We Study Billionaires - The Investor’s Podcast Network - BTC098: Proof of Stake (PoS) Versus Proof of Work (PoW) w/ Jason Lowery (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. On today's show, I have an absolute must-listen conversation with Jason Lowry. Jason is a master's student at MIT University and conducting research on the national security implications of proof-of-work blockchain protocols like Bitcoin versus proof-of-stake protocols like Ethereum. This is a long conversation, but its importance is unparalleled in my personal opinion. Although we get to the side-by-side technical differences between proof of work and proof of stake near the middle of the interview,

Starting point is 00:00:35 I strongly encourage people to listen to the first part of this interview because it provides important first-principle ideas for understanding network security. At the end of the show, I play a couple of clips from various public figures on the topic of proof of work versus proof of stake, and Jason describes in detail why the ideas are noteworthy, misleading, or downright dangerous thinking. Finally, if you ever have a friend, relative, or acquaintance, ever confront you on the implications of one protocols, technical security versus the other, I would strongly encourage you to share this particular episode with that person so they can hear some of the most profound thinking from a security standpoint on proof of work versus proof of stake. With that, here's my interview with Jason Lowry. You're listening to Bitcoin Fundamentals by the Investors Podcast Network.

Starting point is 00:01:27 Now for your host, Preston Pish. Hey, everyone, welcome to the show. Like I said in the introduction, I'm here with Jason Lowry. Jason, this is long overdue. This discussion is long overdue. I'm really excited to have this with you. So welcome to the show. Thanks, Preston.

Starting point is 00:01:53 I've been a low-key fan boy of yours for a while, so very excited to be here. I'm honored. I'm honored. Hey, so I want to start off this conversation with this idea of property rights. So, Jeff Booth is really big on first principles. Let's start with the first principles thinking on all of this. And you had made this recommendation to me when we were talking about how to kind of go about the show. I think it's a great idea about property rights and how they first emerged.

Starting point is 00:02:21 And then I guess we'll just take it from there after you take that away. Okay, cool. Yeah. So property rights, how they first emerged, how Sapiens first started, managing their internal resources, determining who has control authority over those resources, determining how to settle disputes related to property rights, and also achieving consensus on the legitimate state of ownership and chain of custody of property.

Starting point is 00:02:50 So at some point in the timescale of human beings, we started experimenting with different protocols for doing that. But where we came from was effectively a proof of power protocol. So before sapiens and even before primates, most animals, especially pack animals, when they have, they just took down a kill and they had excess meat, it is an existential imperative for those pack animals to manage those resources to determine who has the pecking order essentially. Like, how do you div these up? Whose property does this belong to? So it's important to realize that this is an existentially important question. And the way,

Starting point is 00:03:33 A natural selection has optimized itself is kind of what you see in surviving animals today, which is for the overwhelming majority of cases, when pack animals have property to distribute amongst the pack, they feed and they breed the most powerful members of the pack. So the powerful, the power projectors, power as in watts, as in joules per second, like literally the strongest members of the pack get first dibs. And then if they have property disputes like a group of wolves, like a pack of wolves, they settle those disputes through physical power competition. So they snarl and bite at each other. And they're constantly doing this. So they're constantly snarling and biding at each other and establishing the state of ownership and chain of

Starting point is 00:04:21 custody of their property using this proof of power protocol, you can call it. The reason why they appear to have done that is because of, like I said before, natural selection. So something that a lot of people forget when they're evaluating or like studying nature is something called survivorship bias, where they forget that what you observe in nature is what has survived a very rigorous selection process. So like the reason why you see so many pack animals use this proof of power protocol for establishing consensus on the legitimate. state of ownership and chain of custody property within their packs is because all the other animal packs that used other techniques didn't survive. So right away, you already see that this proof of power protocol where people settle disputes with power competitions and achieve consensus on the legitimate state of ownership and chain of custody of property and determine resource control over it using physical power, that is the protocol that has survived natural selection. That's why you see it in nature. So that's just something to that's worth know.

Starting point is 00:05:28 Because humans, sapiens, for whatever reason, after we transitioned from the upper Paleolithic era to into the Neolithic era, in the beginning, we didn't really, like, there wasn't really much of a sign. There isn't really much of a sign in the human fossil record throughout the Paleolithic age of any meaningful scale, like killing on of humans, like human on human killing. There's not really much in the fossil record. But in the Neolithic age, we adopted new types of protocols for establishing consensus on the legitimate state of ownership and chain of custody of our internal resources. And then after we establish these new protocols, you start to see signs of like massive scale warfare. And so this is really important to like kind of pull the thread on from both an anthropology perspective, but also the core, really what it comes down to when we talk about Bitcoin is really just a philosophy about how do you determine the base. for which you establish resource control authority and have consensus on those legitimate state of ownership and chain of custody of an underlying piece of property.

Starting point is 00:06:33 So what Sapiens started doing is they started abstracting. Sapiens have really big neocortexes. They started coming up with imaginary alternatives to the proof of power protocol. And so what they effectively started doing was appointing people with imaginary power. We could call it rank, for example. And so in the Neolithic age, you started to see signs of rank. And it was really obvious in the fossil record because of how they bury people of high rank. They bury people of high rank with like much more like literally gold-plated graves and the great pyramids and stuff.

Starting point is 00:07:08 These are people with such imaginary power that they are like people legitimately believe they're gods. So early in this age, we had god kings. And so the god kings got the resource control authority. So they were the ones that determined what the legitimate state of ownership and chain of custody and property was. And if people had disputes on their property rights, the God kings would adjudicate those disputes. But at the end of the day, it is all just an abstraction, right? There's, you know, let's be real. They probably weren't actually gods.

Starting point is 00:07:39 And then there's no indication that they were. And I think you see some of this abstraction in just like, you ever see these videos of like maybe a smaller dog kind of like being. the alpha dog and there's like a large, there's other larger dogs there, but the little one's kind of like, you know, dry, it's calling the shots in the house. Is that abstract power? Would you consider that being like just because that little guy has convinced the others that it's more powerful, even though it's physically not. It's very clear that it's physically not. In their mind, the larger dogs are looking at and saying, yeah, I guess I need to listen to this little thing that's yapping at me or whatever. So that is actually a great example.

Starting point is 00:08:20 for two reasons. So the first one is the little yapping dog is, in my opinion, doing the physical power projection technique. So what a yapping dog is doing is saying, I will impose a physically prohibitive cost on you. Yeah. Like I am defending my territory by signaling to you my capacity to impose a severe physical prohibitive costs. So it's a form of deterrence. This is the same thing that we do when we like North Carolina, you know, they'll get a B-2 bomber fly at Love Pass right across their coast, just to remind them, you know, or when you're down range, all the shows of force. Peacard. Yeah, yeah, you're just letting people know it's like, I have the capacity to impose severe physical prohibited cost.

Starting point is 00:09:03 Now, the reason why it's hilarious when the little dog does it is because when, like, the little dog is like yapping at the bigger dog, the bigger dog has been domesticated. They're all both domesticated. So those dogs have been their wolves, like extremely aggressive wolves that overfirm. 40,000 years have had their physical aggression and their inclination to be physically aggressive, essentially bred out of them. So domestication is the process of humans deliberately removing a animal pact's inclination to impose physically prohibitive costs, making them docile. And the reason why that's such a great example is because that gives us what is essentially

Starting point is 00:09:46 what we need to causally infer that. the relationship between when you stop projecting power, when you forfeit your power and you stop trying to secure yourself by imposing physically prohibitive costs on your attackers, there's a direct causal effect of you become less secure. So like, for example, like a lot of people will say, well, correlation doesn't necessarily imply causation. But if you have randomized A-B testing across 40 different domesticated animals, And in every case, when you remove their physical aggression, when you remove their capacity and inclination to impose severe physical prohibitive costs on their attackers, they do become demonstrably

Starting point is 00:10:26 insecure. And we have the data to do the causal inference off that because we eat it for breakfast and for lunch and for dinner or we cuddle with it like we do with our dog. So domestication is proof that if you do a different protocol than the proof of power protocol, then you risk systemic exploitation because that is what domestication represents. Fundamentally is the systemic exploit. And it's randomized, it's like a natural experiment. Because you'd never actually.

Starting point is 00:10:55 You'd never see that in nature. Right. Yeah. And so like I always joke like because I'm a big, I like love wiener dogs and I love like Italian greyhounds and like Whippets. But I always like joke is like those are abominations of nature. Like we literally thread these creatures to worship us. They would never survive in the Siberian.

Starting point is 00:11:14 weldiness. And if a yappy little dog ever acted that way to Siberian wolves, it wouldn't turn out the way. So like that, they only get away with that because they're all domesticated animals. It's the same reason why that is essentially the foundation of modern agrarian society is our ability to make animals less physically aggressive, less inclined to impose physical power to impose costs on us. And then as a result of that, we can take advantage of them. I'm not trying to jump ahead, Yes, we got our example of proof of steak right there. Well, so what we have shown using a causally inferable randomized data set is that there are dramatic strategic security implications for choosing not to project power. Okay.

Starting point is 00:12:03 Because when we do it to animals, look what happens. We turn oryx into ox and then they become pack animals and they become slaves and they grow our grain to feed the other slaves that we've domesticated. Slaid being the denisicated, candid animals. You turn boars into pigs. You turn jungle fowl into chicken. So like the difference between a boar and a pig is the pig doesn't put up a fight, right? So that gets to be a major issue when we get to agrarian society because it became, you know, because of abstract thinking, abstract thinking enables theology, philosophy, enables ideologies.

Starting point is 00:12:41 and it became considered morally reprehensible to use physical power as the basis for which you settle property disputes or determine resource control authority or issued consensus on the legitimate state of ownership and chain of custody of property. And it was essentially morally condemned for two reasons. The first one being because of the energy that it uses, it's very energy intensive to establish a pecking order using physical power. Like it just look, just watch a pack of wolves. It looks exhausting. And they're constantly fighting against yeah. Yeah. And then of course, obviously, if you use physical power as the basis to do this, then you risk physical injury if you're doing it kinetically. So if you're imposing physically

Starting point is 00:13:26 prohibitive cost kinetically using force to displace mass, then obviously you're going to have, you're going to have accidents. And I say accidents because a lot of pack animals have natural instincts to basically pull their punches to effectively not injure each other. So they have to figure out a way to use power as the basis to achieve consensus on the legitimate state of ownership of property, but they have natural instincts which prevent them from like obviously killing each other because that's an obvious existential threat. If wolves fought each other to the death over every stake, there would be no pack anymore because all those would die. And humans have this same and most, a lot of primates have the same natural instincts. So Lieutenant Colonel, I think his name's Grossman Army psychologists and a bunch of other psychologists. They've led multiple studies to show and basically quantify the aversion that humans have to injuring other humans. The famous example that I always used that I got from Lieutenant Colonel Grossman was the example of Gettysburg where they took the rifles off the soldiers that were killed in Gettysburg and 80% of those rifles had never been fired. And several,

Starting point is 00:14:38 of those rifles had been double and triple stuffed with ball and powder. So it was implying that the soldiers that had died were not firing their shots and were in fact faking full fire and reload sequences during the battle. That's how powerful the natural instinct is to not impose lethal costs on or not physically or lethally injure fellow humans. And then he makes the argument that when you started having like long range weapons and then, of course, like airplanes and bombs and stuff like that, you basically stop seeing the person you're killing, and that was part of the reason why war fighting became so lethal during the 1900s

