Unchained - Blockchain 101 With Andreas Antonopoulos: How Bitcoin Makes Each Of Us As Powerful As A Bank

Episode Date: August 23, 2016

“Shifting from a perspective of 'only humans control money' to 'machines and software control money' is really radical and it changes a lot of things,” says the popular blockchain and Bitcoin author and speaker Andreas Antonopoulos. Antonopoulos discusses why the real magic of blockchain is decentralization, why criticisms that Bitcoin is a waste of energy are wrong, and why he now charges a 20% premium to be paid by wire transfer instead of bitcoin. And if you're amazed by the idea of a self-driving car, wait until you hear his description of how the taxis of the future might operate.   Read the show notes. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Forbes Podcasts. Hi, everyone. Welcome to Unchained, a Forbes podcast produced by fractal recording. I'm your host, Laura Shin, a Forbes contributor covering blockchain, digital currencies, and fintech. Thanks for tuning in. For today's episode, I'm speaking with Andreas Antonopoulos, someone who is everywhere in Bitcoin and blockchain, and who is really good at explaining this complex technology in simple terms. Andreas is the author of Mastering Bitcoin, a host of the Let's Talk Bitcoin podcast, and a frequent speaker on cryptocurrencies at technology conferences.

Welcome, Andreas. Hi, Laura. Thanks for having me. So tell us about your background in blockchain. How did you learn about it? And what do you do in the space? Well, I first came across Bitcoin in the early part of 2012. actually was my second or third instance of hearing about it, but I had, like many before me, dismissed it the first few times. And then it caught my attention, and I read Satoshi Nakamoto's white paper. And because of my background in computer science as a distributed systems specialist and working in security, I immediately understood that this was a lot more than just a currency.

It was a fascinating distributed system. So I got hooked. I stopped doing everything else and I started working full time in the space. And at that time, there weren't that many people working full time. So I got involved in that space and now I continue to work in the space. I participate in a number of entrepreneurial activities, some startups. I've written one book. I've got another book in progress right now. And also I speak at conferences and try to explain Bitcoin, blockchain,

and other technologies to audiences all around the world. And when you say that you were doing computer science, like what exactly were you doing? So I have a master's degree in distributed systems networks. And I've been working in security, data centers in cloud computing, and the networks that connect them for 28 years now. And so that was my background.

And until 2012, I was doing a lot of work in information security and distributed systems, but I'd also been involved quite a lot with cryptography. And I had an interest in digital currencies ever since the early 90s when DigiCash and David Chome did some groundbreaking research in the cryptography of digital currencies. So Bitcoin kind of slotted right into my areas of interest, expertise and professional. activity. And when you read the white paper and you immediately dropped everything else, so what seemed so significant to you? Well, I think the realization was that this wasn't a currency in the traditional sense and that it was really a very powerful decentralized system,

a system for coordinating resources on a massive scale, and also a system for embedding trust, into a network-centric system of coordination, solving the Byzantine fault-tolerant problem, which is, can you explain that problem? So this is really a computer science or distributed systems problem, which is the idea that when you have systems coordinating over the internet and you don't know, or any network, and you don't know whether those systems are real or fake,

whether you can trust them or not, whether your messages are being intercepted, and you're trying to coordinate resources to execute some kind of action or to agree on the state of a system. And that's a really difficult problem. And so far before Bitcoin, there were some solutions to finding it and coordinating between parties. But they all required certain amount of centralization. So you had to have some trusted third party. or the system didn't really work very well. And with the introduction of Nakamoto Consensus,

you know, the technology at the heart of Bitcoin, which uses the proof-of-work algorithm, that technology really allows you to coordinate with other parties on the state of the system and arrive at the same answer, have a single trusted ledger in this case or state of the truth, without having to trust any of the other systems that are participating in the network.

