Cypherpunk Beginnings and the Case for Proof of Work with Bob Summerwill

the the key reason for that is that you know the history of the cypherpunks and the history of uh of digital Freedom really is demonstrating again and again and again that any centralization uh Vector you know degree of trust in third parties they are always abused it always happens you know other other instances of that are are things like uh Napster which was a a predecessor to it's a bit torrent again for sharing uh file content peer-to-peer but the issue with napsa was that was a central server for it and cryptographers are often paranoid with very good reason Timothy May um was one of the main instigators and the the founder of uh of crypto anarchism so he wrote this uh crypto Anarchist Manifesto in in 1988. um you know they're talking about the ability for for individuals to communicate in a in an anonymous way and exchange messages conduct business and so on uh and there's a part in here I'm just highlighting so you know the methods are based upon public key encryption zero knowledge Interactive proof systems so this is 35 years ago he wrote these words and again uh a later fact he wrote called the Crypt uh the the cipher ominum again highlighting their you know secure communication digital money anonymity and pseudonymity another crypto mediated interactions David Cham was another um founding father of some of this so um his dissertation there in 1982 so that's 41 years ago David Chown proposed um something which was almost a bit almost a blockchain protocol but there were some missing parts Adam back another cypherpunk um so his his primary uh uh Innovation was was hashcash which was a um a sort of a a proof of work technique for spam reduction in email that was really where that one came from Nick Sabo another well-known uh early guy and uh the the creator of the the con well the phrase and the concept of smart contracts um there 1994. a few more years later he proposed a decentralized digital currency that you called bit cold which had nearly all of the characteristics of of Bitcoin but not quite you know didn't quite get that still um and a primary piece there being the the this time stamp and verification um something again which Nick Sabo highlighted is trusted third parties are security holes um again and again and again third parties always the issue um Nick Sabo also talked about uh social scalability that's a really important characteristic um which is saying that if you if you the scaling humans is a lot harder than scaling technology but I guess that would be the essence of Social scalability and a characteristic that you can have of good base technology is that it allows the humans to scale up on top of it you know that you really have a um a clearly defined stable firm base which can be the shelling point for uh for things to be built on top of that um Phil Zimmerman is is best known for pgp Email encryption and talking about you know it being a fight as recently as 1995 encryption hard encryption was actually categorized as a munition it was controlled he had to export controls because it was considered a military grade technology you know I guess this is really a continuation of of um you know Alan Turing and the code crackers of of World War II um you know that's really where a lot of encryption started um and then in later years where you really had sort of mainframes and you didn't really have personal computing you know large companies like IBM could you know get a permit for for using some encryption but it was really when personal computers came along and people had PCS and then people were starting to do encryption on their own machines that was really where you know you had this this tension and and yeah a criminal investigation was started of of uh of Zimmerman for um authoring um you know hard hard encryption to be used there was an effort as well by the NSA in the mid 90s to introduce this thing called the Clipper chip and if you guys have heard of this one so the intention there was was introduction of cryptography into uh cellular devices um but with a back door so basically all mobile devices were going to be backdoored that was the plan of record so that that was fought off as well Zuko another Cipher Punk um you probably know best for his Z cash involvement and the first use of ZK snarks in a production blockchain in in in 2017 but he worked with David Chow on digicash which was another uh digital currency attempt in the uh in the 90s so yeah you know talking about talking about this this stuff being revolutionary um you know what that has meant is is that these efforts have run up against the law as well you know Zimmerman has his his case there but there'd be more so Julian Assange another well-known cypherpunk best known for for WikiLeaks and uh you know Wikileaks was one of the first sort of major cases of Bitcoin being used uh to provide funding to an organization outside of sanctions and money control and he is currently appealing extradition to the US facing up to 170 years in prison amazingly oh oh yeah uh Chelsea Manning of course and Edward Snowden uh you know who has now been living in Exile in Russia for 10 years and it was recently revealed that he actually participated in the Z cash trusted setup ceremony um and that was that was kept private for a long time they only recently revealed that after switching to another setup so that that the Trust on that original one was not relevant anymore Aaron Sports not really a Cypher Punk but you know another victim of the law Albrecht of course with Silk Road and our very own beloved Virgil Griffith who uh crossed the line in visiting North Korea act two Bitcoin blockchain and cryptocurrency a continuation of the same story so Bitcoin white paper uh released in late 2018 Network went live in 2009 and this was