Starting point is 00:15:16 is because you don't have that natural instinct prohibiting you anymore. So anyways, that is all to say that humans have a very strong inclination to not use physical power as the basis for which they settle disputes, achieve resource, determine who gets to control the resources, and achieve consensus on the legitimate state of chain and state of ownership. chain and custody of property. So they use an abstract form of power. And this abstract form of power is considered better because it does not use energy. Okay. Kind of reminds you a proof of stake, right? And also, obviously, it doesn't cause injury because it's abstract, right? You're just, you know, you can't cause injury because it's like not even physical. And so that was the basis of

Starting point is 00:15:59 abstract power hierarchies. And the reason why agrarian society adopted these abstract power hierarchies where they have like these people of different ranks. They had the judges. They had the kings. And like they had the resource control authority. And based off of what they say, you get to do all the things that you need to do the managed resources. But there are of course major systemic differences when you do that. Okay. So we've already established that when you take the will to fight out of domesticated animals, they become systemically exploitable. That same thing repeated itself when agrarian society first adopted these abstract power harkies because these god kings essentially exploited their populations at like egregious scales. And you still see this today. I mean,

Starting point is 00:16:43 look at North Korea. They think Kim Jong-un is a god and it's crazy. Yeah, yeah. It's a trust-based system. You have to trust in your god king and the benevolence of your god king effectively because when you create an abstract form of power, they are essentially, in many cases, unimpeachable. They have unimpeachable power now. And you have also technically removed the constraints of their control authority. So whereas like the Alpha Wolf can only control what he has the physical power to control, if you change it to abstract power,

Starting point is 00:17:19 there is technically no limit to what that God King can claim power over. So you can expand their abstract power. power and abstract resource control authority at zero marginal cost. He can just say, I am, I'm the gods. So everything's fine. And it's like, okay, well, I guess, I guess you're right. So that was like, if you look at like how. Jason, real fast, it seems like the physical power would have been bound by by geographic region. Like, you can only expand it so far, at least throughout history. And we can get into the arguments of like where we're at now with Bitcoin specifically. But in the past, it seems like

Starting point is 00:17:58 you were bound by a range or it was very difficult to extend out. Yeah. And so that's actually a huge point because I've made this point before too. Let's fast forward to today. Okay, there's a bunch of physical resources. The main one that people seem to enjoy is the surface area of the earth. That is a resource that sapiens seem to value. So the question is, how should sapiens manage resource control authority over the surface area of the earth and determine what the quote unquote legitimate state of ownership and chain of custody of the surface area of the earth is? And so if you take an extraterrestrial point of view, right, and you're an alien and you're visiting Earth and you're looking at the sapiens, from your extraterrestrial point of view, sapiens are just one single species. And so you look at them and then you would note to yourself, you would say, that's interesting. They don't have centralized control over the surface area of the earth.

Starting point is 00:19:01 For some reason, they decentralize their control authority over the surface area of the earth. And they do it using a massive scale global physical power projection. So like there's no one government that has abstract control authority over all the resources of the earth. In fact, sapiens deliberately prohibit that. How? By imposing a physically prohibitive costs on gaining single and centralized control authority over all of the surface area of the Earth. So effectively, that is the proof of work protocol where we are using power, physical power. And we have a bunch of different large scale physical power competition.

Starting point is 00:19:45 and the benefit of that large-scale power competition on a global scale is decentralization of control authority over Earth's natural resources. Wow. So basically, yes, you're exactly right. In fact, at scale, because a lot of people will say, well, you know, like military centralized power, it's like, no, take a global picture of it. it is precisely the case that no country can gain 51% control over all the natural resources because we're constantly engaging in this physical power competition.

Starting point is 00:20:21 And like any time Mr. Gingas Khan or Mr. Adolf Hitler or whoever tries to achieve centralized control authority over physical resources, the reason why this system is secure because there's no limit to how much power honest people can sum together to make it to physically cost-prohibited to achieve centralized control. central authority over resources. I had to, like, the idea just struck a chord on a book that I read that I've never even talked about before. But this was a book that in the summary at the back of this, it gets into that exact point

Starting point is 00:20:57 that you just made is the physical cost that great, and here's the title of the book, The Rise and Fall of Great Powers. This is by Paul Kennedy. and that's one of the main things at the end. The summary is that the thing that is that you see through each one of these great powers throughout time is they over extend themselves militarily. It almost always also corresponds with them debasing currency and trying to a lot of the stuff you're seeing right now playing out in the world as far as offsetting some of that and expending and having all this gross fiscal spending. and the power projection as they push out to accompany that large fiscal spending to try to offset the issues that they're having with their currencies.

Starting point is 00:21:47 And that being like the crux of how all these great superpowers have failed over time. It's a fascinating read if people want to dig into it. What was the one that you just held up, Jason? This one's called the collapse of complex societies. This was recommended to me by Natalie Smolenski. from the Texas blockchain council. Yeah. But it goes into, it's not just that, it has multiple different explanations for how complex

Starting point is 00:22:15 societies kind of break down. But like, yeah, that's a clear trend. Yes. In history. And it's also, the opposite is also true. Another clear trend is when people stop keeping a military or they deliberately impede their own capacity to project physical power, they tend to have Hannibal at their gates, really quickly. And so there's a kind of a balance there. But yeah, it's, it's really interesting.

Starting point is 00:22:42 Another point that's very pertinent to the world today. But anyway. Yeah. Yeah, there's so many good examples now. I often joke, it's just like, I don't even need to write this thesis anymore because, like, it's just playing out in real time. And by the time it publishes, it'll just be probably obvious. But I guess what we're saying, what we're starting to speak about now is the systemic benefits, the systemic tradeoffs of abstract power hierarchies as a basis for controlling resources and physical power hierarchies. And so the big ones that are, that we've kind of highlighted is when you use physical power as the basis for which you kind of manage your resources, physical power is inclusive, meaning every single person.

Starting point is 00:23:32 can have access to physical power, right? Like, you all are always able to swing a fist or swing the sword if you ever achieve a state where you're being invaded or you're being exploited by your God King. So it's a highly inclusive protocol. Everyone can fight. Physical power is also unbounded. So there is no limit to the amount of,

Starting point is 00:23:54 there's theoretically no limit to the amount of physical costs you can impose in Watts, especially after Hewden's discovery. fire. Because it used to be like animals can only project as much power as they can summon endogynously, like off of the own calories that they ingests and can like swing through their muscles. But especially once humans found gunpowder and these other power projection technologies, what that represents is you're tapping into an exogenous supply of power and then using that to impose physically prohibitive costs on your attackers or your exploiters. Again, power meaning physical watts. And so that game, this is a very important.

Starting point is 00:24:32 power projection game has scale to the point of nuclear weapons. That's how, when we say there's theoretically no limit to the amount of power that honest people can summon to defend themselves, that has scale to the point of we could actually destroy the planet at this point. Like we have that means now. That's how high this honest people can scale that. Another big one, and this is a huge one, when we get into a future conversation about proof of work, first proof of stake, is that physical.

Starting point is 00:25:02 power is systemically exogenous, meaning it cannot be systemically exploited. Whereas like rank, people can change their rank or people can change the rules so that rank has more abstract power than not, right? Rank is instantiated by the system itself and therefore is systemically exploitable. But physical watts is an ontologically different phenomenon that exists completely outside of these abstract power hierarchies that we use to manage resources. And so it doesn't matter. And this is why, like, you know, all those movie examples where the, it's like those David Goliath stories where it's like there's someone of high rank, there's some king.

Starting point is 00:25:45 And, you know, they've got their abstract power hierarchy and they've got themselves systemically secured. And it's just like you're just going to get steamrolled by these peasants with their swords, right? Because you can't exploit their power. It's exogenous to the system that you're the king of. And then another big one you mentioned this too, but it's a huge one, is that obviously physical power is physically decentralized.

Starting point is 00:26:11 So there is, you can actually validate, you can actually see physical power and you can actually like validate it. Okay, compare that to stake. Well, actually, let's say the bad sides again, though. Physical power is energy intensive and physical power. is prone to causing injury. So those are the downsides. But everything else, like if physical power was not energy intensive or if it was highly

Starting point is 00:26:35 energy efficient and if physical power had no capacity to cause injury, say, if it was in an electric form, then it would be a fantastic, it would be a highly systemically secure protocol and it would probably not be condemned as ideologically bad on any like philosophical or theological reasons because it is so good at preventing systemic exploitation and or like invasion. When you use abstract power, abstract power is non-inclusive. So not everyone gets to have a high rank. In fact, usually there's one person at the top and they've got most of the power. But the point is not everyone can have access to it. So it's non-inclusive and therefore not fully representative. Another problem with abstract power is it's bounded in zero sum.

Starting point is 00:27:26 So there is a hard limit. There's a mathematical limit to how much abstract power that honest people can use to represent their interests or do some other things. And that becomes a very big systemic difference that is important to call out with proof of state, but we'll wait until we get there. And then another problem with abstract power is obviously it's physically impossible to see it. It's impossible to validate if it's decentralized. And like we said before, there's essentially no limit to how far you can scale your abstract power. And it only exists

Starting point is 00:28:03 in the imagination of the one to number of people that are part of said system, correct? Yeah. So if they're unsympathetic to your abstract power, then it's completely useless. Or if they don't understand your laws because they speak a completely different language. or if you've been geographically separated. So for abstract power to work in the interim, because it seems like it will always be an interim way to project power, the trend of participants always has to be going up instead of collapsing down. Is that fair?

Starting point is 00:28:39 Yeah, you expand the scale of your abstract power hierarchies by adding more persistence. There are some benefits that are worth calling out. The benefits of abstract power is it is not energy intensive, so it's highly efficient. It's like if you live in a well-functioning, trustworthy society, then it is just fantastic. You can get enormous resource abundance from it because people are trustworthy and they're following the rules and they're sympathetic to the rules and the people that you trust as intermediaries and the judges are fair.

Starting point is 00:29:13 It works out really well. And it has directly led to the enormous amounts of resource abundance and prosperity that Sapiens, agrarian society has experienced. And obviously, it is not capable of causing injury. The problem that you just highlighted is it tends to break down over time. The root problem, as someone said, with all these abstract power hierarchies, is that people must be trusted not to exploit them, not to be unsympathetic to them, not to invade them. and history is filled with examples of breaches of that trust.

Starting point is 00:29:46 So it requires trust. So it is a trust-based system. Yes, you must trust the people of high rank that are appointed over you to not abuse their rank. Or you must trust the neighbors that are unsympathetic to your laws. You know, the Hannibal's out there, the Gingas Khan's out there to just not roll in and take your stuff. And so it is, for these reasons, it's systemically insecure. here because so long as you have and rely on abstract power, you are technically powerless from a physical standpoint. You have no capacity to impose severe physically prohibitive

Starting point is 00:30:21 costs on people who either try to invade you or try to exploit you. Parasites are not allowed into an abstract power situation or it will eventually collapse upon itself. But the problem is, if you are a parasite or like a sociopath or you're just a guy that wants a lot of control authority over resources, abstract power hierarchies create a nice, beautiful honeypot for you. Like, all you have to do is become a high-ranking person. They're incentivized to find it.

