0:07

Welcome to another episode of the blockchain debate

0:09

podcast, where consensus is

0:11

optional, but proof of thought is required.

0:14

I'm your host, Richard Yan. Today's motion

0:16

concerns tokenization and smart contracts.

0:19

Smart contracts are created to facilitate

0:22

programmable transactions of tokens in a

0:24

manner that is decentralized, transparent, and

0:27

cost effective. A big part

0:29

of the value, although not all of

0:31

the value in tokenization, lies in

0:33

the fact that disintermediated transactions of these

0:35

tokens can take place via smart

0:37

contracts. Our two guests today

0:40

are sharp and clear thinkers. The

0:42

benefits of tokenization and smart

0:44

contracts may seem obvious to

0:46

those already in the space, and they have

0:49

been clearly laid out by the industry insider who argues

0:51

for the motion today. It's refreshing nonetheless,

0:54

to hear counter arguments from

0:56

a law professor who applies legal

0:59

framework in challenging that motion. Side

1:01

note, I like to

1:04

invite no-coiners because as a practitioner in

1:06

the crypto space, my work environment is an

1:08

echo chamber and I get information from

1:11

like-minded folks. Critiques from naysayers can

1:14

be very sobering at times. I

1:16

hope you enjoy listening

1:18

to this debate as much as I loved

1:20

hosting it. Let's dive right in! Welcome

1:29

to the debate! Today's motion: Tokenization

1:32

of real-world assets and smart contracts are

1:34

useful ideas. To my metaphorical

1:37

left is Professor Emin Gün

1:39

Sirer, who goes by Gün, who will

1:41

be debating for the motion. He agrees

1:43

that tokenization of real-world assets

1:45

and smart contracts are useful ideas. Can't say

1:48

I'm shocked. He's founder and CEO

1:50

of a well known and much anticipated blockchain project.

1:52

To my metaphorical right is

1:55

professor Edmund Schuster, who will

1:57

be debating against the motion. He

1:59

disagrees that tokenization of real-world

2:02

assets and smart contracts are useful

2:04

ideas. Not surprising from a no-coiner.

2:06

Gentlemen, it's an honor to have

2:09

you both. Welcome.

2:10

Very nice

2:13

to be here. Thank you.

2:13

Yeah same here. Thanks for organizing this.

2:15

No problem. So

2:18

a bit of bio for the two gentlemen. Gün Is

2:20

a blockchain entrepreneur and cryptographic

2:23

academic. He is the CEO and founder

2:25

of AVA labs, a company building

2:27

a layer-one smart contract platform based on the

2:29

Avalanche protocol. Gün is also an associate

2:32

professor of computer science at Cornell. His paper

2:34

on selfish-mining, "Majority is Not Enough:

2:37

Bitcoin Mining is Vulnerable" is

2:39

the second most cited Bitcoin research publication after

2:41

Satoshi's bitcoin whitepaper.

2:44

Edmund is an associate professor

2:46

of corporate law at the London School

2:48

of Economics and Political Science. His research focuses

2:51

on corporate law, law and finance, takeover

2:53

regulation as well as the

2:56

economic analysis of law.

2:59

In October 2019, he published

3:01

the paper, "Cloud Crypto Land" that discusses inherent

3:04

obstacles in the legal system that prevent blockchain

3:06

systems and smart contracts from

3:08

being truly useful. He is a self-declared no-coiner. Today's

3:13

programming consists of three parts: an opening

3:16

statements from both parties starting with Gün. Then

3:18

second round of debate is a bit more free-for-all

3:21

but guided with questions from me, your host. The

3:24

questions will be clearly directed to one person,

3:26

but then the other person is highly encouraged to follow up

3:28

with their response. The last round

3:30

is audience questions selected from Twitter followed

3:32

by concluding remarks from both debaters. Currently

3:36

our Twitter post shows 70% in

3:38

favor of the motion and 11%

3:40

against it. We'll have a post-debate poll

3:43

and whoever tips the ratio more to their side

3:46

wins the debate. Without further ado,

3:48

let's get started with the opening

3:50

statements . Gün please go ahead.

3:52

So let's see. We

3:55

are currently having this conversation in

3:57

2020 in the very first days

3:59

of this new year. We are

4:01

about 11 years into

4:04

the blockchain revolution and

4:06

quite a few things have happened in that timeframe.

4:09

The first sort of wave

4:11

of coins came out

4:14

of this libertarian camp and

4:16

they came as a response to the financial crisis

4:19

and they came to essentially

4:22

provide a replacement for fiat currencies.

4:25

The faith, people's faith in the financial

4:27

system was shaken and they

4:29

were afraid of a ginormous

4:32

inflationary wave to come and

4:34

that wave has not hit us, at least not

4:36

yet. And Bitcoin

4:38

emerged as an entry

4:41

as some kind of safe haven assets

4:43

perhaps in, you know, to look at it in

4:45

a positive view against

4:48

a fiat currencies against inflatable supply

4:51

and against political wranglings that happened with typically governments in charge of the money supply. It's kind

4:58

of like having the fox in charge of the hen house.

5:03

But there is something much more exciting going

5:05

on. So yes, there is the big

5:07

money fight and we will see if Bitcoin

5:09

succeeds in this money fight. And

5:12

there are lots and lots of obstacles on that path, technical

5:16

and political. And I

5:18

think, you know , I'm of course most familiar with the technical

5:20

side of these things and to

5:24

put it simply, I think that's

5:26

a very, very challenging path. But an

5:29

interesting one but it's not the topic

5:31

of the conversation today. What I think

5:33

is really exciting is the promise

5:36

that Bitcoin showed us. It pointed

5:38

the way to a different universe

5:41

where institutions

5:43

are constrained a priori,

5:46

publicly, and in a way that

5:48

cannot be subverted - Such that that constraint provides confidence in the population.. This

5:57

is a huge step. Now

6:00

if I were to think about other examples or analogies

6:02

for what's happened here I think

6:04

the most apt analogy is

6:07

all the way back going back to Babylon.

6:10

When sovereign nations

6:12

first codified - they made

6:17

a set of laws, written laws,

6:20

the moment your sovereign is not

6:22

an arbitrary ruler, but

6:24

there's restraint in what he or she can do, then

6:27

you have a very different relationship with your

6:29

state. You have a very different way

6:31

of going to sleep at work, or at night

6:33

because you know what can be taken

6:36

away from you. You know what your rights are

6:38

and you have, you know what you're entitled to.

6:41

And that's, that's a fantastic, fantastic

6:43

step up for humanity. And

6:46

we haven't had that in the economic sphere.

6:48

So if you look at, for example,

6:50

the wealth we have accrued in various different

6:53

ways some are

6:55

constrained and some, especially the financial system

6:58

is unconstrained. It's uncontrolled.

7:01

You can wake up and have

7:03

30% of your wealth be taken

7:05

away from you. How do I know this? I

7:08

lived through this twice myself. And

7:10

you know, sure, this doesn't happen all that often in

7:12

the first world. But if you look around, it's

7:15

a very common refrain in quite

7:17

a few countries that

7:20

are maybe top G-20 but

7:22

not G-7. Devaluations

7:26

are very, very common. All the Italians

7:28

know what I'm talking about. All the Turks know what

7:30

I'm talking about, Argentinians know

7:32

what I'm talking about. Any Latin American knows what I'm

7:34

talking about. So that is

7:37

step number one and

7:39

one of the biggest sources

7:41

of complaints and issues. And the second

7:44

thing, and I think the bigger one is not something

7:46

that concerns the state, but it concerns

7:48

private relationships. If

7:50

you look at you

7:53

know, very simple things like

7:57

if you look at anything where there

7:59

is somebody who provides a service to you

8:01

and you would like to constrain what they do

8:04

and how they provide that service in some

8:06

fashion or form. For

8:08

example, I would like the company

8:11

issuing stock certificates to me to

8:13

be constrained in exactly how

8:15

many certificates are outstanding. They publicly

8:17

say N certificates are outstanding

8:20

and I would like that number N to be

8:22

exactly what they reported. Well,

8:25

just very recently, despite all

8:27

the technology we have today we saw

8:29

that the Dole company thought

8:32

they had 38 million shares outstanding.

8:34

But in reality, in people's hands, there

8:36

were 53 million claimants

8:39

seeing that they actually were in

8:43

possession of Dole shares. So you

8:45

can imagine that there

8:48

must've been a period of time when the Dole

8:50

stock price must have been quite

8:52

substantially suppressed as

8:54

a result of our inability to book-keep the

8:57

most simplest of things to do. And

8:59

so blockchains could really easily help

9:04

solve this problem. And

9:08

there are many other aspects of service provisioning

9:11

where I would like to, as a consumer

9:13

want to have some kind of constraint

9:15

on what the other party can do. A

9:18

charity for example, to which I donate,

9:20

I would like those funds to go to one

9:22

of a small number of other hands. I

9:25

do not want those funds ending

9:27

up as administrative oversight

9:29

fees and so forth. Or

9:32

just take just about any other kind

9:34

of a situation where you're entrusting somebody

9:36

with money. You would also like to place

9:39

some additional constraints on what

9:41

they can do. And that is something

9:43

that smart contracts and private

9:46

tokenized assets can give us. And

9:48

what is that something? It's peace of mind.

9:50

It's assurance. It's auditability.

9:54

We don't have these things in

9:56

the way the system is set up today.

9:59

And the fact that we now have

10:01

them with blockchains is a huge step

10:03

up. Earlier we talked about

10:06

Babylon and what it meant. We may have , Babylon

10:08

had a lot of neighbors. And I

10:10

even, I forgot the names. I usually actually have

10:12

them at my fingertips.

10:15

Nobody remembers their neighbors and why?

10:17

Because those people did not did

10:19

not weigh, weigh enough on the civilization

10:22

scale. They did not manage to scale

10:24

up because

10:27

they didn't invent the most important thing that

10:31

the Babylonians did . Now, in

10:33

a similar fashion I believe

10:35

that the invention of blockchain and digital

10:37

assets is a game changing event.

10:39

It's an extinction level event for many

10:42

incumbents and it's

10:44

also an enormous opportunity for many

10:46

small startups because these

10:48

intermediaries that have taken over

10:51

every corner of the finance world that

10:53

collect rent, by virtue of being

10:55

placed in a particular position in the financial

10:58

system, we can brush them aside,

11:00

we can replace them with equivalence that

11:03

provides a better assurance while providing

11:06

the same level of service and

11:08

move the world to a much better spot. And

11:10

then in the process of doing so, disrupt business,

11:13

disrupt finance, and open up many

11:15

opportunities for generations to come.

11:17

Okay, great. Thank you very much. Gün. It always

11:20

makes the host's job easier when both debaters

11:23

have strongly held opinions. So

11:25

now let's move on to Edmund. And time for

11:28

your opening statement.

11:29

Yes. thank you. So

11:33

I want to say at the outset that

11:35

I'm not a Luddite, I don't have

11:37

a problem with technology. Not at all. And

11:41

I think there's absolutely no question that technology

11:44

is transforming and will continue

11:46

to transform how people interact.