And you just used a couple of terms that I'm not sure everyone listening will know. You said Nakamoto Consensus and you talked about proof of work. What are those concepts? So Nakamoto Consensus, named after Satoshi Nakamoto, is the algorithm that is used not only by Bitcoin, but by hundreds and hundreds of other systems that have come since Bitcoin. and use that fundamental mechanism. And this mechanism is a competition that occurs online

to solve a mathematical problem. And it creates this very delicate balance where if you participate in this competition, you have to commit resources, mostly energy in the form of burning electricity to compute a difficult problem. And if you succeed and validate something, in the case of Bitcoin, validate transactions and secure the network,

in a way that everybody agrees is true, then you stand to win reward, and in the case of Bitcoin, that's new Bitcoin. But if you try to cheat, then you don't get the reward, but you've still spent the electricity. And this system on a large scale creates a very, very high level of trust because since every participant is incentivized to play fair and punished severely if they tried to cheat, it creates this equilibrium where the network as a whole can be trusted to execute Bitcoin transactions or whatever else you are doing with the

consensus mechanism. And proof of work, is that the energy commitment? Yes, proof of work is through mathematics, you prove that you've actually expended the effort, the work, which it translates directly to expending electricity in order to. to arrive at an answer because there is no shortcut. There is no way to arrive at these answers, these mathematical solutions, without performing a specific amount of computation, which costs a specific amount of energy.

So there are no shortcuts. And so if you're presented with this solution, you know that the other person has actually spent the time to find this solution, and there is no easy way to do it. So let's tie everything together with the, With the word that has become the biggest buzzword over the last year, which is blockchain, what does that really mean? And how does that play into everything that you just described?

Well, the blockchain is the artifact of all of this. It is the thing that is created through the mechanism of consensus, meaning that as all of these systems compete, what they're competing to do is to gain the temporary right to record, something on a shared ledger and then have everyone agree that the state of that shared ledger is the same across the entire world without having to trust that the person who last got to write on it is being honest because the network constrains them to be honest. So that blockchain is really a ledger. It's a recording of all of the transactions that have happened,

grouped into blocks, which are just convenient containers, and each block depends on the previous block, and they form a chain all the way back into the past from the beginning of when the system was created. So in the case of Bitcoin, you have the first block created in January of 2009, and then every subsequent block depends on the previous block, and it grows this great chain,

each block adding to the state of the ledger, and also each block being very difficult to record because of this proof of work that is required. So blockchain is really what the consensus mechanism creates. And what keeps it all secure and from being kind of like rewritten or revised is cryptography, right? Well, not so much. Well, it's a combination of cryptography

and the proof of work algorithm, meaning that on an individual basis, what keeps someone from, for example, spending my Bitcoin is cryptography. It's digital signatures more specifically. And these digital signatures mean that only through possession of a private key, can I sign and execute a transaction that spends Bitcoin that belongs to me. So I exercise control over my Bitcoin, or in the case of another blockchain, over whatever resource I'm controlling, on a one-on-one basis. Each participant controls the resources they control through cryptography.

But the system as a whole depends on proof of work, which is not really a form of cryptography. It's a fairly novel category we would now call consensus algorithms. And you hear a lot of concern about the energy consumption that proof of work takes. Is that something that can be done differently? Or should the energy concerns, do they really matter? Well, I think part of that is because of a misunderstanding of what that energy is used for.

And what that energy does is it secures a global network against any adversary who might try to corrupt the global ledger. And so what the energy does is it prevents attacks against the network. It provides security for the entire network. Removing the cost changes the balance of the entire system. So if you didn't have cost, then you're not bound to play fair and seek reward. The entire balance of the system depends on having to commit a certain cost. And that's really the security of the network. Now, I think it's a misunderstanding to see that as a wasted energy.

