Monero Means Money Transcript
Thanks to netrik182 for providing this transcript!
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So I'm Daniel Kim.
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I'm here from Boston, USA
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and I'm a full-time consultant in cryptocurrency.
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I help to bridge two separate worlds:
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one is that of nonprofit, OG, open-source
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non-commercial, grassroots cryptocurrency --
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and the traditional finance world.
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That includes institutional investors, trusts and
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basically people who are interested in cryptocurrency but need
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somebody who can speak their language
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and has walked in their shoes.
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Another one of my past jobs -- I was a head of research for a equity hedge fund.
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We managed about 1 billion USD in equity markets.
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So that's what I did for several years before going off on my own
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because I decided that
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in one's lifetime there are
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maybe only a few fundamentally
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important breakthroughs that come around.
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I'm old enough to have been a grad student --
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I was working on my PhD at Harvard during the dot-com bubble
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and I remember thinking,
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"Google, wow!"
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"This is something that people are talking about investing in."
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And I thought that it was
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kind of a silly idea
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to have such a thing because there were only like 20 websites in existence.
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Why would you need to go type your search into Google --
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there's only like 20 websites worth going to.
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Like, you know them all, they're all in your entire book.
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Basically everywhere worth going on the internet
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was like 20 bookmarks in your NCSA browser.
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That was a failure of imagination,
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and I think that when Bitcoin and blockchain came around,
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after really thinking about it
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and studying it for a long time,
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I decided to go full time into it.
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I'm going to talk about Fiat currencies
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which are central bank controlled currencies
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and then Bitcoin
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because Bitcoin was the first.
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It's been 11 years now -- the Bitcoin white paper came out
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Halloween 2008,
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and Monero is sort of like a little brother to Bitcoin
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and it's about almost 6 years old now.
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And there are four different aspects that I'm going to talk about
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for these three different kinds of value.
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One is scarcity
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because after all
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for something to be money it needs to be scarce.
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So how do people handle this problem of
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creating digital scarcity?
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There are very different methods in Fiat,
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Bitcoin and Monero.
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Next I'll talk about fungibility and privacy.
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Since this the
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CDC [Critical Decentralization Cluster] and the
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motto this year is "respect my privacy"
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I think I shouldn't have to
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work too hard to convince everyone here that
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financial privacy is a very important thing to have.
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Or maybe the opposite is easier to grasp --
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(is that) a surveillance state
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in which everybody's financial transactions are tracked
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and surveilled and looked at
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is not open society that we want to be living in.
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Next is Community.
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So each of these forms of money
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money really requires a community.
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It needs a group of people who
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all believe that
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the thing that is money, is money.
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If you don't have the community,
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you don't have money.
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And again, in Fiat, Bitcoin and Monero
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there are different communities that have come up to support money.
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And finally is correlation.
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The correlation part
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in my talk for here
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since the CDC is a kind of
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cooperative effort between Monero and some
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crypto economic groups.
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For this talk I
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upped the amount of content in the
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finance and economics part.
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Kind of putting on my hedge fund hat
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and looking at Fiat, Bitcoin and Monero as investments.
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What is the situation for scarcity?
Why do we even need cryptocurrency?
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Let's look at the everyday money that we use.
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There's the US dollar,
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the Chinese yuan,
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the Euro and the Swiss franc.
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And what I'm showing here is
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official government statistics as to
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the amount of money in circulation.
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This is M1, which is
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paper money, currency
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and also checking accounts and savings accounts.
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It's cash and things that act like cash,
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all together,
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and each of these plots is showing
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since October 2008, which is when the Bitcoin white paper came out.
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That is the left-hand scale of each of these four plots.
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This is 2008 and then this is the end of 2019.
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You can see that the money supply has inflated
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for everybody
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In just 11 years
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the money supply of the US dollar has gone up 2.6 times.
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In other words,
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the printing presses of money have been going on at that rate.
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We don't really notice it because
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every year the prices that we see go up a little bit
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but it's like the frog in boiling water, right?
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The frog doesn't understand that
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it's sitting in boiling water until it's too late
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and it's cooked.
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That's the kind of
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situation that we find ourselves in.
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The thing is that
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all of the global Fiat currencies are kind of
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turning on the printing presses at a disturbing rate.
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But what counts as victory?
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What counts as being sound and
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prudent with your particular country's currency?
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Well, it's inflating slightly less fast than the other guys, right?
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We still have this situation where
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if you zoom out,
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for example, for the US dollar
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you go to like a 50-year time scale
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you see basically an exponential growth curve.
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This is a problem that all savers face --
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anyone who has assets to save
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is up against this current that's coming up against them,
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in that they're constantly being diluted
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by new money that's being created.
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2008 is when the Nakamoto white paper came out.
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This is the Bitcoin white paper
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and the key insight to this
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I won't go too much into the
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geeky details, although
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I'm assuming that everyone here has an IQ of at least 140.
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It wouldn't take you long
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if you haven't already,
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to look at this paper and study it.
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But I would say that
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the Nobel Prize in Economics can not be given to an anonymous person.
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But were Satoshi Nakamoto (a) real person
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this clearly would be a
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Nobel prize-winning insight in economics,
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in which
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economics is just the study of scarcity, really.
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What Nakamoto consensus does
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is it synthesizes a method
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to create digital scarcity
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without needing a central authority
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to maintain that scarcity.
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In all of our national monies
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in the European Central Bank,
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the Federal Reserve in America
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these are all centrally governed bodies
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that decide what to do with the money supply.
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Now
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the macroeconomic theory is that
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the money supply will expand and contract
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to match the actual economic output of the society.
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In other words, if a society is really productive and it makes a lot of stuff,
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then the society is justified in inflating the money supply because they've been productive.
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But the problem is that
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countries get into trouble.
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They get into debt.
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They promise services to people
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that are too expensive and then they can't pay for them.
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They go into debt.
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The problem is that
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mismanagement causes this kind of fragile balance
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between the size of the money supply and the size of the underlying economy,
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to get out of whack.
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Why is it interesting to have
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a source of scarcity that doesn't require
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a central committee to be making decisions
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for that money?
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Is that it offers
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a way for people to opt out
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of the Fiat monetary system.
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It also provides a
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kind of a fire under the feet of the
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Fiat central banks to be maybe do a little bit of a better job.
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Maybe we
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might have
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fewer financial crises in the future --
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Maybe we won't have another
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2009 style financial crisis.
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The way that the Nakamoto consensus does this
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there are three ways.
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At the account level,
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in other words,
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how is it that one person's Bitcoin is not
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confused with another person's Bitcoin?
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It's that
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when a person signs up for a Bitcoin account, so to speak,
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what they're really doing is picking a number.
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They're just picking a number out of a
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256-bit field.
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People are really bad at
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imagining huge numbers
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but we're talking about picking a number between zero and 10 to the 77th.
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One with 77 zeroes after that.
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To understand how big that is,
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imagine the diameter of the Milky Way galaxy.
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Now imagine electrons
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being lined up
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right next to each other
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and I'm using just the classical electron radius here.
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For the entire diameter of the Milky Way we have electrons lined up.
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That turns out to not be enough.
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You have to take one of these electrons
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and blow that up to the size of the Milky Way galaxy
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and then get another set of electrons going across.
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Then even that's not enough,
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you have to take one of those electrons,
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blow it up to the size of this hall
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and then you have bacteria lined up one after each other.
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That's 10 to the 77th.
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That's how vast the space is of the random number that you're choosing
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and that is why getting a Bitcoin account doesn't require
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going to fill out some form and asking permission for an account.
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You just pick a number.
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You just pick a number,
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that's your private key and you need to
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kind of defend that
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because knowledge of that private key
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is what is needed to spend a person's Bitcoin.
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The aggregate level of scarcity, that is,
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how do we know how much of the Bitcoin there is in the entire monetary system?
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and how do we know that's not going to get corrupted?
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Well, the scarcity is
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enforced by an open network of miners
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which are really gossipy accountants
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and they are rewarded for behaving consistently with the consensus rule set.
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Finally, how do we know that the record of
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who sent what to who
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which is, what the blockchain records.
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The blockchain is a series of blocks.
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Each block contains transactions from
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this person sent money to this person.
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Who sent what to who and how much
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and each block is just a record of that.
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How do we know that that's not going to get corrupted over time?
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Because, as we all know, there's bit rot.
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There can be corruption,
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there could be some
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malfeasance going on with the state of the database.
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The database is maintained because each block
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has a small data field in it that the miner can change
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that's called the nonce.
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And each miner
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randomly changes the nonce so that the hash of the block is lower than a number,
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called the difficulty.
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Usually when we talk about hash functions
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we don't care about the actual value of the hash function.
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We just care that the hash matches some other hash.
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Like if you're checking for file integrity,
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then you would take the hash of the file that you downloaded
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and compare that with the hash of the file that you're looking for
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and you compare those.
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In this case, we're actually caring about the number of the hash.
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How small, how large is that number
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and the difficulty is a number that must be
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satisfied by each block.
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In other words,
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the hash of each block needs to be lower than the difficulty.
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To make a real world analogy of this,
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imagine that you have (an) accounting book
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00:14:23,970 --> 00:14:29,470
and each page of the accounting book has 10 minutes worth of transactions on it.
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You want to make a way to make sure that
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each page is really rare in some way.
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One way you could do this is you could say
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the mass of every page of this accounting book has to be an even multiple of 1 million atoms.
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00:14:46,630 --> 00:14:49,110
Each accountant is going to be
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00:14:49,150 --> 00:14:50,790
kind of touching the paper,
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00:14:50,790 --> 00:14:52,890
rubbing it, erasing little bits
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00:14:52,970 --> 00:14:56,870
because at that level you're taking away or adding
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00:14:56,950 --> 00:14:58,570
trillions and trillions of atoms
283
00:14:58,570 --> 00:15:01,010
so it's going to be a random number whether
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00:15:03,170 --> 00:15:08,210
your page is actually a exact multiple of a million atoms.
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00:15:09,310 --> 00:15:11,370
Once that's found,
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00:15:11,370 --> 00:15:13,350
that's a very rare page.
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00:15:13,350 --> 00:15:15,730
It's a rare page because it has an
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00:15:15,730 --> 00:15:18,690
exact multiple of 1 million atoms to it
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00:15:18,790 --> 00:15:21,370
and because it's now a digital representation,
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00:15:21,370 --> 00:15:23,410
you can copy that exactly.
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00:15:23,530 --> 00:15:26,170
Now you have a chain of blocks,
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00:15:26,190 --> 00:15:30,070
each one of these has this rare attribute
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00:15:30,390 --> 00:15:34,630
and the blockchain links them all together.
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00:15:36,610 --> 00:15:38,550
Scarcity in Bitcoin and Monero --
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00:15:38,630 --> 00:15:40,550
they both have an original code base.
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00:15:41,010 --> 00:15:43,510
There are many, many projects in cryptocurrency in which
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00:15:43,510 --> 00:15:46,410
Bitcoin was simply forked and modified a little bit,
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00:15:46,410 --> 00:15:47,670
(but) that's not the case in Monero.
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00:15:47,670 --> 00:15:49,930
It was written from scratch.
300
00:15:50,350 --> 00:15:52,250
The elliptic curves used are different;
301
00:15:52,530 --> 00:15:54,670
this is a form of technical hedging.
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00:15:54,670 --> 00:15:58,470
In Bitcoin the secp256k1 elliptical curve is used
303
00:15:58,470 --> 00:16:01,730
whereas in Monero it's ed25519.
304
00:16:02,030 --> 00:16:07,010
Both Bitcoin and Monero, as I mentioned before, require a private key.
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00:16:07,350 --> 00:16:11,590
Spending the cryptocurrency requires that you know a number
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00:16:11,590 --> 00:16:13,030
and that's the private key.
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00:16:13,030 --> 00:16:15,490
That's true in both Bitcoin and Monero.
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00:16:15,990 --> 00:16:18,290
Where we start to differ is that
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00:16:18,370 --> 00:16:20,930
Monero also has what's called a view key.
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00:16:20,930 --> 00:16:23,210
The view key is another private key
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00:16:23,210 --> 00:16:27,370
which is actually as kind of a subset of the spend key.
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00:16:27,370 --> 00:16:30,510
The view key is what is needed to decrypt
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00:16:30,510 --> 00:16:35,470
the transactions on the blockchain that you personally are involved with.
314
00:16:36,430 --> 00:16:37,610
If you have the view key
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00:16:37,610 --> 00:16:41,310
you can see what transactions you were involved in on the blockchain.