11:48

And that includes certainly includes

11:50

the legal sphere, but I

11:53

want to really focus on the

11:55

very narrow focus of this debate

11:58

and that is about real world assets

12:00

and how you can tokenize them. As

12:03

, as we mentioned before I

12:06

have a paper on this and I came to

12:08

this question because

12:10

of a lot of, I

12:13

would say overhyped certainly very

12:16

bullish views about what can be achieved

12:18

in this sphere. Now

12:22

my, the question I

12:24

tried to answer in the question

12:26

in the paper is the

12:29

extent to which it is possible to put

12:32

real world assets on

12:34

a blockchain and achieve, the

12:36

kinds of advantages, the

12:38

kinds of improvements that

12:41

Gün mentioned. And I come

12:43

to the conclusion that this is not possible

12:45

under the current legal framework

12:48

in the current legal framework. Now

12:51

I just want to pick up on

12:55

the two examples that Gün used. So

12:58

the Dole case. Now

13:01

the Dole case is a very

13:03

good example for what can go wrong.

13:06

Even though people do have

13:08

access to technology and this is

13:10

a fairly simple task, but if you look

13:12

at the details of this case it

13:15

turns out that we

13:18

have a number of intermediaries

13:20

here who

13:23

all keep their private ledgers and

13:25

that creates problems because

13:27

somebody doesn't do their jobs properly.

13:30

You could have, of course, you could have

13:32

the same kind of problem at

13:35

least in the current blockchain system

13:37

where you have custodial exchanges

13:40

and where you ultimately also have a

13:42

number of layered private

13:45

ledgers that's tried to keep track

13:47

of things. And I'd

13:49

be extremely surprised if it

13:53

weren't the case today that if everyone

13:55

were to add up their

13:58

Bitcoin balances, that

14:00

they believe they have that

14:02

we would end up with a number that's higher

14:05

than what should be there.

14:08

I feel my question

14:12

is relevant to this question here. And

14:14

the question I tried to address in the paper

14:17

is what happens if you put real-world

14:19

assets on the blockchain?

14:22

And I approach

14:24

this question by looking at blockchain

14:26

technology. And as

14:29

a lawyer in a non-technical way,

14:32

I distinguish between fully

14:34

decentralized, you could

14:36

say Bitcoin-like blockchain

14:38

systems. And I say that

14:41

for these fully decentralized systems,

14:44

you cannot reliably

14:47

trade any real-world assets on

14:50

those blockchains simply because technology

14:52

does not exist that would allow us to

14:56

encapsulate in technology

14:58

and in the protocol, all

15:00

the intricate details and the complexity

15:02

of the real world. And so you

15:05

end up in a state where

15:08

even though you can deal with the

15:10

simple cases, there are always complicated

15:12

cases and these complicated cases, they

15:15

can not be solved within

15:17

the protocol. And that

15:20

simply necessitates that

15:23

you have some outside power

15:26

that allows you to reverse

15:28

transactions, to correct ledger

15:30

and so on. And I

15:33

know that not everyone agrees with this point, but

15:35

I think to the extent that this point is

15:38

correct, I

15:41

would argue that in, at

15:43

least in our current legal

15:45

environment you

15:48

end up in a situation where, a fully decentralized

15:51

system that does not give this outside access

15:54

will create a situation where the state

15:56

of the blockchain simply does not reflect

15:58

in relation to the real world assets

16:00

that we're talking about does not

16:02

reflect the state that

16:04

the law sees . And

16:07

so if you look

16:09

at the legal system as something like

16:12

a metaphorical ledger,

16:14

that assigns rights and all

16:16

sorts of assets to different people,

16:19

that will be a synchronization conflict.

16:21

The law will say whatever,

16:24

share or bonds or

16:26

I don't know, banana, we trade on blockchain,

16:29

the law will say it still belongs to

16:31

me. The blockchain may say, no,

16:34

it is now the property of Gün. And

16:37

if that happens, that creates the kind

16:39

of conflict that will ultimately in our

16:41

system at least render the blockchain impossible - not impossible - just

16:47

useless, will not be reliable

16:49

record of who owns what. And

16:52

I then expand that and try

16:55

to look at situations

16:57

where we do have this outside power.

17:00

Somebody who has higher

17:02

privileges in some sense to

17:04

interact with the blockchain. And

17:08

I argued in this case the

17:10

added benefits from implementing

17:12

such a system is very questionable

17:15

because you end up in a situation

17:17

where you have all this

17:19

blockchain security and

17:21

then you have a

17:25

backdoor and somebody who can interact with the blockchain

17:27

in a privileged way, in which case

17:29

I argue it's easier to just

17:31

rely on the systems that we currently

17:33

have. Now, I completely

17:36

agree with Gün that a lot of things

17:38

are not working properly at the moment. I

17:41

just, I'm just

17:43

not sure that it's

17:46

right and that we have evidence for saying

17:48

that the reason for that is lack

17:50

of technology. I think there are a lot of other reasons

17:53

that lead to the kind of situation we find

17:55

ourselves in. It's certainly not a technical

17:58

problem and it has not been a technical problem

18:00

for at least 40 years to keep

18:02

track of the number of shares

18:04

outstanding for any given

18:07

traded corporation. There are other

18:10

reasons, there are other incentives

18:13

that lead to intermediation and

18:15

this intermediation is

18:17

always a source for, for

18:19

errors. And so I'm not sure that you can

18:21

do away with it. If I could just very

18:24

quickly pick up on Gün's second

18:26

example with the charity. Again,

18:30

I understand the basic

18:33

idea here, but I think when I

18:35

worry about what the charity does with

18:37

my money, then I cannot

18:40

conceive of any system of any

18:42

technological solution to

18:46

the constraints that I would want to have

18:48

in place vis-a-vis my charity.

18:50

So I'm obviously, I'm

18:53

concerned a bit about then just

18:55

taking the money and run and maybe there

18:57

can be some constraints

18:59

on that, but whether they give

19:02

the money to somebody who is a consultant

19:05

and actually brings money or who

19:07

is a consultant who is, you know, the cousin

19:09

of the boyfriend and who

19:11

then runs away with the money. I don't think that this can

19:13

be solved technologically. And so

19:15

again, I'm not sure to

19:18

what extent blockchain

19:20

and blockchain constraints can actually have.

19:22

Yeah.

19:23

Okay, great. Thank you very much. Edmund,

19:25

it seems like we already started the second

19:27

round without me announcing it. But

19:29

let me just start the second round formally.

19:32

So thank you for the opening statements. Now

19:34

we move to a segment where I direct

19:36

questions to go in and Edmund

19:39

and some of these questions will be very much reflective

19:41

of who we just discussed and when answering

19:43

these questions, feel free to reference any earlier

19:45

points raised by your opponent. So

19:48

my first question is for

19:50

Gün: You have mentioned in some

19:52

of your past work that AVA, which you

19:54

guys are building, will be a powerful platform for

19:56

tokenization that supports multiple scripting languages

19:59

and multiple virtual machines. But let's step

20:01

back from the tech a little bit. What do you think

20:03

are the main benefits of tokenizing assets

20:05

that are not blockchain native? And

20:07

can you give us some examples of assets

20:09

where tokenization makes sense? I know that you

20:11

have mentioned a few examples.

20:14

Absolutely. So yeah,

20:16

so Edmund brought up a bunch

20:18

of interesting points. I want to, I want to

20:20

specifically mention one

20:22

issue and then actually

20:25

tackle the core problem - I think - at

20:27

the heart of his objections. So

20:30

the one issue that he brought up is is

20:33

whether or not the number of people who,

20:35

if you sum up the number of people who hold Bitcoin,

20:38

whether that number matches the

20:40

actual reality on the chain. The

20:42

answer is yes. That's, that's something

20:44

that people do all the time. I recently

20:46

did it maybe a few weeks ago. When you bring

20:49

up a Bitcoin node, one of the first

20:51

things it does is actually make sure that no

20:53

coins were created out of turn that

20:55

all the balances sum up, et cetera, et cetera.

20:58

The integrity of the financial system is checkable

21:00

by any participant. And that is

21:02

really a big, big deal. And

21:05

the trust element is taken out of the

21:07

equation. That all important

21:09

thing that you, that Wall Street

21:11

demands of you is, doesn't have to

21:13

be there. You can push those people aside.

21:17

So, so that's a, that's an interesting factoid.

21:19

Yeah. There might be people who were, who thought

21:21

they had money in an exchange and

21:24

they think they have those coins, but the exchange

21:27

owners ran away with the money. Sure.

21:30

but they never had the Bitcoin. That is not,

21:32

they did, that wasn't their coins. They had

21:34

claims on coins. And so

21:36

the denomination isn't BTC.

21:39

The denomination was an IOU. So

21:41

they were holding IOUs and the sum of IOUs

21:43

may not match the sum of BTC,

21:46

but that's a separate issue. They chose to enter

21:48

into a different kind of a transaction to hold

21:50

a different kind of an asset. So okay.

21:53

So, but what's really going on with Edmund's

21:55

(Interrupted)

21:56

Sorry , is it okay if I just

21:58

jump in on this, this particular point before we

22:00

move on or , or do you want to ... yeah,

22:04

so I completely

22:06

understand your point. And you're

22:08

, you're of course, right, of

22:11

you define owning Bitcoin in this

22:13

way, you're absolutely right. There's no question.

22:16

But if you define Bitcoin in this way

22:18

, holding Bitcoin or owning Bitcoin in this

22:20

way, then to be fair,

22:22

we should also define holding

22:24

Dole shares in this particular way. And

22:27

at no point did the share

22:29

register of Dole show

22:32

additional shareholders. That

22:35

was not the case. That's why I

22:37

brought up the example of the custodial chain.

22:39

Everyone who comes, who

22:42

comes out now and says, I have Dole shares

22:46

is somebody who helps us through

22:48

somebody else for various reasons.

22:51

And I think it's important to acknowledge

22:54

that the

22:56

reasons for which

22:58

people who hold shares not

23:01

as direct shareholders

23:03

on the register but through one

23:07

or more intermediaries are

23:09

very closely related to the

23:11

reason that people decide to hold their

23:14

Bitcoin on custodial exchanges

23:16

in some wallet

23:18

where they don't have full control over the private

23:20

keys and so on. So

23:23

these two issues are I

23:27

think it's not right to

23:29

compare. Bitcoin

23:32

ownership defined as having

23:34

the private keys with Dole

23:37

share ownership defined as having

23:40

any sort of claim to

23:43

the shares. I think that the problem is exactly

23:45

the same. We have people who are believing ... (Interrupted)

23:46

I see, I

23:50

see your point. And let me, let me

23:52

just mention the one thing that actually I think

23:54

addresses it, which is yes, you're right.

23:57

So there are similar kinds of pressures for

24:00

why people hold their coins on an exchange that

24:02

goes bankrupt, et cetera. But the bottom

24:04

line is you could actually

24:07

use the digital the digital tokens

24:10

and possess it and you could

24:12

transfer it across the internet. You could

24:14

send it across jurisdictions without

24:18

hindrance. And you could do the things

24:20

with it that you could not possibly do

24:23

with a paper stock certificate. So

24:26

so, so they're not exactly equivalent.

24:28

And the digital nature of these tokens

24:30

allows them to be traded exchange at

24:32

an unprecedented scale and takes

24:35

away many of the reasons for why you needed those

24:37

intermediaries in the first place. But

24:39

I want to get to the core of the argument

24:41

that you brought up. And, and I agree

24:43

with you that the first generation

24:46

of blockchains that people built were

24:49

extra legal. That is, they created

24:51

their own set of rules. And

24:53

, and that set of rules was not a

24:55

set of rules that , that obeyed any other

24:58

law in any jurisdiction. So

25:00

when it's time to take a real world asset

25:02

and put it on a blockchain, what, what's

25:05

going on behind the scenes as you rightfully

25:07

pointed out, is you're going from one

25:09

jurisdiction, one set of rules that

25:11

apply to this asset . Let's take some real estate.

