Angie Lau: Not only is bitcoin reaching all-time-highs, but altcoins are not far behind. Do these trends suggest correlations between blockchains? And how will blockchain bridges shift governance structures?
Welcome to Word on the Block, the series that takes a deeper dive into blockchain and the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast.News. I’m Forkast Editor-in-Chief Angie Lau.
Well, we see bitcoin, ethereum, litecoin — they’re now the top three cryptocurrencies by market cap (when we disregard stablecoins, like USDT, of course) – but bitcoin’s really leading the way. Right now, it reached a new all-time-high of $40,000. But when you watch this, who knows where the price is going to be? But certainly altcoins and the interest in this space is following suit. Investors and analysts are suggesting a possible correlation between bitcoin and altcoin prices in bullish phases. And could this suggest a growing need for interoperability?
Well, in efforts to expand its ecosystems, Cardano and litecoin are taking the lead towards the next generation of interoperable blockchains. And our next guest today, is of course, the one and only CEO and founder of IOHK, co-founder of Ethereum and Cardano, and professional YouTuber from warm, sunny Colorado — Charles Hoskinson.
Charles, how are you doing?
Charles Hoskinson : I’m doing great, Angie. Thank you so much for having me on. How’s Hong Kong?
Lau: I think, how’s the world? We’re all hanging in there. I think everybody who’s watching and who we’ve been speaking to.. we’re hanging in. But, I think for all of us in this space, we are a distributed and decentralized bunch, so what we’ve seen in terms of growth in 2020 is certainly what has also driven growth where you are. Tell us more what’s happening behind the scenes at Cardano.
Hoskinson : Well, you know, last year was probably our busiest year. We went from the Byron era to the Shelley era to the first part of the Goguen era, all in one year — probably half a million lines of code. And we wrote a lot of papers.
We increased the size of the network overall by a factor of seven. So seven times as many people at the end of 2020 as there were in the beginning of 2020. It was great, the market’s great, great year in development, great year in adoption — it was tough, but definitely worthwhile. Shelley was definitely the biggest milestone — because that’s where we went from a static and federated system to a dynamic and decentralized system.
And we have, now, 1,200+ stake full operators who are in the network, writing the network and rapidly decentralizing. So, it’s very humbling in that respect. And now, we’re starting to talk about smart contracts. We’re starting to talk about a lot more use and utility, above and beyond just metadata and store value count. So this is the age of dApps, the age of DeFi. And it’s going to be really exciting to see Cardano explore that and fight for that.
Last year, we also began governance — so we launched the Voltaire era. And we went from just some ideas on a whiteboard to over five thousand people participating in funding rounds every six to eight weeks — where the community was voting on proposals to give grants to ideas. Everything ranging from starting your own podcast to building a business. So it’s really exciting to see decentralized fundraising also working in the right ways and to see so much participation, and to work with great partners like Ideascale and others who have been able to really facilitate high quality proposals and high quality dialogue between people. So all things considered, I think it’s probably the most productive year we’ve ever had. And I look forward to 2021. If we can keep this momentum and extend it, we’re really going to give Ethereum and the rest of these guys a run for their money.
Lau: There is no doubt. The momentum is just going to grow from an incredible foundation called 2020. This industry, being such a grassroots industry and supported by the people who are actually building, investing energy into protocols, as you’ve said. But on the top end and what’s fueling a lot of that momentum — are the institutions. The dollars from the top end that are now feeling warmer in the waters, putting more than just their feet in the water here.
And so for those who are only familiar with potentially — Bitcoin or Ethereum as a smart contract in terms of enterprise, what is the difference that Shelley and Cardano hope to achieve for enterprise and for traditional legacy structures?
Hoskinson : So when you use a blockchain, whatever the business utility could be, and it could be: a decentralized property registration system, it could be an e-voting system, it could be a supply chain system. The concept of a smart contract is saying, “Okay, you have actors and events between those actors — transactions between them.” So, for example, if it was a supply chain. You have numerous nodes [of] whatever you’re moving: it could be beef, it could be clothing. So, actors that it touches and those state transitions between them. So, for example, if I’m growing coffee — one state is taking the coffee off the tree, another is putting it on the back of the donkey and taking it to the washing station. Another could be taking it to the roasters, another could be taking it to the exchange for export. Every step of the way, there’s some logic behind that and there are some tests and thresholds and so forth.
That’s kind of the idea of a smart contract. What’s exciting about cryptocurrency is that you can do this without relying upon trusted central authorities, and that’s great in a world where we don’t trust each other so much anymore — a world where we have to globalize and a world where institutions are rapidly decaying in credibility, as we saw yesterday with the storming of the U.S. Capitol. Where things aren’t working as well as they used to.
So, systems like Ethereum, what they do is they give you a collection of tools to basically write up all that logic and get that logic running in a trustless way amongst many counterparties. The problem with these second generation systems is kind of three-fold. One, they don’t scale so well, so it’s very difficult to go from dozens to hundreds, to thousands, to tens of thousands of users in a cost effective way. In fact, right now, Ethereum is one of the most expensive systems in the world to operate for any reasonable business. Logic two: these systems tend not to be very interoperable, especially with legacy systems. The reality of commerce and human trade — it requires you to talk to many different standards across the world, some government controlled, some through corporations, some through open standards and so forth. So you really need interoperability for these systems to work correctly. And then finally, there’s an issue of sustainability. And this is really who pays and who decides.
So when you have an open protocol and you no longer have a custodial entity, things get a little difficult. When we look at Android, we tend to think of Google. When we look at Windows, we tend to think of Microsoft. Or the iPhone, we think of Apple products. Well, the issue is: what happens when you remove Apple, Microsoft and Google? Who’s going to maintain those systems? And so there’s this issue of who maintains Cardano or who maintains Ethereum and who maintains Bitcoin. So we decided it’s such a significant problem that you really do need to make special provisions for it.
The other thing is change management. What happens when you want to upgrade the system? The bigger the system gets, the more people who use the system. You tend to have a slow down in innovation. So for Bitcoin, for example, it’s been around for 12 years. It’s a victim of its own success. It’s very effective for what it does, but when they say, “hey, let’s get smart contracts on Bitcoin” or, “hey, let’s upgrade the system so it has more transaction throughput or cheaper transactions,” it’s damn near impossible to upgrade the system. And so, what you need is a governance layer that allows you to pay for the upgrades you want to do — and finance the people who are going to change the system, evolve and grow the system. But then also be able to vote on how changes occur. And if you have all three of these properties, we term this a “third generation” cryptocurrency.
