Blockchain Ask Me Anything with Jae Yang Blockchain Engineer Metal Pay


– Welcome everyone, thanks for coming. Well, we didn’t get as many that booked, but at least you all got seats, which you’ve gotta look
at the pluses, right? Thank you for coming, and
it’s my pleasure tonight to introduce Jae Yang,
he’s a blockchain engineer at Metal Pay, and he’s
going to actually answer all your questions, well,
hopefully most of them, tonight on the blockchain
and cryptocurrency. So there you go Jae,
welcome Jae, thank you. – Hello everybody, how’s everybody doing? – Good.
– Aright, okay. So who here owns cryptocurrency? Alright, most of you. Who here writes software for a living? Alright, a third, so there’s
a good number of people here, who’s brand new to cryptocurrency? Alright, so 10%, 20%. So I’m gonna go through
a different aspect, normally the presentations focus on things like the philosophy, what it enables, what the future is, and all of that, I’m gonna just take a step back and say, okay, you bought a new car, and you have no problem driving it, but you wanna pop the trunk,
at least get a look at what it is in there. You don’t wanna see
gremlins or things like that running around, so I
gotta move on from there. So Satoshi Nakamoto in
his groundbreaking paper basically laid out a way
to transact without trust, and we’ll cover that as we move on. So let’s say you’re designing a currency, or a clearing system
for currency, let’s say. You have to answer all these questions, how do you keep of track of rules, how do you prevent others
from spending your money, how do you prevent forgery, how do you make sure
that other people know that you received money
that someone else told them that they sent? So you have to answer this, and if it’s a centralized
system it’s easy to say, you just go to a bank, and you say okay, well I trust the bank to handle
all my balances correctly, and I send somebody some check, and they cleared it, and we’re done. In the electronic world, similarly, you can just do it in
a centralized location like a database, or you
make some API calls, and you’re done. But it’s not so easy when
you try to decentralize it and remove a layer of a
control that’s normally there. So most cryptocurrencies have
these elements right now, so in the future who knows what kind of incredible
technology we’ll see, but at the very least
there are some elements that roughly match to this. Transaction entry,
because you need to know you sent what amount to whom, and you need public addresses because you need to send the amount, and private keys because
you need to sign it, you need history of transactions,
you need to understand what happened prior to
your acquiring the cash, and then some sort of consensus algorithm. And when we say consensus algorithm, that term gets thrown around a lot, it basically means we
need to agree on something because there’s history,
there’s a lotta things I built into it, everybody
has to agree on it otherwise the whole system falls apart, there is no faith, and nothing works. Most cryptocurrencies have some sort of economic rewards system,
and what that means is, we’ll cover that in a
little bit of detail, but it basically prevents malicious actors from taking over the system. So think about email,
you have gazillion email, and you have infinite email addresses, so what kind of problem do you have? Spam, right? So anybody can create an email address, and they can send this spam email, and just clog up the
system and make your life just a little less enjoyable. How are these things used though, in designing a cryptocurrency system? This is a relatively new concept, so Satoshi Nakamoto in his
paper basically rolled together a lot of work that’s gone prior to this, writing this into a single application. So he basically said,
alright, if I wanted to write, make a currency that is decentralized and resides in a public ledger, how would I go about doing it? So we’re gonna call
this Nakamoto Consensus, I’m not the first one to
call it that, so please… So there has to be some rule. If I’m sending you money,
or you’re sending me money, or there’s some sort of a system, there’ll always have to be a rule, and we have some sort
of protocol and that is anyone can send transaction records, so I can send to you a transaction record, you can send me, and
anybody can look at it. All transactions are signed, so this answers the question of okay, well how do we know the origin? So there has to be some sort of proof that you’re the person who signed it, you’re the person who
sent the transaction. No one can overspend, and this
is groundbreaking of course, as we know, but very important, so you can’t have a negative balance. The reward the work that’s put
into validating transactions, these two actually are important
aspects of cryptocurrency, or at least the Nakamoto Consensus, and what that enables us
to do is to create a system under which no trust is
acquired in order to transact and send people money, and make sure that those money that are sent are valid, and you can prove that it’s valid. But why, why do we need
to reward the work, why do we need to
validate the transactions? Why do we need to adopt
the longest history with most reputation,
what does that even mean? So we’ll go over that. You hear this a lot, something
called the proof of work, and what that means basically is that you solved a very hard math problem, and every cryptocurrency,
almost every one of them, has some sort of variations of this where you collect a set
of transaction records, and then you try to guess the result for which it has a certain
very validatable result. So for example when you
run this problem through, and you have some desired result, and the input that was guessed in order to get to that desirable result, it is called proof of
