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Should we do the new theme music even though it's not season nine?

Yet let's do IT easy you easy you with you see me down, say state welcome two thousand eight .

episode quired podcast about great technology companies and the stories and playbooks behind them. I'm been gilbert and I am the co founder and managing director of seattle based pioneer square labs and our venture fund, psl ventures.

And i'm David person call and I am an Angel investor based in san Francisco. But today I am here with you in seattle in the .

flash flash and we are your hosts. Well, first, we want to give a huge shout out to Young spielberg and my tail. Our crafting this new interview music that, uh, we used open this episode.

We have been wanting for years to do something distinctive for the show. And IT was a real treat to work with both of them on this. And we have link both of their fine work, uh, on spotify and just love both .

of artists they killed IT I am so pumped .

me too well. We started this season with our first block c chain episode covering bitcoin. IT seems only appropriate to book end up with the season finale on ethier. So David and I are here together in person to tell this story.

And as you all know from our bitcoin episode, bitcoin is some combination of currency, a store of value, a medium of exchange, which all, Frankly, are up for debate if it's doing a good job at any or all of those things. And as many of you who have bought or sold crypto currencies over the last six years, no, there has been a big second gaming town with either R E T H, the token used as a currency in the authorities network. But this time it's not just about currency. A theoria is something completely different. You can think of IT more as a gigging tic distributed computer that exists all around the globe in a completely decentralized way.

It's the world computer.

IT is IT is one single virtual machine that runs across millions of CPU all at the same time. I'll yet one very slow virtual machine. There is a strong argument to be made that this enormous temperate proof, censorship proof computer is maybe the most important invention of the last decade, laying the ground work for technology companies to come for the next several decades.

And while there are kittens and rainbows, everywhere you look any thereon land, there were some absolutely wild stories that transpired to bring us to where we are today. This thing has had a pretty wild last year. Um as as most of you will will know, having a market cap twelve months ago at around twenty billion, earlier this year at four hundred and fifty billion sort of in the same twelve months stretch, it's been a heck of a year free serum.

It's been a heck of a year for a lot of things.

No kidding. Well, are you an acquired slack member? If not, you should. And aside from all the Normal reasons that we usually point out, i'm sure this episode will have quite a viBrant digital assets channel discussion.

It's a great way for beginners and the sort of crypto aware like to have great conversations. And as always, you can join that at acquired data, F, M, slash, slack. Another thank you to listener Austin federal for creating that channel and for helping with several discussions as we prepared for the episode. okay. Listeners, now is a great time to tell you about long time friend of the show service now.

Yes, as you know, service now is the A I platform for business transformation, and they have some new news to share. Service now is introducing A I agents. So only the service now platform puts A I agent to work across every corner .

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Yeah, so learn how you can put A I agents to work for your people by clicking the link in the shower notes or going to service. Now, dot com slash A I dash agents. All right, David, take us in. And listeners, as always, this show is not investment advice. David di may have investments in the companies assets, protocol tokens util.

tokens ban util, tokens c.

uh, that we discuss in the show is for informational and entertainment purposes only.

These are commodities, not securities, commodities. That's right. Before we get into with two things.

One, this is obviously the season panel. I like what is seized. This is crazy. So we started with the coin. We did the new york times company. We did three free and episodes on birch way, where any with the theory of we have made twenty thirty lake, this is well. And I just like, it's so cool, we get to do all this crazy stuff yeah.

it's remarkable. We can find ball cases in all of those things when theyve got diggers pointed at each other, particularly crp down in burger.

Um well there are at least diggers in one direction and from more N A decypher to I don't know about the other.

I think the bitcoin maximums are are very excited to see the time of picture healthy be .

in the past the past yeah that maybe so really cool. Thank you guys offered being with us on this journey so awesome. Number two, before we dive in, huge thank you on this episode to cilla russo and her book, the infinite machine, which came out recently and served as basically the main narrative source for history in facts here, cilla is an excEllent journalist, was part of the technology team at bloomberg.

Redstone has quoted the crew that he's assembled over there. And now cilla runs the defiant, which I think is replay the d and the wonderful book. Highly recommend everybody go check that out. And h, thank you to tell fer writing this amazing history. okay.

So speaking of history, if you remember all the way back to the beginning of the season with our bitcoin episode, you'll remember that the bitcoin White paper was published, of course, in two thousand and eight. But IT wasn't until may of twenty thousand ten when the famous pizza day pizz transactions happened, where two pizz were purchased for cab vz was like ten thousand bitcoin. Something like that sounds right.

Yeah, man, those were some spending. IT obviously took a little while for this whole idea of sort of crypto to gain steam and and enter the something in the mainstream, but just out of broader awareness. And then the killer APP for bitcoin, which of course, was the first killer APP, which was the solar road, didn't launch until february twenty eleven.

So was right at that time the very next month. In fact, in march of twenty eleven that a new user shows up in the bitcoin talk forums online. How many of these acquired episodes .

start with someone shown up in the forum?

Someone shows up in the I feel like probably like half the china tech episodes are like, so so was haggling out on the c without the other future giants? Yes, amazing. So the italy talk forums, we're kind of the central hub of this, are like early biton community.

They were actually created, and I realized by si himself he created, oh no, what forum yeah, in two thousand and nine. And this is where the pizon transaction happen. This is where the famous hodden post was in the pick talk form uh h that generated that mean super call.

So this new user who joins the forms is very unlike ai, pretty much every imagine and the most obvious dimension that he's unlikes oi, he has a name. He uses his real name. There is no user name. The name like everybody else is like man in the, if so, who is the smokes too much so the user smokes too much that he advised to the four uh but this this new user is just simply VC Peter right .

there they not on the line and and saying forever, you will know me by my name we'll be a public person. I'll be a figure that will identify with all of my comments, and you know whether for good and for bad, for being vulnerable, but also for gravani zing, a movement, this real name tied to my real identity is how I will do that real name.

nogi mics, the talc builder. So who is this character and why when everybody, literally almost everybody else in bitcoin land, in kept land at the time, is using a, why is he will use his real name? Well, he's one uses real name because he's just a high school kid.

He's gotten up than to hide. He's gotten up than to lose. He's seventeen years old. He joins because he is looking for a way to earn some bitcoin. Pretty also like side gig as a high school.

And where is he at this point?

He is in toronto at this point. So okay, we talk seventeen. He was born in russia, in post soviet russia to two undergrad computer science students at coloma, uh, which is right outside of moscow.

It's kind of hard to imagine like he's taking relic being born. He was born in january nineteen thousand eighty four. And i've never been to russia, but I hear january pretty.

I have been to russia in february. And I can tell you IT freeze your face off.

hold a whole new level, probably makes canada look like toronto look like boomy.

Ah southern may well be the beach.

yeah. So it's nineteen ninety four. He's born to these two like very Young, very unprepared parents.

Not long after he was born, they would get divorce. Russia at the time is in like total shambles. The viet union that collapsed couple years before.

There's hyper inflation, like double digits per month inflation. People are losing everything. There's a depression. People are starving. Like this is, I didn't realize this, how bad this was. Life expectancy in the in russia declined by over ten years from the collapse of the soviet union to the time that fatality was born.

which is five years.

Yeah, yeah, that's crazy. Like average life expectancy for people is down into the like fifty years, that is instead. So on the one hand, you've got like all this like huge amount of turmoil he's born into and like grit that he's gone to have to develop out of this.

His parents are getting diverse. Me, that's so hard for anybody, little in the other stuff. But he also has all these huge opportunities. So he kind of wins the genetic lossy like. Both of his parents are not only hyper intelligent, which of course fatality is as well. Anybody who probably everybody listen to this as at least heard his name of not hurt him speak, he is quite literally a genius.

I bet that's overstated. I bet I actually think the majority of listener's do not know .

the table name oh, interest we will have just .

to levels that for anyone out there who's like what what are you talking about, David? Like he's a public figure to us because the last six months especially, we've been diving into the world of cypher one blockchain. We've done months of research to prepare.

But like last year this time, did I know a telegram? I don't think so. That's funny. I certainly .

think of him as this public. And Alice, maybe that's just because his boddy's with telecom and because on .

the conversation yeah he's been on yeah has been on some fairly mainstream .

am podcast at this point yeah anyway. So not only his parents hybrid intelligent, and of course flic is his parents are computer scientists the mid nineties. This is a great time to be a computer scientist, so even though they get divorced is very amicable.

So they agree his parents to basically live their lives like together, but separately. And like number one priority is giving fatality every opportunity they can. So the first that may be most important of these things is when vitality is five, they decide to leave the leave russia and emigrate to canada, and they settle in toronto.

Fatality gets put into the gifted program in toronto, the public schools, which is kind of funny. So he give he, he didn't speak english at all until he arrived in canada. IT takes him a few years to really like get comfortable speaking english, but he's clearly a genius at math and computers and taking after his parents.

He's also really good at writing though so and writing english. So this is crazy when he's seven years old. I don't know if this is a school project or to something metallic for fun.

He writes a thirty page document in english in microsoft d called the in cycle pedia of bunnies and his structures, he's really interested in bunnies. And he structure IT like a scientific paper. He's got like graphs and charts, and he list all the chemical elements that like.

make up a bunny is IT like type set in the tech. Like, I can just imagine this being like a academic thing for a child to .

totally his dad. The matter would would joke later that IT was fatalist first White paper, having read quite .

a bit of italians writing, preparing for this across blogs from twenty thirteen and before, through the White paper, throw a lot of the stuff he's written today. He is a talented, inked, incredible communication total.

especially given how Young he still is. You think he's twenty seven at this point as we're recording this, so for high school, he's clearly so talented. His parents decided to take him out of public schools in enrollment in the school called the abbott school in toronto.

I don't know know schools like this existed. They're only about ten students per grade at the school, and it's a very intensive of curricular, but also like lets kids explore their own patterns. So this is where we pick up the story.

Vati is a junior in high school. Both of his parents are still in tech. His dad, as entrepreneur, runs a software company, and his dad tells him this is twenty eleven, tells him about this thing called big line that he heard about he's looking into is part of the company, is pretty cool. And h supposedly at first metallic, like all team, yeah, I cool IT like whatever like crazy virtual currency. But then he like, obviously spent a lot of time on the internet, and he started hearing about IT himself like, oh, actually maybe this is kind of go, maybe I should focus on IT so he decides he wants to participate in this whole movement, but he doesn't wanna go buy big coin like that would be really boring plus up high school kid doesn't feel like .

participating in the movement if you're just sort .

of yeah yeah he he really wants to like the part of this. He wants to earn big coin. So you would think at this point, listeners you really like this is where of vitality turns all of abolish, like computer labs into a giant distributed bitcoin mining MC. Like H I actually .

didn't know that.

H no, he didn't. Ah that's when you like. I am thinking at this point that this is what he would be doing. But no, this is when he logs under the forum.

And the reason he does is the way he wants to earn bitcoin is he wants to write about bitcoin as he's going deeper in the communities. People are not doing a great job of communicating and evanishing. What this is.

I think I can do am good at technical writing. I think I can do a good job. So specifically, he creates his account to respond to a post, a request for writers from the publisher of a organization called bitcoin weekly, which is a, uh, a new site that no longer exists.

But you can go read all this in the forum. The initial post reads, I am willing to pay five bitcoin for anybody who would write an article and authorized me to publish IT under the public domain pitch an idea to me. And I think about IT.

If I like your idea, you will get four days deadline to write article and three days deadline to finish your final draft. I am one of the most reliable employer on the market. You can imagine the must dashed on the other 的 人体 um so Young flic response and he's like， hey, I can write like why don't I write about economics and the dynamics of why using credit cards doesn't make sense for go transactions.

And this is also stuff can right about the publish response. Yeah, your surmises and i'll see if I like IT. So vt, alic does.

He writes the article. He gets paid for IT in five bitcoin in which at the time was worth four dollars. Today is worth what? five? Because I hope you kept those.

Yeah, I hope you kept those. Indeed, hundred and fifty k today. Ah yeah, hundred and fifty k plus. His post, though he keeps writing, his post start to become really popular. And so he strikes a deal with the follow shick because he is kind of the only one writing for this thing that .

people are reading because IT sounds like a scam the way .

he was posted about. Well, get this so they decide that what they're gonna the how is going to write for free for the coin weekly, they're going na post the first paragraph of all of his articles on the site and then they are going to hold the rest of the article essentially for ransom where there's like a fee that has to be crowd funded by by people for a certain amount of bit coin for each article that people have to pay into a wallet address to unlock everybody seeing the rest the article. interesting.

So it's not just like a paywall. It's like the only way anybody gets .

to read this is if enough people fascinating. It's like a kick starter for the code articles. amazing. So with this, they start making like pretty decent mana pick, good for Young delic. This goes on for a few months.

But unlike the original post keva, the publisher is not exactly one of the most reliable employer on the market. And Vicky weekly goes under by the end of the summer, that year eleven. So people, they are really like the telex writing.

And that August, a dude in romania named mihai ali and his girlfriend roxana, who were fans of the telex writing, they think, hey, what if we started like an actual magazine fatality writing? You though I knew home and he can be the high writer, so they reach out to him, unclear if they knew that he was a high school kid in canada or not. But hey.

it's cup magic on the internet like you cut also don't have to .

disclose that actually exactly. So they reach out to him with the idea to start bitcoin magazine, which they do. They team up with a few other folks in the forums and they get to work.

The initial idea is that they are going to start slow. They're only going to publish online. And then the work up to a real physical magazine.

What are the other people who becomes involved though? A guy under the sudan? im.

matter. And right, he has a different idea. So me, I, he goes to incorporate this company.

They decide to incorporate in the U. K. So he flies from romania to london. He's incorporating and then he's like in the middle of traveling, he's on his way back. Matthew didn't messages of the group online.

This is let's dream big and then he hits publish on a press release that he's written. And I don't think he told anybody about the press releases is entitled first issue of bitcoin magazine goes to print. And IT is a sixty four page glossy magazine, is on its way to the printers with a five thousand copy initial run. And some scribes are gna get their copies within two weeks.

which of course, no one has done any of that stuff, right?

Little nothing has been that this is like the the whole time I was thinking what I read this, you, the the world word craft library. Jenkins me, yes, that's exactly what they literally Jenkins the magazine.

But it's not clear that this guy is someone you want to work with a long term.

No, I think he ends up staying for like another month. So like you got to get out here.

But at this point, like you know the tallest using his real name, he started to get out there in the community, a promise has been made. So they're like, hey, I guess we we should make good on this. So that were viewed as rapidly.

people, right? And like, the city is the mother of invention. So me, hi roxana. And vast, they're like we got to do this. Amazingly, they make that happen.

I don't think they hit the two week deadline, but they publish a real physical bitcoin magazine. IT gets picked up eventually in barns and noble, like he becomes like a real publication. It's pretty cool. So with that a fatality, he's the head writer. He starts becoming even more of like a in crypto celebrity.

which at this point are kind of the same thing. In exact twelve vish time frame, there is no twelve other crypto .

O I don't think so.

Not of note. Anyway.

certainly nothing of note. And this will get into most of the other projects that are happening and the exotics are disappeared at this point. But most of the the ecliptic o projects that we're happening and you are happening on top of the bitcoin network.

So it's fall twenty twelve. Vt is now graduated from high school, and he starts as a freshman at the university of waterloo studying computer science. Super so a vital at waterlow.

He's still writing all the time for pick magazine. He's taking like a whole bunch courses. This is no walk in the park to actually be A C.

S. Student watering. yes. He also starts working as an assistant to this legendary professor named ian gold berg. Do you know in a berg?

I don't.