Starting point is 00:30:59 Yeah, it's like moths to a flame. Wow. And that's, I'm sorry, but to me, that's like a super. powerful statement that I have never thought about. And also that that's why you see nepotism in abstract power hierarchies over the course of the Hungarian society. So they will come up with abstract reasons to say why these high rank positions should stay in the bloodline. And so I'm a king and I was appointed by by for the, you know, there's some God that says I have a divine right to be this powerful, abstract powerful.

Starting point is 00:31:30 and my son is, you know, carries my blood and therefore carries my abstract power. Like, they come up with reasons. And over time, that becomes very bad because the people at the high positions of abstract power are like literally deformed. They're like inbred freaks. The King Tut exhibit is here in Boston. It's like King Tut was not like a healthy person. These God kings and the kings, there's so many examples, it's not meritocratry.

Starting point is 00:32:00 at all because they're like literally inbreeding just to keep their abstract power. And they, anyways, yeah. And so it's like a mousseau flame. You get the, like, it is actually way easier to exploit people through positions of high rank than it would be if they use physical power as the method to do it. Yeah. And so this gets back into like the case with the wolves or with any form of abstract power or sorry, physical power projectors in nature is like, yeah, these wolves constantly fight over each other, but that alpha is not exploiting their pack like humans can through their abstract power hierarchies. It is much more of a meritocracy than what sapiens structures look like, what their abstract power structures look like for that

Starting point is 00:32:47 reason. Yes. And so this is why I often call, I often bring up the example of stags or a lot of different herbivores because what's cool about what they've done is they actually actually evolved a way to continue the power projection game, where they use physical power as the basis through which they achieve resource control authority and determine legitimate state of ownership and chain and custody of property. But they have designed these weird things that come out of their heads and they're not horns. So they're not like pointy. They're all tangled at the end. And so when they butt heads and they fight each other, they actually get entangled by design to prevent themselves from injuring each other.

Starting point is 00:33:30 But those same antlers can be used to stab enemy, you know, like, predators that are attacking them. So they've created a way where they can use physical power and they can still have, like, lethal things on their heads to help impose physical costs if they need to defend themselves. But when they use those same devices to achieve pecking order internally, it minimizes the capacity for injury. It doesn't completely eliminate it. Accidents get happened.

Starting point is 00:33:54 And sometimes their antlers interlocking. a little bit too much and they, you know, they die. Another one that I find fascinating on the proof of work is bees. Like, I find how the, how the queen bee, like, I guess goes out. And then they like, the fastest one is the one that, you know, that genetic line is passed on. You might know more about it than I do. But like, that is just fascinating to me. And it's exactly what you're getting at as far as like projecting watts or power in this

Starting point is 00:34:25 physical power display. Honeybees are a fantastic example of strategic security because they literally create a honeypot security problem, right? Yeah. Like every, like it's honey. Like everyone wants literally their honey. Yeah, it's literally a honey pot security problem. Honeybees have stingers, but those stingers don't protect the individual honeybee.

Starting point is 00:34:51 When a honeybee sting something, they will sink that thing so deep. deep in their skin that the only way, like, because of how it's designed, the only way to get that thing, like to detach from the person they stink is to disembow themselves and then they die. So a stinger on a honeybee is not designed to protect the honeybee. It's not designed for self-defense. The stinger of a honeybee is designed to inflict as much pain as possible on an attacker, to impose as much physically prohibitive costs on attacker for the systemic defense of the hive. and they will die in the process of doing it, not to protect themselves, but to protect the hive. And it's just a great illustration of kind of that point.

Starting point is 00:35:32 The really easy and simple way to think about it is everything has a benefit to cost ratio of attacking or being attacked. There's some benefit of attacking someone and there's some cost of attacking someone. And so if you want to be systemically secure, you need the cost of attacking you to be as high as possible. And you need to strive to keep it high in order to keep your benefit. to cost ratio as low as possible. And you can never know how much is enough costs. Like, you don't know how much ability to impose physically, severe, physically prohibitive costs you need to ensure that you're quote unquote secure. So you just have to be able to ensure that you have that ability and strive to do it as much as possible and kind of manage it. You don't want to get,

Starting point is 00:36:12 like when you use abstract power harkies and you get like enormous amounts of resource abundance, but you don't have a military to protect it. So you have all this freshly irrigated land, and all this freshly irrigated farmland, but you have no soldiers to protect it. Your benefit to cost ratio is extremely high. The benefit of attacking you is high. The cost of attacking you is low. You're going to get Sargonne the Conqueror or Charlemagne or Napoleon or all these other economists

Starting point is 00:36:36 that have ever lived. They're going to take advantage of your high benefit to cost ratio. And this is how it works in nature too. So it's not like it's like a sapient thing. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo. at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the

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Starting point is 00:40:54 Back to the show. So let's pause there. So people were hearing about power projection. They're hearing about physical power projection versus abstract. I would just generically say the one is proof of, work. The other one is a proof of stake idea, right? And we're going to cover those in much more detail here. But before we do that, I want to ask you about the basics of computer science and how computer programming emerged before we then transition those ideas that we just talked

Starting point is 00:41:23 about to proof of stake and proof of work, found on protocols. Yeah, this is really helpful if you just have kind of a quick crash course on computer of science because it'll make arguments about the difference between proof of work and proof of stake a lot simpler to understand. So at the end of the day, a computer is simply a general purpose state machine. So it's a machine where you can change its state. And so back in the day, like 2,000 years ago, the Greeks had astrolabes. And you could, you know, you could calculate where the stars are going to be in the future, where the heavenly bodies are going to be in the future. And the the state machine programmer would change its state by pulling a lever or pushing a button or turning a dial in some case.

Starting point is 00:42:09 So you're like changing the state of this machine. And these state machines are named after their function, not their form. So the main function of a state machine is to compute something, to compute the position of the heavy body in the future or to compute whatever. And so these computers, these state machines have existed for 2,000 years, but only a little over 150 years ago. I guess maybe 100 years ago now, 200 years ago, yeah, 200 years. They have been general purpose. So like for 2,000 years, state machines were special purpose state machines. So you could, like, if you wanted to compute something, you had to build a dedicated machine to compute that.

Starting point is 00:42:47 Babbage and his friends in the 1830 start conceiving of this idea called a general purpose state machine. And the reason why that was such a big deal is because you no longer had to build a special purpose machine to do a compute that you. needed. You could just program this general purpose machine to do it. But the act of programming was the act of giving this thing instructions manually by pressing buttons or turning dial or pulling a lever. And also the big leap there is that now the act of programming, a quote, or the act of building and designing a special state machine, special purpose state machine to do your computation, became an abstract idea. So you actually didn't need, build anything. You just needed to think of a good idea, like a design, and then figure out how to

Starting point is 00:43:37 translate what was in your brain into instructions for a machine. So, for example, the first computer programmer Ada Lovelace, her program was for a machine that didn't even exist. Babbage's analytical engine in the 1830s was never built because it was too expensive to use. But she could still program it. She could still conceive of the sequence of operations that that general purpose state machine would need in order to act like a special purpose state machine. Okay, so, so the easy way to think about like what programming represents is kind of to think about Shakespeare. Shakespeare comes up with a story, an abstract fictional story called, like, what's the famous one, Romeo and Juliet. Okay, so Romeo and Juliet is just a fictional

Starting point is 00:44:18 story. It does not physically exist. It's a figment of his imagination. And then Shakespeare converts that from an imaginary story that's only in his brain and he writes it down. So he uses a symbolic language, a syntactically and semantically complex language, just translate the fictional story in his head onto a script. And then he hands that script to an actor. And then the actors give a performance. So in that sequence of events, Romeo and Juliet is still just an abstract story. Like it still only exists an abstract reality. It doesn't physically exist. Just because the medium through which is communicated, the script physically exists doesn't mean Romeo and Juliet exists. And just because actors can act it out and have like an emotionally moving performance that people think is real

Starting point is 00:45:04 doesn't mean Romeo and Juliet is anything but a fictional story. It's still just a figment in this guy's imagination that he's communicated through a physical medium. Computer programming is effectively the same way. Computer programmers think of fictional designs in their brain, fictional stories. They write those down on scripts using a newly invented symbolic language called machine code. And then they hand those scripts to machines, and then machines can actually read those, and then the machines act like they basically role play.

Starting point is 00:45:35 These general purpose state machines roll play according to the instructions that they received. So at no point did the program actually physically exist, just the medium through which it was transferred to the machine. So like if you took my computer right here, this general purpose state machine, right? It is a bunch of circuitry. it's a bunch of floating gate transistors with electrons on them.

Starting point is 00:45:58 Okay, so that exists right now. As soon as I quote unquote load a program on it, nothing's changed. It's still the exact same circuitry. It's still the exact same electrons stored in floating gate transistors. Okay. And if I remove quote unquote remove or delete that program, nothing physically like the circuits and the floating gate transistors with the electrons in them are still there. The only thing that is physically changed is the state.

Starting point is 00:46:24 of the machine, not the state itself. So this is like usually trips people out when you explain it. But programming or a program that you have loaded or the piece of software that you have loaded is just the symbolic meaning that you apply to the state change of the state machine. And that's like because humans effectively figured out a way to apply symbolic meanings to circuits. Yeah. And then they get those circuits to repeat that symbolic meaning back to them.

Starting point is 00:46:54 So like, you know, a painter thinks of a scene and he paints, he uses physical paint and canvas to depict that scene. Of course, the scene isn't real. Just the paint and the canvas is real. And so that's what we do with computers. So technically, Preston, technically you have no experiential knowledge of me whatsoever. Everything that you are seeing is an abstraction right now. You are not looking at me.

Starting point is 00:47:15 You are looking at light emitting diodes in an array on a plane controlled by a general purpose state machine. You just know based off of kind of where we are, a technology that I'm probably real. I'm probably not like, you know, an AI talking to you. I don't know. I don't know. I'm not convinced.

Starting point is 00:47:31 But like 20 years in the future, it might not be so easy. And so everything that you see on a computer screen is a symbolic representation of what's in someone's brain. Yeah. That a state machine is acting out for you and making a very convincing thing. And then you false equivalate or you falsely, you think that it's real because the physical medium through which it's communicated to you is real. So you're making a false correlation between your abstract ideas and this symbolic meaning

Starting point is 00:48:02 and the thing that you see in front of you. But they're actually two completely separate things. A program is just an idea of floating in abstract reality, virtual reality. That's why it's called virtual reality. And a machine, a general purpose state machine is what physically exists in shared objective of reality. So why do we say that? Because that is an extremely trippy way. That's an extremely hard thing to wrap your head around, that we have invented essentially a symbolic language to speak to machines to then speak back to us and that what we're effectively doing is showing each other

Starting point is 00:48:38 what's only in our imaginations through the machines that we program through this virtual reality. That's really hard to understand. So what people do to make it simpler to understand is they do something called hypostitization, where they treat these abstract things as if they were concretely real just for simplicity. So we just like talk like a program is a physically real thing that is quote unquote loaded onto a machine, just like people talk about the fictional story of Romeo and Juliet is loaded into the pages of the script. Right.