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00:16:41,370 --> 00:16:44,030
Everything else remains encrypted.
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00:16:45,090 --> 00:16:46,770
The address spaces is different,
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00:16:46,770 --> 00:16:51,170
in Bitcoin it's 10 to the 60th, in Monero it's 10 to the 76th.
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00:16:51,170 --> 00:16:54,950
There are more addresses available in Monero,
320
00:16:55,030 --> 00:16:57,610
which means if you're worried about the birthday problem --
321
00:16:57,610 --> 00:17:00,010
the birthday problem is the problem in which
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00:17:00,010 --> 00:17:02,010
if you have a group of 30 people,
323
00:17:02,010 --> 00:17:07,670
chances are much higher than you would expect that 2 people out of those 30 have the same birthday.
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00:17:08,010 --> 00:17:12,250
If you extend this now to the problem of picking a random number
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00:17:12,250 --> 00:17:14,270
and calling it your own for
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00:17:14,270 --> 00:17:18,710
a cryptocurrency account, you have the same problem.
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00:17:18,970 --> 00:17:20,390
There's no guarantee that
328
00:17:20,390 --> 00:17:23,570
the random number that you picked for your cryptocurrency account
329
00:17:23,570 --> 00:17:26,730
is not going to subsequently be picked by me.
330
00:17:27,070 --> 00:17:28,530
That's the birthday problem and
331
00:17:29,230 --> 00:17:33,950
the birthday problem is less of a concern the more addresses there are.
332
00:17:35,010 --> 00:17:38,590
The emission deceleration is another difference between Bitcoin and Monero.
333
00:17:38,590 --> 00:17:40,270
In Bitcoin it's step-wise.
334
00:17:40,270 --> 00:17:42,550
You might have heard of this thing called "the halvening".
335
00:17:42,550 --> 00:17:45,470
This is: every 4 years, in Bitcoin,
336
00:17:45,470 --> 00:17:48,770
the number of Bitcoins that gets rewarded to miners
337
00:17:48,770 --> 00:17:53,590
as a reward for finding a page in the blockchain gets cut in half.
338
00:17:53,650 --> 00:17:55,870
Which means that on every miners calendar
339
00:17:55,870 --> 00:17:58,130
there's a date circled in red that
340
00:17:58,470 --> 00:18:00,570
their income is going to get cut in half.
341
00:18:00,630 --> 00:18:03,230
And that introduces a bunch of
342
00:18:03,230 --> 00:18:06,630
needless drama, really, in mining.
343
00:18:06,730 --> 00:18:12,630
In Monero, we avoid this by having a continuously decreasing emission.
344
00:18:13,230 --> 00:18:15,470
Now another difference is in
345
00:18:15,470 --> 00:18:19,010
what is the emission rate of coins in the far future.
346
00:18:19,210 --> 00:18:23,210
In Bitcoin, the block reward eventually goes to zero
347
00:18:23,210 --> 00:18:29,470
and they anticipate using transaction fees to make up the difference.
348
00:18:29,490 --> 00:18:34,570
In Monero, there we have a concern that we want to always be assured that
349
00:18:34,570 --> 00:18:38,930
miners will have incentive to keep working for the system.
350
00:18:38,930 --> 00:18:41,630
And (in) Monero we have what's called a tail emission
351
00:18:41,630 --> 00:18:44,730
which works out to be 0.6 Monero per block
352
00:18:44,730 --> 00:18:46,570
that goes on in perpetuity.
353
00:18:46,570 --> 00:18:51,370
But that future money basically gets used to pay miners
354
00:18:51,370 --> 00:18:54,710
to continue to provide security for the network.
355
00:18:55,510 --> 00:18:58,470
What's the far future inflation rate then?
356
00:18:58,470 --> 00:19:01,890
In Bitcoin, they can say it's exactly zero.
357
00:19:01,890 --> 00:19:06,830
In Bitcoin they're fond of saying there's only ever going to be 21 million Bitcoins created
358
00:19:06,830 --> 00:19:09,570
and that's an easy thing for people to understand.
359
00:19:10,030 --> 00:19:14,170
But in Monero, we have constant linear inflation --
360
00:19:14,650 --> 00:19:18,750
but it's not really correct to say that this is "infinite supply" as
361
00:19:18,750 --> 00:19:21,270
that's what gets bandied about.
362
00:19:21,270 --> 00:19:24,290
Because if you look at the inflation rate, in Monero,
363
00:19:24,290 --> 00:19:27,110
it asymptotically goes to zero.
364
00:19:27,270 --> 00:19:29,790
If you look at any macroeconomic theory,
365
00:19:30,130 --> 00:19:32,690
what the relevant variable is
366
00:19:32,690 --> 00:19:34,610
is the inflation rate.
367
00:19:34,690 --> 00:19:36,330
Nobody really cares that
368
00:19:36,330 --> 00:19:41,430
the nominal amount of US dollars is going up by whatever trillions of dollars per year.
369
00:19:41,430 --> 00:19:43,430
It's the percentage that matters
370
00:19:43,430 --> 00:19:46,090
and in Monero that percentage is already low and
371
00:19:46,090 --> 00:19:48,330
it'll continue getting lower.
372
00:19:48,990 --> 00:19:51,010
Some curves to show what I'm talking about --
373
00:19:51,010 --> 00:19:53,050
These are supply emission curves showing
374
00:19:53,050 --> 00:19:58,330
how many coins of each type exist as a function of time.
375
00:19:58,670 --> 00:20:02,590
You can see that Monero had a later start here
376
00:20:02,590 --> 00:20:04,490
and it has a tail emission.
377
00:20:04,490 --> 00:20:07,830
This tail emission is this constant linear slope.
378
00:20:08,590 --> 00:20:10,490
The reason for this slope, again, is that
379
00:20:10,490 --> 00:20:16,250
the new coins that get emitted are being rewarded to miners who helped secure the network.
380
00:20:16,310 --> 00:20:21,090
Whereas in Bitcoin, they have an impending problem to deal with.
381
00:20:21,090 --> 00:20:24,370
And that their coin emission is coming up to this 21 million mark,
382
00:20:24,370 --> 00:20:26,090
it's going to go basically to zero.
383
00:20:26,090 --> 00:20:30,110
Then there are some papers out there that have
384
00:20:30,110 --> 00:20:35,190
proposed that the security of the network might be in jeopardy at that point.
385
00:20:35,290 --> 00:20:37,970
What if we take the first derivative of this curve --
386
00:20:37,970 --> 00:20:43,450
so, we look at how much more supply is there in this year versus last year.
387
00:20:43,450 --> 00:20:45,250
In other words, what's the inflation rate?
388
00:20:45,250 --> 00:20:47,570
Here's what you see.
389
00:20:48,990 --> 00:20:50,930
I'm comparing several different assets here.
390
00:20:50,930 --> 00:20:52,930
This is the inflation rate of gold.
391
00:20:52,930 --> 00:20:55,490
We usually don't think of gold is inflating
392
00:20:55,490 --> 00:20:57,310
but of course there are miners --
393
00:20:57,310 --> 00:21:00,570
there are actual physical miners digging in the ground and
394
00:21:00,890 --> 00:21:05,810
coming up with gold chunks to add to the world's supply of above-ground gold.
395
00:21:06,090 --> 00:21:11,030
That turns out to be about 1.5% per year of inflation in gold.
396
00:21:11,030 --> 00:21:13,710
So if you think of gold as being sound money
397
00:21:13,710 --> 00:21:20,370
then that 1.5% inflation rate is going to be sort of a line in the sand.
398
00:21:20,410 --> 00:21:23,170
As you can see - both Bitcoin and Monero
399
00:21:23,170 --> 00:21:26,030
this dotted blue line is showing where we are right now.
400
00:21:26,030 --> 00:21:30,150
We're coming to a very interesting point in cryptocurrency history
401
00:21:30,150 --> 00:21:32,750
in that, up until now
402
00:21:32,750 --> 00:21:36,230
there's been a lot of emission happening.
403
00:21:36,690 --> 00:21:38,950
In order to get these coins out there
404
00:21:38,950 --> 00:21:42,190
the block rewards have been relatively high
405
00:21:42,190 --> 00:21:45,550
but we're now coming up on a new kind of era of scarcity,
406
00:21:45,550 --> 00:21:48,470
if you look at this to the right of here.
407
00:21:48,470 --> 00:21:54,270
And in fact, the inflation rate of Monero is going to be lower than that of Bitcoin
408
00:21:54,270 --> 00:21:58,250
for the next 6 years, until 2025.
409
00:21:58,250 --> 00:22:01,410
Then there's going to be a 4 year period when they're about the same
410
00:22:01,410 --> 00:22:04,670
and then, starting in 2029, the
411
00:22:04,670 --> 00:22:09,030
inflation rate of Bitcoin will once again go below Monero.
412
00:22:09,030 --> 00:22:12,190
But then, again, this comes at with a question mark:
413
00:22:12,190 --> 00:22:17,390
how are those miners going to be paid, to be incentivized to support the network?
414
00:22:17,390 --> 00:22:20,790
Since that is a crucial feature of Nakamoto consensus,
415
00:22:20,790 --> 00:22:25,450
that game theoretically, all of the miners are incentivized to be honest
416
00:22:25,450 --> 00:22:29,570
and not to try to game the system for their own greed.
417
00:22:31,390 --> 00:22:34,190
There's a form of unwanted scarcity and that's mining hardware.
418
00:22:34,190 --> 00:22:38,490
And this is something that has been a big issue in Monero.
419
00:22:39,130 --> 00:22:43,110
In the Bitcoin white paper, Nakamoto wrote "one CPU, one vote"
420
00:22:43,110 --> 00:22:46,670
and that idea is that the reward that a miner gets
421
00:22:46,670 --> 00:22:49,410
should be proportional to their effort.
422
00:22:49,410 --> 00:22:51,750
It should be proportional to the expense
423
00:22:51,750 --> 00:22:54,650
that the miner incurred in mining.
424
00:22:55,910 --> 00:22:58,910
In other words, there should ideally be a linear function
425
00:22:58,910 --> 00:23:03,390
between the miners expense and the miners reward.
426
00:23:03,470 --> 00:23:07,430
Now, unfortunately, economies of scale in silicon manufacturing
427
00:23:07,430 --> 00:23:09,450
have destroyed this linear relationship.
428
00:23:09,590 --> 00:23:13,370
In other words, if you have about 25 million dollars
429
00:23:13,370 --> 00:23:17,230
to spend on a new fabrication facility in Shenzhen,
430
00:23:17,230 --> 00:23:22,850
then you can turn out your own silicon chips that do nothing but
431
00:23:23,470 --> 00:23:25,870
do the Bitcoin proof-of-work.
432
00:23:25,870 --> 00:23:28,690
These are ASICS, and
433
00:23:28,690 --> 00:23:32,430
they've been on the network, on Bitcoin for several years now,
434
00:23:32,430 --> 00:23:39,050
to the point that at this point Bitcoin mining is basically a Chinese oligopoly.
435
00:23:41,350 --> 00:23:44,390
This brings up centralization concern.
436
00:23:44,390 --> 00:23:47,890
It's not necessarily a problem that it's China that has all the mining.
437
00:23:47,890 --> 00:23:49,950
It's really more of a problem that
438
00:23:49,950 --> 00:23:52,590
it's one certain area of the world that has
439
00:23:52,590 --> 00:23:57,590
basically control of all of the world's Bitcoin hash power.
440
00:23:57,890 --> 00:24:01,770
There are further news items that are cause for concern,
441
00:24:01,770 --> 00:24:05,510
for example, the growing trade war between China and the West.
442
00:24:05,910 --> 00:24:07,970
There is a press article out that said
443
00:24:08,150 --> 00:24:10,930
the Chinese government has recently decreed that
444
00:24:10,930 --> 00:24:15,950
only Chinese computer hardware is to be used in government offices
445
00:24:15,950 --> 00:24:17,610
starting in like a year.
446
00:24:17,610 --> 00:24:21,690
There's some deadline by which all of the Dells and the
447
00:24:21,690 --> 00:24:25,690
American companies' computers are to be kicked out,
448
00:24:25,690 --> 00:24:31,070
so something similar could well happen for Chinese-manufactured Bitcoin ASICS.
449
00:24:31,070 --> 00:24:35,270
We kind of take for granted that there's a free flow of goods in the world
450
00:24:35,270 --> 00:24:40,670
but what happens if not only does one part of the world control the manufacture
451
00:24:40,670 --> 00:24:42,730
of all of the crypto hash power
452
00:24:42,730 --> 00:24:47,070
but then is unable to even export it due to a trade war.
