How To Build Third Generation Blockchains - Charles Hoskinson @ TOKEN2049

[Music] hi everybody you look so excited and enthusiastic I see this is what happens when you speak on the second day The Hangover kicks in and the lack of sleep in euphoria now first off why is it not an alpaca it's a llama corn I don't understand what llamas have to do alpacas come from alpaca socks anyway that was something that's bothering me okay what are we gonna talk about we're gonna talk about third-generation crypto currencies how about that sound good Wow a lot of enthusiasm again alright so to understand third-generation crypto currencies you have to understand where we came from so what was the first generation anybody want to guess yeah you've got a Bitcoin and it's not a trick question so what problem did Bitcoin solve does anybody know the problem it's solved and you asked oh well payments or decentralized currency is and I said no no it's much more fundamental the problem Bitcoin sold is the problem of delusion collective delusion the hell is that ok well what is a government what is democracy what is a corporation do they exist is there a particular place you can go to find the government of Hong Kong is it like in a building somewhere and there's like this this object and you say that's Hong Kong no it's just an entity constructed by consensus of the people people come together and they choose to believe something they choose to value something because they understand if they do this pool that belief those resources that power that that will benefit everyone money is no different there is nothing backing the Hong Kong dollar or the US dollar of the euro nothing of value outside of social consensus you work for it you work for it because you know that when you get it you can get products and services for that that it's going to preserve its value ideally over an arc of time you could retire day off of it it houses with it these types of things but that's a delusion it's a piece of paper with a dead person on it or if you're in England a live person doesn't really matter so bitcoins grand accomplishment was to take these tokens backed by nothing but an algorithm that who the hell knows if it works or not created by a person nobody knows who has no real credibility and convinced the entire world that it's going to be worth something billions and billions of dollars so much so that people are willing to build giant mining farms in the middle of damn nowhere so much so that people are willing to invent elaborate scams to steal it from people that's a pretty powerful delusion if you think about it that is what the first generation of cryptocurrencies accomplished is to create this notion that these devices this cryptocurrency thing is worth something so what happens when people discover that there's value they get specific and they say well it's valuable in general but I want it to be valuable to me and me is business logic me is a contract me is my DAP me is my doubt whatever the hell you see all these people run on so yeah this is my business I have this smart contract and that's my contract well guess what you couldn't do that not well with Bitcoin script technically it could if you had a PhD in computer science and a heck of a lot of time and a lot of effort maybe you could find some kludgy thing to work on Bitcoin but the reality was it's not developer friendly and so just like when JavaScript came to the web browser we suddenly got the Gmail's in the Facebook's and the youtubes of the world we needed a programming language for crypto currencies and that's what came with aetherium that was the second generation it gave everybody a sandbox where they could dream and they could imagine all kinds of great experiences that involve money and that identity and property so that delusion got personal that's what the second generation did for us now here's what happened though when you're overwhelmingly successful with a poorly designed system it breaks so enter the bane of crypto kitties the great Slayer of aetherium the reality is aetherium is a replicated system so it gains no resources as you gain people you lose resources so the pie gets smaller and smaller and smaller and so people said hang on a second here we have thousands of crypto currencies we have legions of governance of problems and we have a system that's too slow for us to be able to actually process the needs of many people we also don't really understand the difference between these private permissioned Ledger's like these hyper Ledger's of the world and the enterprise of theorems and the Kadena's and the cortas and these public blockchains that are supposed to be open to everybody so enter the third generation that's where we're going so what's that all about why don't we we need to do that well the third generation has three properties I'll argue the first is the property of scalability and that's we're really the easiest of all of them to understand it just says that when people join my system it gets faster pretty simple concept SuperDuper hard to do so do we have any examples of protocols that get faster when people join them any ideas so what's the number one pirated television show and the entire world you got it sir Game of Thrones and how do we pirate it you got it BitTorrent and why do we get that Game of Thrones so quickly because lots of people are downloading it and if you download pee-wee's Playhouse it comes very slowly why because it's less popular BitTorrent scales 500 million concurrent users with this protocol about a third of all the Internet's traffic and the more people do something the faster it comes that's pretty magical and that's why it's such a successful protocol it's why it works so well we don't have this for any cryptocurrency at the moment so that's the first challenge is making our systems faster now how do you make them faster is it just about TPS you'll see the hash graphs the Iona's and the e OSes and they come they brag ah I can do a hundred thousand transactions I can do a million transactions I don't care why because it's not just about raw TPS that's an engine is it engine a car no has to have wheels you have to move right well what's the engine of these systems the network layer can you actually move a million TPS if that's a kilobyte per transaction that's a gigabyte every single second that has to be moved around how does an edge note stay up to date with that if they're on a dial-up connection or 3G they can't so you have to trust somebody is that a really decentralized system not necessarily ah so there's more to the story there and let's say for some reason you figure out the perfect network protocol that allows you to broadcast move all that data where do you store it the security model of crypto currencies is the full node model then everybody has a copy of the blockchain so what happens when your blockchain is an exabyte you'll have two people who have it Google in the NSA pick which one you like more