So he was one of the O G safer funks back in the day he hacked netscape S S L. Implementation as like a researcher ended up. He was chairman of the tour foundation, helped get that off the ground.

And for folks I don't know, cyphers fok is the email list serve of sort of reneging cryo graph computer scientists that actually that wasn't bitcoin sort of hatred and proposed on the cypher funny email list?

Yeah IT will certainly in that community. So it's all in your time. And E N is buddies with neil Steven since so I think like a lot of e ans or kind of influence, pretty cool. So yeah, fatalist is, uh.

he's busy. So he has sort of the like side hustle thing that is earning him a name in this community with bitcoin magazine. But then he also has the like approved societal path of being at university, where he is also connected to the community through his professor.

So by the time the spring rolls around the vitality first year waterlow, he's ready to do an internship and start go IT. He's like he wants like I want to go get some actual programing, real world experience at a company, but i'm really interested in this script stuff. And writing on this point is when rip was getting started.

So we said actually, we should take take back what we said earlier that there were no other cyp to projects. There was ripe and at the time in the ripple still exists and has had lots university since. But IT was a super hot idea to bring block chain crypto transactions into the existing banking systems.

They reach a ton of money. So the founder of river, we talked about this on the vice epo de, was jed macae. Remember he was the dude who also created mount. Gosh.

that's right. He created my goggles and then and has he .

is not responsible .

for the collapse but that's .

right that's right. Ah yeah, jet now run Stellar, which .

is a .

well.

I just to make sure we're super clear on ripple, there's s like A S C, C lawsuit against them. It's being worked through.

right? It's been work through yeah, you could get delisted from home base and certainly it's accomplish. I mean, at some point, I think the market cap of ripple was in the tens of billions.

Well, yeah, that's A A crazy story for another day, but for here so jed, at this point, jez already like he's like also a big player in the gypt of community vitality, gets in touch with him and jared like, oh yeah, we got a higher this kid. And they would have, and history would have taken a very different turn, except they can't get in the U. S.

VISA. Remember, report is like being a legitimate crypt to currency comfort of the ideas. They onna bring IT to the U.

S. Financial banking system. So obviously there are A U.

S. C. CoOperation. You got to have A U. S.

VISA work. VISA work for them. They can get melia VISA. So like, I sorry IT, let's like explain touch.

You will be friends, but you can't like, actually come worker for the summer. So instead vt is like, well, you know, be high. And alec and roxana work, work close this quickly.

Magazine things go and well, i'm going take the summer off. I'm going to go over the europe, go hang out in romania and spend the summer with them. Will break for the magazine and mehan. Roxana, we're working on a project to basically build a legitimate silk road like silk route exists at this point.

What is a legitimate silk road even? Mean.

I know I was wondering this.

We're to expect cypher payments. It's going to exist as an online marketplace, but we're not going to mail drugs through the U. S. P. S.

basically. ebay. It's like, yeah, we should do a decentralize. Ebay maybe I don't know if that's a good idea and not but like clearly vickar use case with drugs. yes.

So needless to say, that project and get very far, at least at that point in time, they end up having this kind of wild summer. They move around europe. Mihai and rex are also pretty Young.

I think they had graduated from college like a couple, maybe year two, before they move around europe. They spend most of their time hanging out of an anarch commune in catania and for vitality. Like he's always been super, super serious kid like like mind expanding for him.

So he's have a great time. And by the end of the summer, he emailed waterloo and he's like, hey, I think crypto and bitcoin, this is a really big thing. I want to take a year off and just focus on working on these crypto projects in being in the community.

I'll be back in a year much like actually that the sentiment of a lot of super ambitious Young technical people right now who are doing that on everything that the telic would go on to create. He was sort of the first to say, uh, maybe it's time for me to take some time off .

to focus on the crypto you and also like IT IT just hits me over the head. How much did at the parallels between fatality and mark eaker g again, ten years earlier that we're going to keep getting into as we go along here. But same deal.

I don't think I think when mark took that summer to move out to palo alto, more come facebook, I think he was intending to go back to harvard. Maybe he did the same like i'm going to take you off, obviously neither of these guys and up going back to college. So this starts this kind of incredible journey that like directly leads to a theoria.

So what vitality decides he's gonna a do. They're all these bitcoin metus and converses. They're happening all over the world. He decides he has enough money. If that he's making from doing is writing, especially as a coin, the currency started to appreciate.

He decides he's just gone to travel around and go to all them and meet the community and hear about all these projects that are happening and right about them. What year is this? This is summer twenty thirteen.

okay. So we're we're very close to the start of a theory. Here he goes to one conference in amsterdam where he meets a guy named a mere chatt who was working on a project in israel called colored coins. So it's all going to start to come together.

So colored coins was building on top of the bitcoin network, and they wanted to bring in real world assets, like real state or fiat currencies, real world, no financial assets securities them, bring them onto the big coin black chain. okay? You know, there was an idea lot of people are thinking about.

So he invites a mayor, invites fatalist to come to television and meet up with him, see the team. And there are a few other projects that are happening in television at the time that they sort of collectively calling this group bitcoin two data. It's a self proclaims group of people in israel that are going to create bitcoin two data. It's essentially .

like a layer on top of bitcoin, right? They're not proposing the changes to bitcoin itself.

That's the thin they're going vital. C would later use the analogy and other people would use the analogy of like they're going to turn bitcoin into a swiss army if like bitcoin is the the chasa of the knife and they're gonna build, you know, the small knife and the screwdriver and the truth pick at all the different tools around IT.

What color coin's was doing was sort of like, hey, i'm going to a put the fact that I own this property on the block chain so that this property or any physical figure, the real world can be sort of identified by A A marker on the block chain.

I think that's right. Just sort it's like a representation. I think that was the plan. So that goes over meets up with the month of teams. One of the other teams in the sort of a going to dial movement is a team called master coin. And what they're thinking about, their sort of a swiss army knife tool that they gona build on top of the coin is a the ability for anybody to create their own other currencies on top of big, the big coin network, and then funded aries for those currencies. Hm, this sounds like something people might want to do in the nato distant future.

for sure. And this is where it's worth this ambiguity. A couple things, just as a vocabulary lesson in the world of etherium etherium. And I know i'm flashing forward here if theory um is the network and either obviated ef is the token that the currency that exists on that network. But in the world of bitcoin, the blockchain is called bitcoin and the coin or token is called bitcoin.

And so there is like you can 白眼 bitcoins and there is a black chain that exists that is also called the bitcoin blockchain。 And so their proposal here is basically like we want to find a way to create other currencies to exist on the bitcoin blockchain. That is not bitcoin.

That is not exactly yeah, it's a bitcoin is basically bitcoin is two things. We talked about this a little bit. He opposed bitcoin is bitcoin on big coin, bitcoin being the currency and the bitcoin network being the back.

And so yeah, the way that mater coin was gonna this happen of allowing these other currencies to exist on the book orn network was through this concept, this computer science concept called a smart contracts, which people might have heard of him. People talk about the theory on being the smart contract language. So smart contracts were actually, the concept was invented by nick savo way back in the day. Who was the dude who proposed bit gold, if you remember, from the action .

was also on the side. Er funk also .

sa er funk. He was actually a lawyer to, I believe he wasn't technical, so he never implemented bit gold. There was just a proposal, but it's one of the couple proposals that were .

sort of closest to what bitcoin definitely inspired.

definitely we worked from so ago. He defined smart cut tracks as quoted, quote, a set of promises. Remember, he's coming from a legal background, a set of promises specified in digital form, including protocols within which the parties perform on these promises.

So what does that mean? Basically, smart contracts is what I realized and doing the resets. It's just code. It's code that can be arbitrary, but IT executes if and only if certain conditions are met. That was kind of the innovation. And then when you marry that with a blockchain and something like bitcoin where like there is a ground truth like nobody can argue over whether conditions are met or not, then you see the environment for the smart contracts actually be really useful.

right? Yeah what what you're saying is if everything is actually on the blockchain, the assets, the crypto currency. And the conditional logic is also on the black chain. Then you can have things that will sort of provably do what you think they are going to do. Whereas you know, in the real world, you've got a contract that's written by a lawyer and then IT takes people actually Carrying out the work that, that contract says they're effectively dumb contracts. They then require a human compiler to go through and then make sure that the logic that is in that contract can be sort of passed and then interface with things in the real world.

And you can get indulged arts arguments about like, well, where these conditions Better, where these not made. That's why we have our legal system and judges and lawyers here.

You know there's one spect that's written that is executive that has recommended pulag over the assets to move IT. Uh.

it's pretty genius. Yeah totally. So the bital network institute, it's not like kid to know about smart contracts. IT uses IT. There are smart contracts in the bitcoin network, but they're limited. There is only a very specific, very small set of functions that you can call functions in the programme sense that you can call as part of bitcoins smart contracts.

And so what mater coin and coloured coins and all these other folks were doing the in the bitcoin tutto movement, they were writing a simply more functions that you can call in smart contracts. So vast, like he's anging out with these guys, is like, well, this, this is great. I love these ideas.

I'm good at writing. Maybe I can help you guys write up White papers for your projects in order to help vandalize and Christians what you do. It's great to go to town work on with papers for us as he starts the process of writing though for each of these projects he realizes like, hey, you know, these things are all separate projects and this is all kind of cool building on top of the coin.

But you're all just kind of scratching the surface of a bigger idea like this is sort of guacamole of like adding set functionality to bitcoin. But if you know anything about programing, like the beauty of programing is this idea of turning complete ness that like a programing language that is turning complete, you can do anything you can create. A developer doesn't need any permission, doesn't need any set functionality share. He can write their own functions, yeah, do anything at in item.

It's the way that any piece of software technology works, that you have these varying levels of abstraction and at the highest you know user facing layer, you have the sort of application where that is designed for a specific purpose, often for uh, a very specific type of user performing a certain business logic. Take slack. You know that's a very abstract uh, thing that is a field that you type in. You know it's got a chat window is an application. And what people are sort of doing in this bitch coin land, and this is a little bit of a stretched analogy here, but they are basically building highly specific applications on top of bitcoin and trying to have extended it's kind of like the .

bitcoin network as a calculator, not a computer.

right? And what that basically saying is, but what if the instruction set, the sets of functions or or instructions that we can sort of call were very general purpose, very sort of abstract, where there's even further um levels of abstraction that applications that can be built on top of that. And it's a dangerously difficult undertaking because it's exploitable and all sorts of IT.

IT requires incredible amounts of security. IT requires you have really think through every way that someone could use your very primitive set of of low level instructions to craft whatever they want. But if you can do IT.

then it's a hell of a foundation. This is a huge idea. huge. I am basically saying, like, icon is a calculator. Let's build a computer.

And if we're going to build a computer, it's got to be a whole different thing. So he goes first to the master coin team and tell them about this. He's I came and working on your White paper.

What if you guys did this instead? And the mass going team, sort of half to their credit, they are like, wow, that is a big idea that's really cool. And then half to their incredible determined, they're like working estate focused on what more doing. That was probably a mistake. You let me just .

Christal zed this ever further just because I keep thinking on that is a stretched analogy but it's like someone handed you a macintosh without macos for IT. And what you said was, well, i'm to start building slack or i'm going to start building i'm just looking at my dock, your chrome or photoshop and that it's like somebody proposes to you instead of just building photoshop, build macos ah and like imagine the potential that we will unlock with that.

And now I really want photoshop.

and we have so many resources.

And yeah, there's an amazing email that in the infinite machine, the sites from the founder of mater coin, telic, he says, but i'd rather see mater coin doing its core functions before we start experimenting with scripting, scripting being what you would need, the universal scripting language as part of this, to turn IT into a real computer.

So vt, you know, at first he's a little like disappointed and then he's like, wait a minute i'm vitally beauty like i've got ta following people encrypt al and know me i'm good at writing weight papers. I'm also pretty technical. I think this is the future. I'm just going to go to do this.

So he leaves television and heads to probably the one place in the world, uh, certainly then and and probably still today, where the best place where if you've got a big world changing idea, you want people to take you seriously even if you're not, you know, super well. He goes to same ford S, O. So I, of course, member.

He knew the ripple team and ripples based in sanford, cisco. He shows up. He cut service y crasses nick to the apartment of ripple C T O seven Thomas in soma, and he spends two weeks in seven cisco. And he, just like he alternates between doing the days, goes like a long walks are our difference to go up and down the hills.

And then he comes back and he just rights the way that he doesn't talk to step is even one things like, I want your thoughts and maybe these like, no, i'm focused and so he writes the White paper in two weeks. Uh, what will become the a there and White paper at first he titles IT the ultimate smart contract and decentralized application platform. And then he kind of realizes, you know, again, but tell he, he knows how to rape.

He knows that converts people. He's like, I need a name for this project so he starts scrolling through wikipedia looking for science fiction terms that he can sort of uses inspiration, size items. And he comes across the word, I don't know if it's pronounced either or either.

I always thought he was either, uh, A E T H E R IT. This is called either this concept. I remember red this for him, like way back in middle school. IT originated with the ancient greeks who thought that either was the fifth element out there that there's like, what is a wind, fire, water? I think we're .

the four elements.

So the ancient greeks postulated that those were like the human elements, but there was this fifth element called either that the gods, the media will get the IT Green god breathed. And this idea can never got stamped out in human history. So like in medieval times, just when the scientific revolution and was kind of getting going, people postulated that either was a invisible substance that .

permit .

the universe, that light travel, and specifically, light was conducted through either the gods breathe, anyway, been describe, not, not the case, but vitality thinks this is perfect. It's like, oh, man, the substance that the god's breathed that IT permit etes the entire universe that light gets you have conducted through. Great i'm in to borrow this term. So actually there does exist and i'm easy to title my project. So he comes up with the theory um network of which the currency native currently on top of IT is either is born pretty good name.

And if you read this White paper, it's pretty a long and b technically complex.

Yes, this is not like the bitcoin White paper.

No, the bitcoin White paper. Well that does have some reasonably complex mathematical formulas. IT basically simply lays out, improves how each of these clever mechanisms exist in how that all, sort of all, work together. The theory, an White paper is like, here's the instructions, that architecture for a new type of assembly language and the the the type of machine that that will run on and the registers are going to look like this. I mean, it's it's like going back to my Operating systems .

class in college yeah what link to IT? You should go look at IT read IT but like don't you you should go read the the toshi White paper. Anybody can do on this is for a technical audience.

The funny thing is that there is even a further technical specification on top of that called what, just like, like when I was at microsoft, had the pm wrote the spec. And then once suspects were signed off, and the debs wrote the like the design document, I think there's actually how like the software would be architecture. It's sort of like the spec. And then the developer design duck of so funny .

that would come a little later. More drama before them. So basically, like we ve talked about, you there being the computer, or suspect calculator that are like computer without an Operating system, there are two kinds of big consequences of this.

So one, you've got a turing complete, generally programmable computer with a native currency in IT. You now have code with money. So, you know, with thick, when you have money and not really code with Normal non egypt, the world, you've got code.

lots of code, but completely separate.

completely separate from money here. So the wave ital architects authorities, there are two types of accounts in the authorities, network accounts that can hold and spend and do things with either and connect code. There are user accounts, you know which humans? Yeah, the user accounts. But then there also are contracts and smart contracts accounts. They are exactly the same as user accounts.

So yeah, this is kind of like the cleverness of abstraction think that we are talking about earlier. It's like how low level and and customizable can I make stuff? And just to show up in the fact both user accounts and contracts are sort of a sub class of account and the clever ess of yeah this account exist over here and you can upload your contract to IT. And of course, you've to pain will talk about that of of of getting your contract to go live in this location. But then at any point after that, people can send inputs to IT.

the contract will execute and then the outputs yeah yes, you've got literally the code contracts that are the same as the user accounts meeting. They have their own money. The code has its own money.

