Securing the Network State

Transcript

and uh you know I and I've uh you know I just wrote a book on starting new countries and and so and obviously this is of interest to a lot of folks in the ethereum community zuzulu just happened and what I want to talk about is what it would actually take to make that real and a level of attack that really is very fundamental um to what we're doing and we haven't really fully considered it yet so just the motivation um if you have a uh a genuinely threatened State it's going to seize assets okay and uh you know one way of looking at this is look at gold uh you know which was seized by the US in 1933 you look at the acid seizure of Russia

uh you know obviously you know after they invaded Ukraine see it sort of threatened decide to seize assets you see the asset freeze of Argentina in 2001 the so-called corollito you see the acid freeze of Canada in 2022 and you may not agree with these things but assets were frozen assets were seized and what's the relevance to ethereum into you know Network States and so on and so Earth well um basically if you actually do want to have a truly Sovereign kind of community you need to be able to hold assets against threatened States one way of seeing that visually is you know it's a very simple diagram let's say you've got a community and it holds some digital assets if the state cannot seize your assets to negotiate it might

have to sell you land for some ethereum for example okay um and you know if that state is spent too much and it needs to eventually sell something whether it's land or something else um it has to do a deal and then you stream some ethereum to it or Bitcoin or some other asset right so if the state can't seize your assets your community can be Sovereign and you can negotiate but if uh the state can go around the side and just get your assets by back during them using perhaps some Network vulnerabilities uh then you can just take your ethereum and uh you just capitulate your community doesn't actually have negotiating Leverage so this is really the the fundamental question as to whether a community is

actually Sovereign or not it is whether it can hold these digital assets uh and whether the state actually needs them and you know the thing is that just a level set on this you know if you went back to 2010 and even after the Arab Spring had happened and governments have been torn down by Twitter and so on many people would still have thought of crazy to say that 10 years later the most important political issue in the world would be in whether the U.S president could tweet for a few days and so even today even after El Salvador's adopted Bitcoin and as a national currency and Wyoming and Tennessee have their dial laws even today after clearly crypto and Bitcoin all this are political issues it's still

considered pretty crazy to say well in five or ten years States will need digital currency to pay their bills they won't be able to function if they don't have hard currency and in such a world that's what taking crypto seriously means it means that a desperate state will do anything to get its hands on hard currency which is gold it might be foreign Fiat currencies but it's also digital currencies and if you can backdoor your digital assets it will this is what I mean by taking crypto really truly seriously if you can hold your assets you can negotiate and if you can't you can't so just to get a little bit more specific um what is the next level of attack okay

it's by Apple Microsoft and Google and it's not cyber terrorism it's cyber War cyber terrorism is when some random hacker goes and gains access to your computer it's an unlawful entry cyber war is when the lawful CEO of the company orders essentially an attack on some of their users similar to what Apple Microsoft and Google did to Russian users of their services after 2022 you know the Ukrainian Invasion whether you agree with it or not um 140 million people had uh many of their digital assets simply seized um and hundreds of billions of dollars of Fiat assets were seized so both the people and the state everything they had

on foreign servers where Russian students didn't have root much of it was seized or Frozen and so so that kind of attack is not unprecedented um and again I'm not talking about like known attacks there's obviously like defy hacks 51 these are things we think about I'm not even talking about state-sponsored attacks like by North Korea or something like that because those can be persistent and nasty but they're still fundamentally trying to fight you on an axis that you've thought about which is um you know can they break the cryptography that can they find a bug but I'm really talking about are like operating system attacks like back doors by Apple Google Microsoft in particular where they have you know they can push software updates to Mac OS to iOS to Android to Chrome to Windows can you

really you know can you really defend against that how would we defend against that and uh just to show you that there's Preston for this it's not totally crazy for example Apple actually decided not to do this device scanning thing there's so-called csam like child porn or whatever this imagery was something that they were going to scan every device to find this needle in a haystack and they decide not to do it but they published a whole technical spec showing how they would do it okay um Google actually did do something like this they went and looked into somebody's Google Drive and they looked for particular content and took it down and not even copyrighted material it was like this you know stupid movie you know called pandemic they took it down now of course one is an endorsing plan didn't make or a csam or something like that