work, and all it means is you spent a lot of electricity to validate all those transactions. And proof of work basically
assumes everybody’s hostile, you’re trying to steal from me, he’s trying to steal from you, everybody’s trying to game the system, and so no one goes scot free. But what it does is it
increases the cost of attack. So think about if you go to a coffee shop, Starbucks or whatever,
and you try to log in to some website, every once
in a while you’ll see CAPTCHA, which is click on all these
street signs and all that stuff, and what they’re trying
to do is delay the time, or increase the cost,
of you trying to log in, or in this case, they don’t
know that you’re not you, and therefore they have to
increase the cost of logging in in order to make sure that only the people who are patient enough, and
people who are honest enough, actually get to log into their website. So proof of work, by
solving a very hard problem increases the cost of attack, and I’ll get to that in detail. And proof of work confers
no special status to nodes, what that means is that,
let’s say you’re a bank, you have special status, you
can write and make changes to everybody else’s balance. Of course it’s illegal, but you can because you’re in a position
of privilege and power, but by having this system, it confers no special status to nodes, and all that means nodes are you, people who are mining, the
wallets, whatever else. So what is this exactly? The technical term is
cryptographic hash of a digest, and digest is just a
collection of records, or transaction records, and so you mash the
transaction records together, ordering it in time, and then
you run it through a function, and then function creates
some sort of a result, which is more or less irreversible. So you can take the
results from the function to guess at what was there, and proof of work requires
that there’s some pattern to that result in order
for it to be a valid block. I’ll get to that more in
detail, if it doesn’t make sense you’ll have plenty of
time, it’ll be an AMA, so you’ll have plenty of
time to ask questions, and I promise you,
you’ll be better for it. I’m gonna throw a bunch of terms at you and I’ll try to explain it. So what does Byzantine
Fault Tolerant even mean, you hear it every once in a while, what does it even mean? What it means is this; when
do we decide to move ahead with a course of action
or change of state? So meaning, let’s say I wanna
go to a dinner party with you, and you send me a letter and say let’s go to a dinner party,
and I say okay, okay when, and going back and forth,
and it’s just a never-ending cycle of an email or letter, when do we exactly
determine when to decide on a course of action? And that’s part of the
Byzantine Fault Tolerance, but it also has to do with, there are different classes
of Byzantine Generals’ Problem where you don’t know the
origin of the message, you don’t know who agreed
to what, so for an example, I can send, maybe there’s
a committee of nine people and they all have to, at
some point the majority has to agree, or all
of them have to agree, in order to enact some course of action, when do they decide enough is
enough, let’s just move on. It’s kinda like electing a pope, right? (audience laughing) What does Sybil Attack Resistant mean? So Sybil Attack is basically
a bunch of sock puppets, or automated accounts, or
malicious actors in the system, that want to just make your life miserable by spamming the system, by
sending out malicious records, or orders, or operations, or whatever, so think of them as spams. And what that means is, in
the context of currency, in the trustless public ledger, and because anybody can
send transaction records over the wire, what that
means is that I can send a quote unquote, forged
record of me transacting with somebody there, and then say, well he gave me some money,
I should have some money. That doesn’t quite work, and
the reason why it doesn’t work is because Satoshi Nakamoto
had an incredible insight and came up with a very elegant solution, which is the reason why a lotta
these emails, spam attacks, continue to be a problem, is
because it costs them nothing, next to nothing, they just write a bot and they just continue to
send millions and millions of spam mails, and you
have an infinite number of email addresses, so there
is no way to stop this, so the problem has to be on
people who are filtering it. But what if you made
each of the transactions, or the effort of sending, a costly one, and that you have some
incentive to make sure that only the honest actors
continue to act honestly, and they outnumber the malicious ones? So that’s the crucial insight. And of course you can’t have this system if your transactions are all forged, or if you can just write
a bunch of nonsense and it makes no difference. Cryptocurrency has to be tamper evident, if somebody sent some
kind of transaction record and I didn’t sign it,
that doesn’t belong to me, that’s your problem, so that’s the tamper evident part of it, and there are other
finite points that make certain cryptocurrencies
able to resist attacks and be trustworthy, even
though you assume no trust. Satoshi Nakamoto said this
with respect to trying to write for a broadly-read
publication, and basically, I think it was his motto, if I have this incorrect
please let me know, and he said it’s bloody impossible. And the reason for it is
because people have this notion, or at least they are born with it, that they were educated
with this notion of money, and because it’s so seamless, for the most period,
until there’s some crisis, that you don’t necessarily think about what’s the fundamental problem, why are these problems even a thing? But when you flip it on its head and say, well, let’s assume everybody’s abandoned, and we try to design a system, then we get something like this. So this is my poor attempt