So right now we have a big renaissance in our industry.
We have projects like Algorand and Tezos and Cardano — and each and every one of them has a blend of protocols and opinions about to achieve scale interoperability and ultimately have a sustainable system. So you kind of keep all the good in the past. So you keep the smart contracts, and you keep all the things that Ethereum brought to market, but you’re just doing it at a scale instead of thousands or tens of thousands, millions to billions. And then, you also keep the things that Bitcoin brought to bear. So that trustlessness, that decentralization, that reliable, immutable database and time stamping and so forth.
It took about 10 years to get to the third generation. And now that we’re here, it’s really exciting to be competing. In every platform, we try to offer our own unique blend. Cardano — what we chose to do was start from first principles. So what we did was, we wrote more than 90 academic papers and a lot of them got through the peer review process of major conferences, like Eurocrypt and crypto NCCS, and we established the scientific foundations of our project. So basically, we said, “OK, what’s the fact? What’s fiction? What can we actually do versus what we’d like to do — and where will the science take us?”.
And then based on that, we built a big corpus of knowledge that we leveraged with good engineering to build a high-assurance system that not only works well with a good foundation, but we think is a good platform for the future. Kind of like with vaccine research. They spent about 20 years doing hardcore research into mRNA. And now that they’ve done that, it’s very easy for Moderna and Pfizer to bring vaccines to market under a year. That didn’t happen in 2020. That started in the 1990s when they started researching this particular platform. Similarly, that’s what we’ve done with Cardano. We’ve leveraged computer science that came from the 1980s, the 1990s and the 2000s, and we built upon the shoulders of giants. And then, those papers gave us a really good tradeoff profile that we think will allow us to be very competitive as we scale to millions of users.
Lau: I want to pick up on that point of governance and first principles, because I think that what we’ve seen for the past decade with hard forks — this is where governance potentially could have prevented something like that. Instead, we have hard forks when two groups disagree and there’s no consensus. And so then one group carves off. We’ve seen that happening, even with Bitcoin, Ethereum, in fairness to them, they have launched ETH2.0 to address exactly the issue that everybody’s experiencing right now. Which is, as a utilitarian cryptocurrency, everybody’s using it for DeFi and it becomes enormously expensive.
And so, to understand from the point of view of first principles, when you have that governance, can you avoid things like hard forks? Can you avoid and or preserve value for the people who were with you from day one at ADA?
Hoskinson : Yeah, so that’s a good question. First off, when you think about governance and hard forks and these types of things, you’re always going to have change in a system — because technology changes, preferences change, governments change. It wasn’t too long ago that the British Empire was around. Then, the American empire came. And I guess the 21st century, maybe it’s going to be the Chinese empire. So things change a lot when they change. They tend to change everything with them, you know, and then we have a lot of new things that come — like quantum computers, and AI, and [the] IoT revolution and niche computing.
When you have all these things, you say, “Wow, my system has to work a little differently in order to be interoperable with it and also be able to keep up with other standards that are emerging out of that.” Cryptocurrencies, we have many different units of change. And the hard work is the most dramatic, because what it does is it says, “Okay, we’re going to retire the kind of the concepts of the old system and we’re going to replace it with a kind of new operating model.” It can be a very dramatic change in network policy, change in network stack, a change in proof of work or proof of stake (for example, what ETH2 is doing).
We went from a BFT [Byzantine fault tolerance] mode to a proof-of-stake system, like when we went from Byron to Shelley. These are very big and often traumatic events. So we recognize that with Cardano, we built a very special key management system called the Hard Fork Combinator. What this basically does — is it makes it very easy for us to do a hard fork without a shadow network. So since we instituted it back in July of last year, we’ve already done one hard fork. We did the Allegra hard fork in December. Nobody even noticed. It was a very graceful upgrade. And we have another one planned in February. And we’re adding all kinds of capabilities, multi-asset capabilities, to our ledger. And again, that hard fork is going to be very easy to do. That’s only one dimension of it. So that’s the operational change management. But then there’s the consent and legitimacy of change management. So, you know, it’s like a voting system. When you have an election and you elect someone. The person only gets to be a president if they get enough votes to be the president.
But then, also, people have to believe the system was fair, otherwise they’re an illegitimate leader. Well, similarly, if you want to change the system analogously, you really need to have legitimacy and proper democracy -some form of a voting system amongst the relevant stakeholders to say, “Yeah, that’s okay”. The issue with Bitcoin is they don’t really have that explicitly. So even novel things that are quite trivial, like expanding the block size or activating a SafeNet can take years to be able to push into the system, and so, it really slows it down. Then you have this bizarre thing — that as you grow in user base, it becomes harder and harder and harder to change even simpler things.
So for Cardano, what we did is we actually spent four years working with professors at Lancaster [University] and some people in China led by Professor Bingchang [Zhang]. And we wrote, actually, not only a Treasury system, but actually a very novel voting system that uses all the word salad of cryptography, like from the homomorphic encryptions, zero-knowledge proofs, all of these things. The long and short of it is that it allows anyone who wants ADA to be able to participate in a process to eventually vote on what to fund and what to change. And then once that’s been voted on, we can use the hard fork combinator to be able to update the system.
We also worked with the European Union to develop that system. So, we received a grant from the Horizon 2020 Programme. We worked with Guardtime and IBM researchers. And spent years thinking about, “How do we make these changes in a very graceful way with the simplest software update?”. So, there’s a lot of really novel cool stuff that’s under the hood of Cardano. Now, you had a question about value preservation. I think the key behind value preservation is user utility.
So markets have tripled. Amazon, for example, had its peak in the dotcom boom. It took 11 years for Amazon to get back to that value between 2000 and 2011, but they were a fundamentally different company. So the value of Amazon in 2011 was based upon different fundamentals and foundations. They were an AI company. They were “the everything store”, we had Amazon Web Services, they’d clearly built up a gargantuan user base in Amazon Prime. They basically have their own post office, they had massive warehouses. None of those things were present in 2000. So when you look at ADA, even just from 2017 – when we first hit market — to today, we’re backed by hundreds of thousands of adherents, by more than a dozen companies that actively develop code for Cardano, a governance foundation, and also several commercialization entities. And a lot of projects, and a lot of passion for the site, as well as stake full operators.
So that’s what preserves your value. It’s just: keep growing your community, keep growing your utility, and the markets will go up and down. And [when] bitcoin goes to half a million dollars, even the junkiest of junk coins will probably be in the billions because of a rising tides effect. And you could be like saving children in Sudan and you’d still be in the toilet if bitcoin goes to two thousand dollars because of the falling tides effect as well. And that’s in the short term.
