Today we have the return of Steve Mildenhall where Steve and I talk blockchain! Steve suggested the idea to me a few months ago and that sent me down a bit of a rabbit hole exploring this technology.
In this episode Steve and I talk about what the blockchain is from both a technical and strategic perspective. It covers insurance but we go wider! This is possibly a transformational innovation, but how?
Speaker 1:0:01And that's working. I'll read out the same bio I wrote before and then I'll say just say this was your idea. And I'll just repeat again what I said you want to go. I really appreciate you coming up with the idea because it forced me to look into it and I hadn't.
Speaker 2:0:14Like I said I'm taking your property to not push myself to figure this stuff out. And it's consuming a lot of my life in the last month or so. So here we go.
Speaker 1:0:24My guest today is Steve Milton Hall. Steve is assistant professor of risk management and insurance and director of insurance data analytics at the School of Management in the Tobin College of Business at St. John's University. Steve is 25 years experience in the insurance industry. Prior to joining St. John's in 2016 he was a global CEO of analytics at Aon DLC based in Singapore and head of an Benfield analytics. Steve received his Ph.D. in mathematics from the University of Chicago. He is a cryptographer which we'll be talking about today which I only just learned and maybe he did too. Steve welcome to the show. Thanks for having me back. So this following are not a reasonable Book Club premiere. Maybe we'll continue to call this a book club although more of a learning club Study Club. This was your idea to do the show Steve and I really appreciate you suggesting this is our our round two because block chain bitcoin.
Speaker 1:1:13These were concepts technologies that I had been to be honest with you. Call it relatively speaking dismissive of that relative is relative to the euphoria and intense emotion it stirs up and everybody else I thought was a little bit overrated. But through my research over the last couple of months since we've been talking about this I've come around and I do believe it's amazing stuff. So I'm looking forward to getting stuck in. One thing that I always am concerned about when talking and hearing about bitcoin is how just immediately goes abstract and we're going to get abstract today and talk about some things that most people aren't familiar with but maybe you can begin with a list of or at least a quick conversation about some technologies that Bitcoin enables some block chain examples. Bitcoin is sort of blocking enable So Bitcoin is the number one example this crypto currency. But what are some other examples of things that exist out there.
Speaker 3:2:06Yeah so in the insurance space there's a few examples at the moment. There's a group called Etha risk which does travel insurance which is all done on a block Taeng database. There's a company called a ledger which stores information to validate Diamond ownership. So the idea here is you've got a database that is immutable and is certifying ownership of something and they've got I think over a million diamonds in that database at the moment.
Speaker 1:2:34And actually I came across a quote from a guy named Chris Dixon who is a managing partner at venture capital fund in California and he's a real Bitcoin block chain guy and manages their crypto funders are calling it. And he said Here here's here's a quote of his of the first and most important example of block chain uses digital currency made famous by Bitcoin. But as we've discovered over the past few years many other software components can be constructed using the building blocks of trust. Smart contract platforms like Ethereum enable the creation of among other things application specific currencies that being the ISO's you'll hear about digital property rights which you touched on there a second ago. Open Financial Instruments software based organizations and that references actually to a coin which is working as a share in companies in this specific specification that he's mentioning there which is interesting from these components in turn new infrastructure and applications can be constructed.
Speaker 1:3:30For example developers working on upgrading the core infrastructure of the Internet including storage networking identity distributed corpore computation stable coins can enable more mainstream user experiences for digital payments and financial services crypto goods such as theirs. There is a funny little collectibles crypto collectible to hear about those can unlock new experiences and business models for games and other forms of media. Entrepreneurs are developing crypto powered financial services like the tokenization of traditional assets and payment services of the unbanked. Expect many other applications to emerge in the coming years and some more to have their loyalty systems or digital IDs in equity markets. Energy trading medical records tracking drugs from pharmaceuticals supply chain management. Holy cow there was so much here. It's overwhelming isn't it.
Speaker 4:4:16Yeah if you think in that same podcast he talked about we've got a new capability that's come along and it's as powerful as computers were originally as powerful as the Internet was originally and were at the same point as we were the Internet. And I don't know about sort of 1980 you know 7 way you'd log onto a page and it would be of a few bits of a team out of the House and the image would load like pixel at a time. What are we going to do with this. But it truly is enabling this this you know authority less trust between individuals who don't know one another and have no reason to trust one another.
Speaker 1:4:52It's a brand new super powerful capability and so we are kind of coming to the core of our conversation today of what is it and why does it matter. And one of the things that occurred to me over the course of my research or became clear to me is that actually there are precursors to the two bitcoin and so we're going to start off talking about bitcoin and what is inside bitcoin and how it works and then that will evolve into a conversation about theory and other technologies and then beyond from that. But what surprised me about bitcoin was that there were a couple of crypto currencies that were attempted and were nearly successful. One of them was called Big Gold which uses and will use this as an an opportunity to talk through some of the technologies underlying Bitcoin Gold which used to be the proof of work idea and use that uses and not being something that computers can can a problem they can work on in order to validate transactions. And so one of the key problems with the bitcoin solves is when you have to track currency you need to make sure that everybody knows where everybody else's currency is and so that nobody steals it. And maybe Steve you can talk a bit about how that happens.
Speaker 3:6:08Sure. Well I mean I think it would be best if we we sort of started at the beginning sure components and will will lead up to that. So when we talk about a block chain and bitcoin implementation of a block chain there's four major components to this. It starts off simply it is a database so we're all familiar with databases and it's what's called a chained key value database and you can think of that as the key value would be like a database made up of index cards. The key is the index on the index card and the value is the content you're storing in. And you can store anything any DFAC images text whatever you like. The chaining is that you link the cubs together so that on the nth card if you will you have the index of the previous card the minus first card right.
Speaker 3:7:00And that's a very important. That's not a new innovation that's been around for a while but it gives your cards naturally a temporal ordering which you won. For example if they're tracking transactions so it'll be a first cut and then on the second card you'll have the index of the first card. So what that means is I can give you the index of the latest card and you can go to the pool of all the index cards and you can pull them out in order and you can sort of see the connections between the chain the chain. Right. So that's why it's a chain description of block chains.
Speaker 4:7:30The second thing it has is when you use a database as a user if you take a copy of it you are concerned that you're you have a copy with integrity that it is an accurate copy of the original database and the block chain uses a very clever way of determining integrity using vertical hash functions right. So hash functions are they really are a magical ingredient in this whole thing. What a hash function does is it takes an arbitrarily length input and it produces a fixed length output. Okay so the classic example we all love from I.T. systems is we're going to make your email address and it's going to be the last five letters of your or the first five letters of your last name and your first initial. And that's kind of useless because if your name is Jim Smith will be a lot of Jay Smiths.