at trying to describe step-by-step what happens
in Bitcoin network, and Bitcoin network is important because it’s where everything started, and it’s the reason why you’re here, you wanna learn more about it. So node creates and signs the transaction, so that’s the first step, second, node broadcasts the
transactions in the network, it just says hey everybody,
I’m sending somebody money, and I signed it. And then other nodes listen
for new transaction records that are being broadcasted, and what happens after is that some nodes collect these transaction records
that are being broadcasted and mashes it into a block, and they solve for a
very specific problem, and then at the very end
of the block they say, this is the proof of
work, I spent this much computational cycle to solve this problem, and here’s my claim to reward. And the proof of work is important because it’s actually used later on when you link the blocks
together, and say okay, well this is how, it’s kinda
like an ancient Babylonian epic where you go from one chapter to another, and it’s a continuous story,
and there’s a reason why it goes from one to another,
so there’s a continuation. Then we broadcast a new
block, so I’m saying, here’s my lottery ticket, I sold it, and they broadcast the solution and say somebody has verified it,
and when somebody verifies it they basically get to claim that reward. And that’s pretty much it,
and your nodes, your wallets, the full nodes, they
have a right to download all of the transactions from
time zero, or genesis block, and then you can actually
go through and validate all of the transactions by
looking at the proof of work and saying okay, are
these ordered properly, and assuming that
they’re ordered properly, are all the records in line, and that when you tally up all the records some people should have
10,000 or a million Bitcoins, other people should have 0.01,
so that’s very important. So that’s the step-by-step. – Question?
– Yes. – What happens when
Bitcoin reaches 21 million, so does the reward just disappear and everything else goes (mumbles)? – Yeah, so when it reaches 21 million, so it’s a gradual process, so there’s a rate that decreases over time so you continue to get rewards, but it house every few
years, or whatever it is, I don’t remember exactly, but when in house, you
still get the reward, but the notion is, or the hope is that the Ps will be high enough
that the miners will be continued to incentivize
to secure the network, so that’s one, and two, I
know what you’re gonna ask, so two, is that enough, are fees enough? No, so it’s possible
that large organizations like vendors that rely on
Bitcoin network to be secure may actually run full nodes, and they may actually run
their own mining networks so that hey, I have a vested interest in securing the network, doesn’t matter if I make a
whole lotta money from it, so I’m just going to run
a bunch of compute nodes to validate the transactions. By the way, that’s what
starting to happen. So I’m gonna go over some other aspect, by the way I’m sorry, I
stopped you, go ahead, ask your question please. – So is it not inherent in how
Bitcoin functions in cryptos in general functions that the
people who are mining these, as the cap the larger, their
incentive to mine get smaller? – It’s possible, but as we’ve seen so far, that doesn’t seem to be the case, it seems like the miners continue to mine, and they continue to claim rewards, because it’s still worth
it for them at some point. And the electricity cost is zero, and it’s free money for them, but in some places
electricity cost is very low, and other places it’s very high, so that’s one way to look at it. So there are other ways to handle this, so the proof of work is just one way, which is that you’ll
assume everybody’s hostile and that you need them
to perform some work in order for them to verify
that they’re an honest broker, and that they’re not gonna just compute for the sake of computing. So there’s an alternative
system called proof of stake, and it assumes some responsible party, so it basically says, alright, I own a billion Jae block, and everybody else owns 200,000 Jae block, because I have such an
enormous economic incentive, that I should act
responsibly, and of course, I’m just gonna leave it
up to you to determine whether that’s a good idea or a bad idea, so we’ll just go from there. So in proof of stake system you
basically say alright, look, if you own more than a certain
number of coins or tokens, you’re a big player, and
therefore you should be a part of the system that determines how the transactions are validated, and so on and so forth,
and if you do that, then suddenly the
computational cost goes down, because you have a
limited number of people that needs to all agree in order
for a block of transactions to go through. And that’s more or less how banks work, like an interbank
exchange and all of that, so it’s nothing new. So I might be grossly missing the point, so if I am please raise your hand, of course it confers some special status, and there is a lot of coins
that have proof of stake as a model, or at least they
claim that they’re gonna have, or they’re gonna migrate over to. There are some ways to
ensure honest brokers come out on top, but I’ll
just leave it up to you to determine how that’s possible. – Sorry.
– Yes. – [Audience Member] So
on the proof of stake, I think a Etherum is proof
of stake if I’m not mistaken? – Etherum is trying to get to that point, so yeah, yeah go ahead. – [Audience Member] So practically, so with Bitcoin you’ve got
all these distributed miners, thousands of them, fighting for the, so just practically how would
this happen, it would be, let’s say five players that
do (mumbles), is it less? – So it really depends–
– Can you repeat the questions back before you answer?