We say, “Okay, well, if we take a cross-section five years in, 10 years in, and 15 years in, and 20 years in — who’s still around? And who has preserved their value and how’s the system grown?”. You have to look to user utility for that. And ADA will take its rightful role as a governance token, a finite resource for computation, and also — a way of sorting out the security of the system. And being able to quantify the security much better way than proof of work does. And from that perspective, I think our prospects are quite good.
Lau: From a utility point of view, how have you seen enterprise using ADA coin, the ADA cryptocurrency?
Hoskinson: Yeah, so for Cardano — as far as adoption — we’re just getting started with that. So we’ve had many conversations, like we worked last year and then 2019 with New Balance, for example, and we did an authentication product Kawhi Leonard’s shoe line, I got to see sneakerheads in L.A. before the lockdown and they were able to verify their sneakers on the blockchain. And we did a lot of pilots with governments in particular. We love GovTech because you can have a huge scale, like millions of people. But, oftentimes you have a more relaxed and intimate relationship, whereas the Fortune 500 procurement chain is a little longer and tougher. And what ends up usually happening is, you work with the science division, but then what they do is they say, “Hey, we’ll just build it in-house,” or something like that because they have the capabilities to do that. Whereas governments will give you a little bit more freedom. And what’s nice is, if the program works, you get a strong barrier to exit. That said, this is the year that we’re going to start pursuing aggressively the Fortune 500. The advantage we have is: we have [Frederik] Gregaard over at the Cardano Foundation. And he used to work at PwC and he really understands that world quite well. And we also — our Chief Commercial Officer, at IOHK — he came from Dell and he understands that world quite well. And, what you usually try to do on that side is to solve a problem with at least a 10X of what they’re doing. In particular, what we’re interested in is when there’s globalization of [the] Fortune 500 into the developing world.
So they look, for example, at markets like Ethiopia, they say, “Well, there’s one hundred and seven million people there. Seventy percent of those people are at or under the age of 30. They’re getting online. They don’t have strong consumer preferences yet.” There’s a lot of illiquid wealth that’s starting to become liquid. Prior to the pandemic, the economy was growing 10 to 15% each year. So, it’s kind of like China in the 1980s, where they were all poor then. But — we all kind of knew that they would be rich later. So if you get in early, you can kind of build brand preferences with them and you can get a rising tides effect in that economy. So, Africa is definitely going to be one of the fastest growing continents throughout the next 20 to 30 years. And so we see a lot of Western companies that want to do business there. The problem is: you have sovereign risk [and] you have lack of law. There still is some endemic corruption and it’s very difficult with payments and other such things. So a Fortune 500 company needs new tools to be able to get into that market and work with those consumers, whether they do it directly or they do it through a subsidiary with appropriate localized branding. And so what we do is, well, we can facilitate that because we’ve been in those jurisdictions, especially Ethiopia, for example, for over three years. So we know the politics, we know the regulations, we already have the government relationships and we know a lot of local businesses. And so you can use blockchain as a great binder, especially when you are buying things in those jurisdictions.
For example, if you’re Starbucks — and you look at coffee, well the CEO says, “Hey, we’re only using fair trade and also environmentally sustainable farming practices.” That’s not just a mandate from above. That’s a big economic change for an economy like Ethiopia, because the way that they grow coffee — it’s kind of the way that your great, great, great, great, great, great-grandfather grew coffee. And his great, great, great, great-grandfather grew coffee. They’re not exactly thinking so much about carbon credits or which fertilizer to use. And, “Do we have equal pay amongst the genders in the people participating here?” They’re just trying to feed their families. And the problem is, if they can’t satisfy that corporate mandate, they actually lose market access. They can no longer sell coffee, to the largest coffee buyer in the world, and they’ll lose that to Indonesia or to Colombia or to another marketplace. So it’s not optional to upgrade. They actually have to upgrade. And so, that’s a situation where you can kind of take care of the Fortune 500 and give them more protections and get them a product that they understand more about. And then at the same time, you can put a completely new system into that economy — that not only covers the supply chain, but also can be: a payment system, an identity system, a voter registration system, a census system, a system for microcredit and microinsurance where they can share crops and then borrow, especially fertilizer vouchers and these things. Improving these things or infrastructure vouchers or like a mechanization of farms and so forth.
And that alone can bring billions of dollars. And create billions of dollars of wealth, but then also allows Starbucks to continue purchasing coffee in that particular jurisdiction. So these types of public private partnerships and situations where there’s global consumption of a good or service — I think that’s probably the most effective way of bringing the Fortune 500 into the cryptocurrency space. What’s probably, in my view, the least effective way of doing that is to try to replicate what we saw with the failures of Ethereum in the early days. Or they would go to, like an IBM or Samsung, doing a project in-depth and say, “Hey, we’re doing a IoT, this is so exciting.” And then, after a year of working with them, IBM says, “Yeah, yeah, you know, thank you for all that knowledge. We’re going to go create [Hyperledger] Fabric now and go and do that.” So, you see that a lot. Where you can have a knowledge transfer, you can spend a lot of time, but then when you actually get to the point where you want to build something — because these companies are so large and they have lots of engineers — what they tend to do is they tend to just build something in-house. If anything, because it better fits their politics and it better fits their product lines that they already have or what they can…
Lau: But doesn’t that erode your value then? With Cardano, and Shelley, and ADA, I mean…
Hoskinson : No, because…
Lau: If people are doing it in-house, why would they need you?
Hoskinson : Yeah, and that’s what I’m saying. That’s why you have to blend it with added value, from domain expertise or regional access, or government partnerships, because it’s actually more cost effective and lower risk to go with the local solution, especially when the local solution is mandated. As you go to Ethiopia or Uganda, if you go into like, New York or San Francisco or something like that, you’re trying to play this into the European market or the U.S. market. There, you tend to have a problem where either a bigger contract will inevitably displace you — because politically it’s easier or more palatable — or the company will just simply do it in-house. So I’m a bit skeptical in the Western markets, but I’m actually incredibly optimistic in the developing markets. But that’s just one dimension of creating value for your system.
You know, what I care much more about is: economic identity for the 3 billion people who don’t have it. And I think that’s actually far more profitable for everyone involved. Why? Because, just in Africa alone, there’s 5.6 trillion dollars of illiquid wealth that you can unlock. And, if you do so, then that wealth will get globalized. And the first platform to do that will be worth more, in my view, than Bitcoin. Just one quick example. In Ethiopia, that cultural transformation agency, which is responsible for 15 million smallholder farmers — every year, gives fertilizer vouchers to those farmers. Now, these are sovereign-backed and they have a 90% plus repayment rate and the interest rates can be 10 to 15%.
