EB51 – David A. Johnston: DApps Fund, DApps Whitepaper & Best Practices, MSC Protocol Foundation

Transcript

hello welcome to epicenter Bitcoin the show which talks about the Technologies projects and startups driving decentralization and the global cryptocurrency Revolution my name is Sebastian cuccio and my name is crane Our Guest today is David Johnson David Johnson instead of one of the most active guys I guess in the Bitcoin Community he's doing all kinds of things so he's a board member of the mastercoin or MSC protocol Foundation he's also the managing director of the dapps fund number one so that's a fund that invests in decentralized applications I think it was probably the first one but you know they would will be able to give some background on that he's also the

co-founder and executive director of the bit Angels Network which is a an angel networks or an network of early stage investors who invest in Bitcoin companies and decentralized uh blockchain Technologies and he's also speaking at pretty much every Bitcoin conference that's taking place anywhere in the world which somehow he manages to do it all at the same time so yeah it's great to have you on David it's good to be here appreciate you guys having me on today to talk about decentralization okay it's in the title of our show we had to have you on at some point that's right so um perhaps to get started do you want to give us a bit of a background about

yourself and perhaps how you got involved in Bitcoin originally sure so I Was a Serial entrepreneur for the last 14 years uh building mostly software and technology companies uh but also a few in biotech and I found out about Bitcoin in 2012 through a program in friend of mine and uh I had already become you know um uh voluntarist and a Libertarian by my political uh beliefs and when I found out there was a non-governmental currency that couldn't be inflated by politicians I was like okay I would like to change all my Fiat dollars for

Bitcoins and so it was still pretty rough in 2012. it wasn't easy to change over Fiat to bitcoin uh certainly not as easy it is as today and so it took me four months to uh actually change over all of my Fiat oh so you went all the way in 2012. yeah well I mean come on I know the dollar is going to lose value every year and I figured non-inflationary currency could could do better than that so yeah it was and it really it really exemplified the pain points in the whole uh Legacy Financial system for me because every time I tried to move money I would hit these

restrictions like this is the maximum amount you're able to wire today and this is the maximum amount you can send through MoneyGram and this is you know oh you did two transactions of the same amount through MoneyGram flagged all that money just disappeared like you there's no repeal process we just uh you know it's probably fraudulent so they disappears Into The Ether right I mean it was like I was up until midnight some days you know withdrawing the maximum amount I could from a bank or I felt found myself constantly waiting for some transaction to clear within the banking system like really it's gonna take five days for the money to move and then five more days for it to clear um it was extremely frustrating but that whole experience just encouraged me more

and more it's like man I got to get out of this old system as fast as I can because it's obviously broken at its very core so yeah it took me about four months but I was able to convert all of my Fiat over into Bitcoin it was also frustrating because the price was starting to move at the time too right because it was going from 10 to 20 to 30 and I was like come on it's got to be a faster way I can convert these funds into Bitcoin so but no I mean I found out about it I looked at it mostly originally for economic reasons but obviously I started to nerd out on all of the back end technology the blockchain really wrapping my mind around all of the things that the blockchain would impact and just sort of kept reinforcing uh my belief that I

needed to get involved in this uh full-time and so what happened is I went to the first uh Bitcoin conference in San Jose held by the Bitcoin foundation in May of 2013 and I asked to be a speaker there and they put me on one of the panels and it was just this amazing energy uh that I found there of some of the smartest people I'd ever met you know every other person I met was a mathematician or a cryptographer or you know from the early days of the internet and they had sort of heard the call of Bitcoin to to come to this place right and and you have to remember the energy like there was supposed to be five or six hundred people there and all of a sudden 1200 people show up to the San Jose conference and uh it was just sort

of pretty incredible and and what I saw was there are a lot of people doing some really incredible stuff and a lot of people that wanted to invest in those projects but there was no angel group no place where you could you know group together due diligence and have investor leads and take presentations and stuff like that so after the first day of the conference I was hanging out with Michael Turpin and Samuel Moz on the roof of this bar at one of the After parties and I was like you know Michael's like it's weird that there's no angel group in this space yet and I said well let's start one right and Michael's like okay we'll call it the uh the bit angels and I was like all right I'll put up the website and then he's like okay well we'll do our first

meeting tomorrow I was like okay well make an announcement on Reddit we'll invite a few people see how many people show up so I literally built the website that night and I made it an announcement on Reddit in the morning and then I made an announcement in one of the sessions and we invited maybe six or seven people and then 25 or 30 investors showed up to the meeting that afternoon so it was obvious that there's huge pent-up demand for like a place to um you know come together and talk about all these projects we wanted to invest in and and the ethos of the group was pretty simple like we've all got a pile of Bitcoin if we reinvested in these Bitcoin companies perhaps our rest of our pile of Bitcoin will become more valuable

right so that was the basic ethos of the group and it just kind of snowballed from there we ended up with five or six hundred members and being the world's largest Angel group within about six or nine months and it was uh it was pretty cool ride the first uh year we invested about seven million bucks worth of uh Bitcoin into different projects uh probably one of the biggest was the master protocol uh during their crowd sale in August of 2013 and uh you know that sort of sparked everything for me to uh start focusing on these decentralized projects that were really using the open source tokenized Bitcoin kind of model and ended up starting the dapps fund in March of this year so that's kind of

been my Evolution from entrepreneur to helping found the angel group to moving full-time into Venture Capital so that's uh it's been my Evolution last couple years and that's how I got started in Bitcoin cool well it's pretty crazy that you in 2012 and sort of all in on bitcoin okay I wanted to date at the time did you think of it as a risky decision or were you convinced this was gonna work when I think about um technologies that I want to get involved in I really what I look at is the fundamentals right so if you compare the fundamentals of the Bitcoin technology to the existing Financial system

the advantages are really obvious and really Stark right you know you have a self-settling system that can transfer value anywhere on Earth do it instantly to any person on Earth that has access to the internet um that's really powerful and there was nothing risk-wise that I could think of that would change those underlying fundamentals um you know I really like uh I believe it's a quote by uh Mark Andreessen talks about if you imagined the world and said if this technology existed 20 years ago what would the world look like today like if the blockchain had existed