– Yeah, of course, yeah, the question was, so let’s say you have a proof of work system,
so some cryptocurrency that uses proof of work,
and now you decide, okay, well at some point after this block you wanna go to proof of
stake, how would that work? So there are variations of the theme, but it basically works like this; they’ll basically have to do a hard fork, and what hard fork means
is that at some point after this block, this whole chain, we’re not gonna support it anymore, it’s kinda like old software,
we’re not gonna support it, and we’re just gonna move on, and we’re gonna use a
different way to handle transaction clearance,
and what that means is, alright, so are there
gonna be five clears? Maybe, it really depends on what kind of threshold they wanna use to determine whether you are a responsible party, so it really depends on
how the code is written and how they want to bring into the fold the various people in order
for them to be responsible. So it could be a million, it
could be 10%, it could be 5%, it really depends on the cryptocurrency. We highly encourage you to go through how different cryptocurrencies
intend on migrating over, or intend on rewarding
people who have block. Yes, thank you. – So there’s NEO, and
NEO’s doing it differently, it’s kinda weird, I
don’t really understand, they’re doing it so they’re
just giving the nodes away to organizations that they
feel have the best interests for the currency.
– Right, right, so what they’re doing in NEO’s
case is basically saying, look, if you’re a big financial institute, or a big research firm, or IBM, we’re just gonna give you the node, because we know you’re a big enough player outside of crypto to
not make a mess of it. Maybe they just don’t care, maybe they’re like an absentee landlord, they’re just gonna run the node, and there’s ancillary benefits
to doing it, who knows? – [Man In Orange Shirt] What
do you think’s the best way? – What do I think? I have no idea. (audience laughing) If anybody tells you they know
exactly what’s the best way to handle proof of stake,
I would love to learn more, so please talk to me afterwards if you do, but I have no idea. So another miner equip I have is, is a cryptocurrency,
does it contain a ledger, or is a not a ledger? Bitcoin doesn’t have balance, so each block doesn’t
have a balance of someone, meaning that when you send
money to me it doesn’t say, a person sent money to Jae
and therefore this person has this less money, and I
have this much more money, and therefore the final balance
at that snapshot is X, Y, Z. It doesn’t have that,
Bitcoin doesn’t do that, it’s just a continuous history
of transaction records, and that’s it, so maybe it’s not a ledger. Other cryptocurrencies have balances, so it could be considered a ledger, and if you have a balance
assigned to addresses that allows for holding of the record, so you can take a snapshot and say, well, you can just forget
everything that happened before this time, and then
just move on from there. So there are some benefits
and negative points, but if you’re talking about something that is worth a lotta money, maybe you do want the full history and not just a snapshot. Yes. – I just had a quick question
from the previous slide, you mentioned a proof
of stake and parties, am I correct that a master
node is the same thing? – Yeah, so there are
different terms for it, so master node could be one, it really depends on what
did they mean by master node, do they mean that the master node is one that finally commits the
transaction record change, or does it just mean
it’s just where everybody can send their transaction? It really means different for
different cryptocurrencies. I started on the hows,
and now we’re at why. So do you care about any of this? – Yes.
– Great, excellent. We’re gonna go through each one of them, what does it even mean, why
do you say decentralization, and why is it so great, why is it better versus centralization,
what about federation, why don’t we just have a network of people and then believe that
those group of people are reasonably safe, and
then therefore by association we’re gonna, what does it matter? And I’ll just say some
witty things about it and then we’ll talk about it. (audience laughing) What does anonymous mean? When you hear things like
oh, Bitcoin’s being used by malicious actors, and you
have no idea who’s doing what, that’s absolutely not true, it’s absolutely the other way around, you know exactly who’s doing what, how much they are spending, because at some point they
want to exfiltrate that money into a real economy, so it’s pseudonymous, it’s not anonymous. There are some anonymous cryptocurrencies, and we’ll cover that a little bit. Backward compatibility, yes. – [Audience Member]
Well, it’s partly true, until they move the money, no one really knows if
Satoshi even exists, they know that you have the address, and there’s 18 million Bitcoin, or whatever it’s supposed to be, but it’s not moved in 10 years, so we don’t know if that’s– – Right, right, so if
the money is immobile then that’s absolutely true, but if you start moving it around, and there are hints of edges
where that money has trailed across a real economy, then
you know exactly who it is, you can build a profile of who it is. And you’ll start seeing more cases where, there’s very sophisticated analysis of just basically
understanding, well these people move money around,
they’re basically theirs, and they’ll figure it out, unfortunately. (audience chuckling) Well maybe fortunately, I don’t know. – [Audience Member] If
Bitcoin doesn’t have ledgers how do they know Satoshi’s
has one million Bitcoin in it? – So what we do know
is that from time zero there are a series of transactions. Let’s say I gave you, at time zero I have, there are $100 in the system, and we say, okay you
have 50 and I have 50, so that’s time one, so we have $50 each, and then at time two you gave me $5. So even if you just keep
track of all the transactions you can actually get a good
history of who has what when you take a snapshot
at that time in point, because transactions are
time-stamped as well. – [Audience Member] You can
go to the genesis block. – Right exactly, so you
can go all the way back and say who has what. – Question.