This has never happened before. This is huge. So that's just one of the two big ideas.

The other big consequence of this is that if this network actually gets instantiated, it's gonna be a world distributed computer, like there has never been before. So like you know, people call atrium the world computer. This is what they of course, there's A W S.

There's actually all sorts of like cloud computing out there, but like amazon on A W S. And like you can go fine like all the locations that other data centres are. And like, you know what, now it's like a thing. It's unlikely they ever going to go down. But amazon rs IT, right?

Let's take the smart contract and just remove the money component for a moving here. It's sort of like thinking about serverless architecture, even server architecture. You write some code, you deploy IT to an end point somewhere. You expose an A P, I that has an input and output, but like that code lives on one server. There's by some replication, but like it's on a server in a data center. When you deploy in syria your contract to a location on the block chain that is replicated on all million or whatever, hundreds of thousands of notes on the theory of network that sort of have a copy of that.

just like every node on the bitcoin network has a copy of the letter with all the transaction history, same deal here, every note on the network has a copy of all the code.

right? And as your visualizing this where your brain should go is, wow, that's powerful. And then simultaneously you should go SHE.

Is that distributed nature? I can really imagine that being like, you know, it's it's hard to take IT down like you can unplug a server from the wall. But like once that code kind of deploy, that's more contract.

it's pretty hard undo are going to get into and lately.

your mind should go to a place you're like that's pretty inefficient. The wait. So IT has to go to every uh, uh, what that's going to cost a lot of energy and time. And jez, maybe that there will be a lot of like a network congestion. So already as you're starting to understand the architecture of this year, like, okay, really, really good for some stuff and that .

great cost yeah, I have this leader in the notes. But to pull up forward just for context, you know, people talk about even today, you know, in twenty twenty one, mid twenty twenty one, the relative power of the computer. That is a theory. You know, the world computer is roughly equivalent to a rasberry pie on a home broadband connection, and that is running everything.

But IT is stable. A F.

ah, maybe maybe what? Okay, this is all pretty freaking cool, especially for like an eighteen year old. So in november twenty seven, twenty thirteen, vitality, I think he still in them, will just go at this point, done his draft of the first draft of the authorities White paper.

He emailed ed IT out to a very small group of people that he knows from the capture community to ask for their feedback. So comma rights in the evident machine here are going to quote that vati c was, couldn't quote, sure his work was going to get torn apart with an idea this big. There has to be a very good reason why nobody has tried to do IT.

But that never happened. The tax email got forwarded. And then forward IT IT again, so that instead what he got was a flood of responses from people who are excited about the project and wanted to work with him. Vital vision was much too big to be constrained. He was thinking about creating a base layer for everything, a computer that could size multi ously live in all the nodes of an enormous global network, which would be able to process anything you throw at IT without downtime or interference, so developers could build whatever they dreamed of, and nobody would be able to stop them or their applications like an infinite machine. Pretty, very, very cool.

very cool. So cool. Definitely saffy .

definitely. I mean, either we were all rock, the greeks were right. IT exists. Um okay. So pretty quickly after this, a core group of five people starts to form to pull this ambitious thing together and try to make this project happen.

So this fatality, of course, there's me, hi, his body, his bitcoin magazine and partners in crime. There is a mere chat, the guy that he met in yesterday, the color red coin's guy who are initially brought him to israel. Mas, like, oh, I get IT.

this is even coloured coin's. We're not going to part of that project. I get, I get where .

this is going and this should be at something. And me some drama here, because the mere doesn't leave coloured coins. He's still working on coloured coins. And then two more people so the first is that Anthony diorio, who is also from toronto and was a big coin enthusiasm, unlike everybody else here, actually had some wealth in um real world money not just .

he worked a golbin sex, right?

No, that was joe. Okay, he's going to come a little later. I forget how anger he admit some money, but he had some money so he gets brought on to canal lic.

He's bank all this while we're going to started up. And it's like we should also get my buddy Charles involved in this Charles husk and son. And for all etheria and crypto fans who been filling in this face here, probably you you're probably smiling to yourselves right now. You know what about to happen so Charles had done work on um the idea of decentralized gypt currency exchanges, which of course would become a very big thing on a term a few years later.

And these are dexia. Of people are of that are coin base being like a centralized I mean.

IT runs in A W S.

There's one it's a service application that happens to C A N. Where's a decentralized exchange or a dex is like IT uses .

decentralized technology to create the exchange. The other thing that Charles s. Had worked done was helping pioneer this idea of a concept, which was just sort of law to out there at the time of a concept called a dw, a decentralized, autonomous organization.

Also going to come back up in a minute here. So ethon, he's like, hey, Charles, like he's he really knows the stuff. He's good.

You know, he's got some experience running projects he would be really good to bring on here. And he knows he is doing and the group quickly decides the Charles should be the C E. O of this fledged, if theoria something company foundation project.

We will sit Charles course would later go on to found car dial quickly after that. So they've got VC who wrote the way paper and is, you know technical, but like he still he he's a second year computer science student, right? You've got a mere he's not technical.

You've got me high who's not technical. You've got anything who's not technical and you've got Charles who's like border line technical banana developer as they realized like we need some debts. So they bring on two developers, the first of whom is a amazing developer named Gavin wood, who also, for people in .

crip delhi. And you know me.

feted programmer, incredibly gifted gen, had intersected with me, hai and roxana before. And when he hears about the theory and the White paper, which is now making the rounds in the community, he emailed fatality and he says, yes, how far along you encoding IT can I help the responds? Like not far.

Yes, yes. Started tomorrow. So Gavin drops what he's doing and he gets to work right away on A C plus plus implementation of client to run theoria nodes on the new ork.

Gavin makes the first commit to theos github on Christmas eve. Tony, thirty. So he's dedicated right around the same time, a dutch developer named jeff Willy also joins the project.

Wilky was at master coin, so he was in yesterday, but he was working for a master coin, uh and joins this is sort of a side project. He continue working on mar coin as well. And jeff gets to work on an implementation of a material client in go go grooming language. So gave s working on A C plus plus version. Jeff is working on a go version.

which, if I remember right from the book, was sort of accidental. At first I was like, hey, we both know different programing languages. We both kind of want to do this or both just gonna get started IT wasn't like this intentional. Hey, we should have redundancy to make sure that if we missing left something in one of the languages, IT doesn't .

become the way theoria works. Which few good decisions in the early days of a terim and I think was probably really a boon to have both of these verses out there. So the next month, in january twenty fourteen, the original five plus Gavin and a few other folks, not jeff, jeff decides to stay in. Yesterday, they convene at an airbnb in miami ahead of the miami bitcoin conference. I thought the miami biton conference this .

year was like the first. I, because there are so many miami jokes that are happening that like we should totally acknowledge that miami twenty fourteen was when a theory of first happened when I was presented.

When this trip got together, I got O G techne .

absolutely do. If the bitcoin conference happens every year and miami.

that's actually a good question. I don't know, I should know. But nonetheless IT happened there in twenty fourteen. So vital they decided this is where they're na announce and launch.

The um vitality is slated to give a talk at the conference, but this is all happening so fast. He's just giving a talk as like vital beauty and writer for a big coin magazine. He's not even on the main stage and the conference playing like it's it's all areas.

So they also showed at the house, also joash lubin do who you are, very shows up at the house. He'd been introduced a fatality during Anthony. Also, joe was a goldman.

And then in the heads fund world, also a printed along go tigers. And they decide to bring him on board. He's got some money as well. So he also so helps financing. So joe, at the year just out of their own personal finances .

are financing other and it's so they decided .

the house that the original five will be co founders of a theory um so not Gavin, not jeff, not jee. And they'll get the confounders will get the largest personal stakes of either insert of the prediction before the network goes live. And that certainly decided in the early first day when at the house, Gavin there, meanwhile, he's like he had been coding, like he's coating furiously at the house trying to get a test net up to demonstrate during the telex presentation and has these coatings is kind like it's like, it's like, dude, i'm the only one who actually knows how to build this thing here.

What are all these other people doing?

What would you say you do here? Um so he starts get little salty and he's like, guys, I should be a cofounder and I should be C T. O.

What you going to do without me? So really pretty big. Arg, supposed the house, but everything's happening so fast. Nothing gets settled there.

They're like I was just like get to vat presentation and launch this thing must see what happens after finally presentation happens at nine thirty A M in the morning on sunday. I think that was maybe the last day the conference. This is up the january twenty sex still not on the main stage.

But word had gotten that this was GTA be a big deal. So vital takes the stage. The room is packed like everybody in the capital community is there. And he announced there um I think he announced that the test net is live and people go nuts. It's like a rock concert, like there's a standing ovation, this cheering like people are really just about this idea as they should be.

I mean, it's so ambitious, like the reason I hadn't been done is largely because it's just phenomenally risky in a ton of work and then will require an enormous ground swell of community support in order to make that happen. Like a bitcoin already had this huge lead. All these network effects. It's kind of like me saying, like I want to start a new Operating system and then i'm going to build a new APP store on top of that Operating system.

Like it's it's just nudge you. I don't know. I mean, we could reality acquire e community, make IT happen, then coin.

acquired magazine subscribers.

acquired next unite. That would actually be pretty dumb. We should have a sixty four page glossy magazine .

that shipping in two weeks.

one one for each company .

that we've covered.

live internet. So literally, as vitality is walking off the stage, everybody in their mom is like, hey, can I give you money? Like, I want to fun this thing. I want a piece of this.

So before the announcement, the team had been planning to do a five million dollar crowd sale of either to strap the network and raise initial funds to pay back Anthony and jao and get going in fund development yeah they decide though, in the wake of this, like it's like the robots IPO. We got to postpone this like the demand is too high so they said, like, hate, let's let's post on, let's leave miami. Let's regroup in switzerland because at the time, sweet lin had the most sort of swiss neutrality, best friendless laws for cypher companies in the world.

And let's decide how to proceed actually, before they get there. In the aftermath of the conference, Gavin cana continues to be a quickly wheel and they decide, you know, okay, great. We're gona expand the group of the founders from five to eight.

We're going to include Gavin. We're to include jeff from he's ring to go implementation. And we're going to include joe as well because he is .

now financially ness big founding team.

eight people of which like two and a half hour technical on the founding for an incredibly technical project. The next big question, though, that they, once they get a sweet and they gotta start figuring out, is like, well, how do we structure this thing? Is this a company? Is this a founding? Like, is this linux? Is, what is this as communal? Puts the event machine. The question was, would they be google, a for profit company with dinner revenues private? Or would they be like the mozilla, a foundation which you know still would have revenue and resources, but is a nonprofit that would allocate resources to developers to both internally and externally to further the project?

yes. So here's .

where things kind of go off the rails. basically. Charles Anthony member, Charles is the C.

E. O, literally at the time channel's Anthony in a mere at the color coin guy. They all want the four profit, the google rap. yeah. They're see a deal science.

which is so funny that they're seeing doll science, because that would be a CoOperation like in retrospect.

CT through a lot of dolls' ence, because IT wasn't corporation A O I never know. Meanwhile, fatality and me, I they want the mozilla round, yes. And then the developer is given in, jeff.

I think mostly they don't really care. They're just like W T F. Guys like we don't have anything right now.

We're got to build this anything like and you're arguing about corporate structure. Like what the hell if you press them, they probably want the mozilla around. But mostly, I think they just don't really care.

This becomes a huge seism. Charles wants to go to silicon valley and go to a tour and go raise money from Better capital and get the cash in the door, which they certainly could have done. And then everybody else is like, you going to go raise money from vcs like this is still critter land.

The whole point is to rage against the machine. You're going to go raise money from the traditional video system. Meanwhile, fortunately for the way things would go, crowd sales of initial tokens for various projects, we're becoming more and more of a thing on top of mater coin, which existed at this point. And there has to be really viable argument that, hey, you like, you're same, then you can get plenty of money in by making this in on profit foundation 呀。 The question though is.

is illegal because like, let's rewind, has a foundation ever been behind something where you are selling tiny chunks that can potentially be used in the future to have some utility? But today are .

you I yeah it's totally speculative.

And also because you're a foundation, you don't have shares. So it's not like you're selling pieces of your company because IT doesn't exist. So it's this weird sort of really great.

right? But IT really looks on the surface a lot like a security offering, which of course, would be like a major, no, no.

would not a no, no in sense of you do IT I? No, no. In the sense of, like you have to register with the S, C, C to do that. You you need like effective IPO. You need do a uh, list on an approved exchange like there are ways to sell security to the public .

but not the way that I think about yeah .

not to make you .

know there is the U. S, which is obviously the biggest financial market in the world. But this is a world project in a world computer, and most of these people are not americans.

So there is that. So they retain a whole army of security lawyers all around the world to figure this out. They even managed to get, this is a basic, a former S, C, C commissioner gets name Joseph gan fest, who is S.

C, C commissioner in the regan administration. He's now teaching at stanford. They get him to advise them, unlike what to do here.

And the question all comes down to like either the currency, what is IT? Is IT a security or is IT a commodity? Well.

that's a good question. And the reason your same commodity is because like it's a good that people can trade, that has an utility rather than in being a share that people trade that is speculative, that the Price will go uber down in the future because it's tied the performance of an entrepreneurs ture that managed by management.

Yeah so if it's a security, no dice on this offering. Yeah if it's a commodate, i'll good like anybody can start selling something.

And the thing that like really gives them that credible argument around in being a commodity is the fact that IT has utility in the theory um network exactly.

So imagine gas fits like the way the system works is either is the currency on top, the hetero network, but either exists s to pay fees to the nodes on the network to get them to process transactions.

It's effectively a beauty. And when we're saying gas fees, you can think of gas and either effectively interchangeably, it's effectively a bounty where you are right? I need someone to do something with this smart contract that i've written. I need IT propagate.

You need an incentive to do that.

Yes, here's what are willing to pay for you guys to send this all .

around the world yeah so but I wasn't even thinking about the security is law implications to this when he rote the White paper. But you know he calls IT gas. He's like this is the analyses like to buy the gas, to put the gas in the car, to get the car to go so they go to, I want to say good friend, like the bircher offsides and sallon brothers no grand fest, the former S C commissary and they say, like, well, hey um so here's how this works.

It's gas fees. Real world gas isn't a security. Obviously that's a commodity. I can just set up a gas station and sell gas.

I don't see unless always Sunny style, then go and hord all the gas in my basement, the back of the ad and then try and result later higher Price. But yes, continue.

So they don't bring that up .

with and either .

the same thing. Yeah, I guess you're right. It's amazing. So they take this to their U. S. Security law firm, prior cashmere, and they get prior kashmir to write an opinion letter saying that like best on ground for saying this, we are of the opinion that either is not a security, is a commodity. Bunch of other law firms also write opinion letters. And boom, the doors are wide open, not just for a theory to now do IT initial crowd sale of their utility token, but for anybody to do an initial crowd sale. You in their .

hands together here.

talk about if only the people that go the sea corp. Route known about this, they would have change the two. So once this is settled, they all get back together in switzerland.

And this is now june twenty fourteen to make the final call on the direction to go. And everybody thinks going into this meeting that this is just gonna like I R. sam.

Like, great. We're going approve. We're going in the mozilla a direction we're going to do. The crowd funding, all good here, not a big deal. Commit titles.

This chapter, the red wedding in the emerging basically, this becomes about way more than how they're going to structure the company. The debts are starting to really resent Charles as CEO and the decisions he's making and how he wants to run things. And they don't think you do and they also don't think that may still run in college coins as well.

