Transcript

[00:01] SPEAKER_00: Thank you. Right guys, can you hear me at the back? Thank you. Right, so you're here because you want to build a cryptocurrency based business. That pretty much true for everyone here. So what if I told you that many of you will be successful in building a business, but it won't have anything to do with currency at all.

So in order to understand what I mean by that, look at what Satoshi had in mind back in 2008, 2009 when he was inventing Bitcoin. He was interested in testing two concepts at the same time. The first one was decentralized consensus at scale. This notion of a blockchain, a decentralized database, that uses proof of work in order to reach consensus as to the order in which things are put in and keeps them immutable. So if you think of it in terms of Bitcoin, that's what allows you to know how much you have and how much the others have and be sure of it without having to rely on a central entity like say a bank.

The second concept was transactions. So this idea that you can actually move money between people by shifting the value in that ledger is very powerful because today it gives us access to cheap transactions through Bitcoin and obviously instantaneous transactions.

The third component that Satoshi wanted to build in Bitcoin but decided to leave out was a powerful scripting language. Now he was already working on those two very important concepts, decentralized consensus and transactions. And adding a third, which depended on the two in order to be successful, was well, potentially could lead to things going terribly wrong. So that's why if you look at the Bitcoin code, you'll find that actually a lot of the so-called opcodes are disabled. And if you read into the emails from Satoshi Nakamoto, the ones that were made public, he was talking about coming back and adding new features and increase on this scripting capabilities. But he disappeared.

So in order to understand more about this, let's look at a few examples of what we could do with such scripts. And the three examples that follow you can do with Bitcoin with certain limitations already.

So the first one is this concept of deposit. If anybody runs a forum here, you know the biggest problem you have is people joining your forum, registering a new identity and then sock puppeting in terms of promoting their post, pretending they're somebody else, Sybiling them over and over again, or people spamming. And you probably try to put captcha in place on your forum, but that doesn't work because they have tons of people in developing countries working for pennies in order to answer this captcha by an automated system that farms out those verification mechanisms. The spam itself therefore is more valuable than it is to pay people to bypass the spam. So the problem is that ID is very cheap.

One way you can solve this with Bitcoin is you can create a transaction that neither you as a user, as a user of the forum, neither the forum operator can actually spend for at least six months. But the money is out there, it's out of your wallet, so to speak. After six months the money is returned back to you. So it's a deposit. If you're a good user of the forum, after six months you can decide to say I want to extend my subscription to this forum, I want to go further and vice versa. If you want to terminate early, you can come into an agreement with the forum operator and terminate your subscription.

If on the other hand you're a bad actor and a spammer, the forum could decide to terminate your account. So this very expensive ID that you've just bought and maybe even raise the size of the deposit, maybe you can come to some type of agreement. Maybe you didn't really mean to spam or you were just being rude on the forum itself. So I think that's a very interesting concept if you look into what Peter Todd has written about proof of sacrifice and it's very much in line with that. At the moment I'm not aware of anyone doing it though. And there's various issues about this. It's complex, there's usability issues. For example, the forums will have to support absolutely everyone bringing in deposit, which limits their audience.

The second concept is escrow. So if you go on eBay, you buy some stuff, you could for example designate a third party mediator to whom the coins would be returned if something went wrong in the transaction. What you could do is build a transaction where the coins are locked in in a way that can only be spent if both the buyer and the seller are in agreement. So the transaction went well. Or maybe the seller decided to reimburse the buyer. Think of it as a refund type mechanism. Maybe the mediator and the buyer are now in agreement. It was a chargeback. In that case that means the seller didn't send the goods, maybe in the mail. And similarly vice versa, mediator and the seller could agree if the goods are delivered and the merchant will get the client's coin even though there was a dispute. So that's an interesting mechanism, very powerful for marketplaces such as eBay. And I know that has been implemented on a few sites already.

The third one is probably the simplest one is multisig. The idea is if you have one address that you can spend from with two different signatures, you protect yourself a little bit, so to speak. If you separate the physical copy of that address, if one of the address is compromised, the thief can't access your funds. You could also give a key to a trusted third party such as your wife for example. And now you have yourself a very nice joint account.

