EB31 – Gavin Wood: Ethereum & Ether Sale

Transcript

[Music] hello and welcome to EP Center Bitcoin episode 31 today is August 4th and today's episode is all about ethereum at The Ether sale which is currently going on the first part of today's episode features an interview I did with Gavin wood he's the CTO of the ethereum project and the lead developer of the C++ client I recorded an interview last week on July 30th here in Berlin the second part of the episode I talk about uh ether sale from an investment perspective I'll talk things such valuation risks uh and what's going to affect the ether price in the future so if you're interested in participating ether sale I hope that will help you

with your decision making let's get [Music] started I wanted to ask you something which I've actually never asked even though you know I've known you for for a while now uh which is what when did you get interested in Bitcoin and what was your sort of involvement with Bitcoin before ethereum um so I've been aware of it for quite some time I think I I I remember years back when I saw a story on slash dot about it so I I don't know if that was 2009 2010 but anyway I was I've been aware of it for some time and uh when it

got to 2011 I think I think actually mined some but I I've looked all around for the uh backup of my own directory at that point but I I haven't been able to find them um then fast forward to 2013 and um it obviously hit the news a bit more um especially mentioned was was cburg I think it was an article in the guardian and it was it was basically pointing out I remember that yeah yeah there was like a brick and it was it was room 77 I guess yeah it was yeah uh the first brick and water place to take it and um yeah I I heard it you know I heard about the silt Road as well and I sort of thought it might be worth looking into and I got in contact with am

motaki through AO I met a couple of other people and eventually through them I met italic what was it about the ethereum project that um sort of captivated you so much at the time I was working on less motivating projects let's say um I I had I was working in um in the law um software law fir uh software for law firms and having to work with Technologies um that were U difficult and morale reducing morale s really so when uh I saw vitalics white paper it was you know as a software

engineer it was a breath of fresh air it was something I could uh really sort of uh get my teeth into you know something that was pure and nice and uh and and that's basically why I took it on in in December it was it was effectively meant to be a nice little project over Christmas um I was there was obviously some some aspect of the of the uh of wanting to see maybe you know maybe this could be something more interesting than than just learning Bitcoin you know this this has got a bit more Purity to it it's been a bit better design from the ground up and it does a bit more but I was also kind of the the scientist in me wanted to see if it could really you know how fast it would be how whether it

would work really yeah I was I would say a healthy dose of cynicism really brought me into the project and made me want to try it out and then I take it you were uh you found your kind of questions to have positive answers um yeah to some degree I mean I think we're still working out a lot of the details um but I think to some degree I've brought to the project um some of the fine-tuning some of the um the alterations that the protocol kind of needed in order to become uh really more than more than what it is basically I you know I would hope that my contributions have helped to refine it into something that uh will make it uh down the line um a bit easier for

people to utilize and therefore a bit more um have a bit more promise in terms of bringing more applications onto it let's kind of um explain what ethereum is can you give us a definition or so ethereum uh first and foremost is a platform most applications if not all that can be written on on the ethereum platform can be written on other platforms as well they can be implemented on other Platforms in the same way that Bitcoin can be implemented without having to have the blockchain and the decentralized network the notion of just being able to have a ledger that sits on a Sur and that people can interact with is is really easy no

problem there the problem let's say the advancement that Bitcoin brings is the fact that it's decentralized and thus when some when some large organization government or big Corporation when they want to say uh hold on you running that server I don't want you to run that server anymore or you know this is this is illegal you're you're serving you know you're you're arbitrating value transfer that's illegal um when they along they they with a normal server with a traditional way of doing it they can of course um they have power over it with Bitcoin they have no power over it and that's the key advancement Bitcoin brings and so coming to ethereum what it effectively does it says well money is

one sort of thing that you can put on a server and that we can now decentralize well let's make a platform for decentralizing absolutely any software any service that we want we can then decentralize make it work um based on the trust through cryptography not trust because it's you know an authority uh what Bitcoin brings to the table and what ethereum sort of Trumps is the notion that um you don't need to be a server to have that position of trust everybody all of the peers in the peer group um Can collaborate and form the trust among themselves sort of like um uh you know this notion of order through chaos rather than order through explicit

design from some you know Godlike figure and uh so the platform for ethereum is uh is a platform that will allow you to make decentralized applications of the variety um that we might currently think of is social contracts so whereas money cash um the Clearing House the notion of a clearing house is a social contract and ethereum allows you to introduce your own social contracts and allow other people people to interact with each other through those social contracts can you define a social contract a social contract is an agreement made um voluntarily by a number of people who take part in a

society now there doesn't need to be a geographically limited Society it could be anywhere in the world but the notion of a of a social contract is simply one that um is about the fact that people want to um play by the same rules and and therefore be able to expect that everybody else is playing by those rules I think the this sort of uh the idea of decentralizing you know a variety of applications you know it's I think it's very clear people could understand that it makes total sense to me like for example something like Dropbox you know which is like an often used example it makes sense to me that like you can decentralize that and you know that's really interesting um but it's kind of what I find a bit strange and not

necessarily so intuitive is why the idea of a contract is so Central make this possible even the notion of um a social contract is new in the world of uh technology um It's No surp it should be no surprise to us Bitcoin really introduced us uh and you know those of us who are technologically savvy um it introduced to um to the notion of of a basic social contract I can go to an academic Department you know one one that you know up to date with the latest um advancements in computer science and they won't understand the implications

of the blockchain of Bitcoin of ethereum of all the other um um projects out there trying to um trying to do this why not it's it's because it's it's yet to be absorbed it's yet to be fully understood and it's um it's still very much in its infancy regarding what the ramifications and repercussions are for society it's almost like we've solved the problem um but we're not we're not entirely sure what the problem that we Sol but we know it we know we've solved it you know we know we've got somewhere we know we've reached new ground new territory because um well the fact that Bitcoin is causing is starting to cause

