Bankless - 135 - Crypto Wars 2.0 with Zooko

Episode Date: September 5, 2022

✨ DEBRIEF ✨ | Ryan & David's Unfiltered Thoughts on the Episode: https://shows.banklesshq.com/p/debrief-crypto-wars-20  As the dust settles with Tornado Cash’s sanctioning news and the arrest of Alexey Pertsev, the space is drawing parallels to the early days of crypto, Crypto Wars 1.0. We brought on OG cypherpunk privacy developer and co-founder of Zcash, Zooko to talk about Crypto Wars 2.0. Crypto privacy is being tested in new ways and Zooko couldn’t be in a better place to explain the current complexities. What’s the case for crypto privacy? Why is it such a tough problem to solve? Why is Zooko optimistic about the future of crypto privacy? What are your thoughts on crypto privacy? Let us know in the comments or on Twitter @banklesshq ------ 📣 ConsenSys | Mint a Merge NFT! https://bankless.cc/themerge  ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS: 🚀 ROCKET POOL | ETH STAKING https://bankless.cc/RocketPool  ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  ❎ ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across  🦁 BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave  🌴 MAKER DAO | DECENTRALIZED LENDING https://bankless.cc/MakerDAO  🔐 LEDGER | SECURE STAKING https://bankless.cc/Ledger  ------ Topics Covered: 0:00 Intro 6:25 Zooko’s Background 8:30 The State of Crypto Privacy 13:26 A Privacy Enabled Society 18:34 The Case for Privacy 27:53 Why Privacy Equals Freedom 32:38 The Chilling Effect 35:26 Negative Externalities 38:28 Consent & A.I. 47:22 A.I. vs. Cryptography & Law 55:53 Crypto Wars 1.0 vs. 2.0 1:05:25 CDBC & The Clipper Chip 1:09:26 Why Isn’t Crypto Privacy Bigger 1:18:45 The Crypto Experiment 1:22:51 Solving the Privacy Problem 1:24:30 Privacy & DeFi 1:30:00 PoS & Roll-ups 1:42:50 Optimism on Crypto Privacy ------ Resources: Zooko https://twitter.com/zooko  Zcash https://z.cash/  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. 

Welcome to Bankless, where we explore the frontier of internet money and internet finance. So how to get started, how to get better, and how to front-run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Well, maybe Bankless Nation, becoming more bankless requires more privacy. That is what we're here to discuss today with Zucco, who is, of course, the founder of Zcash, a blockchain protocol centered around privacy. And I think David will have discovered that maybe we have just

entered the CryptoWars 2.0. A few things to look out for in this episode, some takeaways for you. We go through, did we just enter the Crypto Wars? Why this looks a lot like the 1990s all over again, the crypto, the crypto, to answer the question, why do we need privacy unless we're hiding something? It's a question we're constantly asked when we advocate for privacy. But Zuko makes the case that privacy is the foundation for any free society. That is what we want to live in, of course, a free society. Also, we talk about crypto falling prey to the same surveillance dystopia of the original internet, the internet that we find ourselves in now where Facebook and many large corporations have control over our data. How do we prevent this from happening in crypto?

And lastly, is Zcash going to become a roll-up on Ethereum? Why'd we ask this question? Of course, because we have to. It's an interesting question. And Zuko certainly had an interesting answer to this. David, what do you think of this episode? I really like Zuko, man. He's like a really friendly, impersonable guy with a ton of personality. And the timing of this episode is obvious after the banning of tornado cash. We need to go and explore and do an episode, why privacy? Like fundamentally, from first principles, why do we want privacy as a society? Why is having privacy a requirement for having a free society?

And I think one of my biggest takeaways, the biggest angles that I appreciated the most from Zuko here, is we really explored the question, when we give away our data either accidentally or on purpose, why does that almost always create negative outcomes? It's like giving away your data is like a neutral thing to do. It's neither positive nor negative. But systemically, when everyone does it, why does that create dystopia at the end of the day? And now I feel really informed into like why we need to have privacy by default. Why like it's not transparency by default, but privacy by default that is the best equilibrium for society, the one that doesn't create a dystopia where like Google and Facebook are harvesting our data to like sell us stuff that we might not necessarily

want or, you know, God forbid, swing elections or even worse, cause civil wars, like all of things that actually have happened as a result of this data leakage. And so that was my big takeaway. And of course, the allusion to the crypto wars was there was a crypto wars in the 90s of which Zuka was a part of. And this were the cryptography wars. And now we're talking about Crypto Wars 2.0, which is now the cryptocurrency war, is where we're doing it all over again. But previously we did it with cryptography. Now we're doing it with cryptocurrency. And Zucco is one of the few people who's going to be here for both wars. So a very special guest here today on the bankless podcast. Yeah, absolutely. Definitely, we want to restore privacy by default. Privacy as a norm. That's what Zucco makes the case for today. Of course, if you're a bankless premium subscriber, you got to stick around for the debrief where David and I give our thoughts on the episode after the episode. our raw unfiltered thoughts for the bankless nation directly for you. If you want to become a premium member, click the link in your show notes, go premium. You'll get access to that episode instantly as well.

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rocket pool.net, and you can also join the rocket pool community in their Discord. You can find me hanging out there sometimes in the chat, so I'll see you there. The Layer 2 era is upon us. Ethereum's layer 2 ecosystem is growing every day, and we We need layer two bridges to be fast and efficient in order to live a layer two life. Across is the fastest, cheapest, and most secure cross-chain bridge. With a cross, you don't have to worry about high fees or long-weight times. Assets are bridged and available for use almost instantaneously. Across's bridges are powered by Uma's optimistic Oracle to securely transfer tokens between Layer 2's and Ethereum.

Across's critical ecosystem infrastructure and Across V2 has just launched. Their new version focuses on higher capital efficiency, layer 2 to layer 2 transfers, and a brand new chain with Polygon, all while. prioritizing high security and low fees. You can be a part of Across's story by joining their Discord and using Across for all of your layer 2 transferring needs. So go to across.com to quickly and securely bridge your assets between Ethereum, Optimism, Polygon, Arbitrum, or Boba networks. Hey, Bankless Nation, very excited, privileged to introduce you to our next guest. Zuko. Zuko is an OG cypherpunk, one of the few remaining, I think, in crypto, who's still very

involved. And he remembers a time when crypto just meant cryptography, not cryptocurrency, as it does today. And he's been a privacy developer since the very early days, a contributor to DigiCash, which is, of course, one of the precursors to cryptocurrency, as we know and love, was founded by David Chom. We've had David on the podcast as well recently, too. And of course, more recently, you know Zucco, because he is the co-founder or founder of Zcash. And he is the C-Cash. And he's the CEO of the electric coin company, which is a for-profit company, leading the development of Zcash, Zcash, of course, being a privacy-centric cryptocurrency. Zuko, welcome to bankless. Thank you. It's an honor to be invited. Tiny error correction? Yes. Well, it's not an error.

You said electric coin company, the thing that I'm the CEO of is a for-profit company. And that's kind of true, but owners of electric coin company donated 100% of it to a non-profit profit charity, which is called the Bootstrap Foundation. Nice. So, ECC can make a profit, but there's no owners who are allowed to take the profit into their own pockets. Instead, any profit has to be used for the public good through the nonprofit charity. That's very interesting. So more like a public commons rather than a traditional, you know, for-profit company that we might think of. That's the root of it. I like it, because it's a hybrid mode where we have like startup structure. We have a CEO. We have like all the departments and processes that we learned from startups, but then the only thing we don't have

is owners who can take profit out for their own pockets. Instead, all the profit has to go to the whole public good. It's very, very, a cipher pocket. Yeah, that's very new. You know, and I think this is... Thanks to the owners for donating. Well, it's been very clear. I think you're kind of your history in the space in cryptography and then later in cryptocurrency, that you've been here primarily for one big reason, and that reason is privacy. I feel like this is a very timely conversation because the crypto world is asking the question of, can we have privacy in our cryptocurrencies and light of recent events? I think the outside Main Street world is asking the question of why do you guys actually need privacy? So I think in this episode, Zuko, we want to

make the case for privacy. And I just want to get your gut reaction here because something's happened in the last few weeks that have sort of shaken the cryptocurrency community maybe to its core. It's been quite a rattling and put privacy back into the conversation, and that is an open source developer may have recently been arrested just for publishing privacy code. Now, we don't know all of the details of this case, but of course I am talking about one of the developers behind Tornado Cash. His name is Alex. He's now in a prison right now in jail behind bars. No charges have been laid at this point in time. In the Netherlands.

