In an episode of strong positions, Blockchain Capital partner and Bitcoin educator Jimmy Song explains why private blockchains will never work, why smart contracts will never work, and why Bitcoin will be the one and only valuable cryptocurrency. He also gives his definition sound money, describes why Bitcoin is sound money, and talks about how he finds new companies to invest in if he believes Bitcoin is already the winner. Plus, he recounts the story of his buzz-generating debate with ConsenSys’s Joe Lubin at the Consensus conference, which ended with a challenge to come up with a bet in Bitcoin, and what terms Jimmy would like to make the bet on. Lubin, it’s your move.
Jimmy Song on Twitter: https://twitter.com/jimmysong
Medium: https://medium.com/@jimmysong
Blockchain Capital: http://blockchain.capital/
Programming Blockchain: http://programmingblockchain.com
Off Chain with Jimmy Song on Youtube: https://www.youtube.com/channel/UCEFJVYNiPp8xeIUyfaPCPQw
Medium post on smart contracts: https://medium.com/@jimmysong/the-truth-about-smart-contracts-ae825271811f
Jimmy’s rebuttal to the responses to his post: https://medium.com/@jimmysong/crypto-keynesian-lunacy-16bb9193a58
Video of Amber Baldet, Joe Lubin and Jimmy’s panel at Consensus — video 31 under Day 1: https://www.coindesk.com/events/consensus-2018/videos/
Thank you to our sponsors!
Blockchain Warehouse: https://www.blockchainwarehouse.com
Clarity PR: http://clarity.pr
Preciate: https://preciate.org/recognize/
Transcript:
Laura Shin:
Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I’m your host, Laura Shin. If you’ve been enjoying Unchained, pop into iTunes to give us a top rating or review. That helps other listeners find the show.
Clarity PR:
Clarity PR is a global strategic communications agency that shapes market-leading narratives for brands in crypto and blockchain, to drive awareness and grow business. Working with clients including Atlas Quantum and Securitize, Clarity can move quickly to differentiate the value of your business. Please visit Clarity.PR to learn more.
Blockchain Warehouse:
Blockchain Warehouse is an international blockchain accelerator, offering a wide range of token sale advisory services to promising blockchain-based ventures. With the leading advisor network, BCW is at the forefront of the landscape-changing blockchain companies, and hosting successful token sales with more than 20 million dollars raised so far.
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Laura Shin:
My guest today is Jimmy Song, partner at Blockchain Capital and founder of Programming Blockchain. Welcome, Jimmy.
Jimmy Song:
Thanks for having me, big fan.
Laura Shin:
First off, I want to know why the cowboy hat, and do you wear it everywhere you go?
Jimmy Song:
I do wear it everywhere I go. I have three separate reasons for the cowboy hat. First of all, I live in Austin so I wear the boots and the cowboy hat as sort of a way to let people know that’s where I’m from, right? Like, when I go to conferences and things it’s, “Hey, where are you coming in from?” “I’m coming from Austin, you can’t tell from the hat?”
The second thing is, I love the 1800s, that whole era. Yeah, the United States went from a backwater British colony to a world superpower in that period, and cowboy hats and that whole West and self-made man ethic and all that stuff was very prominent around then. I like to point out to people, that was largely built on sound money, so for me that’s a very powerful motivator to sort of imitate that era just a little bit.
Finally, the third reason is I do speak on bitcoin and the entire crypto space, so for me the hat represents the crypto space in the sense that we have a lot of opportunity, but also a lot of danger. It’s the Wild West, right? There’s a lot of interesting things that can make you a lot of money, but there’s also a lot of stuff that might get you killed, so yeah, that’s why I wear it.
Laura Shin:
Oh boy, I hope you mean killed in the financial sense and not any other sense.
Jimmy Song:
Hard to say, hard to say, Laura.
Laura Shin:
Oh, man. Oh, boy, okay, I was looking for some certainty there. I’ve heard you say this word sound money so often, I’m just curious, what does it mean to you?
Jimmy Song:
Sound money? Hard money versus easy money, hard as in it’s very hard to produce, so not a lot of society is sending their money and resources, their resources into generating that hard money. Easy money is, by definition, like easy to produce, so central banking, fiat money, that’s very easy because it just requires the stroke of a pen, or an update to the central bank’s data base in some way or shape or form. For me, sound money is money that is hard money, that’s very difficult to increase the supply of, and that’s what bitcoin is. That’s why bitcoin is interesting to me.
Laura Shin:
And did you have that interest in sound money before you got into bitcoin, or did you develop it once you learned about Bitcoin?
Jimmy Song:
Well, I think everyone sort of has that instinctual value of something that’s scarce, right? Like even when I was little, I would collect baseball cards or something, and I still remember there was like a Billy Ripken card from like ’87 that had a profane word at the end of the bat that they didn’t catch, and then they revoked it, and everyone wanted that card because they revoked it, so it was rare, so people wanted that card.
I think that that’s a natural instinct for people, and it’s not necessarily something that you need to learn, per se. It’s something that’s almost inbuilt, and when I heard about bitcoin first back in 2011, that’s one of the first things that made me want to get some, was that there was a 21 million bitcoin limit, and I knew that it was scarce, right? Like, you can’t make anymore, so therefore it’s a very good thing to possess.
People recognize this about other, all sorts of scarce things, and that’s part of … I mean, you can be versed in economics, I guess, and know about the subjective theory of value and all that stuff, but I mean it’s sort of inbuilt, I think for me, and I imagine for most people.