I mean I don't think it's um it's really got there yet but it's starting to cause such a um a sort of ground shift and um a fuss in the establishment is is is one reason but um there are others that when you start sort of getting what the idea of this notion of an autonomous contractor or an autonomous agent is when you start sort of thinking about hold on well if this is possible maybe all of this other stuff is possible too um when you when you when that door starts opening you start to realize oh yeah actually this is this is actually something quite new something that we we weren't able to do before um if you sort of look at ahead I don't know 5 years or something like

that and like to speculate what those ramifications could be and what the world could look like at that point if sort of ethereum lives up to its promise what would you say well firstly I don't I don't really know um but I will I will make what predictions I can there are many instances where people would like to collaborate with each other and in some cases do and um for instance in in Italy um in the of Italy is actually quite quite common for in a village a group of people who all trust each other to get together and to put in a large order to a farm say an olive farm and they'll get I don't know enough

olive oil to last you know each of the maybe 20 families 6 months in the UK you know this just isn't possible people there's a Bak down of community there's people often don't you properly know their neighbors it's not like in an Italian Village where you know everyone knows each other so we don't have this level of trust we can't we can't sort of hand someone money and to to do this for us and and expect that they will you know sincerely Faithfully sort of return as the olive our sh of the oliv and so we don't we we have to sort of put our faith in supermarkets and centralized entities that that have

you know great um they have their shareholders basically and so they they they have to make profit for their shareholders and so you don't get these cooperatives forming and that's a shame because there's nothing intrinsically different about the people in the UK to the people in these Italian Villages so what we would like is a system so that people can um trust each other you know people can can gather trust or ideally interact in form of agreements without the necessity to trust each other and can put together these uh cooperatives make systems and mechanisms of cooperation um that don't require um a centralized Authority

telling people what to do you should pay this now you should collect it now you should go there ideally that will just sort of form through um through the software through something that everybody can can know and see and understand and that is what ethereum but that is what ethereum and and smart contract and um this the notion of a social operating system that's what it's going to start bringing to society So when you say well what are the um what are the sort of applications um then it becomes a bit harder because whereas the notion of clubbing together to buy some olive oil is relatively sort of uh you know blunt instrument of a social contract you know

people can understand it you know but we will get we will get much more nuanced ways of cooperating and um and agreeing with each other and that's when it really starts to get interesting so what might those be so the notion of an escrow is quite an interesting one so an automated escrow but probably the the thing that's most interesting to me is insurance so insurance companies at the moment basically act as a massive fat middleman they collect um a lot of premiums off a lot of people and they make sure that their risk is uh their risk portfolio is Diversified and then

when any one thing goes wrong they can pay out and still make a nice tidy profit now there are lots of people um who like a nice gamble but the the point is that you've got these two sides at the equation you got people who want certainty and people who like to gamble um well one of the things that we can start to imagine is well why not just combine the two um have a uh an insurance contract on ethereum that allows you to be paid out um a large amount of money if an earthquake happens in your area and have other people that want to bet in the opposite direction and want to um win a maybe a relatively small amount of money

as long as the earthquake doesn't happen uh in the next day and so you end up with with a decentralized autonomous Insurance it seems like that would be such a complicated system to set up like how do you have a price finding there and uh and and there there's a lot of expertise there that insurance company has and and that it seems like it seems to me that would be quite a challenge to uh accomplish that in a with contracts on a blockchain firstly there there will be um some degree of expertise like um you know how much is what is the risk um but

you know that can largely be left to Market principles to work out if um more people are willing to bet on for this price then the risk is probably yeah um um overestimated um if fewer then the risk is probably underestimated and and there will be ways of of encoding of effectively you know selling or determining the risks Market mechanisms so I don't I think most of what an insurance company brings is firstly uh certainty MH but again that could be done you know there's nothing intrinsic about about that and um and they bring you know some degree of of reliability um and other than that

they're just a massive computer they employ a lot of people to push a lot of paper a lot of pens a lot of paper going around the desks now yes you're right um coding it up would be be um you know probably probably non-trivial I mean I've written a fair amount of software I suspect it would actually just take one or two devs not very long to do it the key point is that once it's written it's written and that said it's done and people um people utilize it indefinitely uh whereas an insurance company they have to keep paying the people who work there to push the pens and papers around the desks fly people around the world I guess and another function would be the the verification of the claims but I guess that's also