That's simply the cost of securing the system. And unlike other competing systems, in Bitcoin, you can see that cost. It's very visible. And most of the systems that we use on a daily basis, like when you swipe your visa card, the cost is still there. You just don't see it. There's enormous energy being consumed by data centers doing fraud protection, the same function that the Bitcoin,

proof-of-work algorithm does. And there's also additional costs of moving money around in trucks with armed guards and the buildings that it's housed in and all of that. So it's just that in Bitcoin you really, really see that. So what is the right amount of energy to spend to secure a global currency and a global payment network? I believe that we let the market decide that, and the market is clearly demonstrating that it is appropriate to do that. You talked about the security of the system, and yet we're constantly hearing about hacks. You know, even this very week there was this hack in Bitcoin. The price dropped dramatically. How is that, how are we seeing all these hacks, and yet you're saying the system is so secure?

Well, you have to understand that part of the premise of Bitcoin and blockchain technology is to change the fundamental balance of how money is controlled and how money is controlled and how. held. In Bitcoin, I don't need to store my money with a financial institution. I don't need to trust a bank. I don't need to give control of my money to other people. I can control my money directly on my own devices independently. And what that means is that you can massively decentralized control over money, at which point it becomes very, very difficult, near impossible to hack. If you wanted to hack a million people's Bitcoin, accounts, you have to hack a million individual computers. Unfortunately, what we've seen is as this technology has grown, especially where it touches the traditional banking system, people

fall into a pattern of replicating the past. And what they do is they create financial institutions in Bitcoin that are very, very similar to traditional financial institutions where people give custodial control, they give control of their Bitcoin to others and trust others. This is unnecessary in Bitcoin. You don't need to give your money or put your money in a bank because your app, your mobile phone, your desktop can be a bank itself. But when you concentrate Bitcoin in the hands of other people, then it becomes a very, very good target for hackers.

It's important to recognize the distinction between a bank in all the traditional sense that holds Bitcoin of other people being hacked. and Bitcoin itself being hacked. Bitcoin itself has never been hacked. For seven years, this network has not stopped running and has never been hacked. And the reason for that is because the power in the network is distributed. But institutions that hold money on behalf of other people

get hacked all the time, and this is no different to a bank failure or bank robbery in the traditional financial system. So I think what we're seeing here is that when people try to recreate the past, they centralize control and they build things that look like banks, those banks get robbed. With Amex Platinum, you have access to over 1,400 airport lounges worldwide. So your experience before takeoff is a taste of what's to come. That's the powerful backing of Amex. Conditions apply.

Well, in the most recent instance, and here we're talking about the hacking of the exchange, BitFenex, a lot of those people probably were storing their Bitcoin there in order to do trading. And the exchange offered a number of kind of more advanced trading functions. So, you know, in that instance, you know, I totally understand that if you keep control of the money yourself, then there's no, you know, central point of attack. You know, obviously, then there's other concerns which are, you know, are you the kind of person who's going to be. capable of managing your private keys. And, you know, there have been instances, of course, where people have accidentally thrown out USB sticks or hard drives or whatever it might be that contains those private keys and lost their money that way. But presuming, you know,

that you can manage that yourself, even when, even if you were, you know, to try to do some of these more trading type features in order to make more money, you know, you can't do that just on your own. So do you feel that there's like any reason for people to be using these exchanges? Well, the reason people use these exchanges is primarily for speculation. But you can trade Bitcoin without giving your money to an exchange and without putting it on an exchange. There are a number of decentralized systems that allow you to trade Bitcoin in smaller amounts. if you want to do very, very high volume institutional level trading, then at the moment exchanges are the only way to do that.

But for regular people who want to use Bitcoin as a currency, as a means of exchange, as a way to trade, we have hardware wallets that are surprisingly easy to use and allow people to have very high levels of security and complete control over their finances with very little technical knowledge. and we also have decentralized systems of exchange that are easy to use and allow people to maintain control over their money. What are examples of the decentralized exchanges? So for example, there's a newer exchange that was built in the last year called BitSquare that allows people to exchange any number of currencies, both national currencies,

traditional currencies as well as digital currencies while maintaining control over their funds in individual wallets. And what these decentralized exchanges are doing is essentially they're providing clearing and escrow services on a peer-to-peer decentralized model. I think that's where we're going to go. So what we're seeing today is we see these bridge services, these services that are trying to bridge the past with the future. a bit like the days of dial-up on the intranet.