Laura Shin:
And what were you doing at the time that you learned about Bitcoin, and how did you hear about it?
Jimmy Song:
2011, I was working at a startup. I was one of three people, the only technical guy at that startup, and I had been doing startups for like 15 years before that, so I was at the startup. I saw a story on Slashdot, that’s a geeky Website that I used to read, I don’t read that one so much anymore. I think Hacker News is like the new geek hangout, but their tagline is news for nerds, important stuff, so it has like, it’ll have a story on the Matrix movies or something like that, and then another story on like how SCO is a patent troll that’s like suing all these companies, or a new distribution of Linux.
It’s just sort of stories that I would be interested in, so it was very much catered to me, and I read a lot of the stories that are on there. One day I saw one story that I had no idea what it was talking about. It said, “Bitcoin has broken one dollar.” I was like, “What? What is this talking about?” So, I clicked into the story. I read about it and it’s like, digital money? What the hell is this?
I basically fell down the rabbit hole and looked at it for a few days. I was like, okay, I need to buy some of this, largely because of that 21 million limit. I was like, “Okay, I have no idea if this will gain traction or not, but if there’s only 21 million, and if it does gain traction, then I better be one of the people that has some and not one of the people that’s buying it much later, because it’ll be worth a lot more.” That’s largely proved correct, which I’m kind of still astounded by, that it’s come this far. But if you think about it, and think about how much money printing there is going on in the world, that makes sense.
Laura Shin:
Wow, to get in that early and buy at that time, that’s amazing, but before I get to-
Jimmy Song:
To be clear, I didn’t buy at that point, because it was really, really annoying. I actually ended up buying many months later, but yeah, it was, yeah, I didn’t buy, one of the biggest regrets, yeah.
Laura Shin:
You worked at wallet company Armory and enterprise blockchain from Paxos, and I was actually surprised to see that you were at Paxos as recently as March, at least according to your LinkedIn. What were you doing at those two companies?
Jimmy Song:
Well, Armory, I was a VP of engineering, so I was helping develop the product. I did a lot of coding. We weren’t a very big shop, so I think we had like eight employees at our peak, and it was like six engineers or something like that, so we were a very engineering-heavy company. It’s kind of funny that we’re talking about that, because a lot of these institutions want custody solutions. We had something back in like 2016, and we couldn’t find anybody that wanted it. We had like this interesting key ceremony stuff, and it’s kind of sad to look back on it because we were just two years early, but what can you do?
Unfortunately, we ran out of money there and I was looking around, and Armory at least back then was a really popular wallet, so when Alan Reiner was the CEO and he had founded it, and he’s a very good coder, a friend of mine, he posted right after Armory ran out of money, on the bitcoin talk forums, and told people, “Hey, we’re going to stop.” I think he had something like 17 e-mails in the next hour about how he should apply to work at these other companies.
So based on that, we went out and interviewed a few. He wanted to bring me along with him, and I ended up at Paxos, otherwise known as ItBit, and they wanted to do an enterprise blockchain product, and that’s what I worked on for almost two years. I mean, I did do some advisory stuff on the ItBit side of the business, but yeah, it was largely trying to make a private blockchain work.
Laura Shin:
Which is really interesting, given that you have a very strong viewpoint that private blockchains won’t work, or don’t work, and yet you worked on one for two years, so why do you think that?
Jimmy Song:
Well, I mean it’s largely because I tried to make it work, and I couldn’t. Every single time I came back to the same thing. You have to have some central point of failure, in which case a blockchain makes zero sense. If you try to make-
Laura Shin:
Well wait, but having a central point of failure, like if it’s let’s say five different companies, then so what is the central point of failure? Is it that a hacker would have to attack three of the five companies, and that’s the central point of failure/
Jimmy Song:
No, no, almost, so that would be more a federated system, so three of five or something like that, and that’s what like Blockstream is doing with the Element Sidechain and Liquid and things like that. Now, I’m talking about the actual blockchain, and I’ve studied a lot of these other ones, Hyperledger and Corda and all of these, you almost always come back down to some sort of central entity that needs to control what goes into the ledger or not.
And if it’s not a central entity, if it is like you were saying, like three of five, it doesn’t work, and there’s a lot of reasons for this. Part of it is regulatory, so if you’re doing anything in the security space, there’s a regulator that needs to be in the middle of that process so they can roll back a trade or like have somebody’s on suspension, they’re not allowed to do that, they need to control that.
So, there’s a central point of failure there, but more importantly, if you’re going to make money with the software, almost always you have some sort of software as a service type offering, you need to justify why they’re paying you money. If they’re just running software and you’re not really doing anything, then it doesn’t really make sense.
You could, I mean we tried to design it around so that you have some sort of multi-party approval, kind of like what you are suggesting. It doesn’t really work, and there are lots of technical reasons for that, but the main ones are, if you’re trying, unless it’s a digital bare asset you always run into the oracle problem. You need to bind the real world thing to whatever’s on the chain, and once you do that then you lose a lot of the protections that you get from, say, the gold bar being in the vault.
If somebody steals that token, who does that gold bar belong to, right? Like, you get weird situations like that, so to make any of these viable, you end up needing to centralize it all, and at that point a blockchain doesn’t really make any sense. This is something that I discovered. I tried so hard, Laura, to make that work, and I couldn’t find a way to do it without centralizing a large part of it, at which point it kind of becomes pointless.