So like, what helps us? A mere guy do IT like, why is he part of this? He's not even doing anything.

yeah. So there ends up being like a mune in this meeting. And everybody scream at each other. They all turned to vati. c. Vati can been in switzerland, and he was still traveling around the world vandalizing, you are talking about the theory of and the White paper at everything.

And he had just been awarded the till fellowship to officially, then emails his coming back and he drops out to work on this. So he shows up and he's got click a full on, full on uni on his hands. So they all look at him and they're you make the call, you decide who's in and who's out.

which can I just say incredibly for shadows the future of a theory um where despite this being and and they're not saying the eight of them are this decentralized governance, but despite the fact that there's eight people with eight voices, ultimately when push comes to shove, everyone looks at fatalities and says.

right what we do you know it's not a company. He is not the C E. O. But yeah everybody looks a patel c so supposedly he goes out on the terrorist of this house and sweater in and zoo e where they and apparent he just sits there for like a super long time.

He's got a yoga ball that he's like hugging to his chest back and forward like a baby. I am just damaging the weight on this guy should is twenty years old. So meanwhile, back in the house, everybody's like today is like the tension is crazy finally he comes back in, it's like smoke is coming from the vatican he declares if thereon will be a foundation full stop in for all time Charles, in a mere, you're out, you're done. You're gone and the project go on forward is me, Gavin, jeff, joe, and it's me high and you too, this pretty happy, heavy stuff. I just like guys I was reading about this, I was reminding me of some zab ahoo in in the bathroom moment.

Oh, IT, absolutely. Is that sort of like high tension hy drama, like pins and needles moment.

because this is literally like the entire future of the project is on him here. Like this is like facebook could have sold the yahoo for a billion dollars.

This is the same moment the codes not done. There have not been any token sold yet. Six, seven years later, the market cap of all the tokens out there would be half of trillion dollars. Yeah, like this is a high tension moment because, well, of course, they don't know that everyone believes that if this thing succeeds as the world computer.

that's gonna be pretty valuable. Yeah, yeah, there's a lot at stake. So the incorporate the authorities m foundation as a swiss non profit.

They move forward with the crowd sale.

Can you would corporate is that word in corporation, the a to use a developer phase? The crowd sale starts on july twenty second twenty fourteen at midnight swiss time IT runs for two weeks. They sell two point two million dollars, where the reader in the first twelve hours by the end of that, they sell a total of sixty million, either for eighteen point three million U.

S, D, which was way more than any other gypo grade sale in the history to that point. Yeah I mean, even just think in about twenty four teen like this is A A seed round for a company and eighteen million years that the V, C, world analog is crazy, like nobody raised that much money. This is huge.

So the next question is, okay, now we're got to actually watched the thing goes like i've tell you guys all long like we gotta launch the thing. The plan is that there gonna launch in january twenty fifteen and then throughout the year of twenty fifty, and they are going to roll out the network in five phases. By the end of twenty fifteen, they will have all out the final fifth phase, which is going to be called serenity.

is the code name all five faces in the first year.

all five faces in the first year with the plan. And sarenne was gna transition to underlying network and black chain from a proof work black chain to a proof steak black chain. Yeah just can be a lot more scalable, all all mapped out. Nancy's tia, people who are listened and wondering .

why we're laughing like why is David cackling like a mad man .

in the corner over there? So yeah, we're now in june twenty twenty one. There is no surrender. Ty, there is no proof stake. It's coming soon.

july. There's there's a huge milestone theod ally this month. lessons. Before we dive back into the story and say in exactly all the ways in which this did not go to plan, it's worth dwelling on this proof of workers of steak thing for a moment because we haven't really talked about proof steak. We talked at the end of the bitcoin episode about how proof stake theoretically was going to a require a lot less energy but would retain a lot of the same characteristics of, uh, that sort of a security verifiability uh m but save that for a moment.

I do want to talk about proof of work because there was a key detail in the bitcoin episode that we missed in the history of proof work, which of course is that the the cryptographic way of seeing energy to do a very hard math problem and end up with a mechanism that verifies the integrity of the chain of all the transactions that came before. Of course, IT was mentioned by sato shi uh, who proposed IT in the bitti in White paper proof work and its prior use in hash cash. But IT was actually invented way back in one thousand nine hundred ninety three by sthetic work and ni now or and I didn't want to call this out because that is way too easy to make IT seem like crypt .

a was pioneer by .

a bunch of dudes. And so it's notable that there uh, it's all based on research done by synthia, a female computer science professor from harvard in the early nineties. No way. Oh, that's so awesome. It's funny how this concept that was originally intended to make IT cost prohibitive to be an email spam ended up becoming .

the underpinning of an anti email spare. Yes, yes, super cool. I did not know that.

Yeah, proof work. Ninety three at work.

wow. Then the tallest was even born that wild, wild. okay. So on july, in the middle of july thirty, actually middle, the team finally releases the first of the planned five phases of etherium uh the frontier release goes live and the theory um is open to the public amazing two weeks after IT goes live, the first new other token crowd sale happens on top of a otherizing alger which is a decentralized prediction in betting market raises five point three million dollars usdt in a token offering of the auger tokens on that is built on top of the theory they built on the current code E R C twenty standard that makes a really easy issue currencies on the theory um just like mr coin. But going now with the R C twenty you can do is super easy.

E R C being the theory um request for comment setting out there. Hey hey world hey open source friends. Here is a proposal that i'm making and i'm requesting comments on IT. Eventually, people comment the the proposal gets revised and that at some point IT receives a number. And now it's a thing out there in the world that is the sort of standard upon which you can Operate because remember .

there this point, they are now Operating and still do like the linux foundation, like the mozilla a foundation. Get up. People out there in the world they say, like kay, we should add this.

And then the foundation is like OK. cool. Look at that. So the I C O bom is born just two weeks after the public launch. The first I C O on the theory um have at a while that .

that was something from the research that I did not realize that was so fast like, hey, there's this new thing in theory um it's not even like cool. There's a world computer imagine for that. It's like gold rush to launch Michael on this new thing. Now I do.

I think augar is like a real project.

Sure, I am nothing. All I C S were ams um but um there were some .

worse two lips .

s in the .

garden. So the next year, in two thousand sixteen, while augur does happen very quickly and was a legitimate project, at least to the best of our knowledge, IT does take a little while for people to realize how much gold is in these hills the next year. And twenty and sixty and there are sixty four I C O S on the theory um that collectively raise over one hundred million dollars.

So IT doesn't like, I mean that's like a lot of money people like dying. I C O boom. Twenty sixteen well twenty seventeen. There are nine hundred and sixty six IOS that collectively raised over ten billion dollars followed my weather DJ cow and pair is hillton everyone's .

get a little swetenham promoting social media.

No, my goodness. We talked about all this on the big episode mazing. But what we didn't realize was this is the just like silk road was for bitcoin, I C O S were the killer use case to boot strap up the a thorium netware.

And just like the silk road, IT sort of didn't matter how illegitimate the initial use case was, what did do was booth's strap on network that could be then used for all sorts of purposes now that you have this sort .

of decentralized exactly the same way. So thankfully, by the end, tt in the I C O bubble had deflated still, though, even in just like the first. I don't know when IT really popped during twenty eighteen but so let's say the first six nine months um i'm making that up but i'm estimated of twenty eighteen there were twenty three hundred I C S.

That raised a eleven billion dollars oh my god. At the start of twenty eighteen theoria had risen up to a for a long time, all time high of just over one thousand, three hundred and fifty dollars per token, giving IT a market cap of over a hundred billion dollars. And then when the ico bubble deflated at the end of the year in december, either had crashed to eighty four dollars a token or a market cap of just under ten. So ninety percent of the value in the authorities networker of the either token vanished over the course of eighteen IT is fascinating .

that this bubble had a very specific reason for IT that like there was utility in ithiel to be used by anyone launching A I C. O. Like a lot of the times there is these bubbles and cypher.

We can't quite point to exactly the reason why the token was getting so much more valuable other than like a snowball of excitement building around IT. But this one IT was very clear what the boom e was about and what the bus was always about. The money.

yeah, is all about getting the money. Arts of speaking of money, there is one before we. They gotto can't wait to move on from my c OS. We got one more we ve got to talk about that is probably the wild, this part of this whole episode. So one of the what was at sixty four, I think I said in twenty sixteen ics, something like that started the early part of the typist spear in the wave, was a little project that a group of folks had put together, that they called slacked S L O C K dot I T.

And the idea behind sacked was IT was gonna be a decentralized airbnb and other sort of sharing economy platform where you could send transactions into the book chain and use those to unlock hardware locks like on doors and on bikes and cars and stuff that they would be connected to the black chain and these specialized hardware, hardware and then you'd pay the rental fee as part of the transaction on the black and IT would all happen on smart contracts on the theory um network H I went, okay, sounds like frequency really dumb now. But at the time, people were excited. So they decide to do an I C O for this. But the lock and founder they were.

they got for the diaster of human enthusiasm and creativity, because he wants a new piece of technology, comes out like this. Nobody knows what the future is. Nobody knows what the killer use cases are. And so thank god there are legions of people that take their own hair, brain ideas and try and execute them. Because absent that, we would never have the discovery mechanism to discover what the actual great .

applications are. Yeah, totally. You could argue whether IT was good or bad. That is like team.

Did this remember that they like I said, they're true believer s so they get a bunch of money, the yes. Or they get a bunch of money? No, no, that hadn't happened yet.

They were lined up. They thought they were going to a bunch money. They said, hey, we're going to go a step further. Remember, I introduced a little while back with Charles husk inside the idea of centralized autonomous ganim ation.

which by the way, that is actually in the original theory.

an White paper yeah as an idea of something you can do on a um yeah .

and for folks watering like okay this these words decentralized autonomists organization. To the extent that a company, a corporation, is made up by a set of documents, you've got your articles in corporation, you've got employment agreements, like a corporation is defined by a big pile of dumb contracts, a double or decentralized .

more directors in a CEO, a management team making the decisions totally.

And those people are given powers by the contracts, by the the documents. The doll is simply that, but with smart contracts like soin code, yeah, why couldn't you have an organization that runs in a provable sort of code legislated way?

Yeah so the idea in a down the allocation of resources, be at capital or time or effort dev resources or whatever, get allocated in a decentralized way by people who hold the tokens of the dough and everybody can vote and they're protection mechanisms for minority, token holders for a system majority. And anybody can take their money out at any point time if they disagree with the direction in the doubt going.

But it's it's a decentralized organization. Okay, pretty cool. So the slack guys, they they like we're gonna dal, so if you don't like what we're doing, you know you you can vote, you can have a say in the governance of slack IT.

And if you don't like what we're doing, you can take your money out. Then they decided to even one step further. They say, you know actually like we think this slog at thing is cool, but there might be other things people think are cool, maybe cool Better than slack. IT will allocate our money anything, and i'll just let the dough decide where the money is gonna go.

It's like a reverse picture pathway. Everyone has a say in capital allocation.

exactly what is the opposite of to say the crypto community goes not to for that this is like catnip for the cypher to community. People are just st. So by the time the I C.

O closes in may twenty sixteen, remember this was originally for. A specialized hardware airbnb competitor, they will raise one hundred and fifty million dollars into they renewed the whole thing, the dow. They're just that, that is what they are, so great, so so great.

A hundred and fifty million bugs. That is more than most first time VC funds the world. That is like a lot of money. That is like, I think the biggest crowd funding of all time.

I think the only seed funding that is larger than that for a single entity is probably like .

quip a boy oh boy, the parallel ls that is more fred Watson and union square are going to come into the story here in just a minute. Hundred and fifty million boxes into the double is more than U. S.

V. Entire first fund, and they're one of the most active venture capital investors is hypo at the time. This is a lot of frequent money IT. Turns out though that there is a security flaw in iberia and specifically in in in the part of smart contract code where dose like this one like the dow Operate yeah .

to put a finer point on that, there are a few programming languages, but there's one very popular programing. Language develops specifically for writing smart contracts called solidity. And solidity is kind of like java scrape.

If you know how to write java script, you can pretty quickly learn how to write solidity. So the doll is basically a big pile of solid Spark contracts that all interact with each other. But to your point, in order to run solidity, there is code a ef in ethie's core software that needs to make sure that when those solutions smart contracts .

are running, they're doing what .

the programmer .

some downsides to distributed systems here. So right after the dell finishes there, I C, O and gets this all this money in the bank, so to speak. One of solidity core developers realizes that there's this bug in solidity.

And the consequence of this bug is that you could drain money. An attacker could come in and drain money out of a double you. So in probably one of the biggest and forests of all time day in the foundation, they are like, oh, like you're greek.

Where to update this? We're update our clients. We're going to post about IT let everybody know what's gone on. We going to post like, okay, so they do that right, but it's just eat system.

So like not everybody, not all the notes in the network update the client software that they're running on to patch the hole. And any time on the internet you can have bad actor is especially encrypt and bunch hacker is like, oh, shoot. Here's a whole life about how to exploit dow and how to drive in the funds. And here's this doubt that has one hundred and fifty million box at IT. I'm going to go start checking out this thing.

So the initial exploit was actually wouldn't have been discovered. We don't think except for the fact that the theoria foundation published about IT, yeah.

I mean, I could have been independently discovered by other folks too. But yes, one of the core developers on solidity found the bug and then fix the bug. And then they published about the bug and everyone was in fixed yet .

they breathe steps. I have relief.

yes. Hh, until the baLance in the dows account started slowly going down. So this is a crazy thing. It's likely it's like the main players in the last ji. It's like the slow motion chase throughout the whole movie where it's like they are to stay when it's like happening in slow mo to this exactly what happens. So the way this exploit worked, you could steal money, but you could only steal IT very slowly, and you could do IT in a way that, like, was unstoppable.

You, yeah, you sort of drip IT out.

So for two weeks, everybody is fragging the F, L. Like, vitality is losing his mind. Everybody is losing their behind. The dough was so big that hundred and fifty million box was fourteen percent of all either in existed, was in the door.

And it's getting so vitality calls on all exchanges like coin, by everybody to stop trading, stop trading, literally pause everything. This is amazing. A group of White hat hackers ban together and there they call themselves the Robin hood group. They are like we're going to hack the dw as well. We're gna attack the double, but we're going to do IT.

We're going to drain the funds into an account, then we're going to take that account and we're going to give IT back to other people trying this up.

figure out how .

to dream IT faster. Yes, then the black hat attacker. And the crazier thing, because we talked about this a couple times, but like the way that you can get stuff to happen on the authorities network is by spending eve by offering a reward to do IT.

It's like the more they can bank all their White hat efforts, the faster IT will happen. And so they're out like ask money yeah they're asking anybody who they know who is a big eth holder. A lot of the true like early true believer s like, hey, send your east to our address so then we can drain the double faster.

And when they start doing this, they aren't even publishing about IT yet. So they're kind of freaking out that like way to MIT IT. We're actually just black hat, yes, hackers right now until we tell the world what we're doing and why and everyone realizes that like we're doing this for the good of everyone is this crazy like um you know spider man gift with all the pointing?

This is like such a giant cluster. So unfortunate, nothing work. So like the White hat, the Robin ta group, they're joining the deal. But the black hats are also draining the dew.

Everyone's breaking out the foundation of metallic decides are we're going to do a thought what's called the soft fork of a theoria, where we're going to get all the nodes that are running at there and all the all the miners to update their software and basically stop. We know the addresses of the black hats where to get them to stop processing transaction request from the black. We can do that by just wake up. The software is fine and then everything i'll continue on is not great.

but is not good. I mean, IT really makes you wonder how to centralized.