And if you remember those days, you know, using the internet in the days of dial-up was complicated, it was cumbersome, it was expensive, and your phone company would beat you up with all of these per-minute charges because their model was telephone calls, right? And when you're trying to run the internet over the phone system, it kind of sucks.

Well, we're in the same situation now where we're trying to run Bitcoin in relation to the traditional banking system. And whenever you touch the traditional banking system, everything happens in three to five business days with lots of paperwork, lots of delays, and the risk of concentration, centralization of funds. But that's not how it needs to be.

It's simply a transition. And I think we're beginning to see these decentralized services that show us what the future could be, where you don't rely on third parties in order to control your money. So how is blockchain technology likely to affect the everyday person and when? Well, that really depends on where you live, because the needs in terms of these technologies vary greatly. I think in the first world, the opportunity with blockchain technology and currencies like Bitcoin is to invent completely new applications that have never been

done before. Bitcoin and the concept of the internet of money that it creates are this new model where you can have a payment network that spans the globe that has no borders, very much like the internet, and that allows you to run financial applications that are controlled by software, rather than political rules are controlled by mathematical rules. And you can have systems that can make payments as tiny as high. hundreds or even thousands of a penny and as big as billions of dollars on a single network. So that kind of convergence of all financial activity on a single, broad, flat, global network, that can create a lot of applications that simply can't be done today. So there are very significant limitations to traditional financial payment networks. They're slow, they're cumbersome, they really represent 1970s technology. So in the first world, I'm really looking at new applications.

But to me, the bigger promise here is the fact that the traditional financial networks we have in payment systems leave many billions of people outside. There are more than 2.5 billion people who are completely unbanked according to the World Bank. And that usually only counts heads of household, not their entire families. More than 4.5 billion people are underbanked, have very limited. access to banking. And if you look at kind of the power banking that your average Westerner has, that probably is the purview of maybe a billion and a half people in the world. The other six billion don't have those opportunities. So what you do when you have a global network that puts the power of banking into an application is you could give everyone on this

planet the same capabilities that a banker has today, not just access to a bank account, but access to the full power of a financial institution, the ability to trade and transact anywhere in the world in very, very short time, 24 hours a day, 365 days a year without limitations in any currency. That's an enormous power. And bringing that to all of the people who are currently outside of the financial system is one of the reasons I'm very excited about this technology. So, you know, I like what you're talking about here where you say that Bitcoin, you know, gives everyone the ability to be, to have all the functionality that a banker has today. But how are we seeing people and companies use the technology right now?

Well, there's some areas that are particularly difficult to operate in. And a lot of the greatest difficulties in traditional financial systems have to do with crossing borders. And so when it comes to making payments, international payments, those are some of the areas that are very difficult. We're beginning to see Bitcoin being used for international remittances. For example, for immigrants sending money home. We've seen a lot of increase in the trade in places like the Philippines, Mexico, India, places. like that, that have very high flows of money coming from immigrants in other countries. And in those cases, the difference in cost between paying Western Union anywhere from 5% to 20%

plus an exchange rate spread that is often shockingly high. And using Bitcoin to do the same thing with a much smaller exchange rate on either side, We're beginning to see that as a rising application. Obviously, still early days and complicated to do. I think we're also seeing import-export businesses and companies that are working with clients all across the world, doing billing in multiple different currencies. Now, those are areas where it gets very difficult to transact.