25:14

So I take some real estate that's

25:17

in say, Brooklyn, New York, I'm going to

25:19

fractionalize it. There was a set of

25:21

laws that are associated with that

25:25

tokenization and suddenly the moment

25:27

I would put that on a traditional

25:30

first-generation blockchain, I

25:32

am taking that asset out of its legal

25:34

jurisdiction and putting it into a format

25:36

where only the

25:39

blockchain rules apply. And that

25:41

is really a deeply unnerving thing. And

25:43

that's really why that interface

25:45

has not been a lucrative

25:48

one. Now what's going on underneath?

25:51

What's going on underneath is that these first-generation

25:53

blockchains have one network

25:55

and that network only has one set

25:57

of rules and they are not

26:00

in line with any other legal framework that we are

26:02

familiar with. These systems create

26:04

their own legal frameworks. That's

26:06

why they attract the libertarian crowd.

26:09

That's why they attract the anti-authoritarian

26:11

crowd. That's why the predominant narrative

26:13

associated with them has been one

26:15

of anti-establishment, taking

26:17

down the government, creating a new set

26:20

of laws, et cetera, et cetera. Because

26:22

mentally behind the scenes, these people

26:24

want to take down what exists and come

26:26

up with some set of algorithmic rules. Now,

26:29

there are societal good reasons

26:31

for why the legal frameworks are the way they are.

26:34

There are good reasons for why we don't

26:36

allow, for example, terrorists to

26:38

own real estate in Brooklyn. Like

26:40

that's just something you are not supposed to do,

26:43

but you can't enforce That on the Bitcoin blockchain. Now what

26:46

do you do? And you are 1000%

26:50

right, Edmund, that those two things

26:52

don't mix, that those kinds of

26:54

laws cannot be applied in

26:56

on those kinds of systems. The

26:58

only narrative that

27:00

is available to first-generation blockchains

27:03

is, well we've

27:05

got what we've got. It enforces its

27:08

own laws and we're going to take down

27:10

the whole world and rebuild it in our image.

27:14

But this, now going back to Richard's

27:16

point is not the only way

27:19

you could actually architect systems. And

27:21

one of the main things we did at AVA was

27:23

come up with a new concept that

27:26

is not found in any other blockchain.

27:28

It's a very simple concept. I'll describe

27:30

it to you in one minute and it will be very, very simple

27:33

to understand why it has tremendous

27:36

ramifications. And essentially

27:38

what you can do on AVA is create

27:40

digital assets but also

27:42

define the set of properties

27:44

for the nodes that can participate

27:46

in that system. So

27:48

for example, I can say, look,

27:51

I'm going to fractionalize this real estate. I'm

27:53

going to put it on a blockchain so everybody

27:55

can see them. The numbers , everybody

27:57

can track the transfers,

28:00

everybody can verify that everything is, is

28:03

on the up and up. And most importantly

28:05

I have tremendous reach. Now I can

28:08

go and sell this thing to anybody

28:10

I like, but the

28:12

set of nodes that hold this ledger

28:14

have to be, and now I get

28:16

to define whatever it is that they have to be.

28:19

In this particular case, it might make sense

28:21

to say the set of nodes that hold

28:23

these, this ledger are those

28:25

nodes that comply with OFAC

28:28

restrictions that if given,

28:30

for example, a list of terrorists

28:33

or whatever, like unwanted people who are not

28:35

supposed to hold a real estate in

28:37

Brooklyn, that they will undo

28:39

the ledger appropriately. That is

28:41

to say we now have the technology

28:44

to create systems that can enforce

28:47

jurisdictional legal requirements

28:49

that can create assets with

28:52

a legal foundation. So I'm

28:54

really hopeful about the next wave of

28:56

systems to come. We are the first one.

28:59

I'm sure other people will start stealing

29:01

the idea and start incorporating

29:03

it in different ways. But the core

29:05

idea of of

29:07

these subnetworks subject to legal

29:09

rules, enforcing legal rules was,

29:12

is the main thing that actually was

29:15

the biggest impediment to the deployment

29:17

of these assets.

29:20

Okay. So I think that's

29:23

obviously a different approach

29:26

and it's an interesting approach. My

29:29

objection would be that, so

29:33

you define the nodes and

29:35

then let's say they

29:38

comply with all their rules, but

29:40

it turns out that the transaction still

29:42

should not have gone ahead. Now,

29:46

if I understand the architecture

29:48

correctly, there is now a

29:50

reliance on the participating

29:53

nodes to rectify

29:56

and reverse transactions in

29:58

accordance with the legal rules that apply.

30:00

Is that correct?

30:01

That's correct, yes. Yeah. Okay.

30:04

So I mean, there's no question

30:06

that you could, that this is

30:08

a viable way to address the

30:11

problems. That's absolutely no question that I , I

30:14

actually, I

30:17

think that there are other ways

30:19

that are perhaps less elegant , but

30:23

other ways to do that. I think most

30:25

enterprise blockchains in the end, if

30:28

you look at them you have a

30:30

bunch of privileged parties and they

30:32

don't actually need to

30:35

promise in any meaningful way that they

30:37

will do that because if you know who they are,

30:39

that you can just force them to

30:42

do whatever is necessary to rectify

30:45

the ledger.

30:46

Now, this is a

30:48

viable alternative

30:51

to just having a trusted

30:53

party with a

30:56

database. But if

30:58

I look at this solution, I do

31:00

not see the reason

31:02

why this should be transformative in

31:05

the sense that it doesn't really allow

31:07

us to do anything that isn't

31:09

also available without

31:11

blockchain that isn't also available

31:14

in a system, let's say, where you

31:16

have a trusted party and the trusted

31:19

party is obliged

31:21

to publish digital records

31:23

of their database to ensure

31:25

that they don't mess around with it. So

31:30

my concern here

31:32

is that yes, of course

31:34

you can do it this way, but if

31:38

there's nothing in the system

31:40

that allows you to do something that

31:43

isn't already available and

31:45

there needs to be some strong reason , some decent

31:47

reason why this would now

31:50

lead to the transformation. So I'm not, my

31:52

point is not that it's impossible to use

31:55

of blockchains for these purposes. Of course

31:57

it's possible. The question is

31:59

where, where do the efficiency gains come from?

32:02

Why is that transformative? And that

32:04

is something that I don't see from this description

32:06

That brings us to the age-old question,

32:08

why use a blockchain? And you

32:12

are right. So if the entirety

32:14

of the blockchain value proposition

32:16

is you can do illegal things with it

32:18

then I think there is really no, it's not

32:20

a very interesting thing to work on as an academic.

32:23

And I would have closed up shop a long time ago. There

32:26

was much more going on behind the scenes and

32:28

I will just sort of give you some vignettes. So

32:32

you mentioned essentially your point comes down to,

32:34

look, I could do this with a centralized database

32:36

and one person would be in

32:38

charge of that database and

32:40

they could do everything that the blockchain does. You

32:43

know, and functionally, yeah, a blockchain

32:45

is just a ledger and instead of having

32:47

a decentralized ledger, you could have a centralized

32:49

ledger. So what is

32:51

the value of decentralization and why is

32:53

that transformative? So take

32:56

for example, any domain

32:58

name, you know, food.com,

33:00

you know, JoeSchmo .com , whatever

33:02

else, you know, any of those work.org et

33:04

cetera . The going price for any.com

33:07

name these days is about $9 a year.

33:10

And the actual cost of providing

33:12

the name service is about a

33:15

fraction of a cent. Now, why are you paying about

33:17

10 bucks a year? Well, it's because

33:20

there is a single trusted entity that keeps

33:22

track of that silly ledger. That's

33:24

the sole reason. It's because

33:26

you appointed a person and

33:28

he became king and he figured out

33:30

that this is lucrative and now he's charging you

33:32

an arm and a leg. And these natural monopolies

33:35

arise everywhere. Our lives

33:37

are run by natural monopolies. Everything

33:40

we consume, the thoughts we have been planted

33:42

thereby say, you know

33:44

, look at the, the discourse online.

33:47

It's dominated by a couple of social media

33:49

companies. They change a few algorithms. They

33:51

feed us what to think. So look

33:53

at, look at any aspect of humanity.

33:55

It is essentially overridden by

33:58

people in charge who have cornered these

34:00

very lucrative places

34:04

in the, sort of the metaphorical Bazaar . And

34:07

they're not going to move. They're not going to let

34:09

the small small entities come up

34:11

at all. And and they collect

34:13

rent from where they are. So the,

34:15

the value of decentralization is

34:17

it opens the field to competition.

34:20

It allows people to have to compete on

34:22

an equal footing to provide the same service.

34:25

So I know how to, for example, create

34:27

a name service is fairly straightforward

34:30

and in fact, the Etherium named service is

34:32

fantastic. It's, it's

34:34

open, it's decentralized. There is nobody

34:36

in charge. And the cost of

34:38

owning a name is indeed a fraction of

34:40

what you pay to. One of these natural

34:42

monopolies. So I urge you to apply

34:45

this thinking to just about every other aspect

34:47

where you think, Oh, Hey, I'm really happy with

34:49

this. This monopolist, name

34:51

me a monopolist that you are actually

34:54

really happy with. Right? Are you

34:56

happy with your cable provider? Are you happy

34:58

with your internet provider? And these

35:00

are all people who essentially give you very little

35:03

and over time they play this game with you

35:05

of upping your your monthly

35:07

fees until you start to complain.

35:10

This is sort of the common thing. It's become normal

35:12

and accepted in , in , especially in American discourse

35:15

that, that companies will do this, that they

35:17

will do things at any cost

35:19

for profit. In fact, people

35:21

don't even question that. It's okay

35:23

, I can just defend anything a company does by

35:25

saying, Oh well they have a responsibility to

35:27

their shareholders, you know , then the consequences,

35:30

the environment; and then it was like, it was possible

35:33

to do and I made more money doing

35:35

it and therefore I did it. It's actually

35:37

a perfectly legitimate way of

35:40

defending anything a company has ever done. Now

35:43

to flip it allows us to

35:45

have both the competition that I mentioned

35:47

and also the last thing that I brought up, which is

35:49

that constraint on what I can do while

35:51

I provide a service is essential.

35:54

For example, a social media company should

35:56

not be able to take my data and leak

35:58

it to other parties. I would love to

36:00

be able to contractually enforced this, but

36:02

I can't, not with the current technology,

36:04

they require trust. I give them information

36:07

than they do whatever they want with it. So

36:09

it's that that changes the entirety

36:12

of the picture. That's it's that reason that makes

36:14

this technology so transformative.

36:16

Yeah. So I think

36:19

there are indeed cases

36:21

where you have a purely digital

36:23

exchange between people where

36:26

this is where it's imaginable

36:28

that shaking up the market. And I would

36:30

argue shaking up the market in any way

36:34

could provide benefits to consumers.