Laura Shin:
So, I have multiple questions here. First of all, at the beginning you made a distinction between the example that I described, and you said that that was a federated chain.
Jimmy Song:
Mm-hmm (affirmative).
Laura Shin:
And so, how are you defining federated versus private? What’s a private blockchain?
Jimmy Song:
Well, so federated and private are orthogonal concepts, so federated is multiple parties controlling something. You could have something like, a multisig is like federated control. If you have three of five, then that would be no single person controls it, but it’s three of five of those people. But, a private blockchain is just something that’s not public, like you can’t go look into it or download that entire data base.
Laura Shin:
And so why did you say that that was a single point of failure? Because you could presumably have a private federated chain where the data was not public.
Jimmy Song:
Well, you can’t in most cases, and you could try to have a private federated chain, and that’s what most of these private blockchains try to do, but almost always you either have a regulator that needs like direct access. Even if it was federated, if somebody ended up stealing three of five of those keys, what happens?
You have the oracle problem. You have the regulator problem. You also have the very practical business problem of, like how do you justify them paying you money? All of those things, and if the software is yours, then they’re not really controlling it, and basically you can’t have a federated system while making it so that the economics work out for everybody, and that everyone follows the rules.
Laura Shin:
Okay, yeah, I don’t know the business models for some of the ones that are coming out, but I do know that there are some federated private blockchains that are going live using things like IBM and Microsoft.
Jimmy Song:
Yeah, so Hyperledger has a central point of failure. They have something called an ordering service, which sounds very innocent. It’s just something that orders it, but if you think about it in Bitcoin terms, that’s who determines which is a double spend, and you take that out, and which one is not. So, it’s actually a very powerful central entity, and they control that central entity, the ordering service. Everything else is, it’s not actually federated, it’s a central point that determines which transactions go in and which transactions don’t.
Laura Shin:
Oh, interesting, so if I’m doing like supply, if I’m one of multiple companies doing supply chain using a Hyperledger blockchain, then somehow Hyperledger is sort of like the referee of different transactions, like if there’s some kind of dispute, is that what you’re saying?
Jimmy Song:
Yeah, that’s what they call the ordering service, and it’s literally ordering the transactions. Then if a new one comes in that conflicts with the previously ordered transactions, then it’s not allowed in, that’s how it works. But yeah, I mean they get to determine the order, so that’s kind of a central point of failure, to me.
Laura Shin:
I’ll have to have Brian on my show and ask him about that. I also noticed now that you’ve left Paxos, you have been focusing a lot on developer education. In February, you announced Platypus Labs at Blockchain Capital, which per my understanding at least, and you can correct me, is trying to educate developers in some respect to actually work on Bitcoin, and you also yourself run a blockchain educational course called Programming Blockchain. Can you describe these two initiatives that you’re doing, and how they differ from each other?
Jimmy Song:
Yeah, sure, so I started Programming Blockchain last year, because I saw that the biggest risk to the Bitcoin ecosystem is the lack of developers, lack of good developers, and it’s not that Bitcoin develop is super, super difficult. I mean, it is difficult, but it’s something that I think any intelligent person can pick up. It’s just that there weren’t resources to get people in and get a lot of these people that were interested in to learn a lot about this stuff in a reasonable way.
So, I created the course. It’s a two-day course, live and in person, and I’ve done 15 of these already, but basically they sit in a classroom. It’s eight hours each day, and I go through from the very basics. It’s more or less like high school level math, something called finite fields and elliptic curves, and go all the way through the transaction hex dump and analyzing that, and figuring out how to build those and going all the way to the network programming and figuring out how to grab transactions and blocks from the network, and how all of that works.
So, it’s two days of very intense instruction. It’s about a semester’s worth of information, and I don’t say that lightly. I actually had a professor at the University of Texas in Austin ask me to do this course over an entire semester there, and it’s the same exact material. But that’s-
Laura Shin:
How can somebody even take in that amount of information in two days?
Jimmy Song:
You would think that that would be hard, but amazingly, like university education I’ve found is a little less efficient than it could be. If you’re surrounded by a lot of people that are also learning the same thing, and you have exercises and things, it turns out to be pretty good, or at least that’s what I’m told.
Laura Shin:
Wow, as somebody who did like philosophy and literature and had to read multiple books every week, like somehow I don’t think you could do that for what I studied, but anyway.
Jimmy Song:
Yeah, it’s a little different than philosophy and reading lots of books, yeah. But yeah, that’s programming Blockchain. I have one in July in Denver and San Francisco, and I’ll probably do one in Chicago and possibly in Prague, and I’ve done these all over the world, right? I’ve done them in North America, Europe, Asia. I just did one in São Paulo, so it’s been really good. The reaction by the community has been very positive, and a lot of developers that I’ve trained go on to contribute to a lot of these projects or founding their own company, so that-
Laura Shin:
Really? Wait, do you have like numbers on that? Because I just, I have to admit that I’m skeptical that somebody can take a two-day course and then suddenly be contributing, is it to the Bitcoin code base that they’re contributing, or …?
Jimmy Song:
Well, I have at least one, and I can refer you to him later, but yeah, this is something that I offer all of my students, is if you manage to get a nontrivial pull request merged into core, then I will pay you $500. One person has taken me up on it. Other people are looking into it. Part of it is that like core development is actually very, very strict and doing that particular thing takes a lot of work and a lot of review and understanding that code base, which is separate from learning the Bitcoin protocol. But I can, yeah, Chris Coverdale took my course in London back in January. He had a PR merge like, I don’t know, I want to say not too long ago, so yeah, there are people that are doing, like that have gotten jobs at different companies as well after the course, so yeah, that’s what they do.
