Richard Caetano & Anuj Das Gupta: How Stratumn Secures Processes (Episode 159)

Transcript

[Music] this episode of epicenter is brought to you by Jax Jax is the userfriendly wallet that works across all your devices and handles both Bitcoin and ether go to jx. and embrace the future of cryptocurrency wallets hello and welcome to epicenter the show which talks about the Technologies projects and startups forbing decentralization and the global blockchain Revolution my name is Brian faan Crane and I'm M Roy so as as all of our listeners know blockchain technology

has gone through its various phases right we started off with payments and then came the whole uh permission blockchain wave and now many companies are trying to build uh use blockchain technology and its variants in in order to improve how processes work inside Enterprises today we are going to talk to stratum which has a very unique approach to enable sort of uh trusted workflows or workflows across Enterprises and we're going to be talking about their technology and how they intend to build a business model around their unique approach but before we start let's introduce the guests we have Richard kaitano who is the CEO of stratum and anush Das Gupta who is the

head of research there so guys welcome to the show hi thanks for having us thank you hi everyone so before we start let's we always ask our guests about their background story of how they ended up in the blockchain industry so Richard tell us a bit about your background and what led you to this industry and this technology yeah so I started in uh I come from California and started um in California working about 10 years uh for the for the Enterprise um most mostly working in like government accounting and Manufacturing process automation Hightech security those kinds of things and then after that uh I started working

between San Francisco and New York with startups digital music and mobile phones and things like that and then uh after the financial crisis of 2008 um I was really interested in in how that became a systemic issue and problem and later of course when uh I discovered the Bitcoin white paper in early 2011 uh kind of had this Revelation and then um ended up closing out all of my work at the time and kind of just dedicating my life to this uh technology and uh spent a lot of time looking at how this could be applied to the Enterprise basically where I come from and uh I ended up working for a Bitcoin uh Exchange in in Paris France called uh pum and worked for them between like

2012 and 13 um building products and helping them design products and then um and then after that I left payum and started looking at how how we can apply this technology to processes and things like that going back to my roots and so I was looking at the blockchain and smart contracts and those kinds of things and looking at how to build systems on top of the blockchain so looking at the blockchain as being like a sublayer to other types of applications that could be deployed in the Enterprise stuff like that and then uh 2015 I started I had enough prototypes of these ideas put together and um uh joined with a few other friends um one Stefan fan who was at Pampa time at payum at the time and then Sebastian Cur and uh also FR Doan who

came from uh Sans Po and the VC world so with this group of uh four we took these prototypes to to the VCS and we raised some funds around two around October of 2015 and a week later after we started uh the fundraising process the I think it Economist or like that posted the the front cover with the uh the trust machine and so that that I I would I would def Define that moment as like the blockchain moment right when we switch from the idea of Bitcoin and cryptocurrencies to blockchain and uh so yeah we we ended up closing our first round of 600k with the French VC otm and started 2016 uh with a bit of money and we brought the system into like a private

beta and we started building apps on top and a n Des Gupta was our our first first uh first employee who who came on and started uh um helping us Define this technology and and he was actually the the the author of the white paper for proof of process so I'll let an introduce himself yeah hi uh everybody so I'm from India and I moved I studied in India then I moved to New York like 15 years ago and I was working uh in fintech and working in fintech you get used to certain kinds of uh challenges you know the challenges which later I think it was 20 11 or 12 just 6 months after Richard found out about the white paper I found

out about the white paper so I'm six months behind him on that so I when I discovered it I was like wow like you know I mean as with everybody when you first time you know encounter the paper it you can't believe you know like how it solves some of the things which you think are impossible to do so and then I was still working there and still trying to you know figure out what to do with this thing that I like and uh and slowly I started moving more towards it uh like reading about it trying to do a little this and that and then finally uh a year two year two years ago I moved to Paris from New York and uh there in Paris as richar said I met them and um and then the rest is history you know so I

started working with them and the Synergy was really just perfect because with my experience in the finance world I realized there was a lot of recurrent problems that we were having that uh Richard was already tackling from the perspective of Enterprises and Supply chains you know with his experience so from my experience in fintech and experience of Enterprises and workflows we realized that we have something together when we finally rote the paper and and we develop the toolkit for working with the processes and workflow so yeah and what's so what's the the the core vision of stratum what are you guys trying to accomplish okay so so stratum is is primarily a a

software security company and and our efforts are focused on securing processes or workflows uh between stakeholders between different Enterprises between uh companies and Regulators you know between partners and customers so basically whenever you have different people working together on a deal um you know there is some type of process and and we actually have this uh fundamental uh perspective of that the world it's is entirely created from processes everything from the business world to the natural world even to your like identity these are all various forms of processes and so naturally we thought well you know uh in a hyperconnected world a lot of our systemic issues are coming from the

inability to work together on these processes so if we can apply a a a modern tech technology stack to these processes and if we ever able to secure them in a way that where we can exchange uh proofs of these processes then then we can like enable a kind of a a paradigm shift in information technology and so just just to talk about this a few more minutes the if you look at if you look at the the uh prevailing Information Technology Paradigm it really comes from the way of how we secured information in the past which primarily is okay so you have some you have some information on a paper card you put this in a box somewhere you organize it and then you lock it up in some room right right and so the first problematic issue we have is that you