In the Netherlands. So it's unclear, but it may be the case that he was just arrested for publishing privacy code. Zuko, like, what's going on here? What's happening? Well, first of all, another tiny error correction. You're not wrong that my motive throughout all these different things I've done has been privacy, but not because privacy, but rather because freedom. And there is a difference.

Like, I think privacy is necessary for freedom because if people don't have privacy, then they're subject to the biggest, most powerful, pushiest organization around, whether that's a corporation or a government that can surveil and manipulate them. But so you need privacy for freedom, but privacy is not really its own value to me. It's just that it's necessary for human dignity and people's, authentic selves. You know, you can't be your authentic self when you're under scrutiny, especially scrutiny of someone who's powerful and influential on you. And this is doubly true for people who are less privileged than I am, right? People who are on the margin or have more

to lose or can find themselves in a desperate position more easily. They're all the more vulnerable to being pressured and manipulated if they don't have privacy. But I like to emphasize something that's more important than privacy to me, which is consent. And I see this a lot with younger generations of people because a lot of them choose to share a lot on social media, right? Like they share their stories and their videos and their opinions and whatever. And people who have sort of a privacy focus interpret this as the new generation doesn't care about privacy. And I think that's kind of backwards. I think they actually care or they understand better than the old generation about the choices you have.

with whom you share and what you share with whom and stuff like that. And that notion of consent, like people who choose to share something about their private life or their feelings or whatever with specific people that they want to share with, that's 100% as valid as someone who chooses not to share something with someone. Does that make sense? So it's not like if you use the word privacy, people can interpret that as like secrecy. It's like the people who share less, the people who are more individual. or more private, you might say.

It's a private person who doesn't tell anyone what's going on with them. And that's not a value to me, and that's not what I want to support. What I want to support is people having their own choice. It's your choice who you share with. And it's your choice what you share. It's not someone else's choice what they're going to get to find out about you without your consent. I don't know if that answered your question at all, but you triggered me by using the word privacy. Yeah.

No, I already love where this conversation is going. And it reminds me of a line that I've used here and there before that crypto, isn't here to make you rich. It's here to set you free. And oftenly, we also echo that, you know, decentralization isn't an end goal. It's a means to an end for something else. And I think that's also what you're saying with privacy. It's like, we don't, we're not here to be private. We're here to have freedom and to choose what we disclose. Exactly. And I've heard you say this before, that you're actually like more optimistic that younger generations are interested in privacy more so than older generations. And I was talking to Ryan earlier today, I believe, actually on like a recap from an

episode we just with Justin Drake, where I think younger generations feel a little bit perhaps like nihilist about their privacy in that like, what's the point? Like Apple's got all my data, Google's got all my data. These are just extensions of this date. But also at the same time, we've contrasted that with people inside the crypto industry are way more like optimally. than outside of the crypto industry. And I think it's because we see options for to move forward. We see paths forward that like non-crypto people do. And I'm wondering if that's kind of what you see with perhaps like why you are so motivated with decash and in creating privacy because you think that there are positive effects of having privacy options that could be imbued into society. I'm wondering if you could just kind of share your thoughts on that. And what you see as like a privacy. enabled society. Yeah, I totally agree with what you said. And I agreed that there's a generation or a few generations that were born into this world. I saw some random person on the internet recently say something like, well, of course the government watches and tracks every expenditure you make and

every income you receive. It's always been that way. And I thought to myself, wow, this guy's got to be way younger than me because that came into effect with Richard Nixon and like got more and more sort of invasive and powerful every decade. But that's all new. Like it's never been that way. There's never been a long lived. What do you mean? Civilization that's lived like that. Are you talking about like what did Nixon do? What did that air do? Was the Bank Secrecy Act stuff? Was it? Yeah, well, it started with Richard Nixon's War on Drugs and that led to the Bank Secrecy Act. What year was that in 1970? Bank Secrecy Act. And at that time, it was sort of a sort of minimal invasion. Like, we're going to deputize all the banks, but all they have to do is a few things to monitor their customers' behavior.

But then since then, the policies around it have grown to where the banks and other companies and the tech companies and the governments are exercising more and more fine-grained and constant surveillance over everyone's finances. So I really agree with what you said, David, that. people in the crypto industry see more possibilities than people outside the crypto industry do. But I also think, and you ask like what kind of society could we envision with freedom built in? And I also think it would basically be a lot like society was 50 years ago. Like there would be effective law enforcement. There would be limited government. And there would be a lot of innovation and free social decisions.

People could choose like authentically. because they are choosing in private or they're choosing only with the people that they want to share with, what they want to be. So one of my points is, I don't think of it as radical exactly. It's almost conservative. It's like, okay, we've slid into a radical experiment in a totally new kind of society, a totally new kind of life in which people have to live in a way that no humans have ever lived before. and a nice conservative position is let's keep doing what already worked. So you're saying that while crypto perhaps feels very futurist and very sci-fi, it's actually pulling forward some old conservative values that perhaps like we've had in society forever now. Yeah.

Well, it strikes me that what you're saying too is like what we're living in now, this kind of surveillance state where we have no consent and we're just sharing all of our financial transactions. Right. That is not normal. And what you're saying is, like, how about we just go back in time through every other era of history when normal was privacy? Yeah. This assumption of privacy.

That's our rallying cry. Privacy is normal. Well, does it feel like we have to make that case? Just because the water we swim in right now is complete surveillance of everything that we do, digital, financial, social communication or otherwise. So like, where you get your news. Yeah, from your framing of things, it seems kind of odd to have to make the case for privacy. But like that is the place we're in because the minute we start asking for privacy, there's pushback from people.

There's kind of the devil's advocate perspective. I want to hear you on this. You know, some people say too much privacy is a bad thing, Zuko. Some people say that like they'll get the charge. It's like, what if bad people use privacy to do bad things? You've got terrorists, you've got criminals, you've got despots. And if we remove this privacy thing that you care so much about, we could stop those bad people. So how do you make the case for privacy that privacy is normal when we have these types of objections?

Yeah, that's a great question. Bad things like terrorists and criminals and despots have always been with us in every human society, like the framers of the Bill of Rights who enshrined privacy as part of the Constitution. of the United States and the Fourth Amendment, were very familiar with those kinds of threats, right? One thing you can do is look at human history, and for that matter, I don't know, prehistory or all the different societies that exist today and have existed.

And until this radical experiment of surveillance capitalism and surveillance government of the last two or three decades, there have been societies in which they tried to institute surveillance and control over everyone. But those were not the societies we want to live in. Those were the dystopias, and they were the failed societies. They were terrible for the people who lived in them, and they failed, and they're gone. Every successful, thriving niche in society ever has had individual freedom and voluntary

cooperation between people and a balance between social and governmental needs and societal needs. But there's this, like, new player in this game, which is the internet. Yeah. And I think the internet just makes it really easy to make everything very open, right? Like, the internet is kind of like a blockchain, I think. It's, like, a little bit open by default, and we have to actually add privacy to it in order to restore our privacy. And so it's not like we're living in this weird experiment where, like, all of a sudden,

like, nation states are in super invading of our privacy. They're like, well, like, all this data. And, like, you know, mind you also. the business model of Google and Facebook is like, well, all this data is available. So, like, we'll just go and take it. It's just like perhaps maybe it's more of an anomaly, like, hopefully in the very long-term future of the internet, that this base layer infrastructure of, like, communications across the internet actually goes from being transparent to private. And maybe that's the thing that, like, fixes this, like, weird anomaly, if we are calling it anomaly.

But I wouldn't necessarily say that, like, this government has, like, forced this door open. They've actually just been playing with the cards that they are dealt. Would you agree with that? Absolutely. Like the original cause of all of this is probably the advertising model because when the internet came along, people tried various ways to set up businesses. And the only one that worked was advertising. But advertising means collecting more and more fine green information about people so that you can manipulate them so that you can influence them better and better. And that means surveillance capitalism, and that's what scaled up, starting like 25 years ago. I think there's nobody, aside from possibly the Chinese Communist Party, who intends our society

to work this way, right? Like, there's a hundred different arms of the U.S. federal government, and they all have different opinions about how society should work, but very few of them think that, like, Mark Zuckerberg should have control and insight into everyone on the planet. But he does, right? or Facebook the institution does and so on. Radical technological revolutions take a long time, like decades, for people to learn about and consents around how we should live. Like I'm reminded of like the Gutenberg printing press. I think it took almost a century for the sort of disruptive ripple effects

to start settling out around the world from that. And here we are about 25 years in to surveillance, automated mass surveillance of everyone all the time, of everything. And I don't think anyone wanted this. I don't think Mark Zuckerberg wanted this either, actually. So as a society, we've just kind of stumbled in or slid down a slippery slope into this radical, dangerous, unprecedented situation. And cryptography and other new technologies like blockchain and zero knowledge proofs, like we're saying earlier, they are almost a way to slow the dissent or to re-institute some of the principles and the social organization that are pretty much quintessentially

American, really. I'm an American patriot, so you'll find me speaking from a real, like, American exceptionalism point of view. And so these technologies, even though you say, they're like sci-fi, they're like freaking lightsabers, but the social impacts of them are really, really in alignment with American values, such as freedom from unreasonable search and seizure, freedom of association, freedom of speech, the rule of law, things like that. Yeah, I think Dave and I have found a lot of resonance with kind of American values of the, the original founders values, the original framers of the Constitution, many of the rights that were preserved in the Constitution, which we might call a protocol.