Laura Shin:
And what about Platypus Labs?
Jimmy Song:
Yeah, so Platypus Labs is a different initiative, and this is to support open source development. I think my partners at Blockchain Capital recognize that the Bitcoin developers are adding a lot of value to the community, but there’s not a very easy way for a lot of these companies that are getting a lot of value out of it to contribute back. Some of the certainly sponsor core developers and so on, but they wanted something that was more systematized and long-term.
This is where we came up with Platypus Labs, and this is something that if you think about it, a venture capital firm is actually really well-positioned to provide because they have a lot of portfolio companies that are benefitting from this, and they have money. So between those things, we can build out a lab where we can support a lot of the open source work that for a long time, a lot of these guys weren’t getting paid for but now you can at least provide them with a space, maybe even provide something of a stipend or something like that, and help educate more people as we go. We have all these plans for fellows and residents and associates and so on that would come through the lab and help grow the ecosystem from that perspective.
Laura Shin:
So, they’re like paid a full-time salary and they apply, or …?
Jimmy Song:
Yeah, so these are all questions that we’re still wrestling with. Like, my partners are currently moving offices in San Francisco, in part because of this, right? Like, we have a large office space that we got so that we can have a lot of people that can work out of there. What that exactly looks like and how much they get paid and things, that’s still to be worked out, but that’s the vision is that we would have a place where a lot of people can come and work on Bitcoin together.
Laura Shin:
So I was curious, do you consider yourself a Bitcoin Maximalist, and when you answer the question, can you define it so people who don’t know what that means will understand?
Jimmy Song:
Well, so the way I define Bitcoin Maximalism is that money has a tendency to be winner take all, and I personally believe that Bitcoin will be that winner. Now, everything else that’s not claiming to be money, from what I’ve seen, tends to have very money-like properties to them. So, Ethereum always tells people, “We’re not money, we’re like oil to Bitcoin’s gold” or something like that.
But, if you look at the value, and what the token value versus like what people actually use it for, however many CryptoKitties you’ve created, that’s the amount of Ethereum that you paid for that or whatever, it doesn’t justify Ethereum’s valuation. The only way that valuation makes any sense at all is if you think of it as a monetary thing. So, from that sense I’m a Bitcoin Maximalist because I think money is the main use case, and in the realm of all cryptocurrencies, I think there will be one winner, and I think that winner will be Btcoin.
Laura Shin:
The history of technology shows that quite often, not always but quite often, the first example of something does not become the dominant example of that thing. So for instance, like Google with search, or Facebook with social network, so why are you so convinced that this is going to happen?
Jimmy Song:
Well, that’s true of technology but not necessarily true of monetary mediums, so you look at something like gold, that it had a lot of competitors with silver and other metals, but it kept it. Here’s the thing that’s weird about Bitcoin. A lot of people think in terms of technology, but its economics are very much like money, so there’s this tendency to want to change everything, which is normal for technology, but for something like money, you don’t want it to change.
So, there’s this tension that’s constantly brought up all over the place in cryptocurrency for that reason. You have the tension between these two things. For me, the reason why Bitcoin is going to win, or it has won, is because of the network effect. Scarcity is its own network effect. There’s a reason why no competitor, like no auction competitor to eBay has existed in the last 20 years. Buyers want to be where the sellers are, and the sellers want to be where the buyers are.
So, you can try to launch it. I think Amazon at one point tried Amazon Auctions or something. There were other competitors that tried, but that’s a very, very hard thing to overcome, is that network effect. Money certainly has that. Once you have a lot of people that value something scarcity, then it’s harder for other ones to overcome that. So for me, that’s why Bitcoin is the main winner, is because it has the network effect.
It’s also, I think maybe I’m being a little biased here, but I think it has the best technology, the most well-tested, I mean this part is objective, it’s been the most well-tested in terms of time. It’s lasted a lot longer than some of these others, and it’s gone through a lot less [inaudible].
Laura Shin:
Although it is the first, so that’s pretty easy to do.
Jimmy Song:
Yeah, but I mean if you think about it, there were a lot of coins that came out in 2011 that are nowhere right now. I mean, have you heard of Ixcoin or Tenabricks? Like okay, they were there in 2011. They’ve like completely, well not completely disappeared, but they more or less disappeared off of everyone’s radar. This is because they weren’t very viable, and also like a lot of people felt like the founders were being unfair. They did a large pre-mine and stuff like that, which is the exact same thing that we see in a lot of ICOs and altcoin launches today, but back then I think people were a little more offended by that sort of thing.
But that’s the reason why I think Bitcoin is going to win. It’s lasted longer, and it’s scarce, and a lot more people value it, and it’s got the network effect, so I don’t see those things as very easily overcomeable, and if you are to overcome it, then you need to be at least an order of magnitude better, not like, “Okay, well, we have like two and a half minute blocks, therefore we’re going to win.” It’s, “Okay, well, we are like 10 times better in every aspect.” That would be compelling. Pretty much everything out there is a tiny improvement, if at all. Most of it isn’t an improvement at all. A lot of these altcoins are solving problems that don’t exist, or aren’t problems at all, so yeah, I mean that’s been my assessment of the things that I’ve seen.