have a single key holder whoever controls the the key who has who has the key is the one who controls the the data information in that uh room so this is this kind of pyramid approach to securing information now secondly when you have multiple pyramids of information or black boxes working together then you have this kind of trust issue like okay so my business partner has a room of information and I have a room of information and we've got to work together somehow and I really can't trust what he has in his room so I need to kind of work through intermediaries and Auditors and regulators and stuff so that we can work together so the second problematic issue is the synchronization of this information and then the third is is okay so now I have customers and customers have to give me a lot of their

private information that I have to secure and and um while this may be okay if you know you're working uh with a small set of information but in today's world uh as we're more hyperconnected you know customers are um required to give up more and more person information right so this issue of of privacy you know confidential information so when you put those three together this kind of this is kind of how we see the prevailing the prevailing um Information Technology Paradigm and what we saw was okay so now if we switch the if we switch the Paradigm of how we're securing information you know what what do we have available that that can be the Catalyst of that and so if you look at uh the first one well a single key holder is the old Paradigm and in

blockchains you know you have many keyh holders and so now you've got a you've got a network of keyh holders and while you may be able to compromise one of those keys it's really impossible to compromise entire network okay so that's the first shift right and then so now you have if you look at the synchronization issue of synchronizing data and being able to trust your partner now if you look at the blockchain world we have this idea of okay we can solve double spending and which is a very difficult problem so now we're we're able to not only uh break apart the single key holder but now we're also able to synchronize how we come together on information from a protocol approach right and then the third one which is kind of uh more of a philos philosophical approach that we have in how we construct systems is that

we share proofs of data onto blockchains and not data so data can be remaining they can be kept confidential encrypted they can even be kept by our customers but as long as we're able to create some kind of cryptographic proof to represent that data um and if that if that proof um convinces a verifier Beyond A Reasonable Doubt then now we can exchange those proofs rather than the private information so we see those three things coming together as as as the paradigm shift and um do you want to add yeah I mean uh basically one of the P reading aspect is that when you talk about security it's always from the perspective of securing something from external attacks so you do it with

firewalls you do it with Access Control Systems where you make sure only the authorized people can get in and and you have certain rights to do what you have to do but at the same time people who have already authority to be in the system and people who are part of the system you cannot guarantee the honesty of their system now that's the other question that we want to ask is the question of trust is ask only in the question of honesty it's not the question of securing from external attacks it's the question of securing from internally so when you ask the question of security then for example in the case of uh Google it is secure from external attacks but you cannot be sure and you know as been proven that they

are not manufacturing the data on the number of YouTube hits that they have that's another question that's the question of honesty so the question of honesty is very different from the question of hacking so what we realize is just preventing hacking uh preventing unlawful usage is not enough it's part of the picture and that was important for most of uh information systems but with the hyper connectivity of the last 10 15 20 years it's more and more data is being managed by the software systems and more and more data is been given to the software system so you need to trust the software system so that's the question of honesty so our approach is trying to build uh trying to include

proofs in processes that processes should be able to be self-evident in their honesty in their trustability in their trustworthiness so be able to prove Integrity Integrity of a process to your your partner yeah so so you guys outlined some of the problems that you're seeing when you look at stratum and think a little bit further ahead let's say 10 years what kind of impact do you hope that the company is going to have on on those problems and on the world in general and and perhaps also in particular sort of on this field of Technology that we call blockchain today I like that question because it

highlights this okay so if I if if if we ask about like what is what is going on today's world with all these new technologies and protocols we see that decentralization is changing the nature of the Enterprise and they're changing the way that we engage with the Enterprise and and there's a lot of potential in that transformation and so I if we look at if we look at Bitcoin right we can see that Bitcoin um demonstrates how we can replace some some of the core functions in let's say Banking and Central Banking and payment systems and those kinds of things I'm not saying that it completely replaces those systems but I said but I'm saying that it can it it can replace some core functionality in those systems right and so we kind of developed this

um uh this kind of almost um looking forward we kind of say well if if we can take these systems and if we can keep on wrapping decentralization forward how much can how much of the Enterprise can we replace with decentralization right and so like ethereum and things like that are really trying to trying to break into that that question um however I would ask the question okay let's say you can dissolve the Enterprise in decentralization what what is left what is really the what are some of the things that that companies that enterprises can do really really well and for me I see that as service like a company companies compete on who provides the best service as far as I can see decentralization doesn't really

provide service right companies provide service and so the question I would look at I would look at the question as what are the qualities and characteristics of decentralization that we can bring back into the Enterprise that allows the Enterprise to provide better service allow the Enterprise to compete on being a better service to their customers and and the two things uh and this is highlighted in the proof of process white paper from an is um if if we can provide transparency and traceability those two qualities alone can significantly improve the amount of trust between uh customers Partners regulators and the Enterprise and by by by bringing those into the Enterprise

the the Enterprise can provide a better service to the customers right and so those are two important things that that we want to work with with um going forward now if you ask a question where is Strat going to take this in 10 years um we really believe that that by improving trust and improving service we create a whole new game for the marketplace right customers can now or excuse me the Enterprise can now compete at a new level and take it to another game and we want to be a part of that we want to be a part of of that conversation that direction we want to be thought leaders in that that space and we want to help these Enterprises get to a new level of service so for example trust could be sold as a premium

service like the other day I was flying from uh New York to Paris and my flight was delayed for 4 hours because they had a problem with the wheel of the plane and we were all scared because it's a plane you don't want anything I mean you don't want to hear a flat tar of a plane right and then after 4 hours we had to get out of the plane and we got back in and no one knew none of the passengers what was happening the airport authorities did not know what was happening the subcontractors who were working on the plane had their own systems their own processes to check the wheel and they were doing that while we were waiting and the airport authorities were completely in the the dark and of course we were in the dark so I realized wait a minute like airort authorities