So, there’s just not many financial products in the Western world that have a sovereign guarantee behind them or an NGO guarantee that are at 90% repayment and a 15% interest rate. In the age of negative interest rates, you don’t see lots of products like that.
The problem with these products is they’re very illiquid and they’re small in the individual sense. But if you were to make them liquid — and aggregate them like an MBS (mortgage-backed security) or a CDO (collateralized debt obligation), then you suddenly could have hundreds of millions of dollars of these vouchers and sell them as financial products in the Western world.
It’s an example of a win-win because that would actually bring direct foreign investment. So you get more vouchers and more capital. So more farmers are getting upgraded. But you still have the same basic premise there that there’s real substance behind. So this is the promise that you can create, bring to market. And that’s the kind of stuff that gets me excited because from the farmer’s perspective, they have access to more capital, higher quality capital, and they can go from just fertilizer to mechanization. And then from the Western world’s perspective, they get new products that they previously could never imagine selling — that are significantly better in quality and returns than the products they see right now in the Western world.
Lau: I’m hearing an answer to the question that I actually wanted to ask you, which is… Shelley came last year. The market has advanced so much, Ethereum being one of them in the enterprise space. You talk about Fortune 500, they’re much more familiar and might already participate with different protocols. And so, how do you bridge this market gap or delay getting into the market, when you have adoption that is increasing every day from the Fortune 500s? But what I think I heard is that you’re focusing on Africa, on EMEA, and that’s going to be the differentiator.
Hoskinson : Yeah, it’s kind of funny. It’s like people saying in 2006, “God, how are we going to compete with Palm and BlackBerry and Nokia? These guys there are so incredibly entrenched. Or like in 2001, how are you going to compete with Microsoft Windows? I mean, this is a monopoly, 98% market share.”
You win by changing the game and you win by doing new things that haven’t been done before. And people get wowed by those things. And so, if it’s a game of, “Well, how do we poach market share from IBM, and Microsoft, and Amazon, or Google or from incumbents like Ethereum?” you’re really not going to win there — because there’s unfair regulatory network advantages. Even Ethereum — it’s daunting if they were to compete against Microsoft, because, let’s say Microsoft wakes up tomorrow saying, “Yeah, we’re going to do ‘Windows coin’ and put it into every operating system.” Well, you have two, three billion customers then. And you have that right there. I mean, we saw that network effect with Netscape versus Internet Explorer, where you basically had an inferior product dominate and crush a superior product — simply just because of the platform monopoly. And the same for Samsung, and the same for Apple, and the same for Google. And as soon as the regulations recede enough, the FAANGs will get involved in the cryptocurrency space. We already saw Facebook flirting with it. And they’re just trying to figure out a path that the regulators are okay with.
Lau: And they’ve got two and a half billion right there.
Hoskinson: Exactly. And so,why play that game? You’re going to lose that game just like Apple would have been crushed if they were trying to commoditize the iPhone and fight Nokia. Because that company already had such distribution.
Instead, what they did is — they created an experience and something new that never had really been done before. And as a consequence, they redefined the market around that. So, when we looked at DeFi, for example, DeFi’s a toy. We have all these great apps that are out there and they’re certainly growing in market cap. But does anybody really need peer-to-peer lending or peer-to-peer insurance if they live in New York or if they live in D.C.? Not really. Does anybody really need a payment service if they already have PayPal and all these other things? Not really. And, “Oh, we’ll have such lower fees!” Like, no. First, that’s not true with Ethereum. But then second, even if it was, it’s like there’s already brand loyalty, regulation, consumer preferences and network effect. Good luck beating that. But then when you go for a place like Uganda or Tanzania, they have them….
Lau: Emerging markets, developing markets…
Hoskinson : Exactly. And this is a situation where 70% of the population is at or under the age of 30 and they’re all going to be online in the next five or 10 years. And they don’t really like their local currencies, their local banking infrastructure. In many cases, they’re trying to evade capital controls, and they’re used to digital currencies. They have M-Pesa and these other things. So that market’s primed, it’s ready, and there’s a billion plus consumers in it. And there’s 5.6 trillion dollars in illiquid wealth. So when I talk about DeFi, that’s the market. And so when people say, “Well, where should I deploy my DeFi application? Should I deploy it where it’s just going to yield farmers and kids living in their mom’s basement, trading at 25 years old who don’t need this?”
Or people discovering a platform that has 30 million, 40 million customers on it who are primed and ready to go to create real demand growth for your application. So that’s how you really do achieve a network effect, and you say, “Well, how do you attract the Fortune 500? You do it by saying, “Hey, would you like access to the 100 million customers on my platform who now have money and would like to consume your products?” Well, of course. And so, that’s a much easier conversation than going and trying to do a time and materials contract as an easier onboard to my blockchain system. And oh, and by the way, “Buy my token too!” It doesn’t work that way with the Fortune 500 world.
Lau: How does interoperability fit into the strategy, as well?
Hoskinson: So interoperability, there’s different ways of looking at it. But succinctly, the idea would be that, usually you’re either moving information, users or value between systems.
So users are just that, “I would like to switch from one experience to another experience and somehow have a seamlessness about that.” So, for example, if you’re on your cell phone and then you want to go to your desktop computer, that Microsoft continuum, they look at, “How do you go from your phone to your Windows device and back and be able move files between them and experiences between them?” Like if you were working on a Word document on your phone, you can just somehow start working on that document on your computer. So, that’s an example of interoperability, where you have a user go from one system to another system. Information are like Oracles, these things.
All these things that happen outside of your network, like, who won the Super Bowl, or who won the election or these things. Or the price of bitcoin relative to the U.S. dollar, for example. You need to inject that information into the system. Okay, so you have to move it around all these different blockchains, you have to move states and foreign information, and then finally, you have value. Okay, this is what we usually think of when we talk about sidechains or these other things. And that’s just, basically, say I have a token living in one system and I want to move it to another system. Okay, so now we have Wrapped Bitcoin, or maybe I have a voting token. I’m going to use this and it gives me voting rights in a particular network. So the problem we have in our industry right now is we really haven’t had our WiFi moment. The miracle of WiFi is — it works everywhere.
So you can be in North Korea and the Wi-Fi will actually work the same way as it does in the United States, or Iran or Israel. Those four countries will never collectively agree on anything. Yet, your WiFi scanner will be the same in all four countries.