Laura Shin:
Well, if you are so convinced that Bitcoin is going to be the winner and kind of has already secured that spot, as a venture capitalist, how do you evaluate, how do you find anything to invest in?
Jimmy Song:
Well, there are lots of companies that are related to Bitcoin that you can invest in for certain. I mean, there’s a lot of companies that are making money. I mean, if you somehow found the way to invest in Binance, I think you’d be doing pretty well right now.
Laura Shin:
But what about, would you support the fact that Binance lists so many tokens, including like brand new ones, we know with kind of somewhat minimal due diligence?
Jimmy Song:
I mean that’s … I personally wouldn’t, but my partners might feel differently, and that’s part of what it means to be in a venture capital firm, is you lay out your case, but they might not agree, right? Like, I think investing in Bitcoin businesses can be pretty good, depending on what business they’re in. I mean, some of the … I mean, in any industry you’re going to find companies that are really stupid and others that are really good. But of course, like you were implying there, the bar is set higher because you’re going to have to measure them against Bitcoin and not the U.S. dollar.
Laura Shin:
We’re going to discuss smart contracts, oracles and more, but first I’d like to take a quick break to tell you about our fabulous sponsors.
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Laura Shin:
I’m speaking with Jimmy Song, partner at Blockchain Capital. Let’s talk about your Medium post, The Truth About Smart Contracts. That was super fun to read. Why don’t you summarize the main points for listeners?
Jimmy Song:
Well, so smart contracts have been hyped a lot in the past year, only rivaling Blockchain in this space as a word that people think they understand but don’t really. So, I tried to lay out in that article exactly what a smart contract is, and why it’s actually not that tenable for almost anything other than digital bearer instruments. By digital bearer instruments, I mean stuff like Bitcoin where possession of the digital token is it. There’s no physical or real-world corollary to that, or some rights or anything else, because that leads to the oracle problem and so on. But, the idea of smart contracts I think has been oversold, and people are thinking, “Oh, this is going to replace lawyers” and all this other stuff, and I guess I had my black hat on there and sort of threw a little cold water on it.
Laura Shin:
So, I do agree that smart contracts probably won’t work in the most idealistic way in which a lot of people write about them, but why do you think that that means that smart contracts will never work? Because, I sort of feel like if you look at the history of technology, it’s not a really good bet in general to say like something will never work, do you know what I mean?
Jimmy Song:
Mm-hmm (affirmative).
Laura Shin:
So, like do you ever worry that you might end up sounding like those technologists back in the early days of the Internet who would talk about like why HTTP was a poor technology?
Jimmy Song:
No, I mean I think this is kind of like saying why two plus two won’t equal five. I don’t see it that way at all. You can do things in a centralized way. You can have contracts, if you trust the third party, like with a normal contract this would be called like an escrow or something, or a judge or somebody that you both trust, and they more or less tell you what the decision is going to be should the contract go a certain way or whatever, then that’s fine. That’s how it’s done in the real world.
With a smart contract, the promise is that you don’t have to trust anybody, and the fact of the matter is, as soon as you add an external reality, like whether or not the 49ers won last night or something like that, you add a trust factor. As soon as you add a trust factor, then it becomes an intractable problem, because you have to first of all secure that oracle, right? Like, you have to make sure that that person won’t collude with the other person, doesn’t have something else, some other way in which they can get corrupted, like make sure that they’re not hacked.
You not only have to trust their integrity, which I think shouldn’t be too hard, but you also have to trust their competence in being able to secure whatever method in which they give information into the blockchain. So, it’s an intractable problem unless it’s all digital bearer instruments, in which case you don’t need an oracle. But if you need an oracle, I mean you get to this really weird state where you have, the Nash equilibrium on the game theory ends up being like, “Okay, it’s rational for me to go kidnap that person and threaten their life unless they put something on. The downside of that is I might go to jail, but the upside is I make like 100 million dollars,” right?
Laura Shin:
Tradeoffs.
Jimmy Song:
Yeah, there are weird situations like that, and if you don’t think like people make those kinds of decisions, criminals make them all the time, right? That’s the kind of thing that you have to think about when you’re thinking about these smart contract things, so-
Laura Shin:
But what about something like, for some reason, I don’t know why I’m blanking a little bit, but I think it’s Augur where people bet on the outcomes of things, and then based on the way you report that affects your reputation? So, you wouldn’t necessarily … What you could do is have the same system, but not necessarily rely on a single oracle.
Jimmy Song:
Right.
Laura Shin:
It could be something where people are staking their reputations to honestly report on the outcome of an event, so why do you think that won’t work?
Jimmy Song:
Well so again, this gets towards, this is in the article, usually when you propose something else to cover up the fact that you have less security on the previous one, that itself usually has a lot more holes, and then it can get more and more complicated to the point where it’s like very, very difficult to analyze. Only after it’s released do you find out that there’s a hole in it.
But yeah, you could have multiple oracles, right? And this is a typical thing, and you say, “Okay, well, we’ll have five of them.” Well, how do you make sure that they’re all five independent people? I could be the same exact person, and I can con somebody into, and I could even bet with somebody else, and I can adjudicate fine for a year, and then I can have a long con afterwards and bet a significant amount.