453
00:24:48,090 --> 00:24:54,070
In Monero we tried to take this decentralization question quite seriously
454
00:24:55,090 --> 00:24:57,690
and we've done some changes to the proof-of-work
455
00:24:57,690 --> 00:25:00,190
to support the little guy who's mining.
456
00:25:00,190 --> 00:25:02,670
That is, when Bitcoin started
457
00:25:02,670 --> 00:25:06,550
it was possible for just a regular person running
458
00:25:06,550 --> 00:25:10,710
the Bitcoin client on their computer to actually have a shot
459
00:25:10,710 --> 00:25:12,770
at getting a mining reward.
460
00:25:12,770 --> 00:25:14,830
Those days are long gone because now
461
00:25:14,830 --> 00:25:20,810
the hash power is dominated by these massive farms of ASICS.
462
00:25:20,990 --> 00:25:25,530
It's just hopeless for any little guy to try to mine Bitcoin.
463
00:25:26,310 --> 00:25:28,750
In Monero, we're trying to change that
464
00:25:28,750 --> 00:25:31,090
and the proof of work has been modified several times.
465
00:25:31,290 --> 00:25:34,730
Now, as of just last month,
466
00:25:34,730 --> 00:25:37,030
the proof of work in Monero is now RandomX
467
00:25:37,030 --> 00:25:40,930
which actually uses every single capability of a CPU
468
00:25:40,930 --> 00:25:42,790
in doing the proof of work.
469
00:25:42,790 --> 00:25:46,470
There's a basically a random program that gets executed.
470
00:25:46,470 --> 00:25:51,550
Each core of the processor needs 2 gigabytes of RAM to run well.
471
00:25:52,510 --> 00:25:56,150
This was a design decision made to
472
00:25:56,730 --> 00:25:59,950
make it harder for botnets to control the network,
473
00:25:59,950 --> 00:26:03,330
because if your computer is infected with a botnet
474
00:26:04,690 --> 00:26:08,050
and 14 out of your 16 gigabytes of RAM are being eaten up,
475
00:26:08,050 --> 00:26:10,190
you're probably going to notice it.
476
00:26:10,190 --> 00:26:14,130
It was deliberate that design decision in RandomX to use a
477
00:26:14,130 --> 00:26:19,810
high required amount of RAM for processing.
478
00:26:21,270 --> 00:26:22,890
There's another source of scarcity
479
00:26:22,890 --> 00:26:25,890
that is not necessarily one that you want in a blockchain,
480
00:26:25,890 --> 00:26:28,070
and that is access to layer one.
481
00:26:28,070 --> 00:26:32,430
Bitcoin's 1 megabyte block limit caused a project fork.
482
00:26:32,430 --> 00:26:37,370
There was basically a civil war in Bitcoin over whether or not it was okay
483
00:26:38,270 --> 00:26:41,350
to make blocks stay at this 1 megabyte limit.
484
00:26:41,350 --> 00:26:44,690
It still rages on to this day. It's still a holy war
485
00:26:44,690 --> 00:26:48,930
and this is something that Monero has avoided thus far.
486
00:26:48,930 --> 00:26:52,330
Its solution to this is to use a adaptive block size
487
00:26:52,330 --> 00:26:57,250
in which the maximum block size of a Monero block is flexible
488
00:26:57,250 --> 00:27:02,410
and it can organically expand or shrink along with demand.
489
00:27:02,410 --> 00:27:04,930
With, of course, provisions in there
490
00:27:04,930 --> 00:27:09,490
to prevent the system from getting gamed.
491
00:27:10,130 --> 00:27:13,370
And there's ongoing research to reduce the transaction size.
492
00:27:13,370 --> 00:27:15,150
There's bulletproofs that went in recently
493
00:27:15,150 --> 00:27:19,910
that reduce transaction sizes by a factor of 10, that went in.
494
00:27:19,910 --> 00:27:26,450
And overnight the transaction fees for transacting Monero went down by a factor of 10
495
00:27:26,450 --> 00:27:32,610
because the transaction fee is based on the kilobyte size of the transaction.
496
00:27:33,410 --> 00:27:36,570
Moving on to fungibility and privacy.
497
00:27:37,050 --> 00:27:38,830
Bitcoin is transparent.
498
00:27:39,270 --> 00:27:43,790
If you are new to crypto you might be under the impression
499
00:27:43,790 --> 00:27:46,990
that if you have Bitcoin you're anonymous.
500
00:27:46,990 --> 00:27:49,250
It's this "anonymous magic internet money"
501
00:27:49,250 --> 00:27:51,250
that you might have heard about.
502
00:27:51,250 --> 00:27:53,250
Nothing could be further from the truth --
503
00:27:53,250 --> 00:27:58,070
the popular press continues to push this misleading narrative.
504
00:27:58,070 --> 00:28:00,050
Bitcoin is completely transparent
505
00:28:00,050 --> 00:28:02,750
and if you read the Bitcoin white paper, it's all there.
506
00:28:02,750 --> 00:28:08,630
It's specified that the sender, the receiver and how much got sent
507
00:28:08,630 --> 00:28:14,010
is recorded in plaintext and recorded in the blockchain.
508
00:28:14,010 --> 00:28:17,750
Which, because it has all this proof-of-work up behind it --
509
00:28:17,750 --> 00:28:20,750
remember what I was saying about each transaction in the block
510
00:28:20,750 --> 00:28:26,690
has a hash that makes it a very rare and unique set of data,
511
00:28:26,970 --> 00:28:31,170
it's the multiple of 1 million atoms thing, right --
512
00:28:31,170 --> 00:28:36,750
basically, these transparent details are written and etched into that blockchain forever.
513
00:28:36,750 --> 00:28:40,350
There is no escaping that
514
00:28:40,350 --> 00:28:45,290
it's completely incompatible, for example, with European privacy law, the GDPR.
515
00:28:45,290 --> 00:28:47,310
Which has this "right to be forgotten"
516
00:28:47,310 --> 00:28:50,510
that is totally non-existent in Bitcoin.
517
00:28:50,510 --> 00:28:54,230
Once a transaction gets put into the Bitcoin blockchain it's there.
518
00:28:54,230 --> 00:28:56,470
It's there forever.
519
00:28:56,470 --> 00:29:00,270
And the only thing that is not
520
00:29:00,270 --> 00:29:03,590
totally transparent is that the Bitcoin address
521
00:29:03,590 --> 00:29:07,490
is just a hex string - it's a string.
522
00:29:07,490 --> 00:29:08,270
I mean,
523
00:29:08,270 --> 00:29:10,250
when you come down to it, everything's a hex string --
524
00:29:10,250 --> 00:29:15,550
but the Bitcoin address is a sequence of letters and numbers that looks anonymous.
525
00:29:15,550 --> 00:29:20,030
But once that gets associated to your name and face,
526
00:29:20,030 --> 00:29:22,270
that association, that metadata,
527
00:29:24,070 --> 00:29:26,890
that marriage between a Bitcoin account number and your identity,
528
00:29:26,890 --> 00:29:28,890
that doesn't change
529
00:29:29,170 --> 00:29:32,190
because the blockchain is etched in stone forever.
530
00:29:32,190 --> 00:29:34,070
And it's constantly growing.
531
00:29:34,070 --> 00:29:38,930
The job of the people trying to identify and "dox" everyone
532
00:29:38,930 --> 00:29:40,990
is - it's just a waiting game.
533
00:29:40,990 --> 00:29:42,930
You have this blockchain every day.
534
00:29:42,930 --> 00:29:44,930
You get some little piece of information:
535
00:29:44,930 --> 00:29:51,490
"Oh, you know, Joe in Leipzig signed up with (an) exchange".
536
00:29:51,830 --> 00:29:54,930
Now their identity information is associated with this.
537
00:29:55,190 --> 00:29:57,750
Basically, this metadata just kind of
538
00:29:57,750 --> 00:30:02,050
continues to gather on this blockchain until you have a situation
539
00:30:02,050 --> 00:30:04,970
which is actually much worse than in Fiat.
540
00:30:04,970 --> 00:30:11,790
When you have a Fiat bank account you do not expect that your bank is going to post your monthly statement
541
00:30:11,790 --> 00:30:15,990
up on the bulletin board outside the bank for everybody to see.
542
00:30:16,650 --> 00:30:19,670
But that is exactly the situation in Bitcoin
543
00:30:19,670 --> 00:30:22,990
and it's not just the people out in your neighborhood who can see it.
544
00:30:22,990 --> 00:30:25,830
It's everybody. Everybody in the world can see
545
00:30:26,190 --> 00:30:29,470
who sent what to who and when.
546
00:30:30,170 --> 00:30:34,670
The unfortunate consequence of this, is that
547
00:30:34,670 --> 00:30:37,250
Bitcoins have a history behind them.
548
00:30:37,570 --> 00:30:41,110
Remember that in Bitcoin, every Bitcoin in existence
549
00:30:41,110 --> 00:30:44,810
first came into being as a reward that went to a miner.
550
00:30:44,870 --> 00:30:50,250
Once the miner gets that Bitcoin and then they spend it, it starts circulating in the Bitcoin economy.
551
00:30:50,250 --> 00:30:54,410
But because the blockchain is transparent, it's totally "see-through".
552
00:30:54,410 --> 00:30:59,370
The entire history of every single Bitcoin now in existence can be traced back
553
00:30:59,370 --> 00:31:03,330
to this person all the way back to when it was mined.
554
00:31:03,330 --> 00:31:07,250
It's as if you have a 10 euro banknote
555
00:31:07,250 --> 00:31:11,250
and on the back of that 10 euro banknote you see a nice list showing
556
00:31:11,250 --> 00:31:14,910
everyone before you who owned that.
557
00:31:14,970 --> 00:31:18,330
What could possibly be the negative consequences of this?
558
00:31:18,330 --> 00:31:22,030
How about innocent people getting falsely accused
559
00:31:22,030 --> 00:31:27,430
because they happen to have received money from somebody who unbeknownst to them
560
00:31:27,430 --> 00:31:31,550
was involved in something that was not very good.
561
00:31:31,590 --> 00:31:33,210
This is happening in Bitcoin.
562
00:31:34,130 --> 00:31:38,450
There's a reputation in Bitcoin that transfers as well as value
563
00:31:39,210 --> 00:31:42,350
and that is what is profoundly disturbing about having this.
564
00:31:42,350 --> 00:31:44,270
And I call it a surveillance coin.
565
00:31:44,330 --> 00:31:47,090
In a surveillance coin, it's not just value that transmits --
566
00:31:47,090 --> 00:31:49,250
it's also reputation. Which means
567
00:31:49,250 --> 00:31:51,970
if you're accepting money from somebody,
568
00:31:51,970 --> 00:31:56,870
you're also accepting their life history.
569
00:31:56,870 --> 00:32:00,550
It's coming to you too. It's not just value.
570
00:32:00,970 --> 00:32:03,490
In contrast, Monero is fungible.
571
00:32:03,490 --> 00:32:06,650
Fungible just means that every unit of currency is
572
00:32:06,650 --> 00:32:09,490
indistinguishable from the other units.
573
00:32:09,790 --> 00:32:13,610
If I have 10 Monero, you have 10 Monero and then
574
00:32:13,610 --> 00:32:18,470
we both trade the 10 Monero to other people, they still look like the 10 Monero.
575
00:32:18,470 --> 00:32:22,550
There's no history. It works just like a cash bill.
576
00:32:22,550 --> 00:32:25,890
It works just you think cash should work.
577
00:32:25,890 --> 00:32:29,450
And it does this by adding three technologies
578
00:32:29,450 --> 00:32:33,950
on top of what Bitcoin does that preserve privacy.
579
00:32:33,950 --> 00:32:35,810
One is ring signatures.
580
00:32:35,810 --> 00:32:37,370
In ring signatures,
581
00:32:37,370 --> 00:32:44,170
the sender of funds is lined up along with 10 other senders of funds
582
00:32:44,170 --> 00:32:50,670
and the only thing that you know happened in that transaction is one out of those 11 people sent money.
583
00:32:50,670 --> 00:32:53,070
It's as if every time you spend money,
584
00:32:53,070 --> 00:32:57,870
now you have 10 friends or 10 random people, 10 decoys
585
00:32:57,930 --> 00:33:02,250
and all that you know, cryptographically, is one of the 11 have sent the money.
586
00:33:02,330 --> 00:33:04,490
That protects the sender's identity.