Speaker 4:8:17And you get what are called hash collisions where two distinct things hash to the same to do. So there are more sophisticated hash functions though where the chances that different input hash to the same output is extraordinarily low and I'm not talking low in the 1 in 100 no PNL sense here we're talking about Loas in the chances of picking a particular atom from the universe right to do all practical purposes it is it is not going to happen. So how is this used. Well what you do is you take your index card and you take the contents you run it through your hash function and then you use the hash as the index. Okay so now if I downloaded an index card from the database I can check that I've got a good copy of it because I hash the contents. If my answer I get doesn't match the hash of the index on the card. Something must have happened in download and I don't have a copy with integrity. Why do we do that. Why do we need a copy of the integrity. Well because it's money or something we all were storing bank balances we need to know that we've got matters where it actually matters and it isn't.
Speaker 1:9:25And I was just mentioning before we started there's a metaphor that I was thinking of like yesterday which is if bitcoin. Call it this asset of value that the equivalent of real physical idea is if we all took our money out of the Bank dropped it in the middle of the town square and a big pile and then turned around and walked away and were sure actually that it was all going to be there and the right order for everybody every single person when we got back and we can use it whenever we want it but we're just sitting there in front of everybody.
Speaker 4:9:54Anybody can walk up to it and touch it and look at it and see who's who's in principle and so like the technology that enables that is is it's fundamentally I think just confusing not the right word but kind of mind bending it is mind bending and his life as I was looking into this this was one of the things that in my mind is so so the next thing that you do that you realize is if you've created your indexes the hash of the contents part of that is the hash of the previous card.
Speaker 5:10:25So what that means is I can right now I can give you 177 digit number and you can download the in topic coin database which I checked this morning it's 250 gigabytes right now. So 250 gigabyte file you can download it. You can do what is in essence a really big ass computation and if at the end of that computation you get the same 77 digit number that I told you was the current key. You can be essentially absolutely certain that you have a faithful copy of the original database because I find that amazing that one number 250 gigabytes of data are going to come back to that actually in a second.
Speaker 6:10:59But I just wanted Atlas really put a finger on how important that is because what somebody could do is they could they could give you the wrong copy the database where at the end of that chain is all Bitcoin goes to me and they say they just killed everybody. So everybody here is a new block. It's going into all your block chains and the end of that block chain is all bitcoins go to me. I am now a trillionaire right. And then B.
Speaker 4:11:20And so there are reasons I will get some reasons why that's not possible but that's what's at stake potentially that you could tell them money exactly so and that brings us to the next point so we've got we are sure the data has integrity but in databases there's a difference between data having integrity and data having validity. OK. We want the data to be a valid record of what we think is the true state of the world that we call validity as a to. You can have a copy with integrity of incorrect or invalid data. Right. So are the two distinct issues. So the second thing that happens with is a mix come back to that idea.
Speaker 1:11:55So that would be it is a it is a block chain which is valid in the sense that a true block chain but it's got the wrong people who have the wrong people have the money because it's a it's if I make up a new block at the end which is not valid you can have a copy of it that's accurate.
Speaker 4:12:10It's got integrity but it's not valid. Yeah right. So I've made. I've done your example I've said all the bitcoin goes to me that's not valid. Yeah you've got a perfect copy of an invalid record right. Yes yes yes. So validity is more important in many ways. Yeah sure. And I think this was the brilliant idea. You talked about proof proof of work and the issue that we have here is computing all these hashes and what have you. Very quick and very easy. So if we imagine we've got our key value database and you want to go back and you want to change your code in history so that it transfers all the money to you while there's nothing to stop you doing that calculation you can then compute from that point forward do all the subsequent keys and you can then present this to the world as this is the state of the world. OK. And people could download two copies within Tigrett with integrity but they wouldn't know which is which. So we need a way to build sequentially and at each step have everyone agree and then have a way for that not to be able to be changed.
Speaker 7:13:13And so Romney paused for a second and talk about because again which is probably a better way of inserting that were under big gold. What the inventor of that game Nick Sabo his idea was we're going to have everybody vote. And so everybody who's in this network now is going to have a vote in a very complicated voting mechanism for which one is true. And it has some kind of consensus that was developing is really complicated idea and complicated piece of software but bitcoins solutions Hitoshi Nakamoto will probably get and we'll talk about that in a second that maybe person was had a different idea for how do you how do you all agree.
Speaker 3:13:46So his idea is as follows let's suppose we're in a situation where everybody agrees on we've got a stack of cards that everyone agrees on and they basically tell us who owns what. From this pile of money that the village has put into the tax grab and now we've got a number of new transactions and we want to lock some of those down. OK so people can look they've got existing Raechel which we all agree on they can look at the new transactions and they can check this is you know personate times those to person B. Ten dollars. Well I did personally have ten dollars yes. Okay that's a valid transaction right so we can assemble a number of transactions together. We're going to write those on our index card and then here's the secret sauce. Normally we would just then take the hash of that.
Speaker 3:14:28Use that as the index and that ensures that we can and we can guarantee integrity. The extra step is as follows We want to actually add a little extra piece to the card so that when we cash it we get a small number. The hash that comes out is a small number because these are just numbers right. You can do is just it's literally a 77 digit decimal number. And they're essentially randomly distributed right. So if I start with a payroll load is to got a bunch of PDAF of transactions in and I just add an integer at the end and I increment it. I do that often enough eventually I will get a hash that comes out that small. It begins with a bunch of zeros. OK. And by adjusting house mold it has to be you can make that problem more or less difficult.
Speaker 3:15:12OK so so what we do with the peer to peer validation is that the group agrees OK at the moment we can perform so many hashes a second. So we want the number to be below whatever the threshold is and people scurry away they try and find that it's called a Nunns and number use once that you add to the code. They try and find the none so that the hash is small as soon as they find one that broadcast it to the network and they say okay here's a list of transactions with the nonce that locks it in. Everybody looks at it and they can then ovata it yet. All those transactions. We all agree with that. All right that's now a valid card. I put it on the pile and now we will start working on the next cut. Yeah. OK. And the reason that this works is now if I want to change this I want to go back to COD and I want to change the transaction on that card. I need to find the hash for that code then that changes the next card because remember the index comes through onto the next cup. So I need to find the notes for the next card and so forth. But meanwhile everyone else is working from the sort of front of the caterpillar if you will and they've moved ahead and you'll never catch up. Okay so in that way it becomes essentially impossible for someone to go back and change history because you've made it difficult to kind of mint the new cards.
Speaker 7:16:25But let's keep dwelling on this topic because it's really important. There's a lot of interesting complexities to it. So another solution that we're talking about here is to buy this right maybe you know more about this than me but the Byzantine Generals problem which is if you're sitting on a battlefield and you're surrounding the enemy that your allies some of them are pretty far away. So how do you coordinate. So if you're the general and you have a bunch of allies that are somewhere else on the battlefield how do you get the message to them to attack now attack now or attack later wait. So they can act in uncoordinated fashion all go their own direction lose the battle. What's amazing about this network is that so back to the village square idea we have a stack of index cards which tells everybody who owns what in the big pile of money.
