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Speaker 1

00:00

The following is a conversation with Vitalik Buterin, co-creator of and author of the white paper that launched Ethereum and Ether, which is a cryptocurrency that is currently the second largest digital currency after Bitcoin. Ethereum has a lot of interesting technical ideas that are defining the future of blockchain technology. And Vitalik is 1 of the most brilliant people innovating in the space today. Unlike Satoshi Nakamoto, the unknown person or group that created Bitcoin, Vitalik is very well known and at a young age is thrust into the limelight as 1 of the main faces of the technology that may redefine the nature of money and all forms of digital transactions in the 21st century.

Speaker 1

00:50

This is the Artificial Intelligence Podcast. If you enjoy it, subscribe on YouTube, review it with 5 stars on Apple Podcast, support it on Patreon, or simply connect with me on Twitter, at Lex Friedman, spelled F-R-I-D-M-A-N. As usual, I'll do 1 or 2 minutes of ads now and never any ads in the middle that can break the flow of the conversation. I hope that works for you and doesn't hurt the listening experience.

Speaker 1

01:17

Quick summary of the ads. 2 sponsors, Masterclass and ExpressVPN. Please consider supporting the podcast by signing up to Masterclass at masterclass.com slash Lex and getting ExpressVPN at expressvpn.com slash LexPod. This show is sponsored by Masterclass.

Speaker 1

01:41

Sign up at masterclass.com slash Lex to get a discount and to support this podcast. When I first heard about Masterclass, I honestly thought it was too good to be true. For $180 a year, you get an all access pass to watch courses from experts at the top of their field. To list some of my favorites, Chris Hadfield on space exploration, Neil deGrasse Tyson on scientific thinking and communication, Will Wright, the creator of Sim City and Sims on game design.

Speaker 1

02:14

I love that game. Jane Goodall on conservation, Carlos Santana, 1 of my favorite guitarists on guitar, Gary Kasparov on chess, obviously I'm Russian, I love Gary. Daniel Negrano on poker, 1 of my favorite poker players, also Phil Ivey gives a course as well, and many, many more. Chris Hadfield explaining how rockets work and the experience of being launched into space alone is worth the money.

Speaker 1

02:43

By way of advice for me, The key is not to be overwhelmed by the abundance of choice. Pick 3 courses you want to complete. Watch each all the way through from start to finish. It's not that long, but it's an experience that will stick with you for a long time, I promise.

Speaker 1

02:58

It's easily worth the money. You can watch it on basically any device. Once again, sign up at masterclass.com slash Lex to get a discount and to support this podcast. This show is sponsored by ExpressVPN.

Speaker 1

03:13

Download it at expressvpn.com slash LexPod to get a discount and to support this podcast. I've been using ExpressVPN for many years. I honestly love it. It's easy to use, press the big power on button and your privacy is protected.

Speaker 1

03:30

And if you like, you can make it look like your location is anywhere else in the world. I might be in Boston now, but I can make it look like I'm in New York, London, Paris, or anywhere else. This has a large number of obvious benefits. For example, certainly it allows you to access international versions of streaming websites like the Japanese version of Netflix or the UK version of Hulu.

Speaker 1

03:55

As you probably know, I was born in the Soviet Union, so sadly, given my roots and appreciation of Russian history and culture, my website and the website for this podcast is blocked in Russia. So this is another example of where you can use ExpressVPN to access sites like the podcast that are not accessible in your country. ExpressVPN works on any device you can imagine. I use it on Linux, shout out to Ubuntu, Windows, Android, but it's available everywhere else too.

Speaker 1

04:29

Once again, Download it at expressvpn.com slash LexPod to get a discount and to support this podcast. And now, here's my conversation with Vitalik Buterin. So before we talk about the fundamental ideas behind Ethereum and

Speaker 2

04:47

cryptocurrency, Perhaps it'd be nice to talk about the origin story of Bitcoin and the mystery of Satoshi Nakamoto. You gave a talk that started with sort of asking the question, what did Satoshi Nakamoto actually invent? Maybe you could say, who is Satoshi Nakamoto and what did he invent?