20 years ago what would the financial world look like today and what you imagine is probably where things are headed because it'll take some time to overcome the momentum um and the institutional bias of the Legacy system but things will tend towards the most efficient system things will naturally gravitate towards the least friction right I mean if people can make a remittance payment to their brother in Nigeria by sending them a text like it's going to tend towards that versus paying MoneyGram 10 or 20 of your money right so everything else is sort of just doesn't matter everything else is a much smaller consideration will this government or that government not like

the technology who knows but there are enough jurisdictions around the world where those um jurisdictions that are friendly to crypto technology we'll get the benefit right it's sort of like saying well this internet thing will never take off because some governments are unfriendly to you know the values the internet stands for and it's true I mean North Korea right hasn't been very friendly to the internet but then again there's a reason that Google and Facebook and nobody else you know internet wise is located there right because it's a hostile jurisdiction to Innovation so I sort of have enough confidence that that plurality and diversity and competition of jurisdictions is sufficient to

overcome sort of any uh attempts to slow down the technology like I mean if New York wants to pass the bit license you know it's it seems to me like the equivalent of banning computers in the late 80s in New York and okay well the rest of us not New York are going to keep using computers but you know sorry New York I'm sorry you missed out on computers so you know I mean if they go through something too onerous it'll be like killing fintechs for the next decade in the city of New York they can do that but you know it's not a smart move yeah I agree I mean at my old my point of view has always been kind of similar to yours in that way which is that governments and regulation Etc they can

do a lot to delay things they can move it elsewhere they can deter investors they can make startups fail etc etc but in the long run if it's a better technology and to me it seems quite obvious that it is uh you know it will win out right exactly and especially with this technology where the very nature of it makes it difficult to regulate and I mean I think Perez we'll talk about the legal aspects and and the legal status a bit later uh there's a couple things we want to get to before we start diving into this kind of very complex topic yeah sometimes a bit annoying but uh but uh but uh but yeah but I mean before we do that I mean you talked

about um I mean you're involved in the master protocol Foundation um we want to briefly touch on that could you give a brief two minute introduction for those who have no idea what mastercoin is uh on on the master master project sure so the brief history is that um in 2012 uh Jr Willett put together a white paper that proposed building a protocol on top of Bitcoin for some of the more advanced features that um the core devs were nervous about including in uh core Bitcoin software um so a lot of this is you know uh issuing digital tokens on top of the

Bitcoin protocol um building a decentralized Exchange building these uh Financial tools these open source tools for people to be able to move value on top of the Bitcoin cryptographic ledger so you know the Bitcoin core developers rightly so are fairly conservative about what they put in the core protocol so it doesn't make sense and it's very risky the idea of shoving everything into the court protocol so the beauty of Bitcoin is that it's it's a very low level simple protocol everything has been very well tested and so I think his approach made sense where you know okay let's create a separate protocol that will sit on top of Bitcoin then we'll use The cryptographic Ledger it'll have a

separate token and it'll enable enable some of these more advanced features so Jr tried to you know um basically Corral developers into building this uh this new protocol and eventually decided uh that he was going to hold a crowd sale which happened in August of last year where he raised around 4 700 Bitcoin which at the time were about a hundred bucks each and basically set up the plan to okay we're going to develop these Advanced features release this new coin and build out these wallets that support these new features so it was really the first crowd sale to you know go to the Bitcoin community and say here's what we

want to build here's the white paper uh if you believe in these aspects support it so it was really um interesting because I was running the bit angels as the executive director at the time and uh Jr came to the bit angels and I ended up putting together the uh informational report on uh sort of all the back research I had done uh on the protocol and I talked to Jr sort of like every day for five days and eventually came to this point where I put together this report and released it to all the bit angels and a lot of them ended up supporting uh the project and so it sort of evolved from there where now we have web wallets that support things like issuing tokens we have Omni wallet that does the decentralized exchange which is

the first time we've removed uh the counterparty from The Exchange equation and people can do completely peer-to-peer trades directly on top of the Bitcoin blockchain so that's a huge Advance it also removes any fees that exchanges pay because you're basically just using uh Bitcoin transactions as a medium of moving around these tokens um and so that's come A huge way and there have been a ton of other projects that have sort of emulated uh all of the features counterparty colored coins has been implemented since then uh even though their proposal even predated the mastercoin there's also next and there's there's all these projects that we take

for granted today like it's only been a few months but we all take for granted oh yeah it's easy to issue a digital token you just push the button and digital token you know comes into reality but really it's it hasn't been that long that capability only got launched in April uh on the core implementation and it's only been recently where we've had the full functionality of the decentralized exchanges and everything but people already sort of take it for granted and they're building all these cool things on top yeah I mean it's crazy that the master coin right there the crowds that you're talking about I think that was in August no of last year correct I think it probably goes a lot of us notoriety from being being the first crowd sale so if I remember being the first uh project built on top of Bitcoin right

sure yeah absolutely and you know a lot of the original concerns were um okay is this guy just gonna run away with the money and so to address those what ended up happening is after the crowd sale there was a non-profit Foundation form uh the MSC protocol foundation and the foundation basically uh was uh entrusted to payout Developers for the bounties for building the software and all the rest uh and it's done all of that you know I'd love to get to a point where that whole process can be fully decentralized but we just don't have the tools yet to how do you assess the quality of code and reward a programmer automatically based on the