Okay, so that tells you that they’re interoperable, but we don’t have that in the cryptocurrency space right now. There’s many different systems, we have key-based systems, proof-of-work, proof-of-stake-based systems and so forth. Each and every one of them, they carry different nuances about how to prove two things. First, when you move a token — that token exists. So it’s a real token.
And second, that the token has not been double spent. So how do you avoid, for example, when you move your Bitcoin to Litecoin — also moving that Bitcoin to Dash, or to another system like Ethereum at the same time? So you’ve actually duplicated it. It’s a legitimate token, but you’ve doubled it. So you need a proof of nonexistence of a double spend and proof of existence of that token. Now, the naïve way of solving this is for everybody on the receiving chain to have a copy of the other blockchain. But that doesn’t scale so well. No one can preserve the state of all these different systems. So ideally, you’d like succinct proofs to do that.
So they basically — only a few kilobytes of data that usually goes with the asset, and then that alone is sufficient for you to trustlessly verify that the token is valid or not. So there’s a whole field of cryptography that’s emerging in our industry to build succinct proofs there.
There are things like Halo for recursive SNARKS [succinct non-interactive arguments of knowledge]. We have things like NIPoPoWs [non-interactive proofs of proof of work] that we’ve invented in-house with Dionysis Zindros and Aggelos Kiayias. And there’s dozens of other protocols. Some require trust in third parties, some do not. It just depends on facts and circumstances. Some work only with proof of work systems. Some could potentially work with all systems, some work with only proof of stake systems. So it’s a very nuanced field and we haven’t really gotten to a standard yet for all systems. And that’s something that will come over the next five or 10 years.
Lau: Yeah, and I think that’s really the exciting part of it, because it really could be the next stage of growth for the entire industry. And I note that Cardano is working on interoperability with Litecoin. Litecoin, as we know, is a fork from the Bitcoin blockchain. So in terms of its interoperability, with Cardno and Shelley and all of these new ways of using it, what do you think it means for other projects that follow similar code basics as Bitcoin’s blockchain gene?
Hoskinson : That’s the beauty of working with something like Litecoin, because it’s a descendant of Bitcoin. If it works with Litecoin, it’s probably going to work with Bitcoin, or Dash, or any of these other guys, and that’s great. And so NIPoPoWs is the particular primitive that we’re looking at there, we’ll write a LIP — a “Litecoin improvement proposal” — and what’s really cool about it is that they gain a lot. They don’t give up anything. So normally in the world you have tradeoffs. For example, you take the medicine — like chemotherapy. It’ll cure your cancer, but your hair falls out, and you feel like crap, and maybe it takes a few years off your life. And so, usually you have to accept some form of tradeoff. But NIPoPoWs are cool because they give you an additional data structure, but they don’t diminish the security of the system at all. And they also give you great light client support at the same time. So it’s one of those rare gifts, where science has figured out a clever hack that you get a lot for free. And it’s so uncommon when those things come. And when they come, you treasure them like your treasured family members or something.
So it’s going to be really cool to see NIPoPoWs, if we can get it adopted in Litecoin, basically using that as the proving ground. And then we anticipate that we’ll see rapid adoption amongst other systems like Bitcoin Cash and other reasonably capped cryptocurrencies. The problem is that getting it into Bitcoin is going to be quite difficult. There’s some backdoor ways of doing that with lighter than hard forks — they’re called velvet forks, where you just get some miners to kind of inject these proofs into the system. You don’t really have to change your consensus rules or fork anything. And just by having a few miners do that, you can use that structure to still do sidechains. So it’s a very easy way of getting support.
And some are doing it, but they actually get it at the protocol level. And install it, and make it part of the system and mandatory for miners to do. I don’t think we’ll see that in Bitcoin for five or 10 years, even though it’s a great idea and it’s wonderful. No matter what great ideas you have, the system is simply too big and it’s an anarchistic governance system. So it’s almost impossible to get enough consensus for that system to converge and evolve to the next level. So I’m very optimistic that we’ll see coins like Litecoin, at some point adopt these types of things, if not this year than in the coming years. I’m less than optimistic that we’ll see that in Bitcoin, and that’s OK.
There are other ways that we can kind of sneak it in, and that will probably be good enough. And you can also introduce trusted third parties, if necessary, to ensure that interoperability. It’s important to point out that that primitive [NIPoPoWs] only works with proof of work systems. And so, if you look at systems like Polkadot, if you look at a system like EOS, a system like Tezos or Cardano, you actually need fundamentally different cryptography for these types of things. And then, there’s even other systems that use things like recursive SNARKs, which are much, much more complex, and they use much, much heavier mathematics. And that’s still an emerging field. There’s projects like Halo, for example, and, most recently out of Stanford — from Dan Boneh, Halo Infinite. They have a lot of promise and they do a lot more. For example, you’ll always have full node security with light clients if recursive SNARKs work. But again, it requires different assumptions, a little bit more trust in mathematics and a lot heavier implementations. And, it’s a lot slower to build and verify these proofs than they would a normal transaction.
So given that, I think we’re still a few years out for that type of technology to grow. But I’m very optimistic that it will actually become dominant technology within this decade.
Lau: One of one of the things that is emerging technology as well — is quantum computing and quantum technology. Do you think that that could actually be disruptive to all the work that we’re seeing in blockchain?
Hoskinson : Yeah, I think quantum computing will be an issue in the 2030s. I don’t think it’s going to be quite an issue in the 2020s. And so there’s a natural question, why are governments so paranoid about it? And the issue governments have is that — adversaries archive data. So the United States monitors all of China’s traffic, and Russia monitors all the United States’s traffic, and they both monitor all of Russia’s traffic and vice versa. And they archive it. Even though it’s encrypted and they can’t do anything with it, they’re waiting for a breakthrough in mathematics or computation, and then eventually they can decrypt those communications. So when quantum computers come, all that archive — PGP, emails and all that archived SSL stuff — they’ll be able to break that and then suddenly they can read all the classified information that’s been transmitted from each other. So, what we’d want to do is, you would like to upgrade your cryptography and start using post-quantum crypto — so cryptography that’s immune to quantum computers — as soon as possible. Because it mitigates the risk of that archived, classified information. So something in 2020 could be harmful in 2035. Something in, like 1960, is probably not so harmful to be revealed in 2035. Like, for example, you know what Kennedy’s suit size was, or the chairman of the ATP’s suit was in 1961, is an interesting historical footnote, but it’s not a national security risk.
But military systems tend to be in circulation for decades. We’re still using the Warthog, we’re still using them on M1 Abrams, those things.