that's always how the stuff starts it's like the Patriot Act where they say it's only for terrorism but then soon it's just being used to revoke you know your your uh protections against unreasonable search and seizure and everybody who goes through the airport is treated like a terrorist so the the device scanning by Apple the drive scanning by Google those are precedents where they show that they can run code on the files that are your files to double your files and and they can freeze them or take them down or flag you in some way and of course that could be a plan by the keys just give a few more Prestons like this um NSA planted backwards and Cisco products Odin talked about this um obviously we all know about the tornado cash you know protocol ban uh and uh you

know that just happened that's ongoing um and again it's not an endorsement of any particular service center near cash actually had another hack recently but but the protocol was banned um and then there's another example some of you might be familiar with which is that a Huawei executive was arrested and under house arrest basically for like three years in Canada and many people believe this was not really a normal arrest it was like a political thing you know where the US didn't like Huawei and so uh you know perhaps it's some reason but basically this executive was caught in like a tug of war and um it was something where the normal kind of Divisions between a company and a country and War and Peace and so on start to break down and so uh you know finally anything that these companies are currently saying

could easily be inverted Twitter used to say that they were the Free Speech ring of the Free Speech party before deplatforming and suspending and banning and censoring and so on and so forth so so whatever is in their terms of service now it can't really be quoted because they could just do 180 degree U-turn if it if there's enough political pressure so what do we do right so I I don't have all the answers I'll give a few possibilities right one answer is you go technologically full stack with an OS like ethos and really in many ways ethereum is you know the Forefront of operating systems research because it's got a compiler it's got a developer environment it's got its own language it's actually like programming for Windows or iOS we don't think of it that

way usually but but ethereum is like you know the Forefront of os research it's obviously got um you know many of the attributes of an operating system you're writing programs for it that interoper with each other and it's a whole environmental Community right at con is kind of like a developer conference just for that OS okay and of course you know other protocols like you know Saga you know by Salon is doing this I think a full stack OS is a really good way to go that's that's a good answer um another answer it's not just technological it's political you know your friendly states that have no hack treaties and what that means is they actually contemplate this kind of thing and they say in advance if this is done then we will do that um so for example Texas has you know the right to hold Bitcoin and shall not be

infringed this kind of stuff is now happening and that's not test Texas it's Wyoming with this jowl law in Tennessee with its style law and Dubai and all these other places that are pro crypto Pro uh Pro ethereum and um and pro-bitcoin and so these these states you might be able to have no hack treaties but I don't know whether the answers are technological or political um or both I don't have all the answers uh but I do think these are some of the questions that we need to start thinking about which is sort of the next level of attack and to actually um not think oh this is totally parent or something rather think actually there's a lot of Preston from this already but the Frozen Russian funds or the on-device scanning a lot of the pieces are in place for a really

um threatened state to do this kind of thing and uh so I think that's what we need to think about that's how you'd actually secure the network State that's how you build a sovereign Community one that actually can control its cryptocurrency if and only if it can do so we can negotiate with the Legacy State and if not it can't so um questions uh at ball.js on Twitter and actually I've got a new thing at biologys.com if you guys want to go there all right I can take questions down um let us know if you have a question for Balaji Bellagio I'll ask the first question uh my name is I'm helping to organize edcon

um and uh obviously everybody's very familiar with the 90 day uh Bitcoin to 1 million bet um in the last couple of weeks I think some of a lot of things have kind of developed and changed um do you see the banking sector stability differently now than you did before or do you think it is just a microcosm of what's happening in global markets and economies yeah I think basically I don't know exactly when the collapse is going to hit and I mentioned that in the pin tweet that I've got the top but I do think that we're an end game now um whether it's this debt ceiling crisis um you know Bank of America has a hundred billion dollars in unrealized losses all alone their cds's are spiking if you go and look at that and that's