The problem with all this stuff is that it's a little bit limited. So multisig for example, you couldn't really script stuff in terms of saying distributing 5% of the funds based on both of the parties agreement the first week and then 10% and then 15% or do this kind of stuff. It's really, really basic.

So that led to the creation of various alternate systems. I'm sure you've heard about Colored Coin and NXT and Mastercoin and so on. If you take Colored Coin, the idea was to color a coin, so assign a color that sticks with the coin and all its denomination even though it's been devised so to speak. So I could issue 100 million shares of Stefan's company just like I could write on a note, this entitles the holder to one share of Stefan's company and all of a sudden my Bitcoin is worth well, one Bitcoin plus the value that you assign to my company based on some sort of exchange. And similarly I could have 100 million shares with one Bitcoin and then each satoshi represents a share.

That's a very interesting concept because that means people can start bootstrapping their companies using shares without the risk of potentially regulations. Although that's still to be seen. There's different groups working on these concepts. The real difficulty from a technical point of view is that it still lacks a mechanism to trade and value these shares, such as a decentralized exchange. Also requires a special client that reads the special coins so that they stay invisible to the main network, so to speak.

So that got people thinking a little bit and came Mastercoin. So Mastercoin was created last year and they're still working on the tech, although they have stuff already released and I think they'll be pretty much done in about 40 days or so. It works by encoding data in a transaction. You could for example say the number three represents a buy order, number four represents a sell order, followed by an asset code and then followed by a price. So if you put two and two together and you have a system, say a website that reads the special transaction, you get yourself a very nice decentralized exchange functioning on top of Bitcoin with all the security and all the advantages that it brings, where the funds are actually under your control and not somewhere where they could say disappear or be impossible to retrieve maybe. That sounds familiar based on what's in the news these days.

And then we have Smart Property. Smart Property is taking that level even higher. Where you could instead of trading shares, you would trade physical assets. Now that won't work for this for example, that probably won't work. Or this pencil here. But it would work for things like your car. Your car has a key, probably has some type of immobilizer. If it's brand new, the key is unique to you, it's using encryption. You see where we're going with this? You could trade your car on the blockchain through a decentralized exchange.

What about digital art? If you have a limited run of 500 copies of a famous artist and you assign each a special key and you encode that into the blockchain, you can then have this digital art that will always stay that exact number of limited copies and they can be traded just like you trade modern art or even classical art in the finance world today. Access to hotel rooms, you can think of I'm sure plenty of examples.

So that got people thinking a little bit and this came up and that's absolutely amazing. That's how I got interested into the field. Mike Hearn was speaking at the Turing conference, I think it was last year, mid last year, something like this. And he was talking about 50 years in the future and the advent of Google cars, the self-driving cars that's great at Google today. So they're real, they're driving themselves around Palo Alto parking lots I suppose, doing their self-driving car thing.

But in 50 years some people think that they'll be actually commonplace, much more so than potentially clean energy. So if self-driving cars are commonplace, you can think of a scenario where for example Sandra wants to go out tonight. So she uses her phone and like a Helo type app and the car arrives at her house, she climbs in, she gets onto the highway, drives her all the way to whatever club she wants to go tonight.

The interesting thing is now all the cars are self-driving. So the car is talking to the highway and the highway speaks Bitcoin. The car speaks Bitcoin, Sandra's wallet speaks Bitcoin. So the car can propose to Sandra, hey, how about we use the fast lane? Well that'll be a little bit extra but now you can pay for what you use on the highway. So it's an interesting concept.

The car is a mobile asset as well. So the car, it drives itself, remember. So it can drive itself to a town where people are affluent, it can drive itself to a town where there's more demand and it can redirect itself completely independently of any human intervention.

The interesting bit here is who owns the car? So is it Google, is it Helo or whatever Helo will be in 50 years down the line or is it the car manufacturer? The car actually owns itself. So what that means is you could see a situation in a Kickstarter type fundraiser program where a group of like-minded individuals wants to bundle up, so to speak, all their finances and create or build this self-driving car. And the car being an economic asset, would pay dividends back to its shareholders as it does its thing.