ah so you need to figure out a way of making security work properly availability work properly these systems work properly despite the fact that no one can possess the entire chain even the big guys it's just not an economic incentive for that this is all interconnected to scalability that's one of the first major problems what are the other two well they also have interoperability no doubt every conference you guys go to you see some guy come up to you and say ah man I got the most awesome coin it's better than all the other coins bla bla bla bla bla I see it every time every day it's great it's fun and maybe some of them are wonderful and guess what some will be here to stay there's over a thousand good cryptocurrencies and probably thousands more that are junk they're not going to consolidate to one sorry Bitcoin if it was going to happen it would have been them and they lost that fight so that means we're gonna live in an ecosystem of block chains and internet bla chains hundreds of them and they all speak different languages could you imagine having 25 Network protocols for Wi-Fi and your phone only supports one how happy would you be as you travel go to one hotel and say oh I'm so sorry you don't have Wi-Fi H your phones not going to connect your laptop will connect could you imagine that that kind of a world but that's the world we live in right now in the cryptocurrencies space most of our chains are blind deaf and dumb to each other and they say all but you can read a smart contract bridge it costs gas and every time you send a transaction it's 50 dollars and gets more and more expensive as the value of the underlying token the system goes higher no no it doesn't work that way so there's an interoperability question not just with crypto currencies but also with legacy currencies as well how the hell do I talk to JP Morgan Chase outside of calling Jamie Dimon a tapeworm how do I talk to them how do I talk to Wells Fargo how do I talk to my credit card you know the stuff that you actually use to pay your bills most of you how do I get interoperable with that system it's a big challenge and if we don't solve that challenge how can we say that we're going to have mainstream adoption and that our system is going to win it won't because the consumer experience is worse than the consumer experience they already have and more expensive than the consumer experience they already have you don't have any operability you're done then we have the biggest problem the hardest problem the last two are mostly technological with some degree of industry consensus and a dose of pragmatism you have the problem of sustainability what do I mean by that put a flower on my hair be an eco hippie be like a planet man no it's the problem of who pays and how do we decide who pays anybody here of an I see oh I see oh I see oh okay now you're paying attention there we go we got a couple of people raised their hand well that's a good way to get it started you're just kind of been creating some tokens you sell some tokens you get your money you enjoy your money then you go to jail at some point great but the reality is it's not a sustainable permanent model you can't empower one group of people with monetary control we do that already it's called a central bank they're pretty good at it why would we replace them at least they have some notion of democratic consent as they're empowered by the people elected so why then should we give it to a private company that's a regression of society so instead we need a system that allows us to print money and give it to the people when they need it how they need it and with some notion of democracy behind it called a Treasury turns out that crypto currencies are central bank's they print money for a living so what bitcoin does if you're a minor watch those blocks turning billions of dollars every year coin comes here coin comes here but we give a hundred percent to the miners right now what if we could take a percentage of what we give to consensus and it's it put it into a decentralized account controlled by the blockchain itself and then people can vote who have the tokens in some way some way some hard way that allows them to actually approve or reject funding proposals it's a cryptocurrency here that actually did that it's called - any of the - guys in the room come on yeah there he is great crypto currency we actually studied it we wrote a 70 page report about the good the bad and the ugly and we're quite impressed with what we saw on the innovation that they did but you can go beyond that and I'm sure they're trying - are we done yet no because we also have to decide where do we want to go so anybody here of aetherium classic Bitcoin cash Bitcoin gold like coin private Bitcoin unlimited Bitcoin god I think there's like six more maybe in China or something right there's a lot of bitcoins why well some of them are because people are greedy bastards some of them are because people have legitimate disagreements pick and choose your winners and losers and guess what you can't go and say hey Ethiopia or Ghana I'd like you to ditch your national currency and come to my system and oh by the way you have no say in the way it's going to be governed and on by the way every now and then you're gonna have a stock split in your money and suddenly your guys have all these tokens oh and by the way if you're US citizen you got a tax problem too because apparently the fair market value may be assessed at the time of split even though there's no liquidity and you could be taxed said if 40 percent or whatever the hell they do to me now it's fun filing my taxes every year so that is the governance problem it's the biggest problem because in that we actually have to solve our problem humanity has not solved see America we have this leader his name is Donald Trump and our systems not working so well and Donald Trump is a symptom of that as is our Congress with nine percent approval rating and other nations that run into these issues were either the system centralizes to one person who has absolute power or you end up getting increasingly more detached incompetent in corrupt politicians so then is it reasonable to assume that somehow because we're just so smart and because crypto that we can solve these voting problems no and it's a hard problem and we will never get to true to centralization if the only way to run a cryptocurrency is through cult of personality and centralization or through the beneficence of funders anybody here of the Golden Rule he who has the gold makes the rules it's the true rule right imagine the F sharp foundation it's a programming language Microsoft created it funded by Microsoft could you imagine F sharp waking up one day and those guys saying you know dotnet was great but we're gonna move over to Java Microsoft would say well that's a great idea I'm glad you can get some funding from Oracle bye-bye and they'll say you know on second thought will stay on net but wait it's an