Starting point is 00:49:07 We just say that it's a file. It's a folder. It's a trash can here on my desktop. But it's none of those things. Yeah. They don't physically exist. just figments of our imagination and it makes it way easier to handle what is a extreme leap and abstract thinking that humans only recently discovered 80 years ago through historic programs

Starting point is 00:49:30 general purpose computers with von Newman and his buddies that is like so complex machine code is so complex yeah the binary is I mean mind blowing yeah they used they invented a new logic yeah through bullion logic right so they're implying symbolic meaning to binary states that are then physically input into a computer. And it's just, it's mind-blowing. It's way more complex than any human can really understand. So like maybe Von Neumann could. I want to pause here because where we're going with this, and I think this is important for people just to kind of like, like, why are they talking about this stuff? We're talking about this because we're about to talk about how Bitcoin, and I'm not trying to

Starting point is 00:50:14 steal the punchline here, but I think it's important for people to correlate why. why which you just explained is so important is we're going to talk about the physical reality of energy expenditure, right, which is real in tangible form, right, versus virtual reality ones and zeros and how one can be exploited and the other one can't and how there's a tie to physical reality in one and there's no tie to physical reality in the other. Exactly. And that's a footstop moment. And I'm sorry if I stole the punchline.

Starting point is 00:50:52 So that is something to kind of pause, think about. Don't forget it because where we're going next ties a lot of what he was just talking about to this much more deep dive in proof of work for Bitcoin, proof of stake for call it Ethereum or any other proof of stake token that's out there, which is pretty much everything other than Bitcoin. So are you ready to go there? Did you have other things that you wanted to kind of talk about with respect to the computer science stuff? With computer science, the last thing I'll leave is it's so complex that we just pile on different abstract ideas to make it simpler for us to comprehend what is way more complex than we comprehend. So over the four decades following the development of stored program computers where you can, apply symbolic meanings to the states of state machines and all this trippy stuff, that's when you get like assembly language and then eventually higher order languages like we use today,

Starting point is 00:51:57 like C or in Bitcoin's case, C++ or Python and all these other things. These are just languages that make it easier to communicate to these machines and specifically to communicate our abstract ideas that we design in our brains and then we get our computers to rollplay back to us. Cyberspace, this idea of cyberspace is virtual. Obviously, it's a virtual reality. And so everything in cyberspace does not physically exist. The only thing that really physically exists is all the machines and all the computer screens that we use to basically role play.

Starting point is 00:52:34 And it's like the, so like, you know, the famous line from the Matrix when the Neo is like visiting the Oracle and he sees that like little. boy monk and he's like, you know, instead of trying to bend the spoon, only try to realize the truth. There is no spoon. That's actually a legitimate computer science principle. There is no spoon. We use things like object-oriented design as a technique to manage the complexity of programming. And so we arbitrarily choose to describe the complex emergent behavior of the machines that we program as if it were an object or an orientation of objects, simply to make it easier to it. It's too hard to wrap your head around it otherwise, right? Yeah, it's too hard to program computers, but more importantly, it's too hard to explain your design to other people,

Starting point is 00:53:25 unless you explain it in terms that they understand. And since all humans live in a three-dimensional reality where objects are oriented around themselves, we arbitrarily choose to describe the complex submergent behavior of these machines as objects. But the objects are not real. The spoon is not there. There is no spoon. It's just a charge or no charge. Yeah.

Starting point is 00:53:49 And the story of Neo is, hey, once you realize that software is just an abstraction, then you can figure out how to exploit it. And then that's how Neo gets his powers just because by just simply realizing that nothing in the matrix is real. Therefore, there's technically no restrictions, no physical restrictions to limit. is to his power. And so like software. Reminds you of a clip

Starting point is 00:54:13 I might play here at the end of the show. Yeah, I know. Because and so that's another, that's really important when it comes to the field of software system security because it's important to recognize that like software doesn't break. It can't break. Software

Starting point is 00:54:29 just does exactly as it's told. So it's it does exactly as it's designed. So if there's ever a hack or if there's or like, you know, something bad that happens, nothing was broken. People are just taking advantage of the rules of the system. And so how do people make software more secure, especially if it's in charge of like sensitive information or it has sensitive commands, right?

Starting point is 00:54:54 Like sometimes software runs major weapons systems. The way that most software security is done is by creating an abstract power hierarchy where you assign rank to certain positions. So like admin privileges or admin rights, these people higher up in the ranks have more control authority. They can access more information or they can do more dangerous commands. And the way you keep your software secure, at least in the old way, is by these abstract power hierarchies. Of course, since everything in software is abstract, then the basis through which you choose to determine resource control authority within your software instantiated system or the basis through which, you choose to achieve consensus on whatever the legitimate state of ownership and chain of custody

Starting point is 00:55:41 of whatever abstraction you've created in software, you have to use an abstract power hierarchy to do it because there is no alternative, not until we get to hashing. But that's why it's just important. There is no spoon. We arbitrarily choose to describe software as objects to make it easier to understand their complex emergent behavior. And for the purposes of system security, technically all software is an abstract power hierarchy where usually the developers the one effectively functions as the god king who gives themselves the most abstract power therefore the most control authority over whatever resources that software manages so like mark Zuckerberg and you know all these like big time their god kings they wield these enormous amount of abstract power

Starting point is 00:56:28 they have control over million billions of people's computers and the information on those computers and they have control authority over resources for no other reason than they're the highest ranking person of Facebook. Wow. That is so profound. Yeah. And in cyberspace, you've got all these God kings emerging. And so, you know, you can't see him kind of duping it out.

Starting point is 00:56:49 And so it's in this migration of human society now. We're once again using abstract power hierarchies to manage our resources, but now we're doing it in cyberspace, managing things like information. But if you have abstract power over machines and people become increasingly more dependent on those machines, then that translates to power over the people too. So for example, like weaponize misinformation, if people get all their information from social media and then you're in charge of social media, like if you're the person, head honcho at Facebook or whatever, you get to control the information that people see that

Starting point is 00:57:26 affects their behavior. So it is enormous. Like people today in cyberspace have level. levels of abstract power that would make the pharaohs blush. Don't you think that they also have a bit of physical power too? Because, you know, when you describe physical power as watts, just look at these server farms. Take Zuckerberg, for example, like all of this data and all this information that he is

Starting point is 00:57:50 storing on behalf of these billions of people require Watts in order to run these on the hardware. So is there a, would you argue that there's a mix between physical power and abstract power that a guy like that wields? Yeah, I guess you could say it's a mix. There's two different realities to keep track, and this will be helpful when we talk about proof of work. There's abstract reality.

Starting point is 00:58:14 So there's like all that data on a server. Yeah. It is, again, it is symbolic meaning that we assign to electrons in a floating gate transistor. It's not actual data. Like, there's not actual ones and zeros. We choose to say this switch and this position is a one. and this one is a zero.

Starting point is 00:58:32 And through extraordinarily complex, semantic and syntactic language, we get Romeo and Juliet or information out of it. Yeah. So there's shared abstract reality. And then in shared objective reality, there's the actual physical hardware of the systems. And yeah,

Starting point is 00:58:45 I guess you could say they have like physical control over that physical hardware. Yeah. But that is defended the good old fashion way. Okay, so like, you know, that's on a plot of land. And it's got a probably got a big old fence with a bunch of barbed wire around it.

Starting point is 00:59:02 Like, it's being physically defended. So they have control authority over that. And that would, and I guess the physical power of their fence, and they probably have armed guards. In fact, I know they do have armed guards. You know, that is a form of physical power. But, like, that is, that pales in comparison to the amount of abstract power and resource control authority they have

Starting point is 00:59:20 and from and through cyberspace. Yeah. Now, let's fast forward. So, like, for 60 years, we once again have another honeypot problem, where you have like these massive data repositories, you have this capacity to control a bunch of people's computers all across the world, but you have no capacity to impose physically prohibitive costs on the abuse of that information, that data, or the abuse of that AFshack power.

Starting point is 00:59:45 And you have all these people that are designing systemically exploitative abstract power hierarchies through their software. It's very obvious. And then you also have all the just massive levels of hacks and everything. A hack is just people taking advantage of the rules of the system. Nothing breaks in a hack is just systemic exploitation. So this big problem with hacking is just essentially a big problem of people systemically exploiting abstract power hierarchies.

Starting point is 01:00:11 And a main challenge of all this is just the fact that you cannot impose physically prohibitive costs on people in and from and through cyberspace, at least not until out of back. And so that's why the hash, when you think of the hash cost function, that's why it's such a big deal is because what he did was he created. a program whose sole purpose is to impose a real world physically prohibitive costs on people and programs on other computers. So to solve a hash function, you have to use brute force physical power. You have to use just electricity and just guess a bunch. So the only point of solving a hash function is to impose an electricity cost, a physical costs and watts,

Starting point is 01:00:53 a non-kinetic, so a non-lethal physical cost, but still a severe physically prohibitive cost. cost on solving the hash function. And then in return for solving the hash function, in case of Adam Back's invention with hash cash, you get like a receipt. You say, okay, I have proven that I have done this work. Or in other words, I have proven real world power. Like I have proven that I have been imposed by real world physical costs. And so there's a very subtle but important implication of that from the perspective of cybersecurity. Because in the case of Adam back, the reason why he created this was to defend against systemic abuse. It's literally called a countermeasure, denial service countermeasure. So an easy way to systematically abuse people

Starting point is 01:01:37 is to spam them through email, right? Because there's no marginal cost to just pound. And that's when Adam came up with this. Yep. And so Adam, the point of hashing is to impose a real world physically prohibitive costs on people who are spamming or otherwise systemically exploiting the abstract power hierarchies instantiated by your software. And that's a big deal, right? That's a big move in terms of, because once again,

Starting point is 01:02:02 you have like seven thousand years ago, you've got God kings exploiting people through their abstract power. Eventually, the slaves figure out we can impose a physically prohibitive cost on our God kings and they'll stop exploiting us. Fast forward to 1997, you've got people abusing their abstract power hierarchies

Starting point is 01:02:17 and Adam Back comes up with the mechanisms through which you can impose physically prohibitive costs on people exploiting you. And it issues a receipt. and it's a proof of work receipt, but it doesn't really matter what it's called because it's all abstract anyways. The point is you're imposing physically prohibitive costs on people,

Starting point is 01:02:32 not in abstract reality, but through shared objective reality. That's a big deal. And from a computer science perspective, it's also a big deal because it's kind of creating this gateway between worlds where you have real world electricity, passing into the hash function,

Starting point is 01:02:47 and then coming out of the hash function is a receipt that you can then abstract as an object, and then pass around, or in his case, it wasn't transferable. But the point is, you take, instead of like most things in computer science where you hypothesize a abstract thing is a concretely real thing, proof of work does the exact opposite. It's reverse hypothesization where you take a real world thing, electricity, watts, and then you treat it as an abstract receipt. And so that's huge because now in cyberspace or on your computer,

Starting point is 01:03:19 if you see that proof of work receipt, you see proof of real. You see proof of something that physically exists. That's not true for anything else that you see on a computer screen. For people that are hearing all this terminology and they're saying, like, I hear what you're saying, but I just can't really understand, like, what's happening in the math. How is the code actually able to imply or apply that physical work in physical reality to the person who's the attacker? And so if I was going to just very simply try to demonstrate the people in real time what's happening there, this is a way that I'm going to put some proof of work on Jason right now. Jason, I'm thinking of a number between 1 and 10 and go. I want you to start guessing what it is.

Starting point is 01:04:09 Three. No. Five. No. Eight. No. Nine. No.