You go, “Okay, well, four of five of these oracles have to agree in order for me to collect from you, so your money is safe. Why don’t you bet me a million dollars on something?” Then, I pull that long con. I end up reporting the opposite of the actual result, and then I run away with the money, like what are you going to do about it, right? Like, there-
Laura Shin:
But so I totally get how this is the case with small numbers, but an example that I pointed out about Augur, where you’re really using the crowd, it would be very difficult to do any kind of manipulation like that, right? I don’t know if I-
Jimmy Song:
Well, I don’t know. I mean, I think Paul Sztorc has done an analysis of Augur, and I haven’t done a completed analysis of what that’s all about, but he’s done it and he thinks there are all sorts of holes based on that. I’m not going to pretend I know the details of their stuff, but this is generally true. The more complicated you make something, the larger the attack surface is going to be and the harder it gets to analyze.
To say, “Okay, well, this is going to work,” is more faith than anything. You’re not actually knowing if it’s actually going to work until it’s built and a lot of transactions have gone through it. If Paul can point something out after like reading their paper, I mean I would guess that there’s a lot more exploits to be found or flaws to be found. It isn’t incumbent on me to find a flaw in the system, it’s incumbent on the system to prove that it is secure. Like, to say that it’s secure because I can’t find a hole in it at this moment is the wrong way to go about it. You have to be the one to say, “This system is secure because we’ve thought of all of these cases.”
Laura Shin:
Yeah, although I think my questions are more in the direction of, how can you be so certain that it won’t be? That’s more where I’m coming from.
Jimmy Song:
Like, if you can solve the oracle problem, there’s probably a lot of money in it for you. But, I’ve examined the Oracle problem and it looks intractable to me. You always have to end up trusting somebody. If you can’t trust that person, if you can trust some other entity or whatever, then you need to justify why you can trust that entity. Again, the whole point of a smart contract is so that you don’t need to trust other people. You can just trust in the code or something like that. If you-
Laura Shin:
Well, I actually want to dispute that assumption as well, because you mentioned this earlier where you said, “Oh, if you have say tokenized gold or something on a blockchain, what if somebody steals that gold bar, then what?” But I think the judicial system or the legal system does have ways of defining who would own something in that case, and I think just because somebody steals something doesn’t mean that they own it now, and so what it-
Jimmy Song:
Okay, yeah, and that’s completely fair, but that’s again trusting somebody else, right? Trusting the jurisdiction you happen to be in. If you-
Laura Shin:
Do you feel that there’s no way where you can have this combined? Because what if there’s something like certain smart contract functions, we’ve got these standardized libraries that OpenZeppelin is trying to create for smart contract functions, and they do discrete tasks, I guess you could say, and then have that in some way at a certain point merge, or not merge but touch upon the legal system. Does that sound like something that would be viable to you?
Jimmy Song:
Well, if you’re doing that, then why are you using a smart contract at all? If you’re going to rely on them, then you should have a centralized service that’s run by those same people that you already trust, or something like that. That would be way more efficient than paying all the different costs of a blockchain and decentralization and all the software and all that stuff. It doesn’t make any sense to me.
That would be rife for destruction by something that’s more centralized, because it’s already centralized. You’re trusting the legal system, and if you are trying to do something like that with gold, say you made a chain that’s supposedly decentralized, that relies on like gold or whatever, okay, what if that gold bar is in Afghanistan? Somebody, like who owns that gold bar? If it gets stolen out of the vault, but the token says I have it, who does it go to, right?
You can’t link a digital token to a real-world thing without trusting somebody, and the whole point of a smart contract is that you don’t need to trust anybody. So, if you’re going to trust someone anyway, like you were saying, like okay, well, we can have the judicial system settle it, then it’s a far more efficient system if they do the running of the entire thing, because that’s ultimately who we are going to go to, anyway. So, why do you need to play with smart contracts and all this other stuff? It doesn’t make sense.
Laura Shin:
Yeah, I agree that crossing jurisdictions does present a lot of difficulties, like if the laws differ and people are trying to transact in different jurisdictions, but I do think the way, and I am by no means a legal expert so please, nobody listen to what I’m saying and take it for some kind of definitive commentary here, but as far as I understand, when there’s sort of like legal precedent around something, like once you sort of say like, “This is how we’re going to decide situations like these,” then that obviously would apply.
So maybe in the beginning, when there are these kinds of questions, some of them might be settled via courts, but then going forward you would have some kind of confidence, “Oh, okay, if I use the smart contract in this way, under these specific circumstances, it should be okay to cover these different scenarios” or something like that. I’m making it up, but I think you see where I’m going. They should-
Jimmy Song: Yeah, but I mean I’m not sure why, what the smart contract gets you in that case, because a necessity-
Laura Shin:
Well, like in the case of buying a house, you had mentioned that using the smart contract would be expensive but I actually think most people tend to think it would be quite cheaper, rather than using an escrow agent, and I think faster.
Jimmy Song:
Well, all right, so say it’s a house, right? And the government tells you you own the house, and they issue you a title or something like that. Say you put that title on the blockchain with a smart contract, and then you trade, you do an atomic swap for that house for, I don’t know, 500 Ethereum or something like that.
Laura Shin:
The payment, yeah.
Jimmy Song:
And then you do a swap, you now own the house, except now you’re essentially trusting that jurisdiction to honor the fact that this token went through, of course. I don’t know, maybe there’s case law and that’s been established by that point where it says, “Okay, this went through.” What are you gaining by using the blockchain to do that? I mean, they could have just paid you $500 Ethereum and you get the house. What are you gaining, right?