have their own processes and they have processes because it's working so I'm sure they have everything figured out but their processes are so out of touch with the processes of the subcontractor and the customer is completely out of the Loof of everything so if the airport Authority and the subcontractor have a way of communicating between each other a proof where the where the subcontractor could publish a proof that yes I did this and this check in the uh wheel this is left so then the airport Authority can honestly report what's the status of the wheel and all the customers will be like I knew I would be willing to pay five $10 $15 more if I

get like on my app for the flight company I'm not name the flight company like a check like crypto cryptographic proof with like a barcode or something where I can scan and it says these are the N9 18 checks before you fly or 200 checks and this much has been done and you know you can trust them because it has been secured by a system which cannot be tampered or manipulated or changed so trust this is one example it could be many other examples like that trust would be as systems are getting more and more interrup inter dependent on each other trust would be one of the most premium service that businesses can leverage especially if you are providing some basic service

so uh I was I was going to the statam white paper it's it's a it's a it's a very interesting white paper it's called proof of process so our listeners might want to read it and the and the idea was that like whenever whenever a process is done inside an Enterprise or let's say with a customer with an Enterprise you have some kind of audit Trail by which you can prove to some other stakeholder outside that interaction that certain things happen and you know like I I kind of connected it to my life and uh I I I I could see some value in it so so for example right now I'm going to move to the United States and in the United States one of the hardest challenges that like

immigrants face is that the banking system of the United States does not want to extend credit to immigrants because they don't have a credit history in the United States so I I moved there I've moved to the United States right I'm just let's say two months into the United States I need to buy a car the banking system of the United States is not going to give me $30,000 to buy a car because I've never taken a loan in the American banking system before and uh they don't know whether I'm trustworthy enough to repay it but I do have like a credit history back home in Switzerland back in India and what I thought was like I've have taken some loans back in India and that is a

process I've undergone with the bank right I went to the bank one day I gave them some documents they gave me some money I uh I I returned that money once like every month for a for certain defin amount of time this is a process right and if I could have a proof that I have done these lending transactions or processes with various different banks across India and I could furnish all of these proofs to the American Banks then you know they might just trust me more and be willing to extend me credit even if I don't have a credit history in the United States so the ability to take processes you have done in one nation and proof that you have undergone

this these processes in another Nation might just be useful for somebody like me who keeps changing Nations like every few years this is the kind of imagination I had is that is that is that right like is that is that the notion behind proof of process or yeah so so accurate I mean because just what you explained was every nation is a silo to another Nation like it's a black box right goes back to that pyramid pyramid yeah because no Nation wants to and and maybe it worked at one time right but now that hyperconnected demand not just data but humans hyper connected you know like I live in Paris before that I lived in

America and and before that I lived in India and I know your pains you know I and later I can tell you ways to get don't in America it's very like this you know uh because you would not no I'm telling you like it was difficult for me to buy a car and and depends on where you live so so if the process that you did in India could be cryptographically secured in a way that there can be no doubt that it has been tampered and then you can tokenize that entire process using mathematics so you can aggregate all of the pro steps of the process and you get a final token now if that token is presented to the bank the Bank could use the mathematical algorithm to validate all the steps without having to trust you or even the Indian bank for

example and then what happens did can use that token as a reference to issue a loan to you so when the loan is issued the enre lifetime of the loan it could be three years for example in that lifetime of the loan the bank has its own computerized system it could be centralized system by the way the bank the American Bank but in the transaction that the American has say in Oracle database it has so it will literally be a column with your name and your account number and all that and there will be another column saying reference or something like that which would be just a like hash wouldn't mean anything but with the proper algorithm you could put the hash and it could recreate the steps

and it would say okay so anytime if someone wants to have an audit report of what you did like for compliance reporting and all that you can do that so that that's yeah that that would be interest could be yeah that goes back to just one thing I mentioned earlier on um that process that identity is a type of process right your identity chain the things that that you can prove that you have done and these little nuggets of information especially if they're like cryptographic and they represent some kind of signature from another institution another trusted institution these little nuggets can become very valuable especially if you have a nice string of them so it's like a it's like a hat with a bunch of feathers you know my hat's kind of worth something and so and so when when we're looking at this

at stratum we we're we're designing systems uh proof systems uh which um which are a fundamental pattern in how we're designing the system and these proof systems um you would apply uh taxonomy or a classification system to them right and so like if you're in one country and this type of proof is classified as you know uh a repayment of a loan uh a payment to myself cell phone bill some kind of utility bill right if I can if I can prove 36 payments have been made this is this is credit right if I can prove this and every payment was made back to BMP Bas

or asso general whatever I'm sure this could mean something significant to City Bank in the US right and this can be independently verified doesn't have to go back to some other blackbox system right so so now if I can walk around with a USB key with an identity chain with all these cryptographic proofs I should be able to walk into a bank and have them verify my creditworthiness instantly all right and this goes back to the question of how do we see the world in 10 years this is what what I want to see that me gets to move to America and and just it's a smooth like you don't there's no process of you know issuing a new identity to me in America

ex you can you can Port your identity from India to Switzerland 2 it should be one continuous chain yeah we want to get through this hyperconnected barrier in a new way and not be relying on the old Paradigm the old Information Technology Paradigm we' love to see this transformed into something much more fluid much more human much more I can carry this around like I don't need to of course there are more layers on top of it I mean oh yeah I don't want to get more detail but so far but we can talk later which is simple thing is if you have a set of data which has been signed by multiple people on multiple Locas it is difficult to lie on that it's common you can lie on a single piece of data not on 20 30 50 you know like in Block Bitcoin on a

