call that a frost event. And if a frost event happens right, great, where are you going to get those temperatures from? And how are you going to get –

MAN #10: (1:09:24)

ANDREAS ANTONOPOULOS: Hmm?

MAN #10: (1:09:27)

ANDREAS ANTONOPOULOS: (1:09:28) well the problem is that the miners who are validating the consensus rules do not have thermometers in Milan so they cannot validate that consensus rule. Also, depending on whether the thermometer is high or low, here or there, inside or outside, shielded or not it will give you a slightly different reading because you’re now talking about a real world, right, variable, that is measurable to a certain degree of accuracy within a certain (1:10:01) so the temperature is X plus or minus two degrees to within 3% statistical variation just on one thermometer. So then the question is if you say I’m going to take that from one oracle then you centralize. If you say I’m going to take it from three oracles what happens when they disagree and two of them detect a frost event and one doesn’t and how do you reconcile the chain. This is not an easy problem to solve.

MAN #10: Because I am not (1:10:30) about the (1:10:31)

ANDREAS ANTONOPOULOS: Yes.

MAN #10: What we do is that we –

ANDREAS ANTONOPOULOS: (1:10:33) yes.

MAN #10: That’s great, that’s great. We try to provide a proof –

MAN #11: Microphone.

ANDREAS ANTONOPOULOS: Yes.

MAN #10: Okay, maybe –

ANDREAS ANTONOPOULOS: I’m sorry.

MAN #10: Yeah, is it that we try to provide a cryptographic proof that we are not lying and that’s the best that (1:10:48) on a decentralized Blockchain.

ANDREAS ANTONOPOULOS: Right.

MAN #10: Maybe another (1:10:54) some type of collateral so that if we lie we lose some type of money. That’s (1:11:00)

ANDREAS ANOTONOPOULOS: So, I think there are events upon which you can make that kind of determination and there are events upon which you cannot make that type of determination, right? So, you know, people get various examples like okay, what is Milan FC wins this game this Saturday, what if we put bets on who’s going to win the next presidential election or whatever and most people assume yeah, those events, you know, they either happen or they don’t. Well, that’s not how our election went in 2000. We waited 29 days to find out who the president was and then we delegated it to nine miners, let’s call them, who advised that consensus 5-4 and gave us George Bush. What? And so, there are very few real world facts that can be quantified with certainty across all observers. They’re actually useful in any form of commerce because the very events that you’re trying to measure are the events that introduced uncertainty in commerce and those events are the hardest to arrive at consensus of measurement. Like if I had a smart contract that said well, how many atoms is in a molecule (1:12:16).

MAN #10: Yes.

ANDREAS ANTONOPOULOS: Okay. Well, we can answer that for certain parameters of answering that but that’s not useful because if everybody can answer it why do you need an oracle, right? And for the things that are really useful you can’t answer it in a definitive way at the right time. I can’t tell you if Milan FC won there’s still a dispute and the experts are going over the videos and the referees said they won by then FIFA is now appealing the decision and who the hell knows, right? The election is uncertain. People actually said for a few days after Lehman that it wasn’t technically quite bankrupt yet. The people who said that were the people who have the insurance contracts to pay out because Lehman was bankrupt and they didn’t want to. So, even facts like that cannot be easily adjudicated. So the question is how useful are oracles if by oracle you simple mean put trust in one company that is (1:13:13) collateral or cryptographic signing putting their stake behind that. And that is only useful up to the level that you can stake which again limited applicability. I think it’s a really interesting thing that will develop a lot over the next couple of decades but it’s a very hard problem. So, thank you for trying.

MAN #4: The next question – the next question, sorry, then I will ask the few ancient people with a paper books to reach Andreas for the sign and then the other one with the digital copy can reach him also in the next days to ask for the digital signature. Okay, last one.