Speaker 7:17:06And but everybody is now trying to trying to validate the next car is going to us we all have a card we're writing something down on. And the first person to get to the stack and put it on top gets the right stack. But what if we disagree. So now what if there are two messages that are being circulated through the Byzantine Generals army which ones right. And so I think that the way the way that Bitcoin solves this problem is that everybody shares with everybody else. You have this network this is sort of multi connected network where you know I'm looking at the last stack from from computer over here and his computer which has been the last stack and they're all kind of agreeing but to consensuses emerge so one group which is saying this is true. This is the new card to go on the stack and other groups disagreeing with them and you have a split and it's happened a couple of times in Bitcoins history.
Speaker 7:17:49How do you resolve that we resolve that by eventually one of them is going to overwhelm the other one because they're going to keep adding more stacks on top of theirs. And then one of the like you're saying it's very hard to add cars to a stack because deliberately solving this little cryptographic puzzle cost resources and so people we've heard of the 50 plus 50 percent plus one attack and that is you need to control Fifty one percent of the resources of the whole network because you have to be able to keep resolving what the next card in the stack needs to be and you could have 2 card 2 stacks that are racing each other is the point. So when when the when the card disagree story when you have two different ideas for who owns what stuff they start they start a race and eventually one of them is going to win because their stacks grow faster and they're going to spread more through the network and the secondary stock becomes totally invalid.
Speaker 7:18:38So all their cards that disagree become discarded and it just go away and they disappear and then a stack that gets largest wins and that becomes the truth of who owns what the longest chain defines the longest chain to find the truth exactly. And there is this sort of. And as the one of the things I was reading about in his research for this was there are two pages of the eight of the Nakamoto paper the bitcoin white paper which defined the protocol which deal with this and that was the innovation that was the evolution from Bickell to bitcoin because the voting mechanism which says into the question of who owns what. Let's all vote on who owns what let's look at Townsquare and those ways are handed over. I vote this way. Complicated to implement bitcoin says we're going to we're not going to think about who's right. We're going to make sure that we're going to ensure that we only the one who is right is the one who has the biggest and the one who has the biggest stack is the one who controls the most computing power to solve these. So these crippler puzzles.
Speaker 8:19:31And that's the only value that's the only arbiter of truth it said unaffordable. You come you can pretend to vote or you could vote not your true intention. You can make up computing path. You actually have to have it. There's no substitute for it. Another thing that we didn't come about. That's very important in this validation is so why do people why do they want to be the next person at the top come to this stature and the reason for that in bitcoin is when you get paid for it. And that's that's an important part of the incentives. When we think about applications of block chain in other areas you need to think about well if you're going to want some equivalent to mine is how are they going to get paid.
Speaker 7:20:12And people often miss in two ways and I learned just recently only only recently one they get you get rewarded and coins as they successfully mine a new card. So once you've successfully put another car on top of the stack you're handed some coins right. And the second actual way is you do get paid transaction fees and the bitcoin network costs bitcoin to send bitcoin to somebody else. Right now the transaction fees will be 20 to 50 bucks to actually send a transaction. I think you have that right. And so there is a fee element baked in there which the miners also get overtime and that can grow or shrink or whatever there's a market price for all that as well.
Speaker 8:20:48So the the way you may have also heard this there's going to be 21 million bitcoins. How does that happen. Yes well that whole network is calibrated to produce one block every 10 minutes. And it started off that you got 50 bitcoins for fomenting a block and then every I think every two years that Hough's is currently down to 12 and a half bitcoins per block and it'll keep having. And obviously you know some of the geometric series it's going to max out at about 21 million bitcoins will be issued.
Speaker 7:21:19And so let's just briefly recap now and the technologies that we've talked about because I don't know how good of a job we're doing to explain this because it's one of the things that really gets to me about learning about this is that are unfamiliar topics not used to thinking about stuff like this. This is not oh my computer's faster than it was and therefore I understand the implications of that. Now these are these are genuinely surprising ideas and so we have we have the public key cryptography which is one idea here right which is how we can secure that the transactions that I sent money to you and you know it came from me and that's a valid transaction and we have these these puzzles the nonces you're talking about which make adding a card to the stack hard arbitrarily. So those were adjusted over time to make sure they get 10 to 10 transactions 10 sec 10 minutes per transaction and 6 6 now print transaction. Any other key technologies here that were missing like genuine technologies.
Speaker 8:22:15ROSENBERG So the nonces is relying on the hash functions which are magical. There is a digital signature concept which means that you can sign a document in such a way that you can tell it hasn't been tampered yet but that essentially uses the same ideas as encryption yet and then you have the whole the fact it relies on the network and you know peer to peer and the rest of its social organization. It is it's an extremely clever and ingenious combination of existing technologies. There's no new technology or concept produced for this but the parts were pulled together in an incredibly imaginative and creative way.
Speaker 7:22:51Yeah and I think that the idea of as I said before throwing the money in the village square and then knowing that it's safe is it so surprising that it's I think one of the reasons why folks including me have a hard time understanding implications here is like what else is possible in a world where that can be true.
Speaker 5:23:10Yeah so. So we've sort of discussed that on the blog. We've just got it's a database. It's a key value database. We've got the hash inforced integrity we've got the pipit validation the missing piece that we haven't discussed yet. Okay so just what is it that the bitcoin network store is in this data kind of like a container is like a sequel data well what are we putting it in. Yes. And what we're putting in it is ownership of the bitcoins and the way that ownership is sort of asserted and transferred is if you own some bitcoin and you're going to send them to me. The way that works is I give you a puzzle to which I know the answer but it's very hard to determine the answer. And what you do is use. Similarly when you got the bitcoin you had some puzzle to which you know the answer.
Speaker 5:24:04And you essentially sign it over. You can almost imagine it as being like dollar bills. And there's the puzzle on there and you use your puzzle was given when it was given to you had your puzzle. You write the answer on and that's what everyone when they validate the blocks they validate that your answer is the answer to the puzzle on the on the dollar bill at the moment. And then I give you my puzzle you write my puzzle on that and then the trick though is it's not like a dollar bill that you give it to me. You've just broadcast it to the network. So there is it's called a UTX so an unspent transaction output there is on the network. There is this puzzle sitting there and it has the rights to claim so many Bitcoin outputs and it's accessible by anyone who can answer the puzzle right now. I know the answer. But in theory somebody else could figure the answer out and they could wipe it away. Right.
Speaker 6:24:58I mean yes it does that is the idea private.
Speaker 8:25:01This is this is your your private key. And it's it's quite you know part of the the design is it's it's sort of protected by about three layers of concepts so that you know if someone figured out how to reverse engineer a hash Well that is actually a double hash with two different algorithms so you'd have to solve two different algorithms one and then you'd have to sell something called discrete logarithm problem which is widely regarded to be an impossible problem to solve with current technology hashes for a second.