single block it it's okay but when you have six confirmations I mean you couldn't have lied because it's so much so it's same thing here and on top of that if you have multiple trust sources uh say if you have a network incentive incentive form Network reputation Network where you have you are doing certain activities like loans and finance things and you're getting points based on if you default or not and if you're paying on time and all those things and they do that with credit rating they do that all the time with all human beings we have that right now if you have multiple institutions signing on you and rating you based on your credit if there is an institution which is fraudulent and does not do all the background checks you

will see that that institution has signed off a lot of sets of data that other all the rest that say there are 10 institutions trust sources like one one of the trust s is completely out of syns with the out of sync with the rest of the nine institutions so what happens automatically you can figure out which trust institution is at fault so it's also not just trust in the citizen or the customer which is you but also Trust of all the banks and the trust sources which are involved in this because if they're not on sync on the same set of data that means someone is at fault so we call this trust resilience so you can form resilience on trust sources with proof up process so just an overview to to get into it more but you

asked a question what's it like in 10 years that's a big it's a big fion let's take a short break to talk about Jax Jax is a multi-coin wallet created by the people at the central now in the past if you had a whole bunch of cryptocurrencies it was a pain to handle them you either had to leave them on an exchange which is insecure or you had to have all these different wallets which was a hassle fortunately now with Jacks those medieval days of darkness misery and suffering are over Jax supports multiple cryptocurrencies and new ones are being added but it's not just storing cryptocurrencies you can do with Jax but you can also exchange them directly from with inside the wallet

thanks to their shape shift integration and since there only one seed Jax makes it super easy to back up and sync to the other devices Jax works with Windows Macos Linux Android iOS and has browser extensions for Firefox and chrome so go to ja.io that's jx. to download the wallet and get started today we'd like to thank Jax for their support of epicenter so okay so let's let's drill down into like proof of process and how you're going to build these systems right so I think there there's two two aspects to this I think three aspects to it one is like what is a proof of process then how do you build it then how it gets applied right so before we

start let's have kind of a rigorous definition of what a process is in the first place so can you can you guys tell us when you say process what do you mean because like one of the interesting things that I see about stratum is like every every blockchain company that comes around um has has a different way of attacking Enterprise uh business so if if you look at R3 CV they'll say the fundamental thing is an agreement right it's an agreement between two finance companies and they are out to build this system that makes it easy for financial companies to make agreements with each other it stratum is like you say that the fundamental interaction between companies between customers and

companies is a process and then you are building a system that makes these processes that you have done in one place provable to some other person in another place what what is the process fundamentally Okay so um I'd like to Circle back on the process question but let's go back to our fundamental thing what is the fundamental thing in stratum's approach and vision and that is a proof system and so when we say we're a a software security company we we work with blockchains cryptography and proof systems um the introduction of a proof system is appropriate here so a proof system is a very simple pattern that identifies two actors so you have a prover and a

verifier and the prover his job is to convince the verifier of a secret or fact within a reasonable doubt and the way that the prover and verifier can do this is by by creating some type of protocol between the two and exchanging messages until the verifier is convinced Beyond A Reasonable Doubt okay so that's our fundamental that's our fundamental thing is a proof system so now if we ask okay so what is a process and then how do we apply example like Bitcoin like oh yeah example as a in a Bitcoin blockchain you it's a proof system because you have to prove when you send funds that you own

the funds right using a digital signature or when you discover the known and you declare to the network and the network is the verifier that and you are the prover if you can prove to the network that you have indeed solved the puzzle you get the reward so as Richard said the fundamental Paradigm is ultimately if we can uh break down every process into these two Sid approver verifier like when you are paying in a central license like PayPal you are providing your credit card so you have to prove the so PayPal is the verifier you're the prover so

this is the fundamental Paradigm and yeah so now yeah so coming back to what is it a process a process is a sequence of steps in time in time and each step uh we we say there are five elements to each step there is a who what when where and why so who Who's involved who are the participants in that step um what is the data being represented or what is the action like or what is the the substance to that step uh when did this step happen in time uh when or excuse me where did this step happen so if you have steps a b c and d we need to make sure that D comes

after C and not the other way around and in our case there's a why so why is this step important in a greater context okay so it could be a type of like legality or terms and condition or some kind of contractual agreement these kinds of things so that is a why okay and there's some unique things to to to to observe is in in in a process or in multiple processes especially have multiple processes um you can have one process one process split into two processes so there's a fork you can have two processes or three processes be joined create one process you can have multiple processes synchronize so if I have steps different steps at some point we need to

synchronize the the steps or perhaps you can have different processes come together in a way that that fulfill some kind of contractural agreement right so that's that's that's how we that's how we Define a process in in in our process so for example the example that you took is when you go to the bank and you submit your documents so this is a step when you're at a bank and you submit a documents so in this step of subm documents the document would be the what the who will be your signatures like you are involved in this the when is the Tim stamp you know the where is which is the beginning so it's the first

step in this case it could be the second step 19th step or whatever and if there are Forks then it could be in the seventh Fork ninth step like like a graph and the Y is the actual legal clause which says somewhere say in India that for having a bank account you have to provide a proof of address which are providing that is given by the utility company electricity company of some government certified electricity company so if tomorrow the regulation changes which is the Y the same step becomes invalid because you might have the same the data everything is intact but the