Speaker 3

05:10

Sure. So Satoshi Nakamoto is the name by which we know the person who originally came up with Bitcoin. So the reason why I say the name by which we know is that this is an anonymous fellow who has shown himself to us only over the internet, just by first publishing the white paper for Bitcoin, then releasing the original source code for Bitcoin, and then talking to the very early Bitcoin community on Bitcoin forums and interacting with them and helping the project along for a couple of years. And then at some point in late 2010 to early 2011, he disappeared.

Speaker 3

05:57

So Bitcoin is a fairly unique project in how it has this kind of mythical, kind of quasi-godlike founder who just kind of popped in, did the thing, and then it disappeared, and we've somehow just never heard from him again.

Speaker 2

06:13

So in 2008, So the white paper was the first, do you know if the white paper was the first time the name would actually appear, Satoshi Nakamoto? I believe so. So how is it possible that the creator of such a impactful project remains anonymous?

Speaker 3

06:31

That's a tough

Speaker 2

06:32

question. There's no similarity to it in the history of technology as far as I'm aware.

Speaker 3

06:38

Yeah. So 1 possibility is that it's Hal Finney because Hal Finney was also active in the Bitcoin community as Hal Finney in those 2 beginning years.

Speaker 2

06:54

Who is Hal Finney?

Speaker 3

06:55

He is 1 of the people in the early Cypherpunk community. He was a computer scientist, cryptographer, people interested in technology, internet freedom, like those kinds of topics.

Speaker 2

07:14

Was it correct that he seemed to have been involved in either the earliest or the first transaction of Bitcoin? Yes. The first transaction of Bitcoin was between Satoshi and Hellfitty.

Speaker 2

07:26

Do you think he knew who Satoshi was?

Speaker 3

07:28

If he wasn't Satoshi, probably no.

Speaker 2

07:31

How is it possible to work so closely with people and nevertheless not know anything about their fundamental identity? Is this like a natural sort of characteristic of the internet? Like if we were to think about it, because you and I just met now, there's a depth of knowledge that we now have about each other that's like physical.

Speaker 2

07:55

Like my vision system is able to recognize you. I can also verify your identity of uniqueness. Like It's very hard to fake you being you. The internet has a fundamentally different quality to it, which is just fascinating.

Speaker 2

08:11

Can you maybe talk to that?

Speaker 3

08:12

Yeah, no, this is definitely interesting. I definitely just know a lot of people just by their internet handles. To me, when I think of them, I see their internet handles.

Speaker 3

08:25

1 of them has a profile picture as this face that's not quite human with a bunch of kind of psychedelic colors in it. And when I visualize him, I could just visualize that.

Speaker 2

08:37

That's not an actual face.

Speaker 3

08:39

Yeah.

Speaker 2

08:40

You are the creator of the second, well, he's currently the second most popular cryptocurrency, Ethereum. So on this topic, if we just stick on Satoshi Nakamoto for a little bit longer, you may be the most qualified person to speak to the psychology of this anonymity that we're talking about. Like Your identity is known, like I've just verified it.

Speaker 2

09:03

But from your perspective, what are the benefits in creating a cryptocurrency and then remaining anonymous, like if it can psychoanalyze Satoshi Nakamoto? Is there something interesting there? Or is it just a peculiar quirk of him?

Speaker 3

09:20

It definitely helps create this kind of image of this kind of neutral thing that doesn't belong to anyone. You created a project And because you're anonymous and because you also have disappear or as unfortunately happened to help any if that is him, he ended up I think dying of Lou Gehrig's disease and he's in the cryogenic freezer now. But like if you pop in and you create it and you're gone, and all that's remaining of that whole process is the thing itself, then no 1 can go and try to interpret any of your other behavior and try to understand like, oh, this person wrote this thing in some essay at age 16 where he expressed particular opinions about democracy.

Speaker 3

10:16

And so because of that, this project is a statement that's trying to do this specific thing. Instead, it creates this environment where the thing is what you make of it.

Speaker 2

10:30

It doesn't have the burden of your other ideas, political thought and so on. So now that we're sitting with you, do you feel the burden of being kind of the face of Ethereum? I mean, there's a very large community of developers, but nevertheless, is there a burden associated with that?