So if those schematics from 2000 are leaked in 2035, it would give you a lot of information on how to defeat that weapon system, for example. And spies, they might work for 30 years for your agency. So, if they were transmitting things 15 years ago, you’d be able to use that to dox assets that if you have an economy. So NIST [National Institute of Standards and Technology] is working diligently to try to upgrade all of America’s cryptography, through the same process as they use to create AES and these other things.
And most of this decade will be spent getting the right post-quantum crypto. You have all kinds of things, like supersingular isogeny, if you look at [elliptical] curve crypto, you have hash-based crypto, you have lattice-based crypto, which is my favorite because the math is so beautiful. But each and every one of them, they carry tradeoffs. One of the reasons why the cryptocurrency space has not adopted these primitives yet is cost and performance. When you look at the signature sizes, when you look at the validation times of those quantum signatures, they tend to be ten to one hundred times larger. And up to a thousand times slower than elliptic curve crypto. So that tradeoff is just not what we need it to be. And then the problem is a lot of these cool things — like zero-knowledge proofs — they make assumptions that don’t work so well with quantum computers.
Some do not. Like for example, StarkWare’s STARKS [zero-knowledge, trustless, succinct arguments of knowledge] are quantum resistant. But most of the SNARKS on market, like Sonic’s and these other things, like Zcash’s primitives or Monero’s, bulletproofs, they don’t work with quantum computers. The other thing is you have to model all of your things with something called a quantum adversary to prove that quantum computers can break them. It’s going to take five or ten years of academic research to kill those tradeoffs.
And the good news is that — we will have less of an issue than the governments now, because once we operate the post-quantum systems, what we’ll do is — we just take a hash of the blockchain. And then even if you can reverse transactions, for example, from the legacy part of the chain, it won’t match the checkpoint that was created between the classical system and the post-quantum system. So in practice, I don’t think quantum computers are going to cause much harm to our industry. They’re going to cause huge problems to Internet communications, they’re going to cause huge harm to nation states that are trying to preserve secrets. And certainly a lot of archived encrypted data can be reversed. Also, Satoshi’s private keys can be broken so people can start signing with Satoshi’s PGP key, if they wanted to. So that kind of stuff will happen. But actual irreversible transactions, and stealing of user funds, and these things — in practice, a competent blockchain architect can prevent that from happening.
Lau: Ok, that’s actually really great insight, but in terms of being an oracle as you are, just to understand that you’ve got to start now — and governments but also corporates. So how to really protect corporate knowledge and databases?
I want to ask you about WhatsApp. You know, privacy is such a huge issue, especially for users. And Facebook just announced that it will migrate all the data, including our contacts, our list — be used in an enterprise way for Facebook.
That’s really causing a ripple of concern, really amongst users around the world. What is the thinking from your perspective on privacy, on blockchain, on how individuals can protect essentially our own conversations and our own private thoughts?
Hoskinson : Well, there’s the old adage, “If the product is free, you are the product.” So you get WhatsApp for free, you get Facebook for free, Google for free. It’s not free. Basically, you’re going to be data-mined. And data is the new oil. And there’s a great book from Soshana Zuboff, “Surveillance Capitalism.” The book really goes into detail about how that economy has emerged and the consequences of that. And there’s not much you can do (with these large services) to shield yourself because data collection occurs at almost every level of the infrastructure. Windows 10 spies on you, your cell phone spies on you, Facebook spies on you, your search engine spies on you. You’re leaking all the time, all kinds of data from your preferences to your location to consumer information — in some cases, very private information, like you’re age, your sexual preference, these types of things. So this is certainly the challenge of our time. Now, some of these challenges are going to be resolved through global standards. Some of these will be resolved through laws like, for example, the right to be forgotten and GDPR — these types of things, these are preliminary attempts to try to rein in these things a bit. And so there’s a lot of questions usually, come about in, “How do consumers protect themselves?” And you can buy computers like a System76 laptop that’s got an open source firmware and it uses a nice spyware-free form of Linux. There’s certainly things you can do there. The problem is that’s not a good user experience for most people. And then, there are certain radicals like Richard Stallman, for example, who only uses free software and encrypts everything. And you can do that — but again, the vast majority of consumers just simply don’t have the skills or aren’t willing to make the usability tradeoffs. Myself included. I’m the CEO of a company that literally creates cryptographic protocol. I still have an Android phone. A Samsung phone. I use Note. And I’m fully aware that my Google accounts spies on me. I’m fully aware that my Facebook page spies on me and so forth, and I accept that. And I understand that. So what I do is I have segregated communication. So for very sensitive things, I have environments that I can go into and those environments leak significantly less information than my standard usability environment. I segregate that.
There are apps like Signal, for example, Elon Musk was recently pushing that. But I think that’s kind of a false hope. Yeah, you’re encrypting on the wire so the transmission of the information is not problematic. But remember, whenever you send a message to people, it’s not just about your security standards. It’s also about the recipient’s security standards.
So, for example, if I sent my mother (who’s really bad with computers) anything at all, she’s probably protecting that information with a six-digit password, whereas I have a 120-digit password generated with a password generator and two-factor authentication. She’s got a rickety door behind that and it’s the same message on both sides.
So even though it’s encrypted from transit, she has a decrypted version of that. It’s like Benjamin Franklin said, the best way of keeping a secret amongst two people is for one of them to be dead.
The reality is that it’s very difficult in practice, in information security, to preserve your privacy and information unless all members involved are well-educated and have great platforms to preserve that.
Now, overall, the IT sector is getting better. Samsung has Knox now. Now, we have more proliferation of encrypted email. We have PGP encrypted emails, we have the Signal Protocol, which is both a product and an open protocol. We’re starting to see a lot more usage of end-to-end encryption. We’re seeing a lot more usage of one-time [pad encryption], perfect word secrecy, these types of things. That’s great. And that’s good to see that leak in. Mostly because nation states are requesting it.
When Americans say something, they’d like to know that it’s protected against eavesdroppers abroad. But the reality is that this is the challenge of the 21st century and there’s just no way that we as consumers can solve it completely. And even if we think we have, there are also hardware back doors. It’s very important to understand that there’s very good evidence that Intel chips, Apple chips, ARM [architecture] chips — probably have some form of a hardware backdoor in them that nation states can use or the companies themselves can use to breach encrypted enclaves and to dox your systems. And that’s been around for at least a decade, if not longer. So, the problem with the hardware backdoor is that it’s like a skeleton key. No matter how good your digital hygiene is, how good your software is, have a FOG [Project] System76 laptop and all these great things – but then if the Intel chip that’s inside of that has a problem with it, I’ve lost all security (if Intel decides that I’ve lost all security). And the problem is, unless you’re going to the beach and scooping the sand with your own cup and making your own semiconductors, there’s no real good way to — I stole that one from This Week in Security [Security Now!] with Steve Gibson. He also says that you have to use your own sand to make your own cells because you’re not really going to guarantee that privacy.