regulation says today you need a signature from your landlord not utility bill so then you have to have a new Step so if any of the data of the five uh modalities of every step change changes then the step becomes invalid then you have to furnish a new step now when you provide a step so you provide the first step you provide some documentation where you live the Second Step you provide some documentation about your birth certificate for you and the third step you provide some documentation about your salary receipt uh salary based up from your company now with each of these step you can have Forks where trust sources which could be Banks we go

government Authority could be they could add their step saying we sign we have did the background check on this document we see the document is all correct and we give certain score for example could be multiple such Forks coming out each each fork for each institution that signs and that puts its own score so what happens you realize in a graph you can have a data format where you can have series of steps done by a certain user to uh uh as part of a process and there could be other stakeholders who are part of the process but have their own forks and they add their own attestation their own data their own whatever they have to do and

based on that at the at a certain moment you can aggregate that data and you can create a kind of a token on the other hand if you have a step where for example you like in a supply supply chain uh the wheel of the plane for example the some companies making the spoke another company is making the hub for example so each company has their own process and they converge at a certain process so when they converge then you need both the stakeholders to sign on that step with as an individual you need separate stakeholders to sign on their each of their Forks so this is the general overview of how process is to get more into it how are modeled in in

proile process today's magic word is process that's p r o c SS head over to Leto bitcoin.com to sign in enter the magic word and claim your part of the listener reward so you guys both came out of the or or were at least familiar with and and kind of came out of the the Bitcoin um ecosystem and a lot of people are looking today at Bitcoin at blockchain at ethereum and uh different variations of those Technologies and and new ones too to to solve some of those problems you guys are talking about but

proof of process doesn't have a blockchain at its core why not and what did you guys find lacking in in some of the other approaches that's a that's a good question so um so if you look at what we are so if you look at what most of the companies are doing with blockchain today um they're mostly working with assets and the movement issuance and the transfer of assets these kinds of things and and and I know there's different uh ways to to do this on a blockchain you have the the unspent transaction outputs or you may have color coins made coins those kinds of things or more traditional type ledgers like rows and columns but fundamentally it's the

movement of an asset and who owns that asset right and so when we look at when we were doing this work back in like 2014 and 15 we're looking at okay so if we want to model processes um really the nature of the data structure is is more graphik and so we wanted to come up with something more more flexible um and and not so uh I I to be careful this not so rows and column like and uh and actually to illustrate kind of the idea more like if if I were to illustrate this as as a kind of a metaphor it'd be like uh let's say I had QuickBooks and I want to model a business process onto QuickBooks right each step of a process process it's kind of not the right really problem solution

fit and so we were like okay so if if if this is what we're trying to do model graphs um then what good is the blockchain what what does this bring what kind of value does the blockchain bring to this to this um data structure and so if we strip down the blockchain down to its fundamental uh like what is it primarily bring and if you go back to Satoshi nakam Mod's white paper like the very first thing uh that he really addresses is that it's a distributed a decentralized timestamp server right and so we in proof of process we look at a blockchain as uh the ability to to have multiple stakeholders come together on a common timeline once we have a common

timeline then we can publish proofs of different steps on that timeline and so that's really the the win right so you have the who what when where and why so the when is what the the blockchain provides and of course there there's other things that I provides as far as like consensus around the proofs and those kinds of things but primarily that's the the main thing and uh and so when we look at it that way it kind of simplifies everything and so we're going back to the proof system um question what does it what does it convince a verifier of right if I'm proving something to a verifier why do I need a blockchain what does it bring well I can prove to a verifier within the the consensus model uh that something that I publish something on a

certain dat time right and so I want to kind of circle back on something really funny here so if we say that if we say that a public blockchain like Bitcoin gives us some kind of timestamping ability and the timestamping comes from the miners in a network and um if we ask well where does the M where do each minor get their times stamping ability from like how do they know what time it is um you can actually see that a lot of the miners polar time stamp from some kind of public uh time server so really like it kind of gets convoluted on what we mean by time right and so when we're looking at a consensus model all we really want to do is we

want everyone to agree that that there's a certain amount of time there's a time frame where everyone can can kind of pin some kind of time stamp too right so the the fundamental layer of the blockchain that we use in this case is for two things one is we utilize the blockchain as a consensus timeline so by consensus timeline I mean when you have processes and when you have multiple stakeholders involved in the processes the supply chain example I gave you each of the subcontractor have their own processes their own set of EV events but when you have to have multiple parties their own processes work together you have to order those events so the way to order events is

using some sort of a central uh clock so in inad of a central clock what we do is we have everyone pick their own clock and through a consensus they get to select what step should be next so that's why the blockchain here provides a timeline that is objective and common for all the stakeholders but a timeline objective timeline that is not based on a trust Source but based on consensus the next thing is what it does is every piece of of every step in the proof of process is only valid if the step could be provable if a step has a data that

cannot be provable then there is no point in putting it in the proofer process so when you when we put anything on the blockchain or when we provide the steps for the blockchain to align it to its objective timeline the thing that we are looking for is now that we have a timeline that we all agree can we also have proofs that we all agree so we all agree to the right version of truth because just putting data on a blockchain doesn't make sense in our perspective what we believe is only that which is provable should go to a blockchain now from this perspective I just want to quickly mention that the

idea that with the traditional blockchain that we have is that you uh from before through code and logic decide what are the outcomes that will be a b or c which is a smart contract or even see the mining uh that you have that you you decide that if you find the knows you have this this this you get .5 or so you provide a proof of what could happen if so and so can be verified right so this is a kind of proof system and we call this a proactive proof system because it's a proof system that is forward facing that is a proof system that you define what are the condition for the proof even before the actual event given you have clean logic repeatability these kinds of