Speaker 3

10:52

There definitely is. This is definitely a big reason why I've been trying to push for the Ethereum ecosystem to become more decentralized in many ways, just encouraging a lot of core Ethereum work to happen outside of the Ethereum foundation and of expanding the number of people that are making different kinds of decisions, having multiple software limitations instead of 1 and all of these things. There's a lot of things that I've tried to do too and removed myself as a single point of failure because that is something that a lot of people criticize me for.

Speaker 3

11:31

So if you look at the most

Speaker 2

11:33

fundamentally successful open source projects, it seems that it's like a sad reality when I think about it, is it seems to be that 1 person is a crucial contributor often, if you look at Linus for Linux, for the kernel.

Speaker 3

11:51

That is possible. I'm definitely not planning to disappear.

Speaker 2

11:56

That's an interesting tension, that projects like this kind of desire a single entity, and yet they're fundamentally distributed. I don't know if there's something interesting to say about that kind of structure and thinking about the future of cryptocurrency. Does there need to be a

Speaker 3

12:16

leader? There's different kinds of leaders. There's dictators who control all the money. There's people who control organizations.

Speaker 3

12:24

There's high priests that just have themselves and their Twitter followers.

Speaker 2

12:30

What kind of leader are you, would you say?

Speaker 3

12:33

These days, I'm actually a bit more in the high priest direction than before. I definitely actually don't do all that much of going around and ordering Ethereum Foundation people to do things because I think those things are important. If there's something that I do think is important, I do just usually say it publicly or just say it to people.

Speaker 3

12:59

And quite often, projects just start doing it.

Speaker 2

13:04

So let's ask the high philosophical question about money. What at the highest level is money? What is money?

Speaker 3

13:15

It's a kind of game and it's a game where we have points and if you have points, there's this 1 move where you can reduce your points by a number and increase someone else's points by the same number. And these...

Speaker 2

13:27

So it's a fair game, hopefully.

Speaker 3

13:30

Well, it's 1 kind of fair game. Like, for example, you know, you can have other kinds of fair games. Like you're going to have a game where if I give someone a point and you give someone a point, then instead of that person getting 2 points, that person gets 4 points.

Speaker 3

13:41

And that's also fair. But no, money is easy to kind of set up for and it serves a lot of useful functions and so it just survives in society as a meme for thousands of years.

Speaker 2

13:57

It's useful for the storage of wealth, It's useful for the exchange of value.

Speaker 3

14:03

And it's also useful for denominating future payments, a unit of account. A unit of account. So if you look at the history of money in human civilization,

Speaker 2

14:17

if you're a student of history, how has its role or just the mechanisms of money changed over time in your view? Even if we just look at the 20th century or before and then leading up to cryptocurrencies, that's something you think about?

Speaker 3

14:32

Yeah. And I think the big thing in the 20th century is we saw a lot more intermediation, I guess. The first part is the move from adding more of different kinds of banking. And then we saw the move from enough dollars being backed by gold to dollars being backed by gold that's only redeemable by certain people, to dollars not being backed by anything, to this system where you have a bunch of free floating currencies and then people getting bank accounts and then those things becoming electronic, people getting accounts with payment processors that have bank accounts.

Speaker 2

15:20

So what do you make of that? That's such a fascinating philosophical idea that money might not be backed by anything. Is that fascinating to you, that money can exist without being backed by something physical?

Speaker 2

15:35

It definitely is. Like what do you make of that? Like how is that possible? Is that stable?

Speaker 2

15:41

If we look at the future of human civilization, is it possible to have money at the large scale at such a hugely productive and rich societies be able to operate successfully without money being backed by anything physical?

Speaker 3

15:55

I feel like the interesting thing about the 21st century especially is that a lot of the important valuable things are not backed by anything. If you look at tech companies, for example, something like Twitter, you could theoretically imagine that if all of the employees wanted to, they could come together, they would quit, and start working on Twitter 2.0. And then the value of and just kind of build the exact same product or possibly build a better product and then just kind of continue on from there.

Speaker 3

16:33

And the original, the original Twitter would just not have people left anymore, right? Like the, there is theoretically kind of code and like IP that's owned by the company. But in reality, like good programmers could probably read up, rewrite all that stuff in 3 months. So the reason why the thing has value is just kind of network effects and coordination problems, right?