So you have to ask yourself, who’s the adversary? Are you protecting yourself against a cybercriminal? Organized crime? And if you’re Snowden trying to avoid nation-states, you’re going to have a dreary, very paranoid life. Just as one example, there’s a brilliant academic in Israel named Mordechai Guri, and his whole expertise is in private data exfiltration. So basically what he does is, he takes things that are supposed to be like super secure and finds a way to break them. Air gap systems are his expertise. So an air-gapped system is a system that’s not connected to the internet.
So you’d like to believe if there’s no internet connection, a remote hacker can’t break into it, because there’s no physical connection there. Well, he has invented some of the coolest techniques. like one way is, if he can get a Trojan into your computer, he could turn your ram into a Wi-Fi transmitter. They call AirFi or RamFi, I think, and then it actually can basically broadcast at a low bitrate, everything that’s in memory. They developed a microphone that you could take to a coffee shop and they can listen to your laptop operate. And just by the changes of frequency of the processor, you can actually steal a PGP key (an encryption key) just by listening to your processor with a microphone. The guy does amazing work and that’s public work. The intelligence agencies are like decades ahead of that. They have so many great capabilities. They can listen to you through light bulbs. It’s crazy what capabilities they have. So you have these normal consumers [that] are like, “I’m going to protect myself. I’m going to be a secret squirrel and do all these things.” It’s like, “you guys don’t know what you’re up against.”
This is a much more complicated thing. So you need to protect yourself against reasonable adversaries like cybercriminals and these things and create good security. I even created a lecture, an hour and a half long lecture to kind of explain that [digital] hygiene can prevent you from being hacked by most people. You also have to incubate yourself from social engineering. It’s been tremendously difficult. Most hackers, like the recent Twitter hack that got into Bill Gates’s account, Musk’s account, that was actually not a brilliant hack where they figured out how to break encryption or something. They just impersonated employees and used that impersonation to basically convince people to give them access to systems. So the systems were secure. It was the human that was the main point and 90% of the time that’s what happens. It’s that social engineering component comes in. So you have to inoculate yourself from social engineering and then you also have to use the right software and hardware. So it’s very difficult in practice to actually solve.
Lau: Living in the 21st century is…. I mean, you’ve just schooled us all on — once upon a time we warned the teens, whatever you put on Facebook, it’s never going to go away. And essentially, what you’re telling us right now is whatever we are thinking that we’re doing in the privacy of our own home and in private texts, I mean, at some point it’s all probably going to be out there. So I leave [that].
I’m going to welcome you to this part of the interview, which is Forkast Forecasts, your top three predictions for 2021. What do you see is going to be the most important developments in the blockchain industry, in technology, that we can anticipate coming down the pipeline for 2021. And I’d also love to hear — from Cardano’s point of view — what developments we can see from you guys.
Hoskinson : Well, I think the single most important thing — I’m a little biased because I live in the United States and I’m based in Colorado. And so obviously, I think a lot about U.S. policy and where the United States is going. But I think the single biggest development for our industry is going to be what Janet Yellen does. So now that the Democrats have taken the Senate, she will be the next Treasury secretary. And basically, she’s going to have to make the decisions of what is FinCen going to do, what is the SEC going to do, what is the CFTC going to do, and we’ve kind of gotten to the ‘put up or shut up’ phase of cryptocurrency. So for a long time it was, “Well, we’ll let it mature and evolve, and we’ll give them a jubilee, and a grace period. We’ll go after people who kind of rock the boat too much or obvious fraud, but we’re not going to get too hands on.”
And recently, Secretary Mnuchin, he kind of dropped a whole bunch of regulations on the way out. For example, the Treasury Department’s interpretation of the FATF [Financial Action Task Force] regulations, the travel rule compliance. So now we don’t have this idea of anonymous wallets anymore. So, these kinds of things are coming and Yellen is going to be the secretary that, during her tenure, is going to make those decisions, either directly or indirectly. Much of that policy may be set in 2021 or 2022. And this is going to be everything from stablecoin regulation, to custodial standards, to how they’re going to regulate DeFi (or not regulate DeFi), what level of KYC is required through everything, what level of privacy you have to have a level of transparency you have to have, to what consumer protections are going to be applied, when and how the S.E.C. is allowed to get involved? The Ripple Test is likely going to come out because of this litigation with Ripple. It’s either going to expand Howey [SEC security definition] or contract Howey based upon how that litigation goes. And so, that is probably going to be a big deal because whenever that gets said, the European Union will likely follow somewhat similar regulations. And then the whole world will either be equivalent or contrasting, but it’s going to set the global regulatory standard. And then, China is obviously setting their own standards. So there will be this U.S. standard, these Chinese standards. And they’re going to try to sort all that out. So no matter what I do, I think Yellen is probably going to have far more impact than Vitalik or myself or any other people in the industry. If it’s done in the right way, I think she’s the person who decides whether we have a hundred-thousand-dollar bitcoin or thousand-dollar bitcoin, because if she, for example, says, “Yeah, institutional investors, everything’s fine.” Well, that’s an obvious path to diversify assets.
The money managers simply have too much money. If you’re the sovereign wealth fund of Norway, you have a trillion and a half dollars. Blackrock, you have more. How the hell do you get 6% returns, 9% returns, when they tell you can no longer invest in petrochemicals or — less than that, it’s got to be sustainable. You got to do it somewhere. So there a lot of them are saying, “Well we’ll throw a percentage point into crypto. What’s one percent of a trillion and a half dollars? That’s not….”
Lau: That’s a lot.
Hoskinson: Yeah, that’s a big deal.
Lau: It’s a big deal!
Hoskinson: So, collectively, that could mean hundreds of billions of dollars of value flowing into our industry. The other thing is, there’s demographic changes that are creating floodgates for our industry as well. They’re lowering floodgates. In particular, if you poll anyone under the age of 30 in the United States, they’re statistically more likely to hold a cryptocurrency than a stock or bond. Or gold. So the young are buying our stuff in our industry and they’re not buying the old stuff. So there’s a movement of wealth there. So, the U.S. government’s going to have to make some decisions of whether to speed that up, slow that down, keep it at the same pace. That’s the first major thing I think is going to affirm our industry.