36:36

But when I think about natural monopolies

36:39

and that you mentioned broadband

36:43

or cable companies I'm

36:48

not sure I see how a

36:50

blockchain solution would change the

36:52

fact that you have physical

36:55

infrastructure that is

36:58

clearly operating in the space

37:00

of, of natural monopoly. And

37:02

so in this case, whether

37:05

or not you use a blockchain, you

37:08

would still have a situation where

37:10

somebody has to own this infrastructures

37:13

and people who own these infrastructure

37:16

would still be able to exercise

37:19

power. So I think it's a bit

37:22

the same is true. I don't know for airline travel or

37:24

something like that. So I don't see how

37:27

you would, if you go

37:29

to the kind of, the typical

37:33

examples for natural monopolies, I don't see

37:35

how you introduce competition

37:38

by, by putting anything, they're

37:40

really on a blockchain.

37:42

So, okay . That's an interesting

37:44

point. And I, you know, after I gave the example, I

37:46

thought, well, you know, that's actually a

37:48

, that's hard to describe how

37:50

one would actually make things

37:52

better. But let me do it. It's very easy.

37:55

Go to AT&T. What AT&T

37:57

does today is it actually pays

38:00

a very, very, very tiny amounts of tax

38:02

in the U S what they do is

38:04

they have their logo designed

38:07

by a foreign holding company in

38:09

the Cayman, I believe. And they pay

38:11

a hefty sum for

38:14

for licensing. That logo. It's on every

38:16

receipt they sell , every invoice they

38:18

send, it's on everything, you know, it's on

38:20

potholes and so forth. So for

38:23

all of those users , the money leaves

38:25

the US and goes overseas and

38:27

I don't know what happens to it afterward. I

38:30

would love for us to be able

38:32

to say, look, you operate in the

38:34

U.S., here's where that money can go. Or

38:37

I would love for us to be able to say, look, all of

38:39

the money I paid to AT&T, I'd like to ensure

38:41

that a particular percentage goes

38:44

to this, that, and the other two rural

38:46

access to city access to

38:49

to whatever else and and to constrain

38:51

what they do with that money. And

38:54

and so instead we have the system that we

38:56

have today. So I'm not sure that

38:58

that would save, you know, I don't know how much money

39:00

that would save. I'm not capable of computing that,

39:02

but you know, what it would do, it would at least

39:05

give me some level of assurance as I sleep

39:07

at night that I'm not just pouring

39:09

my money into a bottomless hole. You

39:11

know, just essentially manned by a

39:15

couple of MBAs who have found out some narratives

39:17

with which to build money out of out

39:19

of middle America. So that's,

39:22

I think that's, that was one of the harder

39:24

ones. The others I think you would agree are

39:26

very straightforward , right ? The name servers,

39:31

the name registers of the world, the

39:34

other intermediaries of the world, who

39:36

essentially don't provide much value and

39:38

yet command quite a bit, quite a bit of

39:40

rent.

39:42

Yeah. So, I mean, with the other use

39:45

cases, in my

39:47

paper I say, you know, I

39:49

have nothing to say about what I call

39:51

"naked blockchains" where whatever

39:55

you interact or

39:58

whatever you transact about on the blockchain

40:01

is a digital

40:03

asset, a natively digital

40:06

asset . And I think that's

40:08

true for blockchain and for, for,

40:11

for Bitcoin and all other cryptocurrencies.

40:13

And I think it could be

40:15

argued that , that there are other use

40:18

cases in a purely digital atmosphere

40:20

. But what , when I look at, you

40:22

know, the example with AT&T

40:28

channeling money to save tax

40:32

and more broadly kind of natural

40:34

monopolies, we do try to

40:36

regulate natural monopolies. The problem is

40:38

that lawyers,

40:41

who, you know, if you pay a lawyer

40:43

1000 bucks an hour, they

40:45

can get really creative sometimes. And

40:47

so I worry

40:50

that, so

40:52

if I think about any

40:57

algorithmic solution to that

41:00

I just don't see why

41:02

that would be successful. If

41:06

you know natural language documents

41:08

that we've been drawing up for

41:11

decades always

41:13

contain loopholes and are never

41:15

solutions to any of the examples

41:18

you mentioned. And

41:20

so yes, you can

41:22

have some constraints on where,

41:24

where money goes, but there

41:27

are natural limitations to

41:29

that and these natural limitations in

41:31

addition to, of course, very strong

41:33

political factors. The

41:35

explanation for the system we have,

41:37

I don't think it's lack of transparency

41:40

in the US the IRS or

41:43

you know, tax authorities all over the world state

41:46

to understand that , have ways

41:48

of finding out where money

41:50

goes. And at

41:52

the moment they are very big

41:55

projects on the way to kind of limit

41:57

the sort of practices you just mentioned,

41:59

how successful that will be. Nobody knows.

42:02

Most likely there will be other loopholes.

42:05

And also, you know, the fact

42:07

is that very often the money doesn't actually

42:09

leave the jurisdiction in any physical

42:12

sense. It's just basically

42:14

in accounting you could say

42:17

an accounting trick. And,

42:20

and so, you know, when you, when

42:22

you mentioned tax avoidance as an example,

42:24

I just, I

42:26

have problems seeing

42:29

how I'm making

42:32

the system more formal and more

42:34

rigid would actually make it

42:37

in any way more robust.

42:40

Our experience in tax

42:42

lower but also in other areas of law is

42:44

that the addition of

42:47

rules leads

42:49

to an addition of, of

42:52

loopholes. And I think the same is true for

42:55

increasing the formal

42:57

nature of an obligation.

43:01

So surely we can agree that

43:03

automated processes have much,

43:06

much less variance than human backed

43:08

ones. So take for example,

43:10

any, any manufacturing process you

43:13

know, if it's run by a person

43:15

that's going to have a lot of variance

43:17

due to innate features of

43:20

people and the moment

43:22

you automated, I think this lies at the

43:24

core of Western civilization. You go

43:26

to a different playing field. That's what smart

43:28

contracts do. Am I saying that they are

43:30

a panacea? They can fix any problem? No,

43:33

absolutely not. Am I saying

43:35

that they will do away with the need for

43:38

oracles? The need for interfacing with the outside

43:40

world? No, they're not going to do that. You will always

43:42

need it's going to create

43:45

a new a new series of

43:47

tasks and you need to do sets of jobs

43:49

for people. But but

43:52

at the bottom of it, all the automation

43:54

is, is quite capable of

43:56

reducing variance of enforcing

43:58

compliance and and

44:00

keeping, making sure that the counterparty

44:03

to transaction stays within the bounds

44:05

that you've established for them.

44:07

Yeah. No, and I agree. I just

44:09

don't think that this is unique to smart

44:12

contracts . So an example

44:15

that I use is in London.

44:17

If you go to the tube if

44:20

you take public transport of any sort

44:23

you, you just use the oyster

44:25

card, whatever, I'm sure wherever

44:28

you are, more or less

44:30

the same. And so if you look

44:32

at it the system

44:35

through the eyes of the lawyer, you would say, so

44:37

here's an agreement I have with the public

44:40

transport company and it's a very

44:42

complex agreement. If you actually

44:45

think about each and every corner case, but

44:48

99.9% of

44:50

the interactions of any user

44:52

with the system. They're Simple.

44:55

If somebody who wants to,

44:58

you know, ride the underground and

45:01

wants to pay for it. And so you can

45:03

automate these parts. And

45:07

by and large, we've done this,

45:10

we've done this in public

45:12

transport, whether you have some physical access.

45:14

We have done this in many, many other

45:17

respective, I subscribed to,

45:19

I don't know , the Washington post online now,

45:22

then I get immediate access and I'm sure that

45:24

no human will interact with me

45:27

in the whole process. And

45:29

there's no question that this is extremely valuable

45:32

and useful. It's

45:35

not clear to me why

45:38

decentralization is a necessary

45:40

ingredient in that in order

45:42

to get the kinds of efficiency

45:45

advantages that we

45:48

are looking for.

45:49

Right. So I think all the examples

45:52

you mentioned are are

45:54

pairwise examples. I think at the core

45:56

of it's all, I think you're very, very loudly agreeing

45:59

with the point that automation is great. So

46:01

that's good. You , you are no

46:03

Luddite and I appreciate that very much.

46:06

So what's really going on

46:08

with the examples you gave though are all pairwise

46:10

. There is a , there is somebody who is subservient

46:13

and there is somebody in a position to provide a service

46:15

and that's what's going on between them. And

46:18

in distributed systems we refer to

46:20

this as a client server architecture.

46:23

This is something that that hit big

46:25

time in 1993 with the web.

46:28

The web is based entirely on a client

46:30

server architecture, the Washington post

46:32

and the reader is a client and a server.

46:35

The oyster card user and the London

46:38

underground, again, a user and the service

46:40

provider what blockchains allow

46:42

us to do is allow us to disintermediate

46:46

multi-party interactions where any

46:49

of the parties can misbehave. So with that, it's

46:51

something we did not have before. And

46:55

it's again hard to predict exactly what

46:58

it's going to disrupt and how much and so forth.

47:00

But it is an entirely and qualitatively

47:03

a different thing. So I can,

47:05

I can keep records and I

47:07

can show them to you and you can say, look

47:10

, that's a client server or a peer to or one to

47:12

one interaction, but not only that,

47:14

but you could then turn around and show

47:16

my records to a third party. And

47:20

and for example, in finance as you know, there's

47:22

hypothecation so you can hypothecate.

47:25

You can, there are a bunch of things one could do

47:28

with a ledger that are not

47:30

possible with with

47:33

the sort of client server mechanisms

47:35

that don't require trust. So trustless

47:38

sharing of data is at the root of a lot

47:40

of agreement problems is that the root

47:42

of a lot of financial engineering

47:45

and that gives us a

47:47

, that is something that that blockchains give us

47:49

and that elevates us to a different playing field.

47:52

Okay, great. Sorry to interject.

47:54

Obviously very strong points. You guys have basically

47:57

captured most of the questions I actually wanted to

47:59

ask in this round. But Edmund,

48:01

feel free to follow up with Gün. Didn't mean to really

48:03

interrupt, but I would also like you to

48:05

talk a little bit more about smart contracts. I know

48:07

you touched upon it a little bit towards the end of

48:09

that thread of discussion. So in your paper

48:11

"Cloud Crypto Land," you discuss two

48:13

legal problems with replacing legal contracts

48:16

with smart contracts, one being smart

48:18

contracts not legally enforceable in

48:20

some cases like fraud, the

48:22

other being smart contracts not covering

48:24

the entirety of all possible scenarios, legal

48:27

contracts being extremely complex to be replicated

48:29

in computer code. So feel free to

48:31

elaborate on that point in addition to whatever

48:33

you are going to say to Gün next.

48:35

Yeah, so I mean, on the smart contract

48:37

point if I can just

48:40

use the example with you

48:43

know, access to public transport again. So

48:46

I would say if you look at my

48:49

relationship between me

48:52

and traffic for London or whatever you

48:54

provider is, has

48:57

a kind of engineering problem.

49:01

You have very, very rapidly

49:05

decreasing marginal

49:08

returns to your engineering

49:11

efforts. You can very quickly

49:13

and easily encode,

49:17

large majority of

49:19

everything that is going on. And

49:22

there are good reasons to go a bit

49:24

further than, you know , just the absolute

49:26

minimum. And so you can have,

49:29

you know, refunds, automatic

49:31

refunds if something is

49:33

wrong with the train and so on and

49:35

so on. But the relationship between

49:37

me and the service provider is

49:41

far more complex. If, you

49:43

know, the one in a million case happens

49:45

where I don't know somebody

49:48

off the staff starts hitting me

49:51

or whatever it is. Right? That there are

49:53

other cases that are so

49:55

rare that from, I would argue from

49:57

an engineering standpoint even

50:01

if you were to assume

50:03

that it is possible, it's certainly

50:05

not economical to

50:08

try and solve them in code. And

50:10

so the kind of the incompleteness

50:14

of these arrangements means

50:18

that in order to move to

50:20

a world where smart contracts actually

50:22

encapsulate everything of the

50:24

agreement, this is, would

50:27

require, even though I would argue it's impossible.