things determinism you can say that we can arrive at this outcome through the execution of code yeah exactly so it's proactive proof proactive so it has to be deterministic the are repeatable and you cannot have private confidential information because confidential information if you want to put it out there others will be able to see so in certain cases yes but in most cases you cannot have it right so this is one limitation that we already see so the another kind kind of proof that is possible is when processes are flexible like some of the processes we mentioned already and when processes have confidential information what you want to provide is not the information for others to verify but just the proof of the information so for example instead

of proving the actual data for a kyc you provide enough proof that it could be calculated all the very all the signatures for example you could just do signatures from trust sources have tested or not on the data sets and the signatures could be you know independently and could be openly validated without you know the actual private keys right so this kind of proof which happens after something has happened so it's backward facing we call it retroactive proofs so it is proofs as the example that mayor gave about the crypto audit Trail is it's a proof when something has happened so so you have proactive proofs and you retroactive proofs now with these two there's

another aspect of proofs are connected to proofs of facts because if you can prove a set of data then the data could be called a fact fact is something that represent reality right so to prove anything the fact has to be fact checkable by that what I mean is if you provide in the Bitcoin blockchain the fact of a certain uh money that I'm sending to Richard it's objectively verifiable you could do fact checking using mathematics that the fund that I have actually the fund that I have or what goes in a transaction comes out of a transaction I'm not making up new money in the transaction so you have these kinds of facts which could be

objectively verified and you also have facts which could not be objectively if I like a document where I live or what is the weather is the weather it has to be a trust source so these are subjective facts so you have you can have proactive proofs because you need to some have obser to test for that for exactly so you have proactive proofs on subjective facts and proactive proofs on objective facts and you have retroactive proofs on objective facts attrative proofs and subjective facts now if you want I can give examples of all the four but it's more details let's actually take an example I I'll try to walk through an example and and maybe we could connect to the D distrib leiser technology question from there so a few episodes back um lean K from everledger

was on the show h and she uh she came came up with the idea that what the blockchains will allow is for us to have uh this notion of Kyo or know your object what she was saying is um let's say there's a diamond right so she she she's thinking of of diamonds but it's it's valid for fish it's valid for shrimp it's valid for wine Etc you have some object like a diamond and ultimately you as a consumer many times you want to know where it came from so for a diamond you want to know that's not a blood diamond for for some wine you want Italian wine you want to know

that it actually comes from let's say some some Winery in Florence right near Florence or or a Louis Vuitton bag you want to know that it actually comes from the factory of Louis Vuitton right so so in in all of these cases what you need is a proof that this object changed hand in a certain order so for example for a diamond I want to know that my diamond changed hands from debers to this you know big Exchange in Brussels from from this big exchange Brussels to the retailer and from the retailer to me so I want I want to know I want to have a proof that all of these exchanges happened in the past so as in anuja's

language I want a retroactive proof retroactive proof yeah that these exchanges of this object happened across these parties right so in this scenario like walk us through like how you would build a proof of exchange of these diamonds across these parties in the stratum method and then like contrast it to doing the same thing as many other people are trying to do is use blockchains like whole blockchains to build the same chain of roofs what's the difference yeah so so I'd like to start going back to the proof system who's the pro here's who's the verifier and then

how do we construct a proof to to to to to convince the verifier of whatever we're trying to convince right so if I'm the seller and I'm trying to sell to you the diamond what do I want to convince you of right you want to know that the diamond is uh well it wasn't stolen it comes from a certain region that it it was you know um that the exchanges of the diamond was U you you know good faith yeah you want to know you want to know all of these kinds of things right and so what you really want to say is okay so when we're exchanging these messages between each other I need to convince you of this Beyond A Reasonable Doubt right so if I can construct a uh proof of process if I can apply

proof of process to this protocol and if I can construct a series of proofs that can give you enough evidence that you can trace back to the origin of the diamond right and then for each step of that process be able to bring in the trusted sources in involved so the subjective retroactive proofs because in this case uh there could be some uh objective retractor proof such as the quality or the the quality for example 40ks or whatever it is of the like all the diamond measurements I don't exactly know like you know which you can weigh and you can say if it is what it is supposed to be and the I don't those

kinds of things which are calculable calculable yeah yeah objective objec objective like mathematically yeah so then if I can construct a proof of process uh set of messages that are all cryptographically linked to each pre previous step and be able to provide that to you doesn't really have to be on it it could be uh it could be back the time sequence could be backed up by some kind of public blockchain say Bitcoin or ethereum or maybe some Consortium that I would that you would trust right you would to be part to be convinced you need to be convinced of the blockchain you may not be convinced if I created some kind of private blockchain with uh you know with my own uh set of validators that no one has access to

that wouldn't convince you but if I use the Bitcoin blockchain maybe you would be more convinced right so you can see as I start constructing the proof of process exchange the more ways I can um provide these kinds of facts in a certain way that are provable to you and that you can verify the more you can be convinced that this diamond is in fact a legitimate diamond and then finally for to allow for payments if you want to have say ethereum smart contracts you can have say ethereum smart contracts that accept proofs that a certain things have been done which the proofs are provided in a retroactive way and you can in the smart cont you can these are the parameters of the proof you check some mathematical