like you know a quote too big to fail Bank just like Credit Suisse us offensively too big to fail Bank essentially the zombie economy since 2008 all the zeros that they printed are now coming up zero and then when you look at them they hide them and they push them over to somewhere else it's a it's a you know the it's a bank term funding program or something else the they're trying to essentially uh hide the fact that in many ways the state is out of money and um it's it's not just one thing it's Economic Policy crisis it's uh the banking crisis but underneath that it's the bond crisis because the FED sold assets that are devalued it is that's a student loan crisis that's about to restart it is um a credit card debt crisis it is a commercial mortgage a commercial real

estate crisis rather with you know huge drops San Francisco alone like 75 markdowns and each of these things are big enough to take down the economy it's all it's all a loan crisis it's Sovereign defaults there's like you know half a dozen countries have just defaulted um it's all those things at the same time on top of massive political conflict on top of obviously the Ukraine war and the like almost trillion dollars spent in Europe on energy uh on top of all these countries suddenly going to the Chinese sphere whether it's not just Saudi and Iran but France and Brazil um and all and you know all the Asian countries all of those things at the same time mean that um you know then you add obviously the internal political conflict in the U.S all those things at the same time the

system just doesn't have enough hit points and I don't know when it's going to Keel over but it is and um you know whether that's I I talk about the pen video whether it's months years decades centuries I think it's like 10 months 70 years 19 decades one percent centuries it's possible that 2024 the gigantic fight or the election is what sets it off but I think one shouldn't like we shouldn't believe that this system the current world order that we have is going to endure very long and uh you know Ray dalio talks about this in principles of the changing world are a totally different person totally different bandwidth of things he's not a crypto guy he's a Trad five guy if you look at his thing principles of the

changing world or he thinks the same thing drucken Miller Another you know hedge fund billionaire again totally different perspective he thinks the same thing he's talked about how there's actually 200 trillion dollars in unpaid debts by the US federal government and um there just isn't enough money to pay for all these things and now that's all coming to a head you get you go from zero interest rate policy to zero shared interest policy where the policy is based on zero Shader interest between fighting tribes so tldr though is I I think that while this order is ending um you know folks in this room and folks in the ethereum community are actually an important part of what comes next because uh I do believe I mean you sort of need to simultaneously a not trust the current system but B believe in

Hydra systems right so centralization decentralization recentralization and uh rebuilding Hydra societies after what transpires or it's about to transpire everything is going to be really important um let me pause there we've got some more questions up here foreign yeah I was wondering are you currently bullish On Any Nation States I am actually in the sense of um you know when the when the Roman Empire fell

uh it was actually just the Western Roman Empire that fell you know the the Eastern Roman Empire um basically continued the the byzantines and whatnot and that's kind of like what I think is happening now where um you have you have a decentralized West and centralized East so in a sense um all the country is to first order all the countries that are prosperous 20th century are going to have tough times the century and vice versa so for sure it's not exact um like I'm not bullish on Cuba North Korea or what have you but I think the G7 the closer you are to essentially the fed and the more you you have a country or a company or a community that bought U.S treasuries treasuries are the new

toxic waste at the last cycle was mortgages you know the AAA mortgages I think the developed were safe asset we're actually deadly asset this cycle it's treasuries it's also mortgages but it's it's treasuries in particular so all these institutions Pension funds insurance companies have loaded up on massive amounts of treasuries Often by law that are required under like Basel they're the required Basel through they're required to buy so-called high quality liquid assets of which treasuries are like one easy way to satisfy the requirement and so all these institutions that's why you're seeing systemic issues it's not a single Bank problem it's a central bank problem so basically those countries to answer your question those countries that are the closest to let's call it blue America that are the most trusting of the FED trust the FED end up dead Okay so those

countries that are most trusting of the FED are the ones that are the most screwed and then you can go away from that in several different directions you can go away from that to like red States like Texas you can go away from that to like El Salvador like Bitcoin States you can also go away from that too like India or China which are their own polls and in general I think um you know I I bullish on the East broadly um I think we now actually have peace in the Middle East you have Saudi and Iran are at peace you have Saudi and yemenet peace you have Assad being you know visiting I believe there might actually be peace in the Middle East for for the first time in a long time uh I'm bullish on uh like Dubai and Singapore I'm actually publish on El Salvador and