assessment of that code there's some cool proposals coming out and I'm really watching closely the different distributed bouncy proposals but technology is just not quite there yet so in the meantime the best we have our non-profit foundations that you know um you have lots of board of directors that can watch over and make sure everything's being done transparently and so to alleviate those concerns uh MSC Foundation was actually one of the first non-profits in the world literally opened all of its books where you could see every transaction ever done by the foundation who it went to for what Bounty and that was all updated in real time so it was like well the community has you know put a lot of faith in what we're doing we've gotta you know be really transparent about this

so so now we've come a long way you know because we have we have all these other protocols now how do you think uh what's the sort of positioning if you think of this as a Marketplace know where there's ethereum counterparty next a mastercoin uh colored coins um where do you see a mastercoin in that ecosystem and do you think mastercoin has a lost in competitiveness uh because I guess those perhaps had a chance to build on top of it or can you run us a bit through that because it's very hard if you're not really deeply into following the actual

projects to just to sort of understand a lot of These Fine differences between them sure so I think that's a really good question and the first thing that I would preface it with is often people think of these as companies and they're not companies um this isn't Apple versus Google right this isn't Facebook versus Myspace these for the most part are all open source Technologies so I like to think about them more in the frame of programming languages like would you say you know JavaScript has replaced C plus plus you wouldn't really think about it in that terms right because C plus plus is a lower level language that might be

great for writing the trading engine and JavaScript is a language that's great for uh building a web interface and so certainly there are also some languages that have completely surpassed and replaced others I mean sure and so forth exactly and that's okay you're right you have iterations and generations of these languages uh that develop and they build off the learning from each other right so if we end up with a much more efficient system that uh you know issues tokens and does all these features right that benefits everybody right so you know I but that's that's firstly how I frame it is all of these projects are learning from each other all of them you know can take best

practices from each other and they don't necessarily uh have to compete in a lot of ways that a traditional company does the second thing is you know what I'm seeing is a lot of specialization and uh a lot of the specialization is around sort of what these protocols focus on doing so you know ethereum has a much different Mission set which is around building a platform for running scripts and letting people build applications um on top of their their blockchain versus something where like mastercoin where it's about creating tokens or holding uh crowd sales or and decentralized exchanges things like that so what I've seen is a lot of diversification and specialization in

each particular protocol so let's take counterparter for example um I know the counterparty guys um you know I've watched the development since the very beginning and it was really born out of a desire to do a different feature set than the one that mastercoin was focused on developing at the time mastercoin was focused on developing the coin issuance and the crowd sales and there were a group of people that are like we want to build gambling we want to build uh cdfs we want to build uh these other set of features you know and they weren't really priorities in the development roadmap of sort of setting the foundations of issuing tokens and things like that and so those guys split off and said okay we're going to go develop those features and they've been sort of really aggressive in uh building out

sort of these different Advanced features but at the same time you know I feel like the master protocol has carved out a niche where it's been very well tested there are tens of millions of dollars of value now uh held and traded on top of it uh thanks to made safe and other projects that have issued their tokens on top of uh the master protocol and so whereas with counterparty you know there's been sort of a lot of experimental features and if you wanted a Sandbox to go play in you know for cdfs and other things like that even if they weren't sort of fully tested and maybe they'd have to be rolled back that was sort of very attractive so it depends on your use case you know and the size of what

you're doing and whether it's experimental or whether you just want to store a lot of value I believe that the MSC foundation and the mastercoin community has done a really good job of constantly testing things it's avoided any major exploits of the underlying protocol and be able to build up a really good reputation for those sort of serious projects that look at that and say okay we want you know the platform that has has done all that testing so I think there's so much room for Innovation here I mean we're disrupting a what 800 trillion dollar industry in you know derivatives and Banking and finance you know that there might be enough room for a couple of projects to yeah different aspects of that so I'm

not too worried about the competition thing I say more power to all of the people that are working in this space and you know their successes is our success and whatever they do great we're going to emulate in whatever we do great hopefully they emulate that not the only one but I often get the feeling like these projects are competing against each other when I mean we're just getting started here and they do have everything to learn from each other and they should work together but as people watching uh sort of these projects take off and launch new initiatives it's hard not to see them as companies like you say and they you know to see them as programming languages um I mean I don't think that uh that's a good analogy I mean I I don't think that

you know when the guys develop the go language they were thinking that they were somehow in competition with like you say JavaScript or C plus plus or some other language but perhaps at some point the cream will rise to the top and a lot of these uh a lot of these projects you know the larger ones that have gained more traction will in fact [Music] um have a larger user base and others will have a different a harder time coming in you know because you are dealing with money right I mean you are dealing with your financial value where whereas that's different from this that's different from you know programming languages I suppose yeah go ahead yeah I think the point you're making uh a lot of it is also about Network

effects you know and when you're with money you have huge Network effects so that's that's gonna be something that I guess plays out a lot in the long term and it's a topic as we sort of want to come back to uh towards the end when we talk about side chains because because I think plays very much also in the network effects question sure um absolutely and and that's what I was I was just going to say we can hold that off with a later conversation but I'm very optimistic about interoperability right it's it's not a situation where you use C plus plus in your program and it prevents you from using JavaScript in other parts of your Tech stack right I think with the blockchain technology

we're going to get to a point of interoperability where I can say oh I'll use an ethereum script for this part and I'm going to use uh made safe storage for this and I'm going to issue my token with Master protocol and hold the crowdsale and I'm going to do a cfd through uh counterparty and I'm going to add all these different features from and and so when you think about in that context programming languages make a lot more sense because they're interoperable and right now we don't have a lot of interoperability but that's coming and that's coming a lot faster than I think most people expect okay yeah I think that's a great Point yeah let's come back to that uh towards the end because I think that is a very important point when you think about search chains so let's talk about your white paper so you