some trust sources and things like that so what happens the ethereum smart contracts while it is public and transparent everybody can see you and it can people can see that a proof has been presented for a certain thing without knowing all the details of the proof because those are hidden in the retroactive proof yeah I want to emphasiz and that becomes a proactive proof that the smart contract itself is a proactive proof which can leverate some uh objective uh facts and some objective facts so you have all these four kind of facts in this case so in this case like let's say let's say Richard is the retailer and I'm I'm trying to buy a diamond from Richard so what what Richard supplies me

in addition to the diamond is this chain of proofs let's say okay that let's say has three steps right is a chain of like a three-step chain and then on on each of these steps it shows me like let's say one of these steps represent sent the sale from say DB to a Diamond Exchange then that proof repres has essentially a signature from DB a signature from the receiving exchange a Tim stamp and like and like this this this this data was uploaded to bitcoin so that gives us the Tim stamp yeah time stamp so it has the parties their signatures the who of the transaction

yeah the Bitcoin time 10 the when of the transaction yeah so the Y might be you know like uh there might be the law that says that this is a a legal di International laww how to treat diamonds like that yeah so the why and the what is the is the data of the diamond itself like the diamond was this this particular size this particular characteristics Etc and I think that those were the four things right yeah the five five oh and the where where so what step of the proc first step or the third step yeah we don't want to say you don't want to say like oh okay so the diamond came from this area but then it was but then someone purchased it before that it was

before the source like then then that wouldn't make sense like that would be invalid right an invalid sequence that would make sense and that's why what we do in every step like in blockchain we include the previous step the hash of it like so you cannot you know like you cannot Forge proofs so so in essence like when I get this proof from you from Richard who is the retailer what I can see is provided I assume so the so when I get this proof I I see all of these public keys that have signed statements so I need to link these public keys to Identity so some public key might belong to DBS and I need to link it to DBS the company but then let's assume that that linkage also exists and then and then I say okay I

trust DB not to sign the wrong things I trust this exchange not to sign the wrong things and I trust this retailer not to sign the wrong things but provided I trust these three points what I have is an objective proof like not an object like like a proof that something happened in the past in the past exactly and the final check you could write it even before all the events happened you said I need signatures of these three and I need a certain calculation of the weight and all to be this this this this this and this kind of shape or whatever so this is a proactive proof then like when a proactive proof you can see the ractive

proofs like in a proactive proof is is basically a code where you say that okay now that you got the signatures you got this this this and all other things you can even before actually you get it you can say that if these three things are I get it then I will issue certain money or I will unlock the funds and could be a smart contract so smart contract being a productive proof okay okay understood understood and essentially what like statam is building is like the tool set that allows all people and organizations of this world to construct these proofs exactly and Link them to each other in a in a

chain just like yeah just like Bitcoin like kind of links blocks in a chain you're linking all of these proofs in a chain yep in a way that these proofs cannot be forged and where we where we're focusing our work on today our work today is on helping business businesses to prove their internal business operations to their customers partners and Regulators so let's say I'm um you can say that I am a uh an example would be something like let's say let's say I'm a stock exchange or I'm some kind of bank or I'm some kind of insurance company you manufacture airplanes or I manufacture airplanes or whatever it may be and I have internal processes that I need to comply with for the regulators

and I need to show my customers that I'm doing the math correctly and I need to show my business partners that um that the information I'm I'm providing them is trustworthy like it's it's good you know it's good data it's not uh or for example actually in the recent news uh Facebook uh had some uh controversy around um uh they were miscalculating ad Impressions and things like that even Google did that on YouTube Google yeah and so like so how does a company behind a firewall be honest be honest to the public outside of the firewall that their internal business operations are are legit that are correct that are accountable intact these kinds of things

so by what we can do is we can map each one of the internal operations each revolution around that as a step in proof of process we construct proofs to represent the data the who what when where and why of each of those steps and then we can publish those proofs to a type of like public uh audit Trail or excuse me audit Hub okay and then outside of the firewall the business partners uh customers Regulators can access those proofs and so that when we give then when the business provides them with the service or product or whatever they can verify the Integrity of all of the data that went into creating that widget or whatever it may be the service right and

so by doing this um this is a I love quoting quoting this from manu's uh uh work um if you can replay the steps of a process you get traceability if you can prove the data behind each step of that process you get transparency and you put those two together you have conditions for improve trust for improving trust right and so and so that's where we're applying proof of process technology right now is uh to basically Capital markets to Insurance manufacturing and energy and personally you know with uh this one with with IO t uh it's we have data that is being generated constantly right from our

pockets on our wrists on everywhere right now I with iot it will be how we need an honest world because now technology is inside our bedrooms you know so I find it that much more relevant in the long run but so that that gets us to important point right a lot of the technologies that you guys are using to to accomplish what you're accomplishing is you has been around for a long time right I mean yeah it doesn't actually rely on you know even kind of what Bitcoin did with proof of work so why why is this the right time like why hasn't this been done before and why do you think

today it the time has come for this technology to change how companies and organizations function yeah that's I think that's a great question so you have so if you look at when Bitcoin came out it was literally right after the financial crisis right almost as if it was some kind of like you know in in you know in the in in the dark just kind of lurking waiting for this primary you know time to pop out and you know almost as if it was a response to a big problem right and so for us we think that um that as the world is now more hyperconnected and accelerating you know as more and more interactions and uh

internet dependencies are you know are more um relevant that proof of process technology is type of you know it's there's a necessity for it and and and we are somehow in that moment in time that are you know working with that uh that technology in that space I mean in fact in fact uh it found us you know because we were just moving around in life and we use technology and like the thing of you know me being a some someone who moves from countries to countries I experienc silos on a daily basis and if you have ever been to a government uh office you know what the silo is uh and you have silos everywhere in life and as with technology