Starting point is 01:04:19 gets it right, but he's expending Watts, he's expending energy, trying to figure out what the number is. And after, and so through the mathematics, he would then be able to, when he does find the answer and he does see that it's seven, he can mathematically through encryption prove that that was the only answer to the question that I asked, which would have had, you know, the way I asked it was, it's between one and ten and go, right? there's a way to verifiably prove that that was the only right answer to the question that I asked through mathematics. And this is what's happening where, and we're doing this digitally over the internet, right? This is what's happening in a proof of work system that these miners are solving for. And it's verifiable through mathematics. And there's a lot of different ways that you could design a physical cost function. Adam Bacchus seems to have found, just nailed it.

Starting point is 01:05:17 There are several other people trying to solve this problem, but the beauty of Adam Bax is that it's, it appears to be perfectly fair. Like, there's no advantage gained by anyone. You just have to brute force it. You just have to randomly guess, and then you're just randomly lucky. And so it imposes physically prohibitive costs evenly to anyone who tries to solve it. It has no favorites, essentially. But it is, it's important to emphasize that a proof of work cash cost function is a physical cost function. its sole purpose is to impose a real world physically prohibitive costs on the people who try to solve it.

Starting point is 01:05:54 And that's huge because if you demand that someone essentially collateralize or present proof of work in order to send you an email on the case of that and back's hash cash or to do anything to execute any action or to send any bit of information, then what you have technically done in the non-abstract reality of shared objective reality. is impose a physically prohibitive costs on them. Yeah. So we're talking to, this is like the real world. Like you can, now you figure it out a way to essentially countervail the abstract power of software, of the people who code software, because it's like your software is not allowed to execute a control action or send any information unless you present proof of real to me. And by demanding that receipt, you've technically imposed a real world physically prohibitive cost on them.

Starting point is 01:06:45 And so Finney took that and he was like, okay. okay, that's pretty sweet. Let's make that a transferable or a reusable proof of work. So like Adam Back just, it was, it's like kind of a stamp. Like, you know, you just stamp an email. Okay, this has imposed physically prohibitive costs on someone. But with reusable proofs of work, then now you have enabled this system

Starting point is 01:07:04 where you can impose physically prohibitive costs on people for anything that you want because these proofs of work can be applied to emails. They could be applied to like anything. And so that is, that was the original like important thing about hash. cost function and proof of work. It had nothing to do. I mean, you could choose to call it a way to systemically secure money, but it's like, that's not really what it is. It's a whole new transformational way of cybersecurity and people are just happened to be using it for a piece of

Starting point is 01:07:35 software that would instantiate something that we could call money and monetize. But it like on its own by itself, proof of work is a major leap in cyber security and computer science, even if it has nothing to do with money whatsoever. But the big question hanging over that was, okay, wow, this is pretty insane. We've created a way to impose physically prohibitive costs on people using this tokenized form of cyber power. This like reverse hypothesized thing where we've taken a physically real thing, but then transferred it into cyberspace as an abstract thing, but it can still impose real world physical costs. The like, you know, a million dollar question was who gets to control that? Because whoever can control that is now, once again, another god king, right?

Starting point is 01:08:16 And so that's where Satoshi comes in because he figured out a way to make it so that the protocol, which controls this reusable proof of work token, itself is secured by its own hash cost function. So it's like a self-enforcing self-securing reusable proof of work token protocol. So the easy way to think of it is really what you want to do is if you're going to demand this cyber power token as, collateral to execute a sensitive command action or send information, then you have to have some way to track its position in cyberspace, essentially. And so you need a ledger of some kind. You need someone to record where it is and have verifiable ownership of it at all times, which means you have to have someone to write that ledger, okay? But if you have someone that has the authority, the abstract

Starting point is 01:09:08 control authority to write the ledger, they have enormous abstract power because they can control which transactions get added, and they can also withhold transactions. So whoever's in charge, whatever's entities allowed to add or withhold transactions of the cyber power token has enormous abstract power. And so Satoshi, the beauty of Bitcoin is like, okay, well, how do you decentralize that control authority over that ledger? Well, how do you do it? You make the people who, who solve the hash cost function, the people who get to write the ledger. So by doing that, you impose a real world physically prohibitive costs on people who attempt to control the ledger. And then boom, right there.

Starting point is 01:09:47 Now you have a proof of power system, just like natural selection is vetted, right? You have people who have the means to have physical power is fully inclusive. Everyone has access to watts. Physical power is physically decentralized. There's watts all over the world. You can pull watts out of the air, you know, the wind, out of the water, out of natural gas, out of solar. So this power is available everywhere exogenously, systemically exogenously. So there's no way that you can code a systemically exploitable piece of software that

Starting point is 01:10:20 prevents people from using their real world watts. It's fully inclusive so everyone can have access to these watts. But the big one is it's unbounded. So let's say if someone uses, someone starts gaining a lot of control authority over this ledger, Well, because you're using Watts power as the basis through which you achieve control authority over the ledger, that means there is no theoretically, just like there was no theoretical limit to the amount of kinetic power that people can use to defend their access to their property in the real world. There is no physical limit. There is no theoretical limit to how many Watts, honest people can summon to impose severe physically prohibitive consequences. costs on anyone who tries to gain and exploit centralized control authority over the ledger.

Starting point is 01:11:11 And so that's the primary basis through which this system is secured is there's no limit to how many watts that people can summon to defend it. And it's clear that Satoshi was concerned about this because in eight pages, he mentions the word attack 25 times. He talks about people attacking with the same protocol more than any other word. And this whole thing is like, okay, listen, if you use physical power, If you make it so that you can achieve control authority over the ledger, unless you solve the hash function, that gives honest people the ability of the unbounded ability to impose physically prohibitive costs.

Starting point is 01:11:46 So their benefit to cost ratio now can plummet because there's no limit to how much they can cost they can impose on anyone trying to gain 51% of the control. And that's where decentralization really comes from. There's obviously decentralization and the nodes and everything, but really it's the decentralization of the control authority over the ledger achieved through using physical power as the basis through which you can have control authority over the ledger. And there's no substitute for physical power for doing that. Let's go to proof of stake. Okay. So just like it in the birth of agrarian society, where people start condemning the use of physical

Starting point is 01:12:24 power as the basis through which they settle disputes over property or determine control authority over property or achieve consensus on the legitimate state of ownership and chain a custody of property. People started to condemn the use of physical power for theological reasons because it's energy intensive or injury, or prone to causing injury. In the case of proof of work, obviously doesn't cause injury because it's electric, it's non-kinetic, but it is energy intensive. So once again, you have these abstract power hierarchies emerging where people are making the claim that it is for on some ideological basis, not on any meaningful systemic basis, especially meaningful from the point of view of systemic security. They're claiming that it is, quote,

Starting point is 01:13:09 unquote, ideologically bad to use proof of work because of the energy that it expends. This happened, this all this, this, this happened with agrarian society and this is how most kings rise to power, right? They say, okay, you know, the use of physical power to establish control authority over resources is morally bad. You know, we should use. rank to do it. Proof of stake is effectively proof of rank. It's people saying, okay, we should forfeit our capacity to project physical power to defend ourselves and go back to, go rewind ourselves 25 years back in the history and progression of computer science and go back to abstract power hierarchies. It's important to note the primary design concept of proof of state existed

Starting point is 01:13:52 before proof of work came out. People were already using and designing abstract power hierarchies to manage control over randomly thing like coins that they abstracted. That was already being done. Proof of state goes back to that. And so the easy way to simply compare, like when you start to look at the difference between proof of work and proof of stake, and if you're trying, and you're like new to this and you're trying to really genuinely kind of understand the main systemic differences, it really just comes down to two different theories on how to

Starting point is 01:14:19 secure your access to your property. The proof of work theory is you secure your access to your property. by preserving your ability to impose severe physically prohibitive costs on anyone that would try to take it from you or deny your access to it or exploit your rules. Proof of stake says we can create some abstract form of power and then use that as the basis through which we defend ourselves. And so those are the two fundamentally different. That's the main difference is can I design, can I use a general purpose state machine to

Starting point is 01:14:52 design a program to create abstract power that does the same job as physical power. That's what stake ostensibly does. And if I do that, can a thing which does not physically exist, remember, there is no spoon, so stake is not real, stake does not physically exist, can a thing that does not physically exist achieve the same complex emergent behavior as a thing that does physically exist? So can a system that is defended through physical power have the same complex emergent properties as something that is defended through AFshack power? And I don't, well, Talk to us about validators, specifically on Ethereum, how they work, and then talk to us about slashing, because in their abstract power, as you would describe it, this is how they claim that they will defend the integrity of the ledger. Yeah, so the idea behind slashing is we can impose cost by allowing honest people to quote unquote slash the stake of validating.

Starting point is 01:15:54 that might be abusing their control authority over the ledger. So if I'm a validator and I have whatever amount of ETH to set up my validation node, then I'm looking at transactions and I'm saying, yep, these ones are good, include these ones in the next block, these ones are good. And you think that I'm a dishonest broker and enough people like you agree with you that I'm a dishonest broker, you can slash me out of the validation mechanism. Is that correct? Yeah, I can, yeah.

Starting point is 01:16:23 What we're going after here, the main thing that's making this secure and insecure is control authority over the ledger. So validators have control authority over the ledger. They get to, they're essentially the gatekeepers. They get to choose which transactions get added to the ledger or which ones don't. So they have, but that is a double-edged sword because that also means they get to withhold transactions from the ledger, which technically means they're performing a denial service attack. So you have to protect yourself against that. The way Bitcoin does that is the people who are validating or the people who are adding transactions to the ledger.

Starting point is 01:17:00 If they start to be abusive, you can basically just hash them out of the hash them out of their control authority. But with validators, you can't because stake itself is zero sum. Okay. So there's like, for example, let's just say there's a situation where some single entity controls 60% of all stake. If some single person controls 60% of all stake, they can split that stake across millions of validators. It would still be the same single entity. And then they could use those validators to start tactfully withholding specific transactions from the blockchain. And so when you say they have 60% of the stake, you're saying they have 60% of the validators?

Starting point is 01:17:41 Because if they had 60% of the coins that are outstanding on that protocol, they could have way more than 60% of the validators, correct? Yeah, so there is a difference between the number of coins on the protocol and the number of coins that are being, that are parked in validators. Yeah. But the worst case scenario is 60% of the stake is controlled by a single entity and they put all of that in validators. That would be like the worst case scenario. Yeah. Or actually, that could be the best case scenario because you have to look specifically at the stake. and if someone controls 60% of all coins, they can have far more than 60% of the stake that's being used in validators.

Starting point is 01:18:25 So just to give them the benefit of the doubt, let's just assume that like everyone who owns coins is using it in a validator. Like all the honest people are putting up their biggest fight possible to try to resist. So you've got like 40% of all the coins being staked by honest people and then 60% of the coins being staked by disdict by dissoning. honest people. In that situation, the whole point of bringing this up is in that situation, because stake is bounded and zero sum, the honest people can't get more stake. They can't simply regain control authority over the ledger by adding more stake because it's a zero something out. This isn't a problem in proof of work. If you only have 40% of the hash, if honest people only have 40% of the hash, there's no limit to how much hash they can add back into the system.

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Starting point is 01:22:40 Back to the show. And let's frame this real fast. In a world where you have runaway fiat printing that has no production cost whatsoever and nation states that could print buy coins off the protocol and then start staking them, right? There's arguably an incentive. of to act this way to control which transactions are being included, not included, stuck in the mempool. I mean, at that point, you can do whatever you want. Yeah, there's nothing physically

Starting point is 01:23:15 preventing you from just printing all the money to buy all the stake to gain the control authority of the ledger. That's one of the dangers of coupling control authority over the ledger to something that doesn't physically exist. That has no tie to physical reality. That has no tied to physical reality that you can't see. So an easy way to think of it is, remember, all objects and software, there is no spoon. So stakes does not physically exist. That means it's not verifiably physically decentralized. It's like physically impossible for it to be verifiably decentralized because it's not a real thing.