Speaker 7:25:29So the magic of a hash function so you could way to me as I was researching this is you could take a whole novel and you could hash that into this 72 integer number 77 77 integer number right. Or you could hash the word dog into a 77 integer number.
Speaker 5:25:48So yeah. And so when I started playing around with this I was like I want to believe that that's so livable so I took a photograph and I have a photograph and I got a number. And then right. Right. I went into photoshop and I changed one pixel. And actually again and it isn't like the last digit of that. It's completely different. It's totally different. Yeah. You know the ways of underneath they book is they take your input file it's divided into chunks and then on the basis of each chunk. It sort of does some shuffling it's like doing some Riffel shuffling and maybe you know you divide this could cause into little bits you shuffled the blocks around and it's just a sufficiently complicated thing that as far as we know you can't reverse engineer it is the one that there's a number of them.
Speaker 9:26:37Bitcoin uses one called Shub 256 which is secure hashing algorithm the 256 as it works with 256 digit binary numbers which then transferred rates into a 77 digit decimal.
Speaker 7:26:49And so there are two different keys that were used as the public and a private key. And I think of them as a lock and key. So your public key and in some ways operates like a lock where it says in order to get into that lock and open it up and use the bitcoin or take it you to have your private key which is kind of more like a key. And I think that if I can get this metaphor right what we're saying here is that you know every key is defined by some some kind of a password I guess right. And changing a little bit will completely change the configuration of the walk and so the key looks nothing like the key you had before even though you change that only a little bit. You have to have that key.
Speaker 5:27:20Somebody can steal your key. Yes. This is a much underappreciated fact is that you can't solve the problem but people got to remember 77 digit number. So they need to write them down somewhere and they can be stolen and then they can also be lost. Right. I put them on a flash drive I know you know that got thrown away. I live in Silicon Valley. The guy left in his jeans pants. Yeah. So. You know that's again. We'll probably get to this but sort of interface between the real world in the digital world and a close digital environment. Yes it's all perfectly secure. And what have you but the kids do live somewhere and if you get that key you can transfer that money and you can not get it back it is gone.
Speaker 7:28:03And let's let's come back to what actually is stored on the block chain and mine my kind of understanding of it is that it's a list of transactions. So what's interesting about the bitcoin block chain as distinct from say a theory in which I'm sure we'll touch on here is that bitcoin doesn't actually say this person has this money this person has that much money. It says throughout history here's all the transfers starting with the first transfer. Here's a giant list of all the transactions that have occurred which is not the same thing as saying here's a list of the accounts and who has what it's saying. Here's where the money flowed.
Speaker 8:28:35It's not stocks correct. There's no notion of an account. An individual can have multiple addresses. It is simply a tally of the the the problems to which your private key is the solution. Yep and then you and people match them up and you know that's it.
Speaker 7:28:52And one of the things that we've been playing around with some some block chain software and you know in preparation for this mostly and you can get you can get called a plug in for your browser or whatever it is a wallet application and that you say I own this much Bitcoin and you can put in an address you just copy and paste this giant number and you state send it to this address and that might be the first time that the block chain for bitcoin saw that address. That's OK. Right. That just doesn't exist somewhere else is just made up this number and now on the block and it says this number has this many Bitcoin or saury was transferred this many Bitcoin. And if you have access to the key which can which can decode that number you can then send it to somebody else.
Speaker 8:29:35Yes you are in the same way they will get you their problem. And you just sign it over.
Speaker 7:29:40You can think of it as like a check that you keep endorsing yet and one of the key ideas here is that you can have security without ownership and that the ownership here is where you think of like to from bank. And it just comes to my mind that they're going to go now where if I want to send money to somebody else and I'm back at T.T. right and if I'm going to send money to somebody else they have to open a T.D. Bank account in order for me to send them and send the money on the TV network and other bank accounts of course to get the open account first the block chain. You don't you just send it to an address and as long as somebody can grab that address you don't have to open an account or close the account or monitor an account because nobody actually owns the account.
Speaker 8:30:19It's a somewhat surreal experience I taught in my class last year. I talked about how bitcoin worked as sort of part of a fintech module and I thought well I should know about this in you know in reality rather than just in theory so I should go bias in bitcoin. So down on Prince Street here in New York there's a bitcoin cash station and you trundle up to it with your I put 200 bucks into it and you have your address and it's all one of those quick response codes. You hold your phone up to the camera. It scans the code scans the number and put 200 bucks in and that's it. It's not it's actually not quite. There's a little more regulation and you know you actually have to provide a cell phone number and they can tie ownership which is I mean that's a whole sort of the security apparatus of money changed that different different thing.
Speaker 10:31:08But I walked away from this and I'm thinking Well so where did you go where did buy 200 bucks just go. What happened to is now gone big.
Speaker 9:31:16And what of the confusing things is is a lot of the Bitcoin software will provide you with with what are called wallets and wallets are ways of managing your your private keys managing if you want to send money they figure out what outputs you've got and build the transactions for you. What have you but your money does not live in your wallet.
Speaker 11:31:35Your money is you know your ownership of your money is from your having this number which corresponds to a problem on this distributed ledger. Yes. And you can kind of see that the money doesn't live in your wallet because you could put the same money the same Bitcoin into the hundreds of different wallets. But you can only spend it once if you try and spend the same bitcoin twice. What'll happen this is where we go to the validating transactions. So I could take my same private key I could put it into two different wallets and then I could simultaneously try and spend it to two different places. Or what's going to happen is if people assemble the next CoD they will pull one they'll pull one of those transactions maybe as the first one. But when they get to the second one nogal now this one's not valid. I'm not putting you down because I can see that right there. And so you know on the incremental building the new card you don't solve the double spend.
Speaker 7:32:29So the key doesn't actually give you necessarily ownership in some conventional way. It gives you the ability to send it somewhere else. Yes which is kind of ownership. But in other ways it you know because it gives you control and control over that. But it's not it's not. I feel like it's only slightly less subtly different from what we think typically as ownership maybe but in name but maybe not necessarily in effect.
Speaker 5:32:52Well and it's interesting to ponder that from a state and legal perspective could you prove that someone owned some bitcoins right. Right. So essentially the only way that you could do that would be to find the key. Now the person if they had a good enough memory and they were confident in it they could literally just remember the number. Yeah. And there was nothing physical written down. So at that point it would be impossible to prove that you actually own. So you've got you've got effective ownership you can control it you can you can spend it. But an outside third party could not prove it. And you know for example there's an address out there. I think it still exists. There have 450000 bitcoins in at six thousand dollars plus or minus each. That's two point seven billion dollars right. Which some gold could be walking around with literally the key to that in his head.
Speaker 10:33:53But as you said he got hit by a truck right. Well I mean that's what happens to that. Now it's gone and it's gone forever. It's there on the block. Is it on the blog time but it never moves. It never gets Never. Yeah there was actually an article in The Journal.