you've written the right paper I have it here we were both reading it today I think I read it earlier once but I reread it so the general theory of decentralized applications so it sort of just runs through what our decentralized applications how do they work and it's really nice it's very easy to read and a very sort of good comprehensive introduction to the topic um so we have a lot of uh lots of points to talk about here because there's a lot of content here but um perhaps we can start with the sort of obvious first question is can you define what is centralized application is sure and what I'd love to do first is is also recognize that you know I didn't write it in the vacuum and I didn't

write it by myself uh definitely the other co-authors yeah the other co-authors deserve a lot of credit uh Samuel Moz Jeremy Canada Nicos Farzad Ron gross Sean Wilkinson uh Steve Mason I worked with these guys over a period of a few months and we took a lot of other community input we put the whole white paper up on GitHub and you know called for people to give us poll requests and improvements but we basically boiled down a decentralized application to four core characteristics the first being that has to be open source nobody's gonna build a decentralized application on proprietary technology as we've seen from Bitcoin

um just continues to reinforce the fact that open source allows you to bring in all of the minds of the world to work on a particular problem or build a particular project right so that's sort of obvious in this space it's got to be open source the second thing um is that having a digital token associated with that protocol really offers us a tool I think for the first time to monetize open source to instead of building a service company or a red hat on top of the open source and and getting paychecks from that developers can actually monetize the open source itself based on people using the protocol and building demand for the

token so I think having a digital token associated with each different application is a beautifully elegant solution to monetizing these types of projects and Bitcoin really proved right here's a multi-billion dollar project has no CEO and it has no sales force and it has no management but here it's you know paying tons of people to build hardware and it's paying people you know through all these startups and companies to work on the code and to contribute to it you know that's pretty amazing when you step back and think about that as like a model we can use to build technology um the third aspect is is Satoshi had the Brilliance of building this on a

peer-to-peer architecture and not having a single point of failure right if you look at all the predecessors to bitcoin a lot of them failed because they had a central uh point of failure whether it was for the data storage or whether it's their exposed to regulatory risk in one particular jurisdiction by building a decentralized system you push those responsibilities out to the end nodes right you push them to the users and the users can decide how to do Bitcoin in their jurisdiction maybe they can't run an exchange but maybe they can be a minor maybe they can't be a minor but maybe they can have a merchant service right and it gives you this huge diversity because everybody can do it differently in their own jurisdiction the fourth aspect is the idea that

there's this cryptographic consensus mechanism in the case of Bitcoin it's proof of work where we can automate handing out rewards for people adding value to the network right obviously in the Bitcoin blockchain that's captured in the form of the block reward which was originally 50 Bitcoins every block now it's 25 Bitcoins every block and that way of gauging whether people had added value in this case hashing power and basically computational security to the Bitcoin blockchain was an amazing way to remove all the middle management layers from this system and just reward people directly for the value they contributed so I think if you can

replicate those four characteristics for other Technologies you can build something pretty powerful right so I think made safe and ethereum are both really good examples of this right they have their own token they're fully open source they've decentralized the storage and the operation of their uh end product and there's a consensus mechanism uh proof of resource in the case of mainsafe or the consensus mechanism that ethereum has created for miners adding computational power and confirming scripts and ethereum are both like really clean really good examples of how to build this technology now I want I just want to caveat this by saying I don't think this model

necessarily works for every project but I think it does make sense if you're building something that has a network effect that has switching costs and that can be built in this open source decentralized Manner and the other thing I want to say is it's not easy to do this it's harder to build something in this decentralized way but it's a lot more scalable it's a lot more sustainable and ultimately I think it's going to have a much much larger impact if you build it in this way versus taking the easy out well well I'll just create a company and we'll do a proprietary thing over here in the corner and we'll serve only these people

and we'll have some management of some salaries you know you can do that but it doesn't scale and it doesn't uh create World disrupting systems in the same way we can with distributed systems that's my core belief anyway yeah what's interesting in your paper is that uh you you all you specify that in fact Bitcoin itself is adapt and and then and then you go on to uh to classify the different types of daps and so you talk about three different types of daps um can you go in into some detail as to the different layers of decentralized applications sure so it's just a simple framework where you can think about um decentralized applications that have

their own blockchain as sort of the foundational type one decentralized applications you can think about uh platforms that build on top of that so let's take Bitcoin and mastercoin for example right Bitcoin has its own blockchain Master coin Builds on top of that but it itself is a platform where people can issue tokens um and people let's take tether for example is issuing their digital token on top of the mastercoin protocol so that would be an example of tier one Bitcoin tier two and mastercoin tier three uh uh tether and so you can think about this in the same context as you think about software today another example would be for friends for instance a