something where you could have arbitrator a Marketplace of arbitrators too ah well that that's um the verification of the claims doesn't need to be at all um so if it's simply an earthquake happened in my area I want I want my payout well they can prove that they deserve a payout because they that they're on the contract as having paid you mean if there is some data fee that says there was an earthquake so then you say right well how do you prove that that you know that an earthquake did indeed happen there and of course yeah then then you need so there are a couple of ways of doing that one is a basket of trusted data feeds yeah so then you don't have to trust any one data feed you know you just take take the median of of a bunch of them they all have sort

of very sort of semi-trusted pseudo trust and uh the second way of doing it is is um what was called a shelling mechanism whereby um if enough people um so this is effectively decentralized data collection and it it relies on the notion that enough people uh will be telling the truth such that and the when people lie they lie in a more random way and so you're able to through using averaging techniques find the truth of course you'd still have like let's say my house gets robbed or something then you know you'd have to go to the police they get a police report you know I don't think the police will have like a trusted API that speaks to the blockchain but maybe in the future

at some point that's quite possible I mean the German government has recently start started releasing um private uh private key keychains so you can now um oh for the the government ID right yeah I mean sure at some point in the future perhaps if there's a society built on top of that then you could have so all it actually has to be is the police have their um have a private um ID that they can sign a statement with a digital statement let's touch on one more thing which I think is is extremely interesting when you talk sort of about the the long-term or medium-term um potential of of platforms like ethereum which is a voting systems and

and the idea I guess also of having a Dows or decentralized autonomous organizations can you explain a bit uh how those work whatever is possible with ethereum is possible today as long as you give up the notion of being decentralized and autonomous so there's a notion of having an organization now the organization has a bunch of people that in some way cooperate for the greater good of the organization what doing whatever it does um if it's an NGO then it's presumably helping people if it's a if it's an Enterprise then it's presumably making money for its owners now as soon as you make it

decentralized and autonomous what you're basically doing is saying we won't have any person um running it we won't have we won't have a hierarchical structure we won't have someone in charge we won't have the chain of control uh the chain of command rather we will say that the organization should exist purely based on a set of rules of interaction um which is to say and people join the organization they can be certain about how they will have to interact with other people what changes will be made how they will be made um basically it's a bit like you take the CEO or you take the sort of

manager and you you can read their mind you know everything about well how they're going to decide something who they're going to listen to what they're thinking in terms of what they really want how they're going to approach problems their strategy um that basically what the blockchain allows you to do so you can think of this as a contract or an interconnected set of contracts because it's rule oriented uh it seems to me that this may work well in sort of a clearcut world where it's clear what rules you need but it seems like you know in the real world there's a lot of ambiguity do you think that's a a problem for Theos or so um in so in the real world

there is um ambiguity in terms of um what what it is that we mean natural language is necessarily a bit ambiguous and we are imperfect beings we don't always interpret the rules as they meant to be interpreted when you're in a computer system when you're in a mathematically formalized system you can that just goes out of the window it's perfect it has to be perfect it has to be deterministic it has to be exact perfectly [Music] specified so in the real world we have um through necessity um things like reasonable and and in the spirit we don't have that in

we can't take that into the well we can take it into the computer world with us but there's no need it's forced on us in the real world it doesn't it doesn't is not forced on forced on to us in the computer world and therefore we can um upfront specify the rules and specify them in a perfectly deterministic and perfectly understandable way that seems to me uh sort of argue the problem way in a strange way I mean it seems ambiguity is often uh it just seems like ambiguity is part of our life you you won't be able to write contracts that um I mean perhaps the contracts themselves can be unambiguous but it seems like that then they may just conflict with an ambiguous

World um So within a computer system a um the lowest level of representation is the binary digit it can be either one or zero sure I I I know a computer program will be like not ambiguous there won't be ambiguity in an ethereum contract but my point is that if you talk about uh replacing a company with with unambiguous code it seems like a lot of the things a CEO does every time every day is deal with ambiguity uh in ambiguous situations and it just seems like to replace a CEO's role with unambiguous sort of clearcut

deterministic code that just seems impossible to me so a CEO's um um job is to make anigu is to make decis yeah um now there is being the real world of course I think probably what you're getting at is that there is imperfect information for him to make to make such decisions but nonetheless when he makes decisions he makes unambiguous decisions or at least if it's a good CEO he makes unambiguous decisions uh yeah let's do that maybe you know that's an ambiguous decision that's that's not a good decision CEO will say right this is the strategy you need to do this you need to do that you need to do the other thing

um and specify that in in a very unambiguous way now in the real world there is there is a lack of certain information a lot of the times and translated into ethereum there will be there will you know you can't have more information than is in the real world um but I suppose the point is that that will be encoded in such a way that when the ethereum contract or Dao deals with it it will know what the limits of that information are so it will'll know the I don't know percentage error margins on what this is coming in um yes there will be gray areas but there will be very well-defined gray areas you know if if the if the risk is high that this is not