– Yes? – [Audience] The genesis
block, I will get access, do we know? – It’s accessed all the time, in fact you can go and inspect it, and you can see what it is. – [Audience Member] Nobody
uses a private key to find it. – So let’s think of it this way, block is time-stamped, meaning
that it’s only meaningful at that particular time. So if I say, well access
the genesis block, that’s not meaningful right now, because it’s basically a record keeping of who sent what money to whom. It doesn’t say things like, well here’s a pot of money
and you can go grab it, that’s not what the block is, a block is basically a record of, I sent this person $8 and
that person gave me $2, and so on and so forth. It’s accessed all the time, you can actually go to a
public blockchain explorer and then we’ll get from
time zero what has happened. Alright, great. So I’m gonna go through two
more and make funny comments, and then we’ll open it up for questions. Alright, so this is wonky stuff, full backward compatibility,
what does that even mean? And versus hard fork? So there are different schools of thoughts in moving cryptocurrencies forward, meaning that let’s say you
are a diehard Bitcoin’er from time zero, wouldn’t you want to have your old addresses work? So that’s what full
backward compatibility is, but you cannot have an ossified system with security breach, so you
have to actually at some point, you may have to do hard fork. What that means is, just abandon
the old transaction records and full sets, and then adopt a new one from a snapshot of a block records, or the transaction records. And some cryptocurrencies are notorious for just going nuts with the hard forks, others are more measured in adoption. – [Audience Member] Did
Bitcoin have the hard fork before Bitcoin cash-ins? – So that’s a little bit different topic, I’ll cover that in a while, but that is a very good question. Which brings us to the
next question, which is, when you inspect developer
teams philosophy, you’ll get a feeling for
what they think is important, and do they want the
full state to be safe, or do they want safety to be optional? What that means is that do
I want a car with brakes or do I want to slow down
and do a crazy maneuver, do I want the brakes to be
optional, that’s basically it, (audience laughing) to grossly simplify it. So there are some cryptocurrencies
where they do a hard fork and they just don’t
care about what happens to the old chain, they
don’t care about people who have old addresses, whatever, and they have replay attacks,
which I will cover also. And so that’s important, that tells you a commitment to work, and that tells you how
important to developers your money is, so that’s
a very important aspect, often overlooked. The last one is the cryptocurrency, is it security through design,
and thought, or forethought, or is it security through obscurity? What that means is, basically, to simplify, it’s this problem; when you call a credit card company they’re gonna ask you a bunch of questions to verify your identity, you actually at some
point have to give them your social security number. Social security number is an example of an identifying
information that is only used because of its obscurity, meaning, I have no idea what everybody’s
social security number is, maybe I do, maybe I don’t, but that’s like the secret
number that unlocks your account. But it’s not so secret, it’s
just a series of numbers, there’s nothing inherently safe about it. But if you go to any e-commerce website and you see a little https,
what that’s basically saying is the packets that going back
and forth from your browser is secure by encryption. And let’s say I sign
an email with a PGP key and I encrypt it, and
I send it over to you, you know exactly who it’s from without knowing my public
key, private key, sorry. So that’s security by design,
meaning I can send you my public key, and you can verify it without having to know my private key. Why it’s important is that
some cryptocurrencies, it’s like a Permine explosion, everybody’s coming on
with cryptocurrencies, and they come up with their own schemes, and the old adages don’t
roll their own crypto, fortunately in this case everybody’s rolling their own crypto, in different contexts of
course, but that’s important, so please be careful, and thank you. And before you clap… (audience laughing) (audience applauding) Thank you, please clap. (audience applauding) This is gonna be AMA, I
think I might’ve spent maybe 20 minutes, so
please raise your hand, I’m gonna go back and
forth and left and right, and then we’re gonna go
to the gentlemen there who I happen to know.