Bitcoin counterparty and storage right exactly okay yeah exactly so anywhere we have a fundamental um you know blockchain that acts as a cryptographic ledger um or some other consensus mechanism people that are building on top of platform on top of that and so you know you could have more layers um you could have less layers it's not like a hard and fast thing it's just a framework to think about this but think about in the context of software you have operating systems Android iOS you have platforms that operate on top of those operating systems Google Facebook iTunes whatever and then you have applications that work on top of those platforms right you know Google doesn't write all the websites it

doesn't write all the applications right people put them on top of the Google play uh ecosystem or the Apple App Store system and so I was just thinking about it in that type of framework is in technology in general we see stacking and specialization of technology and I think that's happening in Bitcoin now one thing one thing that I was thinking about when when thinking of these different layers is the the inoperability between layers but also the dependency on on the underlying layers so it if you think of the state at which Bitcoin is currently I mean it is a relatively new technology there's not even a version one out yet many

would consider that Bitcoin is still in beta in fact so and and there are some issues like that have been coming up and that some say need to be addressed such as scalability issues the issues with 51 attacks uh some claims to the security of the elliptic curve algorithm being vulnerable and things like that so they're I I think people would agree that there are quite a few things with with the the core Bitcoin protocol that need to be issued and probably will be issued in the next few years and what are your thoughts on the fact that a lot of these decentralized apps are building on top of Bitcoin would that pose a problem in the future where um the uh I guess the the underlying technology

would somehow be lagging behind and not being able to sustain all the things that we're building on top I guess first question and second question should we be concerned about the fact uh that and I mean uh and an update to the Bitcoin protocol might break some of the functionality of the of the things that we have built on top so let me say two things first um I'm gonna say why I'm not I'm going to say I'm not concerned and then I'm going to walk through an example of why I'm not concerned um it still is early days but Bitcoin is built in a pretty beautiful way where all of the records every transaction ever I have a copy of it on my Bitcoin core note right I can

export all of those transactions and let's say for example um ethereum becomes the dominant blockchain I can transport all of that history all of those accounts all the metadata that's stored in the blockchain to any future blockchain that might be better um but here's why I think a lot of the uh technology on top of Bitcoin will be scalable is we have people working on really important projects that are going to solve bloat they're going to solve confirmation times and that are going to solve uh issues around speed right so really the scalability those issues aren't going to be dealt with at the

core level but would be dealt with at uh like class two class three they'll be they'll be built they'll be dealt with at the core level so it'll probably it'll probably be both but because of the network effect Bitcoin has attracted the majority of the time energy effort mind power mind share of the smartest people in the world to work on fixing it either in proposals like side chains where there are changes made to the Bitcoin core protocol or projects like factum.org that is a layer on top of the Bitcoin protocol that improves the scalability or solves the bloat problem right

they're working on top of Bitcoin and Bitcoin is likely to get those Solutions first because it has that huge Network effect right so I think it'll be a combination of changes to the core protocol but which have to be done slowly and cautiously and people building uh improvements on top in layers on top right so let's take factor for example um there is so much data people wanted to put into a blockchain and there's not enough room to put it in there right I mean talk about a huge resource it's an immutable database right it's a third-party immutable database that sits in the cloud and Records things forever and time stamps them that's really valuable that is that is amazingly

valuable right but there's a limit on how many transactions the blockchain can handle and how much you know data Miners and uh people that are nodes want to store and so factum is solving the bloat problem by letting people create these uh factive blocks and on factum chains and take thousands of hashes put them into a hash that block and put it into a single hash and then you take that single hash and put into the Bitcoin blockchain and you're basically extending the Bitcoin security model to all of that data through a proof of audit right because you can prove that this hash here in the blockchain had to have been made by this block of hashes

and then you can go one step further and say well this particular hash had to have been this document in this form at this time and so now so they did a really cool proof of uh concept they took every Omni Wallet transaction ever and they put it into one hash and hashed it into the Bitcoin blockchain and now forever you could validate all of those transactions having been in that form at that time and once you take one more step and you begin to chain those records together now you can basically have a proof of process where you can prove any process took place because you have time stamps from this document document change time stamp again the document change time stamp again and so what you're talking about is extending

the blockchain security model to the rest of the internet right the internet that we can't fit on the blockchain we can hash and use the security of the blockchain to attach it and basically Loop it into the security of the blockchain so those are the kind of protocols that I think are going to really impact how this scales and those are just sort of starting to hit so I'm pretty optimistic about us being able to scale Bitcoin because of projects like that cool well let's talk about one of the sort of most memorable and perhaps also widely mentioned and quoted things you wrote in a paper or you guys wrote in a paper which is a statement you made that everything that can be

uh decentralized will be decentralized which is right very very provocative and uh extreme statement so much related to your to the white paper so let's talk a bit about this do you do you think this is literally true or do you think is this um well it's it's literally a truism right I mean if it can be decentralized it will be decentralized I mean it's it's self-evidently true right you know so it may be a bold statement but it's also self-evidently true it's not it's not evident to me okay to me it seems like well it can be decentralized doesn't mean it's a good idea

maybe so but the way this actually came about is uh it wasn't originally in the white paper um I actually coined it at uh coin Summit in San Francisco uh earlier this year I was on the stage with uh vitalik and we were talking about dapps and I said you know I kind of want to coin Johnston's law as everything that can be decentralized will be decentralized and that's sort of where everybody had tweeted it out and it became a thing um but I had been thinking about it for years before that I used to call it uh the Johnston um hypothesis of system competition and it was the idea that you know competing

systems over time will tend to have the most efficient system win right there's a reason we're all not Hunter and gatherers literally picking up our food from the bushes right because agriculture was a thousand percent more efficient at Gathering calories than hunting and Gathering right and virtually all the world now uses agriculture as its primary means of finding food right we see this of course in technology you know those that adopted the printing press you know had a means for transferring information much faster than those that took longer to adopt the printing press and they had a huge advantage societally over those that didn't have that technology right so if

you look throughout sort of the Arc of history is we're always moving towards more decentralized more efficient systems that are more anti-fragile right and those centralized systems that cause things like 2008 financial crisis they're going to get you know left by the wayside over time for in in favor of systems that are more robust right so that's the basis of of what I came to that whole conclusion about that's sort of boiling down that theory and my whole ethos into one statement would you agree that there is an efficiency trade-off where uh centralized applications tend to be more efficient uh than decentralized one but decentralized ones