the case then it will be specified that the risk is high and not it's not the case and the Dao will be able to will be programmed in order to understand what that risk is understand the uh the likelihood and the probabilities and the uncertainties involved and still deterministically and perfectly make a decision concerning it that is an ambiguous so let me try to run through uh sort of an example how what that could look like that I think can people can relate to and you can correct me if I'm wrong right but so a company that sort of talked about a lot in the Bitcoin cryptocurrency space is Kickstarter because I guess a lot of people are interested in how you can replicate those in a in a decentralized way so if you had like a a Kickstarter

uh Dao it would you know somehow have rules on how to submit the project to the platform perhaps there would be some sort of uh mechanism by which uh people are asked to you know approve projects maybe there will be people vote on it with the reputation say is this a plat project we want to have on the platform then it would uh it would have defined rules on how people can fund the projects uh and what they would be given some token or some reward that they can later claim uh maybe you would have some sort of reputation system that afterwards people can vote

on whether the people who created the projects were trustworthy so that in the future if they have another one you can look at the history um maybe there would be some escrow function somewhere um so that You' have to structure way essentially you can sort of do what Kickstarter does which just people submit projects you know get them funded and then they give back um a reward or something to the the F uh participants without having that centralized organization that you know says which projects are okay in a platform and takes 5% yes so that's that about uh so I think the the most important

thing is the is the final uh it was the final point there that um you don't need the central organization to tell you what you can do and to take money for for taking that for doing that and um that's really what it all comes down to of course you still have for example Kickstarter all the work they do in the you user interface website Etc again that only needs to be done once so it's not clear why they should get 5% of everything so let's talk a little bit about um the sort of components of ethereum maybe we don't have to go into a lot of detail here but uh I know there are a lot of different things that have to be

in place for uh people to be able to build applications on this and for etherum to work um can you go into this a little bit and I know perhaps at the core there will be an ether browser know yes I know if that's a good place to start or you want to or maybe there will also be an app store know indeed um um there'll be um so ethereum can be um described as one component or of three components to um what uh you know what what people have been calling um the post Snowden web or web 3.0 um but this is basically a notion of of having a decentralized web so with a new web there'll be a new

web browser and um this web browser would be you know you can think of it as a wallet but a wallet with a with a an HTML window or you can think of it as a browser but a browser that has ethereum running in its back end now in addition to ethereum there would be two other Technologies one would be um effective to to allow individuals to communicate with each other but they don't need to without any necessity for agreement so there's no notion that you know you have to remember what the other person said or um that everybody needs to be able to form consensus on what you two are saying to each other it's just a way for for you to do Communications like kind of like the internet the internet is to Communications what ethereum is to

agreements the other third technology is something that allows people to publish and distribute information um generally larger bits of information but also things like P templates or web pages the the notion is that the um this information is stuff that doesn't change over multiple days or weeks so that's um like web hosting is that corre kind of like web hosting but probably better thinking of it in terms of bit torrent so kind of like um hosting a torrent file so if you have a decentralized internet um then where will websites be hosted can you host a website in a decentralized way of course I mean a bit torrent is is a decentralized um piece

of information that can be downloaded from the internet there's no reason why the information can't be an HTML file with a bit of JavaScript and images and would that be um performance wise competitive with centralized web hosting bit Tor probably wouldn't be but we're looking into methods of adapting the basic um idea of of that um with optimizations that would allow it to be competitive but so when you talk about bit Tor web host essentially uh I would try to load a website I would be connecting to lots of uh peers that then would send me pieces of the website and I would assemble it in my browser now is that that's right or um as a like that basic idea yes of course the way that

we're Envision Vis envisioning it is that you would already be connected to the to the peers yeah you would already likely have the peers that are going to give you the websites that you want and therefore it's actually reasonable you may even have already got the websites because they're looking at them and it's they've decided that you know you're a good point a good idea to be a good idea to cash that one for you so it might be that you go to your website and the template's already there so you go to your news site and of course you've already got most of the uh the template loaded all the images and that sort of stuff and you're just waiting for the content and of course then the content is I guess that's a bit like Amazon you know when they pre-load a page in the

JavaScript or something so yeah it seems like we have this s gigantic project ahead of us know of like an endless amount of on the one hand infrastructure components so yeah there's the App Store browser also things that will be used by a lot of applications such as identity systems now reputation arbitration I think will be really important although if there's no ambiguity then maybe not uh I think you're right I think they'll be sufficient amount of ambiguity that we will need um so how is that all going to be developed like what what parts of this will be developed by sort of the

official ethereum team what parts of it will be developed by uh independent developers independent teams yeah that's a good question we um so the the official development team or Dev as we're uh as we're called um I suppose it's like it's ethereum but it's also web 3 so it's also the other Technologies as well and the browsers Dev will first and foremost develop the ethereum protocol the 1.0 protocol as specified in the white paper and the yellow paper that's it that's its primary purpose after that it will start developing the tools so the programming tools the uh the devel M environment um the browser and then after that it will if it's got enough money it will um it will dedicate its resources to

developing the other two web three Technologies so this idea of a peer-to-peer message lowlevel you know not not something like email but lowlevel messaging system and the um the content distribution system now of course you right to bring up the uh the reputation system and so on now we are hoping that we'll be able to address those as well um but if not um we've had you know real great interest from the community in terms of trying to understand maybe they can do it maybe they just want to sort of have a play around with it but I think as as time goes on we'll we'll draw Ever greater and sort of Greater crowds wanting to play around with decentralized applications and these are