– Oh hey. Thanks, my name is Synd. That was a great talk by the way, really, really learned a
lot, very, very enjoyable, and I had a question about proof of stake, what do you personally think the future of proof of stake is going? – This is like one where I get crucified. What do I think? Well okay, so in some cases you want a cabal of people to ask, in other cases you want the rabble to be the
one who’s making the rules, but I think maybe I’m on the rabble side. There’s no hard and fast rule, but if I had to put my money
on where I think is the safer, there’s the old saying that
the law precedes legislation, and what that means is that the law exists by virtue of what
people’s expectations are, prior to people actually
writing it down into a rule. And I think that also
applies to cryptocurrency where there’s some expectation that look, I don’t wanna get my money
stolen, and I also want, I don’t want anybody
special writing the ledger of where I have the money. So in some cases bank
would be okay I guess, but then in the grand scheme of things maybe you don’t wanna trust the banks. Let’s have someone from this side, and then we’ll go back and forth, so anybody here? Alright, yes. – As far as scaling solutions go for blockchain technologies, as far as scaling solutions
for blockchain technologies, ’cause you can expand the block
size through hard forking, and I think with that
comes the disadvantage of centralizing the things
going on behind the scenes, and so in your opinion
what do you see the future of blockchain technology
going in terms of scalability, as it becomes more and more popular? – Right, so an interesting
historical note is that in Satoshi Nakamoto’s paper, he never mentions the word blockchain, so that’s one thing, he basically said history of transaction records. And going back to do you just increase the block size or not, and the question is almost
a religious dogmatic war in Bitcoin communities,
so I’ll try to tread very carefully, and
hopefully I don’t get blurry right after this, so
thank you for asking that. So to put it into layman’s terms, because there are some you could do here, what is a block, we covered that, it’s just a collection of
records, of transactions, A paid B this amount,
B paid C this amount, and there’s a timestamp
of all these events, and then some signature that
goes with the transactions. So in Bitcoin it’s limited
to a very small size, and you can only fit a
certain number of transactions before you have to create a
new block in order to do that. But each time you create a new block you have to solve for a new problem, and therefore computationally
they’re expensive, and therefore it takes longer
to verify your transactions, and that’s why you hear things like it’s been out there for eight hours and it still hasn’t been
verified, what’s going on? So the quick solution is
to increase the block size and allow more transactions
to fit in each block, and the reason why the blocks, the way that the blocks are
created the way they are is the following; you want
ordered record of transactions, and in order to get to a
ordered record of transactions you need to have a singular solution for that particular set of transactions. Meaning that someone is going to group transactions together first, and it has to be a linear history, you can’t have people
jumping in and saying well I created $2, here you go, and just inflate the pot without following the rules of the game. So you need linear history,
and that’s what blocks are. In order to get to that point, if it takes longer to
solve for a smaller block, then why don’t you make the
block huge and humongous? Well, there are two
arguments against that, one is as you scale up it’s
not a longterm solution because you may have an
increased number of transactions that outpace the size of the blocks and you have to keep increasing
the size of the blocks. And two is that it could, it
probably will increase the size of the disk space requirement,
but that’s sort of debatable, so I’m not gonna get to that argument because that’s like saying,
well you can’t afford two extra SSDs, or whatever. I think that’s really hard to, maybe that’s not an interesting argument. So the question is why do you want to have small block versus big block? And the answer is this;
so if you want a system where you want to slow
down the transaction in order to ensure that the
network is properly secured prior to transactions being validated, then maybe you want a small block, and it’s entirely possible that
that’s a legitimate reason. But in the future, actually if you follow Bitcoin Core really, there
are movements towards okay, well let’s be more efficient about how the transaction records are stored so that you can decrease the size, because you pay fees on kilobytes and not on the amount of money. So let’s say your transaction
record is half a kilobyte, then you only pay a fee
on the kilobyte size, you don’t pay on the amount
of money that you send. So it’s a very, yeah, contentious point, so I’m just gonna kinda
wave my hand and say that. But I’ll talk to you more, but
it’s not a longterm solution. – I just have a question. So once this incentivized
structure that blockchains build, once that’s gone, where’s
the whole industry gonna go? – Oh yeah, so two questions, so one is like, he who must
not be named, which is Bitcoin, so if all the rewards are gone who’s gonna secure the
network, and two is the, I’m sorry, what was the second part? – [Man In Jacket] I just asked once the incentivized structure is gone, – Oh right, so–
– Like whenever it keeps going up on the market cap
everyone keeps setting– – Right, right, right, right. So if you missed the point, there’s a final point
that I made which is that the only reason why Bitcoin
is as secured as it is is because there is a
lot of money at stake, and therefore people who
are creating mining farms on an industrial scale