It's almost like code, but it's social code. These things are very important. And it's harder to go back in America's like more recent history the last 10 years and 20 years because I feel like the U.S. has become, this is not a political podcast, but the U.S. has become much more cloudy in terms of what it actually values, right? Yeah. But if we dig deeper in terms of the fundamentals of why this country was founded, there are so much to like in crypto and the Constitution. It's almost like a one-to-one match. Yeah.

Like you were talking about the Fourth Amendment, which is basically baking price. into our social protocol. But now we're in this place where we have to justify privacy to everyone else. And I just want to like make that case kind of one more time or here you make it because I really like what you said when you're saying, hey, it's not actually about privacy. It's about freedom. And it's about informed consent. Yeah. Okay. So how do you make the link between freedom and informed consent and like privacy. Why does privacy equal freedom? That's a piece I feel like that's not linked up in everyone's mind, right? Why do we need privacy? That's a really good question. And it raises, and in my mind, since what you were just saying, it makes me think,

why did privacy deserve to be included in the first 10 amendments in the Bill of Rights? Yes. when the whole purpose of that protocol was freedom and decentralization. And I have two answers. One is political and one is psychological. And I think maybe in the long run psychology is more important than politics. But politically speaking, or practically speaking, when you lack privacy, then you're vulnerable to the most powerful and least ethical actor around because they can

can extort and exploit anyone that they have that much information about. And there's a weird thing that's hard for people to understand, which is that it's also like the information about you that gets leaked or mined and stored up now makes you vulnerable to the most powerful political entity in 10 years. Right. And a really horrible and vivid example of that is the way that during the Holocaust, Jews that lived in countries that were really well-organized countries with full databases of everyone's identity and location survived a lot less than Jews that lived in countries where they weren't accounted for in a centralized database or computer.

And that's an example of where when that database or computer was set up by like the government of the Netherlands before World War II or whatever, it didn't look dangerous because the government of the Netherlands before World War II was not that bad. Right. But politically, the leakage and accumulation of people's private information forms a lake of exploitable control over people that future rulers or future corporations can exploit. So this is a negative externality. Yeah, that's a really good point. It's a negative externality, which is economics jargon for something that harms society as a whole, even if it's not that big a deal to each individual person. It's like toxic waste. Yeah.

It's like pollution or toxic waste or something that threatens everyone, at least in the long run, even though for any given person, if you see some kind of pollution happening, it's not a crisis for you that day. But data accumulates, right, and it collects, it aggregates, which we've seen just uncountable demonstrations that that aggregated data gets exploited by other actors than we originally anticipated. like Cambridge Analytica, like so many U.S. government databases, like the Office of Personnel Management was hacked by foreign enemies. And their database of all of the operational and personal details of all USA national and military and contractors was extracted by some foreign enemy. That is the kind of thing that's a good example of what you correctly call a negative externality, where these accumulations of data about everyone pose like a substantial risk to whole organizations

and whole societies because we can't control going forward in the future what it'll be used for them by who? So privacy is important because it levels the playing field between the big and the powerful in, you know, the small and the less powerful down to kind of the individuals of society. And what we're concerned about is when we have this toxic waste, negative externality, externality privacy leakage. It's not just about the potentially evil actors, centralized actors, today, but we also have to look in the future of who might be in power and control. I'm also curious about this, maybe a negative externality and effect on society is recently, you know, I've been talking

about this term chilling effect on bankless a lot. And, you know, this also has a legal definition, as we've kind of come to understand. But I'm trying to imagine kind of the chilling effect if you know that you are being spied on, potentially, by corporate actors, government actors, all of the time. Foreign enemies. Foreign enemies all of the time. And what will you not do as a result of that? What will you stop doing as a result of that intrusion and as a result of somebody looking in on you? Yeah. And that was the second thing I mentioned, the psychological, which I think in the long run is more important than the political, is people need to feel safe in order to be their authentic selves.

And people being their authentic selves is what we need in life, both because that's moral, that's human dignity, and that's kind of the point of why we're all here. Yeah. Yeah. But also because that's necessary for a healthy, thriving society. It's necessary for democracy. It's necessary for families and friendships and innovation

and education and everything. Like, we need privacy and consent and freedom. It's an externality again. It's not just for the sake of the individual because to do otherwise as just evil and wrong, but also because it's necessary for, like, national defense, right? It's necessary to survive against internal and external threats and to thrive and grow instead of decaying and collapsing.

I think I want to just take a moment and really drive home this negative externality thing. And so from what I've gathered from this conversation is that there's a lot of data out there. And me as an individual, I just don't really have the means or the capacity to harvest it all. It's out there for me. I can go and get it. Maybe not all the data is out there for me.

Like Facebook has its own proprietary data. Google has its own proprietary data. They own that. But that's not all the data. And so like the people that have the means to collect every bit of data that I, I leak out onto the internet, like, where I am on, like, Sunday afternoons and the hobbies that I search and, like, the products that I buy and, like, all of that information that I leak out to the internet. It's, like, almost, like, accidentally, like, public information.

And the only people that can really commercialize that information are, like, well-capitalized, highly centralized actors who have a lot of power, and they have centralized power. They're centralized actors with a lot of power. And I'm guessing that, like, there's more, like, ways to do things with that information that I dislike than what I like. And so there's more ways to manipulate me than there are to benefit me. And so, like, my brain's trying to wrap around, like, okay, all this data is out in the world. Why does it tend towards evil that it's out there? Like, why does it tend towards bad? And I think it's just because of that answer is that, like, if everyone's leaking all of their data, there's more ways to do bad with it than there are to do good with it.

And then perhaps bad is like manipulate you into like buying something or manipulate you into like voting in some particular way. And like that's my gut take. But I'm wondering if Zucco, if you could kind of help me like define and parameterize this. Like why does us leaking all of our data fall into the negative territory more than the neutral or positive territory? That's a really good question. one aspect, I don't think I have a full answer. I think there's at least two answers. I think whenever there's more than one answer, then that means I haven't figured it out yet.

It's still too confusing. One answer has something to do, again, with consent and dignity that when people have control over what they share, then they can exercise their unique human ability to change themselves. The other answer is who has that copies of? all that data and the money and the sophistication to use it, take advantage of it. And like you say, that's big centralized entities. And big centralized entities, they have money. And the main best predictor of what's going to happen is that they're going to try to

make more money, right? And likewise, a big powerful political entity, the best predictor of what it's going to do is it's going to try to accrue more power. And again, that can have catastrophic effects on the rest of us, as we saw. many times throughout the 20th century. And this idea of consent, I think, is really important and very much is aligned with this ethos of cryptography, where cryptography puts power into the hands of the defender. And if instead of Google, like, automatically getting all of your data, Google has to ask you

for permission. It's like, hey, I would like to know this information about you, please. All of a sudden, like, all of that power that Google would have accrued and all of that money that Google would have made or all of that power that the authoritarian regime would have accrued, all of a sudden that goes and spreads out and decentralizes into the hands of the individuals. Yeah. Because instead of accruing and centralizing in one central focal point, like if they have to ask

you for permission, it's like, hey, do you like this product or do you like this leader, they have to ask you for permission. And all of a sudden, it goes from being siloed and concentrated to dispersed and, you decentralized. Yeah, I really like this idea because we said that 25, 30 years ago, the only business model that worked for the new breakthrough technology of the internet was this centralizing business model in which some central party makes all the profit and everyone else gets services for free in return for somebody making all the profit. And that seems to inevitably lead to increasing concentration of power and money in a small number of actors.

and like we said, it seems to me pretty inevitable that it will lead to the centralized powerful actor benefiting even when it is harmful to a lot of the users, right? Well, what's really interesting to me is what if the users profited? Like there's an alternative path where 25, 30 years ago, we had cryptocurrency or something like it.