587
00:33:04,490 --> 00:33:06,150
How about the receivers identity?
588
00:33:06,150 --> 00:33:12,270
Well, the receiver's Monero account does not appear unencrypted on the Monero blockchain.
589
00:33:12,850 --> 00:33:17,390
A one-time-use address is what gets put on the blockchain
590
00:33:17,390 --> 00:33:20,310
so that protects the recipients' privacy.
591
00:33:20,310 --> 00:33:23,350
How about the amount that gets sent? Because there are
592
00:33:23,350 --> 00:33:26,210
attacks that can be done by knowing,
593
00:33:26,210 --> 00:33:30,830
kind of observing your pattern of how much you spend.
594
00:33:31,530 --> 00:33:34,490
That is covered with technology, RingCT,
595
00:33:34,490 --> 00:33:39,870
which originally was developed for Bitcoin but actually first got implemented in Monero.
596
00:33:39,870 --> 00:33:43,810
RingCT stands for confidential transactions.
597
00:33:43,810 --> 00:33:48,550
And all these things (are) combined to make Monero's fungibility.
598
00:33:49,550 --> 00:33:51,230
The end result is that in Monero,
599
00:33:51,230 --> 00:33:55,230
coins are indistinguishable from their another or they have no memory.
600
00:33:55,230 --> 00:33:57,050
They have no memory of where they've been,
601
00:33:57,050 --> 00:34:00,730
which is really what you want in a money because the opposite,
602
00:34:00,730 --> 00:34:04,690
if you have money that has perfect memory, like it is in Bitcoin,
603
00:34:04,690 --> 00:34:13,170
that unfortunately gets used to falsely associate activities of people who had nothing to do with each other.
604
00:34:13,170 --> 00:34:18,930
Because Monero is fungible, users benefit by having privacy.
605
00:34:19,410 --> 00:34:22,750
The Monero blockchain is public just like Bitcoin.
606
00:34:22,750 --> 00:34:26,170
There is a publicly shared ledger
607
00:34:26,170 --> 00:34:30,070
of who sent what to who that everybody in the world can get.
608
00:34:30,070 --> 00:34:33,870
All you have to do is download the Monero software and you too
609
00:34:33,870 --> 00:34:39,390
can have a copy of this ledger, of that has the complete history of who sent what to who.
610
00:34:39,390 --> 00:34:41,730
The difference is that, in Monero,
611
00:34:41,730 --> 00:34:46,030
the details of this blockchain are encrypted
612
00:34:46,030 --> 00:34:50,290
so that if you just look at it, you see encrypted garbage.
613
00:34:50,290 --> 00:34:52,930
You cannot do what you can do in Bitcoin which is
614
00:34:52,930 --> 00:34:58,430
type in somebody's Bitcoin address and immediately see how much money they have.
615
00:34:58,570 --> 00:35:02,130
I represent high net worth clients, institutional investors --
616
00:35:02,130 --> 00:35:05,530
and for them this kind of feature is a showstopper.
617
00:35:05,530 --> 00:35:10,610
Nobody with wealth wants anyone in the world to type in
618
00:35:10,610 --> 00:35:14,650
their bank account and see instantly how much money they have.
619
00:35:14,650 --> 00:35:19,050
Or see instantly whenever they transfer money out or get money in
620
00:35:19,050 --> 00:35:20,750
as you can do in the Bitcoin blockchain.
621
00:35:20,750 --> 00:35:24,830
You can set a little automated robot to like,
622
00:35:24,830 --> 00:35:29,270
watch the blockchain for you and send you an alert on your cellphone
623
00:35:29,270 --> 00:35:35,330
whenever a transaction goes in and out of any Bitcoin address that you choose.
624
00:35:35,330 --> 00:35:38,770
This sort of kind of casual surveillance,
625
00:35:38,770 --> 00:35:41,270
this invitation to be creepy on your neighbor
626
00:35:41,270 --> 00:35:45,850
is something that is intrinsically part of Bitcoin.
627
00:35:46,310 --> 00:35:48,410
And the deeper (it) gets into society,
628
00:35:48,410 --> 00:35:50,270
the more insidious it is,
629
00:35:50,270 --> 00:35:55,250
the more of a threat it is to all of our privacy.
630
00:35:56,790 --> 00:35:58,770
A slander that happens is that
631
00:35:58,770 --> 00:36:02,170
"okay, so you have this money that doesn't have a history,
632
00:36:02,170 --> 00:36:05,850
sounds like only the criminals are going to want to use it".
633
00:36:06,450 --> 00:36:10,910
It is a slander I'm kind of tired of hearing.
634
00:36:10,910 --> 00:36:14,690
Monero benefits people who have nothing to hide.
635
00:36:14,690 --> 00:36:16,350
The chief benefit is that
636
00:36:16,350 --> 00:36:18,790
with the money that has no memory,
637
00:36:18,790 --> 00:36:22,670
there's no need to worry about being falsely accused of misdeeds due
638
00:36:22,670 --> 00:36:27,810
to being one hop away from a "bad person".
639
00:36:27,810 --> 00:36:31,550
Basically, when you accept a surveillance coin,
640
00:36:31,550 --> 00:36:37,030
you are accepting the risk that somebody unsavory will be sending you something.
641
00:36:37,030 --> 00:36:40,430
For example, let's say you have a business you sell stickers or
642
00:36:40,430 --> 00:36:43,670
t-shirts or something very innocent
643
00:36:43,670 --> 00:36:47,570
and you decide that you're going to accept Bitcoin for your business.
644
00:36:47,570 --> 00:36:51,490
Unbeknownst to you, you get a t-shirt order from a gangster
645
00:36:51,490 --> 00:36:54,990
or some drug dealer or someone like that.
646
00:36:54,990 --> 00:37:00,270
You had no idea they're a drug dealer, they're just sending you some Bitcoin because you're a t-shirt seller
647
00:37:00,270 --> 00:37:01,850
and this is how you make money --
648
00:37:01,850 --> 00:37:03,770
you need to get money from people.
649
00:37:03,770 --> 00:37:09,910
But because the people watching the blockchain and putting faces and names
650
00:37:09,910 --> 00:37:12,950
on addresses on blockchain, don't know that --
651
00:37:12,950 --> 00:37:15,050
they can try to program that in,
652
00:37:15,050 --> 00:37:18,790
but in the end, it's a probabilistic assessment of
653
00:37:18,790 --> 00:37:21,370
is this bad person really related to you.
654
00:37:21,750 --> 00:37:26,650
The only way that somebody finds out that they've been bitten by this is that
655
00:37:26,650 --> 00:37:31,830
"oh, geez, Coinbase just emailed me and my account's been closed."
656
00:37:32,310 --> 00:37:36,130
"Even the Fiat bank that I had associated with my crypto exchange"
657
00:37:36,130 --> 00:37:38,590
"now thinks that there's something suspicious about me."
658
00:37:38,590 --> 00:37:42,330
"Now my Fiat bank has frozen my funds for some reason" --
659
00:37:42,330 --> 00:37:46,470
and it had nothing to do with anything that the person in question did.
660
00:37:46,470 --> 00:37:49,570
It's just that the money itself has this
661
00:37:49,570 --> 00:37:54,910
fatal flaw of being totally, (of) having a history behind it.
662
00:37:54,910 --> 00:37:56,610
It's not really money,
663
00:37:56,610 --> 00:37:58,950
it's like beanie babies, it's like collectables.
664
00:37:58,950 --> 00:38:03,790
It's like collectible items with their own serial number that are getting passed around in this economy,
665
00:38:03,790 --> 00:38:06,490
it's not a real money.
666
00:38:08,170 --> 00:38:12,190
I want to leave with a Nobel Prize winning idea.
667
00:38:12,190 --> 00:38:14,350
I find that not too many people have heard of this paper.
668
00:38:14,350 --> 00:38:21,030
George Akerlof won the Nobel Prize in Economics for his work on asymmetric information in markets.
669
00:38:21,030 --> 00:38:24,150
Anyone here know this paper well?
670
00:38:24,150 --> 00:38:26,170
Okay. Great.
671
00:38:27,350 --> 00:38:28,690
I'll explain it briefly.
672
00:38:28,690 --> 00:38:31,170
There are two kinds of used cars.
673
00:38:31,170 --> 00:38:35,170
There are lemons, which are the bad used cars.
674
00:38:35,170 --> 00:38:40,350
Those are... you buy them and then they break immediately - those are lemons.
675
00:38:40,350 --> 00:38:44,010
The other kind of used car is a peach - these are the good cars.
676
00:38:44,010 --> 00:38:46,990
Those owners of the peaches, they did all the maintenance.
677
00:38:46,990 --> 00:38:52,350
They change the oil, they did all the work to make sure that they have a nice car to sell.
678
00:38:52,350 --> 00:38:57,330
Sellers know whether they're selling a lemon or a peach.
679
00:38:57,330 --> 00:39:00,650
The seller knows that. If you're selling a lemon, you know it.
680
00:39:00,650 --> 00:39:03,210
And you're just trying to make money off the selling of the lemon.
681
00:39:03,210 --> 00:39:07,370
If you have a peach, you know it because you've been doing maintenance on that car.
682
00:39:07,370 --> 00:39:10,730
However, the buyer of the car is ignorant
683
00:39:10,730 --> 00:39:19,250
because both lemon sellers and peach sellers make extra sure that the paint job on the car is extra shiny.
684
00:39:19,810 --> 00:39:22,370
The cars all look alike to the buyer
685
00:39:22,370 --> 00:39:25,750
so the buyer knows that they are vulnerable in this situation.
686
00:39:25,750 --> 00:39:29,790
The buyer knows that they could end up with a lemon.
687
00:39:30,430 --> 00:39:34,050
Because the buyer is ignorant but not totally ignorant.
688
00:39:34,050 --> 00:39:37,550
They are actually aware of their own ignorance.
689
00:39:37,550 --> 00:39:44,830
(And) because of that, the buyer then adjusts their offer price to be slightly lower than that of a peach.
690
00:39:44,830 --> 00:39:50,450
The asking, offer price for the car is going to be not quite at the peach price here.
691
00:39:50,450 --> 00:39:53,230
It's going to be slightly lower.
692
00:39:53,510 --> 00:39:55,010
What happens then?
693
00:39:55,010 --> 00:40:01,130
If you're selling a lemon and you see this pretty high price being offered for cars, you're happy.
694
00:40:01,130 --> 00:40:07,510
Because your lemon, which is worth this low price, can sell for this.
695
00:40:07,510 --> 00:40:09,530
So the lemon sellers are happy.
696
00:40:09,530 --> 00:40:13,630
There are more suckers out there to buy their lemons.
697
00:40:13,630 --> 00:40:18,670
How about the peach sellers? The peach sellers are the ones who did the work to have a good car to sell
698
00:40:18,670 --> 00:40:23,030
and now they're seeing this offer price which is less than the peach price.
699
00:40:23,030 --> 00:40:27,010
They're discouraged and slightly offended
700
00:40:27,010 --> 00:40:32,370
because all that work they did, all the good work that they did to keep that car good.
701
00:40:32,370 --> 00:40:35,310
And they followed all the rules with their car.
702
00:40:35,310 --> 00:40:42,470
That good behavior is not getting rewarded in the form of a high price coming from the buyer.
703
00:40:42,470 --> 00:40:46,490
So the peach sellers get discouraged, they leave the market.
704
00:40:46,490 --> 00:40:49,710
What happens is that peach sellers leave.
705
00:40:49,710 --> 00:40:52,350
Well, now the buyers figure out that
706
00:40:52,350 --> 00:40:55,230
their chance of buying a lemon has just gone up
707
00:40:55,230 --> 00:40:57,650
and the price that they're going to offer goes down.
708
00:40:57,650 --> 00:41:02,690
And you have this race to the bottom in which the offer price keeps going down, down, down.
709
00:41:02,690 --> 00:41:04,870
All of the good sellers leave the market
710
00:41:04,870 --> 00:41:10,930
because they are not being justly compensated for the work that they've done.
711
00:41:10,930 --> 00:41:14,090
What does it have to do the cryptocurrency?
712
00:41:14,350 --> 00:41:16,410
Surveillance coins
713
00:41:16,410 --> 00:41:21,450
which have a total record and a total history of who had them
714
00:41:21,450 --> 00:41:24,710
are the used cars of cryptocurrency.
715
00:41:25,370 --> 00:41:30,150
Whenever you buy Bitcoin from somebody and you don't know the history of that Bitcoin,
716
00:41:30,150 --> 00:41:33,150
you are the used car buyer in this situation.