50:29

But even if you were

50:31

to say that it's possible , it's just

50:33

not, not worth doing. And so

50:36

I appreciate a gun's

50:38

comment about the client

50:40

server model. I

50:43

would, I would say you

50:45

should keep in mind that the

50:47

vast majority of transactions

50:51

between two parties and are broadly

50:53

compatible with this description. It's

50:57

true. There are other more

50:59

complex exchanges. The question

51:02

for me here is how often

51:04

do we have these multi-party

51:07

complex legal relationships that

51:11

happen in a space

51:13

where people have reason

51:16

to really distrust each other. And

51:19

I think that it's

51:22

relatively relatively rare.

51:27

I think it's useful to try

51:29

and actually use examples

51:31

here. And when I think about a

51:34

smart contract I've

51:36

kind of challenged people in , in this space to

51:39

give me an example where they think, okay, we

51:41

can actually do something algorithmically.

51:45

That happens in the real world

51:47

where we

51:50

can expect some sort of efficiency improvements

51:52

. And I have yet to hear

51:55

a really good example here. So you

51:58

know, people, I've, I've read documentation

52:02

for instance, of a blockchain bonds

52:04

that somebody issued. And this

52:07

documentation makes absolutely

52:09

clear that there's at

52:12

least the new way it was implemented. There's absolutely

52:14

nothing to be gained from that because

52:17

you can't really constrain

52:19

what somebody does with the proceeds of

52:21

a bond in a way

52:23

that goes beyond the most basic

52:27

fraud cases. If

52:30

you lend money to somebody,

52:32

they will invest it. And there

52:34

are certain ways for you to check how

52:38

good the investment is. But I

52:40

think it did take some logical

52:43

possibilities of constraining

52:46

meaningfully. What I do with a

52:48

million pounds that you invest or lend

52:51

to me are just very, very limited.

52:53

And so from that perspective alone,

52:56

I would say no

52:58

, no prospect of, of this

53:01

kind of taking, taking off in, in

53:03

this financial view. And

53:06

then the other point you , you mentioned this, that,

53:08

you know, the smart contracts can be , will not be

53:10

enforceable and that is basically

53:14

an unsolvable problem

53:17

in a fully decentralized service.

53:19

But I appreciate what Gün said

53:21

earlier, the example

53:24

is the kind of infamous five

53:26

pounds rents that I

53:28

use to make you sign a transaction

53:31

that you don't want to sign. And then the

53:34

question is what happens if the

53:36

blockchain says this is now mine?

53:38

And the law says it's not mine.

53:41

And I appreciate that Gün would say, this

53:45

system will only allow

53:48

a limited number of trusted nodes.

53:52

And these trusted nodes, when

53:54

they hear about what

53:56

happens or perhaps once

53:59

they have a binding core

54:01

decision that somehow

54:04

confirms that I was forced

54:06

to sign a transaction, they will then reverse.

54:09

But the question this

54:11

raises for me is, can we then still

54:13

say that this is trustless because

54:15

we would then have a system

54:18

of these trusted nodes

54:20

and we need those trusted nodes. That

54:22

is true for property transactions as well

54:24

as for, for , for smart contract.

54:27

And if those trusted nodes don't

54:29

do what we want them to do or what

54:32

we expect them to do, there

54:34

is really nothing, nothing much that

54:37

we could do. So if

54:39

I go back to the very beginning

54:42

where Gün mentioned, you know, a situation

54:44

where the state does this and that I

54:47

think the , the examples you

54:49

used were about devaluation of money,

54:51

but if we kind of translate

54:55

that into the smart contract or

54:57

digital or tokenized

54:59

asset field, you know, if, if, if the state just

55:01

says this

55:04

house is no longer yours I'm

55:08

taking it from you that there are basically

55:10

two problems, right? If first

55:12

of all, the state probably doesn't even

55:15

need to care

55:17

as much about what the blockchain says in

55:19

this case, they will just come and take you out to the house

55:22

and then it's no longer yours. And

55:24

the second is that if you,

55:26

if you rely on those trusted

55:29

nodes and those trusted nodes

55:31

can also be coerced by the state in

55:33

the same way that that

55:35

it always goes. So I'm not sure I,

55:38

I understand, see the solution here

55:40

really .

55:42

Okay. Well let me start with

55:44

the, with the interesting points

55:47

that you made about real contracts versus smart contracts.

55:50

I think my , my colleague Karen

55:52

Levy at Cornell has a very nice paper on the

55:54

, on the differences on the things that people do

55:56

with real contracts that smart contracts won't

55:59

admit. And so one

56:01

of the things that people do all the time is they have not

56:03

legally enforceable clauses.

56:07

So you have, you put something into a

56:09

contract, you know that it's not exactly

56:11

right, but you do it to set the norms,

56:13

to set the expectations. And

56:16

so this happens and and

56:18

you know what, it's hard to convert the

56:20

smart contract territory. People,

56:23

things in real contracts like use purposefully

56:25

vague language to try to cover

56:27

more than than than

56:29

what they would cover if they

56:32

were to write everything and code everything in code.

56:34

So that happens all the time in

56:36

contracts and we , we refer to arbitration

56:39

or we refer to the court system to

56:41

resolve things. And the third and final

56:43

thing that people do is there are enforceable

56:45

breaches of contract quite often

56:47

that people don't pursue.

56:50

And smart contracts are typically going to

56:52

have automatic measures

56:54

where they penalize you just that in the

56:56

very first instance of a breach. So

56:59

these things happen all the time. And so you are exactly

57:02

right that the legal system is

57:05

you know, there's so much leeway in it because

57:07

it's based on these soft measures.

57:10

It's based on language and it's

57:12

based on soft enforcement via humans

57:15

and it's, and that meets space is very, very different

57:17

from the hard reality of code. And

57:20

so what's going to happen? Well, I

57:22

think if your point is, well, we can't

57:24

encode everything as a smart contract. I agree

57:26

with you. Yeah, we cannot and we should

57:29

not, we shouldn't even try. That's not where the

57:31

value is going to be. The 99%

57:33

of interactions that we do

57:35

want to cover are not one of these

57:38

three categories. And I

57:40

believe that they are fairly straightforward and

57:42

token in tokenizing real world assets

57:45

in , in increasing their reach, in being

57:47

able to create assets here and open

57:49

them up to different markets around

57:51

the world to different people. We

57:53

have a tremendous opportunity. I

57:56

encourage all the listeners to check

57:57

out, for example, these

58:00

applications like there's one called Numerai it's

58:02

an interesting blockchain application where they use

58:05

machine learning. They

58:07

get, they get the users to participate in the machine

58:09

learning experiment from around the world. And

58:12

all these high schoolers from Eastern

58:15

Europe are apparently participating in

58:17

this this this machine learning

58:19

experiment trying

58:21

to win trying to make some money along

58:23

the way. And then, it opens up a

58:25

, a set of opportunities to a set of

58:27

people who are essentially cast out of the system.

58:30

They're capable, they're just not able to penetrate.

58:32

And suddenly this is an even

58:35

playing field and all of a sudden they're

58:37

, they're running strategies against

58:40

against wall street assets you know,

58:42

on, on a, on an equal footing with what

58:45

the JPMs and the Goldman Sachs of the world.

58:47

So that's an amazing thing to do. And yes,

58:49

there will be these things that we can't do. And

58:52

that's okay. We're not trying to be

58:54

a 100% replacement for what

58:56

exists. It's going to be something that is

58:59

essentially the first step replacement

59:01

for the vast majority of the straightforward

59:03

cases. So how often

59:06

you asked is , is it a problem

59:08

that you have multi -party transactions

59:12

where the parties don't trust each other? I would

59:14

say all the time, all

59:16

of finance is exactly this, almost

59:18

all of it. So know

59:21

I don't know where to begin, but start

59:23

with an options contract. Start

59:25

with anything really. And collateral,

59:28

collateralized debt obligations. Just take

59:30

a look at any, any older financial

59:33

instrument and you will see so many parties

59:35

that it's actually hard to keep track of how many of

59:38

them there are. That's the kind of thing machines

59:40

are fantastic for. And that is the kind

59:42

of thing that , that we built AVA for

59:44

. Now. I don't want people to get the wrong

59:46

idea about AVA, so I want to

59:48

spend maybe half a minute describing the platform.

59:51

It's it's a blockchain platform

59:53

with its own set of rules, just like every other

59:55

blockchain. And that is for the AVA

59:57

tokens. But it allows people

59:59

to create their own tokens on top for

1:00:02

digitizing real world assets. So

1:00:04

you can create your own token, whether it's in

1:00:06

a collateralized debt, whether

1:00:08

it's a fractionalized real estate

1:00:11

income sharing agreements or something

1:00:13

fancier, whatever it might be. And

1:00:15

to, to have that those those

1:00:17

new instruments that you created be

1:00:20

tradable by anybody. So,

1:00:23

and then in defining that instrument, you define

1:00:25

the, the realm it lives in the sub-network that

1:00:28

it lives in. And and so

1:00:30

all , it's only those instruments that are subject

1:00:33

to whatever rules you make up. Now

1:00:35

you don't have to necessarily, you don't have to make the rules

1:00:37

immutable. You can say something like, well,

1:00:40

I'm you know, you can say things like in the , my nodes

1:00:42

have additional features and resources. This

1:00:44

has been a big problem in crypto circles

1:00:47

where you have a single network. Every

1:00:50

node has to have the same resources and therefore it's kinda

1:00:52

hard to scale the network and network

1:00:54

up. But but in AVA you

1:00:56

can create a sub, you can create tokens

1:00:58

on sub networks and create sub-networks with

1:01:01

additional resource requirements that

1:01:03

can achieve way higher performance in the base

1:01:05

network. Or you can create a

1:01:07

sub networks that enforce blacklists

1:01:09

, white lists that require bonds and so

1:01:11

forth. And these tend

1:01:13

to go towards the legal compliance

1:01:16

requirements, compliance requirements of certain

1:01:18

tokens that that are required in

1:01:20

certain domains. So what's

1:01:22

that to say? This is , that's to say that there

1:01:24

is a new generation of systems

1:01:27

coming in. We saw the first generation,

1:01:29

they typically were just money and

1:01:31

they typically were were

1:01:33

extra legal . They , they only held their own

1:01:35

rules. And we're now seeing a new generation

1:01:38

come in and we're

1:01:40

going to see them take a bite into the

1:01:42

simple cases. It's not going to be 100%,

1:01:45

but I , we shouldn't be nihilists where if it's

1:01:47

not 100%, it's a fail. It's not.

1:01:50

I think that the vast majority of interactions

1:01:52

are fairly straight forward and we can create

1:01:54

these fungible really

1:01:57

exciting tokens

1:02:00

that can be traded around the world, that can be

1:02:02

opened up and we can set up so all

1:02:04

of a sudden have great reach for our

1:02:06

markets. We can have much more liquidity and

1:02:08

we can bring finance into people

1:02:10

who most deserve it. Professors, this is fascinating.