We had the ability for the profit that's pouring out of this machine, to go back, at least partially, to the people that are the source of it. And so it would be a very different evolutionary path, right? One thing that I'm really thinking about a lot is the development of AI. So as we all know, it's reached quite an inflection point, right, in the last couple of years after decades and decades of development. And you can clearly look back, especially if you're as old as I am, to sort of the origin

of the World Wide Web. there was a client, which is a web browser, which is really, it was kind of sophisticated for its time that it could take these like HTML files and display useful information on the screen for you, right? And then the other end of it, there was a web server. And that was really pretty simple for its time. Like, it would just look up the file you wanted and send you a copy of it. Right. And now, we can really see what happened because of the surveillance capitalism business model is that the server side of that had an evolutionary pressure to grow into an AI And so now what we have today is you've still got, the web browser today is not a lot different than the web browser was in 1997, right?

It serves its user in a very simplistic way. But the other end of that connection is owned by Google or Facebook or whoever. And it has seen this tremendous exponential growth in complexity over the last 25 years, which I think is now reaching an affliction point. And what this means for society, I think, for now, is that the surveillance capitalism, and the surveillance government that grew for the first time ever in human history over the last 20 or 25 years is about to transform into a surveillance and control system. Or it's already in there. It's already starting with Cambridge Analytica and things like that.

What we didn't have before the Internet was the ability to scale up surveillance. So there were these totalitarian regimes like the Stasi of East Germany that did their best to like hire every other citizen to spy on and inform on every other citizen or whatever. And so they had dossiers and filing cabinets and warehouses full of spy material on all their citizens. But that was nothing. That was like totally not scalable, right? That was nothing like what has spontaneously evolved to the last 25 years. But we still haven't seen the next biggest effect of this, which is once you have an AI in the centralized, center that has all that information about people and that AI can exercise control.

And it's already started by exercising control or influence over what people are able to read or what people do read, right? Or what voices they hear, even among their friends. Which of your friends do you know what's going on with them? That's largely controlled by an AI, at least for most people. I don't know about you guys. And you know, which of your friends are you losing touch with? That's largely for most people controlled by an AI. And I feel like we're probably at an inflection point where those centralized AIs are going to have increasing like number of levers over people's lives, which again, the Chinese Communist Party has been pioneering by making it so that the citizens who the AI frowns upon find themselves

unable to check into hotels anymore, unable to board trains anymore. And that kind of extension of the fingers of the AI into our lives is likely. to accelerate. Have you ever heard Zuko Peter Thiel's thing where he says it's just AI and cryptocurrency. AI is a centralizing force and cryptocurrency is a decentralizing force. And these are the two opposing forces, kind of like a ying and a yang. And the idea being that like cryptocurrency, as David was saying, crypto, cryptography is power back to the people, the individual. It's decentralized by nature. Whereas a technology like AI, what does it need? Needs centralization, needs massive data sets, right? And that is.

by necessity going to require centralization. And I think we are in this world, and the water we're swimming in right now is like this world where AIs have the upper hand. You know, centralized data providers have the upper hand. That is what the internet is today. And the reason, at least one, probably the big reason I'm in crypto is because I think cryptography writ large and then cryptocurrency is a subset of that is the only chance we actually have. in a digital world, in a world where increasingly as a society, the world's entering the metaverse, it is the only chance we have to embed some of the ideas written down in the 1700s by the framers of the Constitution. It's like the only shot we got, because if we just

continue on our current trajectory towards AI centralization, what will feel is what we've been feeling is gradual erosion of all of these rights we used to have. And we won't even notice. And so new generations will just be born into this environment without even knowing like the prior possibilities. So that's my worry. And yeah, I wonder if that resonates with you. AI versus cryptography. These are the two poles. I hadn't really heard it before.

I immediately disagree from like a science and engineering perspective. That's my background is like writing code and algorithms and papers and stuff. So I immediately think it's an accident of history that the AIs are under the control of the corporations and that they're centralized. It's not information theoretic or computer science necessity. If the economics were different, so that, remember the story about the evolutionary pressure caused the server side of the web connection to grow into an AI, and that's a centralized thing.

But if the economics were different, the client side of the web connection could have grown into an AI. There's a concept from Albert Winger, venture capitalist from Union Square Ventures, a few years. ago, he said in well-governed societies with the rule of law, we have a really important right, which is the right to a lawyer. The right to be represented by a lawyer, right? If you're engaged in, especially a criminal proceeding, but in a lot of conditions, you have rights, but you are not competent to understand and exercise your rights without a professional's help who does understand those and can help you exercise your rights. So that's an important part of American society,

particular is that you have a right to be represented by a lawyer for cases like that. And what Albert Winger says, and it really resonates with me is, in the future, we need to have a right enshrined in our legal system and in our society to be represented by an AI. Because like David was saying earlier, what if the AI that is overseeing a billion Facebook users at once wants some information for me or wants to strike a deal? What if it had to ask me? well, that's fine, but I don't have the time or the expertise to negotiate with the Facebook one billion unit AI, right, as an average human, any more than I have the ability to go into

a court proceeding and represent myself and know all the relevant law and how to handle the situation. So what we should have, to contrary of Peter Thiel's thesis that you told me, is if you as a human are dealing with an AI that's loyal to. to someone else, to some other entity or organization, corporation, or government or whatever, you should have the right to have the AI loyal to you represent you in that relationship. There's a really important thing in American and other, like, well-organized rule of law countries about the lawyer-client relationship, which is that a lawyer has to have a duty of loyalty to the client, right? And that means a couple things. One, it means you can't have

any conflicts of interest of any kind. If you're depending on, on a lawyer to represent your interest in a legal matter, it's a totally disallowed situation, which everyone in our society is very vigilant about and works very hard to make sure that lawyer doesn't have any side deals with anyone else involved in your situation, right? He has to represent you and only you. And he has a strong duty to do his best to represent you well and so forth. Should be the same with an AI. It just strikes me as wrong for the same reason that you don't go into a legal

proceeding and agree that someone else's lawyer is going to represent you, right? Like the other side or some third party, that's not okay in our society for really good reason. It evolved that way over hundreds of years, right? And similarly, if you, like, if you're trying to live your life, which friends are you going to stay in touch with over the years, which friends you're going to lose touch with, I don't think we need to rewind to the pre-AI era. Like, I'm sorry if I'm rambling, but there's a big difference. between before and after Facebook and then later Twitter changed the information feed from

timeline temporal to AI mediated. Do you remember this? Yes. And so if you have these conversations with regular people, there's a false alternative that Facebook and, you know, the surveillance capitalism, corporations of the world can offer them, which is, okay, well, do you want our AI to manage your social life and your education and your values and your political input and everything for you? Or do you want to go back to doing everything yourself?

And that's a false alternative, right? The only valid alternative that matches human values and American political values is that you have an AI that helps you manage your social life and your political input and your education and everything. That's a really subtle but important point. What you're saying is it's not that the AI is bad or corruption prone or like that's, like what you're saying is the problem is, what we have right now is regular individuals don't have access or control over the AI.

It's not on their team. It's only on the side of large, powerful people and entities. And the AI is not working for individuals. There's no equal playing field here. Chess computers started beating humans long ago. Yeah. And it's not plausible to like go back to the pre-computer era, right? Let's just start doing everything by hand.

Or even to go back to the era where you'd, didn't rely on an AI. You already rely on an AI for your social feeds and your scheduling and your email composing and lots of stuff, right? But like you say, the problem is the question of loyalty. To whom is the AI loyal? Who does it serve? And Zuko, this was a fun rabbit hole that I didn't expect to go down. And I kind of want to like go all the way back. So we went pretty far into the future. Maybe not that far into the future. Maybe just five years in the future, God forbid. But I actually would like to go back to like the crypto wars of like the 80s and 90s, which is kind of I think where you got a lot of your beginnings. And I'm wondering if like this very futurist conversation

that we're having right now of just like making sure that the power goes to the individual, making sure that we're like, you know, keep emphasizing consent over exploitation. Was some of the conversations that we're having now, these very futurist conversations like predictable back then, back in the early crypto wars of the 90s? And what was it like to be like a pre-bitcoin cipherpunk having some of these, I'm assuming similar conversations. Yeah, I've been having like deja vu this morning some people from my team at the ECC, the electric coin company, reported back to me that they'd had a meeting with some high-level USA, what's the word, politicians, officials, whatever. So government types.

Regulator, yeah. And based on what they reported back, I started reviewing what I know about, about the Biden executive order about crypto. Yeah. Which really seemed to be mostly about CBDC to me. And I started thinking, you know what? I don't know if I'm just getting old and old people like always relive their childhood or whatever. But CBDC equals the clipper chip. And so it was funny to me that you brought that up at the meeting of this conversation.