these are really the sort of building blocks the great the great sort of there's a lot of I don't know there's you know there's a lot of potential to really explore this Uncharted area by building these things so I I think that um even if we don't do that there'll be plenty of Interest by others who who want to will people be able to uh profit from building applications you know will you be able for example to build uh say like I'm going to do a startup now uh and build a reputation system and then I hope in the future if it gets adopted and while used you know I will uh make profit from that is is that sort of thing possible or old

models of content creation are are going to become increasingly outdated so this is not content creation right well I mean you could you could argue that um that the the the notion of a reputation system adap software is content but the the you know creation of of information based stuff but then that's a different question saying can you make money from it uh personally I think yes you can I think there will be an increasing amount of money made from selling one's expertise in certain areas creating Consulting potential so if in this case suppose you do create the reputation

system and it's a really good reputation system it's like you know it gives you the ability to know that someone is a that this identity is 100% you know trustworthy a real person you know without giving away any of their NE you know necessarily giving away any of their privacy that would be great um and if they could come along with that I suspect it probably would get adopted and then of course you get PE other people wanting to build on this infrastructure and they say why wouldn't it be great if we could you know get this person to um instructors so they they hire them or maybe the person you know writes a book on how they did it and how why it works and and maybe in is instructive in terms of um uh getting people to understand it and trust it and

uh and be able to use it better sure I guess bit like red hat and Linux exactly I think the interesting example there know if is if you look at the enormous impact Linux has had know like how you know enormously wiely is used and then you look at red hat which is you know maybe a successful company and profitable Etc sure it is right but compare that to Apple or Google or something like that then red hat is is Tiny you know so I mean I think this kind of um the thing you're talking about of course that makes sense right like so you you develop some Val piece of software help people implemented you know and I'm sure you can get paid you know well for that but it seems like the

scope is Sol different ites there's there's no um you there's just you will never have the the kind of uh magnitude of a company and may maybe that thing just won't be possible I don't know right it may well be that this is one of the things that comes from decentralization um Microsoft got as big as it as it got because it's a it's a mammoth centralized entity um and that in my opinion was not was not a good thing for the uh Information Technology industry as a whole um it stifled Innovation to a large degree for a long time and I mean if we look at just to

take that example os2 which is you know was a much better implementation in many respects than what it was up against at the time and yet uh Microsoft through um the ability to leverage it its industry weight um using anti-competitive tactics um uh basically beat it out of the market now and it's not just some random startup we're talking about it's IBM who were ping OS to massive massive company so centralization as a whole yeah sure we might not uh when we decentralize things we may not see centralized entities um making quite as much money as they uh you know as Microsoft and Apple have done but I would say that's

necessarily a bad thing and I certainly wouldn't uh wouldn't wouldn't say never either I think it's uh we will see a lot more of the red hat model and a lot more of the Milla model for sure um but you never know there may yet be some more microsofts and apples can you talk a little bit about ethereum as as um an organization about this the state of the development how many people for example let's let's start with that how many people are working s of paid full-time on ethereum today uh I believe the figure is around 15 to 20 I guess the fundraising is still going on so you don't know how much money there will be but what where you expect that to be I

don't know in 6 months from now um I this well you're ex you're exactly right in that the fundraising is going on so we just don't know but um if the fundraising doesn't make more than uh 8 to 10 million than dollars then it's very likely that um ethereum will become a um a very very slim organization indeed they Slimmer than today considerably yes and there will be basically all of that money will go to two separate organizations um the ccrg a research group in cryptocurrency and Dev which is to say a organization

directed by myself vitalic and Jeff um the go developer and it will be up to us three to uh create basically what I've just told you the web 3 S um so along with a bunch of other developers and I would hope in six months time that we'll have you know we'll have scaled to maybe 15 or 20 full-time developers a couple of Administrators um a couple of nice hubs and one or two people involved in education and communication well G thanks so much uh I hope you know people will check out e theum and I hope we will see a lot of really exciting things uh coming out of the project thank you Brian pleasure to [Music]

talk so I hope that gave you guys a bit of an impression of what eum is what the platform's goals are and where we are kind of in the stage of the development a lot of people are extremely excited about ethereum they think there has huge potential perhaps even as big as Bitcoin itself I don't know if that's true but I'm also excited about platform and I'm extremely excited to see where ethereum goes in the future I want to talk about something that many people probably heard about and it's it's one of the most important kind of milestones in uh the development of ethereum and that's the ether sale um Now The Ether sale has been going on for um about two weeks almost

two weeks and it's going to go on for another 29 days and I want to talk a little bit about how to think about the sale and if if you're thinking of purchasing some ether so you'll have some kind of Gand lines of understanding whether this is a good idea or not and what the risks are and what the potential rewards are the first thing I want to touch on before kind of dive into the specifics is something really funny so if you go on the ethereum platform website so ethereum.org and you click on buy ether they have this long uh terms and conditions Fame and when you read through it they talk about you know you have to declare that you're allowed legally to buy products of a Swiss