everything is getting so uh interdependent without us being able to totally depend on it so uh it was obvious that we saw these kinds of problems coming up and uh some of the promises that we saw in the Bitcoin blockchain and the things that came after was really relevant to us that showed us some things could be possible like the the problem of double spending you don't need to solve double spending if it's I don't know 1991 and banks are centralized and people are trained to work on their computers and they do it and you don't have a phone where you can do you know accounting and all that I mean it's just centralized

you you don't even have ATMs everywhere you know I mean it's so centralized so you don't even need it but then you need it you know and it was solved by I think you know and we see this we see this reoccurring in history right we see that NASDAQ comes out with new Financial trading uh tools and services and Technologies around the early 70s I believe it was you know in a response to more and more Traders working together and then we're finding that they they found that there was limits to actually doing ticket trading and you know and settling all these trades and so you bring in technology and there's a big shift there you know which is interesting because in 1960 something they had the paper trail uh problem in uh the in New York Stock

Exchange I believe and ndaq also where there have so much of paper they like to actually transfer the Securities by paper so they actually architected as a draft one of the first proper decentralized network of of accounting and payment that never actually never actually went public or was implemented because they didn't have technology and if you read you know some of the things Nakamoto paper you see some Reflections yeah so we have ddcc centralized server which solved that but if you want to have the same centralized Service as ddcc without a centralized service yeah arpanet as a response to to to communication resiliency and and the threat to nuclear war and these kinds of

things so yeah I think it's reoccurring so Richard in the blockchain space you know we often see this this massive uh potential in the long run right we see all these changes but one of the topics that a lot of companies and projects are struggling with is what's the right business model like how do you actually monetize it and where's the value going to go when you when you affect all these changes what are your views on that and what's what's the strategy that you're pursuing today and that you see yourself doing in the future when it comes to monetizing what you guys are building okay so yeah so I'm I'm a I'm an old software guy right I'm in my 40s now and uh you know I've

been through the early like I've been through the '90s with Microsoft and you know oracle and these companies growing and then I saw in the 2000s you know the internet models and the dots and things like that and then now with decentralization we're trying to find new business models like that um you know working with the Enterprise I think it always comes back down to like stability and predictability and um you know more you know more solidity in the business deals and so I strum we go back to just like you know software uh license sdks you know yes open source technology are components that we build that our open source as well um and you know these are based on concrete things like transactions or users or servers

installation things like that um however but when building a business model in today's world too when you're projecting forward you know we're projecting into a dis like you know we're disrupting existing business models right right and so when we're looking when we're talking to investors today like okay so where where's our future Revenue going to come from um rather than looking at as tearing apart Enterprises and trying to break them down and trying to create all these really complicated business models around it it's just like saying well no let's just go back to the principle of saying we're going to help an Enterprise um provide better service through trust for their customers and we're going to help them be leaders in their markets right and if we can enable that then we

can see our bottom line increase increase in proportion to that right we want to help strengthen the Enterprise and take them into into new into a new vision and so that's that's kind of the that's kind of the approach that we take um trying to not over complicate and get too too weird about it yeah that that is a you know refreshingly traditional approach I mean it is as boring as as you know Enterprise needing their process is to be secure we will go in study their business and understand what kind of steps are inv we will model that process we will figure out what kind of you know as we said like can there be objective validation can there be subjective we figure out that then we find out which parts could be retroactive which be

proactive and then based on these four like retr Pro objective subjective we build a proof system that secures all their processes so that you know need needless to say I mean we we okay if if I were to look forward and say okay what kind of companies would we somehow step on the toes of right and so one obviously would be the old software companies like Microsoft sap you know oracle these kinds of big box companies that would see like okay if stratum's Vision starts rolling out and getting tremendous Traction in the market I would assume that they would be looking at and saying okay this is a new space you know and we're going to want to be part of it okay second I would say that you know some of the big four who who provides auditing Services you know if

we've got a real-time audit system and we have proofs behind that then I would think that companies providing Audi services and things like that would start to say like okay we need to do something in in response to to to this technology proof of process technology uh and the third would be your intermediaries and trusted sources um you know intermediaries exist because they handle the trust issues and transparency and traceability issues between Enterprises if we can automate that through proof of process technology then their business model could be disrupted however the trusted sources such as like um like we work with uh uh some companies in France that provide um validation verification of business

supply chains and things like that um we think proof of process technology can actually improve their business right so looking at those three groups of companies and how we might be you know kind of working ourselves into this um we would our position would be to say like okay we're not really trying to go after and just like destroy these markets we're just trying to build new technology and how it unfolds could make those three groups uh could be working with those three groups of companies a very interesting uh experience in the future well Richard and an thanks so much for coming on it was a pleasure uh talking with you guys and learning about your vision now we're going to have of course links to their website on the in

the show notes and there's some very nice documentation and PDFs and and details about what they're building also some of the different use cases that we didn't get to speak to today like uh micro insurance kyc and stuff that that are on the website available and also of course we'll link to the open source part which is I think called chain script so that if people want to check that out they they can also do so so yeah Richard n thanks so much thank you very much thank you and to listeners um thanks so much for listening we are part of the let's Bitcoin Network you can find this show and other shows on let's talk bitcoin.com and uh if you like the show if you like

this episode and episenter in Channel then please do us a favor and leave us an iTunes review that helps new people uh find the show and uh helps us do an even better job so thanks so much and we look forward to being back next week [Music] [Music]