may have all these other advantages that they're not corruptable or things like that sure absolutely and I think Peter Todd does a good job of emphasizing that in his talks he often reminds people just watching the video last night of him reminding folks that centralized systems in a lot of cases are great gets done things quickly um you know for most people PayPal is just fine and so it works it works until it doesn't until PayPal decides your particular business isn't one they want to support then you need a decentralized alternative where there isn't a gatekeeper you know I have this experience uh uh four three or four years ago I was building a Kickstarter campaign for a new uh natural language

processing uh machine learning uh software program and I was building this Kickstarter and I got the video together and I did all this work built the team built a beautiful website all these things I've I got approval from The Gatekeepers at Kickstarter and they you know gave me the thumbs up you know go ahead and run your Kickstarter we had raised 50 of our goal in just the first three days and then Kickstarter turned it off no explanation no letter no process of appeal just for whatever reason we decided you shouldn't be on this site anymore and so at that point all of a sudden you know I was racing around looking for a

decentralized alternative I found Indiegogo which doesn't have an approval process in which lets anybody put campaigns up there and I rekindled the thing and moved the whole thing over there but it was sort of a good analogy for centralized products work great until they don't right until you're somebody they don't want to work with or they freeze your funds or whatever the case is so you know there are certainly costs to having a decentralized system but in a lot of cases people are are willing to pay them like for instance most people don't know that Indiegogo does more volume than Kickstarter does Kickstarter is just really good at marketing and you know talking about what they do so uh if I'm a sort of rephrase your law uh would you agree

that you mean that sort of in every application if it's possible to make a decentralized alternative in some cases that will be preferable and I guess if the interest is big enough somebody will do it and so so I think it's more than that though I am making a bolder statement and then then just there will be a decentralized alternative I believe the decentralized Alternatives over time will dominate in volume and utility uh and in usage right so you know it's not a great analogy but look at Android versus the Walled Garden of of

apple right which one has 80 of the market share and which has 20 of the market share and Apple's great at making beautiful simple user experiences But ultimately you know if they let's say kick all your Bitcoin apps off of the iPhone which happened to me you know um that makes for a pretty bad user experience right and that's the difference between a closed system and an open system so I would say over time the decentralized systems will catch up and surpass in utility centralized systems um because by their very nature they're more efficient um but they have they have different uh abilities and different strengths than

centralized systems centralized systems are easier to build that they don't scale as well and they don't offer sort of ultimate flexibility and uh sustainability so I think all over time the vast majority of the world services will be provided through decentralized systems I think in order for that to happen there is there is however so there I agree that there's some sort of a paradigm shift that's that that may occur that kind of uh starting to see uh and perhaps in a few years that may be true however we have how many thousands of years however many thousands of years of society uh behind us where we have always looked up to uh leaders that

whether that be politicians or companies or corporations and things like that and in order for that vertical uh uh hierarchy to kind of flatten out there needs to be a paradigm shift in the way that people think and I guess people find security in knowing that I can always because people do trust companies I mean they buy their products you know if they use the services people find some sort of security in being able to um complain I'm sorry call a number and complain exactly right so with with Bitcoin with dapps uh you know you don't have that so what

needs to occur in order for the for the Caps the the centralized apps I guess you want to call them to be dethroned if I could coin something to uh I'll call it caps I like that um what's going on here uh yeah I guess that's my question is it generational I mean do we need to create a Jeremy Gardner uh like to say Generation blockchain Um so I I don't know if I agree with the underlying premise I actually think we've already gone a very long way towards embracing decentralized systems right let's look back three or four hundred years the vast majority of human effort and human time was coordinated by Central entities one of them was known

as the king another one was known as the church there were these huge monopolies that literally um in the 1600s early 1600s the king would literally give a monopoly for the production of sugar in the production of wheels and the production of you know carriages and so on and so forth right it wasn't until 1624 when they passed the statute of monopolies which basically got rid of the king's power to give out monopolies which sort of laid the groundwork through the Industrial Revolution in the United Kingdom uh The Next Century or two after that um before that point for most of human history we were used to the world in which the king would give somebody the powered the soul hour forever to produce

a particular good these were Perpetual monopolies so now we live in a world where we take for granted that there's nobody with a funny hat that tells me what I can believe there's nobody that can sit on a throne and can decide who made my iPhone and who makes my table and who I agree with the throne is the guy on the news right or or or the politician or the CEO of the company you know the perhaps that we're looking at multiple people but we still have like like Brian said a number we can call to complain sure so that's exactly I would agree I would agree with that right so um we've moved from a hierarchy where there's a single point of central

control to there are lots of central points of control in these corporations and I think what happens is this decentralized application architecture makes the corporation irrelevant it makes the corporation obsolete as a means of um Distributing wealth to those creating value in a system right when when we have La Zeus which just launched recently the Israel Bitcoin conference and I can jump on their app and I can literally directly pay somebody for giving me a ride and there is no Uber there is no lift to process the payment or decide what the rates are or any of

those mechanisms you know I now have a system where I don't need a central entity or a middleman to play those roles right what we're doing is this is the great alleviation of the middleman It's the Great Removal of the the central Authority is this gives us the tool set where you can change that Dynamic and begin rewarding people directly and so what I'm saying is we're doing very simple things we can reward people for right now computational power storage Transportation things that can be easily Quantified but what's going to happen is that we build these Progressive layers of systems we're going to do more and more complex things in a fully distributed way that's the future that I see is this is going to disrupt almost every industry on Earth because it's

going to remove all of that management and middlemen and basically write business logic into code just the way we can write law into code with self-executing contracts that's the world that I see going forward so touching on those future cases so a lot of people have been talking about you know storage uh decentralization of cloud storage you know this kind of ride sharing model or you know these things that are quantifiable and then we can easily kind of think of and and and decentralize what are some of the less obvious ones like where do you see this in maybe 20 years from now what are the type of things that we see decentralized then so I think we'll go up this curve right where it's simple things now that can be