1:02:13

Unfortunately, in the interest of time we need to move

1:02:15

on, but before we move to the next

1:02:18

segment with audience, I just have one last

1:02:20

question. This is for both of you. This is

1:02:22

in relation to some recent developments

1:02:24

in the industry. So first of all,

1:02:26

the state of Illinois has signed into

1:02:28

law the affirmation of smart contracts

1:02:31

as legally enforceable, at least to

1:02:33

my non-lawyer-y eyes. That's what

1:02:35

it reads. I'd love to get your opinion on

1:02:37

that development. And then the second piece

1:02:39

is tokenization that the NBA contract

1:02:42

by this NBA player where

1:02:44

basically a year or two out of his

1:02:46

annual salaries is now getting securitized

1:02:48

and it will be issued via some public

1:02:51

blockchain where the holders will be entitled

1:02:53

to distribution of his proceeds in

1:02:55

the years to come. So in regards to

1:02:57

these two pieces of development, what

1:02:59

are your thoughts, hype, real

1:03:01

progress or just something for show?

1:03:04

Oh , I think I'll jump in. And I think the

1:03:07

Illinois development is fantastic.

1:03:09

I think all I'm very

1:03:11

proud of what has happened in the US by the way, the regulators

1:03:14

have typically taken a very light stance

1:03:17

when it comes to regulating this, this originally

1:03:19

industry. I think they realize unlike

1:03:22

many other regulators and quite a few advanced

1:03:24

countries, they realize that it cannot be

1:03:26

stopped. That's the nature of this technology

1:03:28

that there is really nobody to serve the

1:03:30

subpoena to. So so

1:03:33

because it cannot be stopped they

1:03:35

have taken the right approach of of

1:03:38

of, of taking a light light

1:03:40

handed approach. And so it's fantastic

1:03:43

that we're seeing better integration of blockchain technologies

1:03:45

with the legal system as we have it now. And

1:03:47

income sharing agreements are something that I'm really,

1:03:50

really excited about. So the NBA

1:03:52

case is fantastic. It's going to pave the

1:03:54

way for a lot more

1:03:57

to come in the same fashion. I

1:03:59

think a big problem in the US is

1:04:01

financing of education. A lot

1:04:03

of people end up, ended up leaving

1:04:05

college with enormous debt. And

1:04:08

I, I see two possibilities. One

1:04:10

of them is to go towards Europe and

1:04:12

to a more socialized state and

1:04:16

and without judging, I think I

1:04:18

don't see that happening in the US it's like

1:04:21

the current narrative. The zeitgeist does

1:04:23

not seem to be in that going in that direction.

1:04:26

And so then if that's

1:04:28

something you can't have, then what are we going to do?

1:04:30

Well, this is a very creative finance,

1:04:33

finance financing technique and

1:04:35

it doesn't just apply to ISS. One

1:04:37

could fractionalize any

1:04:39

old thing. So you

1:04:41

know, if anybody needs to raise

1:04:43

money for any purpose then

1:04:46

these assets, these digital assets allow

1:04:48

one to do that fundraise across

1:04:51

the globe. You do not need special

1:04:53

reach. In some fashion, if

1:04:55

the right way to think of a blockchain here is a,

1:04:58

is a rendezvous mechanism. It's

1:05:00

a global bulletin board through which

1:05:02

people can interact and exchange value.

1:05:04

And so that opens up really exciting opportunities

1:05:07

for the future.

1:05:08

Okay. So unsurprisingly,

1:05:10

I have a slightly different

1:05:13

view on that. So first on the Illinois

1:05:15

statute, I did look at it. My

1:05:20

assessment is that there is nothing interesting

1:05:22

in there because what

1:05:25

it clarifies is that

1:05:27

a smart contract is not invalid

1:05:30

because it's a smart contract. What

1:05:32

it doesn't do is address any of the problems

1:05:36

with enforceability of blockchain

1:05:39

based smart contracts

1:05:42

that are more fundamental about enforceability.

1:05:45

You prove , you know, fraud and duress and

1:05:48

a lack of capacity and so

1:05:50

on. So this doesn't

1:05:52

really change much. And if you look

1:05:54

at other jurisdictions it's

1:05:57

not really a pressing

1:06:00

question whether or not you can agree

1:06:02

to something digitally. You

1:06:05

know , digital signatures have been around for a long

1:06:07

time and have been recognized

1:06:10

by many jurisdictions for a long time. I

1:06:13

don't have read the

1:06:15

legislation, I don't think that there's this

1:06:18

really much, much in there . The

1:06:21

same is true. Liechtenstein

1:06:23

also did that for instance, they changed their

1:06:26

core private law document

1:06:29

to endorse

1:06:32

to a certain extent blockchain

1:06:35

transactions. But they also make

1:06:37

clear that this is really just about making sure

1:06:39

that a transaction is not invalid

1:06:41

because it's on the blockchain. A

1:06:44

little, little beyond that now

1:06:47

on , on the NBA

1:06:49

example and, and income sharing,

1:06:53

I actually, I came across this years

1:06:57

ago when I talked to , to

1:06:59

, to , to a friend who had

1:07:03

somebody proposed something similar

1:07:05

to that. Basically

1:07:08

finance students who would

1:07:12

sell off their future future income.

1:07:14

And of course, I mean the problem

1:07:16

with that does help

1:07:19

with , I don't think it has much to do with blockchain.

1:07:22

As, as such. The problem with

1:07:24

these agreements is moral

1:07:26

hazard and that was selection. Perhaps

1:07:30

in the case of a famous NBA

1:07:33

player both

1:07:36

these factors are less relevant

1:07:38

when it comes to applying this more

1:07:40

broadly. I think these two factors

1:07:43

that once you sold off

1:07:46

part of your future income,

1:07:49

this necessarily dilutes

1:07:51

your incentive . So you have this moral

1:07:53

hazard point. But also we

1:07:58

have to focus

1:08:00

on a use case where

1:08:02

it's not so clear what the

1:08:04

quality for you will receive some signal

1:08:06

about the quality of the person

1:08:09

selling their future income. But this will

1:08:11

not be perfect information because I

1:08:13

think no matter what you think about our current system,

1:08:16

if you have perfect information

1:08:18

about these future income streams,

1:08:20

I think there's no question that you could monetize

1:08:23

this as things stand.

1:08:26

And so I don't, I don't see

1:08:31

selling of future income

1:08:34

as economically, economically viable

1:08:37

on a, on a larger scale.

1:08:40

So I, I'm fairly

1:08:42

fairly doubtful about that.

1:08:44

So I want to follow up on that a little bit. Not because

1:08:46

I'm an expert or anything, but just

1:08:50

just, just my own observations. There

1:08:53

are a couple of things that are fairly straightforward

1:08:55

I think to see here. Yes, you make

1:08:57

very , very valid points. You are right, there

1:08:59

is moral hazard involved. I

1:09:01

would worry a little bit about people making

1:09:04

decisions early on in their lives that

1:09:06

affect them for years to come afterwards. And

1:09:09

how we prepare them for that decision. I

1:09:11

mean that was , those are all issues that are in the back of

1:09:13

my mind. On the other hand, of course,

1:09:15

people make these decisions even now, they

1:09:17

, they become indebted when they go

1:09:20

under. That's that they cannot pay back later.

1:09:22

And in fact, even bankruptcy cannot save you

1:09:24

from some of these debts , but but

1:09:27

deep down there's a very simple mechanism for dealing

1:09:29

with these things, which is you batch them.

1:09:31

So we deal with this all the time. In

1:09:33

finance. You pool these

1:09:36

these income sharing agreements into larger

1:09:38

instruments and yes,

1:09:40

you're right. Some pay less, some pay more.

1:09:43

But but you can actually do actuarial

1:09:45

odds on exactly what you will get paid back

1:09:48

and then you can come up with a fair market price

1:09:50

for these assets. So I think

1:09:52

that's a , that's pretty interesting. And if there's

1:09:55

one thing I have learned, so my company

1:09:57

recently moved to Brooklyn about

1:09:59

maybe nine, nine months ago. We've been talking to wall

1:10:01

street about different kinds of digital

1:10:04

digital assets, digital tokens and so

1:10:06

forth. If there's one thing I've learned through

1:10:08

this, it is, if you come up

1:10:10

with, with with liquid

1:10:12

financial instruments, people are, or

1:10:15

they jump into trade it. Wall Street is there

1:10:17

to trade it right up ahead of them. And

1:10:20

and they're very eager to, to provide to,

1:10:22

to be part of the market. And and

1:10:25

that I think is a, is a source of financing

1:10:28

for a set of people who would otherwise not be able

1:10:31

to , to raise money. And so I'm excited

1:10:33

about that. I think we can you

1:10:35

know, we can do away with the traditional

1:10:37

forms of, you know, tax and spend

1:10:41

and replace it with more creative

1:10:43

ways of financing such as such as ISS

1:10:46

income sharing agreements.

1:10:48

You know,

1:10:50

listening to the income

1:10:53

sharing in case I

1:10:56

think it's also a good example for

1:10:58

what I mean with the

1:11:01

incompleteness of any algorithmic

1:11:04

solution to that. I mean, you have an NBA

1:11:06

player, and even if

1:11:08

you ignore the moral

1:11:10

hazard and adverse election problems

1:11:12

and I accepted, maybe they're

1:11:14

not as important here. I

1:11:18

don't think there is a good way of

1:11:20

capturing all income

1:11:24

of this player in a

1:11:26

formal code

1:11:28

language because there will be

1:11:30

a lot of questions about what

1:11:33

counts as income. What

1:11:35

if, I don't know the brother of the

1:11:37

NBA player gets a

1:11:40

job for an ad agency that's probably

1:11:42

not income. What about sponsorship

1:11:44

deals that

1:11:47

can be, you know, linked to

1:11:49

investment in some other ventures that

1:11:51

the basketball players involved in and

1:11:53

so on and so on. For all these questions,

1:11:55

I think you would still need the traditional legal

1:11:57

means. Just to pick

1:12:00

up on the point you made earlier, I'm

1:12:03

not saying if

1:12:06

we don't get to 100%,

1:12:09

let's do 0%. It's all useless.

1:12:12

What I'm saying is if you don't

1:12:14

get to 100%, then you

1:12:16

need a backstop . And this backstop

1:12:18

looks exactly like all

1:12:20

the mechanisms we already have and

1:12:23

these backstops will involve trust

1:12:26

and they pose much of

1:12:28

the same risks. So covering

1:12:30

99% in a decentralized

1:12:33

way and having 1%

1:12:35

covered in some version

1:12:38

of a centralized way, I believe

1:12:41

is not, it does not

1:12:43

offer the kind of dramatic improvements

1:12:46

that people is humid was compared

1:12:48

to the case where the backstop takes

1:12:50

up a bigger space.

1:12:52

So yeah, I agree. I think you're right.

1:12:55

That there will always be

1:12:57

problems at the interface. So capturing

1:12:59

all income flows is , is difficult. Yeah. You

1:13:02

are absolutely 100%.

1:13:04

Right. so what's going to happen?

1:13:06

Well in the short term, there will be

1:13:08

people, who you know, perhaps

1:13:11

sell things and then, you know, work around

1:13:13

the rules and so forth. But eventually we

1:13:15

will get in the kinds of systems,

1:13:19

that are required to audit these things. So

1:13:23

I can imagine that in the case of ISA

1:13:25

are there are different ways of post facto

1:13:28

all the thing when you know,

1:13:30

when, if enough of the shareholders

1:13:32

of the ISA raise issues,

1:13:34

then you can hold it , this expenditures of the person.