Is this really is like, wait.

wait, let's you're telling me that you're willing to modify the core code everyone expect yeah exactly.

Well, so they're about to do this. And then a group of researchers at cornell, LED by professor even striver, figures out that if they were to do this the way they were gonna IT, I don't know the technical details, they would actually open up the network to like big distributed denial service attacks so you could do this. But like this, like this is not going be good.

So they decide our, we're gona call off the soft fork. That leaves only two options. One, do nothing. And the attackers, still fifteen percent of all the east out there and theyve .

already stolen. One third of IT, like the black guys, have fifty of one hundred and fifty.

fifty stolen. Or option two is due what's called a hard fork and actually modify the underlying protocol itself to cut out the history and go back and modify the history of the project and that necessities, ending the current theory black chain and wholesale, starting over with a new one.

You're reminding the tape before the attacks started. You're changing the code then. So you're sort of like undoing all the transactions.

Everyone's like having the money move sort of like from destination account back to source accounts. So I would like all that gets on done and then the code, the bug gets patched and then we fork. And now we're just playing everything forward again. From there, the future can unfold with this bug fixed and none of those transactions happened.

So IT, actually, you know, to a lot of folks listening, I think going with the hard fork and option number two might seem like the obvious right path ier. But this has a huge philological consequences as as you are leading to them. You know this is essentially a bailout that we're talking about here.

It's just like two thousand and eight. We speed up the consequences of our actions ended up. It's a bad places. A rather than taking responsibility of moving on, we're going to have some day s magda, a government like a, uh, higher authority is GTA come in and reset things here.

right? And what they sort of proved is, like jez, these, the theory, an foundation. People have a lot of power over the ecosystem, but if they come out and vitality comes out and says, okay, everyone, we want you to hard fork, then as long as fifty one percent of people hard fork and really, it's fifty one percent of the sort of mining capacity.

So it's not that many players that need to. You just get a few with a big guys together. They heard fork.

That is the new source of truth. yeah. And sure. Technically, the way that you look at the architecture is that it's decentralized. But like if we were willing to wind back the clock and rewrite history, then we kind of could always do that. And in the future, we always sort of will be able to do that again. And so really, you're betting the farm not on you know what you thought you were, which is like contract is code and this is immutable, able and unchangeable, but really unlike well, if a few people decide that the critical right thing to do is to undo history, make the change .

and then. Parachute money in. yes. So file is like, again, this this is a huge decision.

He's really stressed finally, 的 computer science professor c kernel sets down with them and he says， he says to attack, i'm going to ask you a question. This is a quote, and I want you to answer truthfully. I'm not gonna judge you, just be completely honest.

Are you serious about building the world computer? Or are you trying to appeal to illegal money flows, drug dealers, illegal gambling ers and what not? And the tea response know that is not what this is about.

We want to build the next generation of applications, like, I really believe in the world computer. Anything is OK. Well immutability not doing. The hard fork is paramount.

If you want to appeal to this illegal money crowd, if you don't, and you're serious about the world computer, then it's completely reasonable to do a fork. And so that kind of convinces with I like, so they do IT. They do the hard work.

All the minor switch cover, literally, people are popping champion at the validation in a corner. Uh, it's all happening. And then a couple hours later, all of a sudden, the old black chain comes back to life.

This is another dramatic moment where like you're imagining them sort of watching the old chain on some monitor somewhere and you're like, wait and they are adding new blocks to the old chain is even possible.

It's like the end of return to the ji would like the fireworks to go and off and like but he's happened that like you know, the first though is like that they're bring .

so what's going on there?

Well, so it's it's unclear to me at least I don't know if it's known if anybody else knows or broadly whether IT was either on a mistake that some of the miners, just like didn't get the message and update there, kept the old chain or if IT was on purpose, kind of a protest right, three beevers or the attackers themselves were like, I want my money ah so that old chain keeps going IT is still going to this day.

IT is called the theory um classic. You can buy a thereon classic tokens on coin base. IT has a four billion dollar market cap.

It's the twenty second largest script currency by market cap.

Amazing, amazing a theory um of course see of the maintain thing a couldn't maintain yeah has a two hundred billion doing market cap as we are saying so it's obviously you more successful but like yeah this is crazy .

yeah and and a theory of classic is in some ways doge coin like we're like people are trading IT even though they know there is a fundamental flaw in its future development does not have any effort behind IT to fix bugs and developing new features and it's not going to evolve the way that the theory .

is gonna volt for the future so they survive the dough. And this becomes known in history like this is one of the defining moments of a thorium. And ironically, you know, look, there's a theoria classic, right? There's the fork and everybody who really is the immutability.

And what do you want that for philological reasons or to do illegal stuff for like you know whatever you want that for that exists but for the main in theory um black chain, ironically this kind of helps IT because they like blood. We're going to do the right thing. We are a system and a protocol that is in development.

We are evolving. There will be bugs. There will be hacks.

When that happened, this is not pick in. When that happens, we're going to do the right thing. We're going to fix IT. And you can understand why that's actually pretty appealing to a lot of folks.

IT demonstrates a pretty extreme amount pragmatism. It's very interesting how this crypt to community started as exclusively true believers. And then as I got more than the mainstream and answers more money behind IT, and as he needs broader society of adoption, the sort of trappings of traditional society start to seek in a little bit and there is this sort of realization that cheese, maybe safety nets are kind of good and maybe having someone at the home who has good judgment also maybe that's kind of good and the future of a theory um as much as fatalist wants to sort of work his way out of IT for Better for worse there is a little bit of a bedevil ent dictatorship going on there between the attic, the foundation and the largest mining pools where ultimately we are putting our faith and trust in something yep.

And certainly hard didn't know what what had happened otherwise but had they're not been of attack, I don't think the hard fork what had happened only he, just like all the confounders, put the gun in his hand to set up, you know how the company was going to a be, uh, how the organization was going to be without somebody like that at the helm, like there's good chances. What is devolved to kay us right?

With the talent so goes the community. yes.

So that doesn't necessarily mean though that uh a theory um is uh out of the woods, shall we say or that all of sunshine and rainbows and Kitty and vid.

we did say at the beginning the episode this is the world computer and it's also the worlds slowest .

computer IT is maybe the world's slow computer .

and we should talk about also, like you're comment about the rasberry pie, there is not any sort of more as I is getting busy change to that thing as this is growing. So we're seeing you know, the ico s we're seeing all these people spinning up coin based accounts during covet. We're seeing you i'm sure you're about to tell us about the boon of defy and fy summer aby. It's still all happening on this .

little rasberry pie in on A S pipe. So scalability, as more and more stuff is happening on a theoria, the rasberry pie is like having a harder time keeping up. And there has been in this explosion of stuff.

So for a sense, scale right now, the thorium network processes somewhere on the order of call IT like fifteen to forty five transactions per second. So that's like the entire iterum world computer. Fifteen to forty five transactions per second happened on IT. And those transactions .

could be anything if you really want to abstract think about that is like an actual transaction, like a wire transfer or you know something about a software like a tweet could be a transaction like any sort of movement of a of bits from one .

place to read right on the system. yeah. For comparison purposes, the VISA network can, at peak load process about fifty thousand, five hundred thousand transactions per second.

Centralization, baby, you can really scale .

with that a lot more. Now in theory, once the final uh serenity release of a theory um which together with a few other things is being called the theory um to to to once that is alive in theory the a thorium network will be able to process up to one hundred thousand transactions of a second. So dk, it's like a like a pretty serious like a tesla roader style upgrade and .

your Price scratching you had going away. How's that possible? So let's maybe let's put a pin in that now. But it's coming up and it's been coming for six years.

but it's coming it's it's coming. But right now, you know it's it's not here. So as network congestion gets worse, some worse, the way gas fees, the demand that you have to pay to get the nodes to validate your transaction, the Price of that you have to pay, the gas fees keep going up.

It's supplied, amit. It's effectively your CPU still has the same cock speed, but now there's a kaji, an people that wanted do stuff on that CPU.

Yeah so IT goes from like a diminish amount in gas fees. They have to you know twenty fifteen and twenty thousand sixteen to I think in twenty seventeen that hits like maybe like thirteen dollars per feet equivalent, thirteen U S T. Per transaction.

You have to pay. Then that dies down a little bit. And then at .

the peak seventy box.

yes, at at the peak now in the last few months year, as dev is just totally taken off and death involves .

lots of transactions there, there is no application that requires more transaction through put than high frequency trading.

Lending s up over seventy dollars just except one. So obviously this is a problem. And you know the talking, the anterior foundation knows its a problem, but progress is not happening. superfast.

So there's this famous fred Wilson, quote fred Watson from U S B, when the most prominent in early v, investing in crypto to board member of court base, plenty other of deer labs cyp to which will get into an a sect. So he's during a fireside chat that's on youtube at multiple ling capitals twenty eighteen summer and he just goes off on mentality and there um like literally goes off. He argues that they're inconsiderate.

They can ship that they are blowing the lead for the whole ecosystem. Uh, he says somebody needs to go over to switzerland and fire those efforts who don't know what they're doing. boom. Heat lays down the gotland.

IT is rational alpha that is like, hey, at this point, IT is a growth stage startup. There are playbooks here to run. You know he was on the board of twitter. I were reading, hatching twitter and feeling like actually this a theory of story is IT feels similar to how twitter came to be this band of renegades sort of suo um anarchist. What was the twitter?

What's we've been making, the comparison between valium and zc in this episode?

Really there's also the comparison to jack. Yes, absolutely, totally. And so much tome happen that twitter but fred witnessed here is how you take something that is unbelievable product market fit and is scaling like crazy and figure out how to put great management .

and get boy dickason in there, man. So metallic response he gets on larches unchain podcast and is like, yeah I mean, like you're VC like you want them, but like, no and it's devant who's right here but in the meantime, so developers need their their building stuff that's really cool. It's executing very slowly.

The performance is such an issue on the network. Other black chains start popping up to compete the like. Well, hey, there's a problem. Yes, there's is a free market like will start in thea competitor. So we've reference cardono from Charles.

uh husk son. Unbelievable that that I one of the .

confounders of the theory from had left the foundation and started working on this is the genius .

programmer who did the initial client .

arrested thean client as part of parity, I think, is his company, and was a great contributor from parity into the authorities ecosystem for a long time. But then they started poking out, uh, which is a competing chain, a little different. But competing chain there's eos, which raises four point two billion dollars in an ico. Before that bubble verse the end of getting sued by the c, there's finance smart chain.

There's lots of lots of books out there by and large though A A lot of these projects still here in tony twenty one having even shipped uh, like you think that theory shift slowly like other of these other ones, none of them get like real traction that except maybe salona, which will get into salona in a little bit. But meanwhile, these transactions are exploding on the authorial network we talked about, you know what they are defi and F T get into IT. So N F T, I thought N F T 的。 N F T bm kind came after d five.

No, i'd forgotten about this. N F T became a thing first. Um so .

cyp .

to kai and 20， the theory, an foundation hosted their first official theory foundation, hackston in toronto and a canadian start up incubator, a start of incubator called the axum zen from vancouver. They like, oh, we're looking to black in stuff where in their team over the toronto we're going to participate the hackathon tally at the hackathon. Come up with this idea.

They like like there are this arc 2 tokens， which are used for ico s at creating Young currencies on top of theoria. Those are commodity tokens. Every token is just like every other token.

So they're fungible. They are fungi ble .

yeah it's like american dollars.

Like sure, they have serial numbers, but like a five twenty box. And then I exchanged that for a different twenty box.

I still twenty x what if we create an implement a new token standard where every token is different, every token is unique? And that's actually the appeal there we make them collectable will do things. And like, this is the internet. Like, let's to make a cats. The net loves cats .

and this is a theory. I mean that that community is like a cats.

And rainbow say it's like, catnap is crypto kitties so little? I didn't think I didn't know this crypto Kitty invented D N F T.

yeah. I don't think I knew the phrase N F T like, uh, actually came very close and really regret not buying cypher kitties in twenty seventeen. I ever going to the website like this is wild. I can't believe they're doing this. But yeah, I don't think N F T entered.

People didn't think about IT as an N.

F, T, and I was just a clipt. People thought, hey, we could do this for other things. In fact, that there is a, uh, a friend and and another venture capitalist that was pitching me on this idea of baseball cards, but on the blockchain, like crypt to Kitty for sports. And so people were thinking about, like, hey, we can take this idea and do IT for other stuff. But there wasn't like a category name .

that was in the public conscious ness. And of course, many listens to kit x change this name. The dever labs, amazing.

And they are the company behind the M. B. A. Top shot. now. amazing. So freaking cool.

So cyp tio kitties accounted for elites peak fifteen percent of all the transactions on the worldwide. Dear him, network. crazy. So yeah, that's and and of course that is, you know people the earlier everything going on now h the people.

The other big set of applications though that are happening on authorities in the sort of post I C O summer after the I C O winter is defy so decentralized finance for people who are up on IT. Yet we're not going to go super deep. We don't have time here.

But like IT is super freak and cool. And basically, the idea is like the idea behind bitcoin was that we're going to created decentralized currency and on via currency going go outside the traditional furniture system to create money. Yeah, defi is like, what if we take that a step further and we just go outside the traditional .

finial system for every right is something like fifteen percent, ten percent I camera, exactly what that is. But a meaningful percent of the U S. G.

D. P is the financial financial services industry. So clearly, a lot stuff that needs to happen, a different professionals to sort stuff. If we've got a new type of money and we've got a new set of rails that, that money can move around in programmatic ways. We need all those instruments in the ecosystem.

too. And remember, what is the theory? Um you know, one big ideas, the world of computer.

The other big ideas is code with money. Oh, shoot where you get code with money. Now you don't need the code with institutions. The code .

got the money, David.

Defy, the first major D Y project was actually magor deal. Yes, downs are back. Magor deal launched the die stable coin, uh, which was a totally decentralized stable coin.

You didn't need that a counter party like with tether on the other hand, saying, like, don't worry, I hold U S D. In some bank account somewhere like do that anymore. Then at the end of twenty eighteen n swap lunches and us wap was .

like liquidity pool.

Now suddenly you .

don't necessarily need a specific counterparty to trade with. There is a exactly what that sounds like a pool of basically pairs of tokens from one to another if you want to swap assets without somebody on the other side of the trade.

And there's a very, very acute and real use case for this, which is like, hey, I wanted buy a coin before a unus wap. I would go to coin base, I would go to F, T, X. I would go to some central exchange, and I would do that.

I would sell some pick in. I buy some either whatever, or I would like, put money in, and then I would pay a whole bunch of fees to that exchange. Well, with uni, swap what you just do, this decentralized, peer to peer, no aliases exchange, no fees.

Great people love IT. In june of twenty twenty, another project, a decentralized lending platform called compound, they go even further. They say the participants on their system, which are lenders and borrowers, if you participate the system, we're going to give you a new compound token.

We're going to give you a utility token for a compound by participating in the system. This kicks off a crease. This becomes known as yelled farming, and this kicks off defy summer.

And like IT is all up into the rate from there. Before this compound event at the started twenty, there is about one billion U. S.

D. Worth of collateral that was in by the end of the summer last year. I was twelve billion dollars in may of twenty twenty one.

Last month, I hit a hundred billion dollars U. S. D.

Equivalent in market of east of eth.

yeah. So you can imagine the pressure that this is putting on the rest very pie. That is the theme computer.

like a constrained world computer at this point total. And for all these defy projects, each one hasn't associated token. I mean, that's kind of the crazy thing is they all work the way that a theory um does where there is a utility token that allows you to do stuff on that platform.