Speaker 3

16:56

Like these employees in reality aren't going to switch all at once. And also the users aren't all going to switch at once because it's just difficult for them to switch at once. And so there's these kind of meta stable and of equilibria in interactions between thousands and millions of people that are just actually quite sticky, even though if you try to

Speaker 2

17:20

kind of assume that everyone's a perfectly rational and kind of perfectly slippery spherical cow, they don't seem to exist at all. That stickiness, do you have a sense, a grasp of the fundamental dynamics, like the physics of that stickiness. It seems to work.

Speaker 2

17:38

And I think some of the cryptocurrency ideas kind of rely on it working.

Speaker 3

17:45

It's the sort of thing that's definitely been economically modeled a lot. The analogy of something as similar that you often see in textbooks is, what is a government? If, for example, 80% of people in a country just tomorrow suddenly had the idea that the laws that are currently in the government, that currently is the government, are just people and some other thing is the government and they just start acting like it, then that would kind of become the new reality.

Speaker 3

18:19

And then the question is, well, what happens if kind of between 0 and 80 people or an 80% of people start believing that? And like, what is the thing you all you see is that if there is 1 of these kind of switches happening, this kind of revolution, then if you're the first person to join, then you probably don't have the incentive to do that. But then if you're the 55th percentile person to join, then suddenly becomes quite safe too. And so it definitely is the sort of thing that you can kind of try to analyze and understand mathematically.

Speaker 3

18:57

But 1 of the kind of results is that the sort of, like, when the switch happens definitely can be chaotic sometimes.

Speaker 2

19:09

Yeah, but still like to me, the idea that the network affects the fact that human beings at a scale like millions, billions can share even the idea of currency like all agree, that's just, I know economics can model it. I'm a skeptic on the economic, and it's like, so my favorite sort of field, maybe recreational, is psychology, is trying to understand human behavior. And I think sometimes people just kind of pretend that they can have a grasp on human behavior, even though it's such a messy space that all the models that psychology or economics, those different perspectives on human behavior, can have are difficult.

Speaker 2

19:51

It's difficult to know how much that's wishful thinking and how much it is actually getting to the core of understanding human behavior. But on that idea, what do you think is the role of money in human motivation? So do you think money from an economics perspective, from a psychology perspective is core to like human desires?

Speaker 3

20:18

Money is definitely very far from the only motivator. It is a big motivator, and it's 1 of the closest things you have to a universal motivator. Because ultimately, almost any person in the world, if you ask them to do something, they'll be more inclined to do it if you also offer them money.

Speaker 3

20:43

There's definitely many cases where people will do things other than things that maximize how much money they have, and that happens all the time. But a lot of those other things are kind of, but much more specific to and of who that person is and of where their situation is, the relationship between the motive and the action and these other things.

Speaker 2

21:02

What do you think is the interplay of the other motivator from Nietzsche perspective is power? Do you think money equals power? Do you think those are conflicting ideas?

Speaker 2

21:11

Do you think, I mean, that's 1 of the ideas that decentralized currency, decentralized applications are looking at is who holds the power.

Speaker 3

21:20

Yeah. Money is definitely a kind of power. And there's definitely people who want money because it gives them power. And then even if money doesn't seem to explicitly be about money, a lot of things that people spend money on are ultimately about social status of some kind.

Speaker 3

21:44

I definitely view those 2 things as interplaying. And then there's also money as just a way of like measuring how successful you are, I guess, a scoreboard, right? So this kind of gets back to the game. I mean, like if you have $4 billion, then the main benefit you get from going up, or 1 of the big benefits you get from going up to $6 billion is that now, instead of being below the guy who has 5, you're above the guy who has 5.

Speaker 2

22:13

So you think money could be kind of, in the game of life, it's also a measure of self-worth. It's like how we...

Speaker 3

22:21

It's definitely how a lot of people perceive it.

Speaker 2

22:25

Define ourselves in the hierarchy of society.

Speaker 3

22:27

Yeah, and I'm not saying it's a healthy thing that people define their self-worth as money, because it's definitely far from a perfect indicator of how much value you provide to society or anything like this. But I definitely think that as a matter of current practice, a bunch of people do feel that way.