1:13:37

So I mean they're there constantly and other

1:13:39

things I'm sure like the pros will come up with the

1:13:41

, you know, the accountants will come up with much

1:13:43

better solutions than I can on the fly here. But

1:13:46

the infrastructure is required. Is it's workable.

1:13:50

It's possible. So this is kinda

1:13:52

like in the early days of aviation pointing

1:13:54

out that, you know, planes are kind of clunky

1:13:56

and weird and yeah, they are clunky

1:13:58

and weird or they were, and they never

1:14:01

will replace the horse

1:14:03

or the car and whatever. But

1:14:06

but but on the other hand you

1:14:09

know, they, they are legitimate industry, with

1:14:12

a huge, huge future ahead of them.

1:14:15

And I'm in only

1:14:18

a few percent of the trillions of dollars that are currently

1:14:20

sitting on people's balance sheets could

1:14:23

be in digital form. I think we would

1:14:25

begin to see enormous advantages.

1:14:28

Yeah. I mean, I think I would say about

1:14:30

the airline case that if I, even

1:14:33

if I look back at the early days of aviation,

1:14:35

if somebody tells me, well , this is

1:14:38

risky and what not, I would

1:14:40

say, yeah, but I can cross the Atlantic

1:14:42

in, I dunno, 14 hours and

1:14:45

you , you, your horse can't do that

1:14:47

and your ship can't do that. So I

1:14:49

think that's what I'm looking for. The

1:14:51

kind of the killer

1:14:54

argument where you say, here's something

1:14:56

that you cannot do

1:14:59

in other ways. And so please ignore

1:15:02

kind of our, our starting

1:15:04

problems here because ultimately,

1:15:06

you know, he has the vision. I can do something

1:15:08

that you cannot do otherwise.

1:15:12

So yeah, I hear you. I hear you. And

1:15:15

that this is the hunt for the killer app. And

1:15:17

so let's rewind back to the

1:15:19

early days of the web. What's the web killer

1:15:21

app? What's the Internet's killer app?

1:15:24

And I saw so many colleagues. I was

1:15:26

there in the early days when the internet - Internet's been

1:15:28

around far longer than I have. But

1:15:30

when it started to go mainstream everyone

1:15:33

was looking for that killer app. While

1:15:35

it turns out the killer apps are quite prosaic,

1:15:38

they're quite boring. Email was the

1:15:40

initial killer app. Then the web was a

1:15:42

big killer app and then various different kinds of services

1:15:44

was a killer app. I mean , it became an enabler. So

1:15:47

it's so pervasive now. I don't even know what the name

1:15:49

is , the internet and the Internet's main use right now.

1:15:52

It's so, so critical. And the

1:15:54

same I think is going to happen with blockchains.

1:15:56

We're going to see platforms emerge that

1:15:59

can support a wide variety

1:16:01

of activities and the

1:16:03

boring ones are going to be the initial cases.

1:16:07

I think we named quite a few of them during

1:16:09

this conversation and you can say, yeah,

1:16:11

but what about this, that and the other? So to

1:16:13

fast forward umpteen years and you can

1:16:16

pick issues with them. But

1:16:18

I think there's , there's always a big value

1:16:20

proposition behind the scenes which is greater

1:16:22

reach, greater liquidity, much

1:16:25

less friction opening up of

1:16:28

of fields to competition providing

1:16:30

assurance to, to people at home

1:16:33

and allowing them to participate in the financial

1:16:35

system firsthand. So you combine

1:16:37

those things into a big mix and

1:16:40

and what comes out I think is a much,

1:16:42

much better outcome than what we have today.

1:16:44

Okay. Professors, I'd like to move on to audience

1:16:46

questions. This will be the last round and

1:16:49

we do have quite a few questions. So in the interest

1:16:51

of time, I will merge two questions

1:16:53

into one. And both of the

1:16:55

debaters can address this question.

1:16:57

So this is from Cryptofan and

1:17:00

Youngbitness. And the question

1:17:02

is what are your thoughts on NFTs,

1:17:05

or non fungible tokens for digital

1:17:07

collectibles? Is that a good use? And

1:17:10

then separately, some crypto

1:17:12

projects have come up with ideas of city

1:17:14

tokens that keep consumptions in

1:17:16

local bounds to help small businesses.

1:17:19

So these would be city tokens that

1:17:21

have limited amount that in

1:17:23

some cases would track the value of

1:17:25

Fiat, but they can only be used

1:17:27

within local bounds . Your thoughts on this

1:17:29

idea? Does it make sense to tokenize?

1:17:32

So I love NFTs - NFTs are

1:17:35

non fungible tokens for people listening at

1:17:37

home and they they

1:17:39

range quite a bit. I

1:17:42

think the one of the early ones was something

1:17:45

called rare pepes. And

1:17:47

I was in the very first series, so they

1:17:50

printed 25 of them. And

1:17:53

and one of them was Satoshi Nakamoto. One of

1:17:55

them was me. I think they were mocking me,

1:17:57

but I love it. I absolutely still

1:17:59

love it, they're fantastic. I grew

1:18:02

up in an era where we collected these

1:18:04

playing cards and it's

1:18:07

kinda like that they're collectibles. And

1:18:10

so where do I see NFTs

1:18:12

going? So NFTs

1:18:14

are as collectibles . They're really fun and interesting.

1:18:18

But on AVA, we are building

1:18:20

NFTs that serve as credentials.

1:18:23

So imagine that you hold an NFT that says

1:18:25

I'm an Ave employee and it's

1:18:27

got your picture on it. It's a non fungible token.

1:18:29

It attests to the fact that you're an employee

1:18:32

and and suddenly that NFT

1:18:34

is actually a key. It can open

1:18:37

the door for you, literally. So

1:18:39

that's an amazing thing to be able to do. And

1:18:42

so we're turning to make the the user experience

1:18:44

around the NFTs is much more fluid and

1:18:46

I'm really, really excited about their potential.

1:18:49

The second question goes

1:18:51

right to my heart, which is local

1:18:53

currencies. So I spent

1:18:55

quite a bit of time at Cornell. Obviously

1:18:57

I am, I was a professor at Cornell. I'm on leave

1:18:59

from Cornell right now. And Cornell

1:19:02

is in Ithaca, New York, and Ithaca

1:19:04

New York was the site of the world's first

1:19:06

local currency, something called an Ithaca Hour.

1:19:09

And these things are fantastic

1:19:12

because they allow a local community

1:19:15

to define their own currency and

1:19:17

to ensure that that currency circulates

1:19:19

in the local fashion within the local geographic

1:19:21

region. It has been

1:19:24

news that there are many hundreds of

1:19:26

local currencies by now. They

1:19:28

have been used all around the globe.

1:19:31

Some of the more successful ones are

1:19:33

in Italy. And I know a little bit about

1:19:35

those deployments where it

1:19:39

brought a lot of economic activity to the region

1:19:42

because you know, the,

1:19:44

there are a whole bunch of advantages to to

1:19:47

holding these local currencies that

1:19:51

essentially the value does not leak out of

1:19:53

the community. So both

1:19:55

of them are very exciting and and

1:19:57

on the AVA platform, we are trying to enable

1:20:00

anybody to be able to create you

1:20:02

know, creative things like this. You want to create a series

1:20:04

of NFTs. That's definitely one

1:20:06

of the use cases. You want to issue your own

1:20:08

local currency. That's a fantastic

1:20:10

use case. I would love to encourage

1:20:12

anybody who wants to do this. Anything

1:20:15

that makes a human life better is

1:20:17

a fantastic application of

1:20:19

blockchains.

1:20:20

Yeah. So I completely

1:20:22

agree, actually, with Gün

1:20:24

on non-fungible tokens.

1:20:27

When I first read about crypto kitties

1:20:31

which presumably also

1:20:34

kind of fall into this category, I

1:20:36

think. Yeah,

1:20:38

that is fun. And I

1:20:40

can see in this particular

1:20:42

case how this could

1:20:44

be an application where

1:20:47

blockchain has something to offer cannot

1:20:50

be replicated in the

1:20:52

traditional world. Because

1:20:55

if you were to try to do that,

1:20:58

you would then have to rely on a

1:21:00

certain company being around. And I don't

1:21:02

know if you play some video

1:21:05

game , I don't know if you have world of Warcraft

1:21:08

I don't know. Some digital assets

1:21:10

there. And obviously this can all change

1:21:12

with the value of it can change because they can just assume

1:21:15

more swords or whatever it is. And

1:21:17

so I , I agree. And

1:21:19

that's actually quite , quite an interesting

1:21:22

case. On,

1:21:25

on local currencies, I'm a bit more skeptical. I

1:21:27

think there are cases where local

1:21:29

currencies can

1:21:31

serve some

1:21:33

purpose. Ultimately, I think

1:21:36

the idea that you can have

1:21:38

widespread use of local

1:21:41

currencies just ignores the

1:21:43

economic fact of the benefits

1:21:46

to trade. And so

1:21:49

the local currencies that do exist,

1:21:51

they are often

1:21:54

a way to encourage, for instance, tourists

1:21:57

and others to spend money locally to

1:21:59

create these soft incentives.

1:22:01

But ultimately, if I

1:22:03

have a local currency and I want to

1:22:06

buy a coffee with my local currency

1:22:08

the value as well as expressive

1:22:11

value has to leak out in the sense that they

1:22:13

need to buy the coffee beans and , and so on.

1:22:15

So there will be some interface. It

1:22:17

can serve some useful purpose

1:22:19

in some cases, I think

1:22:21

in some limited cases. But

1:22:23

, but I don't think this is a case

1:22:27

for widespread adoption

1:22:31

is , is likely.

1:22:32

Yeah, I agree. I don't think this is a case for widespread

1:22:35

adoption. But typically

1:22:37

was another thing I should mention is the people who

1:22:40

tend to like local currencies

1:22:43

tend to be people after my own heart.

1:22:45

People who want to do something for

1:22:47

their community something

1:22:49

that they want. They want to reach an audience. They want to

1:22:51

allow people to be included in the financial

1:22:53

system. And and if,

1:22:56

if we at AVA can help them, I would be

1:22:58

delighted to help them. That's a fantastic

1:23:00

use of, of this new tech. Even if

1:23:03

it's not a big money making proposition, even

1:23:05

though obviously it's not going to

1:23:07

be, but I think it's a worthy endeavor.

1:23:10

Great. Thank you both for offering

1:23:12

us so much insight in the preceding debate

1:23:15

. Now we're nearing the end. I would love to

1:23:17

hear concluding remarks from both

1:23:19

debaters starting with Edmund.

1:23:21

And in particular, I'm hoping that

1:23:23

the debater would mention one thing or

1:23:26

two that you found that you learned from your

1:23:28

opponent, if any.

1:23:31

I really enjoyed this and I have to

1:23:33

say I've had discussions

1:23:35

with many blockchain

1:23:39

fans and blockchain experts and

1:23:42

people working in the industry. And

1:23:44

I was particularly

1:23:47

delighted to to

1:23:50

see somebody who is like good news

1:23:53

willing to kind of engage with , with these,

1:23:55

with these arguments and acknowledges some

1:23:57

of the, the limitations.