Starting point is 01:23:47 So you can't, no one can prove that stake isn't already centralized. Right now. You just have to trust that it isn't. Yeah. And then if it is, and then people start to abuse the control authority that they have by virtue of having majority stake, then that's where slashing will supposedly help the honest people, because, okay, the honest people can slash the stake of the people that are using it to attack the network or censor transactions or do whatever bad things they can do with the control

Starting point is 01:24:14 authority that they have. And then you get into the whole argument, discussion of what's considered honest and who are we talking about how they view what is honest, right? Exactly. Look at the world today. It's a perfect example of that exact point is. are you in this camp or that camp? Well, who's right and who's wrong? While, you know, the people in your family, you know, you could probably split them right down the middle of what they believe in. And both of them think that they're right. Yeah.

Starting point is 01:24:44 There's three main critical problems with the idea of slashing that I see just as a military adversarial thinker. The first one is, first of all, how would you even attribute an attack? So like if someone has 51% control of 50% of all Ethereum and they're staking all of it, right? And so like 50, the majority of staked Ethereum is controlled by one person. Because it's not a physically real thing, they can trivially divide that stake across millions of validators. And then they could pick which validators they want to use to do to start tactfully withholding transactions from specific targets. Okay. So they call this censoring, but it's just withholding valid transactions.

Starting point is 01:25:26 request from the blockchain. And you can do that. And you can do that across validators. Okay. So how do honest people identify that the attack is even occurring if it's happening across millions of different validators controlled by a single entity? That's really difficult to do. Impossible to do? It's, yeah, I don't know. But like, but like. But maybe. What I do know is that it is physically impossible to verify that steak isn't centralized. Yes.

Starting point is 01:25:56 So it's going to be really hard to make the claim that there is a 51% attack occurring if it's already physically impossible to verify that it's not or is centralized in the first place. Okay, so that's assumption number one, that you can even have attributability. And that's, I don't know how that could happen. Like, I can't reasonably figure out how people are going to come to consensus about that. Because, like, if you look at how Vitalik subscribes it is, if beyond a reasonable doubt that we have identified that an attack is occurring, then we could slash. just like, okay, well, how are you going to achieve beyond reasonable a doubt?

Starting point is 01:26:29 Because I don't know how you would do that. Any self-respecting attacker isn't going to put all their stake in one validator. I don't even think they can because I think it's limited. Okay, so that's problem number one. Problem number two, this gets to your point, which is you're assuming that people will think that the cint string is bad. That almost never happens in actual sanctions on financial systems. Canada being a great example.

Starting point is 01:26:54 when they started sanctioning or denial of service attacking Canadian truckers, a lot of people didn't think that was a bad thing. Okay. So how are you going to achieve consensus from the majority of the people that they should even slash someone if there is some theological or philosophical or ideological or ideological reason why they are abusing their. At the end of the day, you have to, everybody on the planet has to agree with the idea that if you and I want to transact, if I want to transact, if I want to transatl.

Starting point is 01:27:24 it's some type of value to you, I should have the right to be able to do that, regardless of what anybody else in the world thinks. Yeah. Right. And what are the chances that everyone's going to believe that, especially when only select few people who might be easy to perceive as bad are the ones being denial of service attacked. Yeah. You see all it with Canada and then obviously you see it with the sanctions against Russia.

Starting point is 01:27:48 Most people, like a lot of people think that it's good that we are denial of service. attacking or 51% attacking Russia and censoring their transactions off swift for ideological reasons. And people will always think that until it happens to them and they're on the wrong side of the equation. Yeah. But in reality, what you would expect is if someone has that much control authority of the ledger, they would only be using it to denial service tax certain people, not everyone.

Starting point is 01:28:17 Yeah. And so like, what are the chances you're going to get everyone else who isn't being attacked to come to unanimous conclusion or how ever. much conclusion you need to prove without a reasonable doubt that the censoring is occurring and that it's a bad thing when in most cases of sanctions people think it's justified and they aren't mad about it. So that's problem number two. And then the third and glaring one is flashing works both ways. Yeah. Okay. So you, so the honest members can always slash the majority stakers that are abusing their control authority over the ledger. But the people with the

Starting point is 01:28:50 majority control authority over the ledger because of their majority stake can slash the majority. the honest people back to maintain their majority stake. And so you get basically into slash wars instead of hash wars. It goes back to what we were talking about early on where the apex predator of an abstract power hierarchy, they would do anything and everything to ensure that they can continue to control this system, this protocol. But for the people that are at the bottom of this protocol, or this social, this social, order, if you will, they don't have the incentive for it to be kept in place because they're the

Starting point is 01:29:29 victim of this environment that they have to operate within. And it's worth just repeating, like, we've created over the last 5,000 years. We have used symbolic language to formally codify abstract power hierarchies, where rank is ostensibly decentralized across synets or voting systems, where we hire something like 500 representatives of rank and we use voting systems and we trust in them to represent us. But over the course of those 5,000 years, time and time and time again, they get exploited. People find a way to systematically exploit the rule set to take advantage of the abstract power. There is an enormous incentive to do that because it's a giant honey prod problem. And so when you go to a proof of stake system, what you have once again done is created an abstract power hierarchy and a voting system.

Starting point is 01:30:26 And you're just making this claim that like this thing won't be systemically exploited that these rules that people aren't going to figure out how to abuse the rules. And it's silly to me because people can't even verify that it's not already centralized. People don't know. You have no idea who is behind the stake. Like, at least in like, you know, governments, oppressive governments or regulatoryly captured governments, you at least can see your oppressors. Yeah. And stick, they're anonymous and you have no idea what's behind these people. So it's just, it seems to be extremely systemically insecure.

Starting point is 01:31:04 But even if you don't believe that, it is 100% irrational to make the argument that a system based on something abstract, which doesn't physically exist, can have the same complex emergent behavior of system security. as a system that uses something that is physically real like power. Like you can't reasonably make the argument that they will have the same emergent properties because they are very physically and systemically completely different systems. I want to play a clip as we're talking about how the apex predators have an incentive to keep these systems in place. This is a clip. I'm going to play it.

Starting point is 01:31:44 And I'm not going to tell you what it is. and then I want to capture your thoughts after we're done playing it. And this is an apex predator of the existing proof of stake system. Here it comes. Mr. Diamond, if I can ask you one other question, I'd like to ask about another topic that I've been very focused on, which is the rapid development of digital assets and related financial technology. I believe the United States should lead the development of emerging technologies

Starting point is 01:32:08 like distributed ledgers and blockchain and the federal government should provide the certainly needed for the country to serve as a hub for financial innovation. I've developed legislation to help define qualified stable coins, which I know the chairwoman and the ranking member are also working on and to select the appropriate regulator. I've read that you're a little skeptical of some of these new technologies, but what are the biggest things keeping you from being more active in the space? And do you worry that we would miss the boat and give other nations like China an opportunity to advance their digital currency and other payment systems that could undermine the U.S. dollar? And I'd love to get some of your thoughts on that. So you have to separate blockchain, which is real, defy, which is real ledgers, you know, tokens to do something and deliver information, money, ideas, simplify, smart contracts.

Starting point is 01:32:51 That's one thing. I'm not a skeptic. I'm a major skeptic on crypto tokens, which you call currency, like Bitcoin. They are decentralized Ponzi schemes, and the notion that's good for anybody is unbelievable. So we sit here in this room and talk about a lot of things. but $2 billion has been lost. Every year, $30 billion of ransomware, AML, sex trafficking, stealing,

Starting point is 01:33:16 is dangerous. There'd be nothing wrong with the stable coin properly, just like a money market fund, properly regulated. All right, Jason, your thoughts. Again, all software is abstract. And because software is abstract, there's a lot of semantic ambiguity

Starting point is 01:33:37 about what kind of matter and what doesn't. And so... Real fast. That was Jamie Diamond from J.P. Morgan Chase if people didn't hear the names or aren't familiar with the clip.

Starting point is 01:33:48 I'm sorry, keep going. Yeah. No, this is great because let's use adversarial thinking here. From Jamie Diamond's point of view, to your point, he's the top dog. He's the apex predator

Starting point is 01:33:59 in his abstract power hierarchy, right? He's the God King. He needs to do whatever he can to maintain his abstract power. He's talking about because software is so semantically ambiguous and because it's all abstract, what a common tactic, and you see this with like the crypto world, is you pick something random and you say that's the innovation.

Starting point is 01:34:22 So you say, oh, it's blockchain. That's the innovation. Oh, it's smart contracts that are the innovation. Or oh, it's this or oh, it's that. Everything with Bitcoin. Yeah. It's like the wave my hand with like wave here and then like, you know, don't pay attention to the thing that actually matters, which is.

Starting point is 01:34:39 Bitcoin, which is physical cost functions and like physical decentralization of control authority over resources. And so that's exactly what Jamie Diamond is doing. And you'll see this with everyone. You'll see this with the CBDCs. You'll see this with like, you know, Ethereum, for example, is they say that something else is the innovation to try to get you into their abstract. They won't even talk about it.

Starting point is 01:35:03 Like Andresen Horowitz, right? They had some big giant recap, crypto recap paper. I think it was Pierre O'Shaar that was talking about. Bitcoin wasn't even mentioned in the entire report. Yet it has the largest market cap of any type of crypto asset using air quotes there for people. If you study computer science, if you study software reuse, the most common form of software reuse is design reuse. So people take a design of an existing piece of software and then tweak it a little bit. The majority of cryptocurrencies out there is reused Bitcoin, right? But they tweak it. Minus the proof of

Starting point is 01:35:47 work. Minus the proof of work. So they take, they copy the design of Bitcoin and then they remove the proof of work and they create an abstract power hierarchy where they have the control authority over the ledger in some backdoor way or some track doorway through, you know, the systemic exploitation of the rules. They get VC money. They then pump the marketing to get a bunch of people to buy it, and then they get their bags pumped, and then they offload it. And then they probably go and buy Bitcoin with the proceeds. Yeah, I mean, if they were smart, I would do that if, you know, if I were kind of evil that way. No, you would. You're not evil like that. But the point is, whatever you do, don't let people realize the value of physically defending their access to their

Starting point is 01:36:29 property or physically defending their policy against systemic exploitation using real world physical power. Condem it as much as possible. Get people to forfeit their physical aggression, domesticate them. And then once they stop using physical power, they adopt abstract power hierarchies. And then they become the domesticated animal that you can exploit. And so you'll see this with everything now is they're going to come up with every possible different way to get you to not appreciate proof of work or the use of real power.

Starting point is 01:36:59 to secure your access to the things that you freely choose to value. And you should just be very, very skeptical. Yeah, that should raise red flags. Anyone tries to raise the argument that the use of physical power to physically defend yourself by imposing severe physical costs on attackers is somehow bad because of the energy it uses. That's a red flag. That's a god king trying to build an abstract power hierarchy, try to trap you.