Speaker 2

22:52

So what does utopia, from an economic perspective, look like to you? What does a perfect world look like?

Speaker 3

23:00

I guess The Economist's utopia would be 1 where everything is incentive aligned in the sense that there aren't conflicts between what satisfies your goals and what is good for everyone in the world as a whole?

Speaker 2

23:22

What do you think that would look like? Does that mean there's still poor people and rich people? There's still income inequality?

Speaker 2

23:32

Do you think Marxist ideas are strong? Do you think ideas of objectivism, like where the market rules, is strong? Is there different economic philosophies that just seem to be reflective of what a utopia would be?

Speaker 3

23:52

So I definitely think that existing economic philosophies do end up kind of systematically deviating from the utopia in a lot of ways. Like, 1 of the big things I talk about, for example, is public goods, right? And public goods are especially important on the internet, right?

Speaker 3

24:11

Because, like, the idea is with kind of money as this game where, you know, I lose a few coins and you gain the same number of coins, this usually happens in a trade where I lose some money, you gain some money, you lose a sandwich and I gain a sandwich. This model works really well when the thing that we're using money to incentivize this set of private goods, right? Things that you provide to 1 person where the benefit comes to 1 person. But on the internet especially, but also many, many contacts kind of off the internet, there's actions that individuals or groups can take where instead of the benefit going to 1 person, the benefit just goes to many people at the same time and you can't control who the benefit goes to.

Speaker 3

25:02

For example, this podcast, we publish it, and when it's published, you don't have any fine-grained control over, like, oh, these 38,000 people can watch it, and then these other 29,000 people can't. Once the number goes high enough, then people will just copy it. Then when I write articles on a blog, then they're just free for everyone. That stuff's even harder to prevent anyone from copying.

Speaker 3

25:29

Aside from that, things like scientific research, for example, and even taking more pedestrian examples like climate change mitigation would be a big 1. So there's a lot of things in the world where you have these kind of individual actions with concentrated costs and distributed benefits and money as a point system does not do a good job of encouraging these things. And 1 of the kind of other things even tangentially connected to crypto, but kind of theoretically outside of it that I work on is this sort of mechanism called quadratic funding. And the way to think about it is, and if imagine a point system where if 1 person gives coins to 1 other person, then it works the same way as money.

Speaker 3

26:23

But if multiple people give coins to 1 person, and they do so anonymously, So it's kind of not in consideration for a specific service to that person themselves. Then the number of coins that are received by that person is greater than just the sum of the number of coins that have given by those different people. So the actual formula is that you take the square root of the amount that each person gave, then you add all the square roots and then you square the sum.

Speaker 2

26:52

Square the sum.

Speaker 3

26:52

Yeah, and then you give that. And the idea here would basically be that if, let's say, for example, you just started going off and planting a lot of trees. There's a bunch of people that are really happy that you're planting trees, so they go and all throw a coin your way.

Speaker 3

27:12

There is basically the fact that you get more than the sum, you get this square of square roots of these tiny amounts, that this actually compensates for the tragedy of the commons. There's even this mathematical proof that it optimally compensates for it.

Speaker 2

27:32

What is the tragedy of the common?

Speaker 3

27:33

This is just this idea that if there is this situation where there's some public good that lots of people benefit from, then no individual person wants to contribute to it because if they contribute, they only get a small part of the benefit from their contribution, but they pay the full cost of their contribution.

Speaker 2

27:54

In which context does this, sorry, what is the term, quadratic what?

Speaker 3

27:58

Quadratic funding. Quadratic

Speaker 2

28:00

funding. In which context is this mechanism useful? So obviously you said to combat the tragedy of the commons, but in which context do you see it as useful actually practically speaking?

Speaker 3

28:13

Yeah, theoretically public goods in general, right? So like.

Speaker 2

28:16

Like services, like what are we talking about? What's the public? Yeah.

Speaker 3

28:20

So within the Ethereum ecosystem, for example, like we've actually tried using this mechanism. I wrote a couple of articles about this and have on Vitalik.ca where I go through some of the most recent rounds and it's been really interesting. Some of the top ones that people supported, there were things like just online user interfaces that make it easier for people to interact with Ethereum.