the first instance of of a blockchain of eclipse cryptocurrency and you really had for the first time ever a purely peer-to-peer version of electronic cash all of the earlier attempts had had some centralization vectors some um you know means of of controlling them but for the first time what you had here was this uh this dual innovation of um an immutable an immutable Ledger which was created by miners who were incentivized in that creation by the rewards in the blockchain itself so you have this uh the synergy between um the the blockchain and the cryptocurrency and that's used to incentivize its own creation and and what you had really with with that proof of work is something which was completely permissionless um and pseudonymous for all of the participants Oh wrong way so yeah as I said 14 times Satoshi mentioned Trust minimization and this is a kind of a key diagram that was in the paper is is saying you know in in existing technology issue you will have identities and transactions happening there and you you will have you've always had trusted third parties and counterparties in the middle be those Banks be those PayPal um so what you had here was a was a severing of those two pieces so that you have this identity wall between identity you know this wall firewall between identities and between the transactions so the transactions are public but the identities are decoupled and that was utterly new so yeah how does how does proof of work uh work within Bitcoin but proof of work is pretty much the same in other chains so essentially what you have is you have a new block added to the chain on average every 10 minutes these now are created by specialist Hardware or Bitcoin miner and Asic uh earlier on they were were CPUs and then gpus fpgas and so on and these blocks pack thousands of transactions in you are making these random guesses it's it's this hashing problem people often say solving a hard puzzle that's really a pretty poor characterization um but yeah really what you have is that the more the more computing power you have it the more light you are to solve it you have this difficulty adjustment that has a natural rebalancing where if blocks are being produced too slowly uh the difficulty is lowered and vice versa um and it is completely permissionless in that there is no um identity you know all all entities are pseudonymous uh they can come and go any any actors can come and go um for example in 2021 uh China banned crypto so not just mining but basically pretty much banned all cryptocurrencies in 2021 so at that point fifty percent of the mining Network went offline and moved elsewhere and it just continued you know you have this Unstoppable whack-a-mole where um any of the operators within this system be they block producers or node operators users and any kind of participants um you know they are all just running running the software and they can come and go and uh the the most work chain is always correct so that's a that really is the the key thing so that's called Nakamoto consensus people often talk about proof of work and proof of stake as consensus mechanisms um that's not actually strictly correct the consensus mechanism is actually uh the the most work chain or uh or equivalent and proof of working proof of stake are actually civil protection mechanisms another key thing to know with proof of work is that mining pools are not custodial you know you'll often see these pie charts saying well four mining pools controlling you know all of the uh you know all of the all of the mining um but they're not custodial you know they they just aggregate um hashing work and you can move between them at will so again that's another key decentralization point is that uh if mining pools go bad you can just change around so but proof of work is wasteful right you know it's a waste of energy well no it's not wasted because it's serving an incredibly valuable purpose which is keeping the system maximally decentralized with no communication out of bound you know out of band needed between people no manual intervention and and no subjectivity so what that's talking about is that Nakamoto consensus of the longest chain being the truth um makes it a completely objective setup you know it doesn't matter where you are it doesn't matter when you join there is always that single point of Truth you know there's no Central Authority and you're reaching This Global consensus and the more energy used the the more secure the transactions are so proof of stake um oh so for proof of State you have a different kind of setup which is the the holders of the cryptocurrency lock up or stake their coins you know not everyone this is a choice you can choose to stake in the same way as you could choose to mine um but those coins are are locked up and essentially they're they're used to to vote on the valid blockchain you are running software you know this isn't again a manual thing that you're doing you're you're running staking software and you are rewarded for participating in that process um but the basis of it is not you know the raw electricity or computing power um proof of work is simple um because you don't need to punish uh punish bad minors explicitly um if they create invalid blocks if they double spend try to attack um they're basically self-inflict their own wounds and you have this tangible connection between blockchain um and and the resources well um you have a different kind of setup on on proof of State there because you you do have to punish um on on proof of stake for that to work because you you haven't got uh you know resources that are being used so you end up with with slashing mechanisms and you have these attack vectors for long range attacks and then needing checkpoints and subjectivity and um you know the I guess a primary thing to communicate here is that proof of