I can tell you as a consultant and someone who does conferences all around the world that when I get paid by the, these conference organizers, if they pay me with a wire transfer, it takes on average four to six weeks. And when I get paid in Bitcoin, it takes on average four to six minutes. And that's 24 hours a day, 365 days a year, to the point where I now charge a 20% premium if you try to pay me with a wire transfer because I have to call my bank five times to find out where it is and why it's delayed. And there's always problems. And I'm not talking about getting paid, you know, from someone in a disadvantaged country. I had a wire transfer sent to me for payment at speaking at the Bundesbank,

the German Federal Reserve, and that wire transfer was frozen on my end for four weeks after it got misplaced for two weeks. This is just one of countless examples of people who work internationally will keep demonstrating these facts. So these are the areas where there's a lot of friction in the traditional payment systems and that means there's a lot of opportunity for Bitcoin to really shine. And that goes for all other digital currencies that really kind of dissolve borders. I think we're going to see more and more growth in remittances, in import-export businesses in companies that pay a lot of associates affiliates in outsourcing businesses to major outsourcing areas like India and things like that. And, you know, gradually it becomes

easier and easier to use and more and more people use it. So it kind of snowballs from there. And so, you know, here we're talking about kind of like shorter term, you know, what's happening now you're saying you're already seeing it making inroads and remittances and import export. But long term, what industries do you think it's likely to impact and how? Well, I mean, from my perspective, we're fundamentally reinventing finance and banking for the 21st century. And this is going to not only impact core financial services, banking and payments, but it's going to have much broader impacts because it unleashes the possibility for, um,

investments and crowdfunding for raising money for startups. It completely changes how you do lending on an international basis because microlending from investors directly to borrowers without intermediaries across the entire globe becomes possible. And that's a really exciting opportunity that can unleash a lot of capital. Also, I think in the areas of protecting individuals in countries where through corruption in government or banking, there are repeated crises with their currencies and protecting them from essentially hyperinflation and confiscation of wealth, the ability

to really accelerate trade on a global basis. But also, I think more futuristicly, you've got, through these technologies, you've got machine-to-machine payments. So the idea of software systems being able to buy services from other software systems or even hardware systems combining these currencies with the Internet of Things or unmanned drones or self-driving cars. Can you give some examples when you talk about machine-to-machine payments? What would that look like? Well, one of the surprising things that you realize if you've looked into Bitcoin for a while or any of these currencies is the idea that every single financial system we have assumes that there is a person in control of the money and requires that there is a person or a group of people in the form of corporations in control of the money. And Bitcoin doesn't care if you're a person, a piece of software or, you know, an automatic dog feeding bowl.

It is exactly the same. You know, the old adage on the internet, no one knows you're actually a dog. that cartoon really goes quite far because now you can have payments. So imagine a self-driving car that can give passengers rides as a taxi and using the money it earns buy gasoline or electricity to maintain itself and then also buy service and maintenance, even perhaps lease more cars in a self-running corporation, without any human owners.

I know that sounds really far-fetched, but if you described Uber 10 years ago, people would think you were crazy. So, I mean, we have this opportunity to see how we can connect a lot of the systems around us in a way that it also makes them financially enabled. Another example would be the ability to have automatic charitable giving or disaster aid

in the case of a hurricane or an earthquake. You could have, for example, earthquake sensors that recognize the presence of a severe earthquake in an area and automatically release funds into aid organizations on the ground. So there's all kinds of scenarios futuristic, and I can guarantee you most of those are not going to happen the way we imagine them now, but just simply shifting from a perspective

of only humans control money to machines and software controls money is really radical, and it changes a lot of things. And in that last example about the earthquakes, that's something where it's like an organization, you know, kind of, I guess, collects donations from people saying, you know, will deploy these funds, you know, in the next earthquake disaster? Is that, is it something like that? Even more so, I mean, the question is, do you really need an organization at that point? And by organization, meaning, do you need a hierarchy of people managing this?

You know, in fact, we see that one of the best predictors of earthquakes at the moment is the Google search engine. It becomes aware of viruses, pandemics, flu epidemics, earthquakes, and things like that, long before anybody else notices, any human notices, simply because of the change in search patterns. So you can imagine a situation where you have an autonomous, altruistic organization, an automatic charity that doesn't have any people, that doesn't pay any salaries where 100% of all of the donations go directly to funding disaster relief.