You were like, has it like the clipper chip? That's exactly what I was thinking this morning, CBDC. So for people who don't know, in the 1990s, the internet came out. and the World Wide Web by Tim Berners League. And it was a revolution because it allowed everyone on, well, everyone on the internet to communicate with everyone else on the internet directly. And that led to a exponential takeoff in people being able to benefit themselves, like improve themselves, improve each other,

cooperate on more and more sophisticated projects. And so the internet changed everything for the better, largely. And if you were born after the year two, 2000, you assume it was just always like that. But at that time, this is called Crypto Wars 1. And I was merely a foot soldier in Crypto Wars 1. I sat at my keyboard in my dorm room typing crypto code

in order to perform like civil disobedience or empower people with tools which they could use under their own consent. But Crypto Wars 1 involved some factions of the U.S. government. not the U.S. government as a coherent entity. It's not a coherent entity, right? It's like a hundred-headed, hundred-armed monster, and none of the arms are coordinated with any of the other arms, I'm telling you. Well, the Biden executive order was mostly about CBDC,

and it was mostly about ordering the other 99 arms to start cooperating with each other. So we'll see how that works. But the same thing I felt in the 1990s, for people who don't know, was that a certain faction of the U.S. government that basically turned out to be orchestrated by the NSA, although at that time the NSA was very secretive and very strategic about it. And so they used the vice president, Al Gore, and the FBI as like their frontmen. And that faction had this intention, the strategy, which is, okay, the world is going to get an internet.

The internet's totally taken off here in 1996 or whatever year this was. But we're going to arrange so that everyone in the world can use the internet. They can all talk to each other. But the NSA has a back door into everyone's computer and can read. or control what everyone says on the internet. That was their plan. And it was called the clipper chip. And so there was going to be a law that if you make a device, like, you know, a TV, a router, a phone, whatever device, a computer.

Any smart device. Yeah. PC, whatever devices they had back in the 1990s. If it's the kind of device that can connect to the internet, then it has to have a clipper chip built into it in order to give the NSA control over your internet. Wow. That was the plan. it was really interesting. There was civil disobedience

from activists like the cypherpunks. There was policy debates and policy battles, both in open and behind closed doors in Washington, D.C. Then there was the fact that they bungled it. The clipper chip was flawed, so the protocol didn't work, and a

cypherpunk activist scientist named Matt Blaze investigated how the clipper chip worked and pointed out that it didn't work as advertised. even if they had gotten it deployed. And then I think, so there's different stories, right? So one story that people like to tell is that the heroic civil rights activists won by civil disobedience.

And there's a lot to that, especially, I think it's a story that's not told as widely as it should be. But there was a generation of cryptographers. These are mathematicians, right? They're like computer scientists, mathematicians. They mostly work in universities, and they're a generation older than me. They were the people I looked up to when I was a kid. And these folks correctly saw that the NSA was attempting to seize the new public key cryptography that came out in those decades and nationalize it, make it into a national

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the battle station for the bankless world. So go download Ledger Live. If you have a ledger already, you probably already have it and get started securely staking your crypto assets. I want to interject really quick here. I'm reading this book, Zucco, called The Codebook.

Yeah. And this is a pattern throughout history of somebody in like some private individual creates like a new breakthrough in cryptography. And as soon as the local government discovers it, they like snatch it and hide it and keep it from themselves as a national secret. This is not just like something that happened with the NSA. This happened in Britain in the 1800s. This happened in France and the 1700s.

Like whatever nation state discovers one of their citizens made some cryptography breakthrough, they take it and steal it and cover it. Yeah, absolutely. the most important cryptography breakthrough ever in all of human history was public key cryptography, which was discovered in the 1970s by Diffy and Hellman, Revest Shamir and Aitleman. And those five and others, including David Chom, who you mentioned, who you had on your podcast recently, correctly detected the NSA attempting to hide to take over this new discovery and hide it from the world and keep it for their own sake. And those six and others like them, Ralph Merkel and others, performed an act of courageous civil disobedience and took personal

risks to defy the United States military and publish this new scientific breakthrough before they could hide it and nationalize it. And if they hadn't done that, we wouldn't have an internet. You can't have the internet without public key cryptography. Can I just say, just pause and say, how badass is that? I know. Just pause and appreciate that. I know.

That's badass. Yeah. Those guys are heroes. Absolutely. Those folks. They weren't all men. So the lesson I'm trying to draw from Crypto Wars 1, it was a long, drawn-out thing. So that was Crypto War Zero in the 1970s and early 80s when the NSA attempted to hide the existence of public key cryptography.

And courageous civil disobedience won Crypto War Zero because all they had to do was defy this attempt and publish it to the world. So it became part of humankind's shared legacy of science. Public Key Cryptography did. There's a really cool story that they enlisted the Puzzles and Games columnist for Scientific American Magazine. His name was Martin Gardner. And they contacted him and said, hey, you write a puzzles and games column every month in Scientific American Magazine on the back page. And we really need you to publish this this month instead of what you were planning to publish. And he did it.

That was one of the ways that we got public key cryptography as part of humankind's legacy instead of a national secret. And by the way, you said in the book, you've been reading the code book that this has happened many times. It actually happened to public key cryptography only a few years earlier. Public key cryptography had been discovered independently by some British mathematicians, and the British government nationalized it, kept it a secret, did nothing with it, right? It just would, it reminds me of Indiana Jones and the Raider of the Lost Ark when they have like the artifact. And then at the end of the movie, they just push it on a trolley into the warehouse with all the other artifacts that they're never getting. get around to. That's what the British government did with public key cryptography a few years

before Diffie and Helmut independently rediscovered it. I did not know that. Okay, so we've got the Crypto Wars Zero, we were talking about, and the Crypto Wars 1 with the clipper chip. Now you're saying you're having deja vu, so we've got maybe the beginning of Crypto Wars 2 that is emerging. And of course, we've got now open source developers potentially in jail. We've got OFAC banning tornado cash addresses. So we've got some of that going on. But how does this link to the CDBC. Why is that like the clipper chip? My imagination that I just started thinking about this morning, so it's funny that you asked that you compared clipper chip to CBDC today. It's the same kind of vision that, okay, we're going to have decentralized economic fabric. Like, I think the government

is not the government as a whole. There's no government as a whole. It's just a hundred different organizations competing with each other. But a lot of elements of a lot of different governments around the world are gradually coming to terms with the new technology being a real thing and being important and that they have to think about it and deal with it. And then like with the internet in the 1990s, the whole concept of CBDC sounds to me like, okay, we will have a decentralized global economic fabric, but everyone around the globe will be vulnerable to us having like a backdoor into everything they do. It sounds like the clipper ship to me. So you're, You're skeptical that we'd ever have any real privacy on a CDBC that didn't have some sort of backdoor.

I wonder if there's different CBDCs operated by different governments that might have different policies around that. It's kind of depressing to me, not to get back into politics, but I'm going to get back into politics. It's kind of depressing to me that a lot of U.S. public discussion, public discourse and national government policy kind of seems to be aping the Chinese Communist Party. Like, oh, look at those guys. They're doing so great. Let's try that. I don't think that's a good strategy for America. And the reason I'm thinking about this is the Chinese Communist Party has got exactly this model in the digital one, which is that users have privacy and autonomy from one another. But all of the users are simultaneously subject to the control of the Chinese Communist Party. And it's distressing, I hope I'm just wrong.

I hope this is just, I don't know what I'm talking about, but it's distressing to imagine that U.S. society and U.S. government emulate anything like that, both because it's a violation of our principles and our values as a people, but also because it's a losing strategy. We're not going to out-CCP the CCP. what our comparative advantage is as America, as a society and a nation, is freedom and decentralization. That's what makes American government different from other governments, and that's what makes American industry different and better than all other industries, including the Chinese industry. So you asked, do I see a CDBC having privacy? I don't know.

I don't see the United States producing a CBDC anytime soon. Like the clipper chip never shipped. Right. And it was defective as well. That might be one of the big lessons from it was defective. Clipper chip. And it was a loser in the marketplace. People did not buy it.