Speaker 8:34:06So the other day about a company helping people try and recover lost bitcoin. But they're not doing it by solving the problem they're doing it by. Someone's got a wallet that's encrypted and they try and decrypt the wallet to get into the underlying coins a lot easier. Yes.
Speaker 6:34:19Basically just password cracking so that's an easy yes because you have to come up with a passphrase or a password to get into the wall itself. The it holds the key the wallet holds the key. Yes. You know it's just like your password. It's a less secure version of the same thing.
Speaker 2:34:33It's very much less secure. Yeah yeah. Isn't that amazing. So maybe we can talk a little bit about about other bitcoin technologies in particular Ethereum.
Speaker 7:34:43So Ethereum is is this is another similar block chain which was created in theory is very different. So Ethereum is the metaphor that the founder of Ethereum to you guys like 22 years old named vitiligo Taren a really interesting guy came up with it when he was a teenager Canadian Russian Canadian. But growing up grew up in Toronto and his theory is he looked at bitcoin and he saw that actually within bitcoin there's a tiny little scripting language and maybe we can talk a bit about that first. And so that scripting language says do this so you can send it money here and you get when you're actually sending coins or when you're exceeding the transaction in bitcoin you have to specify a few specific parameters. We will talk about it both.
Speaker 4:35:28Yes sure. So the scripting language for bitcoin is how you express the puzzle. Yeah. And the most common puzzle that you have is called pay to public key hash I think might be a private key hash but.
Speaker 9:35:46So the idea there is we've got the puzzle I'm going to be paid a private key hash I'm going to give you. Now we have to edit this piece but it's got to be it's going to be public because otherwise you'd have given a bunch of yeah or private key.
Speaker 3:36:02I know it. OK. So the most common script in bitcoin is paid to public key hash.
Speaker 9:36:09So the idea there is I'm going to send down the wire a few numbers and this scripting language is going to execute a few transactions with them. And what it's essentially going to do is it's going to take my public he is going to hash it and it's going to check that the answer is the answer that was given when the bitcoin was transferred to me and then it's also going to validate I'm going to I'm going to sign the transaction. So I'm I'm signing that you know this is I'm the only person who could sign this. I have any ID cards that I have the private key that goes with this publicly. So it was kept deliberately simple and in particular there's no there's no looping and no brunching in the bitcoin is essentially a stack you push things onto the stack. Those operators and then eventually they collapse down and when it ends.
Speaker 8:36:54You know if there's anything not that it doesn't evaluate to true the transactions with the Syrian they build a much more sophisticated scripting language. It's a Turing complete language you've got loops and what have you so you can you can really express anything in it. And it allows you to have much more complicated ways to unlock ownership but just going back to bitcoin you can already do some fairly sophisticated things right.
Speaker 5:37:24So you can set up a bitcoin address and you can say this bitcoin address will pay if three out of five of these addresses a great for example which is you know that's quite an end of am I forget what the exact limits are but it's within bounds you can get quite creative with that. On the other hand full programming language.
Speaker 9:37:47So to the extent you can sort of get inputs in that everyone trusts you can do much much more sophisticated things with that. The downside of that of course is all of this stuff is not reversible so you kind of debug your little program very very carefully and that was you know very well known example when Ethereum started. Someone ran a script in some untoward way and it blew up you know hundreds of millions of dollars worth of Ethereum and I think they actually went back and forked the network to undo that that transaction where we can actually pause for a little longer on bitcoin before we go. In
Speaker 7:38:23theory I mean. We'll get to it I'm sure and talk about Oracle's because the the idea here is that you can trigger a transfer of bitcoin if as you say there's no other wallet here agrees. And that wall it can just be or that address can be some other program that that will flip to true but through any condition so it can be a computer somewhere you can say when it's midnight or when when Johnny just hit yes on his machine or anything else you know. Let's talk about what Oracle is and how they might be able to affect Bitcoin. And we'll talk about the most for Orchil or for everything him too.
Speaker 8:39:01Yes we're getting here into this the real world digital world kind of interface which when you are within the bitcoin or Ethereum worlds you don't have to worry about that right there is no real world. And to the extent bitcoin or the theorem encapsulates value you sort of got everything you need for a lot of financial transactions right that you don't have to worry about connecting out as soon as you connect out though.
Speaker 9:39:27Yes you need some type of an oracle to be an arbiter of the truth and it's called Oracle. So ether for example the travel insurance I think they sort of tacking to T.S.A. and they're sort of not the TSA that the FAA that does all the flight delays so you can get pretty much globally definitive listing of it was this flight on time.
Speaker 11:39:52When did takeoff when it land when was it scheduled. And they used that as the article to pay out travel insurance. Right. You know I buy one if my flight delayed want to add 100 bucks. And it's then all handled through this article. So that's a nice example.
Speaker 9:40:09The building good Oracle so very difficult. And as soon as you get to something that's not definitive and black and white is going to be a problem and that that's going to be a path that needs a lot of work.
Speaker 7:40:23Well what's interesting about this is that all this public key private key all this stuff that ensures that everything inside of the bitcoin system is true and trustworthy. It is. It is the truth. But once you start including oracles now you're introducing outside elements which may or may not be trustworthy. And so it's nice that have this little walled garden here that you can trust or the money in the pot in the village square we're OK with that. But as soon as you start relying on external parties or external systems to start helping adjudicate what money goes where. Now we've introduced security concern. Someone now can hijack the wormhole and steal the money.
Speaker 8:41:02Yeah. And you you get to I mean sort of a classic example that people are thinking of using this for an insurance is contracts. And so you get to well who needs to agree who needs to be. All right you. You can get the contracts suited to using some of the capabilities that we've discussed digital signatures in particular. Right. That the parties could circulate a PTF. They all agree they can digitally sign it. You can then tell whether the document has being forged or changed in some way. And you can do that using just a piece of the capabilities here. But you do need to rely on you know somebody needs to become the keeper of the contract and the keeper of the signatures.
Speaker 7:41:48Somebody has to own it. Yes and I'm going to pause here and dwell on this for another second because the part here that I wrestle with is I'm not used to thinking about security. I'm not used to thinking about what is safe that we have in a pretty safe society for the most part. And in particular the only things that really hit the mainstream on the Internet are things that are pretty secure. And so the idea and the reason they're secure is that there's a trusted authority which owns it or manages it or ensures it security. We just even if only implicitly we more or less trust all these authorities. And that's a part of our society. Some people lament in particular the kind of folks that are crypto currencies moment that kind of thing because you have all kinds of knock on problems such as like too big to fail banks where nobody actually really scrutinize is whether these organizations or institutions deserve our faith.