open source project it has independent governance why did they why did they get influenced that's the problem centralization cult of personality sporadic funding these are the challenges that our space now must solve now many people are trying to tackle a partial solution cryptocurrencies like iota eos and people like hash graph are attempting to resolve the scalability concern bragging to all of the people who buy their tokens about how many TPS they can do maybe they can people like ripple and AE on and others are trying to solve the interoperability problem your people has this wonderful committee called inter ledger it's got hundreds of members Evan Schwartz great guy runs it good ideas there and people like Tasos and - and others are trying to solve the governance problem the sustainability problem so i ohk my company at our heart is a research company we're not even an engineering company we're scientists I'm a mathematician by training and so we hire scientists like real cryptographers and guess what happens when you hire real scientists well you write papers and guess what you do with those papers put online the host the crowd sale no you actually you submit them for something called peer review and so that's what we do we've submitted papers to crypto to Europe - a CNS financial crypto every year you can see io HK there and we have quite a bit of fun and the core root of all of our papers is trying to tackle these three problems for scalability and we use things like recursive internet work architectures something Kareena and or Boris it's a proof of stake protocol that we think we solved all the problems of POS or at least the relevant ones for interoperability we have a very dense web of sidechains papers and they're under really wonderful names like interactive proofs of proof of work followed by because interaction sucks we're all living in a basement we don't want to talk to people not interactive proofs of proof of work and of course we have to make it work for proof of stake so we have interactive proof of proof of stake and in non interactive precipitous Nick a lot of short side chains so we work on that and then for sustainability we have a whole voting lab that we set up at Lancaster University and we think about well what is a good voting system so we look at some new ideas like liquid feedback some old ideas like board accounts and condo say accounts and then we also look into game theory and mechanism design the notion of rational ignorance why do you think that people don't really care about their vote because no matter how much they take it seriously they have the same outcome so it's rational for people not to care simple thing right so if you want people to about cryptocurrencies and where it's going to go you have to make them incentivize but then how do you avoid that becoming a plutocracy ruled by the wealthy heart so we think about these problems now we have many products we work on things like aetherium classic and that's what makes me so loved in the etherium ecosystem still waiting for that Devcon invitation we have things like Zen cache we think about privacy but the project that encapsulates all these three things is something called cortana something we recently launched in September it's written in the strangest of programming languages called Haskell anybody heard of Haskell like maybe one or two people yeah that guy in the back yeah how do you like that lazy evaluation working out for you yeah he's probably a whole camel guy so when you write it in Haskell we use formal methods and it's grown very fast and it has a large wonderful community we got a five-year roadmap on it and little by little we're turning on features to make it more scalable and turning on features to make it more interoperable and turning on features to make it more sustainable but most importantly all those features we've been introducing into the university system the core paper of our system was or Boris and once we wrote that we introduced it crypto seventeen over fifty citations and one of which was from a paper that actually figured out how to shard our protocol it's called Omni Ledger at a faculty poly tech Neil is owned and Trinity College never even talked to us they just wrote a paper that's pretty cool and to be frank I think that's how we as a community are going to solve this problem we live in silos right now where everybody has their favorite project their favorite token their favorite thing and these are problems bigger than any one project these are problems bigger than any one company these are problems that only can be solved as a collective group so I've gone all around the world from MIT to here and I'm gonna go back again I'll be in Europe tomorrow in Greece and then after that Scotland and I say the same thing let's recognize what we have to solve as a space and then let's try to go do that and here's the payoff it's not for people living in Japan and it's not for people living in Europe or America it's for people living in the developing world the reality is billions of people wake up every day and they have a financial system where when they send money home it costs them 15 cents on the dollar when they go for a loan it can cost them 85% interest they can live on land for two generations and then suddenly somebody takes it from them because somebody manipulated the property ledger due to a bribe to give it to somebody else if you look at Syria peace will come always does and the millions of refugees will come home and they'll come home to other people living on their land in their homes and say this is my house and they say prove it how can they if the government went away and destroyed all the records that is who this technology is built for at the end of the day these are the people who will benefit most from our labors you guys already have WeChat you guys have Happel pay and Samsung pay and most people have good banking services they complain about the fees but it works and it's getting faster and better and these centralized solutions are incredibly robust and they're only going to improve an experience especially as the world increases in globalization but for a group of people it just simply costs too much to get what we take for granted to them so if we solve the third generation problems we will build a system that works for for three more billion people and that system will be transparent it won't have middlemen and it will operate at the lowest cost possible and guess what if we do that it'll make the system we have in the Western world less competitive and three billion people are going to show up to change the system that we have instead of some entrepreneurs in a room that's a real army so that's what third generation is about that's why I joined the space those are the challenges I think are big they're your challenges as much as they are mine and the quote on movie from the 90s that's all I have to say about that thank you guys Cheers [Applause] [Music]