Now obviously this is a little bit futuristic. You know, what if the car breaks down, who's actually going to go and pick it up? And there's issues with that model. But it's an interesting one because one thing we can do today is distributed autonomous applications. That comes from a concept by Gregory Maxwell, who's the inventor of Storj and one of the lead contributors of Bitcoin.

Storj is an autonomous software, a bit like Dropbox. You pay it. So it places files somewhere in the cloud, don't really care as long as they're safe and you can retrieve them anytime. So it's like Dropbox, but it's completely decentralized and it's also completely autonomous. So what Storj can do is it can call the API for say Amazon and ask how much is storage today? And it can call Rackspace and say how much is storage today? And then it compares the two and it moves itself where it's cheaper.

And now we can do today, there won't be 10 or 100 Storj, there'll be thousands of Storjs, tens of thousands of Storjs, and that has some interesting implications in terms of market value. That means the people programming this stuff will have to be super efficient from the get-go or else they'll be cloned or forked almost immediately and then undercut by the competition. So it has some interesting consequences on free markets and things like that.

But there's only a problem with Storj is that it doesn't quite work on Bitcoin yet because of the limitation of the scripting language.

So Ethereum, for whom obviously I work for, is taking that concept of decentralized consensus and it's making it applicable to just about anything you can think of. You can digitize any asset, you can digitize the British pound, you can digitize the US dollar, you can digitize fancy or special fancy art so to speak, physical or not.

In terms of how it works, we have this concept of autonomous agents that live on the blockchain, can send and retrieve transactions. They have their own balances. They can read from other contracts meaning they can actually read from external data feeds such as weather stations or swarms of weather stations in order to ensure that they're getting the right data and they're not being cheated.

So you can write any program you can think of really. If you know JavaScript, you can use our software. And yesterday we just launched our first smart contract. It was written by a chap I think in Amsterdam. He's written the Namecoin, if you're familiar with that, implementation in nine lines of code. And that itself has a $28 million USD market cap today.

So in conclusion I'm going to go back to that first slide and I had written something about the innovation singularity, and the message there was that there's been an acceleration of innovation. First scripting, then Colored Coin, then Mastercoin, now Ethereum and probably many others that are going to come up. It's going to lead to more services and more innovation.

We're not going to have 200 altcoins, we're going to have 15 million altcoins. Everybody here will have their own altcoins. My kids at school will have their own altcoins. And this has value because I can reward my users. For example if I'm a retailer with loyalty points. There are now altcoins that can be traded for services that I actually care about.

We're talking about having universal access to financial instruments, including stocks, bonds, derivatives of any kind, as well as. Am I good with time? Oh, okay. I'm not good with time. No, I'm not good with time. Okay, carry on. Sorry. No worries.

Another concept, it's not limited to finance. One thing I'm really fascinated about is this idea that if you could have an object state in the blockchain there forever, say the blockchain is here forever, fingers crossed, you could have the game engine switch as the visualization technology evolves and the game state in the same blockchain. And also you could have different game engines or different games talking to each other, sharing the same economy, and support all those great financial derivatives.

If you look at EVE Online, if you guys are familiar with that, from a company called CCP, they're doing some great stuff with online economy and I think they would really benefit from something like a blockchain based system.

And one thing that I also very excited about is this idea of super apps, where you take components such as reputation systems, delivery tracking services, escrow services, and distributed storage layers like say BitCloud or OpenLibernet, which if you think about it, you have these four components: identity, escrow, delivery checks, you pretty much made eBay obsolete.

So the question is not if you're going to build these new services or not. You will. The question is which vertical you'll end up disrupting. And it's not just finance. That's it for me. Thank you. Questions?

Yes, sorry, just. I will plug the battery on. I think there was one, there was one here.

[16:45] SPEAKER_01: I hear what you say about decentralized organizations and apps and all these sorts of things and being disruptive, but one effect that does seem to be very powerful, especially with Bitcoin, is essentially the network effect and the first mover effect. And it does seem to me that if we have millions of altcoins and millions of decentralized apps, there is still a sort of human tendency to focus on the network center, the primary mover and all these sorts of things. I wonder if you could see how that can be disrupted.