origin it's like what why is that product of Swiss origin so I kind of I want to talk briefly about why they do this and the the legal side of this now there have been quite a few projects in the Bitcoin community that have done uh things they've called IPOs so they've sold these kind of Securities or shares or at least they what they called it um you know on bitcoin talk forms or or on their websites and different campaigns and it's quite important to realize that most of this is illegal um the selling security selling shares is is a very very regulated area and one thing that you're not allow to

do in general is to sell shares or to offer shares to the general public so I cannot just we cannot just go on our website and say hey uh here's this Bitcoin address anybody who wants uh can buy epicenter Bitcoin shares and you know you're going to get like x% of future profits so that that's illegal you can't do that you can only do that you know if you can only sell to credited investors it's it's it's a complicated area but etherum is doing something a bit like that but they can't call it selling shares because that's illegal so what they've done is they've created a legal entity in Switzerland in the Canton of T and they found some way

with the local authorities there to conduct this ether sale in a way that's not illegal and the way they've done that is by saying that you not buying Securities you're not buying shares of the ethereum project of the company but you're buying uh a product you're actually pre-ordering a product and the product in this case is ether which is the currency that's going to be used on the ethereum platform now uh kind of economically this doesn't really work like buying a product it's not a typical product pre-order it is actually much more like share uh but I I I want to sort of I wanted to get this out of the way so if if you see

people especially the eum team you know they always talk about hey this is a product now they have to legally have to to do that because otherwise they would be um violating the laws but as an investor it's important to understand the kind of Economics dynamics that are going on here and they're much more like a share so let's talk about what ether is going to be used for so in the future there's going to be this ethereum platform and this ethereum platform will be used to run a decentralized applications to execute this contracts have them executed by uh decentralized networks of computers of miners now if I'm going to put in a

contract there and it's going to be executed by all these miners then I have to pay for that of course that makes total sense because if I didn't then I could just Spam the networks give it all kinds of pointless contracts and people will get angry and you know you'd have like useless computations running and of course you also need to have an incentive you have need to have an incentive for miners to actually uh provide their Hardware their bandwidth Etc and um essentially maintain the ethereum network we also have a similar security thing that you need to have a certain mining power otherwise it may not be as secure so ether is going to be used for me as somebody who writes a contract for example to pay for it to be executed by Network

now the way this kind of works is that if ethereum is going to be really successful in the future we assume that there will be a lot of demand for people to run uh applications contracts on the ethereum platform if that's going to happen then there'll be a lot of demand for ether because you need ether to run your application executed contract so the kind of basic economic dynamics that are going on with the ether sale is that if you buy some ether now and if ethereum is going to be really successful in the future you will be able to sell it at a higher price hopefully at least um to people who want to run these applications they need them

right so you can think of that uh perhaps the demand for running these applications is just going to explode and you know e it's going to become much much more uh valuable because so many people want it that also of course means that computations will become cheaper per ether in the [Music] future so is this a good idea should you buy some ether I think the really important thing to understand is the kind of Dynamics we have going on here in terms of what um what how many people are investing in a project and what ownership are you

going to have off the project essentially what happens is the more people buy ether and currently about 12,000 bitcoins worth of ether has have been bought but you know this could increase so the more people the more Bitcoins people put into uh this project then the more ether are going to be created of course in the future right if you think five years down the line that means that if there's a some amount of demand for ether if twice as many ethers have ether has been created that means uh the price of ether is going to be

half as much so we have a a basic Dynamic that more people investing in ethereum more people buying ether deludes your shares as somebody who also wants to buy ether so in that sense um you could say that that um ideally perhaps assuming ethereum is still going to be built and successful you would want to be the only one buying ethereum ether of course that's not the case right there's been uh hundreds or thousands of people buying ether but you have this kind of dynamic that the more people invest this the smaller the share of the total supply of ether that you own

um of course there's another Dynamic and which you could say perhaps it's more likely that ethereum is going to be successful if they have more money right so if they raise no money whatsoever assuming that uh and you know they wouldn't be able to finish the code then perhaps uh that would been terrible so we want a certain minimum level of investment and perhaps the more they have the better they can make the platform Etc now this may be going on to some extent it is certainly going on to some extent you know I know they will do things with it the more ether they have but I I think it's actually quite Limited in in my personal view um I suspect that kind of regardless of how much more ether

they're going to sell the current level of uh funding they've gotten is enough for them to develop their platform and and then it's just going to kind of be up to the competition how well it works Etc how successful it is so so that that kind of dynamic of you know you wanting to have more investment so the platform is even better I don't think it's so strong [Music] here so if you look at it from that perspective it's actually a really good idea to buy at the end right to buy after everybody's bought already or

after most people bought already and so you have a good idea of what actually are you getting because if you bought some in the beginning you had absolutely no idea whether you would now own 0.1% or 10% or or what what percentage of ether you would end up owning in the end now the interesting thing is that tomorrow so that's Tuesday August 5 The Ether price is changing so right now if you invest in ether you get 2,000 ether for one Bitcoin but on Tuesday this is changing and it's changing uh to 1,970 Ether so essentially the price of ether is increasing and you get less for