Laura Shin:
The ability to simultaneously swap the payment and the deed to the house, without having to … Without one person having to go first and trusting that the other person will also reciprocate.
Jimmy Song:
But, the court’s going to enforce that, anyway. I mean, like if you’re trusting them to do that-
Laura Shin:
Well, then you don’t have to go to a court, right?
Jimmy Song:
But that’s kind of what-
Laura Shin:
You both like enter into this agreement to do that by both agreeing to use the smart contract.
Jimmy Song:
You’re going to need to go to the court anyway, because they need to update the registry to say, “Okay, well now you actually own it.” Like, the token on the blockchain that represents the house, remember, that’s also got like a whole set of vulnerabilities. If somebody loses the key and then that moves around, now the court’s going to have to issue another token?
Laura Shin:
Yeah, I agree that that’s a problem.
Jimmy Song:
It becomes like this weird set of scenarios, where the token on the blockchain and the actual physical item can get sort of skewed, right? Like, they no longer reflect reality. And like keeping that in sync is not so simple, so I’m not sure what you gain out of it. I mean, like if one party goes first and the other doesn’t, you’re relying on the judicial system to enforce it, anyway. Why wouldn’t you trust that judicial system in the first place? Like, maybe you gain a little bit.
Laura Shin:
I mean, I think most people try to avoid going to the courts when they buy their house. I think that’s the point, so you would know that the judicial system was there, but you’re hoping to not use it. And so if you use the technology, then the contract will enforce that they get swapped simultaneously.
Jimmy Song:
Okay, whatever benefit you get out of that is the exact same on the opposite side if that token gets stolen, because you now have to go into … If the keys to that token get stolen, because now you’re going to have to do the same thing to say, “Okay, this is actually my house but my token got stolen from me from this other person.” So, like the inverse is also true, right?
Laura Shin:
I agree, I agree, yeah. I mean, but I do think here we are in this summer where everybody’s talking about custody, and we have all these new custody solutions rolling out. I can see a scenario in which similar types of technology do get used for even these cases, but I do agree with you. Tokenizing a deed to a house is a scary proposition at this point.
But actually, I want to … We have so much to get to and we’re running out of time, and as you know we want to reserve time at the end for something special for our listeners. But, one more quick question before we move onto that is, because you are such a big proponent of Bitcoin, and here we have gone through this period where there was this big saga about whether or not the size of the block should go up or whether it shouldn’t, and instead they decided to keep the block small, which is basically for listeners who don’t know, the limit on the number of transactions that can be processed at any given moment in time. Now, everyone is relying on what’s called Layer 2 or Lightning network to scale Bitcoin. So, what do you feel could happen to Bitcoin if Lightning doesn’t see a lot of adoption?
Jimmy Song:
Well, so first of all, I don’t like the characterization of what happened, because it didn’t keep the blocks small. The blocks went up to two megabytes. Like the SegWit was a block size increase, and a lot of people seemed to have this belief that we kept the block size at one megabyte.
Laura Shin:
Right, it was a way of reorganizing the blocks, yeah, to get more transactions through.
Jimmy Song:
No, no, it’s now two megabytes, right? So it was a block size increase.
Laura Shin:
Right.
Jimmy Song:
There’s this false dichotomy that we have to keep it small.
Laura Shin:
Right, but there’s still a one megabyte limit.
Jimmy Song:
No, that’s only for old notes. I mean, you can go to like Coin Dance and look at the block sizes. They’re all over a megabyte, for a lot of them.
Laura Shin:
Right, I mean yes, so the amount of data going through, yes, is higher than that.
Jimmy Song:
Uh-huh (affirmative), so I mean I-
Laura Shin:
But still, it’s not like-
Jimmy Song:
And so I don’t agree on this. I don’t agree in this characterization that it was small blocks versus big blocks. It was different ways to get bigger blocks, that’s what the debate was about, not about small versus big. That’s not what it was at all.
Laura Shin:
Okay, but regardless, the number of transactions, the increase in the number of transactions wasn’t huge, and here we are where Bitcoin, sure, it’s definitely seen some adoption, but still I’m sure in terms of the percentage of people around the world who have some bitcoin, it’s a very, very teeny tiny number. So, if Lightning really is going to take the rest of the weight, what would happen to bitcoin if it doesn’t get that kind of adoption?
Jimmy Song:
Well, so first I think you can see the effect. I think it was doubling of the block size I think for me that’s a pretty large increase in throughput, and you can see that the fee pressure has relieved significantly as a result of that. I mean, you look at the fees back in December before a lot of these large companies implemented SegWit and batch processing and things like that, and the fees were very high largely because they weren’t implementing a lot of these things. But now it’s like transactions clear very fast. A lot of transaction fees are very, very low, so I also disagree with this assessment that it wasn’t a huge increase. I think it was a very large increase, and I think the Bitcoin network has benefitted significantly from SegWit.
Laura Shin:
But what I’m trying to say is, if we doubled it from this moment in time where adoption was very small, doubling from a very, very small number is still a small number, and presumably like, I don’t know, 20 years from now, 30 years from now, if Bitcoin really does take off, then it will be much more than double from last year, right? So, that’s what I’m asking about.
Jimmy Song:
Yeah, and this is why a lot of the developers wanted to go towards SegWit, because the block size increase only gets you a linear increase. Lightning and other second layer solutions get you a much, like orders of magnitude, multiple orders of magnitude increase, and this is what’s really exciting about it. But, I mean this presumes I think something that … There’s an implicit assumption here, which is that we need to transact a lot to make Bitcoin useful, or that people need to be sending bitcoin back and forth constantly for it to be useful.