have vested interest to continue to mine and a be
more or less honest player, and the other spammers,
like me as an individual will have a hard time
defeating that security. And I covered that a little bit, if it’s not clear let me know. So what if the price
of Bitcoin goes to $100 who will secure the network? The answer is the enthusiasts,
number one, and two, maybe at that price point
the transactions will, I don’t know what the future holds, so maybe at that point there
will be better technology that handles bulk transactions better, like Lightning Network. Maybe there will be a flowering of different kinds of cryptocurrency, and the computing power will have moved on to those different cryptocurrencies. I don’t know, if I knew the
future I would not be here. (audience laughing) Yes sir. – Sort of a different question, I’m still trying to understand how 5, 10, or 15 years from now, as a
consumer, vendor, supplier, how the blockchain is
gonna make a difference, am I still gonna pay my
PG&E bill the same way as I do today, am I gonna be buying a car, and trusting a used car, and trusting that the previous five
people did all the services they needed to do, all that stuff? – Okay, so that’s a great question, why are we even doing this, where’s the real life application? Rather than just spinning of the wheel and calculating for some proof of work, why are we doing this? And the answer is that if it
has anything to do with titles, or something that requires neutral ground where everybody has to accept
that the records are correct, then blockchain makes sense. So maybe real estate, maybe
cars, like title records, those things make sense to
be on a public blockchain. If our municipal governments
ever get off their butts, maybe they can do something about it. But something like a power bill? Well that’s a little
bit suspect, but maybe, maybe the power exchanges can say well I bought this many
kilowatts from some broker and then I sold it back to you at some other rate, who knows? There is a blockchain
for that, unfortunately. Yes? – So I just wanna go
back to a few of them, but first regarding Bitcoin
Core and Bitcoin Cash you mentioned a hard fork
versus another option, I’m just curious if
Bitcoin had a hard fork? – Sure, so what happened with
Bitcoin Cash, oh geeze, okay. So I’ll try to briefly
summarize the history, so Bitcoin, it has a history
of debates about scaling, and one of them is bigger block size to put more transactions, the other is let’s wait for better ways to handle transactions
and scale it properly. Bitcoin Cash was the former, where let’s just increase the block size, and Bitcoin Core has very specific ways in which the improvement
plans are carried out. Necessarily so, because
there’s a lot at stake, and so they have things like committees, Bitcoin improvement
proposals, and all of that, the process in order to approve the code, come up with a proof of concept, validate that it works on
testnet and move forward. If you’re impatient,
there’s nothing stopping you from forking the Bitcoin code
and coming up with your own, and you’ve seen a dozen,
a zillion of those. And so Bitcoin Cash is something similar, but except that it’s one
of the earlier groups that splintered off and said okay, we wanna play by different
rules, and that’s all it is. – [Man In Black] Was there a
hard fork to Bitcoin before? – Yeah, that’s basically what it is, so whenever you have a
separate set of rules that’s a hard fork. So if I send transaction records and broadcast it over the network and take from a Bitcoin Cash network and broadcast it to Bitcoin network. – For example when (mumbles) happened was there a hard fork then, was the network–
– No, no, no, so that’s two different
problems, so I’ll cover that. So one is that, what happened to (mumbles) isn’t the Bitcoin’s problem,
it’s the centralization, so if someone had all
your money in custody because they had to have a centralized way to clear transactions
as quickly as possible, then because of that centralized exchange holding your money, if they get hacked, then your money’s gone, that’s what it is. But that’s not a problem
with Bitcoin code, which is when I send you
peer-to-peer that’s secure. (all chattering in confusion) – Okay, worse case scenario,
so the way I understand it, so every block is validated by somebody coming up with this string
such that the hash comes out with a certain number of zeros at the end. Now, let’s say somebody is super genius and they’re like, oh, I can
start with the desired result and find the salt, or the
number I need to add to block, then game over right? – So not quite, and the
reason for that is that when you select a set of
transactions, transaction records, you’re lining them up in order, and then you collect them
into a block and you say, okay, I’m gonna take this digest, push it through this function, and I want 60 zeros in the front, right? That’s actually a very difficult problem. – [Man With Ponytail] Are you certain? – [Jae] Am I certain, no I’m not. (audience laughing) – That’s my issue, let’s
say somebody figures out how to reverse the house. Given this number of
zeros, oh, I know the salt. – Well, it’s not a salt, not quite, because what you’re doing is that the transaction records
themselves are generated by everybody else, so it’s
not as though it’s a password where it’s static and you
remember exactly what it is, and because they are
continuously being generated, and because everybody
else is trying to solve for the same problem, so
let’s say that you created a false block, let’s say
you constructed a record, put it together and it looks legitimate, and you say well, this is a solution because I know what the solution is, and you broadcast it. What happens is then someone
else has to verify it, they say, well it’s verified,
it gets added to the block, then what happens, that’s
the question, right? – Right.