your Bitcoin now the consequence of that of course is that most people who want to buy ether will do so before that date so if you buy on that date or maybe the day after uh that's um you will have a lot of information then you will basically have a really good idea of how many people are investing in the platform and you have a good idea of what percentage of ether you will own and even down the line what you will [Music] own now let's talk a little bit about the sort of monetary dynamics that are going on with ethereum if you think of Bitcoin a

really crucial thing that has driven the value of Bitcoin has been that idea or has been that Bitcoin is limited right the will never be more than 21 million Bitcoin so if you think of it oh but let's say the world adopts Bitcoin let becomes the world's Reserve currency then those 21 million Bitcoin have to uh be enough to satisfy this huge amount of economic transactions of reserves of wealth held in Bitcoins so the only way for that to happen is if one Bitcoin becomes really really valuable so I think this has driven a lot of the development in Bitcoin a lot of people gotten into it because of that because they understand um and of course also currently the

value of Bitcoin right we we're at something like 78 billion dollar um you know that's really driven by that it's really driven by the expectation of the future value now with ethereum we have a similar but somewhat different Dynamic so if a certain number of Bitcoin are invested so let's just say uh it stays at the current rate which is uh 12,000 Bitcoins that means that 24,000 uh 24 million ether will be issued or will be given to the people uh buying ether people investing

here now in addition to those 24 million uh what they will also do is they will create uh 20% more of that so that's you know 2 * 2.4 million ether and those will be split so 2.4 million will go to the founders and uh 2.4 million will go to a foundation now the founders of course these are people like V Gavin who've been working on this for months you know who've been kind of full-time diving into this for I guess up to about about nine months or something like that in the case of vonic so those you know they haven't gotten paid for the most part so so they will

get some of that ether U basically for to pay for their work and I think also to pay for their work going forward and give them sort of an incentive in the project another 10% so another 2.4 million assuming it stays at this current uh level will go into foundations and that foundation will use it to pay developers and and other staff in in the future so essentially that means uh that you are slightly diluted right slightly more ether actually created than RB purchased but it's not crazy right it's it's 20% more and the other thing that happens afterwards is that every year 26% of that amount that's purchased by

investors uh during the fundraising period are mined so let's say it stays at 24 million that means that at 26% every year are mined so that's 6 2 million ether now that's going to be the case forever right so every single year 6.24 million are mined so of course that means that your share of the total amount of ether is going to go down every year and you know in the end at least a, years from now it's going to be pretty close to zero um but in in the sort of near term it's going to be higher um this is if we compare this

with Bitcoin we have a slightly different dynamic right with Bitcoin we have a decreasing inflation rate so we had you know 50 Bitcoins per block in beginning then 25 it's going to go to 12.5 6.25 Etc now with ether is constant right it's always 6.24 million per year I don't know what that translates to per block I don't know if that's been figured out but um so it's not as deflationary as Bitcoin but nevertheless right 10 years down the line a lot of ether will have been issued and it's still 6.24 uh million that are mined that year now of course that's a much smaller percentage of the total amount of ether

that's been issued than next year right so in the first year of operation essentially the inflation rate is going to be about 20 25% and that's going to decrease every year until it goes also tends towards zero so uh the kind of point I want to um get you here is that uh ether is sort of deflationary right so I mean it has an inflation rate but it decreases it doesn't do so as rapidly as Bitcoin and uh so it's it's perhaps not as attractive from that perspective uh as Bitcoin is but uh I think it's it still has that Dynamic that if a lot of people are starting to use ether it's not like

The Ether Supply is going to Ballo no it's independent of how many people are using um ethereum so you do have that Dynamic that if ethereum is successful we will see a dramatic price increase at least hopefully um there are a few more things I want to briefly touch on uh first of all I I think it's quite similar to purchasing Bitcoin in many ways because we have a similar Dynamic right it could become really big platform could be super successful which would increase the price and one important difference of course is that ethereum still hasn't been issued right there's no like there's no uh working client I mean there they have a test net

they're testing it but it hasn't been sort of tested in the real world when real money is at stake this means less proven than Bitcoin right it could be flawed perhaps we will find some terrible thing in there that just can't be fixed so in terms of a risk level the risk is obviously higher than Bitcoin and I would say it's much higher than Bitcoin so that's something to keep in mind of course at the same time we could also say the valuation is going to be very different right today uh sort of that the value of all the Bitcoins in circulation is about 8 billion um now I don't know how many um what kind of invest level the people will get but it's going to be way way way less than

that now does it make up um you know is the kind of increased risk and the better price you get is that a good deal I don't know I mean you have to figure that out but at least fundamentally that Dynamic is there what's also important to realize is that ethereum is an open source project so all the code is going to be public it's going to be on GitHub people can take it can do whatever they want with it just like with Bitcoin right people have cloned Bitcoin they've created Litecoin Dogecoin and all kinds of other things with it uh the same thing will happen with ethereum right the same code will be there and you can make uh other the projects I know it's actually has already happened even