And of course, that platform is a sub platform that is on top of A Y thorium in the same way that you could have like going way back to our earlier example in theory is the Operating system. But like somebody made a browser and then you could have web apps inside the browser. And so sort of these it's an application with a platform within a platform without a platform type thing.

But but this is crazy that the scientists in you is getting excited.

absolutely. Each one of these projects that has a purpose also hasn't associated to tell you token that you can trade, that can do something inside of that project. It's just like the speed at which the complexity of this thing is just growing. It's really hard to stay up on what is the the current frontier.

And it's so exciting too. I mean, like this, like real things that are happening in big coin, a whole number of thing. And like I think bitcoin is a star value.

Like that makes sense, that it's good idea. But like that's what IT is. Like all this stuff is how there so much innovation. New value being is awesome. So that brings us to today at the start of twenty twenty, the Price of east was one hundred and forty bucks a token. Last month in may of twenty twenty one, that had sky recorded up to over four thousand dollars a token.

And then, as he references at the top of the show, about a four hundred and fifty billion dollar market cap for eth that has since come down by a factor about two to eat is right around two thousand dollars taken right now, hand right around two hundred and twenty billion dollar market cap. Not bad for a rasper pie. In december of twenty twenty, the iteration, an foundation, did finally launch face zero of the aerial to data upgrade, which started the beacon chain to start the process of moving to proof steak, but sharing, which we hadn't really gone n into protecting the real scaling list.

will get into etherium to ensure ting here in analysis because that's the that is the conversation that we want to have around what is the future of a theory look like and how should we think about about this thing going forward. But let's pause that for the moment.

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So as we get to do analysis mean I was so freak pump for this episode, and is doing all the research, all the crazy stories, all the history. The one thing I enough time to do was I meant to go back and reread all the great pieces the package has done, the whole serum ecosystem on web three and all the applications on defy, especially his great PC justice on a theory.

your knowledge proofs.

you would really help with our analysis if I had done that.

Yeah well, you are in luck ah and I just heard the duo of joining our zone call here uh, is that packing a corner .

I see on zoom? Hello, acquired, what's up and David.

how are you? What is going .

to have you?

Man, I am so altered to be here for the last episode of the season I was wandering .

my zoom was open at my computer this all time. And my David here in person, he doesn't even make any sense. I hope he joins at some point.

Well, i'm here now. This is going to be so fun, a topic that is near dear to my heart in the podcast that is near dear to my heart at.

So this is really like the super bowl halftime show of podcast like know you thought I was just spent on David but like boom, there's be on.

Well packy, the first sort of analysis section we want to do here is, uh the the bull case and the bear case for a theoria. And because you, mister unicorn and rainbows bubble and sunshine and and the optimist, I would love for you to lay out, like, what is the bull case for etheria from here? Like why? Why is he going to beat all the chAllenges? And we haven't been really talked about some of the chAllenges yet.

You know, how is if to going to go well? What the heck is if to? So I don't know where you, anna start, but I think you painting the balls would be just perfect.

fantastic. So when I wrote a my piece called on the internet on a theme, I think if is around twenty four hundred, so i'm about four hundred dollars more bullish now than I was then. But I think the bull case ends up being pretty simple and something, and I think doesn't maybe a medicine for a kind of all of cyp to for to work IT kind of has to have analogies to traditional business.

And I think the bull case here is more demand and less supply. You know you can boil IT down to that. I know you've talked about some of the use cases.

We have talked about defy. We've talked about an of tears maybe touch a little bit on downs. There's all stuff being built. I'm talking to so many people who are building things on top of the theory right now who are not in the least bit preterm by the Price.

I think that you know high value our sales will continue to happen, but there's gonna this a long tail of N F T kind of content that is created on the internet. Where are just honnor files? I think there's an explosion happening uh in in the deal space for an occupation. Just wrote a great piece to day kind of line out .

the so crazy the doors are back after all, are back after the worst thing.

They almost broke a theory and they are and they're very, very back. And then there's so many interesting projects being built. There's a company called syndicate protocol right now that is essentially rebuilding, investing infrastructure on the blockchain.

And like there's all these projects being built by people, some of whom cpt. Donative, some of whom are coming from kind of traditional web tude, traditional internet that are building on top of the blockin. The fun thing about eat is that you I kind of view IT like, you know, thereon is A W S, if you had to use amazon stock to use A W S. So you had to buy amazon stock to use A W S. And then when you use A W S, they actually did a share by back and aid up some of those shares.

And what you say supply them. And you're talking about if the token or a syrian, the networker, both, both.

The way that IT works is to do nearly anything that you would want to do top of the authorities by train. You essenic need to start with if which you pay transaction fees in the form of gas fees. So you need to buy the thing, create demand, and you need to spend that thing on time, the washing. And you might buy other tokens that you use in certain projects, but you're buying them with this, and you're still paying gases for the most part right now.

What happens is with kind of eve one or in a theoria, we are in, uh, proof worker, just like bitcoin, where people are solving math problems on their computer and they're getting rewarded in east to do that and then they are having to sell a lot of that east to go pay for the computers themselves, the electricity to pay their taxes that they're making off of this. And so all these eat are being mainly and then just kind of like kicked out of the system. So is a big kind of cell pressure on what's happening with E I P one five five nine, which was a proposal that is proven, is about to be implemented.

Uh, what's happening with the I P one for five nine is that gas fees are splitting into a base fee and a tip where the tip is you there's a bunch of transactions in any given block and you can pay more to be further in the blocks. So that's one thing. The other piece of IT, which is a huge change, is that the base fee is being burned. So instead of going to the miners and being sold to be cash to be whatever that is being wiped out.

so it's effectively deflationary or potentially deflationary because you're basically saying the amount of eat that exists in the world, of course, mining will continue. So the people sort of continue creating worry, but now there's a way for IT to be destroyed also in the base fee.

basically getting burned exactly. So the more things that are happening, there's more demand for the currency itself. And then as more of those things happen, more of the currency is burned off, so it's potentially deflationary.

So there is this mean that goes around in the authorities community. Bitcoin is sound money because IT has a cap supply. Then a thema eve is offer sound money because IT has a decrease supply.

And so if you're seen the bat and the speaker on twitter, that is the ultrasound money me. And so that that's the one part of IT. The other thing that happening is the switch to eve to which will change IT from being a proof work consensus mechanism to a proof stake consensus mean.

But before we get into the proof stake for the proper work and not about I, I do what you are just saying about the deflationary aspects. But am I right that this will also remove a huge amount of selling pressure? Says you are saying not only is he going to be deflationary, but you have now, of us, all of these essentially seaters that were coming in from miners that are now gonna not come in, right?

Exactly right. So the universe of less cell pressure is essentially more pressure, pressure, right? And so it's essentially like all of the stuff that was being sold to pay for computers on electricity and all the stuff off chain is now essentially being by timing, everything goes well.

Always a big sumption.

always big sumption. That is the one of the thing, I think. Yeah, you want five, five, nine less of a hugest assumption if two is the very big assumption and probably, well, like six months out from if two .

are straw poll amongst the three of us first to happen, eat two or full self driving .

tesla yeah, if too but not by much I but .

I think it's interesting.

right? And like all these things that seem technological chAllenges are also kind of human chAllenges, just like tesla, everyone is like, are you the tech is there, but it's the regulation. I think same here, there's a bunch of people who are if miners who are bombed that, you know, they have bought these rags and they have their whole things set up and there are no longer going to be at burning these proof of things and making eat for doing so. And so that that I think is the opposing camp to eat to is the miners who've been making all this money often feel from work.

But if IT does switch to perfect, which IT seems like IT will, the big thing that happens there that instead of spending a lot of electricity to solve really hard math problems, and maybe heard in the area, and maybe not, depending on a few years, renewables, all of that. What happens is you put up whatever amount of, eh, I think, to do IT directly on jane, you need to hold thirty two east and put them up, or stick them, and you essentially vote yes. This is a good transaction.

We can allow this. No, this is bad transaction. We won't allow this and you earn even. And that's where you get your yield from staking your eat if you're voting in the right way. But if you contradict yourself, if it's proven that you have voted in a way that's bad for a theoria, then you lose your stake and so you're taking the stuff to vote.

But what IT also means is that the yield for staking means that all of the sudden, instead of just being kicked out of the system, the value that is being created on top of the theory actually starts a crewing to eat holders. And so that's like the really big thing where it's always been. This disconnect in my mind, or the question that I always ask people is like, great. So people use a theory um what happens like how is value to eve and perfect stake is how value access because you need, if mistake, to secure the network. And then for doing that as a holder, the value across that .

sentiment makes IT a cash flow asset. Make the casket.

okay. So let me like to identify what proof of steak is. Let me throw out the question that everybody has to have in their mind at this point.

So proof of work, you get rewarded with a token in order for spending money on energy to do some hard math problems. Proof of stake makes IT seem like, okay, well, now just the people who have the existing ef are the people who get to vote, whether something's legitimate. Not so. Almost feels like I were shifting the power from labor, from the computers doing the work to in, to the power going to capital whoever currently has the most east and is willing to risk IT say, yeah, i'm sticking my eat on the line here to say that this is the most you legitimate transaction and and you can take IT away from me if it's prevent later that it's not a legitimate answer. Tion, is that the right way to think about IT?

I think bitcoin fans, maximilian have called bin bitcoin in people would say that a proof work is a much more democracy. Zed, open their way to do IT because anyone with a computer in the world is able to become a minor and a theoria. You need to own a certain amount.

And so it's thirty two eth. That's a meaningful amount, money to sixty four thousand dollars at today's Prices. You can also stake smaller amounts if you do IT through, you know, coin base and a buch of other projects where you're able to stake eat in smaller amounts and theyll pull them and stake for you.

So it's not like you have to be the written person in the world. The fear in all of this is if somebody gets fifty one percent of the in circulation, then they can just take over the network. They win, the whole thing is done. They take everything.

But there's always a fifty one percent issue with any of these decentralized networks. There's a fifty one percent issue with any one of these, for sure.

We should say this actually was I was going to break the this apple later, but it's worth calling IT. Now if you look at the pie chart of current miners of syria, either mine, f 2， pool two and nano pool combine own like. Something close to sixty percent.

So it's only those three mining pools that could hard fork if they wanted to. But of course, it's not. They're incentive to do IT because then people wouldn't trust the system, their holdings like they they want you to continue to get more available.

which is the other really kind of interesting, I think, peace of a bull case for a theory um and yeah it's for a theory more than more than bitcoin is that it's in the interest of anybody building on top of a theory um for eat to be more valuable because the more valuable that if is, the more secure the network is. So there's all these different ways, I think for the that you can agree.

W yes. So in some ways, like the bulk ase there would be that is so geographically distributed that like you can't turn e theoria off, you could crash the value, but there is no way it's gona go down completely. So it's like its censorship resistance, but it's not collusion resistance. Like if those three parties colluded to do something, they could, but there would still be a lot of other people out there running if nodes and it's in everybody's interest running theory um notes and it's in everybody's interest to make that network as robust as possible such that if any single set of actors does something bad, that there are still exists, a large .

network ended. Buy up enough for for those polls to continue to own enough or for any outside party to come in and buy up enough to influence anything and .

to do two one percent yeah because improve of steak. It's not about the minor anymore. It's about how much itself you hold, right? exactly.

And so if if is all the ten thousand dollars and the market cap goes up to a trillion dollars, then IT cost five hundred and ten billion dollars to run that attack. If he goes up to twenty IT cost a trillion dollars to n that attack. So the more valuable IT is, the more secure than network becomes.

But I think probably is why a theory um you know I think just the the lenders of a theory um in the fact that it's been around, explained Linda OK. So lindy, is this concept that the longer something has been around, the longer is likely to be around. So if something only been around for a day, then the chances are probably in another day it's gonna gone.

Like this could be a buzz social up. This could be whatever else if it's play to, and people have been referencing plato for mEllenda, then chances are people gonna be a refuting place of for millennia in the future. There's a bunch of reasons that that happens.

Uh, one is quality, I think, rises to the top over time. There are become these network effects for people start teaching philosophy using play on on that. And I think with a book chain, its network affects on Linda a little bit on steroid, where there's also this financial piece of time into the and it's attracting .

money and track you on playin in addition to teaching plato.

Exactly right, exactly right.

And so okay, we talked about E I P one, five, five, nine, which you've now said enough times that I actually know the number, which is about changing the way that gas fees work and changing the way that mining works and potentially will make ease deflationary. So now we talked about switching to proof of stake pack. I do have a good handle on what the proposal is for the side chains that are a proof of stake to interact with, like the one main corp. Is syrian .

blockchain. So now we're getting into shouting. And so right now, there is a single chain is one of the reasons that there is all of this congestion is because everything that you're trying to do is fitting a block each single transaction into the main chain, and that's IT.

Of course, there is going to be congestion, particularly when D I. Was exploding and n tips were exploding. Gas fees were high because people are bidding to get in. And so IT was IT was just instantly expensive to use a serum in the network was congested with shouting. What happens is that these transactions kind of get batched off the main chain in any number of like maybe sixty four shards and then come back down to the main chain as one transaction. So instead of sixty four separate things happening, IT happens one time and comes back down to the main chain is one transaction which decreases congestion.

Yeah, let's introduce the scalability. Try lama. So this was an interesting concept that was proposed by a vital where he basically said, look there, three sides of the triangle. You've got the centralization which we hold dear, uh, their security, which we also hold dear and then they're scale ability or you can think of that, that is like band with and David, I talked about, you know you get fifteen plus transactions a second, but it's certainly not five thousand transactions a second like it's not in a scale to a lot of transactions.

And so the proposal for the side genes is interesting because you're basically saying um we're going to pon a little bit on either security or decentralized in order to get that ability. So for like little ticky tax transactions that you don't want to pay huge fees for, but also if they don't matter as much, if like there's a lie in IT somewhere or there's an attack on IT and it's like not that big deal, it's kind of fine for that not to happen on the main a theoria lockshin. It's almost like not all laws are the ten commandments, like things can be treated with different weights. And so for those things, maybe it's OK to have these side chains that sure we're onna punt a little bit on the the decentralized or sure we're going to pon a little bit on security, but it's going to enable a lot of these ticky tech transactions to happen in a way that actually makes the whole system kind of work Better. So that said, there exists things like solon a that are a ethier, like in the fact that they are global scale computers, but they make different traders in that try lama and definitely get a lot more skills, ability, but perhaps don't have the same level of hard core security and the centralization as the theory .

um the only thing that I would add to that is that there is this concept of the execution layer and the settled layer. And right now with theory, those two things are all bundled into one. So it's like having all of the trades happen in real time on the new york static change and then of the settlement in the back account of the money trading hands at the end of the day, also in the same spot. Starting on a theory or things like oona could be where a lot of the execution happens. But because a theory um is the most secure and more decentralized potentially than the other ones, a lot of the settlement will still happen on a theoria, even if a lot of the activity happens in a bunch of .

different places. Yeah the analogy I ve been thinking about with this with a they're the most interesting competing other chain with tedi. Um and I kind of think about IT like yeah like lots organizations use A W S and they use snowflake and like that make sense. You know like it's not like you're only going to use one or the other.

It's just to put a fine point because you brought up the execution layer and settlement layer, it's worth making the analogy to the current animal system where you know we've got a very low band with connection between banks that doesn't need a lot of transactions.

You've got fed wire that needs to be bulletproof, but how many per day really need to execute? Like not that many, but like credit card transactions, like yeah, we did like tens of thousands per second around the world because like a lot of people are doing that. And there is going to be some issues.