easily Quantified to just about everything um will fall into that category I think in in 20 years um I think this is not a 20-year Revolution like the internet was you know um this is uh an eight or ten year Revolution I mean to get fully to mainstream where all of these systems of Incorporated blockchain technology because it's like we've already got the internet around to tell people about this new internet we invented right that's a much faster adoption curve where people already have the hardware and they're already hooked in and you've got two or three billion people online and you have seven billion people with cell phones the monetization is embedded right exactly so I think it's going to

move a lot faster than people expect I hear some people say well maybe in a hundred years it'll replace you know Fiat currencies whatever you got to be kidding me if a government isn't integrating blockchain technology in the next five or ten years they're going to be not only obsolete but their their currency is going to be gone and there's just no way that it's going to compete with this technology unless they adopt this technology it's very simple it seems that that simple to me so should we create a fairly bet eight years from now we have completely integrated that we just have to figure out I'm I'm transcribing it right now so if a

government doesn't integrate blockchain technology in the currency in the next five years uh their currency is gone I like it um well I mean look look at where we are today Bitcoin is already worth more than 80 or 90 of the currencies on Earth we've already passed the value of half of the world's currencies the truth is most people don't have very good currencies we're fairly spoiled as much as there's been huge inflation in the United States and Europe you know we're still fairly spoiled compared to that 10 trillion dollars Zimbabwe bill that I have in my wallet right that's a world in which all of your savings gets wiped out every few years due to government uh intervention into the monetary system

right that's that's where this is going to have a huge impact it's the guy in Scott in Argentina more than it's me right I'm the outlier here that converted all my Fiat into Bitcoin in 2012 but the guy in Arjun Argentine I mean in Argentina it's it's 50 inflation I mean he's literally losing half of the wealth he keeps in Fiat every year right that's a real meaningful immediate reason to embrace this kind of technology so it's about the other six billion um so I I mean regarding the the sort of adoption question that you said just very briefly before we move on to to a topic that we've been coming back to and back to again uh which is the legal

question my my view is it's definitely a problem that you don't have somebody to call and complain and you lose it people are responsible and there's no one to go to but I think fundamentally it is a user interface challenge right now right now these apps are difficult Etc but once uh an app like let's say there's a decentralized uber and it's super smooth and easy and it just feels great and it works I mean people will use it and nobody's gonna think like oh but what yeah so I think these problems are all solvable and and their problems in the short term but I think there won't be problems in the long term I think there's one there's one issue that that will really have a

hard time tackling in the user uh um experience point of view is you know putting the responsibility back in the hand of the user right like yeah I agree that's the biggest pocket it's yours and it's your responsibility to keep it safe well at the same same thing with the keys and you know up until now we've had companies that we can always turn to to reset our passwords or whatnot um this is I think it'll be the probably the biggest challenge and once that's once you figure that out coming months I think even that is something that you'll be able to do sure so it's it's interesting we're getting to the point where the technology is making it pretty viable you know if I have an iPhone and I

literally use my fingerprint as my password I'm gonna I'm not gonna lose my fingerprint right um and multi-sig I think will also play a big role in this I just saw in the coinbase blog this morning that they've now enabled people to be responsible for their own private Keys as part of their multi-signature vault right so this gives me tools for multiple people to sign another transaction maybe I connect it to multiple email addresses if I lose track of one I've still got the other two ways of uh signing it so I think we can overcome those but passwords are definitely a huge problem they're a pain nobody likes keeping track of them and so we we definitely need some big

improvements when it comes to how we manage our our private keys and our passwords but there are a lot of really interesting maybe the sort of Internet of Things connected is certainly the health devices might solve this in the future by using some sort of digital signature from your DNA or something like that to as a seed or yeah who knows yeah maybe not your DNA but I mean something unique to you which which you'd be able to capture with uh we'll draw some blood yeah and then you can try to log in somewhere um well before we wrap up so we don't have a lot of time left but we do want to come back to one topic that we've

talked again and again which is the sort of legal status I think that's it's uh of course very tricky with something like decentralized applications sort of a gray Zone and it's interesting I I don't know when that was exactly written but um well actually pretty early right so in in your paper you talk of decentralized applications and and you actually go into a little bit that you don't want to talk of decentralized autonomous corporations because corporations has all these legal connotations Etc and it's interesting I think today if we look at some of the projects uh not least being ethereum who I think are probably the ones who spend the most resources into looking at the legal side of the crowd sale and and you

know if you look at the terms they talk of a pre-sale of a product which to be quite Frank doesn't really feel that way but uh it's definitely a sort of a legal position to take where perhaps up uh that protects and I guess you were quite Visionary or you guys were quite Visionary and sort of taking that sounds early on but I'm curious um do you honestly think that's going to hold on absolutely I really do think that's the most logical conclusion here if you think about it purely from a technical perspective a private key is literally a password that accesses a piece of software the only thing you can do with a Bitcoin

token you send it across the Bitcoin Network that's all it does it has no dividend it has no Revenue it's not a promise of future Returns the only thing this does is access a slot in The cryptographic Ledger and you can send value across the system so if you're Building Systems of that same nature right the only thing ether is going to do is let you run a script right you can't do anything else with it and it's literally a password that lets you access so from a very obvious very fundamental technical basis I think that makes sense but quite obviously even with Bitcoin right you can take that stance but that's not the thing that the government says right there will okay