MAN #11: Hello, my name is Simone. I love to be here. This is referring about what you said before the cost of evolution biology. There’s something I’ve been looking because actually a lot of interest for many people around that you can draw similarity to that and I think it was the case and has been quite a little work had been done with some anthropologists that evolution occurs when there are more not competition but more cooperation. So the greater level of cooperation between a certain species would draw greater evolution. So if you draw that parallel back to digital economies I think Bitcoin going forward there will be two type – microtype of currencies and I wanted to know what’s your feedback about my vision is as this one is sort of like a Bitcoin (1:14:49) survival game so it’s a sort of total sum game either you have it or I have it and it’s trustless and so like (1:14:55) and then things are just going to be another model where it actually, you know, some multi-time player when you add the identities and you associate some matrix of reputation beyond the people that they interact many times with each other. I think there’s sort of like the needs of cooperative economy as well and a cooperative sort of like relationship economy so I just wanted to know what your position was about it. Thank you.

ANDREAS ANTONOPOULOS: Thank you (1:15:22). Yeah, that was – that’s very, very clear. So, I think two things about what you said – cooperation is a very important part of evolution and one of the things I didn’t talk about was the concept of cross-pollination or horizontal transfer. So, modern biology identifies the fact that a lot of revolution happens through horizontal transfer of DNA between species or cross-genetic lines, not just parents to child but also across. So we take the genetic material from viruses; viruses take genetic material from us given to bacteria there’s a mismatch of cross-species exchange of blueprints of ideas of successful systems that end up jumping from one species to another. And I found that really interesting because there’s a very close relationship between that and the open source environment in which cryptocurrencies are growing up because one of the really important genetic traits of the new form of internet money is that it is all open source, almost all open source which means that if somebody comes up a good idea and they write an implementation that little piece of DNA can be borrowed by someone else and they can then incorporate it to their system. And I think we shouldn’t underestimate how rapidly Bitcoin itself is progressing and how much it’s changing both internally and how it works but also in some higher layers above it and I think we will have a team of developers that are very talented and they can take very good ideas from other systems and adopt them and then run them on top of a six billion dollar, seven billion dollar, eight billion dollar economy. That creates a very interesting environment so I think we’re going to see a lot more corporation not necessarily within the currency but between different currency implementations through their open source exchange of genetic material.

Now, talking about consensus algorithms and systems that are more cooperative versus competitive, I think it’s interesting to look at consensus systems like that. There’s some interesting work being done for example about incorporating concepts of basic income for example, which is a different political perspective than some of the stuff that Bitcoin does and I think we’re going to see this ideas evolve over time. Identity of reputation I think, are double-edge swords. They are something that works really well in small communities around a hundred or a couple of hundred people and it’s part of our social makeup. But if you try to take those same reputation systems in scale them beyond a certain point they start collapsing and then you have systems that actually become problematic.

So if you take reputation systems and I’ve talked about this before but it’s something I feel very strongly about. Reputation systems require infrastructure they’re running on to be a close-knit society of humans that forget and forgetting is one of the features of reputation systems because when you have a small society and that society is capable of forgetting that means that it is capable of forgetting as part of it and you put it into a mechanistic realm where you strip those very human characteristics and it becomes a very rigid, inflexible system. We’re already seeing this on Facebook and other social media structures. You’re seeing very rigid systems of reputation and collaboration and social interaction that are guided by mechanistic algorithms which are written without accountability by a very, very small number of people who can control enormous populations. I am not sure that’s a good way to go. So, collaborative systems, consensus through collaboration, I think, are great ideas and they’re going to evolve but whether they can also scale is another question and whether we really want to do reputation at scale, we can. And now the question we have to ask is should we? Do we really want to do reputation at scale? So, a bit broader perspective of it. Thanks for that question, great.

MAN #4: Okay, thank you very much. So, we’ll see here back in 40 minutes for the (1:20:12) and I ask you to be here (1:20:17) by the night for BitSquare presentation and thank you very much to Andreas Antonopoulos to be with us tonight. Thank you.

Written by Andreas M. Antonopoulos on June 6, 2016.