There is going to be some fraud. There's going to need to be some reversals. We need to build all sorts of other mechanisms.

But like, do all of those need to happen on fed wire? No, no, they don't. So to put the bow on the ball case is IT fair to say, this is the next internet web.

Three is the next breakthrough paradise shift for technology. The way that the internet was IT will power trillions of dollars of new economic activity the same way the net did. And importantly, this is part of the bull case in theory um will be the base layer upon which .

IT all happens that is a good summary of the books.

Vents been reading back .

these pieces. okay. So then let's go to bear. I mean, the very first one here that I think we've all been a looting to is like either if to switch over doesn't happen and they blow their lead in the corresponding network effect because it's technically difficult and also difficult to get the community on board, or that IT goes poorly. And in trying to make the system work faster, they actually kill the golden goose of this existing bulletproof ish but slow system like that, to me, feels like the big bear in the room. Does that seem right?

That seems right. And I think, you know, begin, if you talk to salona or some other single chain, single shared protocols, I think what they might say is that because you're switching over to sharing this beautiful thing that we haven't really discussed, but is one of the reasons that people like building on top of the theory and like building a website which is composed border, or if people call IT money legos or media legos, where you can have all these things that snap together and work together. incentive.

These are like smart contracts that exists, that different addresses on chain that you can sort of easy chain together.

exactly. So it's like a bunch of open source projects together, really niche that anybody can just kind of take off the shelf. And so there's a bunch of those Daisy chains that happen that if they're not on the same chain and there's shut, then there's speed lost in that kind, moving down from the shards to the main chain, the kind of just break compose base for certain use cases like maybe there's enough things that somebody else can come in and say what we can do, all of the things that a theory can do and where single, shared and were faster and X, Y and z. And so maybe there's enough there to kind of provide the activation energy needed to move over .

to another chain, right? It's sort of like to bring IT to the web. Two world like I I built this great application.

IT calls these three other. And you know, I send data into the C, P, I. It's in data out, which then causes other p it's beautiful. Uh, actually though between these two, there's actually a phone call that needs to get made.

right? It's have pretty much faster and all of that. But I think that's really good ancho logy. Yeah, yeah.

I mean, they do have this huge lead, but. They thread the needle the first time by creating ethereal at all, like the concept of a term complete, globally distributed computer, upon which other that only applications, but platforms for applications could be built. Like that's a rabbit out of a hat that's threatened in the middle and they can not need to do IT again in order to make this shift to a scalable future.

In doing the research. For me, IT seems like there's also like people like like fred Wilson, like I just kind of fed up with how slow its move increate. Like we've known that scalability is problem for a long time. We still don't know when it's gonna a get fixed.

And I guess is like the risk that despite all these benefits to a thea, like it's like onna reach a certain point in the equal everyone where gas fees are too high as too much for pain for developers where they are like are fine. I'm out. I don't know what do you think back you?

I think that's certainly a possibility depending on how slow moves. There are already some things like hot diest project, which is a distributed kind of music player, which is building on both. And IT also settles theory, a theory for really fast things like likes or up. It's uncertain things that you sees really quick transactions that's all happening on sona and then it's coming down, settling on the theory and all vapid. There is this idea that different pieces are being picked off, but there is also the same if there are enough good block chains like sona that can interOperate with the theory um but that certainly lower gases and lower congestion and if there are enough side chains that gas is just get solo that even if a bunch of people use the thing maybe the take is just so low that not enough value is crowing to the holders of the token of the theory .

that's the bare case for eh is that this thing becomes so rarely used that those tokens don't become super valuable potentially.

right? The transaction, you know, even if everybody in the world used the credit cards, but interchange drop to point O O O one percent VISA national card become a lot less valuable. Uh and so maybe there's something at play there. There may be a very good response to the critique, but that's one that just kind of in the back of my head a little bit is what happens if everything gets so d congested and gas fees drop so much that there's actually not that much money to be made even if this is not something that a lot of people are resettle back on.

And it's interesting you you're comment there on the credit card companies. IT would both because eats value is derived from the supply of bad match. It's actually a worst quote, quote business on two axes. IT would be that smaller percentage stiff and there would be way fewer transactions happening. So it's sort of like a exponential problem for them if a lot of the demand for transactions on the ethical, an blockchain shifted to other .

block chains, I think that's right.

At least four eve holders.

I think that's right. Yes, everything is a double ge. sorry. I think that its strength is also its potential.

Well, I think that covers IT for sort of high level bull and bear. And I think in playbook here, what we may discover some more, but do you wants to shift to power?

Yeah, let's do IT. This is interesting. I guess we did seven powers for bitcoin. It's a whole new world in like protocol level power.

This is almost like, first, I kind of want to wrap my head around what's the power of H D P and you you raise the right point that like bitcoin is kind of simple IT is complex and clever in the combination of genius insights to create the system that worked beautifully together but a theory um it's actually quite difficult to wrap your whole head around at the way you can wrap your whole head around bit because IT exists in all these different layers. So maybe as we're doing power, we should define IT a little bit tighter and say the a syrian network IT rather than trying to say the asset of the tokens.

I like that, like that.

okay. So for folks who are knew the show, the options here coming from hamilton helmers seven powers are counter positioning scale economies, switching costs, network economies, process power, branding and cornered resource. And Normally, the way this is kind of defined is what enables a business to achieve persistent deferential returns above their news competitor.

So I had to be more profitable than their closest competitor. Of course, this is a foundation and of course, this is a big open source community. So it's interesting how would we define the persistent differential return of the theory um network so that we even have some criteria to figure out the power.

I think that's easy. I think that's the value of either .

does is this is all keep coming back to that. Actually it's the market cap of either yeah it's the total combined value of all the either in the world.

So yeah, what I mean that I am tempted to say, serum has every single one of these powers.

Well, David got lazier eyes over there.

The to me, I think network effects are for any blocks in the number one thing that any of them happened. And this one actually works in a couple of ways. One, there is kind of the concept that we talked about that everything gets more secure than more people who are using IT in the higher Price.

The eve is. And then I think even on top of that, all the things that are being built on top of the theory, I think really benefit from IT, where the holders of a token in of a certain project are more likely to stick around IT. I think that's the potential power of businesses built on top of a theoria is that they're essential zing users to get more of their friends to use the thing that they're using because they are taking occurs, uh, gets more valuable as they do IT. And so those things have their own really strong network of accepting that then I think benefit back down to a theory melli.

It's you're right. It's interesting. I ve tried I keep trying to come up with a good like non cyp to analogy because I think like the macos one that I throw out earlier, where a cythera um is kind of the Operating system upon which you can build the platforms and applications that that felt right. But there is also this element where it's also like being a shareholder in apple as well as as macos.

Well, this is where I think there's counter positioning too, really, if you view A W S and the like as competitors to the thorium network, there is no way that amazon, even in a post jeep basis world is going to be like, yeah cool. When you use A W S, you get paid in amazon .

stack like right right yeah .

it's like ah no, we want to capture that upside. Yeah like that's our leverage. Oh, there's massive switching costs. I mean, if you're going to go write something for salona, you don't write in solidity.

So like any of these applications that have already begun development or are already developed for theoria, there are some other systems that are compatible with the become E V M with the a thorium virtual machine, basically the globally distributed computer. That is a theory um you can with minor tweak port those over two non a thorium block chains. But like for ones that are dramatically different and Better in a lot of ways like salona, it's gonna be hard to get the developer community to really shift at this point. It's not that the a theory um has a thirty year lead, but they have like a four, five year lead with the developer community that is non trivial. I think .

there's another element of switching costs two which is for participants in crypto to economy either is the coin trading pair do and bitcoin tuber probably either more than uh bitcoin for other coins and other obvious like you wanted buy an N F T you're buy in that with the um you're not buy in that with and or you want to buy ilona token like you're finally buy in now with the theory where you want to trade on a swap like I think either is the number one trading pair on una swap and then .

there's another level, which is that if you're occuring pockets for participating in something that's built on top of the serum, there are E R C twenty two games. So maybe there is some mechanism where you sell, you convert to something else and then you get a new talking if the project switch to another another chain, but seems incredibly complicated, if not possible, to pull that off. And so I think just the fact that all these socks are see twenty tokens, the search costs as well.

Yeah, the thing that springs to mind is on the bitcoin episode, we are talking about how entrench the U. S. Dollar is versus bitcoin because the government both settles its debts and collects taxes in USD. And there are so many things that plug in to the authorities network at this point that it's sort of the same effect where if you're participating in a lot of these different projects, you're going to a end up with ease one way another and then its its work for you and it's transaction cost for you to move that to a different blockchain.

What's next? Keep down on here. Ah so there's .

some that IT doesn't have like what's the cornered resource? I don't think that really .

has that the talk. Maybe all the people aren't exactly corner resources, but maybe I don't think there's any other single person who is as much the face of crap to as .

metallic and it's a liquid asset. So this is not exactly right. But there's something about eat holders are at least serious e holder. Are people have held for a long time that are effectively cornered resources like people who aren't going to sell in her incentivize for to come more the hellers if haber ers, maybe not as boy stress or or passionate and maybe is the big .

I can buy that. I can buy that.

I think there's something there were mean, it's what you have to pay a bunch of taxes as if you if you say maybe that's accorded to resource. There is a much people who don't want to pay a lot of taxes later.

Capital gains. What about I think there's public scale economy s ale, the the currently the mining network and then in a profession that this number of e holders out there who are taking.

that's true. There's also I mean, you could argue that there's been negative scale economy is as well where you know gas is got prohibitively high because too many people are using the network and of its network facts as well. But too many people using the network degrade the experience. And that maybe those are things that if you assume happy one, five, five, nine and need to go through smoothly, become powers. But in the short term.

Not great point. Yeah, we've been to sunshine and rainbows over here on that point. And he theoria as a network got less utility in several ways as .

I got bigger. Yes.

for r and like that is the opposite of what happens in and what's upper of facebook or these like true network effect businesses or at just to stay on scale economies. It's also the opposite of what's true in like a netflix where you have that pure play scale economies where the bigger I got, the more cost effective I got for them to do things like license content does not show up here at all.

okay, maybe, maybe not. Then the bigger gets.

the more secure IT gets in, the more people are willing to build on top of IT. But then there is also certainly that the economies of scale up to this point.

yeah so continuing down the things that is probably not I don't think there's really process power. There are a lot of people who contribute to this thing. Uh, you know it's big open source project, but I don't think that gives you power. I think in large part .

that has held IT back yeah friend person .

was that yeah and so much of the value actually happened when there wasn't a lot of process to IT at all when I was the sort of founders and and sort of early folks contributing to IT that can I create the initial system?

Yeah alright.

we haven't talked about branding yet. It's the last one. Had you guys feel about that? Yes, that has branding power the way this would classically be defined as and .

I going to pay more for this diamond because it's from phanes.

I don't think this has that.

I would say maybe other the network effects, maybe it's the biggest power cos. So the tic roto post that I I reference in the p2 legitimacy and how like one of the main reasons that different things in crip to have value is because they have legitimacy。 And so you can get legitimacy in a whole bunch of ways.

But because theory s been a long, long, a long time and perform grown the past and obvious things that keeps occuring legitimacy. And so you could build, and people have built forks of a thereon. There's a thereon .

classic out there, very .

good, but IT doesn't have the brand power associated with. And so that yeah all kind of ties sing together where there are network effects because people moved over and so make sense because other people are moving in over. So there's a bunch of things jumbled into one, but I think the existence of an ethereal classic, the existence of a buddle trains that technically are the exact name as something like a theoria, but their corns are nowhere near as valuable. I think to me, that's kind of bread power that is into the Linda thing we were talking about before.

Yeah, that's a really good point because it's funny how the psychology of what I go put five thousand dollars again, not investment advice into a theoria feels like, uh, maybe like it's prying, not gonna go to zero but what I put five thousand dollars into a brand news coin that someone told me is doing something technically interesting but i've never heard of.

I might be like, how about five hundred? Yes, there's definitely some kind of like test the water thing and it's funny that it's actually more around how much would I be willing to invest, not how much would I be willing to pay. But there is a brand power that access to IT from a trust person active to even though IT is a very, very volatile asset, give me some among a trust that it's here to stay.

I buy IT.

I have an e pack your spot on with the the eat classic argument.

We appreciate you joining our liquid .

super team to bring us this great insight.

There is something that sort of been ruminating and I know we are did bear in bulbo like there's gotta a bare case on all of crypto that's like the barking here that, that we're not talking about. I mean that there is a variety of things that are su du black swan. I like quantum computing or like, you know, someone figures out how to crack R S A effectively or there's let's put those black one type things aside. I mean, where is there a pera burst on the entire crypt of bubble?

I think there .

are .

still a lot of things that are happening on web. Three are happening on a theory an because it's early and cool and they have no impact on the real world. And so one kind of big bar bubble best case is just that IT doesn't find applications.

Where is that much more useful uh and useful enough to be worth kind of the extra complexity? That's not my belief, but I think that maybe one of them is that just doesn't find the applications still. I think that's been the rust over the past few years.

Another one is everything is still so tired to the Price of bitcoin. And bitcoin is, you know, it's blessing the skirt. I don't think there's anything fake about IT just because IT is kind of built on human belief in the fact that other people will accept the coin.

But if people decide for whatever reason, you know, IT has tanked a bunch recently. If people decide for whatever reason or government start to crack down and it's just not worth the headache, then a bitcoin goes down, at least temporarily. Everything is going to absolutely crash.

It's wild to watch to these last couple months like as bitcoin is song around, either is sung around, a lot of tokens are swung around and its legal body realizes these things are completely not connected, but they are, which is your point .

that that wants a big one to me. Just even the fact that they trade together, I think is a big one to me, let alone what happens if coin, uh, if they are in draft, like the fact they're not being Priced independently yet easy, either a phenomenal opportunity or is something to be worried about.

is there how do how do we feel about the state actor? Government is not necessarily, I mean, in terms of like, oh, government in a state actors gonna a fifty one percent and like destroy, but more like like what we're starting to see with china. Like, hey, where to make IT illegal to do this, we're gonna and prevent our citizens from participating in either bitcoin or or in the hold centralized a system in the term.

I think uber is a good analogy actually uh, where it's this race between what governments decide to do and how much people really want to use this thing. Uh, and so if you can get to a point where there's a ton of utility and IT enables cross border payments and people who are in hyper inflationary markets need crypt to currency as a stable thing to keep their money in.

If those use cases accelerate past the point of what kind of governments can control and there's a great swell, then that's also the uber cases is that they were going to town. They break all the rules, but customers loved uber so much that they could fight the local governments and win because they had all the constitutions on their side. And so I think that's probably the races that plays out, is can gypt to find enough use cases and provide enough real value to enough people that if the governments tried to correct down IT would cause an upper right.

Because right now that cross porter payments thing is real. You in countries that are having monetary crisis, but in terms of like actual, real use cases, most of them, while there are a very cool things like audience out there, most of them are for true believer s and so to your point of like if a government bans IT, there has to be enough of the citizens who is in IT for the utility of what's already built rather than in IT for the belief in the future to sort of continue at sort of development and momentum.

right? You couldn't bend the internet at this point. There is probably a time in the early nineties, lady, where the government could said, dad, no internet people would been like, what have been called?

I use my web T. V. instead.

And and there was that money time after doing. And I think we're past that point now, but I think that's the race OK.

Thank you for helping me tie off that section in a way that comes my just feeling. We are you you miss something there. playbook.

Yeah, playbook.