Speaker 7:42:34We kind of just assume everything does and if they don't the government come in and chop it up and the ultimate backstop of security and we'll in a society I think that because we don't think too much about security and safety. I think a lot of the ideas that that that block chain pulls out or uses or changes are just unfamiliar to us. We're not used to thinking well what if we didn't need an institution to ensure the security of our money. What what does that mean of other things. You know it's taking me a long time and I'm still kind of working through it of what the implications of that are. And I don't know what kind of wind up there and I think that it's easy for people's eyes glaze over me to talk about oh it's sick. And I remember mine during the first few times I heard about all this. You know like why do we care. Why do I care that the public keeps if he works like that.
Speaker 8:43:22I think that is an interesting point about one of the reasons we trust security is if something's wrong you can generally get it fixed. Yeah right. So you have some credit fraud and someone opens a credit card and your name you just sign your affidavit. Now this wasn't me. I never shop at this place. I was you know a different city at the time. And it all gets reversed now. And you're good to go. Block Chain sort of Bitcoin in particular doesn't look like that.
Speaker 10:43:54Someone spends your bitcoin is gone. No no. 1 800 number. I lost my keys 1 800 number. Yeah. Repletion reset my password.
Speaker 7:44:01Not proof so it's a it's a very different technology security model as you know there's the import most important uses for bitcoin as I've observed them and in the world do emerge where you have those trusted institutions are failing. So think if for example you know the main use of bitcoin some will say and I think that probably unsympathetic to this idea is it exists to evade currency controls. So in Venezuela you have hyperinflation you have China where you have currency controls you can't money can't leave the country. And when China cracked down on bitcoin the price collapsed and so the uses of these. And for that matter you have drug trade.
Speaker 10:44:42Didn't someone describe Bitcoin as solving math problems and getting drugs. Yeah right. Right.
Speaker 7:44:47So these are these are instances where you don't you don't while you either don't trust the authorities or the authorities don't trust you. Another case if you're a drug dealer you don't trust the authorities because they're out to get you. And so bitcoin exists where there is there is a breakdown in trust and it supplements that trust with a secure network that you can make and then trust yourself. And so in a society like we live in where trust is pretty functional in most institutions in the United States where Steve and I both sit although we're both from other high trusts countries the UK and Canada what's the point is it really going to do anything for us. So maybe we can pause on that question maybe and switch to a therian for a second we'll come back to sort of the bigger business implications of bitcoin and some sort of block chain but in theory. So Ethereum is not a list of transactions through is list of accounts.
Speaker 12:45:34It's a it's a it's a list of of what they called the state.
Speaker 7:45:40So it is a list of state instances where this account has this account has that this has that which is a different conception of the block chain Steve any any of us their comments correct.
Speaker 5:45:54And you know it was actually forked off bitcoin originally right so if you go far enough back that was the same thing. And I guess one thing to mention taking off that is that the bitcoin database that's the LeGrow who owns what is a completely useless database other than for determining who owns what it is you know it is it doesn't maintain state. So if you actually want to see you know accumulate transactions buy a dress or something you need to take all the information out of that database and put it into a much more sensible database format. So it really is just a solution. It's very narrow determining the truth.
Speaker 13:46:35And I think it's a good question you bring up as you know in a world where by and large we don't have a problem determining the truth you know where where's that application. But I think where it is is important. You know you talk to banks you talk to insurance companies. People spend ordinate amount of time coming to agreement on the truth. I've got my books and my accounts and I think it's this and you did using that and then we go back and forth. And so there actually is. It's not exactly a trust issue it's a it's an efficiency in getting to the truth issue. And I think that's where you know Jamie Diamond is obviously very down on bitcoin but pretty bullish on block chain because I think he sees the technology as helping with efficiency of transactions behind the scenes because he can trust that something has happened that is a transfer has happened of some sort.
Speaker 7:47:28And so it reduces the cost.
Speaker 3:47:30Yeah and we can all we all I can. I've got my own copy of it. You've got your own copy of it and we're all sure that we're all looking at the same thing.
Speaker 7:47:37They're all on the same page because it's so expensive to hijack that network and make your own stock a car. It's hard to do that. So maybe we can talk a bit about what this means for the business world. You know I spent some time in researching this building a app on Ethereum 3M having this turned complete programming language you can more or less program anything you want. And what I discovered was that my my idea that we were talking about what an insurance company that looked like it was sitting on the block chain. And what I found myself doing was more or less re implementing a policy management system. But on the blocking and a kind of sat back and it occurred to me this isn't one way of looking at Ethereum is it's a very slow very very junky computer. As the founder made the point in an interview he said if you're him running a program and in theory him it's his turn to be probing language it's kind of like running it on a smartphone from 1999.
Speaker 7:48:40It's got terrible memory capacity it's really really slow. And the reason for that is that the transaction needs to be run simultaneously by thousands millions of different computers. And so it's really expensive way to actually achieve something in some very weird ways. It's actually a very primitive technology but yet it has this this component of trust which is which is new which is different and which we're trying to still figure out what what it means. So which is so back to the insurance company idea what parts of of an insurance company actually are worth doing more slowly but worth doing anymore. Open trustworthy fashion likewise with other technologies to well OK.
Speaker 9:49:22So I think there's a few more related technologies to block chain that I think open up a huge vista of opportunity for us right. And I would call this we sit in a world where you said we all trust one another and sort of the thing basically functions okay. But then on the other hand we have Equifax sitting there with all of our credit information which was all stolen and costing. So it doesn't mean it cost us right. It cost is socialized but it comes through in the fees and what have you. Now there's the capability here for us to kind of reassert ownership over our own private information. This actually goes back to our last chat about his data labor or capital that we can we can pull it back and we could imagine a distributed ledger database that contained for example our a credit information which would all be encrypted to which we would hold the encryption keys and it could be managed in such a way that if you wanted to apply for a credit card then you would give the credit card company. You could give them a one time read only access to essentially look at your record. Couldn't.
Speaker 13:50:45And you can manage it so that they can not write anything down. They could sort of get a yes or no on. So they would like run a script against it which would give them a yes or no answer as to whether you're approved or not. But without them actually seeing the underlying information and they could only do it once it could only be called within a given time window. All right. Let's compare that to the current situation currently what you do. You write your Social Security number down on a piece of paper you give it to them. Now they have now got access to your credit record in perpetuity. And I know this law is around you know when they can do it and when they can but it's not quite as reassuring to me as the idea that now I'm going to give you a key which will let you look at it once in the next 30 minutes and make a decision on this particular thing.
Speaker 13:51:31I know that and it seems to me that we need to think bigger than oh we're going to get all our contracts in sync when we have contracts in the US. That's just fantastic. That is Riham insurance industry's been working for 300 years without perfect contract security. I think we can can you demand that be great if we could get there. But you know this private ownership of private information. And if we do it like this you you you you physically couldn't have an Equifax situation right. The databases already quote unquote been hacked. It's already out there. Anyone who wants it can download a copy of it. All the information is protected behind a rock solid cryptographic algorithms. And there is no central repository of all the keys. Each individual keeps their own keys now.