– So what happens is the following; because it’s a forged block where you basically had to have known, when someone sends you
the transaction record you have to have signed it. So when someone signs it
you have their signature with the transaction records,
which is specific to them and the transaction
record, which means that if you forged it and you come up with
an arbitrary signature, at some point someone’s
gonna say this is bogus, this address doesn’t have that, there’s a way to verify the
signature and basically say this is a bogus signature,
I’m gonna reject it. And so that block gets rejected, and then everything else gets, yeah. – [Man In Ponytail] So it does not depend only on the hash function?
– Correct, there are other mechanisms
where it makes it safe, where if you remember,
it’s tamper evident. Five minutes, okay. Gentleman over there, you’ve been waiting. – You said about there’s
a lot of money at stake because of the mine thing. So how do you differentiate
a mine, pre-mine tokens and the mine tokens? – Basically a pre-mine
token says in the code that well this address is gonna
get this amount of tokens, it’s pretty straightforward, and if you look at the
hash and their git record, GitHub or whatever that they’re
using for merging control, they’ll say, well here,
you’re just gonna– – The reason that’s proof
of work, proof of state? – Well no, there is proof of work, but it basically says
that for this time period that no one else gets to
contribute to mining effort, and that you get a lower
difficulty, that’s what it is. Yeah, yes? – Thanks Jae, so is there
any exciting projects that you’re actually working on right now that you can share with us, and secondly, it’s on my mind, maiden
projects similar to Lightning that will in terms of
scalability for Bitcoin, can you say more about maiden project? – What’s your question, which project? – Maiden project.
– Maiden project, I’m not familiar with
that, but what I can say is there are different ways to scale different cryptocurrencies, so there’s a rule set
that cryptocurrencies have at time zero, like the
1.0 has certain rules, and that in order to get to
next stage they basically say, well you can’t have more
than 10 million transactions at any given year without it slowing down, so then they have to scale. And there are different ways to scale it, one is on-chain scaling,
which basically says you wanna solve all problems on chain within the rule set that you have defined. And the second way is off-chain,
where you basically say well, I have lots of
ways to have third party that basically can act as an escrow, so that’s one way to do it, or have a multisig wallet
that basically acts as a clearing house with
the rule set on top of it. And there are other things like, well, why are we doing all these
virtual machine calculations? Well we can just get rid of it too, right? Yes? – Will you please comment
on the introduction financial features on Bitcoin, and it’s dramatic fallen
price from $19,700 to less than $8,000? – I have no idea why that happened, so I can’t really comment on it. If I knew I would be a very wealthy man. Yes? – Can you comment about
the smart contracts of the Ethereum network and
if that’s present in Bitcoin, and the subtle differences
between the two? – Sure, so Bitcoin has a
scripting language called Script, very original, and Script
is a very reduced set, it’s not what’s called Turing-complete, which means that it can’t
write arbitrary code that does arbitrary things, it’s very limited in what it can do. Whereas Ethereum has a
Ethereum Virtual Machine where, think of Ethereum as this
giant computational platform that just sits on, and you pay to play, that’s basically what it is, and smart contract is just
another name for a program that runs on this virtual machine. So think of it like, oh geeze, what’s an easy example, sending at home. So you download a software and
then it runs on your machine, and then you send the
result of the computation, so it has consistent rules,
it sends you a chunk of work, and it’s done, so that’s the difference. So Bitcoin wants to be
a basic building block where you build on the edge, and you have ways to build smart contracts outside of the network and integrate it back into the network. – [Woman In Pink] That’s the
last question Jae, sorry. – I’m sorry. – Everyone please put your
hands together for Jae. (audience applauding) Thank you so much Jae. So I just wanted to let everyone know that Jae’s got two more
sessions in this series, and the next one is
Tuesday the 27 of February in Palo Alto, at Sheppard Mullen, so please come along because I know this has just whetted your appetite and you want more, right? (audience applauding) This one was free as a trial, and the next one’s $10 a ticket, so if you jump in right now
you can get a $10 ticket and get all this incredible
valuable information from Jae. (garbled speaking) – [Audience Member] Just
come to the next session. – So next session is mainly
going to be more fundamentals of what makes cryptocurrencies work. Some of the descriptions of
problems that I overlooked, like what is a Byzantine
Generals’ Problem, and those sort of things,
and double spending. – And you can read about
what’s in the second session on the event URL, and you
can go to fintechsv.com to add calendar, and you
can read about that event. Thank you all so much for
coming, really appreciate it.

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