So the first one that I thought was really interesting is that just to contrast this against the bitcoin episode, big coins like pretty set in stone, but the theory um evolves and they've demonstrated the ability to learn from mistakes. Just the underlying software in the contracts to change to what the community feels is best. And that's for Better or for worse.

Like is a theory, am truly immutable, able does IT have strong, uh, what's the phrase? No, I don't think it's really a beautiful. And yes, he does have weak subjectivity like that. There still are.

There have been a bit hard works.

right? There are decisions that are left to human actors who can influence fifty one percent fairly easily. And then IT changes the way the world works. We talked about the three mining pools. It's sort of this in contrast to bitcoin. IT does represent the human element of the way that all of our existing social monetary technology systems are structured where we do have faith in institutions that that I think this actually .

happened like IT would be much less crazy then with the theory um to say like biton was probably given to us by the aliens. I'm not saying that IT was but IT could have been you know this is like that was like A A technology transfer from an advanced society where they are really like here. IT is you know whether that is not as we have seen with the history with the theory um has been built in public .

by humans yeah the other thing that makes me think bitcoins but by alliance is no human could sit around with sixty .

billion dollars in a bank account .

and never touch uh you're talking about .

and i've got one that I think is a really, really big playbook. The we've only scratched the surface here and we we can't fully digging to, but I think we're going to in the future of required quite often is you look like fried Wilsons arguments against fatalist and against the foundation had a lot of IT and rewinding back to the original history in the founding you Charles les and Anthony and the desire to do a for profit company for this as the vehicle and to raise venture financing.

There was married for those things a theory um and so many other gypt organizations since theory um have proven that there is another way to generate and for people in institutions to capture amazing amount of value outside of a traditional U S C corporation with a foundation I mean like salona is accommodation of a foundation and A C corporation that is reading things. But most of the value and the of are held, I believe the foundation this say hold new way of structuring projects, companies, its kind of the team idea 1IT totally isn't this is gonna change a lot and certainly lots of V C from U。 S, B, I been encrypted.

Tive, yeah, cool. We get IT. We're gona buy tokens instead of buying shares in secret.

slick. cool. And maybe it's that simple. But like I think we're just catching the surface of all the implications to this.

Yes, I got another one that we we touched on earlier but is worth sort of repeating that like that. Would we literally think of what was the playbook to build a theory? What was the playbook to build bitcoin? IT was bootstrapping the network with illegitimate use cases. But then once that network has been laid, like, you know, really cool stuff on IT and like cool, legitimate stuff that is Better than what came before or at least serves a different use case because now you have this infrastructure. And I was trying to think, like where did this show or or or did we see this with the internet in the same way that we've seen IT in encrypt a where you know you the silk road and pitt coin, you had IOS with thorium, like people talk about sort of the adult industry being early adopter of the internet and pioneer video technologies. And that happened to some extent.

but that also happened with the theory. We didn't talk about IT really a, but there is a thing called spin chain, spank chain c something like that. That is for sure was one of the first applications on the theory.

Yeah, but I guess the contrasting point that I want to make is like it's interesting to me that the internet started in university computer science departments and maybe I missing, uh, a huge chunk of internet history, but IT doesn't feel like a bunch of nodes were set up on the internet because people wanted to access to something. You listen.

嗯， and it's fascinating to me that that has happened twice in crypt au, but was not a part of the internet or really I don't think a part of the P C. Revolution and didn't really seem to be a part of the phone. Revolution is a new gain, widespread option. It's a spectrum. So the playbook .

is start with the IT is IT use case. If you want to get adapt.

the cypher of playbook is figure out how to get as many notes on your network as possible, as fast as possible, at whatever cost. So can gain what will happen, the the benefit of what will happen .

on the line with him. Make sense to me.

packing any playbook themes. I mean.

I think the interesting thing on that playbook theme is that people who are Operating selling drugs in porn all had a really hard time Operating in the existing system. So I think it's less illicit use cases and it's more enabling something that wasn't possible for a group of people before and those people were not able to transact in the the existing system to the same except that they were in something kind of deal, zed, and a little bit more anonymized.

And so I think certainly that piece is true, but I think that maybe a playbook team is that, you know you're enabling something, uh, that that wasn't previously possible to a certain group of people that where you get your first adoption, maybe like marketplace building one or one, is find that passionate core niche and expand outward from there. I think maybe that's like the kinder general way of that end here. Another playbook is them to me is there's something around the idea that there's all of these use cases that are internal to the network right now, and they're still looking to fine ways to kind of influence real world a little bit more. But I wonder if there's a playbook team around how do you build up use cases that are internal tear network to get that initial activation energy before going out and taking over external use cases.

Yeah, man is at least three to another thing that i've been thinking about a lot with a thereon and crypt to broadly that I I said this tweet the other day that was IT was in this vein of jobs to be done that you're sort of talking about packy, which was what are examples of blockchain based applications that a created a lot of value besides profits from speculation.

B would have a worse user experience if built on centralize technologies, and c has a primary function that is not finance or currency. And I got a lot of really good push back from a number of people, including front of the show chat women, that we're basically like why would you put sea in there? Like why does that have to have financer currency not be a core part of IT? Because what web 3 is， is bringing finance and currency in an integrated way to network software.

And like it's like in the way that web two was about bringing dynamically loaded data into your web pages, it's kind of like asking like what's a good example of a web two point o APP that doesn't use a jx? You know, it's sort of like the jobs to be done of all things on web three on the crypt to internet do involve a transfer value between people. And I I I think like i'm sort of coming around to the idea that, yeah, i'm gonna see you like of the next spotify. That is just straight up Better than spotify but decentralized and because is to centralize, its like no, we're going to see a version of spotify that lets me transacting directly with artist because like transacting directly or something involving decentralized finance is actually the point of web three yeah .

I think downs are fascinating here as well. Where the big innovation and where most of the people are doing their work is not on the technology side, but is on the incentive design and the token omics and all of the things to help coordinate groups of people on the internet ways might otherwise not be possible or be filled with some attraction. And that comes back to the financial aspect and whether or not it's financial, the token ization aspect, or at least you have status for morning about your tokens or other things. And so I think that idea of baking instant design into the core, the product and let in the community design incentives for themselves is mine vinger fascinating.

So guys, I mean, like i've been i've been interested in in big cloud, that's such a good example. That's really what is big club. It's twitter with money, right? But like, twitter with money is super freak, different than twitter totally.

Like many times, I have wanted to invest in someone some way that I thought was criminally under followed for the quality of their content. And like, yeah, that is exactly what IT lets me do.

Yep, you are. I think that .

about raps IT for playbook for me.

Me too.

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Yeah, vana is the perfect example of the quote that we talk about all the time here and acquired jeff bases his idea that the company should only focus on what actually makes your beer taste Better. I E spend your time and resources only on what's actually gona move in will figure product in your customers and outsource everything else that doesn't. Every company needs compliance and trust with their vendor's and customers. IT plays a major role in enabling revenue because customers and partners demand IT. But yet IT adds zero flavor to your actual product that IT takes .

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How are you gonna this?

We get to decide on there how to do this, I guess. So I thought you .

had a player.

So i'll tell you what we're not going to do and packed y and and David can do to on what we are going to do. So we are deliberately not creating this one. On the investment return of east bitcoin, I think we talked about was a three million x in one decade that is the single greatest return in human history on any asset in one decade.

But that is not what a theory um is about IT is the world computer sure it's a financial asset, but it's not primarily a financial asset. And so of course, IT IT is a cyp to currency. But I think if we like focusing on grading and and sort of trying this episode of based on its investment return, I think .

we're missing the point.

Yeah, totally agree. So David, how are this one put me?

I think we should grade the afternoon foundation on their stories of the serum network over the past uh, seven years .

yeah and too abstracted even more you could say like grade how ithuriel's implementation how successful has IT been given the sort of germ of the idea initially of the world computer that exists on a blockchain?

I think IT is utterly amazing. What has happened here? Like, no vat, no White paper, no foundation, none of this.

What is no define? No N F T, no crypt o kit, no N B A top shot? No audience, no. And and like, yeah, none of these things are, quote, mainstream yet, but they're like pretty darn close.

And there are billions and billions and billions of dollars of economies that have been created here. So like that is out of this own world. That's on the one time. Now on the other hand, like twenty fourteen was a long time ago, they were shipped like a bunch of versions. But like relative to certainly the initial promise of we're going to be at the surrender ty released by twenty fifteen, we are we far behind tear.

And I think vitality himself has certainly said an admitted that there are many things he would want to go back and change about the beginning of a theory um in the trajectory that it's been on. So i'm gonna land on an a minus. I think IT gets a because of the first part of what I just said of like this is frequent unreal now the actual execution like ready for prime time yeah guys so um you know they're get there but that's i'm going in mind us funny how it's like it's .

just parallel so many other open source things like famously the the meme in the early two thousands was next year as the year of linux on the desktop. The stuff you hurt cats again and fatality is literally hurt cats, little heard cats. So it's sort of to be expected with the path that they chose. Uh, the question is, was that executed Better or worse than your sort of average open source project, given what a world changing idea they they had to start with? I do like your a minus the only thing and i'm going to violate the way that I initially open this um by talking about eat here the only thing that would possibly push me closer to an ape but i'm not going to go there and i'm going to land with A E minus is the fact that they have created two hundred billion dollars plus of market cap in six years and you look at like uber that IPO at eighty after ten years and like that everyone refers to as like, geez, if I could just get a little uber mortar lio you know like just one all I need is one thank you hear are so many VS that are like so the value creation activity, or at least perceived value creation activity that vitaliy and the team have done in the last six years, seven years, whatever is, is remarkable and outpaces basic. Every hyper growth start .

up for sir. Yes, I cannot argue with that.

But a minus tier point of like if this is the row that you choose in the opening ce foundation way, and this is the way you choose in which to execute, there are a laws of human physics that govern your ability to continue to effect change.

You get a minute that well and we've managed IT. Okay, yes.

packing, you left .

the a wide open for me and of course, as the rainbows and and butterfly guy in the other big kind of critical that we've touch shine a little bit and not that we haven't talked about too much, is the idea of trade offs. And I think there is a bunch of trade offs inherent with the way that they decided to do things. They have a human team that is just the starting point that they det themselves.

So you're starting after that. I think given the fact they have a human team, given the fact that they don't want to change things too many times and change things too quickly, they forked and they ve made some decisions in the past that that you are very human decisions. But they can do that too frequently and still be viewed as a secure thing there.

Of course, going to be slower. Obviously, that would be amazing if they're faster. But look at the explosion of things that has happened on theory um in the past year despite all of that. And maybe they made the exact right trade off, even the accidentally over the past few years to get .

to the point maybe the world wasn't ready five years ago.

And well, certainly, I mean, like the world wasn't ready, was accidentally super lucky that you know IT was at least stable during the time when we were all locked inside and looking for new ways to organize service. A ton of luck involved as well. But I think looking from then to now and then, what's potentially going to happen in the future and like the.

The seeds of things that are being planted right now to even just be alive to this point when there have been other blockchain spin offs and bitcoin spin offs and other things in the theory is still standing is number two. And the most exciting in terms of just like world changing potential. I mean, I I don't know how you do a much Better job than that, whether it's spy scale or luck or some combination of the two, you have to give them a day.

right there will go.

I didn't expect anything less pack.

mimic, not boring as expected.

Yeah, well, you guys want to do some, some car vouch before we winded up here.

Yeah, I actually have some great ones for the service .

multipart.

Ve, yeah. Well, is this too in the same category? So criminally as long time ministers to the show i've i've been reading size I for not my whole life, but like a number years now, I really enjoy IT love IT been through, you know, the asm of books out everything like so fantastic I have not until the last couple of weeks.

Red are there? C clerk, and it's fantastic. I love his stuff. Famously, you know, he, uh, coined the term, any sufficiently advanced technology is in distinguish from magic, often quoted in the tech world and plenty of other things.

Concept painter he was writing in the fifties and sixties kind of like same time ish. His asm off and his writing is great. I really like IT.

So a facebook I read was rendered with rama. That's a really cool one about a dead seeming aliens. Spacecraft enters our solar system and what happens? Um that's super cool. And then i'm in the middle of the city and the stars right now um which I am also really enjoy inset billions of years in the future where all of mankind has been reduced to one single city on earth and the rest of earth is a desert a special I have recommend.

I like IT adding to my list. I'm going to do a little bit of popcorn on this time because I think i've been a little heavier in the past. I'm watching loki right now on disney plus.

IT is exceptional. IT is so clever. There are so many little details. IT opens in a way where i'm like, oh my god, I totally didn't realize there was this whole in avenges in in the mcu, where they created an opportunity to go and tell this entire story with logie. And as soon as I saw the beginning of the first step solus like, oh my god, of course, that was unresolved. And I I just think it's it's marvel and it's disney other absolute sort of storytelling best.

And just bit so that I don't say full rainbows, I contrasted heavily with the winter soldier show that they've come out with where IT seems like loki was made for people who like are looking for this of really clever, fascinating marvel on top of their game shows they made for the nds yeah. And then they just like cracked out that winter soldier thing like IT was like pacific rim or just like I felt really off brand in the way I was uncompelled. So it's interesting to see how some of these spin off shows they're doing from the mcu and .

from did you watch .

a wonder vision idea that that was great to is like vision calibration. So if you're into that, go check out loki. It's great. great.

right? So i'm actually going to go to side by as well. It's pretty much over the past year and a half, all even reading. And recently, my friend, when roller, a composer, recommended that I redialed ed by nail Steven, and he's famous for snow crash and coining the term metaverse and all those things.

Diamant is really fascinating because it's a non digital future, is a future where a lot of the innovation has come on the physical side of things and the world map split up in all of these interesting ways. And that takes place in what is today, china. And they have these matter compilers that make all sorts of interesting things, including islands and airships.

And it's just like a totally different view of the future or no one spends any time on computers and it's all centered on this book, talks to the reader, is actually red out loud by a real human actor. It's just a very different view of the future that i'm used to reading in cph. I and the best part is that reminds me in terms of writing style, a lot of curva. And so this is really fascinating book read. I would .

highly recommend diamant final Stevenson, awesome love IT one season i've been playing on xbox game pass near automata, uh, which is a square adding skin that never would played others SE, it's kind of a weird game to play because you've gotta play through IT like four times to.

I like .

it's a whole. It's like an intertie piece. It's kind of cool though, like a packed y you remind of me of IT like this weird future IT is sipi in that you play as as an android and you're fighting robots.

But like, yes, this a very different vision of the future, uh, that I find interesting. And then my other one, the pandemic has subsided here in the U. S.

We are very lucky on that front. Vaccinated couple years ago, I did a in person recording with jeff at software. There was so freak fund like to be back in person, like, Better in here, here, now, packed.

You've got to get you out here next time. Uh, live. It's so great.

And at the end of IT, we were like, we're hanging. It's so great to hang out. You want place magic gathering.

And so we put a magic the gathering night together with a couple of bodies. And I god, IT was so much fun to just feel like back in person. I like. So that's awesome.

Listers, if you haven't checked that out yet, it's a great episode with jeff and David. It's to go listen. Well, speaking of patchy working people, find you on the internet.

You can find me at not boring dock co or at pacy m on twitter.

great. Well packed y, thank you so much for joining us listeners .

what really enjoyed .

being on the the journey the last six months I mean, uh whip lash and holding all these competing ideas can currently and uh just forming new perspectives in new ways of looking at the world. I hope you've enjoyed IT as much as as David and I have and um it's truly a privilege to be able to do this and um get all the incredible feedback and and comments that we do from you all.

So thank you. Thank you so much.

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