[17:12] SPEAKER_00: Okay, so that seems to imply that somehow we're trying to disrupt Bitcoin or Litecoin or any other alt…

[17:18] SPEAKER_01: I'm not implying that. I'm just saying that it does seem to me that everyone uses Google as a search engine, everyone uses eBay as an auction site. You don't need to use the…

[17:28] SPEAKER_00: The idea of being able to build your own currency or metacoin on top of Ethereum isn't limited to purchases. In fact, they may not be very good tools as unit of value, just like you don't count how much are your eggs as 0.02 Bitcoins, for example.

I think what we're trying to be more is the lingua franca of the decentralized Internet. If you look at projects like Mastercoin or projects like BitCloud or any projects of this kind, the wheel is being reinvented each and every time. And there's people out there. I was talking to guys who work in the space industry who want to have an altcoin, don't want to have their own separate blockchain. But they still see the value this means of rewarding their users. And the value doesn't have to be millions of dollars. It can, it could be just pennies just to reward somebody for, say, folding protein, for example, or doing SETI at home research. I think that has value and it makes it trivial to deploy. It's five lines of code. It's not having to reinvent a blockchain, which is a very complex mechanism.

And another thing that we're looking at is how we're going to integrate with Bitcoin. We see Bitcoin as your gold vaults. And Ether is more oil. So you got your gold, you want to put it to work. You use an engine, which is Ethereum, with Ether as the oil.

Bitcoin can be interfaced with through SPV clients, simple payment verification clients that we can encode into a contract. So we're working on that as well. And we expect the community to develop similar contracts for just about any alt or any chain or even things like Eurobit, if you're familiar with that. Very interesting decentralized computing platform.

Sorry, Simon.

[19:15] SPEAKER_02: Oh, yes, Ethereum sounds really exciting. We're an equity crowdfunding platform. Are you about to disrupt us?

[19:22] SPEAKER_00: I haven't thought about that. Market equity crowdfunding?

[19:25] SPEAKER_02: Well, in the sense that…

[19:27] SPEAKER_00: No, thank you. When something is made really easy and really straightforward, it doesn't kill whatever inspired it. It just makes it easier for people to enter the market and compete.

So as I said earlier, I see a lot of contracts will be identical to each other. In fact, I can foresee people setting bots that will automatically listen for new contracts and clone them immediately and try to undercut them if they can understand what the code does. So it's accelerating free enterprise rather than trying to affect things outside the scope of the chain.

[20:02] SPEAKER_03: Steven, how do you see the regulators looking at this type of projects?

[20:07] SPEAKER_00: Yes, it's something I'm very interested about as well. We have a Skype channel on which we have several economists and I think you're on it, where we discuss this type of issues. Obviously being able to build your own company, really stock, obviously raise funds, probably will make some teeth grind in some places. And we're talking about a global market, a universal market.

So there will be what we'd like to do is provide company in a box type models where people can select their options and we're working with lawyers and regulators, help them form these structures without having to be a specialist. Yeah, that's pretty much the plan.

[20:45] SPEAKER_03: So you know, regulators are there supposedly to protect customers. That's their main focus.

[20:50] SPEAKER_00: Right, right, right.

[20:51] SPEAKER_03: So decentralized application and the ideas that you've been explaining today, such as multi-signature transaction, escrow services, all these ideas are there also to protect customers. So isn't this type of application even better than the existing economy that we have in terms of having a more safe environment for customers?

[21:10] SPEAKER_00: Yeah, absolutely. I think from the financial side, if you look at derivatives today, they're backed by debt and this way we're in the situation we're in today. When on Ethereum if you have a derivative, it'll be backed by good as gold Bitcoin and that's very exciting, or by Ether or by anything else you assign value to. But it'll have to be backed, it'll have to be collateralized. There's no other way to have decentralized trust. You have to put collaterals up to 100% or even over-collateralize under certain processes.