Stack is very complicated compared to proof of work so for ethereum for example it was mentioned in the white paper uh it was it was the plan of record proof of Stack to happen on ethereum from a very start [Music] um but it launched with with proof of work while it was being worked on uh but then it ended up taking eight years I mean it it got delayed many many times it got redesigned very very many times and you know the uh you know the the end result has been hundreds and thousands of lines of code uh and a a mammoth engineering effort to bring that to fruition which you know you have to recognize that the you know the achievement there but it's complex to my mind the worst part of proof of stake is that it is prone to centralization in the the more the more sorry the more coin coins you have the more voting power you have and the more rewards you require so you have this uh the rich getting richer you know it has been described as an oligarchy um so it perhaps acts more like a you know like a corporation an equity more than money um you know it has been an observation that proof of stake seems less Suited for decentralized and censorship-resistant Global money um and I think where are we I think some of this comes back down to um to what is Earth you know at the start of the ethereum journey um ethereum was not seen as money it was seen as fuel um you you could have this sort of characterization of saying well well Bitcoin is money and ethereum is a decentralized Computing platform and and ether is is fuel for that engine but it's not money so I mean some of that narrative has changed back more recently specifically with defy and ultrasound money but anyway that's that would be my characterization something else that you have in a proof of work system which I think is really important is um is a distribution of power between these three groups of miners developers and individual node operators and and I think it's important to note there that coin holders are not one of those groups you know it's it's node operators so node operators are are equal in this setup in a way which is not true in a proof of stake system where the amount of coins that you hold is relevant so yeah the ability to be a miner is based on on capital investment and specifically finding cheap and usually stranded electricity so this is a key point is is that proof of work is very very sensitive to price it's not looking for you know sucking up energy from in the middle of cities or what have you it's it's it's really uh looking for for for cheap power and the ability to run your own node is crucial because the node operators are really the the the ultimate balance you know of power which which are judging which blocks are valid um so the miners you know the miners cannot unilaterally make changes the node operators have got that that control so I'd I'd say it's really similar to the you know the branches of government and the natural state is to resist changes so I mean a key example of this stuff playing out was was segwit 2X and the New York agreement around the the Bitcoin block size Wars where you had this disagreement of uh of whether or not to to scale the Bitcoin L1 so you know a huge amount of the the miners um bit main the Asic main manufacturer the exchanges the Bitcoin companies they were all in favor of this this segment 2x which was implementing segwit and then double the block size but they failed because the node operators were not on board you really had a a rebellion you had a uh you know your your users standing up and saying no and it didn't happen so you know you ended up having the the Bitcoin cash Fork going off and then later Bitcoin SV but you know none of those have had any thing like the success because essentially you had this uh manifestation of you know of the people being in control but it's obsolete right you know we don't need proof of work anymore it you know it's it's um you know it's obsolete that that's the that's the perception but but it's not true because the real world resource use is actually a feature it's not a bug it's it's an intentional feature for maximal security and the Simplicity as well the social defense and uh what you have with proof of work is that the block producers and the coin holders are merged together so you don't have that balance anymore and it isn't the case in ethereum but other chains with on-chain governance I'd say are the worst of the lot because they go even further by tying the developers into that same pool as well that you really have this uh protocol changes are voted by the people with the most money you know literally enforced on chain so that's that's the right right at the far end so yeah I'd argue that the proof of worker is better for Global money and proof of stake is better for it's more similar to tech stocks um you know I think it's a it's it's a fine platform for doing defy it's a fine platform for doing decentralized application but not for money so you know you must take the planet right you don't care I'm just evil well you'll see you know you'll commonly see stories like this you know ethereum move to proof of stake why can't Bitcoin this is just a couple of days ago or there is this campaign that you may have seen which is being run by Greenpeace USA called cleanup Bitcoin change the code so it's you know change the code is the woo so just change the code right why don't you change the code just change the code do you hate the planet just change the code nearly all of these articles are really really over simplistic it's the same talking points again and again and again and they you know they missed the point the primary assumption is that you know energy markets are are uniform but all energy is the same everywhere and that when you are um and that when you're uh you're running a you know a mining operation that