Starting point is 01:37:24 And that's exactly what Jamie Diamond here is doing. He's saying, okay, well, you know, this blockchain isn't bad. and smart contracts aren't bad, but that thing called Bitcoin, that's bad. And, you know, look at all these bad people. So he's the shark trying to get you to think that, like, your swimming pool isn't safe. And he's trying to say,

Starting point is 01:37:43 what is safe is this open water where I swim around. You just have to be careful. All right. Here's the next clip I'm going to play for you. You ready? Yeah. Here it comes. So I think I want to summarize that one of the ways that I think about this

Starting point is 01:37:57 in a more philosophical way is like, proof of work is based on the laws of physics, and so you sort of have to work with the world as it is, right? You have to work with electricity as it is, hardware as it is, what computers are as it is. Whereas because proof of stake is virtualized in this way, it's basically letting us create a simulated universe that has its own laws of physics. And that just gives us as protocol developers a lot more freedom to optimize the system around actually having all of the different security properties that we want, right? That we want. If we want it, the system has a particular security guarantee,

Starting point is 01:38:36 and then often there is a way to modify the improvement of stake mechanism to also achieve it. So it's just, you know, much more flexible, and it shows through in the efficiency and the security of the network. Way more flexible, Jason, to give us the security that we desire. Yeah, I study. System security of software intensive systems at MIT, like, for whatever reason, I find that interesting. And so I took as many graduate classes as I can on that. And it's actually extremely common. So what's happening here is Vittalek is making the claim that if you remove the physical

Starting point is 01:39:14 constraints, it will somehow make it safer or make it more secure. What he doesn't realize is the thing that's achieving the security is the physical constraints. Yeah. I mean, you're not going to Fort Knox, right? Like, it'd be like saying, oh yeah, we're going to take. the walls down. We're going to remove the fence. We're going to remove the security guards. We're going to move the brick walls. We're going to remove the metal casing around the vault to make it more secure, Jason. Yeah. Yeah. But this isn't just true for like this scenario. Like we've studied, at least in my graduate classes, so many different fields make the same mistake. Aviation has made this mistake multiple times. In what way? What do you mean? You replace like a like a physical interlock

Starting point is 01:39:59 or like a physical impediment with something digital or with a piece of software. Yeah. And then you end up, you end up inadvertently removing the physical constraint that was actually keeping that thing safe. And then the rocket blows up or the airplane blows up

Starting point is 01:40:16 or the Boeing 737 dive bombs. Yeah. And so this is a common problem. It is just something that software developers do for some reason is they think that like for whatever, like they don't realize. that system security is a complex emergent behavior and a result of, often the result of physical constraints that cannot be replicated in a virtual environment where nothing physically exists.

Starting point is 01:40:43 And it was so refreshing to hear him make this assertion because I had already started down this path of making the distinction between proof of work and proof of stake and saying, like, the reason why proof of stake isn't going to work is because stake doesn't physically exist. and what they're essentially doing is trying to make the claim that they can virtualize physical power and still achieve the same levels of systemic security. Like, I had already made that argument. I had already written like 50 pages on that for my thesis. Sure you did.

Starting point is 01:41:11 And then he said it. He said it on the night of food to steak. And I saw it in the morning and it was like, oh, my God. The Holy Grail. Yeah. Because I've already been arguing with people on Twitter about it. And they didn't, they weren't buying it. And so I was like starting to feel insecure.

Starting point is 01:41:25 I was like, I don't know if this is just the right angle to take. And then Fatalik just flat out says that he flat out makes the assertion that you can remove the physical constraints, replace it in a virtualized environment. And he's he's claiming that it will be more secure. Yeah. And that is just classic. God King, Abstract Power Building 101 right there is to convince people to forfeit their physical power and the physical constraints protecting them. So I've often wondered, as you've been very public in your research, search, your just interactions on Twitter.

Starting point is 01:42:01 And for people who are not familiar with you, let me just describe my point of view of how Jason Lowry came on the scene. So here we are on Twitter and we're just intellectually battling with each other, joking around whatever on a constant daily basis, right? Just having fun, really. And somebody posted this screenshot of this guy on LinkedIn going to battle. basically doing what we do on Twitter every day, but doing it on LinkedIn, which was just hilarious. I mean, you have no idea how hard I laughed the first time I saw one of these JPEGs,

Starting point is 01:42:38 if you're just beating up some total suit on LinkedIn. And so evidently somebody reached out to you and said, hey, the real conversation's happening here on Twitter. It was Greg Foss? Was it Greg Foss? Okay, I didn't know that. So Greg Foss reaches out to you. You then go on Twitter, and I mean, you immediately captured our... a really large following. A lot of people, myself included, kind of battling with you over

Starting point is 01:43:02 some of the choice of words that you use, but you know what? When I look at like how much your thesis has evolved through the time that you've been at MIT writing this, I can see, Jason, that you took a lot of the things that people were saying to heart and really wanted to understand other people's vantage point. You weren't battling with them via ego. You were battling with them intellectually to try to understand their point of view, right? And all of that has come out. And I think people that are listening to this conversation can see that evolution in your writing and your thesis that you've developed. But here's my question. Sorry to keep going on. My question is this, how has MIT and the professors there received this? Because I would think that it hasn't been

Starting point is 01:43:50 received well because it seems like so much of the proof of stake saves the energy usage stuff is so indoctrinated at the academic level that I would think that you're literally banging your head against the wall. Yeah, so I got invited here. I forgot that's how I got famous is through the bashing of suits on LinkedIn. I forgot about that. Greg Foss, yeah, he was like, dude, you got to come to Twitter. Like your people are here. We were watching, like, people were posting these things on Twitter, like these screen grabs, and I'm telling you, we were laughing so hard. I was so afraid to come to Twitter. And I was like, I'm going to say something that gets me in trouble.

Starting point is 01:44:36 And sure enough, day one, day one, I get to say something. Yeah, the grounded theory methodology, so I'm using a grounded theory methodology, which is essentially you try to interviews. You just talk to people as much as you can. Yeah. preferably talking to people who are knowledgeable in your subject matter area. Well, there ain't no such thing as an expert in cryptocurrency as much as people on LinkedIn likes to put it on their profiles, right? Like no one actually is.

Starting point is 01:45:00 They're putting Web 3, Jason. Right. There's no such thing as an expert in this field yet. It's too new. And so if you want to find the most knowledgeable people, they're going to be on LinkedIn. Or they're not, sorry, not LinkedIn. God, no, not on LinkedIn. On Twitter.

Starting point is 01:45:14 They're going to be on Twitter. And their name's probably going to be Dushbag 5 or something. No. No, and it's true. And then they're going to have a cartoon as their profile picture with laser eyes, but those people have enormous technical knowledge way more so than you could get from any professors here, or not all of them, but like most people like in any institution, just because this field is so new. And so my approach to this thesis was a grounded theory methodology where I engage in unstructured interviews with the public or with anyone I could find and then just have like intellectual debates on them.

Starting point is 01:45:45 And then I use their feedback. And that's just the grounded theory methodology. you just use their, use their core concepts and you improve, improve, improve, improve, and try to get to what's called saturation. And so, yeah, no, like, I owe every, all my ideas to the something like 70,000 comments that I've replied to in the last year. Okay, sorry, I just wanted to address that because I do really appreciate all the help and all the people like you that I get to meet that can help kind of shape this. It's really important to me to do this publicly because of my job and the reason why I'm at,

Starting point is 01:46:18 MIT. I am a U.S. National Defense Fellow. I am an active duty officer. I am researching the national strategic implications of Bitcoin. And I am going to send this straight to the Joint Chiefs once I finish it, right? And I am going to be advising senior policy makers, and I already do. And so I don't want that to be secret. I want that to be an open conversation. And I want to be as fully transparent as possible. Now, in terms of how people at MIT react to it, I have seen the same thing you've seen, which is this like obsession with proof of state. Like there's that MIT article that talks about like it's such a big deal. And I get in lots of fights with those people. But luckily, the way MIT is there's different schools and no one really has any claim over like any particular subject. So there's like not one department that gets, you know, to claim all Bitcoin research or all cryptocurrency research. There's people in the business school. There's people in engineering school. There's people in the computer science school. And they can all, you pretty much have like freedom of action. And so what I did was I found the, I deliberately steered away from the professors. You're right.

Starting point is 01:47:23 I do kind of clash with most of the line of thinking with like the business school people here. They're just so into Web 3 and crypto right now. It's just kind of hopeless. I don't even try to talk to them now. I found the expert in software security and software system security. I found the expert with 40 years of knowledge and started like literally wrote the book on system security that like the whole world uses. And I found her.

Starting point is 01:47:47 And she was like, she was also skeptical. She's like, I think it's all a scam. But I was like, okay, then you should be my advisor. And let me prove to you using your own area of expertise why Bitcoin is the exception. If I can convince you using your own area expertise of why Bitcoin actually is a major new change in cybersecurity, then wouldn't that be a good thesis? And she was like, okay, cool. So I found her as my advisor. And so far it's going well.

Starting point is 01:48:16 I mean, I won't know if it's successful until I published next year. But, man, she's just awesome. She's actually, like I said, she's like one of the world leading experts in system security. And like people, like Ethereum developers have been like starting to go to her conferences. Yeah, so it's just kind of funny. So like anytime an Ethereum developer like signs up or whatever, she's like, hey, check this out. So this is something I want to just say. So if somebody from your school or one of your advice,

Starting point is 01:48:46 are listening to this. The thing that you that you get in this space, and I was talking to you a little bit about this before we started recording, is you get people that come to Bitcoin from so many different expertise. Some people come from the software side. Some people come from the game theory side. I'm coming from the financial lens, and that's how I found Bitcoin in 2015. How I found it is I had the opinion that the credit markets were going to implode in that there was no way out for central banks to contain how broke credit markets have become because I was looking at this long-term credit cycle that was made famous by Ray Dalio. And I was just looking at it as like, what can possibly catch all of this buying power when this neutron star of credit explodes? That's how I personally found Bitcoin. So I came with that bias. I came with that lens. And so one of the things that sold me on Bitcoin versus everything else that was happening was if you're going to catch something with, call it, $300 trillion worth of buying power, and it's going to implode like a neutron star, security is the primary thing that people are going to

Starting point is 01:50:02 want to nest that buying power into to ensure that it can't be taken. There has to be some type of enormous amount of security and power behind physical power behind the security of that in order for it to ultimately win. Because when you look at how bond investors look at their invests, they're obviously not concerned about the yield because you just started getting like, and I wouldn't even call these good yields, especially when inflation's at 8% and they're offering 4% on the 10 year treasure. You're guaranteed to lose 4%. They're not there for the yield. They're there for the preservation of buying power. And it's to the tune of hundreds of trillions of dollars that they just want to preserve the buying power. So if this thesis of the credit market is exploding is valid and true, which I'm saying as an if because I'm trying to look at it as objectively as possible, how can anybody think that that's going to manifest itself anywhere other than the most secure protocol or money on the other? side of such an event. And so I guess that's me venting a little bit, and I'm sorry to kind of go off on a tangent because this show is not about me. It's about you and your thesis here. But I find it frustrating that people are not seeing that. Instead, they're caught up in these tokens or these

Starting point is 01:51:25 get rich quick ideas that, oh, it's an innovative blockchain smart contract, Jamie Diamond, BS. And they're missing the elephant that is so big in the room that like it's suffocating the person. They can't see it. It's literally suffocating them because it's so big. Can I vent on this real fast? Yes. So you came in from the financial perspective. My first job in the military was as a blasts in ballistics research engineer where I literally measured the watts of bombs that go off and bullets that go off. So I'm like literally measuring the our ability to impose physically prohibitive costs on people in Watts. My second job in the military was as a subject matter expert in electronic warfare, specifically directed energy weapons. So once again, using Watts as a measure to impose

Starting point is 01:52:21 severe physical prohibitive costs for the sake of securing something. Okay. Then I transitioned into the world of space, became an astronomical engineer, learned how to use and design spacecraft And then I was part of the founding team of officers that stood up U.S. Space Command and also U.S. Space Force, which was essentially a question of, well, how do we impose physically prohibitive costs in a completely new domain? So what I'm saying is I know a lot about the use of Watts, the importance of Watts for achieving security and the question of how do you start using Watts in a new domain to secure the stuff that you care about. So what attracted me to Bitcoin was just like this idea that. of course, of course it's going to be the case that we are going to figure out a way to use Watts to impose physically prohibitive costs on people in and from and through cyberspace to defend ourselves in and from and through cyberspace, especially our property,

Starting point is 01:53:21 our cyber property, and especially our policies, our rule sets and the software that we use. So like the missing ingredient of cyberspace is the ability to impose physically prohibitive costs in from through cyberspace using watts. Obviously, we're going to that future. It doesn't make any sense. I don't understand how anyone can think that we wouldn't go to that future. Yeah. If, you know, we've already done it in land.