So as long as they understand this it should be easier. That's part of the innovation I suppose. We're building the tools, we're building the programming languages, we're not building the websites that will help people enter this market. So obviously we don't foresee people, like my mother for example, build her own company by writing code. What we foresee is people will build websites, they'll build distributed insurance contracts, they'll build that kind of stuff, using standard tools, and that creates a little bit of centralization.

But with technologies like OT, for example Open Transactions, you have this nice marriage of off-chain, which is great for HFT things like that, things that even Ethereum can support, and on-chain, which gives you access to the decentralized consensus aspect of things.

[22:25] SPEAKER_04: Hello. What follows on from that question then is can the regulators do well to actually engage with you and find a good way of what they're trying to do?

[22:35] SPEAKER_00: I think yes. So the question was, you know, are the regulators going to work with us or I don't know if you know, you're talking, we're not talking about probably a formal association or contract. What we're probably talking about is people today who are lawyers and are interested in this stuff.

And I think Gavin Wood, Dr. Gavin Wood, who is our lead C++ developer, at the last Bitcoin event said that lawyers will be out of a job. Personally, I personally disagree with this. I think if anything they're going to have a great time trying to match and marry existing legal structure that you have today everywhere, from raising funds to having a dispute with your neighbors, this type of stuff and then trying to encode this into a blockchain mechanism and make it more transparent.

Yeah, that's another thing. Very good point. Everything in the blockchain is in plain text. On Ethereum it is. That means if you have a DAO, one of those distributed organizations, their finances are completely known by everyone. Who gets what is completely in plain text. If they have vesting agreement, everyone knows everything at all times. It will in my view really limit corruption, especially in developing countries, if not eliminated completely.

[23:45] SPEAKER_05: So theoretically you could put a constitution on the blockchain.

[23:48] SPEAKER_00: Yes.

[23:50] SPEAKER_06: When are you launching Ethereum?

[23:52] SPEAKER_00: When are we launching Ethereum? So the testnet is live. We had our first contract yesterday as I said. In terms of the mainnet launch, the proper live go-live date, we're looking at Q3, Q4, likely Q4 2000… of this year.

[24:10] SPEAKER_07: What measures are you putting into place, what measures are you putting into place to ensure that the verifiers of the blockchain do not end up being a small number of well-financed groups who are able to buy the hardware to verify each block?

[24:25] SPEAKER_00: What measure did we put in place to ensure that the people controlling the blockchain, as in the miners I suspect, are doing…

[24:32] SPEAKER_07: Mining centralization.

[24:33] SPEAKER_00: Yes. For example GHash. I think Vitalik, obviously our chief science officer, is probably best to answer the technical implementation. From what I gathered, the type of things we're putting in place is making the algorithm sequential memory hard. What that means is it's incredibly expensive to parallelize.

That will go a long way in evening the playing field, so to speak, so that I don't have my phone with me. If I did I could show you my phone and say I can mine on my phone, I can mine on my tablet, I can mine on my MacBook Air. And there's a lot more of these devices out there than there are ASICs, which are indeed in the hand of a very small group of people, if not the manufacturers themselves. And we're very conscious of that and we want to make it as fair as possible. The whole point is decentralization. We don't want to end up with having this very nice decentralized system that lives in one data center somewhere in Georgia.

[25:30] SPEAKER_08: What's your biggest concern for the long-term success of Ethereum? What's your biggest worry?

[25:35] SPEAKER_00: The biggest worry? Well, you know, all these projects are fraught with risk. And I think, well, it's just that question, what algorithm are we going to use to build this? We haven't invented it yet. Right now we have something called Dagger, but that's probably going to switch because we found that it had flaws thanks to community members.

What we're going to need is people's support in order to help us understanding and penetration testing all those tools that we're developing. And this programming language, Turing complete programming language that we're developing. But we have some good people on the team. Neil Koblitz, who's the inventor, co-inventor, sorry, of the elliptic curve encryption mechanism used in Bitcoin, has joined our team. So we have some good people on board and we'll have obviously the usual rewards for community members that find issues with our programming language.

Anyone else have a question? Thank you, thank you, thank you, Stefan. Thank you.