but then now if you hold funds maybe you're a money transmitter maybe Money Services business Etc um so even there the position to this is just a product or that that's not really working right well some of it is educating um the Regulatory Agencies on what Bitcoin is you know they're most familiar with it as an application for a payment network but we all know from a technical perspective that's not what Bitcoin is from a technical perspective it's a cryptographic ledger it's an accounting system it's a way of moving value but all sorts of value not necessarily monetary value and so you know I think

some of this is an education uh process where they're just wrapping their mind around you know what Bitcoin is like I remember the early days of the internet you know when people thought you know the internet was email you know and it's like if you tried to write a bunch of regulations about the early internet and all you focused on was email and sending Communications and whether that fell under the authority of the federal uh Communications uh Department right it was the you know uh FCC were they the ones that should give a license for everybody that has an email account right that's that would have sort of missed the broader point of the internet like yes you can use HTTP and SMTP for transferring uh informational packets

but people are going to use it for search engines and social media and banking applications and all things that we had never imagined in you know or the the mainstream hadn't imagined in the 1990s so part of I think it's an educational process we're not we're not done in that process we're at the very beginning of that process they're just starting to even pay attention to this little thing called cryptocurrency or cryptographic ledgers right so some of that's an education process and I think that'll change over time and I think it is starting to change even regulators and people are starting to understand that there's some technology behind this thing that is different than the coin itself right so I think we can get over that hurdle over time and the rest of it has to do with you know when it comes to

crowd shows it's really about setting people's expectations and and informing people what these is what what these tokens are and what they access right that's why I am sort of a stickler about being really uh precise about language because if you use rough analogies like shares or corporations you're bringing in the whole Legacy context of ideas and Norms that people are used to that don't really apply to this new ecosystem so I think we're going to invent our own new terminology this is something that we talked about with uh Michael Jackson who is uh uh former CEO of Skype and and he talked about you know the the early days of

Skype and and and the hurdles that they sort of went through when with with regards to regulation and his position was that you know well when uh Skype was when governments was trying to regulate Skype as a telecom well they were saying no we're not a telecom or we're something else we're we're so you should be regulating this as a telecom so I guess in terms of nomenclature this is probably the maybe the mistake that was that the Bitcoin ecosystem is is uh committing is that they're calling themselves money or a payment Network when in fact they're not and as soon as in the is in the chat room right now yeah

what's that yeah I I mean I I think I saw someone post somewhere because there was this so we don't have a lot of time but which is very briefly so there was a news article recently that and I don't know what the background is and if there's a story there but the ACC sent like hundreds of letters to uh people who'd run crowd sales right and someone made a comment and they said ah what about ethereum you know like are they gonna get in trouble and then of course I think if you did it properly at least in Switzerland but then maybe the Americans won't care right so and then and so and then the person said and like if someone responders like yeah definitely just look at their blog they keep talking about like the ethereum prices and then talk about it as if it

was a sort of a share-like thing and I think quite frankly it sort of me is a share like thing and now even if you can legally frame it as a product and you can have your terms as a product um if it doesn't feel like a product you don't treat it like the product is that going to hold up and a court of law is that going to be what the SEC Etc accepts I I personally have serious doubts about that I know I know it's a challenge but I think we should be um definitely leaning towards that right so it's interesting with all these rumors that have been flying around for weeks I'm I'm not sure how much validity there is to them uh so for instance just

after that article came out the other day uh I saw another one by the Wall Street Journal where they interviewed me and half a dozen other people and ethereum has not received a letter that shares has not received a letter mastercoin has not received a letter counterparty's not received a letter like maybe these letters are going out to somebody but maybe they're scam coins and like real fraudulent activities which in that case you know okay send those letters you know um we want to root out the Bad actors in this space um but I agree with you I think ethereum and a lot of these projects have done an enormous amount of due diligence and have really tried to be good actors in being very plain about what these tokens are what they do the risks involved the software might not work etc etc these

are really important because you know Regulatory Agencies their first thing is customer harm right when somebody complains you know XYZ project you know is fraudulent that's what they go after right they go after customer complaints and they investigate that type of stuff so I think the best thing we can do is I put up a whole white paper on crowdsale best practices and I took a lot of uh a lot of the stuff that ethereum put out and pulled that into that white creeper as well and I encourage people to offer additional sort of best practices and pull requests but you know that's what we ought to be doing here yeah absolutely and what here's what we ought to do is build up those best practices ourselves and not wait for somebody to

come and say oh you shouldn't do this you shouldn't do that we should be saying ourselves how do we you know um set people's expectations how do we make sure that you know Bad actors aren't getting in the system and that they're not you know getting uh getting adopted so I think we can accomplish that and I don't think we need a third party to help us do it I think the industry's already already getting there cool well thanks so much I think we're at the end of our show and thanks so much for coming on we want to talk about side chains we don't have time maybe next time uh because it's such an interesting topic but it was absolutely great talking to you and I think it really covered a lot of really interesting aspects yeah I agree I think we could have went on for another hour

good stuff guys thanks for having me on well uh thanks so much for coming on and uh well thanks for listener for listening and thanks to those who were live on um yeah actually actually Sean Jones is in the is in the Q a session she's been uh she's been mentioned well she's been making some points about uh uh about about regulation which I don't think we'll have time to cover but thank you so much um so yeah to listen us if you want to follow us on Twitter episode BTC you can also uh follow us on Google Plus particularly useful because we do this is a hangout because we're doing video

now and live hangout so you will see uh event notices there and you'll see when we do the next recording unfortunately the time sort of vary so it's hard to get the Rhythm but um also um do leave us 19 through that helps people find it and subscribe to your newsletter which is an episode of bitcoin.com newsletter and it goes out every Friday and gives you kind of the latest and most important things have been going on in Bitcoin world um so thanks so much for listening and we look forward to being back next week all right guys take care see you bye