Speaker 9:52:16Now you've got we're back to the article problem of how do we get the information in there. And you know you can do sort of interesting peer to peer validation so and so was a good good person there part of this network. You could get your traditional kind of credit transactions and what have you in there. But it is solving this trust vacuum I think is just an enormous potential for the technology. We're looking at you you might say Well Steve why are you. You know how they're raising money to do it. Because if you take the content of the business model that sits behind this is not quite clear because it's going to be a business model that would require every individual to pay a sort of small amount to maintain the system. And we very much gotten ourselves used to we get service we get paid in service for our data but we give up our data. So it's sort of sort of a ship you don't like even Penya one or two dollars. You pause I don't know if I pause before I spend three dollars on an app it's like why am I thinking about it. What am I losing. But the people do. Right. So getting the business model for this may be difficult. But I think that it's transformative potential for how we manage private information and so many of the applications for blogs are distributed databases as they call them.
Speaker 7:53:31So this is really databases being lists of things and that's what a block chain kind of is it's it's a it's a list that nobody can change without your permission. And so where is that security a problem. And I come back to the idea that for the most part we have institutions which are developed to kind of make that work. All right.
Speaker 14:53:49And back to this this point that Chris Dixon made and I think it was Chris Dixon. But remember he actually made it you said it's kind of like in the 80s and 90s the critics who made it originally OK.
Speaker 7:54:03It may be true but it's and that's a long time ago on the Internet and things like smartphones and the rest of that being a technology which is much much later. And I found just using the tools of Ethereum to build an application online that it's clunky like there is it's evolving quickly. It's hard to it's hard to build anything that's reliable you know most of my programming is done on very mature tools you know things like Excel or or even python which is evolving pretty quickly for that for a programming language. But man still very stable and it always works but you know the tools that you use to build build things and the block chain or they're constantly changing.
Speaker 10:54:42We're at the Wright Brothers stage yeah we fly across a football pitch right. Yeah right. And that makes it harder.
Speaker 7:54:49It's hard to know.
Speaker 5:54:50Well it's it's harder line it's hard and it also makes it somewhat hard to envisage right. It could be it could take off and we could get to the Boeing 747 of BHAG chain or it could also fizzle out.
Speaker 9:55:05We know we know now but there is there's I looked into this when I realized OK another there is some genuinely magical capabilities here that capability magical in the sense that you would not expect these things to be possible. They are possible. That's as I talk to people and trying to do some education around this. What I want to try and get across is what all those magical components of that. As somebody evaluates a potential solution if it's not using some of the magic is probably not the right solution.
Speaker 10:55:38So if you are if someone is pitching you use a block chain database because it's a database you know it's almost certainly not the right solution. It's probably the worst it is probably the worst. All right.
Speaker 13:55:49So it needs to incorporate your application needs to fundamentally incorporate it goes back to the trust is the key thing if it's not if you don't have a trust problem probably you don't want to trust solution.
Speaker 7:56:00Yeah I me back to the insurance company example you have what are basically pretty high trust institutions. Insurance companies are backed by the state by regulators. And all sorts of very have an ecosystem of trust which in some ways when you look online of a list of all the industries me transfer my blog Jim insurance usually up there and I agree with the sentiment because insurance and all financial institutions are our high trust institutions in the sense that you do need to trust them in order for them to work right so trust is incredibly important in our industry. But we already knew that and we collectively I mean it emerged of course that all the different components of our business which exist to insure and bolster trust amongst all the actors they already exist.
Speaker 13:56:46Right. To some degree. Right. And that's why I go back to trust vacuum I go back to sort of credit monitoring credit reporting that's actually doesn't work terribly well at all. If you moved on and or when you moved here what your experience was transferring your credit from Canada to the U.S. It started fresh started fresh right now.
Speaker 10:57:05You know I know people have moved to England same issue trying to get a bank account in England even if you've got a reasonable amount of money to deposit now. Now here's an 800 dollar credit card prepaid.
Speaker 13:57:17So you know we've got the capability here a potential for a global system to do this and you know so scaling that and you know it. Another book I read recently tactfulness them Hans Rosling book talked about by and large says a lot of companies today are thinking about more and more polished products to sell to a very small proportion of rich people in the world. And they should be thinking about theirs. So if the 7 billion people in the world is you know someone with two and a half a billion and a billion rich people they're extraordinarily well served. But then there's about five billion people in the next bucket there are up and coming really very quickly and they've got a reasonable amount of money to spend on certain things that if you are talking you know what's your strategy for growing your business into the future as the insurance company you should be thinking of policies that work for the next five billion people not the top you know billion or billion all to end there.
Speaker 7:58:19This whole sort of distributed let's get away from a country by country approach to a truly global approach there's potential applications in one of the things that bothers me a little bit about doing a podcast episode like this is that you know let's call it there are two camps of people out there and I want there to be a third of the Cambridge one are people who are looking for an opportunity to dismiss this right. You might not even make it to this point in the show when you say yeah they didn't like it either bang or you know it was useless. And I think I feel better about myself now because I was dismissing it and I still have an excuse not to dismiss it. Another camp. They published in the same shown saying these guys love it and I love it too. And I think it's the greatest thing ever.
Speaker 7:59:01And I'm it is implementing all my dumb ideas that that shouldn't be on the block chain. Put it in the box. What's missing in this is and this is the thing that I think will emerge over time is the considered approach the same. This is a really cool technology but I'm not totally sure where it fits in. And you got to keep your eyes and ears open there because something is going to change here. And I don't know I'm sure what it is. I think there's there's the the idea of of security without ownership is so deep and revolutionary that some stuff will never be the same. Once that one's the right representation of the idea bites into an industry it just really really hard what it's going to be. Yeah I I completely agree. Yeah. So let me talk about some other technologies that we think are genuinely good ideas and are interesting ideas. One thing that I know you're on to is the lightning network. Maybe we can explain what that is and what that achieves and what problem that solves.
Speaker 9:59:56So one of the issues with the bitcoin network is scalability. As we discussed it. It's calibrated to one block every ten minutes a block is limited to a megabyte in size a transaction is about 300 bytes. So it translates into sort of somewhere between five to seven transactions a second one and for comparison visa can handle about 50000 transactions a second at a peak rate.
Speaker 10:60:24So we go and it's you know that piece of crap. Right exactly.
Speaker 13:60:29So the lightning network is a quite ingenious solution of saying well does every transaction actually need to be on the on the network. And the answer is No. What we what we actually would like to be able to do is kind of like when you go to a bar and you open a tab. We want to just be able to open it. And how does that process work. Well you give them your credit card and they run it to sort of validate this person sort of could for a while and then they just keep adding stuff to the tab and then at the end you settle. So the lightning network very much enables that running of a tap in app with a couple of very ingenious twists.