Yeah. What's interesting is, and it remains to be seen, what China's going to do with its digital wand. But, yeah, I would echo what you just said of it seems to be the U.S. policy these days to pursue some strategy of half-assed authoritarianism. as we've called it before, which is like, it's neither good freedom, nor is it good authoritarianism, right? Like, China is, like, doing far better. So we've got to pick a lane and stay in it. But right now, I think the hope is, as it has been in the past with the advent of the internet, is kind of the non-public sector. It's citizens and entrepreneurs and cryptographers and mathematicians coming up with these privacy

solutions, not only for the U.S., but as an export for the world, as we did with public key cryptography as we did with the internet. But I got to say, it feels like we haven't made that much progress in crypto on privacy. Maybe not as much as we would have liked. And feel free to disagree here, Zuko, but like we've got the top two cryptocurrencies right now. We've got Bitcoin, of course, which is just its use case is store value in transaction. We have Ethereum, which is more smart contracts. None of those are privacy by defaults. Okay? And then some of our privacy-centric coins like Monaro and Zcash don't yet have the utility nor the use in the saturation to kind of get us where we need to be in crypto. So private crypto is still a small

sliver. And I'm wondering if, A, you're disappointed by this and B, why you think this is? Why haven't we made privacy baked it in by default? It's a good question and both of your questions. To answer it, let me tell your story. Once upon a time, I was a scientist and hacker and technologist, and I, ever since I'd worked with David Chom, before I worked with David Chom, I was reading his science papers. And it was what I thought was one of the most important things in life. Okay, let me back up and tell an even longer story. How much time we got? We got time.

When I was like 19 years old, I had seen the fall of the Berlin Wall and the sudden unexpected dissolution. of the Soviet Union, and I had seen the internet appear out of thin air. And then when I was 19, after having seen those two things, I discovered the science papers of David Chom and how we could have cryptocurrency. Although at the time, it didn't have decentralization. It was centralized cryptocurrency. And I thought, these are the three things we need. We need political freedom.

We need freedom of speech, which is what the internet gives us. and we need freedom to transact and to cooperate, freedom of economic cooperation between people. And with those three things, humanity can take care of each other and improve each other and approve ourselves and innovate faster and faster from here on out. And then that third one didn't work because we had not yet discovered decentralized cryptocurrency. And fast forwarding many years, Bitcoin came along. it was the first thing that actually achieved decentralization of money, at least of digital money.

But it sacrificed privacy for a technical reason. Satoshi and Hal Finney and everyone else who had anything to do with contributing to Bitcoin throughout the early days, the early years, considered freedom from central bank control or manipulation of the economy and freedom from centralized powers control and manipulation of people's private decisions to be hand in hand. Those are the reasons for Bitcoin. So privacy in the sense of censorship resistance and freedom was baked into the Bitcoin culture from the beginning, but they or we, and as much as I helped a little, failed at the execution,

because we didn't have the technology then. And Satoshi knew that. They had a conversation in 2010, I think, where they said, could we use zero knowledge proofs, these newfangled scientific discovery of zero knowledge proofs to fix our privacy problem in Bitcoin. And what Satoshi said about it, I think it was really telling because it was about, it goes back to what you were asking about use cases and usage levels and utility. What Satoshi said about it was if we could do this, if we could use zero knowledge proofs to fix the privacy problem in Bitcoin,

we could have a much more usable, easier version of Bitcoin. Something like that was how he put it. And it turned out in 2010 when they had that conversation, they couldn't because zero knowledge proofs were still in their infancy. And four months after that conversation, Satoshi disappeared from the internet forever. And then about three years after that, some scientists found ways to do zero knowledge proofs that were sufficiently better that they were practical. So about 2013. So then one of those scientists called me and said, we figured out, and I had already read their papers. They're really good papers.

And they said, we figured out the science concept of how you could combine decentralized digital money like Bitcoin with end-to-end encryption, like the signal instant messenger or whatever. And it requires this latest breakthrough in zero knowledge proofs that scientists have just discovered. And we want you to like productize it and scale it up and make it industrial strength so that people can actually use it around the world. And at that moment, I said no, because of what you're asking me about, Ryan, which is I thought, well, Bitcoin has a head start. This is like 2014, I think, when we had this conversation, maybe early 2015. Bitcoin has a head start. And Bitcoin can be the mainstream thing that everyone uses for all of their payments and store value and whatever, accounting and things. And so if I work on this new thing, it would only be.

a niche thing or be a minority number of users like you're saying, right? And then I slept on it that night and I called them back the next day because having slept on it, I realized, no, wait, Bitcoin can't be the mainstream thing. Something that leaks your information to everyone, including your enemies and your competitors and foreign armies that are trying to destabilize your society and hackers and thieves and so on. That cannot be the mainstream thing that everyone can use for payments. No, it's going to require built-in privacy in order to be the mainstream thing. And that's why I committed to working on Zcash ever since. So, I'm reminded of a conversation that we had with Mark Andreessen, who talked about the advertising

model of the internet and how that set the internet off on a particular path that, you know, after a butterfly flaps its wings, creates this, like, accidental, like, semi-dispopia that we currently live in now where all of our data is gone and also productize and commercialize. by Google and Facebook, et cetera, and also Cambridge Analytica that forces elections. I'm now worried about, like, are we recreating history with our blockchains where Bitcoin transparent by default, Ethereum number two, transparent by defaults, are we accidentally kind of doing the same thing? That's a really good point.

Where we have like our number one and two market cap blockchains with the most activity are transparent by default. Are we accidentally falling down the same trap? And you're saying, David, that's like, what if we're. We're right about crypto and it's so successful. 10 years from now, 15 years from now, cool, crypto wins. We regret it. But we don't have privacy by default and we've created some other panopticon, like, oops. A brand new problem, yeah.

Yeah, I do worry about that. That's what we'll put, David. I guess one question I have for you, Zuko, is there is another idea out there that the crypto experiment would not have gotten nearly this far if privacy was on by default. It's kind of like the idea, I think, from people who've been bearish on crypto all along with this common sentiment is, the government's not going to let you do that. Governments around the world do not want people to have a non-sovereign money. They'll just take something like gold.

You mean a sovereign, a self-sovereign money? A self-sovereign money, let's say, using the term non-sovereign to mean like not state-controlled money. So let's use the term self-sovereign money. Okay. And so you either get your self-sovereign money or you get privacy. you can only pick one. I haven't heard this. It sounds like a rationalization

from someone with heavy bags. Well, no, what do you think about that, though? I'll tell you what I think, though. Yeah, go ahead. So that's my instinctive reaction. Sounds like rationalization. We see a lot of that. I mean, rationalization.

But what I think about it is, yes, there has been this discussion, discourse, debate, public negotiation between the U.S. Different arms of the U.S. government in particular, and the crypto industry. And yes, the crypto industry did a thing which I don't think they should have and I advised them against and they didn't listen to me, which is they said, oh, don't worry, US government,

you don't, or this in that arm, Finson, O'FAC, whoever. Don't worry because this blockchain thing is all 100% transparent so you can see everything all the time. And I disagree with that because I think it's both an immoral and a doomed society. to live in, but also because the specific arms of the U.S. government, and the same is true of other governments and other arms of other governments and everything, they don't want everyone to be able to see everything all the time, right? They want what the Chinese Communist Party is pioneering, where only they can see everyone else, but no one can see them. Right. And Bitcoin

and Ethereum don't give that. So there's actually a real deep contradiction, which I still wonder at what stage, if ever, the U.S. government arms sort of digest this and think it through, which is you really do, suppose you are responsible for counterterrorism, national security against madmen with nukes, or whatever, law, you're enforcing different laws, or you have other mandates, consumer protection, investor protection, child protection, health care information protection, whatever your mandate is. At some point, you're going to realize it's totally not okay for the American citizens that I'm responsible for to broadcast their information to North Korea or to Russian hackers or to... Like, that's a bigger national security issue. Right. So that's one of the

two reasons why I really didn't like the way the crypto industry went over the last several years of emphasizing the radical pervasive transparency of Bitcoin and later Ethereum as being a palliative or a spoonful of sugar to take with your bitter pill or whatever for the government. Because we set an expectation. Because A, it's just wrong because none of us want our children to grow up in a dystopian and doomed society. But B, it's not compatible with the government's goals. There are no government agencies. There are laws that Graham Leach-Blightly law states that financial institutions in the United States are disallowed from sharing

their customers' financial information with anyone else absent a certain amount of informed consent and other regulatory safeguards. Well, using Bitcoin or Ethereum does that. It violates Graham Leach-Biley and it violates the mandate of every other government regulator. Zucco is what you're building at Zcash, a solution for this? It's not a solution for CCC-style totalitarianism. Look elsewhere. Excuse me.