And on the other end, you could imagine doing disaster relief directly to individuals by recognizing where they are and verifying their location in a disaster area and sending, you know, $10 to a million people instead of giving $10 million to a charity that has to then move equipment into the area. So it kind of redefines a lot of the concepts of how we do organization. So it's basically like using software to manage all that rather than people. Yes, and that really, if you understand this technology, the thing to grasp about is the technology behind Bitcoin and all of these other things isn't really the blockchain. The technology behind these things is decentralization. That is the magic thing that is really different.

So what is really empowering about these technologies is that you don't require a hierarchical organization, a center of control, a nexus, a position of power. to do money anymore or finance or currency or payments or many of the other things that have always required a centralized position of power and that centralized position of power almost always gets corrupted by the money that flows through it and so decentralization is the really important trend here it's a trend that of course didn't start with the internet it precedes the internet but was really accelerated by the internet and now is arriving in funding. finance in a big way. Okay. And earlier when I asked you about impact, you primarily focused on financial services, but everybody's always talking about all the applications outside of financial services like healthcare and governance. What impact do you see this technology playing outside of financial services? Well, the concept of a decentralized system of trust that can record information in a way

that cannot be altered, the concept of digital immutability, which is a new concept, the fact that these blockchains, if powered by proof of work and operating in a decentralized fashion, cannot be modified after the fact. History becomes hard and fixed. So the old expression written in stone in 100 years will be written in blockchain. And this, this idea of digital immutability, which sounds like an oxymoron but is now fact, changes a lot of things. And you can build all kinds of applications. People are talking about using it to track all kinds of assets from the title to your house to registering a bicycle and being able to transfer ownership of that bicycle digitally and track ownership through a chain.

You can do that for assets in general. You can also do it for, all kinds of other information that you want to record in a way that is permanent. But looking at all of these applications, I think it's important to realize that some of the simplest things you can do are directly related to finance. Some of the biggest immediate need is directly related to finance and payments, globalizing money and building money on an equal basis and making it available in a borderless way across the internet. is an enormous application. It's a self-funding application, and it has enormous opportunity.

I think just like email was the killer app on the internet for 15 years before you saw anything else really emerge, and it drove a lot of the early investment and opportunity and provided a lot of great applications for people, I think you're going to see that payments, just simple payments, which is a massive industry around the world representing more than $2 trillion in annual activity and revenue for financial services, that in itself is the first killer app. But in the future, yes, you will see many other applications emerge from the other properties of this system, the decentralized trust mechanism, the ability to have non-human entities interacting with trust. So I was interested in some of these examples that you gave where you, or where, you know,

people will eventually take real world things like the title to their house or, you know, registering their bike. I was interested in how you ensure that what is being recorded is actually true, because there are some startups in this area right now that are trying to do these things where, you know, you're, like they're pretending that they're sort of like notary services. But then when I've spoken to them, they have no systems for guaranteeing that the information that somebody actually puts in the blockchain is actually correct. So how do we, you know, verify the accuracy of this information that gets entered? Well, that's a really interesting an astute question. When it comes to notarization, if you want to just simply attest that a specific

piece of information existed at a specific time, that's something you can do on the blockchain. It's a very effective application. I can prove that a specific document existed on a specific day by attesting it with the blockchain. That's a great application. What you can to test is whether the information within the document is true or not. You can only show that it existed. And you can't attest to test easily who put it in the blockchain so you can't relate it to an identity. So verification of facts is a big and complex problem. And applying these types of applications, doing title to a house, for example, you know, there's some efforts, some really interesting efforts happening in places like Ghana to build a blockchain-based real estate title and land. And land,

title. One of the big challenges, of course, is that if you are able to embed lies into a blockchain, then the lies become permanent. And so if you don't have a very good mechanism for verifying who owns the land in the first place, then whoever compromises the input compromises that land forever. That problem doesn't go away. What's interesting, again, with all of these problems is to think about what kind of solutions can you find. And inevitably, there are two types of solutions you can think of. One is a decentralized solution, which involves a much less efficient approach. It's a lot harder to do. It's a lot slower. But in the end, it is much harder to corrupt, much harder to co-opt, much harder to censor, and really follows

the model we've been talking about of decentralization. And then there's the centralized solution that seems simple, easy, direct, and efficient, and it puts power back in the hands of a few individuals. And that solution in this context is almost always wrong. But how would you do a decentralized verification system? Well, there are a number of interesting approaches to this. For example, using attestation by hundreds of thousands of people instead of just a few people. So right now if you want to register a piece of land, you have to go to an appointed government official with some kind of stamp of approval.