Speaker 3

28:48

There was documentation, there were podcasts, there were software clients, like kind of implementations of the Ethereum protocol, of privacy tools, just like lots of things that are useful to lots of people.

Speaker 2

29:09

When a lot of people are contributing, like funding a particular entity, That's really interesting. Is there something special about the quadratic, the summing of the square roots and

Speaker 3

29:21

the square? So another way to think about it is like, imagine if N people each give a dollar, then the person gets N squared. And so each individual person's contribution gets multiplied by n, right?

Speaker 3

29:35

Because you have n people. And so that kind of perfectly compensates for the kind of n to 1 tragedy of the commons.

Speaker 2

29:41

I just wonder if the squared part is somehow fundamental.

Speaker 3

29:45

It is. And I'd recommend you go to, on Vitalik.ca, I have this article called Quadratic Payments a Primer and I highly recommend it. It's at least my attempt so far of explaining the intuition behind this.

Speaker 3

30:01

Intuition.

Speaker 2

30:02

So if we could, can we go to the very basic? What is the blockchain? Or perhaps we might even start at the Byzantine Generals problem, the Byzantine fault tolerance in general, that Bitcoin was taking steps to providing a solution for.

Speaker 3

30:25

So the Byzantine general's problem, it's this paper that Leslie Lamport published in 1982, where he has this thought experiment where if you have 2 generals that are camped out on opposite sides of a city and they're planning when to attack the city, then The question is, how could those generals coordinate with each other? And they could send messengers between each other, but those messengers could get sniped by the enemy on the road. Some of those messages could end up being traitors, and if things could end up happening.

Speaker 3

31:03

And with just 2 mess generals, it turns out that there's kind of no solution in a finite number of rounds that guarantees that they will be able to coordinate on the same answer. But then in the case where you have more than 2 generals, so then Leslie analyzes cases like, are the messages just oral messages? Are the messages signed messages? So I could give you a signed message and then you can pass along that signed message.

Speaker 3

31:36

And the third party can still verify that I originally made that message. And depending on those different cases, there's kind of different bounds on, like, given how many generals and how many traders among those generals and what, under what conditions you actually can agree when to launch an attack. So it's actually a big misconception that the Byzantine generals problem was unsolved. So, Leslie Lamport solved it.

Speaker 3

32:05

The thing that was unsolved though, is that all of these solutions assume that you've already agreed on a fixed list of who the generals are. And these Generals have to be kind of semi-trusted to some extent. They can't just be anonymous people because if they're anonymous, then the enemy could just be 99% of the generals. In the 1980s and the 1990s, the general use case for distributed system stuff was more enterprising stuff where you could assume that you know who the nodes are that are running these computer networks.

Speaker 3

32:46

So if he wants to have some kind of decentralized computer network that pretends to be a single computer and that you can kind of do a lot of operations on then it's made out of these 15 specific computers and we know who and where they are. And so we have a good reason to believe that say at least 11 of them would be fine.

Speaker 2

33:04

And it could also be within a single system, almost like almost a network of devices, sensors, so on like in airplanes. And I think like flight systems in general still use these kinds of ideas. So that's the 80s.

Speaker 3

33:20

That's the 80s and 90s. Now the cypherpunks had a different use case in mind, which is that they wanted to create a fully decentralized global permissionless currency. And the problem here is that they didn't want any authorities and they didn't even want any kind of privileged list of people.

Speaker 3

33:38

And so now the question is, well, how do you use these techniques to create consensus when you have no way of kind of measuring identities, right? You have no way of determining whether or not some 99% of participants aren't actually all the same guy. And so the clever solution that Satoshi had, this is going back to that presentation I made at DEF CON a few months ago, where I said that the things that Satoshi invented with crypto economics is this really neat idea that you can use economic resources to kind of limit how many identities you can get. And if there isn't any existing decentralized digital currency, then the only way to do this is with proof of work, right?

Speaker 3

34:26

So with proof of work, the solution is just you publish a solution to a hard mathematical puzzle that takes some kind of clearly calculable amount of computational power to solve, you get an identity. And then you solve 5 of those puzzles, you get 5 identities. And then these are the identities that we run the consensus algorithm between.