Speaker 11:61:03So let's start off let's suppose that you know we are going to transact and let's imagine that the transactions could go either way. Right. So maybe we would start and we would set up a tab with let's say capacitive five thousand dollars each. So we would set up a Bitcoin account and we would each put five thousand dollars into the account and we would set it up so that there was a transaction that we both held which would pull our five thousand dollars back. Okay. So before I put any money into the account we both basically signed the contract which says any money that's in that account we can split 5000 5000 then we funding. Right so that's riskless because I've got I can get my five thousand dollars back at that point. Right. Then we do some transactions and I say I now owe you an extra thousand dollars.
Speaker 11:61:52OK. So what we do is we alter the transaction the recoups the money so we say I'll give you a new transaction which is all right. We can now pull the money back and I get 4000 and you get six thousand. Now at that point there's a slight issue because I'm still sitting on the first transaction which says we get it back 5000. So there is a way quite an ingenious way to invalidate that transaction. OK. Because it hasn't actually been posted so we're not changing something that's been posted as a potential transaction to block chain. And there's a way to invalidate it right. So that now means that between us we can do literally millions of transactions as fast as our computers can talk to continuously update that tab is it 5000 5000 or you know how is it moving Apple down and at any point we both got security that we can get our original deposit of money back or are our actual currently owed balances back reflecting all the transactions. So you know just think about that for collateralized reinsurance for example right. You would start off one side would postseasons the premiums I'm going to pay the other side would post up to the collateralized limit and then you know maybe you have an Oracle which is PCTs or someone that says these are how the losses are falling out and each point we're holding a transaction that lets us pull back guaranteed the right amount of money and we can see it sitting there on the block chain. No bank no leverage no nothing.
Speaker 9:63:18That I think it's very interesting it's I think in beta at the moment or you know maybe it's running on a small scale. There's a number of issues of do you need people to have just bilateral sort of pots of collateral or can you go through a network. Well obviously the name gives it away you can go through a network in the sort of quite ingenious way of allowing two people to communicate through intermediaries but the intermediaries don't know anything about the rest of the network. Is it for onion encryption basically using encryption encrypted encryption to each point a person can only encrypt what they need for the next node and then so they sort of strip out a piece of the onion off and they give the rest over to the next person they keep stripping and then eventually it gets back to the you know the correct estimation.
Speaker 9:64:06So that's it that's a very ingenious solution to of the collateral problem which is a big part of insurance right being insured that you're going to pay in some way. Yeah. And it's a very nice example of how with a lot of computing it always is you build what seems like a completely useless basic tool but then you can build tools with the tool and then you can build tools. You know you just keep going and you bootstrap your way up once you've got to compile the world's your oyster because you make you make any other cup.
Speaker 7:64:37Yeah. Every time I hear about a technology this is my experience working with it directly myself too is that the technology itself isn't complicated. What's complicated is actually coming up with the right way of designing interactions. Yes. So these are these are these are like I'd like to say. Now I guess social technologies because this is this is defining relationships and trust. And actually coding in a transfer of a coin to somebody is pretty simple thing to code. Yeah it's like send to this address. That's it. But then it's like who gets the address and under what conditions are they get the address. And so actually the logic of computing are fine relative to other so usually when I'm programming something or designing some kind of technology. Usually the idea I'm trying to achieve is pretty simple but the way to achieve it is kind of complicated.
Speaker 7:65:22Like I have to do a fair bit of coding to like come out an intuition for I don't know some actual or a model or whatever it is that I've done or or have something displayed the way I wanted to on a web page which is something that humans know what they want it to be in the middle of bleeping bleeping page. Right. And so that's actually way way way harder to code than you think it is because the ability of a browser isn't the dotted to acknowledge it are overly complicated and blah blah blah blah blah and stuff it's actually super simple to build but really hard to know what to build and how it's going and how it should be built and that it should work and is it the right way or something to steal that money or all of the social consequences or heavier.
Speaker 9:65:57So I'm not sure I would completely agree with that. I think there is there there's a number of subtle points I so I got excessively into this you know as an academic I have the summer off so I don't have the summer off I have to do research but I researched the bitcoin network and this was the first time I'd ever I always heard that computers either stored numbers in big endian or Little Indian format which you know is the most significant digit first or last I'd never in my entire life had to deal with this.
Speaker 13:66:28Well you're implementing bitcoin you have to deal with it right because it's the hash function works on a bitstream or byte stream. And so it matches what is because if you switch the order you're gonna get a different answer on Unix machines and Windows machines tend to use the different ordering. There's a number of your grungy details that need to be taken care of. There is also cryptography side a number of points where you have to be extraordinarily careful about how you use this and this actually amusing it goes back to the second world war at Bletchley Park in the U.K. where they cracked the Enigma machine and they there was another machine called the Llorens machine that was actually used for even higher level communications with Hitler and so forth. They essentially managed to crack that because one day one person sent the same message twice without changing the settings and that was enough for that there was a guy there who literally with a piece of paper and pencil figured out how to work and he did. So that type of thing where people think oh no you can't crack this cryptography up but what if you use the same key twice in such and such a way. Could people do so would be very very careful about other things.
Speaker 7:67:43So your implementation needs to take care of that so I sort of agree with you but I would sort of there's a number of quite interesting complexities behind the at point and it actually reminds me of something I wanted to point I wanted to make sure I made in this conversation which is the the the the tools of the block chain are pretty esoteric right Republican cryptography hash functions security all this stuff. But the. And so that's what the implementation of crypto currencies and you know does it work. Can you ensure trust that kind of stuff on the stuff but it is so different. Once you once you kind of assume that that works or just are convinced that it works and maybe you're wrong but I haven't really evaluated whether it works or not you've gone farther than me because you know more about it than I am for sure.
Speaker 7:68:30But once you start saying OK I'm assuming that the trust is there how can this work in the real world. Like what are we to do with these ideas and the implementation of that given that the trust exists is very very different. It's a very different way of thinking you don't have to know anybody hash junctions to know that they working and so what are the what are the applications now out in the real world for this technology that stuff I think of as much more of social innovation and in the techno tools that you have access to which underlying those tools. Really all good stuff or breakthrough forward.
Speaker 9:68:58Yeah and it's sort of I think you'll think about what happened with the with the Internet. Right. That were going by again going back to this real world digital world interface. What what has that looked like and what's the revolution been there in Amazon warehouses which are incredibly automated right but also fairly manual and employ hundreds of thousands of people. Massive physical infrastructure to go with the digital solution. So I think you know it's it's you know I think 10 years from now maybe we do this podcast again and we'll look back and we'll will almost certainly get mad. We totally missed what the brilliant idea was. But it's I would be surprised if there weren't some truly transformative things that we're probably not thinking about right now that don't come out of this new capability yet.
Speaker 7:69:46We haven't even talked about currencies but I think we're going to have to end it we're out of time. My guest today is Steve Miller Hall. Maybe we'll do around 3 and we'll we'll touch on some more things implications of Bitcoin in a little bit. Steve thanks for joining me today. Thank you.