And there's presumably behind that there's a process of accountability and oversight, although in many countries you'll find there isn't. And do it that way. That's a centralized solution. A decentralized solution would be to have 100,000 people in a city pledge small amounts of money into, proving who has ownership of certain parts of land. Now, again, I'm not saying these solutions exist today or that they're easy to build. But I think one of the challenges we face in this space is coming up with decentralized solutions to these problems that are really novel. And earlier, when you talked about the software that would release charitable funds in a disaster zone,

that's kind of like a smart contract. Can you talk a little bit about, you know, what a smart contract is and how this technology enables that? A smart contract, which is a concept that's being discussed since the early 80s, is the idea of a program, software program that has universal execution and is executed in the same way on every computer in a way that could be trusted. So with the invention of the Bitcoin blockchain, one of the things that became possible is the idea of being able to execute contracts or software programs in a way that is consistent across an entire decentralized system without having to trust anyone in that execution. In essence, every Bitcoin transaction is a very, very simple program and a very simple smart contract by extension. There is another system called Ethereum, which takes that several steps further, and allows for a global execution of programs of arbitrary complexity. In computer science, we would call that during complete programs, that allows you to write this software, and this software runs on a blockchain.

And as a result, it runs consistently in exactly the same way. and you interact with it by making transactions. So you could program the software to run a company. You could program it to have essentially a board of directors who vote through the blockchain and disperse funds through the blockchain. Of course, what gets complicated is what functions can you do inside the world of software

and what functions interact with the real world. But very often we're seeing that line get blurred. So, for example, you could have a smart contract that controls the ownership of a car. And the car could have within it software that identifies who the owner is, not by their ownership of a physical key, but by their ability to provide a digital signature with a smartphone that shows that they are the current owner. and which would then allow you to basically transfer ownership to your car with a digital transaction. And your car would be able to recognize that as valid without having to contact any central database. So that's where you start seeing smart contracts touching the physical world

and these applications essentially extending effects into the physical world. It's a very interesting new space that's opened up as a result of the invention of Bitcoin. And how mature is this space? We've seen probably, I think, what is the most famous smart contract, which is the Dow, the decentralized autonomous organization that, I mean, actually, that's kind of a category of groups, but this particular one decided to name it the Dow. And they structured themselves like a venture fund and managed to crowd fund. an enormous amount of money more than $150 million. And then some really smart person out there exploited a loophole in the technology and was able to steal more than $50 million of those dollars. Right.

Or it was actually a different currency, but, you know, if you converted it back to dollars, that's how much it was. So how mature is this space right now? And, you know, are we going to see just a lot of mistakes where people are coding, you know, poorly and not realizing it? I mean, this space has no maturity. It has the maturity of a one-year-old baby because it is a one-year-old baby. And by comparison, Bitcoin is now a toddler.

But you can't really make comparisons between, you know, institutions and practices of law and contracts and institutions that have existed for hundreds of years. or thousands of years and have gradually iterated away all of the rough edges and become much, much more mature. The level of maturity now is maybe where the internet was in 1990, maybe 1992. It's still very early days. But those of us who really understand how technology works and have kind of the vision to see forward, notice that what has changed is the rate of innovation and the ability to iterate very, very fast into maturity. So while this technology is a toddler, it won't take hundreds of years to grow up.