Speaker 2

34:52

So the proof of work mechanism you just described is like the fundamental idea proposed in the white paper that defines Bitcoin. What's the idea of consensus that we wish to reach? Why is consensus important here?

Speaker 2

35:09

What is consensus?

Speaker 3

35:12

So the goal here in just simple technical terms is to basically kind of wire together a set of a large number of computers in such a way that they kind of pretend to the outside world to be a single computer where that single computer keeps working even if a large portion of the kind of constituents, the computers that make it up break. They kind of break in arbitrary ways. Like they could shut off, they could try to actively break a system, they could do lots of mean things.

Speaker 3

35:43

So The reason why the cypherpunks wanted to do this is because they wanted to run 1 particular program on this virtual computer. And the 1 particular program that they wanted to run is just a currency system, right? It's a system that just processes a series of transactions. And for every transaction, it verifies that the sender has enough coins to pay for the transaction and verifies that the digital signature is correct.

Speaker 3

36:09

And if the checks pass, then it subtracts the coins from 1 account and adds the coins to the other account, roughly.

Speaker 2

36:16

So first of all, the proof of work idea is kind of, I mean, at least to me, seems pretty fascinating.

Speaker 3

36:24

It is.

Speaker 2

36:25

I mean, that's a, it's kind of a revolutionary idea. I mean, is it obvious to come up with that you can use, you can exchange basically computational resources for identity?

Speaker 3

36:39

It actually has a pretty long history. It was first proposed in a paper by Cynthia Dwork and Naor in 1994, I believe. And the original use case was combating email spam.

Speaker 3

36:54

So the idea is that if you send an email, you have to send it with a proof of work attached. And this makes it reasonably cheap to send emails to your friends, but it makes it really expensive to send spam to a million people.

Speaker 2

37:05

Yeah, that's a simple, brilliant idea. So maybe also taking a step back, so what is the role of blockchain in this? What is the blockchain?

Speaker 3

37:15

Sure, so the blockchain, my way of thinking about it is that it is this system where you have this kind of 1 virtual computer created by a bunch of these nodes in the network. And the reason why the term blockchain is used is because the data structure that these systems use, at least so far, is 1 where different nodes in the network periodically publish blocks. And a block is a kind of list of transactions together with a pointer, like a hash of a previous block that it builds on top of.

Speaker 3

37:56

And so you have a series of blocks that nodes in

Speaker 2

38:01

the network create where each block points to the previous block, and so you have this chain of them. Is a fault tolerance mechanism built into the idea of blockchain, or is

Speaker 1

38:10

there a lot of possibilities of different

Speaker 2

38:12

ways to make sure there's no funny stuff going on?

Speaker 3

38:16

There are indeed a lot of possibilities. So in a kind of just simple architecture, as I just described, the way the fault tolerance happens is like this, right? So you have a bunch of nodes and they're just happily and occasionally creating blocks, building on top of each other's blocks.

Speaker 3

38:32

And let's say you have kind of 1 block, we'll call it kind of block 1. And then someone else builds another block, honestly, we'll call it block 2. Then we have an attacker. And what the attacker tries to do is the attacker tries to revert block 2.

Speaker 3

38:47

And the way they revert block 2 is instead of doing the thing they're supposed to do, which is build a block on top of block 2, they're going to build another block on top of block 1. So you have block 1, which has 2 children block 2, and then block 2 prime. Now, this might sometimes even happen by random chance if 2 nodes in the network just happen to create blocks at the same time and they don't hear about each other's things before they create their own. But this also could happen because of an attack.

Speaker 3

39:16

Now, if this happens, you have an attack, then in the Bitcoin system, the nodes follow the longest chain. So if this attack had happened when the original chain had more than 2 blocks on it. So if it was trying to kind of revert more than 2 blocks, then everyone would just ignore it and everyone would just keep following the regular chain. But here, we have block 2 and we have block 2 prime.