717
00:41:33,150 --> 00:41:35,530
You don't know if you accept this Bitcoin...
718
00:41:35,530 --> 00:41:41,950
"Am I going to be just fine or am I going to be falsely accused of some who knows what?"
719
00:41:41,950 --> 00:41:47,890
Who knows what possible crime could have been done with the person who used to own that Bitcoin.
720
00:41:47,890 --> 00:41:49,870
You don't know if that's going to happen to you.
721
00:41:49,870 --> 00:41:57,430
As a Bitcoin receiver, you are in the position of the used car buyer.
722
00:41:58,610 --> 00:42:02,350
What in this paper is identified as
723
00:42:02,350 --> 00:42:07,150
a means to avoid this race to the bottom -- is a signal.
724
00:42:07,690 --> 00:42:10,310
So in the car market, for example --
725
00:42:10,310 --> 00:42:12,810
and there's probably something similar to this in Europe,
726
00:42:12,810 --> 00:42:16,190
where you can type in the serial number, the VIN number of a car
727
00:42:16,190 --> 00:42:18,410
and then you get a report...
728
00:42:18,410 --> 00:42:20,550
you can see if it's been in an accident... --
729
00:42:20,550 --> 00:42:23,350
this doesn't exist in Europe? Okay, well.
730
00:42:23,730 --> 00:42:25,650
Business idea for somebody...
731
00:42:25,730 --> 00:42:28,570
It exists in the United States. It's called Carfax
732
00:42:28,570 --> 00:42:33,450
and you type in the serial number of a car and all of its kind of past history comes up.
733
00:42:33,450 --> 00:42:39,110
That information can equalize the playing field between the buyers and the sellers of cars.
734
00:42:39,110 --> 00:42:41,230
This also happens in the job market.
735
00:42:41,230 --> 00:42:43,950
Education is a similar situation.
736
00:42:43,950 --> 00:42:48,890
If you are a boss, you're hiring a worker... you have a hundred workers out there applying for jobs.
737
00:42:48,990 --> 00:42:50,970
They all look the same to you because it's like
738
00:42:50,970 --> 00:42:52,530
everyone starts looking the same.
739
00:42:52,530 --> 00:42:55,190
All the resumes look the same after a while.
740
00:42:55,190 --> 00:42:59,730
So how are the sellers of their labor going to distinguish themselves?
741
00:42:59,730 --> 00:43:01,370
They're going to have a signal.
742
00:43:01,370 --> 00:43:07,230
Education is a signal just like information in the used car market is.
743
00:43:07,370 --> 00:43:11,930
Basically, the sellers of labor take it upon themselves to get
744
00:43:11,930 --> 00:43:17,150
educational credential to signal to the buyer of labor
745
00:43:17,150 --> 00:43:20,510
that their labor is going to be worth more.
746
00:43:20,610 --> 00:43:24,850
Unfortunately, what happens is that the sellers of education then figure this out
747
00:43:24,850 --> 00:43:27,030
and then they just start selling education
748
00:43:27,030 --> 00:43:31,470
because they know that the people coming for the education are just going
749
00:43:31,470 --> 00:43:33,530
to get an employment signal.
750
00:43:33,790 --> 00:43:37,750
The actual purpose of the education gets lost.
751
00:43:37,750 --> 00:43:41,670
This is happening in non-fungible cryptocurrencies as well.
752
00:43:41,670 --> 00:43:45,350
Right now, anybody who signs up for an account
753
00:43:45,350 --> 00:43:46,950
at a centralized exchange
754
00:43:46,950 --> 00:43:50,690
has to do all sorts of degrading things.
755
00:43:50,690 --> 00:43:52,850
You have to hold up a picture of your ID,
756
00:43:52,850 --> 00:43:56,730
you have to make a little handwritten note that says this "this is my name".
757
00:43:56,730 --> 00:44:01,210
You have to basically submit all this stuff just to be deemed worthy enough
758
00:44:01,210 --> 00:44:04,990
to participate in this cryptocurrency economy.
759
00:44:04,990 --> 00:44:07,950
That is a signal in this sense too.
760
00:44:07,950 --> 00:44:10,930
But what's interesting is that in cryptocurrency,
761
00:44:10,930 --> 00:44:17,350
currently, the exchanges bear the burden of due diligence on their customers.
762
00:44:17,590 --> 00:44:22,110
It's an expense for the exchanges to be doing, to check all these people out.
763
00:44:22,110 --> 00:44:26,710
It could be that in the future that just like in the education market and in the car market.
764
00:44:26,710 --> 00:44:31,050
It's the seller who's going to have to increasingly go through hoops
765
00:44:31,050 --> 00:44:36,090
basically to prove their worthiness in this whole system.
766
00:44:37,750 --> 00:44:39,730
Just to take a step back,
767
00:44:39,730 --> 00:44:42,130
I've gone over scarcity in Bitcoin and Monero
768
00:44:42,130 --> 00:44:45,610
and I've gone over fungibility and privacy in Bitcoin and Monero.
769
00:44:45,610 --> 00:44:46,970
And if we step back,
770
00:44:46,970 --> 00:44:51,990
I can identify what I think is a reason why crypto is not going to go away --
771
00:44:51,990 --> 00:44:54,410
why it's here to stay.
772
00:44:54,850 --> 00:44:56,390
Now we have the internet,
773
00:44:56,390 --> 00:44:59,570
we have mobile telecommunication --
774
00:44:59,570 --> 00:45:03,630
everybody here has at least one device
775
00:45:03,630 --> 00:45:07,110
that is extremely good at copying packets.
776
00:45:07,390 --> 00:45:10,590
That's what cellphones are. They are just packet copiers.
777
00:45:11,090 --> 00:45:12,390
When you fetch your email,
778
00:45:12,390 --> 00:45:17,030
you are copying packets from the email server to your phone to check.
779
00:45:17,030 --> 00:45:23,470
We've become just extraordinarily efficient at copying ones and zeros globally.
780
00:45:23,590 --> 00:45:27,370
The marginal cost of shuttling these bits around is zero.
781
00:45:27,570 --> 00:45:29,810
What is rare in that world,
782
00:45:29,810 --> 00:45:33,850
what is rare in a world where every human on earth basically
783
00:45:33,850 --> 00:45:39,610
has the ability to copy ones and zeros anywhere around the world for free?
784
00:45:39,610 --> 00:45:42,970
Well, it's going to be digital scarcity
785
00:45:42,970 --> 00:45:44,390
and digital privacy.
786
00:45:44,390 --> 00:45:46,710
Digital scarcity in the sense that
787
00:45:46,710 --> 00:45:50,030
there's a sequence of ones and zeros that only you know
788
00:45:50,030 --> 00:45:52,910
which is cryptocurrency - that's the private key.
789
00:45:52,910 --> 00:45:54,890
And privacy in which you
790
00:45:54,890 --> 00:45:57,530
have a sequence of ones and zeros also you only know
791
00:45:57,530 --> 00:45:59,610
and that you haven't shared with everyone
792
00:45:59,610 --> 00:46:03,950
like you've shared the contents of your lunch on Facebook with the entire world
793
00:46:04,450 --> 00:46:09,310
and other details of your life that are basically copied around.
794
00:46:09,310 --> 00:46:12,890
These are the two things that are going to be scarce in the future:
795
00:46:12,890 --> 00:46:16,330
digital scarcity and digital privacy.
796
00:46:16,330 --> 00:46:18,590
Cryptocurrencies offer both.
797
00:46:18,590 --> 00:46:20,670
And cryptocurrencies like Monero
798
00:46:20,670 --> 00:46:24,890
especially offer both because they offer privacy as well.
799
00:46:25,010 --> 00:46:27,710
Next I want to talk about community.
800
00:46:29,230 --> 00:46:31,790
In the past when we've had Fiat money,
801
00:46:31,790 --> 00:46:34,890
basically, your nationality
802
00:46:35,610 --> 00:46:39,370
told you what community you belong to for purposes of money.
803
00:46:39,370 --> 00:46:42,610
If you're born in the Eurozone, well, you use Euros.
804
00:46:42,610 --> 00:46:45,730
I was born American, so I use the US dollar.
805
00:46:45,910 --> 00:46:48,250
That kind of gets told to you at birth
806
00:46:48,250 --> 00:46:50,850
as an accident of where you were born.
807
00:46:50,850 --> 00:46:52,210
Now with cryptocurrencies,
808
00:46:52,210 --> 00:46:59,650
because the system of bookkeeping is a decentralized network of computers that can be worldwide
809
00:46:59,650 --> 00:47:03,650
this idea of association is now fluid.
810
00:47:03,650 --> 00:47:09,970
It's more open, it's really like the Reformation of the Church.
811
00:47:10,890 --> 00:47:13,930
Another famous German, Martin Luther
812
00:47:13,930 --> 00:47:18,830
who liberated theology from the kind of
813
00:47:18,830 --> 00:47:21,050
centralized control of the Catholic Church
814
00:47:21,050 --> 00:47:26,130
and liberated this ability for people to elect
815
00:47:26,130 --> 00:47:29,370
to worship in the way that they chose.
816
00:47:29,590 --> 00:47:35,230
A similar sort of thing is now possible, because of Nakamoto consensus,
817
00:47:35,310 --> 00:47:38,710
almost 11 years and a month old.
818
00:47:38,710 --> 00:47:43,490
Now it's possible for each one of us to kind of pick a group,
819
00:47:43,490 --> 00:47:45,710
"pick your own church," pick your own...
820
00:47:45,750 --> 00:47:47,310
like, that's not really quite right
821
00:47:47,310 --> 00:47:48,310
but I think you get what I'm saying.
822
00:47:48,310 --> 00:47:52,350
You can pick your own group of people who agree
823
00:47:52,430 --> 00:47:56,650
on certain characteristics that they want their money to have
824
00:47:56,650 --> 00:48:00,990
and you are free to associate with each of those groups.
825
00:48:01,110 --> 00:48:05,590
Bitcoin is one such group that apparently doesn't
826
00:48:05,590 --> 00:48:08,950
really, is not too bothered by the fact that
827
00:48:08,950 --> 00:48:14,270
the currency has this perfect knowledge of history for every single coin that's out there.
828
00:48:14,270 --> 00:48:20,410
And that is a large association of people all of whom have the shared belief
829
00:48:20,410 --> 00:48:26,190
that the token that they are keeping track of on their blockchain is money
830
00:48:26,190 --> 00:48:29,090
and there's a similar sort of community,
831
00:48:29,090 --> 00:48:34,290
sort of formation that happens with the cryptocurrencies.
832
00:48:35,630 --> 00:48:38,150
I'd like to share some of my observations about the Monero community
833
00:48:38,150 --> 00:48:41,910
and by the way, I'm volunteering to be here.
834
00:48:41,910 --> 00:48:44,930
I've paid my own dime to come out here from Boston
835
00:48:44,930 --> 00:48:49,470
to kind of share what I think
836
00:48:49,470 --> 00:48:53,290
my understanding of the current status of cryptocurrencies with you.
837
00:48:53,290 --> 00:48:56,770
Monero is basically, it's run like a charity.
838
00:48:56,770 --> 00:48:58,570
There is no company behind it.
839
00:48:58,570 --> 00:49:04,230
There's no pre-mine, there's no scammy way for people to get rich.
840
00:49:04,230 --> 00:49:09,290
All of the Monero in existence were given in the past to a miner
841
00:49:09,290 --> 00:49:13,750
who was doing the accounting work to help support the network, just like in Bitcoin.
842
00:49:13,970 --> 00:49:16,790
Both Bitcoin and Monero have the positive aspect that there's
843
00:49:16,790 --> 00:49:21,530
no central company steering things to kind of make a profit.
844
00:49:21,530 --> 00:49:25,550
No, it's totally open-source grassroots.
845
00:49:25,950 --> 00:49:30,550
Just normal everyday people choosing to run some
846
00:49:30,550 --> 00:49:32,650
peer-to-peer network software on their computer
847
00:49:32,650 --> 00:49:37,390
and join this community who have this shared
848
00:49:37,590 --> 00:49:41,330
ethos in what they think that money should be.
849
00:49:42,390 --> 00:49:47,850
The Monero community, I find it to be idealistic scientific and yet very welcoming.
850
00:49:48,230 --> 00:49:50,010
It's very chill.
851
00:49:50,410 --> 00:49:54,970
There's like a lot of alpha geek happening in some other coins,
852
00:49:54,970 --> 00:49:58,950
in which people are just really out there on Twitter
853
00:49:58,950 --> 00:50:03,470
and they just really want everyone to know that they're the "alpha-est" geek out there.