Is it a solution for Ethereum and Bitcoin and something internal to the crypto industry? How can we leverage zero knowledge proofs to solve this problem? I can go into tech details. I love tech details. Like Satoshi tried to figure out in 2010. And like other scientists, not me, later figured out, you can use zero knowledge proofs to put into-end encryption together with blockchains. So it's like we had an encryption, starting with public key cryptography, as we discussed, in the 1970s.

and into-end encryption was necessary for the internet to exist and to survive as it has. And then Satoshi discovered blockchains, but we couldn't put the two together. You had to pick one. And then these other scientists discovered zero knowledge proofs. And with that, that's the glue or the third piece with which you can have into encryption in blockchains at the same time. And Zcash was the first one to do that. My engineering and science team pioneered it, implemented it, deployed it, and that

proved the reality of zero knowledge proofs, which has led to the subsequent, like, many industry of people finding out how to use zero knowledge proofs, not only for privacy, but also for scalability and potentially for other things, if we can figure it out. Does that answer your question at all? A little bit, but also Zcash is the best. It definitely does. Like, okay, so we have this cool new primitive zero knowledge proofs. Yeah.

And they've been used in the Ethereum app layer for a little. little bit. They're used in the Zcash base layer. But I'm wondering, can you, like, paint a picture of the future that you would love to see for, like, the crypto industry as a whole, like, regardless of, like, is it Ethereum, is it Bitcoin, is it Zcash? Like, is there a way to do all of our, like, defy things? Call it defy. We're like, I'm transacting with Uniswap, trading my tokens, buying my NFTs, and I have all my privacy. And how does ZK Proof fit into this? How do we have all the defy that we know and love and have it be private? That's a great question. And I'm just toying with an inkling of a new answer in my own mind to this question. So let me tell

you what I started thinking about yesterday when I had a conversation with someone who's applying for a job at my company. So this could be half-baked, could be wrong. But I'm kind of thinking you don't want pervasive privacy in defy. You want a lot of transparency in defy. Again, for social externality reasons, right? You want, like, if you think about what just happened with Terra and Celsius and all that, that was because of the opacity of those centralized actors. Yeah, it's true. You want transparency for systemic stability and for this information to be available in order to make markets more efficient and make the economy work better. So here's a thesis, which is totally half-baked. I might have to eat my words. How about?

we have transparent defy and shielded assets. And this is convenient because we already have a shielded asset, which is ZEC, which I'm totally focused on and committed to. But my hypothesis here is you can take your shielded Zec on the Zcash blockchain and bridge it over into transparent world. So now I want to trade it for tokens on defy and I want to buy and sell NFTs and I want to lend it for interest and all that stuff. And I still have privacy because there's no trace on the blockchain. chain of where this thing came from. It came out of private world, entered transparent world, and did the defy thing. And under the control and only under the control and consent of its owner, it can reenter private world and go back to being a private asset. But if the majority of our

economic lives exist in defy, like say like 95% of our economic activities, defy and then the remaining 5% is Zcash, aren't we still creating that same problem of externalities of data? Yeah. That's a great counterargument. That's why my idea is only half-based. I might be right. I may be totally wrong. So at a technical level, there are a lot of technological efforts sort of inspired by or standing on the shoulders of my team to extend the zero knowledge technology to

arbitrary smart contracts and arbitrary state machines and whatever. That takes a long time. It takes five or ten years to make something that advanced. that far beyond the state of the art to bring it to maturity and get users and find out how users like it and all that stuff. And they've been working on it for five years, some of them. So that stuff is about to come out. So at a technical level, I'm glad it exists. I'm proud of the fact that some of my team contributed to the early stages of the scientific discovery of those ideas.

And I'll be real interested to see how it hits the market. And I'll be really eager to cooperate with those. guys and get them to use the ZEC asset in their new platform or support the ZEC asset in their new platform. However, I also wonder, even if that existed, I don't 100%, maybe I don't have as enough experience in Defi as you do. But like, suppose we could wave our magic ones and there is shielded uniswap. All right. And let's just assume it's got all the same things. It works in the same metamask and wallet and whatever. It's just as cheap. It's just as fast. It's just as well supported on all the websites.

There's two hurdles. A, liquidity. Nobody's going to move over to shielded uniswap because there's nobody in Shilded Uniswap. We're all going to stick with where we got liquidity, right? The party where everyone else is at. Nobody's going to the party where no one's at. So that's a bootstraving problem or a network effect problem. But let's even say we made for a magic wand and we somehow move everyone off of

transparent Uniswap into Shilded Uniswap. Is that good? I'm not sure. Isn't there some advantages to Uniswap being transparent? I bet there's a trade-off between privacy and stability of finance, as you've alluded to already. Yeah. This is why, by the way, Tornado Cash made so much sense is because it was kind of like you could just sort of mix some of your assets if you wanted to. And again, I'm talking about, you know, from a non-criminal user perspective of which David and I were formerly users pre-O-FAC sanction are not now current users.

Clear. Because that is illegal for us to be current users. Understood. But that was that was. that was that was that was the use case here yeah like that's what made sense i do want to ask about zcash too because what's so cool about crypto is like so much of the tech that we've seen in other ecosystems the zero knowledge tech has been resting on the shoulders of what you guys have done what your team has done and it's amazing to see and now like there are other technologies that

have emerged in other ecosystems that i'm curious as to whether the zcash team the zcash ecosystem might apply. One of which is proof of stake, of course, which has matured quite a bit since C-Cash was started. And I'm curious to your thoughts on temperature of proof of stake. The other is something really interesting that David and I talk a lot about, because we're excited about, is roll-ups. And this is using something like Ethereum as sort of a settlement layer, but you get to sort of retain your own sovereignty as a network or a lot of vestiges of your sovereignty. But the benefit is you don't have to pay security fees, essentially. There's not issuance to minors. you draw some of that security from a network like Ethereum.

So any thoughts on these two kind of technologies and the roadmap for Zcash? Of course, I know it's not up to you. There's an entire community around this, but your take on proof of stake and your take on Zcash becoming a roll-up at some point in the future, these possibilities. Okay, let me take them one at a time. Proof-stake, definitely, I thought of the idea of proof of stake before I heard anyone else mention it. You're claiming first?

Back in the day? No, I think I late at least. figured out. I later got out my calendar and I was like, no, there's a couple other people like Sunny King, Vlad Zamphir, maybe Vitalik Buterin. Those were probably before me, but I hadn't yet heard from them. So I thought of it independently, which is common. Anyway, I think it's a really good, powerful idea from the perspective of information theory and like game theory. I think it's way better in the long run. And like you say, it was so new back when we were launching Z-Cash, So that's why we decided not to mess with it.

We decided to innovate as little as possible. We had to innovate hard on zero knowledge proofs. Like you say, that process did indeed like pave the way for a whole another frontier of human science and entrepreneurship. So I'm super proud of that. Thank you for noticing. But then we tried not to innovate on anything else if we could help it. So that's why we stuck with a clone of the Bitcoin consensus mechanism, which was the like stupidest, most battle tested thing around at the time, the least innovative thing around. at that time, which was that time being like 2015, 2016.

And we've always said, even before Zcash launched in the fall of 2016, there was a FAQ, frequently asked questions, wiki page someone put up that says, is Zcash proof of work? And the answer says, it's going to be launching as proof of work, but maybe the Zcash community would like to switch it to proof of stake or something else someday. We don't know what they'll decide, but we definitely support like ongoing evolution. So recently, last year, we at the electric coin company, like you say, we don't have unilateral control over the Zcash protocol, just like Bitcoin and Ethereum. There's too many stakeholders who have their own independent control for us to push them around. But we kind of took the temperature of the Zcash community as a whole with some polls, including an anonymous coinholders poll where people just anonymously voted using zero knowledge proofs with their ZEC on the network.

That's kind of cool. But we took various kinds of conversations, polls, surveys, whatever. And it was pretty clear that a substantial majority of the Zcash community was totally into switching to proof of stake. So based on that, my company has prioritized figuring out how to do that, which since you guys are Ethereum experts, you're well aware that, you know, we met the Ethereum folks before launch. They hired us to do a security audit of Ethereum before the first main net of Ethereum. and pretty much ever since we've known them, they've been talking about switching to proof of stake. And it's always been like two years out. It's been like seven years or so now.

So it's a big job. I think it was supposed to come in 2017. What's that? Sometime in 2017, proof of steak was two. Oh, right. That's what I recall for a theory. Sounds right. So it seems like an awfully big challenge both technically and like socially and economically,

maybe even legally, to make the jump from proof of work to proof of stake. But that is the. number one priority that my company has committed ourselves to mapping out for the Zcash community based on the fact that it sounds like the Zcash community would totally support it if we could find a path. And, of course, seeing what happens to Ethereum, there's this nice little Twitter exchange that I really like where, I think it is 2017 when this happened, when this exchange happened, where Vitalik and I are talking on Twitter, and Vitalik says, switch Zcash to proof of state.