Speaker 3

39:45

And so the 2 are kind of even. And then whatever block, the next block is created on top of, so say block 3 is now created on top of block 2 prime, then everyone agrees that block 3 is the new head and block 2 prime is just kind of forgotten, and then everyone just kind of peacefully builds on top of block 3 and the thing continues.

Speaker 2

40:07

So how difficult is it to mess with the system? So how, like, if we look at the general problem, like how many, what fraction of people who participate in the system have to be bad players in order to mess with it truly? Like, is there a good number?

Speaker 3

40:27

There is. Well, depending on kind of what your model of the participants is and like what kind of attack we're talking about, it's anywhere between 23.2 and 50%.

Speaker 2

40:40

Of what?

Speaker 3

40:41

Of all of the computing power in the network.

Speaker 2

40:44

Sorry, so 22 and- 23 point, Between 23.2 and 50%. And 50% can be

Speaker 3

40:53

compromised. So once your portion of the total computing power of the network goes above the 23.2 level, then there's kind of things that you can, mean things that you can potentially do. And as your percentage of the network kind of keeps going up then your ability to do mean things kind of goes higher. And then if you have above 50%, then you can just break everything.

Speaker 2

41:16

So how hard is it to achieve that level? Like it seems that so far historically speaking it's been exceptionally difficult.

Speaker 3

41:26

So- This is a challenging question. So the economic cost of acquiring that level of stuff from scratch is fairly high. I think it's somewhere in the low billions of dollars.

Speaker 3

41:38

And when

Speaker 2

41:38

you say that stuff, you mean computational resources?

Speaker 3

41:42

Yeah. So specifically specialized hardware and of ASICs that people use to solve these puzzles, to do the mining

Speaker 2

41:49

these days. Small tangent. So obviously I work a lot in deep learning with GPUs and ASICs for that application.

Speaker 2

41:57

And I tangentially kind of hear that so many of these, you know, sometimes NVIDIA GPUs are sold out because of this other application. Like what do, if you can comment, I don't know if you're familiar or interested in this space, what kind of ASICs, what kind of hardware is generally used these days for, to do the actual computation for the proof of work?

Speaker 3

42:20

Sure. So in the case of Bitcoin and Ethereum are a bit different. So in the case of Bitcoin, there is an algorithm called SHA-256. It's just a hash function.

Speaker 3

42:30

And so the puzzle is just coming up with a number where the hash of the number is below some threshold. And so, cause the hashes are designed to be random. You just have to keep on trying different numbers until 1 works. And the ASICs are just like specialized circuits that contain and have circuits for evaluating this hash over and over again.

Speaker 3

42:51

And you have like millions or billions of these hash evaluators and just stacks on top of each other inside of a box. And you just keep on running the box 24 7.

Speaker 2

42:59

And the ASICs, there's literally specialized hardware designed for this. Yes. Oh, this is living in an amazing world.

Speaker 2

43:06

Another tangent, and I'll come back to the basics, but does quantum computing throw a wrench into any of this?

Speaker 3

43:13

Very good question. So quantum computers have 2 main families of algorithms that are relevant to cryptography. 1 is Shor's algorithm.

Speaker 3

43:24

And Shor's algorithm is 1 that kind of completely breaks the hardness of some specific kinds of mathematical problems. So the 1 that you've probably heard of is it makes it very easy to factor numbers. So figure out kind of what prime factors are that kind of that you need to multiply together to get some number, even if that number is extremely big. Shor's algorithm can also be used to break elliptic curve cryptography.

Speaker 3

43:51

It can break any kind of hidden order groups. It breaks a lot of cryptographic nice things that we're used to. But The good news is that for every major use of things that Shor's algorithm breaks, we already know of quantum proof alternatives. We don't use these quantum proof alternatives yet because in many cases they're 5 to 10 times less efficient, but the crypto industry in general kind of knows that this is coming eventually and it's ready to take the hit and switch to that stuff when we have to.

Speaker 3

44:28

The second algorithm that is relevant to cryptography is Grover's algorithm. And in Grover's algorithm, might even be a bit more familiar to AI people. That's basically usually described as solving search problems. But the idea here is that if you have a problem of the form, find a number that satisfies some property, then if with a classical computer, you need to try out of n times before you find the number, then with a quantum computer, you only need to do square root of n computations.