854
00:50:03,470 --> 00:50:06,110
That kind of thing is refreshingly absent in Monero.
855
00:50:06,110 --> 00:50:07,410
It's very chill.
856
00:50:07,410 --> 00:50:11,250
It's one thing that kind of I like about this whole vibe here at c3.
857
00:50:11,250 --> 00:50:14,290
It's very chill, there's just like a lot of people lounging
858
00:50:14,290 --> 00:50:18,610
and that sort of shared relaxed atmosphere is something that I've
859
00:50:18,610 --> 00:50:22,290
personally observed at the Monero meetups that I've been to.
860
00:50:22,470 --> 00:50:25,670
Monero Research Lab - we have full-time PhDs
861
00:50:26,010 --> 00:50:29,450
who do nothing but cryptographic research.
862
00:50:29,450 --> 00:50:32,150
There's sort of a pipeline of research in which
863
00:50:32,150 --> 00:50:34,930
pure science gets done at Monero Research Lab.
864
00:50:34,930 --> 00:50:38,090
Then, implementations of the promising idea get tested out
865
00:50:38,090 --> 00:50:43,750
then there's an audit process that we actually employ --
866
00:50:43,950 --> 00:50:47,130
external auditors to look at implementations of code.
867
00:50:47,130 --> 00:50:51,710
Once those are clean, then we go to release.
868
00:50:51,710 --> 00:50:56,530
There's this basically pipeline of technology from science to engineering
869
00:50:56,530 --> 00:51:00,070
that gets pushed out in the actual release of the Monero
870
00:51:00,070 --> 00:51:02,530
core software.
871
00:51:02,530 --> 00:51:08,030
The LMDB database is another kind of interesting example of how far Monero has come.
872
00:51:08,030 --> 00:51:09,810
In the early days of Monero,
873
00:51:09,810 --> 00:51:13,190
the entire blockchain was stored in RAM
874
00:51:13,190 --> 00:51:14,690
if you can believe that.
875
00:51:16,450 --> 00:51:19,550
So, that kind of puts a hard limit on how big your blockchain can be
876
00:51:19,550 --> 00:51:21,290
if it has to fit in RAM.
877
00:51:21,290 --> 00:51:26,210
The LMDB block database - which was the brainchild of Howard Chu
878
00:51:26,210 --> 00:51:29,450
who is one of the very frequent contributors
879
00:51:29,450 --> 00:51:37,570
and sort of an open-source Linux guru - was added to Monero.
880
00:51:38,090 --> 00:51:40,990
Monero is actually number three in terms of developer effort
881
00:51:40,990 --> 00:51:47,090
if you look at the... if you rank the coins not by market cap but by actual developer effort.
882
00:51:47,090 --> 00:51:49,610
It goes Bitcoin, Ethereum and then Monero.
883
00:51:49,610 --> 00:51:51,570
It turns out that,
884
00:51:51,750 --> 00:51:53,010
well, in my opinion,
885
00:51:53,010 --> 00:51:56,470
the killer app of Nakamoto consensus is money
886
00:51:56,470 --> 00:52:01,930
because you have a ledger of scarcity that's being shared.
887
00:52:01,930 --> 00:52:05,350
And what's a more natural thing is there for
888
00:52:05,350 --> 00:52:08,930
a shared idea of scarcity, then money?
889
00:52:08,930 --> 00:52:12,550
But it turns out that money is non-trivial to get right.
890
00:52:12,550 --> 00:52:14,370
It needs to be thought through.
891
00:52:14,370 --> 00:52:19,410
These things like... should the money have a complete history behind it
892
00:52:19,410 --> 00:52:22,350
or should it be fungible?
893
00:52:22,350 --> 00:52:24,250
Like that kind of basic idea that
894
00:52:24,250 --> 00:52:28,250
basic engineering design decision has to be made early on
895
00:52:28,250 --> 00:52:34,130
because the technology that's needed to bake in fungibility to Monero -- it's highly non-trivial.
896
00:52:34,490 --> 00:52:36,750
Monero has been added for 6 years now
897
00:52:36,750 --> 00:52:38,890
and has made great improvements in that.
898
00:52:38,890 --> 00:52:42,510
And the way that the social contract is,
899
00:52:42,510 --> 00:52:47,030
I just can't see this happening in Bitcoin.
900
00:52:47,030 --> 00:52:50,270
There are volunteer workgroups for community outreach
901
00:52:50,270 --> 00:52:52,010
and, as I said before,
902
00:52:52,010 --> 00:52:59,550
all of the funding to support all of this is completely 100% shaking the tin cup
903
00:52:59,550 --> 00:53:02,990
and asking for people to donate out of the kindness of their hearts.
904
00:53:02,990 --> 00:53:06,150
And the people in the Monero community do that.
905
00:53:06,250 --> 00:53:08,170
They actually step up to the plate
906
00:53:08,170 --> 00:53:10,510
and they fulfill these.
907
00:53:10,510 --> 00:53:13,230
But if you look at the annual budget --
908
00:53:13,230 --> 00:53:16,150
if Monero were a company, which it's not --
909
00:53:16,150 --> 00:53:19,710
but if Monero were a company and you looked at its operating budget,
910
00:53:19,710 --> 00:53:24,290
you would be astounded at how minuscule, how tiny it is.
911
00:53:24,290 --> 00:53:27,550
And that's because you have idealistic, passionate people
912
00:53:27,550 --> 00:53:31,610
working on this project in true open-source spirit,
913
00:53:31,610 --> 00:53:34,410
often on their spare time.
914
00:53:35,900 --> 00:53:37,820
All right.
915
00:53:41,190 --> 00:53:42,190
So, just to summarize,
916
00:53:42,190 --> 00:53:47,290
Monero is what Bitcoin newbs think they bought.
917
00:53:48,430 --> 00:53:51,090
I'm going to switch hats a little bit.
918
00:53:51,090 --> 00:53:54,830
As I mentioned, one of my jobs before going full time in crypto --
919
00:53:54,830 --> 00:53:57,230
I was head of research at a hedge fund
920
00:53:57,230 --> 00:54:02,610
and the question of thinking of cryptocurrency as an investment comes up.
921
00:54:02,610 --> 00:54:07,190
And of course because there have been these spectacular gains in the price of Bitcoin,
922
00:54:07,190 --> 00:54:08,970
it gets discussed a lot.
923
00:54:08,970 --> 00:54:14,010
One thing that is positive about Monero's culture is that it is generally
924
00:54:14,010 --> 00:54:17,390
gauche to talk about prices,
925
00:54:17,390 --> 00:54:21,470
and returns, and the price going to the moon.
926
00:54:21,890 --> 00:54:24,110
I hope that, well --
927
00:54:24,110 --> 00:54:28,070
I have some background in academic finance;
928
00:54:28,070 --> 00:54:32,270
there's a paper that I co-authored on the effect of liquidity on asset prices
929
00:54:32,270 --> 00:54:36,830
that won a "paper of the year" award in applied finance;
930
00:54:37,150 --> 00:54:40,590
and that, coupled with the Nobel Prize that I just explained --
931
00:54:40,590 --> 00:54:46,950
hopefully, I can put a respectable enough academic sheen on the discussion of
932
00:54:46,950 --> 00:54:53,650
the finance and economics to be forgivable by the Monero community.
933
00:54:53,650 --> 00:54:57,350
But the fact is that this project is going to attract investors,
934
00:54:57,350 --> 00:54:59,050
it's going to attract <i>hodlers</i>.
935
00:54:59,050 --> 00:55:01,250
It's a socioeconomic hedge.
936
00:55:01,250 --> 00:55:04,090
There are lots of investment, there are lots of ETFs out there.
937
00:55:04,090 --> 00:55:08,490
If you believe that companies should be environmentally sustainable
938
00:55:08,490 --> 00:55:12,150
and that their corporate boards should have official policies that
939
00:55:12,150 --> 00:55:16,250
mandate sustainability in one sense or another,
940
00:55:16,250 --> 00:55:20,350
there are ETFs that will only invest in those companies.
941
00:55:20,430 --> 00:55:23,850
It's possible to be basically an ideological investor
942
00:55:23,850 --> 00:55:26,290
if you really care about sustainability
943
00:55:26,450 --> 00:55:30,490
and there's an investment for you.
944
00:55:30,490 --> 00:55:33,750
If, for example, like say Islamic finance --
945
00:55:33,750 --> 00:55:37,910
they are not cool with the idea of interest being paid on loans,
946
00:55:37,910 --> 00:55:41,890
so you have another subset of Islamic finance investments
947
00:55:41,890 --> 00:55:45,410
that don't involve paying interest on loans.
948
00:55:45,630 --> 00:55:51,890
Monero - if you look at it in a similar lens - is basically an ideal hedge
949
00:55:51,890 --> 00:55:54,710
for people who have two characteristics.
950
00:55:54,710 --> 00:55:58,570
One is that they're concerned about mismanagement and corruption
951
00:55:58,570 --> 00:56:02,210
on the part of central banks managing Fiat
952
00:56:02,210 --> 00:56:08,370
and two, they're gravely disturbed by the state of surveillance capitalism
953
00:56:08,370 --> 00:56:13,150
in which everything about all of us is recorded all the time
954
00:56:13,150 --> 00:56:15,910
and will stay forever,
955
00:56:16,150 --> 00:56:20,350
and we have little or no control over that.
956
00:56:21,210 --> 00:56:22,950
It's done in the name of security
957
00:56:22,950 --> 00:56:26,950
but unfortunately, if you push that line too far,
958
00:56:26,950 --> 00:56:30,290
you cease to become an open and free society.
959
00:56:30,290 --> 00:56:37,270
There are reasons that we, in the West, have put limits on the powers of government
960
00:56:37,270 --> 00:56:43,750
and that is because of an awareness of what happens when there are no limits on the powers of government.
961
00:56:44,310 --> 00:56:46,710
A project like Monero is a hedge --
962
00:56:46,710 --> 00:56:51,230
it's basically a "put your money where your mouth is" kind of thing
963
00:56:51,230 --> 00:56:55,030
for people who have strong feelings on those two points --
964
00:56:55,250 --> 00:56:57,990
it's just going to attract investors.
965
00:56:57,990 --> 00:57:03,670
Gresham's law is an economic concept that the best form of money gets hoarded.
966
00:57:03,670 --> 00:57:05,910
People keep the best kind of money
967
00:57:05,910 --> 00:57:09,750
and the inferior form of money, they're going to use that to spend.
968
00:57:09,750 --> 00:57:13,130
But the good stuff, they're going to keep for themselves. That's Gresham's law.
969
00:57:13,390 --> 00:57:15,450
So with Monero, this tends to happen.
970
00:57:15,450 --> 00:57:18,190
A lot of people in Monero used to be in Bitcoin,
971
00:57:18,190 --> 00:57:20,830
but now, whenever they deal with Bitcoin,
972
00:57:20,830 --> 00:57:27,430
they find their heads consumed with all these worries about traceability
973
00:57:28,710 --> 00:57:30,390
and so on.
974
00:57:30,390 --> 00:57:32,070
It's refreshing to come to Monero
975
00:57:32,070 --> 00:57:33,330
where you don't have to worry about that
976
00:57:33,330 --> 00:57:35,430
because the currency is actually fungible.
977
00:57:35,430 --> 00:57:38,650
And because it's fungible, it becomes a superior form of money
978
00:57:38,650 --> 00:57:41,030
that gets hoarded by Gresham's law.
979
00:57:41,030 --> 00:57:46,050
That's another tendency that's going to happen to people: to want to keep the Monero
980
00:57:46,050 --> 00:57:48,230
and spend the other stuff.
981
00:57:48,310 --> 00:57:50,230
Also, capital gains taxes:
982
00:57:50,230 --> 00:57:52,790
at least in America, and I believe in Germany too,
983
00:57:52,790 --> 00:57:57,090
if you hold an asset for over a year in Germany, you don't have to pay gains on it.
984
00:57:57,090 --> 00:57:59,930
That's what I've read. Is that right in Germany? (nods)
985
00:58:00,370 --> 00:58:03,250
Basically, the tax law
986
00:58:03,250 --> 00:58:07,790
promotes looking at those cryptocurrency projects that are solid
987
00:58:07,790 --> 00:58:10,750
and have a real reason to exist
988
00:58:10,750 --> 00:58:14,170
and so that is also going to attract investment money to Monero.