1:24:02

And I , I really liked the point about about

1:24:04

natural monopolies and , and rent

1:24:07

extraction. Even though I've , I think I

1:24:09

would have to do a bit more thinking about with,

1:24:12

with this scenario

1:24:15

actually has its limits.

1:24:19

Overall I think my, my

1:24:22

general gut feeling

1:24:25

remains unchanged in that

1:24:27

I think all

1:24:30

solutions to the problems

1:24:32

that I see from a legal perspective.

1:24:36

They always reintroduce

1:24:39

central pain . They re-centralize or

1:24:41

reintroduce trust in some way. And

1:24:44

that's not surprising from my point

1:24:46

of view. It's not surprising because we

1:24:48

say there's the rule of law and

1:24:50

the rule of law simply means that we have

1:24:52

a hierarchy. We have a hierarchy where

1:24:54

the loo is above everything else. And

1:24:57

so if we live in this world

1:24:59

that has this hierarchy, any useful

1:25:02

system that we want to use also

1:25:04

has to respect this hierarchy. And

1:25:07

because we are in this world

1:25:09

where we have to respect this hierarchy, I think

1:25:11

the technological solutions that

1:25:13

are enabled by blockchain, they

1:25:16

run in, they always run into the same

1:25:18

problem. They run into the problem that this complete

1:25:21

trustless Snus cannot,

1:25:24

cannot be applied

1:25:27

to the bitter end. So you can't get to 100%.

1:25:30

And as I said earlier, I think if you can't

1:25:32

get to 100% and you have

1:25:34

this small backdoor

1:25:36

that looks very much like the traditional

1:25:39

system, that this is undermining

1:25:42

the value proposition. I

1:25:45

also think that if

1:25:48

you look at people proposing blockchain

1:25:50

solutions more generally very

1:25:52

often there is a lack

1:25:55

of understanding of

1:25:57

why we do things in

1:26:00

the terribly inefficient ways that

1:26:02

everyone knows we do them in

1:26:04

. And often there are reasons

1:26:07

that may not be entirely obvious. And

1:26:10

I think there are examples for that

1:26:12

in the blockchain space where many

1:26:16

projects start with bold

1:26:18

claims about decentralization and disruption.

1:26:21

And then you let them run for a few for

1:26:23

a few years and they rebuild

1:26:27

the system we already have. And I mentioned

1:26:29

before custodial exchanges and how

1:26:32

many people have an

1:26:35

intermediated relationship

1:26:37

with what is supposed to be a public blockchain

1:26:40

. And so I

1:26:42

, I discussed that a bit in a paper and I

1:26:44

, I call this the kind of the junior, the

1:26:47

junior business

1:26:49

consultant fallacy that you look at

1:26:51

the system that has evolved

1:26:54

and has been kind of cobbled

1:26:57

together over decades

1:26:59

or sometimes centuries. And you look there and

1:27:01

he said, well, you're all stupid. That's, it

1:27:03

can be done much easier. And that's

1:27:05

always true, but in

1:27:08

order for this to work, you would need

1:27:10

the coordinated efforts of many,

1:27:12

many players who

1:27:14

don't necessarily want to collaborate.

1:27:17

And that is the real inhibitor

1:27:20

of change. And I don't think

1:27:22

that there's currently any indication

1:27:25

that blockchain can meaningfully

1:27:27

alter this.

1:27:28

Okay. Thank you Edmund. Now Gün?

1:27:31

So yeah, I too would like to thank

1:27:34

Edmund for his incredibly insightful,

1:27:36

very cogently stated arguments about

1:27:39

the, the challenges facing the space. And

1:27:42

I share skepticism in

1:27:45

many ways and learned quite a

1:27:47

bit. Especially the, in his closing arguments,

1:27:49

you mentioned the junior business consultant syndrome

1:27:53

or the fallacy that that's,

1:27:55

that's certainly something I'm going to take away with me.

1:27:58

And so let's see. There's quite

1:28:02

a bit of merit to a lot of the

1:28:04

points you brought up. The the

1:28:07

blockchain revolution is not a cure

1:28:09

all, it's not going to, you know, tomorrow

1:28:11

replace the dominance of the

1:28:14

United States dollar at least. I don't think it will.

1:28:17

It's definitely not going to you

1:28:19

know, put a Goldman Sachs out of business

1:28:21

tomorrow. It's not going to put SwissRe

1:28:24

out of the insurance business today after that

1:28:27

this is, it's going to take time. But

1:28:29

I believe it will happen. The

1:28:31

problems that that people

1:28:33

often cite with blockchains tend

1:28:36

to be problems with the first generation

1:28:38

and they tend to be problems at either the

1:28:41

political level or the performance

1:28:43

level. So I mentioned the political

1:28:45

problems before because these blockchains

1:28:48

enforce only their own rules and nothing else.

1:28:51

Then they are not compatible with any legal system

1:28:53

and therefore they cannot coexist. And

1:28:56

therein lies the tension. Then you get into a spiral

1:28:59

where you attract the extreme,

1:29:01

take down the state types and then suddenly

1:29:04

you have something that is not going to mix with

1:29:06

any of the things we have and you have to

1:29:08

reinvent them from

1:29:10

scratch. And so, so Edmund is

1:29:12

exactly right that we've seen this happen. And

1:29:16

in parallel, let me add to his argument,

1:29:18

the technical limitations of these platforms

1:29:20

have also forced us to do things that

1:29:22

stray from the narrative because

1:29:25

the first generation blockchains are so slow.

1:29:28

Then suddenly people are holding their tokens

1:29:30

on exchanges. Exchanges have become

1:29:33

the de facto layer twos

1:29:35

that we have. Don't work all that well. They have very

1:29:37

limited capacity. They have terrible privacy

1:29:40

concerns associated with them

1:29:42

and therefore people hold their money on Binance

1:29:44

or what have you or, or on other

1:29:46

exchanges that are even more

1:29:49

questionable and they're subject

1:29:51

to theft loss. And they

1:29:53

have reinvented a trusted

1:29:56

system just like the one that, that used

1:29:58

to be there in the first place. So

1:30:00

that's, that's all correct. But

1:30:03

I alluded to the system that we're building

1:30:06

that has an entirely different model. It

1:30:08

creates an entirely different set of

1:30:10

emergent networks and

1:30:13

also it has different

1:30:15

technological performance wise

1:30:18

properties. It can transact so

1:30:20

fast with such latency that

1:30:23

it can be an everyday payment

1:30:25

system as well. And the fact that you can

1:30:27

partition these sub networks , you can have a

1:30:29

payment system for everyday payments

1:30:31

and you can have other systems for, you

1:30:33

know, let's say real estate for other kinds of

1:30:36

assets and so forth. So so,

1:30:39

so he's right, we should not

1:30:41

be trying to duplicate what we have

1:30:43

and he's, and Edmund didn't make this, but let

1:30:46

me argue on, on the other side as well a little bit.

1:30:48

The intermediaries, he's exactly right. The

1:30:50

intermediaries do bring value.

1:30:53

The people who want to take it all down and

1:30:55

recreate it from scratch are typically just

1:30:57

people who are talking their own

1:30:59

book that they would just want to recreate

1:31:02

what existed except with the old

1:31:04

guys pushed out and them in place in

1:31:06

their place. So we

1:31:08

saw a similar thing with

1:31:10

the web and when people were creating

1:31:12

these dot-coms disintermediation was

1:31:14

in the air and people wanted to do

1:31:16

everything that existed but on the

1:31:18

internet and, and without an

1:31:20

intermediary and often in

1:31:22

doing so, they forgot

1:31:25

why the intermediary is there . The intermediaries

1:31:28

other than providing some kind of an

1:31:30

obvious service to you typically

1:31:32

provide a whole slew of things

1:31:35

that, that you just, you can't easily

1:31:37

replicate. For example, Amazon

1:31:39

seems to sell stuff, but what they really

1:31:41

do is they, if you could just as

1:31:43

well buy those things from China yourself,

1:31:46

but you don't know which of the many manufacturers

1:31:48

in China to buy it from. They

1:31:51

do a reputation game in the back end that

1:31:53

you and I would , would be hard pressed to replicate.

1:31:57

The, a lot of financial intermediary,

1:31:59

stakeholder and risks and , and smooth

1:32:01

out a lot of transactions behind

1:32:03

the scenes. They provide invisible but

1:32:05

crucial value. So I suspect

1:32:07

going forward, we're going to always see

1:32:11

the crazies, right? We're going to see people say, Oh,

1:32:13

blockchain fixes everything. It cured cancer.

1:32:16

It's going to take down the state, put an end to

1:32:19

wars and so forth. So that's,

1:32:21

I don't think that's going to happen. And,

1:32:24

and we're also going to see people who

1:32:26

valiantly try to replace Fiat and

1:32:28

I don't think we're going to be able to do that, at

1:32:31

least in the short term and medium and long.

1:32:33

I don't know. It's up for grabs. But

1:32:37

I think that the projects that, and then there

1:32:39

will be some projects that never go away,

1:32:42

but Bitcoin is going

1:32:44

to be around. I don't know what's going to happen

1:32:46

to it. At the technical

1:32:48

level, as the incentives will dwindle

1:32:50

down, as the number of coins that

1:32:52

are in people's hands go up. And

1:32:55

the coins that are being minted goes down. I'm not

1:32:57

sure if it's a viable system. But the

1:32:59

projects that, that I think jump ahead

1:33:02

of the queue here are going to be those

1:33:04

projects that understand what

1:33:06

the legal, current, current legal infrastructure

1:33:08

is like, what the current financial infrastructure

1:33:10

is like and are able to coexist

1:33:12

with it. And and

1:33:15

they are going to also be the projects that are

1:33:17

able to identify

1:33:19

what the intermediaries do and

1:33:21

accommodate them in this new universe

1:33:24

where where things are much more auditable,

1:33:26

much more transparent and much

1:33:29

more incontrovertible. So

1:33:31

with that said, I'm not going to repeat

1:33:34

my previously stated optimism. I

1:33:37

believe that this space is, is poised

1:33:39

to take off. And we

1:33:41

saw the dream, we saw

1:33:43

the hope, the hype that goes

1:33:45

with it and we saw of course the scams that

1:33:47

come along with it. But I believe that

1:33:49

we now possess the right technologies

1:33:52

and the right infrastructure to

1:33:54

tackle the challenges that lie ahead, that

1:33:57

my opponent has so, so gracefully

1:33:59

laid out for us. So thank you all for

1:34:02

listening.

1:34:03

Well, Gün and Edmund, thank you so

1:34:05

much for participating in today's debate. You've

1:34:07

definitely given us much to think about.

1:34:10

A central part of the debate is whether the world

1:34:12

as depicted on blockchain, can mirror that

1:34:14

in the real world; and after

1:34:16

adding various features into the system to ensure

1:34:18

that's the case, are you left with a system

1:34:20

that still boasts of all the benefits of the blockchain?

1:34:23

And is there something to be said about

1:34:25

the current state of the tech not doing this job

1:34:27

right and therefore further perfections

1:34:29

can be brought about with future development.

1:34:32

Thanks to Gün and Edmund for providing arguments

1:34:34

for both sides to illuminate us.

1:34:37

So listeners, we would love to hear from you

1:34:39

and to have you join the debate via Twitter.

1:34:42

Definitely vote in the post-debate poll. Feel

1:34:44

free to leave your comments. We look

1:34:46

forward to seeing you in future episodes of The Blockchain

1:34:49

Debate Podcast. Consensus optional,

1:34:51

proof of thought required.