Second, there’s a lot of technology that’s forcing a conversation, and the great movement of value — from proof-of-work to proof-of-stake is occurring. Currently, the leader here is Ethereum with ETH2.0. And obviously, we’re hellions on their heels nipping at them. You know I’m trying to be the Facebook to their MySpace and we’ll see what happens there. But, all of us collectively, whether you’re Polkadot, or EOS, or Tezos, or Cardano — we’re trying to say that proof of stake is much better than proof of work. At least the Bitcoin flavor of proof of work. And ETH2.0 is the 800-pound gorilla that’s really pushing that. So what’s happening is a lot of funds are saying, “Hey, there’s going to be a reallocation of the distribution of wealth.” We call it Bitcoin dominance (from proof of work to something else) and they’re starting to bet on their portfolio. So that trend is going to get really interesting. And it’s going to open up a lot of regulatory questions and tax questions about the operation of proof-of-stake that are distinctly different from proof-of-work. And this is definitely the year we’re going to see that occur en masse and this is the year that we’re going to see that heating up quite a bit.
And then finally, this is the year where people are, going to, in my view, start really talking about some of the uncomfortable truths of blockchain systems. The cult of Satoshi — you know, I started with Bitcoin, I love Bitcoin, I think it’s an amazing thing, but it’s a replicated system.
What that effectively means is, for it to work. Everybody has to know each other’s stuff. Everybody, when you’re running a full node, has the same data. That works when you have a gigabyte [sized] blockchain. That doesn’t work when you have a petabyte [sized] blockchain, an exabyte blockchain. So if we’re really talking about use and adoption, you can’t have a system where everybody’s equal and everybody stores the same data — and everybody has access to a supercomputer.
Lau: It’s physically impossible.
Hoskinson : It’s physically impossible. So, you’ll have to go from a homogeneous system where everybody’s the same to a heterogeneous system. And you also have to start discussing some uncomfortable truths, like, maybe we don’t store everything forever, especially with smart contracts. Let’s say you’re doing a gambling smart contract. Is the fact that I got two pairs on the third hand of poker in a game I played seven years ago something that we should preserve for the rest of time? Probably not. But then, you’re violating Satoshi’s principles. You’re now saying we go from immutable and everything’s preserved forever to — we’re going to prove things and throw things away. So data is going to become an economic agent at some point and you’re going to have to pay rent for it. And if you don’t, at some point, it’s going to have to go away. But, how to organize that and how to sort that out is going to be quite difficult.
So the movement from replicated to distributed — where we all have different views of the system and we don’t all store the same things and consume the same resources, whether it be computation, or data, or network resources. There’s been a lot of discussion for a long time, with things like IPFS [InterPlanetary File System] and these things about how to do that. But we haven’t quite gotten there. And we’re getting to a point where adoption is now forcing that conversation. Ethereum alone is in the many terabytes. It’s getting just too expensive to do things and they’re already sharding. And when you start sharding, you now have availability problems because not everybody has the same view. Okay, so that conversation is really starting to get active. And we’re certainly a participant in it. There are certain things you can do to kind of offset it. For example, proof-of-stake usually reduces hierarchy by having stake pools and these other things. So, you have these supercomputers that are always on and they can form the backbone of your system. And then, everybody else may be a light client, but these architectures are being rapidly explored. And this is the year where I think those inconvenient truths are going to translate into progress and then eventually adoption. And once that gets settled, these systems are going to be significantly more competitive than Bitcoin or other such things.
And finally, there has to be some sort of blending of identity with all of this. So for a long time, we always acknowledge, yeah, we need identity and we haven’t created standards in our industry, like the W3C [World Wide Web Consortium] created a DID standard, a decentralized identifier. Great work from Chris Allen and all these other guys. And Microsoft uses it. We’re a member of the DIF, the Digital Identity Foundation with Microsoft, all these other companies, I think they’re 35 of them, now. We have an identity product called PRISM. That product is being used, in production, in the country of Georgia for academic credentials. And we’re negotiating multi-million user deals with it throughout Africa. So that’s an identity unit and it’s blockchain agnostic. So we talked about interoperability – well, when you talk about movement of users, you’re actually talking about the movement of identity between these types of systems.
OK, so how do you do that? How do you sort that out? How are these things not only created but authenticated? And then also how do you revoke and transfer them? And how do you extend them and so forth? Super difficult question. And then what happens when you start talking about non-human identity? [What about] intelligent agents like dApps and DAOs [Decentralized Autonomous Organizations] and these things? Smart contracts that live on the chain? You want to identify an escrow contract, you want to identify a DAO, you want to identify an application like a DEX [Decentralized Exchange], for example?
It needs a unique identifier because that thing is going to start talking to other machines on the chain. So for a long time we’ve been conceptualizing it. Mike Kearns is talking about it. STOC [Symposium on Theory of Computing] Festival, I think in 2012. So it’s been a long time coming. But this is the year where it’s getting big because the regulators are starting to demand it.
They’re starting to say, “Hey, you can no longer withdraw your Binance account to just any old wallet, it has to be a KYC wallet.” OK, well, what does that actually mean? How do we actually see that? How do you actually know I own it? How do I prove I invested in it and so forth? So that’s the other corollary — the breaking of the Satoshi’s principle. That and this concept of fungibility, we’re going from fungible things to non-fungible things in that not all tokens are created equally. In fact, we’re even seeing that in Bitcoin, with newly mined coins versus older coins.
There’s actually a premium on newly mined coins because they have no transaction history behind them. So they’ve never touched Iran, they’ve never touched North Korea, they’ve never touched sanctioned countries and so forth. So certain firms are willing to pay a little bit more money for newly minted bitcoins…
Lau: Right, that’s a great point.
Hoskinson: Right. Because there’s no de minimis clause in money laundering or terrorist financing. So they’re the same assets, but the history is relevant so you actually breach fungibility and some more of that is going to come and become much more pervasive ways.
Lau: Yeah, and you’re clear of liability, and the long reach of Uncle Sam. But wow! Thank you for a brilliant, expansive, and broad conversation about that.
I think you’ve really enlightened a lot of people about the things that we didn’t think about. That as we go from theory (Satoshi) to practicality — and where technology is taking all of us. Charles Hoskinson, always a pleasure to see you. Thank you so much for joining us.
Hoskinson : This was a lot of fun. Thank you for inviting me on.
Lau: And thank you, everyone, for watching this latest episode of Word on the Block. I’m Angie Lau, Forkast.News Editor-in-Chief. Until the next time.