989
00:58:14,170 --> 00:58:20,190
The question is: can these new investors integrate into the community?
990
00:58:20,430 --> 00:58:23,450
Part of what I do as a consultant is I try to bridge these worlds.
991
00:58:23,450 --> 00:58:27,150
I try to take these new investors
992
00:58:28,070 --> 00:58:32,310
whose inclination might be to want to talk to the "manager of Monero"
993
00:58:32,310 --> 00:58:35,310
and have a word with them about the release schedule.
994
00:58:35,310 --> 00:58:37,590
And they want this, and this and this feature
995
00:58:37,630 --> 00:58:39,590
built into the next release --
996
00:58:39,590 --> 00:58:41,230
basically, this whole mentality of
997
00:58:41,230 --> 00:58:46,310
"I own some tokens therefore I'm your customer and you have to do what I say"
998
00:58:46,310 --> 00:58:50,550
which of course falls completely flat on its face in any open-source project
999
00:58:50,550 --> 00:58:53,650
as that's not how changes happen in Linux.
1000
00:58:53,650 --> 00:58:56,130
Nobody goes to Linus and demands,
1001
00:58:56,130 --> 00:59:00,810
makes ultimatums on what they want to see in the next rollout.
1002
00:59:01,090 --> 00:59:03,470
Basically, one thing that I'm doing is
1003
00:59:03,470 --> 00:59:06,730
trying to bridge these worlds of the traditional investment world
1004
00:59:06,730 --> 00:59:10,450
and that of the OG, cryptocurrency open-source world
1005
00:59:10,450 --> 00:59:12,450
that's surrounding us here.
1006
00:59:12,450 --> 00:59:13,770
Community investors,
1007
00:59:13,770 --> 00:59:16,930
I posit are kind of a subset of investors that
1008
00:59:16,930 --> 00:59:21,530
can be valued members of the community. Instead of being
1009
00:59:21,530 --> 00:59:23,690
entitled and thinking that they're customers,
1010
00:59:23,690 --> 00:59:27,230
they'll take the attitude that they're helping to bear financial risk
1011
00:59:27,230 --> 00:59:29,130
on behalf of the project.
1012
00:59:29,410 --> 00:59:33,270
They will do things like take self-custody of their coins
1013
00:59:33,270 --> 00:59:36,710
and not just leave them on exchange - which lots of people do.
1014
00:59:36,710 --> 00:59:39,450
Lots of people leave their crypto on exchanges
1015
00:59:39,450 --> 00:59:41,990
then the exchange gets hacked, they lose their money.
1016
00:59:41,990 --> 00:59:44,630
The reality is: if the money is on the exchange,
1017
00:59:44,630 --> 00:59:46,930
you don't own the private key and it's not your crypto.
1018
00:59:46,930 --> 00:59:49,430
It's actually an IOU that you own for crypto,
1019
00:59:49,430 --> 00:59:51,850
it's not crypto that you own
1020
00:59:52,550 --> 00:59:59,090
and there's a kind of a list of aspects that I think are proper for
1021
00:59:59,090 --> 01:00:06,670
a community type of investor to be a solid member of the Monero community.
1022
01:00:08,030 --> 01:00:10,910
One thing to do, also, is to make sure that
1023
01:00:10,910 --> 01:00:16,150
there are proper legal structures around one's ownership of cryptocurrency.
1024
01:00:16,150 --> 01:00:24,470
One of the subsets of the traditional finance world that I help to bridge with cryptocurrencies is that of trusts.
1025
01:00:24,470 --> 01:00:28,070
In a statutory law kind of regime like Germany,
1026
01:00:28,070 --> 01:00:30,330
the whole concept of trust might be a little foreign
1027
01:00:30,330 --> 01:00:32,490
because it comes from English common law.
1028
01:00:32,490 --> 01:00:36,390
But the idea is that a trust is a legal entity,
1029
01:00:36,390 --> 01:00:37,370
it's a legal thing.
1030
01:00:37,370 --> 01:00:38,930
It's kind of a company
1031
01:00:38,930 --> 01:00:42,510
but it's a different category of legal structure.
1032
01:00:42,510 --> 01:00:44,910
A trust is a
1033
01:00:44,910 --> 01:00:48,690
kind of a holding vessel for funds that
1034
01:00:48,690 --> 01:00:53,890
a giver wants to give to beneficiaries but not immediately.
1035
01:00:54,250 --> 01:00:55,870
Basically, there are three people involved.
1036
01:00:55,870 --> 01:01:00,310
There's a grantor who has wealth and wants to transfer it to the beneficiaries
1037
01:01:00,310 --> 01:01:03,830
but not just outright, they want the money to go into a trust.
1038
01:01:03,830 --> 01:01:07,290
The grantor will work to make the rules of the trust
1039
01:01:07,290 --> 01:01:10,670
and then transfer property into the trust
1040
01:01:10,670 --> 01:01:13,170
as part of the document that defines the trust,
1041
01:01:13,170 --> 01:01:17,450
you have a list of beneficiaries who could ultimately benefit from the property
1042
01:01:17,450 --> 01:01:20,190
and then you have a third party which is the trustee.
1043
01:01:20,190 --> 01:01:24,430
The trustee is the legal owner of the assets that are given into trust
1044
01:01:24,430 --> 01:01:27,710
but the legal owner is with conditions.
1045
01:01:27,710 --> 01:01:30,530
The legal owner cannot do whatever they want with the property,
1046
01:01:30,530 --> 01:01:35,110
they have to follow the instructions that are in the trust document.
1047
01:01:36,230 --> 01:01:40,530
In effect, this is what crypto people would think of as a smart contract.
1048
01:01:40,530 --> 01:01:44,770
It's kind of the original old-school legal contract
1049
01:01:44,770 --> 01:01:50,090
and if you're careful with
1050
01:01:50,090 --> 01:01:54,270
which jurisdictions you place the various players in the trust,
1051
01:01:54,270 --> 01:01:57,510
there are advantages that can be had --
1052
01:01:57,510 --> 01:02:00,330
which are very dependent on jurisdiction,
1053
01:02:00,330 --> 01:02:04,350
and it's just completely impossible for me to spell it out
1054
01:02:04,350 --> 01:02:06,110
because of the complexity of this --
1055
01:02:06,110 --> 01:02:10,710
but possible benefits are legal tax reduction,
1056
01:02:10,710 --> 01:02:12,790
protection from being sued.
1057
01:02:12,790 --> 01:02:16,350
In other words, if money is in a trust,
1058
01:02:16,350 --> 01:02:19,870
it's not the giver's money anymore,
1059
01:02:19,870 --> 01:02:22,970
it's not the wealth owner's money anymore, it's the trus't money.
1060
01:02:22,970 --> 01:02:26,830
If somebody sues the wealth owner, the wealth is gone.
1061
01:02:26,830 --> 01:02:29,290
It's not theirs anymore, it belongs the trust.
1062
01:02:29,290 --> 01:02:34,290
And then there are trust laws that protect that money from lawsuits as well.
1063
01:02:34,930 --> 01:02:38,210
Most people think "well, you know, I'm at low risk.
1064
01:02:38,210 --> 01:02:42,230
I'm a nice guy I don't hurt anybody, nobody's going to sue me".
1065
01:02:42,230 --> 01:02:46,230
But one glaring exception to this is divorce.
1066
01:02:46,230 --> 01:02:53,410
People routinely get robbed by people who they only recently married
1067
01:02:53,410 --> 01:02:57,730
and it turns out that irrevocable trusts made before marriage --
1068
01:02:57,730 --> 01:03:00,190
you have to do it before or otherwise it won't count --
1069
01:03:00,190 --> 01:03:06,210
but it's one of the only things that can survive a challenge.
1070
01:03:07,430 --> 01:03:09,190
Also, legal enhanced privacy
1071
01:03:09,190 --> 01:03:12,330
so depending on the jurisdiction in which you place the trust,
1072
01:03:12,330 --> 01:03:18,550
you could benefit from enhanced privacy protecting those assets.
1073
01:03:18,550 --> 01:03:21,890
Actually, relevant to people who are not Americans,
1074
01:03:21,970 --> 01:03:24,350
you may or may not be aware of this,
1075
01:03:24,350 --> 01:03:29,130
but there's a saying within estate planning and wealth management
1076
01:03:29,130 --> 01:03:32,010
that "America is the new Switzerland."
1077
01:03:32,210 --> 01:03:37,030
And this is because America has laws that are asymmetric.
1078
01:03:37,030 --> 01:03:40,970
America has a law called FATCA, which was put in by Obama,
1079
01:03:40,970 --> 01:03:49,110
which requires worldwide financial institutions to send data on Americans back to the IRS.
1080
01:03:49,110 --> 01:03:52,950
This is why it's almost impossible for an American to get a German bank account
1081
01:03:53,030 --> 01:03:55,790
because the German bank account
1082
01:03:55,790 --> 01:03:59,670
will have a whole bunch of burdensome reporting requirements
1083
01:03:59,670 --> 01:04:03,390
to the IRS to take on this American customer.
1084
01:04:03,610 --> 01:04:05,450
That's why Americans have a lot of trouble
1085
01:04:05,450 --> 01:04:09,110
when they go overseas to work.
1086
01:04:09,550 --> 01:04:13,910
In reaction to this, the other countries of the world came up with what's called CRS
1087
01:04:13,910 --> 01:04:16,070
which is the "Common Reporting Standard."
1088
01:04:16,250 --> 01:04:19,830
The idea is the same, for example:
1089
01:04:19,830 --> 01:04:22,950
one European government wants to make sure that
1090
01:04:23,130 --> 01:04:27,190
its citizens are not trying to hide money in Australia,
1091
01:04:27,230 --> 01:04:30,630
so they sign this like agreement
1092
01:04:30,710 --> 01:04:34,190
for all these countries to share financial information with each other
1093
01:04:34,190 --> 01:04:37,510
to make sure that nobody's cheating on their taxes.
1094
01:04:37,770 --> 01:04:41,370
There's basically a bunch of countries that have signed on to this CRS
1095
01:04:41,370 --> 01:04:44,210
but America is not one of them.
1096
01:04:44,730 --> 01:04:46,550
Thus lies the asymmetry
1097
01:04:47,250 --> 01:04:53,170
that for US citizens who doing affairs abroad,
1098
01:04:53,170 --> 01:04:55,170
like legitimate businesses abroad,
1099
01:04:55,170 --> 01:04:58,010
all of that information gets sent back to the IRS.
1100
01:04:58,010 --> 01:05:03,570
But for a non-US person who sets up financial affairs in the US,
1101
01:05:03,570 --> 01:05:08,330
there is no obligation for the US to send the information back to the home country.
1102
01:05:08,550 --> 01:05:13,510
So, thus the saying, "America is the new Switzerland."
1103
01:05:15,630 --> 01:05:17,530
My reason for going into all that
1104
01:05:17,530 --> 01:05:22,470
is that Monero is a project that is important for humanity
1105
01:05:22,470 --> 01:05:28,950
and I think that for people who are in custody of Monero,
1106
01:05:28,950 --> 01:05:31,110
it's an important job for them
1107
01:05:31,110 --> 01:05:33,750
to basically sort this stuff out.
1108
01:05:33,750 --> 01:05:37,230
Figure out what's going to happen when you die
1109
01:05:38,510 --> 01:05:40,750
and ideally, figure that stuff out,
1110
01:05:40,750 --> 01:05:42,290
maybe make a trust
1111
01:05:42,290 --> 01:05:45,550
that kind of executes all these things while you're alive --
1112
01:05:45,550 --> 01:05:49,890
then you have more control over it while you're alive than when you're dead.
1113
01:05:50,050 --> 01:05:55,250
Basically, that's going to avoid this kind of situation where a lawsuit causes
1114
01:05:55,250 --> 01:05:58,910
Monero to be handed over, liquidated,
1115
01:05:58,910 --> 01:06:01,190
basically, things that are not good for the network --
1116
01:06:01,190 --> 01:06:07,930
this stuff needs to be kind of held and taken care of.
1117
01:06:09,250 --> 01:06:12,590
I am over time. So unfortunately,
1118
01:06:12,590 --> 01:06:18,670
the section that I had on asset correlations is...
1119
01:06:18,670 --> 01:06:23,550
I'm just going to maybe show one slide.