those countries that emulate them in in South America uh I'm I'm nominal I shouldn't say bullish I'm I think red states in the US can survive uh I think they might be even able to thrive depending on what moves they make um if they limit their exposure to treasuries and things like that um and and actually Eastern Europe uh like places like Poland if they can manage to stay out of conflict um I think are looking pretty pretty good it's kind of an inversion of the last century everybody who is socialist or communist um or had a terrible 20th century is sort of done with that and they just want to kind of build I'm not saying everybody but that's that's a general

General uh Trend and then all the folks who were sort of Born To Riches who inherited lots of wealth and didn't build it three or four generations of being a rich country have sort of Forgotten what it is to build wealth not all of them obviously many of you in the audience haven't but a lot but enough have that it might be their time of troubles so roughly speaking the farther away you are from a country that trusts the fed the uh that's at least one predictor of how you know what you could be that doesn't mean that you're bullish on North Korea obviously but like to First sort of it's a prosperous country that's not heavily invested in U.S treasuries and it actually is building stuff or selling commodities that could be a country that's that's more stable in what transpires great I think we have time for one more

question if you do Balaji great sure of course um hey Balaji I just got one question for you so uh one actually Solana launched the like a phone at that time we have lots of discussion even they have the operating system but Telecom probably stayed like a big block for them and also um you know telecom companies are controlled by mostly um um the Garment so I just kind of kind of wondered there are still a lot of blocks beyond the operating system would probably be the dab probably be the social app kind of thing so we think we probably have to have a big event to

push the Paradigm change um on this kind of field so I just kind of wondered and also data privacy it's a similar situation right it still stayed in the smaller group most of people are not um care about the uh the premises so I just kind of Wonder like uh what's your opinion about this and um do you have an idea what probably to be the big uh you want to push that Paradigm change happened yep so um so well first you know your point about uh you know also at the Telco level yeah there's like two operating systems in a phone there's operating system and there's also like the the baseband OS you know which is quite complicated that

you know um that's that I understand is actually potentially insecure uh which communicates with the you know the 5G towers and stuff um I think it's possible that Elon starlink phone could do it um I think it's also possible that if it looks into it there's you know some way that you can split keys or for example you never form the full private key everything is sort of mandatory multi-sig for any assets above a certain level so you just form the transaction and then you broadcast that so um you'd have to have like multiple devices to ever you know intercept what it is you're doing the tricky part is

all that security often comes at the price of user friendliness uh so so that's like maybe on the first priority question about at the at the network level the other thing is what is the big event um well I I do think that you know something is going to happen where we're going to have there's going to be a lot of money printing at some point in the Nazi distant future um and exactly when that happens I don't know uh but it's you know people have talked about the people's QE right what's to people's QE the people's quantitative easing um I don't know if you know this but California for example is recently sending thousand dollar checks to people to help them with inflation okay if you think about that right they

print the money to help you with I mean California itself didn't print it but it's like stimulus you send the money to help people with inflation which of course Pizza prices that is hair of the dog that bit you uh so the people's QE would basically be something like that stimulus checks direct deposit to people's accounts to help them fight inflation and that's how you truly get on the loop right that's the that's a hyperinflictionary loop um and at that point then people will start moving into hardcore and see again this has happened many times before in history it's happened Argentina it's happened in Weimar Germany it's happened Soviet Union it's happened in lots of places people just have the the idea that it couldn't happen in the west um the point is that if and when something

like that you start seeing a real spike in the USD btdc or USD eth or USD gold which is different because central banks are buying that gold the gold price can normally be gamed but central banks are actually buying physical gold now so that breaks through the gaming of gold price but they do is they buy puts and so on to keep the um they use derivatives to keep the price of gold within a region people have hypothesizes that the exchange civilization fund does things like this um point being though that if and when the price of hard currency starts to Rise um and meaning especially cryptocurrency but probably also gold and I mean really rise then you're going to see digital lockdown you're going to see Capital controls you're going to see