It will take one decade, maybe two. And in one decade or maybe two, it will be able to deliver levels of maturity that are equivalent to all of the institutions we see today at a fraction of the cost, at a multiple of the speed and that is truly transformative and it's very much like looking at the old days of dial-up on the internet and saying this will never work nobody will ever trust it to do e-commerce or to buy things online or to do banking online

but those of us who could see the rate of evolution knew that it was just a matter of time and just iterating slowly we get to a level of maturity this is now experimental technology Which means that for entrepreneurs and people interested in taking risks, there is tremendous opportunity and it is a very, very interesting and fast-moving space. For the rest of us, you know, where there is enormous need, for example, in areas like remittances and cross-border transactions, where there is no other opportunity to do something like this, I think we're going to see some early applications. But it's going to take a decade at least before you see a broad-based adoption of applications, especially in the developed world where the need just isn't so great.

Well, I actually wanted to ask a little bit more about the Dow, because the kind of like fix for that was that they decided to kind of like rewind the system. And what that required was asking everyone, everybody that, you know, that was running the Ethereum network on their computers to do what's called a hard fork, which meant that they would upgrade their software so that it was then incompatible with the previous version. But because of, you know, the fact that obviously there's like money in the system, which is this currency that the Ethereum network has called ether. Some people began to see, I guess, this is how I'm interpreting it, that they saw a

speculative opportunity with the non-upgraded system and realized that, you know, there's still money to be made there. And so now we have these basically like two different competing Ethereum networks. You know, obviously one has a higher price than the other, but do you feel like this profit motivation is kind of affecting the technology, you know, in, you know, in, you know, Well, how do you think it's affecting that technology? And do you feel like the kind of greed is, you know, causing this splintering and could affect the development of it? I think what's fascinating about this space is that we're seeing on a very grand scale, we're seeing the actual application of these technologies in experimental settings that involve real world effects, real actors with real money at stake.

And, you know, you can have all kinds of opinions about how. these things could theoretically play out. But we now have a 10 to 12 billion dollar experiments running with Bitcoin for seven years and a one to two billion dollar experiments with Ethereum that is currently running with real people staking money. And what that gives us is this amazing view into a completely unfettered free market with all of the participants having a say and all of the effects that come out of that. I don't remember voting for the bailout in 2009. I don't remember voting for the bailouts of the banks that continued in quantitative easing for the next 10 years almost.

In fact, if I'm not mistaken, those votes are made in closed-door sessions by the Federal Reserve, and I can't even elect those people. In this system, 90% of the community had to agree, and the 10% of the community that didn't agree to this bailout were able to continue with the old system without being coerced. So, you know, from one perspective, that may look like it's unruly and undisciplined and not easy to control.

But that's not a bug. That's a feature. That is a free market in action, a market without coercion, and a market in which everyone has a voice and the ability to move their money and make choices about their money. I think that's a wonderful thing. And I think this experiment in decentralization of power and finance is an incredible experiment.

And in fact, if you look at it, it is in some ways free market capitalism at its absolute finest. Okay. And what would you say are the next developments we're likely to see in the space? I mean, there is so much going on that as someone who works full time in the space, who does nothing but read and write and interact with this technology and experiment with this technology, I barely have enough time in the day to keep up. And I often get surprised by the rate of innovation and the things that come at me from different angles. It is far, far more active in terms of innovation than the early days of the internet. The impact is going to be far felt and astonishing to many. And so, you know, it's really an amazing space to work in and just watch every single day as hundreds and hundreds of startups and tens of thousands of software engineers just be.

build new things that have never been seen before. Okay, great. Where can our listeners find more of your work or contact you in the future? So I'm very active on Twitter, A-A-A-N-T-O-N-O-P. You can find information about my book, mastering Bitcoin, on Bitcoinbook.info, and information about my other work, as well as my videos on my personal website, Antenovelos.com, as well as on YouTube. Okay, great. Well, thank you so much for coming on the show. It's a pleasure, Laura. Thank you so much. Thanks for joining us today. If you're interested in learning more about Andreas, check out the show notes, which are available on my Forbes page, Forbes.com slash sites slash

Laura Shin. And if you like what you've been hearing, please review, rate, and subscribe to the show in iTunes. Every rating. and review helps boost the podcast rankings. Thanks again for listening.