1120
01:06:24,870 --> 01:06:27,330
This is kind of a complicated one but
1121
01:06:27,330 --> 01:06:33,010
this is showing the degree to which the monthly ups and downs of Monero
1122
01:06:33,010 --> 01:06:35,910
versus the monthly ups and downs of Bitcoin
1123
01:06:35,910 --> 01:06:39,590
versus the monthly ups and downs of the US stock market,
1124
01:06:39,590 --> 01:06:42,690
the US bond market and gold.
1125
01:06:43,790 --> 01:06:46,810
For example, this square here
1126
01:06:46,810 --> 01:06:50,130
is showing the intersection of Monero and Bitcoin.
1127
01:06:50,130 --> 01:06:53,530
On this axis you see the Monero return,
1128
01:06:53,530 --> 01:06:56,210
on this axis you see the Bitcoin return.
1129
01:06:56,210 --> 01:07:00,110
You can see that on months when Monero does well,
1130
01:07:00,110 --> 01:07:02,110
Bitcoin also tends to do well.
1131
01:07:02,110 --> 01:07:05,250
You have this kind of pattern, this correlation.
1132
01:07:06,030 --> 01:07:11,530
Here you can also see that there's some really extreme outlier months for Monero in the positive though.
1133
01:07:11,530 --> 01:07:16,950
This particular month, Monero basically quadrupled in one month.
1134
01:07:17,470 --> 01:07:18,930
This is part of owning crypto --
1135
01:07:18,930 --> 01:07:22,390
that you're on this really wild rollercoaster ride --
1136
01:07:22,390 --> 01:07:25,590
and you need to kind of be able to deal with that.
1137
01:07:25,590 --> 01:07:27,130
But what this is showing is that
1138
01:07:27,130 --> 01:07:30,890
there is a correlation between the returns of Monero and Bitcoin.
1139
01:07:30,890 --> 01:07:32,230
That's a .4 correlation.
1140
01:07:32,230 --> 01:07:35,270
A 1.00 correlation is perfectly correlated.
1141
01:07:35,270 --> 01:07:37,070
They go up and down together.
1142
01:07:37,070 --> 01:07:41,150
Negative 1 is the opposite. If one goes up, the other goes down.
1143
01:07:41,310 --> 01:07:43,210
In Modern Portfolio Theory --
1144
01:07:43,210 --> 01:07:47,110
and this is true for also your own personal portfolio, it's an idea to think about --
1145
01:07:47,110 --> 01:07:52,250
if you have two assets who you expect to do well in the future
1146
01:07:53,650 --> 01:07:56,410
and they're uncorrelated, in other words,
1147
01:07:56,410 --> 01:08:01,110
when one asset goes up the other is flat or maybe the other one goes down,
1148
01:08:01,110 --> 01:08:06,510
in other words, the ups and downs from day to day of these two different assets
1149
01:08:06,510 --> 01:08:08,630
tend to cancel each other out.
1150
01:08:08,630 --> 01:08:10,510
If you have that situation
1151
01:08:10,510 --> 01:08:14,170
then if you make a portfolio out of both of those assets
1152
01:08:14,170 --> 01:08:17,890
your combined volatility is going to be improved.
1153
01:08:17,890 --> 01:08:19,510
It's going to be reduced
1154
01:08:19,510 --> 01:08:24,590
because the components that you're adding are anti-correlated.
1155
01:08:25,250 --> 01:08:27,710
This is a very big deal for Wall Street investors
1156
01:08:27,770 --> 01:08:34,530
because it turns out correlation structure tends to be more dependable and long-lived
1157
01:08:34,530 --> 01:08:37,050
than predictions of outperformance, so
1158
01:08:37,050 --> 01:08:39,710
correlation structures tend to persist.
1159
01:08:40,590 --> 01:08:44,330
Wall Street is always looking for sources of uncorrelated alpha.
1160
01:08:44,610 --> 01:08:52,010
For example, if you look at the correlation of Monero with traditional assets like US stocks, we have 0.01.
1161
01:08:53,130 --> 01:08:55,830
An idea to think about is that
1162
01:08:55,830 --> 01:09:00,150
putting together assets that wiggle in different ways can be
1163
01:09:00,150 --> 01:09:02,990
a positive force for your overall portfolio.
1164
01:09:02,990 --> 01:09:06,270
Now again, as I mentioned, this is only talking about correlation structure.
1165
01:09:06,270 --> 01:09:09,610
This is like the ups and downs. This is not talking about
1166
01:09:09,610 --> 01:09:11,590
"is the price going to go up in the future."
1167
01:09:11,590 --> 01:09:14,430
That's a different question.
1168
01:09:17,010 --> 01:09:19,310
Let me show this and then I'll finish.
1169
01:09:19,310 --> 01:09:24,230
I'm sorry, I'm going over -- but I guess there's no one after me --
1170
01:09:24,230 --> 01:09:26,570
but I'll try to make it quick.
1171
01:09:27,830 --> 01:09:32,890
I think what I'm showing here is pretty much the only asset price chart you need
1172
01:09:32,890 --> 01:09:35,050
and that is a very long term view.
1173
01:09:35,170 --> 01:09:40,090
This is showing from the beginning of cryptocurrency, 2009 to 2020.
1174
01:09:40,090 --> 01:09:41,770
This is 11 years of history
1175
01:09:41,770 --> 01:09:46,610
and you almost never see this in the crypto bloggers
1176
01:09:46,610 --> 01:09:48,870
or people on YouTube blabbing about crypto.
1177
01:09:48,870 --> 01:09:51,770
They're always focused on what happened yesterday.
1178
01:09:53,350 --> 01:09:55,730
It's totally a distraction
1179
01:09:55,730 --> 01:09:58,150
for anyone who has a long term view.
1180
01:09:59,190 --> 01:10:04,610
So, I would suggest whenever looking at crypto as an asset, to zoom out on the horizontal scale
1181
01:10:04,610 --> 01:10:06,910
and also zoom out on the vertical scale.
1182
01:10:07,430 --> 01:10:12,930
What I'm showing here: each of these [y axis] divisions is a factor of 10.
1183
01:10:12,930 --> 01:10:17,370
Here we have 1 cent, 1 dollar and 10 thousand dollars.
1184
01:10:17,450 --> 01:10:25,150
This is an initial investment of one euro becoming 10 million euros, that's the scale.
1185
01:10:25,150 --> 01:10:26,950
And on this sort of scale,
1186
01:10:26,950 --> 01:10:29,490
all of these ups and downs
1187
01:10:29,490 --> 01:10:32,530
which seem big, disappear.
1188
01:10:32,530 --> 01:10:35,250
For example, let's look at the S&P 500,
1189
01:10:35,250 --> 01:10:37,130
the US stock market.
1190
01:10:37,130 --> 01:10:39,070
If you're involved at all in the stock market,
1191
01:10:39,070 --> 01:10:43,390
you know that December 2019 has been a very good month.
1192
01:10:43,390 --> 01:10:45,890
We're talking 15% up
1193
01:10:45,890 --> 01:10:48,230
which is really big for the stock market.
1194
01:10:48,230 --> 01:10:53,630
But if you look on this scale, it's like a pixel.
1195
01:10:56,850 --> 01:11:00,210
I think this underlines the decision
1196
01:11:00,210 --> 01:11:05,110
that anyone has when thinking about cryptocurrency as a possible investment.
1197
01:11:05,110 --> 01:11:08,350
It's this baby. It's still a baby.
1198
01:11:08,350 --> 01:11:12,370
It's amazing because it's gone up orders of magnitude
1199
01:11:12,370 --> 01:11:16,750
and yet compared to other assets, it's still a baby.
1200
01:11:16,750 --> 01:11:18,430
This next chart shows that.
1201
01:11:18,430 --> 01:11:20,410
What I've done here is --
1202
01:11:20,410 --> 01:11:27,150
it's hard to understand if somebody tells you that the price of Bitcoin is $7,000.
1203
01:11:27,150 --> 01:11:32,330
It's hard to know whether that's high or low. Who knows?
1204
01:11:35,990 --> 01:11:37,430
It's just really hard to know
1205
01:11:37,530 --> 01:11:39,790
because it's just one Bitcoin
1206
01:11:39,790 --> 01:11:41,790
and it's hard to put that in perspective.
1207
01:11:41,790 --> 01:11:43,790
What I've done here is I've taken the
1208
01:11:44,130 --> 01:11:48,010
value of all of the Bitcoin in existence.
1209
01:11:48,670 --> 01:11:53,270
Starting from the beginning of Bitcoin, as time goes on,
1210
01:11:53,270 --> 01:11:56,210
more Bitcoins got rewarded to miners
1211
01:11:56,210 --> 01:11:58,550
so there have been more Bitcoins in existence
1212
01:11:58,550 --> 01:12:01,110
and the price has been going up and down.
1213
01:12:01,110 --> 01:12:04,470
I multiplied the number of Bitcoins in existence by the current price
1214
01:12:04,470 --> 01:12:06,750
and that gives you the market cap.
1215
01:12:06,750 --> 01:12:09,630
What I've done with that is I've divided that
1216
01:12:09,630 --> 01:12:15,930
by the value of all of the gold, above ground, in the world.
1217
01:12:15,930 --> 01:12:19,510
All of the gold that has been already been dug out of the ground
1218
01:12:19,510 --> 01:12:22,110
and is sitting in vaults around the world
1219
01:12:22,110 --> 01:12:24,150
and owned mostly by central governments,
1220
01:12:24,150 --> 01:12:26,370
but also a good amount is in jewelry, and so on,
1221
01:12:26,370 --> 01:12:28,370
and there are estimates of this.
1222
01:12:28,750 --> 01:12:33,450
Basically, there are estimates for how much gold there is in the world at any given time
1223
01:12:33,450 --> 01:12:36,670
so I've divided the value of all the world's Bitcoin
1224
01:12:36,670 --> 01:12:39,090
divided by the value of all the world's gold.
1225
01:12:39,090 --> 01:12:42,190
And I've done that for 11 years.
1226
01:12:42,190 --> 01:12:44,250
What you can see here is that,
1227
01:12:44,250 --> 01:12:49,530
currently, the value of all the Bitcoin in the world is about 1% of that of all the gold.
1228
01:12:49,530 --> 01:12:53,770
In other words, all the gold is worth a hundred times what all the Bitcoin is worth.
1229
01:12:53,770 --> 01:12:56,470
And if you do that for Monero --
1230
01:12:56,470 --> 01:13:00,610
and, arguably, this analogy is even more apt for Monero,
1231
01:13:00,610 --> 01:13:04,670
because when you turn a bar of gold over,
1232
01:13:04,670 --> 01:13:07,890
you don't see a list of everyone who owned that bar of gold,
1233
01:13:07,890 --> 01:13:09,130
you just see gold --
1234
01:13:09,450 --> 01:13:12,530
Monero acts more like actual gold than Bitcoin does,
1235
01:13:12,530 --> 01:13:16,490
therefore, it makes more sense to make a ratio of all the world's Monero,
1236
01:13:16,490 --> 01:13:17,670
how much is that worth --
1237
01:13:17,670 --> 01:13:20,250
divided by how much all the world's gold is worth
1238
01:13:20,250 --> 01:13:25,650
if you do that, we're looking at 1/100 of 1%.
1239
01:13:26,690 --> 01:13:32,930
That's what I mean when I say that this asset class is still a baby, it's still early.
1240
01:13:33,050 --> 01:13:37,210
Things could go well for it, things could go very wrong for it.
1241
01:13:37,350 --> 01:13:39,790
There could be a bug that nobody knows about.
1242
01:13:39,790 --> 01:13:42,690
There could be governmental action which a lot of people
1243
01:13:42,690 --> 01:13:44,050
I think overly worry about
1244
01:13:44,050 --> 01:13:50,190
because I think we geeks tend to think of governments as being like Reddit moderators
1245
01:13:50,190 --> 01:13:52,050
with ban power.
1246
01:13:52,050 --> 01:13:54,110
And that's not really how governments work,
1247
01:13:54,110 --> 01:13:56,110
it's a bit more deliberative --
1248
01:13:56,110 --> 01:14:00,110
and if an unjust ban happens, there are things like the Supreme Court
1249
01:14:00,110 --> 01:14:04,190
that might be asked to decide whether, for example,
1250
01:14:04,190 --> 01:14:09,850
Americans have a fundamental right to transact value in a private manner.
1251
01:14:09,850 --> 01:14:14,630
This could be a court case that comes up in the future
1252
01:14:15,210 --> 01:14:16,290
put forth by people
1253
01:14:16,290 --> 01:14:20,190
who really care about privacy as a fundamental human right.
1254
01:14:20,870 --> 01:14:24,440
I'll leave with that, and thanks for your attention.