though the life Clan's not out yet uh there are people who basically want to do ethereum but instead of um the money being owned by the people who purchase ether the money is just going to be given to all the Bitcoin holders so that's a risk as as an an e as a somebody buying ether of course that's a real risk right so because it could be that the platform is developed some people take it maybe they're more successful with it but then your ether can't be used on that platform um and they become totally worthless so that's that's a real risk um and it's something to be aware of I think there's one big factor that

ethereum has kind of going for it and that's something called Network effect so a network effect is essentially the idea that the bigger something is the more powerful becomes uh and the the more efficient it becomes uh now money is like that right the more people use money the more useful it becomes and that makes it really hard for somebody who just shows up new and starts something small to become big because the big um the big currencies have an advantage already because of their size now we have similar things in other areas let's say Facebook right so if you want to be connect to everybody of course it's much better if a lot of people are already on

the platform that makes it hard for somebody from scratch to start a new Social Network because nobody's on there nobody wants to use it it's not as attractive now we may have something similar with we may have something similar with ethereum and we have something similar uh with Bitcoin right so with Bitcoin you the more people use Bitcoin the more attractive it is the more useful it is and with all other currencies we generally don't have the size of community of applications Etc now with Bitcoin what we have seen is that even though lots of people have cloned Bitcoin have fored Bitcoin done

sort of new Bitcoin variants uh overall they haven't been super successful right Bitcoin is still if you look on coin market cap you can kind of see what's the total value of Bitcoin or of of you know of all the cryptocurrencies of the value of all total value of all the cryptocurrencies and uh I think last I check it's about 93% so it's it's pretty high so you could say that all those people copying Bitcoin it hasn't probably not affected very much the Bitcoin price with ethereum we could have a similar situation we could have the situation that a lot of people developing applications on the ethereum platform and because of that the etherum platform is attractive and valuable and

it has these Network effects that it's much more possible to do a new application on there because service is already there and that makes it harder to just clone it and and create something new and compete with it now I personally think that these Network effects will be present with ethereum so that is something that will protect ethereum but of course there no guarantee it could absolutely happen that in the end somebody just takes ethereum takes the work they've done clones it and and maybe that's going to be more successful uh I know one proposal I'm actually one project I'm I find very really interesting side chains which is B essentially the idea that you allow this kind of innovation that etherum is trying to do but using the

same monetary Bas as Bitcoin now uh I'm sure somebody will try ethereum on a side chain and and if that happened it's possible that uh The Ether wouldn't be used there and and they would lose value so so it's a it's a risk uh it's a risk to keep in mind so I think that kind of uh comes to the end of it I guess one one thing I should interject here um which is that um because ethereum is not live yet you can actually buy ethereum now essentially you put in Bitcoins and you get a wallet or or you get some file that wants the ethereum test net uh once ethereum the real thing is live you can kind of import it and you get your ethereum balance so also means you won't

be able to trade it right so if you buy some ether now and you don't want it anymore well you're going to have to wait until the actual client is out until you're able to sell it um so yeah that's also kind of something to to keep in mind so I hope that gave people a bit of a bit of ideas of how to think about this ether sale my personal view is that it has a lot of potential and of course it has a lot of risks so I I think personally I feel like it makes sense to take basically small portion of you know my Bitcoin Holdings and put it into ether but I also think it it would be

very foolish to say oh uh you know this is better than Bitcoin so let let me sell all my Bitcoins and buy ether I think that that would be a not very prudent idea and extremely risky um so I guess I should also add a disclaimer because of course I don't want anybody to come to me and tell me oh I was wrong um or blame me if something goes wrong and uh that is please do your own research uh really look into this look into ethereum think about whether it this makes sense and then you know be prudent and and uh make your own judgment also one thing to really keep in mind and uh you should put a kind of high priority on that is to uh keep like make sure to take all

the necessary security precautions when you actually buy ether you know if you choose to do so uh because of course if you uh lose the file or if it gets stolen or if you don't use good password for encryption or something like that uh it's possible that you'd lose them and of course that that would not be desirable so it's it's important to kind of do some research on that and be sure to store them in a secure way so I hope that was uh interesting and helpful so you know once again uh be careful make your own judgments um but I'm yeah I'm really excited to see where this is going of course uh all these things I've

been talking about may not be so relevant for you if the reason why uh you want to buy ether is just to support the project and support the work they're doing um I'm I'm sure some of you will uh will be driven by those motivations and it's really important I think that this infrastructure gets built you know kind of regardless of uh the the financial prospects of um the people purchasing ether so thanks so much for listening today U we hope this was interesting for you I hope you learned a bit about ethereum um and about the kind of ether sale that's going on and about all the exciting things that are waiting us down the line with ethereum and with other projects that are trying to take

that amazing Innovation that was accomplished with Bitcoin and with achieving a decentralized consensus and that are applying to a much broader range of issues but thanks so much for listening now if you want to support the show you can of course do so by donating we do very much appreciate that and you can do that at epicenter bitcoin.com tips you can also follow us on Twitter we're epicenter BTC and we do very much appreciate it and really helps new people find the show if you leave us a iTunes review and now uh finally we send out a newsletter every Friday uh and you can sign up for that at epicenter

bitcoin.com newsletter thanks so much for listening and we look forward to being back next [Music] week