When I say, I'm waiting for Ethereum to go first and see what blows up. So that's still true. That makes sense. And how about the second piece of this, the idea of roll-ups? Oh, that's a really interesting one. I think there's a lot of power in it. There's something that I didn't understand, just a mystery in my mind, and maybe you can clear it up for me. The thing that I continually failed to understand, even though some of my team were the original inventors of sidechains and related things,

I still don't understand the difference between a side chain and a roll-up and a bridge and whatever else. And I kind of suspect, I'll get you a chance to answer, but I kind of suspect there's a little bit of sort of just like social posturing. Like, I want to be the alpha. Like, I'm bigger and better than you are. So I get to be the L1 and you have to be the L2. But I don't, I'm not sure there's really a difference between an L1 and L2. But you said something that sounded like an answer, but I didn't get it. It was like one of them doesn't have to pay for security. It gets it for free from the other one. I don't get that. Do you want to take a crack at this, David? Yeah, yeah. So there's really no difference between a side chain as in like an avalanche. There's a bridge between avalanche and Ethereum, right? And so like avalanche is a side chain to Ethereum. Or vice versa, right?

But if you go ask like the avalanche bros, like no, Ethereum is a side chain to avalanche. That's what I thought. It really just depends on your perspective. But avalanche is not a layer two. So we have Arbitrum and optimism and ZK Sync and all these other layer twos that they, like what Ryan said, they don't pay for security. And so all they do is they're a blockchain that has this like cryptographic vow to Ethereum, this cryptographic proof to Ethereum. And all they do is they bundle up their transactions and submit them down to the layer one like checkpoint.

And there's this like cryptographic bridge that's much, much, much stronger than across layer one bridge. Right. And so like one is like kind of like a satellite state or a city state off of like the main country. Right. That does make sense. Getting to the economic benefit is they don't have to pay for their own like, nation-state security, if you will, you know, in the way that Bitcoin has to pay miners to economically secure its transactions, Ethereum has to pay stakers.

If you're a roll-up, ultimately, you can settle either through fraud proofs or through zero-knowledge cryptography. You can kind of settle back to Ethereum. And so you don't have to issue your native currency in order to pay for security, because you kind of get that out of the box. Yeah, the only thing you have to pay for is the transaction fees on the layer one. Right. And so, like, your proof of work costs or your proof of stake rewards are zero.

Yeah, that doesn't sound good to me. Because, and this is another half-baked thing. I hope you're in. Let's do it. Audience enjoys seeing me say random stuff that turns out to be wrong. They're used to it. We have David and I as the host here. There's an idea in there.

It sounds like to me there's a belief or an assumption in there that I am skeptical of. And that is that the consensus rules of Bitcoin and Ethereum, combined with the market cap and the issuance and the economics of Bitcoin and Ethereum, are necessary and sufficient to defend against attacks, even big attacks, like the government of China decides to shut you down globally or whatever. I don't think I agree with that. I don't think consensus rules and economics are either necessary or sufficient. I think it's actually the social layer of the asset holders being willing and able to fork in order to defend against attacks. And that leads me with a question, well, then what's the point of mining rewards and what's the point of staking rewards? I'm not 100% sure. I don't think it's necessary or effective to actually give security the way everyone always talks about it.

I don't think higher hash power, like if you have 10x as much hash power, I don't think that makes you 10x as more secure as you have 1x as much hash power. I think there's a mystery there. Yeah. So I'm skeptical about that part. And so that when you say the L2s get this value for free, this makes me immediately wonder about two things. One is, what are they actually getting? Because I really don't understand where the security comes from anywhere. But also, if they're getting it for free, aren't they free riders?

And shouldn't everyone else like kick them off and stop giving them stuff for free? I don't know. It's confusing. But the final thing, which is kind of most of the... motivating for me as a thought leader within the Zcash community is that's a platform play. Ethereum, PolkaDot, Avalanche, Solana, and probably a bunch more. Those are all the offer where build on our platform, you become dependent, right? You cannot do anything without our platform, but you get all these advantages.

Now you get all the benefits of our platform for free. And my instinct as just one member of the Zcash community, but I really like the alternative, not to start a fight, but I mean, actually, to start a fight, if you guys want to argue, the alternative of Cosmos, which is you retain full self-sovereignty. There is nothing that you can't do for your, like your community can elect to change any of the pieces and your thing still runs. you're not dependent on anyone else. Yeah, these are what we call the Crypto Wars, the L1 Wars. Ah, okay, the other Crypto Wars. I have talked to the Cosmos people, and while the sovereign app chain idea is, like, kind of where Cosmos is now, like, ultimately the long-term conclusion of the Cosmos

vision and the Ethereum vision ends up at the same spot. Sounds interesting. But we will have to save that for our Cosmos episode, which we have with Sunny and Zaki coming up in a few weeks here. I'll listen to it. So can we, as we kind of maybe draw this to a close, Zuko, this has been a fantastic episode. And I think the big macro worry here is that, like, look, what if we're building, if we build without privacy, what if we are like building

the next surveillance panopticon, right? And like, this is kind of a worry that I think we have. We're also worried that maybe nation states don't like privacy. And this is on the back of, you know, recent OFAC sanctions and such. And yet Zcash is still legal, which is nice. I can go use Z-cash. I can't use tornado cash as an American citizen. And you can get your ZEC on Coinbase and Gemini and Cracken in the United States. Exactly, which is good. That's a plus.

And maybe this speaks to, by the way, that kind of the hydra-like nature or the, like, multi-headed nature of government agencies where one area of the government will say, no, you can't do this. And another 60 areas of the government will say, hey, that's fine. This is a basic, you know, American liberty. Yeah. Like the Office of Foreign Asset Control is a very specific part of the U.S. government. Right.

You should not anticipate that it's coordinated or representative of any other part of the U.S. government. Right. And I think that's the thing. But like, I guess zooming out, what we really want, Zucco, is we want some level of privacy, just like we have it on kind of the internet, where we have encrypted, the ability to encrypt our communications. There's HTTP and there's HDPS. There's SSL on the internet, right?

And so you can have a transparent option or you can have a private option. are you optimistic that we will get there with cryptocurrency, having spent years in this space? And if so, what is the best path towards getting there? Yeah, I'm optimistic because I think this is the lesson from the previous crypto wars, not the L-1s, not the public key cryptography, civil disobedience in 1970s, but the attempt by the U.S. government to ban, effectively to ban the Internet for being a secure thing. to institute their own U.S. government backdoor alternative to the Internet in the 1990s. And my lesson I draw from it is the faction of the U.S. government that was arguing for that,

which included Al Gore, the vice president and the FBI, but was secretly led by the NSA. They gave up when the Internet started being used to buy books on this new website called Amazon.com. And, you know, people's parents started emailing their kids and things like that. Like that made it clear that this is too important to the economy and to our lives to keep trying to delay it or prevent it or take it over. And so I think it is possible to have a flourishing global billions and billions of users alternative to the current hidebound, corrupt, decaying economic system. and you ask how to get there and the answer is make it usable and understandable and fun and easy for normal people. That's the move. There you go. That is the move. That is the roadmap. It's utility, bringing more value to the masses. Absolutely. And I think that's what we've got to accomplish this

decade in order to get out on the other side and have a private crypto and have a private digital currency for that matter. And then we can have a world that's safe for our children. Absolutely. The end goal. Zuko, thank you so much. much for joining us. We appreciate you. Thank you, Zucco. Thanks so much. Action items for you, Bankless Nation. David did this real quick right before the show is he tried out Zcash. And so he went out, I think on Gem and I think on Gem and I purchased some Zek. He set up a Zek wallet and did a shielded transaction. He's got that on his mobile phone. Zuko, this is the first layer one crypto asset that I have ever purchased after buying Ethereum for the first time in like 2017.

I've not bought a single another layer one asset except this is news to me you haven't purchased bitcoin since 2017 David no what I've purchased WBTC on Ethereum but actually it was to short it okay wow David exposing his portfolio for us on the show but anyway go try that out try out Zcash welcome to Zcash David thank you thank you guys and of course you can become a premium subscribe to listen to David and I after the episode, talk about the episode that was in the debrief. Other than that, got to end with normal risks and disclaimers. Crypto is risky. Wait, Ryan. Oh, we're going to ask Zuko to do it.

Yes. Hey, Zuko, this is something new that we're doing. We've been doing this a new thing where we're getting our guests to say our risks and disclaimers because it's turned into a meme. Vitalik said it one time on a show and they were like, wait, we want to make guests say that more often. If they want to. If they want to.

Your choice. You can read it and choose. Yeah, I read this all say this for sure. Yeah. Okay. Crypto is risky. You could lose what you put in. But we're headed west to the American frontier.

This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot. Amazing. Thank you, Zika. Thank you, Zika.