wage controls probably price controls you're going to see you know difficulty in withdrawing money from the country this is already there in the UK um there's people you can look at this right now it's like to get more than a few thousand dollars out you have to go through some rigmarole um and there's various countries where they've made it hard to to even buy cryptocurrency and start trying to they're trying to block the uh the onboarding all right they're trying to block the exits from the Fiat system so uh and this is Operation choke point in the US it's happening in several different places um so in a sense that event is already happening and you're not going to necessarily get like a government isn't going to tell you the push notification okay we're trying to steal all your money you'll just wake up one day and

I'll be gone okay um and and that's what happened for example to in Cyprus with a bail lens they were told this is in 2013 they were told uh you know the bank is fine the bank is fine the bank is fine keep your money in the bank oh Don't Panic it's gone right they basically lock the funds and people have to take a quick haircut those who were unfortunate enough to still have their money in the bank got like you know they got like 50 of it back or something like that and they had no recourse because their government itself and their Banks itself had screwed them so what did the recipients do now they've had you know money under mattresses other kinds of things but now even cash is being disallowed and so in a sense we're kind of in the middle of this event you're

not going to get an announcement maybe maybe you'll get something like digital lockdown uh and they'll be announced but maybe digital lock contain just comes as like 20 different measures and it's not announced as one undeniable thing like covet are you think about coveted lockdown when that you know when that happened that happened about six weeks January 20th you were you know it was the first case in the U.S and for next five or six weeks you were called complete paranoid eight weeks totally paranoid lunatic for saying covet was going to be an issue after all there were no cases in the US when you look at the official statistics it later turned out that the FDA had been blocking the tests that would have let people find out that covert was actually running rampant in the US but how could you have known the official statistics say there

are any cases and who are you to disprove the government right so uh so then after denying that it was ever going to happen Kaboom you suddenly had lockdown and the only people who could actually do anything are those who formed a thesis independent of what the official state was saying and moved before it was acknowledged and because by the time it's acknowledged you know many countries you couldn't get into they actually stopped renewing passports in the US for several months after that you can go and look at that up so so the answer is I don't know I don't know if there's going to be an official event or something like that I do think however that um you know you don't necessarily want to make it exciting right as I mentioned in like the pinned video um like a Trader too early as being

wrong but if you're preparing hell it should seem too late so um with that said I'm glad that we're starting to do things like ethos and Saga and I just hope it's in time um to to have something maybe it's at the protocol level maybe it's a software thing maybe it's literally just buying a laptop and having it be offline always and making it really easy to sign on one computer and broadcast on another right like you show a QR code with a signed transaction on a laptop then you scan it with your phone and even if that phone is rooted all it can do is broadcast the signed transaction so it can't actually seize the funds or see the private Keys there's various workarounds like this

but I think we need to start thinking about the problem thanks so much Balaji do you have any last thoughts for us before we we conclude yeah just uh DM me at ball GS um got a new newsletter thing at biology.com so go subscribe there if you um if you enjoyed this and one thing I'll say is I'm very much a doom or Optimist right in the sense that yeah maybe this world is ending but the next rule is beginning covid for example if you think about covid uh three years after the start of covet two things are true first is um generally acknowledged to have infected 700 million people killed seven million people hey Second Life went on okay and in the same way as bad as I think this economic collapse is that's

coming I mean life went on after World War II and World War One Life went on after all kinds of crazy things right and so I think it's going to be quite disruptive but I also think that life goes on on the other side and we have to you know sort of prepare for that and figure out okay what happens if the state truly finally fails the same state that delivered Iraq in San Francisco and Syria and covet and the money Printing and it's basically failed on everything over the last 20 years that it actually has that final failure okay then what do we do next and if we're prepared for that that's not apathy it's not panic it's just calm preparation and then you try to land on your feet and you you try and bet on Wisconsin so apologies surrender everybody

thanks guys