that's that's taking energy away from somewhere else but you're you know that you're turning on Coal Power fire stations to to do this and that you know it's this this terrible regression but the fact is that you know that the markets are you know they're a lot more complex you have you have a base load with a with a a fairly consistent flow so usually like natural gas or or coal or nuclear have have got you know a fairly standard amount of of production that they're having you know that they've got that base load but many Renewables are very irregular you know if you've got solar panels well you you know they're making energy in the day they're not making energy at the night you you need more energy at night for lights uh wind it may be blowing it may not be blowing um and storage is a big issue so what you always have you what you often have with a lot of Renewables is that you have to really over build them to be able to to hit that base requirement and you often have a lot of waste you know that you you're having to uh you know over build to have that and uh and and that often means that there's a lot of unused electricity transporting energy over distance is also really hard so decentralizing the grid is is is really very important to the world and we're seeing more and more of that and so yes here's a little story about the ants so you know Bitcoin uses much country as small you know as much power as Denmark or whatever you hear well you know the the truth is a lot of smaller countries don't use a lot of energy because a lot of their heavy duty stuff has been uh you know outsourced anyway you know if you if you added that one back in it wouldn't look so good you know and many large cities probably use as much uh energy as small cities anyway and uh and yeah you know ultimately crypto mining operations are the most price sensitive thing that you can imagine um and they are not directly competing with with consumers so yes it's like ants eating crumbs of food around the world while people are starving and and saying you terrible ants you're eating all the food up it sounds true but it's not and yeah the truth is that proof of work actually incentivizes uh Renewables because it's a buyer of Last Resort um if you have a mining operation in a place where there is Excess power they will always buy it so uh where previously Energy may be wasted it's now being used so that incentivizes build out of uh of Renewables grid stabilization is talking about the fact that uh that that really you know you've got this image of of these Asics churning 24 7 but but that isn't the case you know if if prices are high because you have uh you know a surge in energy need because of the winter storm or what have you you know they they can and are a Beta during those periods of high demand you know they they can uh react in a way that very few other things can yeah you know E-Waste is another thing that comes up um yeah you know it's a problem E-Waste is a problem in general in lots and lots of ways um you know electric cars use an awful lot of resources to build them you know but they don't get demonized in the same way or you know everything that we're doing with Computing and Tech and data centers and streaming and uh you know heating and air conditioning and there's just numerous things that use lots of energy so again you know a lot of this ends up being demonization another thing that gets thrown out all the time is like you know energy per transaction so you'll see you'll see this story of saying well you know a Bitcoin transaction is equivalent to like you know all the energy used in your house for a year or something but you know that that really conflates um settlements with payments you know that that what you have with what with uh with Bitcoin and with other uh cryptocurrencies is that they're a settlement layer you know that you can have payments that are sitting on top of them which aggregate all of these are and that a good amount of the uh uh you know the uh the costs or the fees are actually to do with securing the network they're not to do with particular transactions you know so these are happening whether or not the transactions happen so splitting those out into a per transaction thing again it's it's it's it's it's it's a poor choice and and yeah you know the there are various different studies but it does look like that the majority of uh of crypto mining is fueled by sustainageable energy and that is uh you know that's taking up fast because it it incentivizes these Renewables in a way that lots of other things don't uh another story which many people aren't aware about is is about methane from landfills so methane is um around 30 times worse I am told than CO2 and as a greenhouse gas which is why you have these stories about cows farts and you know we should not be eating beef um because yeah the sad truth is a lot of methane just gets vented into the atmosphere from landfills or other places and that is a terrible terrible thing um but better than venting is is flaring but you're still wasting the electricity so there are multiple projects that are now uh you know putting that energy to use by crypto mining and you can end up with that being carbon negative um and that is something that you cannot achieve with the proof of stake system without carbon credits without uh credits but uh proof of work can actually be intrinsically good for the environment any more questions please feel free to contact me on Twitter later this year there will be the first ever proof of work Summit in Prague that is being co-organized between ourselves and the Litecoin foundation so we are bringing together all the major proof of work chains Bitcoin Doge Litecoin Etc Monero and Z cash to talk about proof of work to talk about uh privacy technology and the environmental story thank you [Applause]