Starting point is 01:53:44 We've already done it in sea. We've already done it in space. You know, of course we're going to do it in there. Of course we're going to do it in cyberspace. And so you have to just be looking out, like, what's it going to be? There's going to be a protocol that people use to impose physically prohibitive costs on people in from through cyberspace. And that's clearly Bitcoin.

Starting point is 01:54:01 And that was clearly the original intent of Bitcoin. It's supposed to be a denial of service countermeasure, or a countermeasure against systemic exploitation of software. That's how it started. That's how they talked about it. Yes, Satoshi took it and framed it as a cache, but like we said before, that just happens to be a great use case. One of many use cases that this type of technology could be used to secure, but it isn't

Starting point is 01:54:28 limited to just cash. And so I'm in the same boat. frustrating for people to just, especially at big institutions like at MIT for people just to ignore the major, like. But think about it. It makes sense, Jason. It goes back to what you're talking about. Abstract power.

Starting point is 01:54:44 Right. There's no more abstract power going on than in a academic institution of who's who and who's tenured and whose class is, is, you know, most noteworthy. I guess my point is you could have called Bitcoin anything. It could have been called Bit Unicorn or just anything. It doesn't matter what it's called. Whatever it was called, it would have still been a major leap in the field of computer science and cybersecurity. It's just such a dramatically different way of doing things that is so completely unique and different than no matter what you call it.

Starting point is 01:55:26 And it's just that we happen to call it money. and we happened to use the first use case for which we started to secure this was as a peer-to-peer cash system. People just, you know, just get obsessed with this idea as Bitcoin only being a monetary system. But it's like, no, what we have done is we've created a giant global scale physical defense infrastructure that people are using to physically defend their what they value, include not just the money. Yeah. They could, right, you could use it to defend your against emails. And it's like only a matter of time. So people are going to start using the lightning protocol and they're going to start

Starting point is 01:56:02 using Bitcoin to as like basically a cyber dome to protect people using this physical power infrastructure. They're going to figure it out. And it's only a matter of time. And I wouldn't be surprised it emerges in the next couple of years. And it's like, that is such a, in my opinion, like a bigger deal. And more importantly, a more inevitable deal. Like, of course that's going to be something that happens.

Starting point is 01:56:26 Like, of course we're going to start figuring out how to use protocols to physically defend ourselves through cyberspace. And for whatever reason, that's just missing. Like, people just aren't thinking about that. Maybe that's because people don't think about it often. And maybe because I'm the guy that measures Watts, because I'm the military guy, I'm just more inclined to see that sooner than like, I think that's what it is. I think that when you, when you pull back the thread on how many complex academic and real world, are colliding here to understand the magnitude of all of it coming together, like, you just have to have some expertise in a whole lot of different domains to get it.

Starting point is 01:57:09 Yeah, it's a very tough systemic problem that is multidisciplinary. It combines computer science. It combines anthropology. It combines political history. It combines military strategy. And it combines money. And then you have to be able to like just zoom out. and see what the big pictures, like, what is the so what?

Starting point is 01:57:30 And I think what the so what is for the first time in a querying society, we figured out how to use a power-based control structure to manage resources and to achieve consensus on the legitimate state of custody of property and to physically defend ourselves in and from through cyberspace. And we've done all these things at the same time and we've done it non-lethaly. And it's like, that's huge. This is going to be so much bigger than money if people start. using this thing beyond just money. And I think it's going to start happening. And so like,

Starting point is 01:58:00 that's the messes I'm trying to get out. So Jason, if let's say that you had policy, anybody in government or policy listening to the discussion, which I'm sure we might have, what would be, if you had the frame up guidance to them, what would be the one thing or two things that you would say to a person who's looking to implement policy on some of this stuff? A couple things. So this is an example I like to use. When gun powder was first invented, when black powder was first invented, for more than 200 years, it was considered to be medicine and it was monetized and traded as medicine. So they invented this new power projection technology and they called it medicine for essentially no other reason than the fact that the doctor who invented it was intended to build

Starting point is 01:58:54 medicine and named it medicine. So for that reason, they just called it medicine and traded it as medicine, called it fire medicine. And they noticed that it was quick to hold a flame. They weren't quite sure what medicinal purposes that could be used for, but whatever. The point is, it was a power projection technology. And you could have gone to doctors and you could have said, you know, you could have asked doctors for their professional opinion on how good this black powder stuff is as

Starting point is 01:59:18 medicine. But it wouldn't have been a useful, whatever they would have to recommend wouldn't have been useful for the real purpose of this black powder stuff. And I say that because like we keep on saying software is an abstraction. What proof of work really represents is a cybersecurity system, specifically a system where people are learning how to defend themselves, learning how to defend the access to their property that they freely value or to defend their policy against systemic exploitation and abuse or just to figure out how to use this thing for all sorts of new cybersecurity reasons. And it was called a coin and people act like it's a coin, but that's just one of many

Starting point is 01:59:58 use cases of this thing. And so like, you know, Adam Back, I talked to him about when he first invented it at the hash function. And he first called the receipt for solving the hash function a stamp. And so imagine how ridiculous it would be to go to like the United States Postal Office and like asked for their technical inputs about the technical merits of bit stamp, just because it was arbitrarily called stamp. Or imagine how ridiculous it would be to ask a meteorologist about the technical merit of that stuff that stores your emails just because it's called a cloud. Right.

Starting point is 02:00:33 So just because we happen to call this power projection system, this massive scale physical defense system that people are using to secure their property, a coin doesn't automatically make it the case that the United States, States Treasury Department or the United States Federal Reserve is qualified to be talking about the technical merits of this technology. Wow. Least of all is the fricking bankers. Because of the perverse incentives.

Starting point is 02:01:01 Yes. Because of the very obvious incentives like we heard not even talked about. So like the last people qualified to be talking about the national strategic security implications of this power projection technology is the United States Treasury Department, is any bank. And so who's running the conversation about the National Strategic Security impacts of Bitcoin right now and why and what qualifications do they have? Because from my perspective, from a guy who actually spends all his time studying power projection technology, I do not think they're qualified to be talking about the technical merits with this technology, at least not about Bitcoin specifically or anything that uses like the proof of work protocol. And so my recommendation to any policymaker that might be listening to this is like the last people you should be listening to are bankers and financiers about a power projection technology.

Starting point is 02:01:55 That's silly. It's like listening to doctors about the technical merits of gunpowder just because they call it medicine. That is not the response I was ever expecting to hear from you. That's fascinating that you frame it that way. Because as a person that comes with a financial, lens, a very financial lens to this, I just would not have ever viewed it from that optic. I view it as very financial. And it definitely is because, I mean, like, if you, like, to your point earlier, if you've created like the most secure system ever, it's going to double as a great thing to

Starting point is 02:02:32 monetize to secure your money. Yeah. Right? So it's like, but just, you know, people also monetize black powder. That doesn't mean that, you know, so it's, you know, so it's, you know, You just have to be careful here because of the second point, which is anytime any new power projection technology has emerged throughout history to include black powder, to include torpedoes, to include aircraft, to include nuclear weapons or whatever, anytime a new power projection technology emerges, it becomes a strategic shelling point. And there's many examples in history where bad things happen because countries don't appreciate its strategic. strategic importance soon enough.

Starting point is 02:03:15 Wow. China just made this mistake, in my opinion, at epic scale. Epic scale. Totally agree with you. But the problem is China's very authoritarian. And so once they figured out that they messed up, they can pivot quickly too. They can pivot quickly back into Bitcoin. Yeah.

Starting point is 02:03:32 And so I guess my advice to people is like, if this is a power projection technology, if this is a wholly new way for people to defend themselves, they're, or particularly their property, then you better take it serious. You should take it extremely seriously from a national strategic standpoint. And the last thing you should do is be too quick to kick it out of your country or disenfranchise it or condemn it because you could be handing the keys to the kingdom over the next 500 years to someone you don't want to hand it to.

Starting point is 02:04:03 And so like this is a very serious matter if you consider it from the perspective of national strategic defense, not as a monetary system, but of a global physical defense system. That's pretty profound. Jason, give people a handoff if they want to follow you, where they can do that. Also, can we have links in our show notes to your drafts and the papers and everything that you have academically written to date? Can we do that? Yeah, I don't know how much I've published.

Starting point is 02:04:36 I started a website, so I'll send that link. Perfect. That's perfect. Yeah, so the first question is where can you find me? Is that it? Yeah. Yeah, just on Twitter. I mean, I just use Twitter to Jason P. Lowry, L-O-W-E-R-Y.

Starting point is 02:04:49 I just use that as my interface to engage with what I believe are the subject matter experts in here, which is just Bitcoin Twitter. I mean, it's just, it's such a bowl of knowledge that I just can drink up every day. And if you're feeling like you want to use some physical power, he's on LinkedIn. I'm on LinkedIn, too, but it's not. I have to be, I got to be more professional on LinkedIn. I think you're plenty professional, sir. I think you're pretty much freedom on Twitter. Oh, Lordy.

Starting point is 02:05:19 We'll have links to LinkedIn, to Twitter, and your website there where you're posting interviews, you're posting some of the things that you're writing. What a pleasure. Thank you so much for making time to have this conversation. I thoroughly enjoyed this. I learned a ton and wow, what an exciting work. What exciting work that you're doing there at MIT. And it's been fun for me to kind of see the progression.

Starting point is 02:05:47 It really has. And I'm sure there's a lot of other people that kind of share that sentiment that have engaged with you on Twitter because I know you're very active with a lot of the people that are, you know, providing counter responses and different opinions, right? And I appreciate all of the honest feedback. It's extremely helpful. And I hope you can see that I have been incorporating that. Thank you. Thanks for talking to me so long. Sorry I talked so long, but this is just doing great.

Starting point is 02:06:10 This was a blast. So thanks, Jason. Really enjoyed it. If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I'd love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it's something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening, and I'll catch you again next week. Thank you for listening to TIP. To access our show notes,

Starting point is 02:06:51 courses or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - BTC098: Proof of Stake (PoS) Versus Proof of Work (PoW) w/ Jason Lowery (Bitcoin Podcast)

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