I don’t think that’s necessarily true, if you’re using bitcoin as a store of value. If you’re using it as a store of value, you can buy it once and then you can get it out sometime in the future, but that’s only really two transactions, not like a million. That’s okay. That’s a perfectly good way to use Bitcoin, and a lot of the people on the bitcoin cache side, a lot of people in a lot of these altcoins, have this tendency to think, “Okay, well, if you’re not constantly using it to buy coffee or whatever, then you’re not actually using the currency.”
I completely dispute that notion, but with regard to medium of exchange, I think Lightning is the superior solution because it’s trustless and it’s very fast, and from what I can tell it’s gaining a lot of adoption. Your question, however, was more about what if people don’t use it in that way? Well, if they don’t use it in that way, that means the market didn’t really want it, and I’m perfectly comfortable with the market dictating which direction this goes. That’s kind of a speculative question on a speculative question, in my mind.
Laura Shin:
Let’s go to the end, which references something that happened in May that was kind of a bit of a sensation when it happened, which was you were on a panel with Joe Lubin, who’s the CEO of ConsenSys Systems, and Amber Baldet, who is the former blockchain lead at JP Morgan Chase, and she recently left to found her own startup, Clovyr. Unfortunately, the video at least as of the time of this recording isn’t available on line yet, but well, for that reason, for listeners who missed it, why don’t you give your version of what happened during that debate?
Jimmy Song:
Yeah, so I thought it was on line like two days ago, but then they took it off again. It might be back on now, I don’t know. Anyway, here’s what happened. So Amber talked about Clovyr for about 10 minutes before our panel. Our panel was only supposed to be 30 minutes, so it cut out like 10 minutes of it. We had 20 minutes to discuss, and her first question was, “What do you think of my new company?” To which Joe replied, “Oh, I’m really excited,” and so on. I basically said, “All I saw were buzz words. I don’t know what it is that you’re selling, or whether or not this solves any problem in the market.”
Because I had been exposed to so many of these kinds of pitches, where they promise lots of vague things, use a lot of social signaling with respect to what other companies are on our platform, or who we’re working with as a way to sell things rather than the actual problem being solved, so that’s kind of what started that debate.
Eventually, it got to the point where we were talking back and forth a lot. It was a very lively and spirited debate. You can feel the energy in the room. Before I think that whole debate, I think people were starting to fall asleep, because it was like 4:00 or 5:00 in the afternoon, but as soon as that came up, people started like, “Wow, I can’t believe this is going on.”
The question that Amber asked was, “In five years, what is going to happen with respect to blockchain?” Joe sort of sarcastically said, “It’s only going to be bitcoin. I’m just kidding. Here are all the things that are going to happen with the blockchain.” My response was more or less, “Well, let’s look at some projects from five years ago, 2013. Where’s Mastercoin? What’s Storj doing? What’s MaidSafeCoin doing? How about Factom? What are all these projects doing?”
They haven’t done anything, and they have no users. Most of them are like not used by anybody, and they had as much hype as a lot of the stuff today. I was like, “You know what? I think most of the projects today will also be complete hype, like most of them won’t do anything. I’d be surprised if there was even one.” I think Bitcoin is going to be the major thing that’s around in five years, that anyone points to.
Right after I said that, Joe said, “If we can find some CRISP criteria, I’ll bet you any amount of bitcoin that you are wrong.” He told me to contact him afterwards. He tweeted after the panel, “That was fun, Jimmy will be in touch.” I’ve tweeted at him twice now, he hasn’t responded, so I don’t know what’s going on.
Laura Shin:
All right, well, listeners don’t know this, but I’m going to explain that we actually did try to get Joe on at last minute, but it was too last minute. I know from personal experience that he keeps an extremely busy schedule, so I think if we had thought of this further in advance maybe it would have worked out. But I did ask Jimmy to come up with some metrics that he would like to use for the bet, and also maybe name something like a time frame and an amount that you’d like to wager on your bet. So, why don’t you put that proposal out there? After this gets published, then we can let Joe know and we’ll see what he counter offers.
Jimmy Song:
Yeah, I’ve been trying to get in touch with him so he could do this but he hasn’t responded, so hopefully this will be a good forum to do this. The way in which you can measure whether or not an app or a phone is popular is with two metrics that a lot of app writers or app programmers and app companies really know about, which is daily active users and monthly active users.
I think those would be pretty decent metrics for determining whether or not a “blockchain decentralized app” or something like that has a lot of traction. So I would, I think something like in five years, if there are five apps that have like a mid-tier app on Android or iOS would be something like 10,000 daily active users, something like that, and 100,000 monthly active users. Somewhere along those lines, five apps, five dApps, right, decentralized applications that use the blockchain, not are on iOS or something like that and use a centralized app, but something that uses a blockchain, like he was saying, that have 10,000 daily active users, 100,000 monthly active users.
Laura Shin:
But wait, I don’t understand, because wouldn’t that be, if it’s 10,000 daily, then wouldn’t that be 300,000 monthly? I don’t …
Jimmy Song:
Well yeah, so that’s daily, so daily active users are basically people that log on every day, so there’s 10,000 of those that are-
Laura Shin:
Oh, now I get it, okay.
Jimmy Song:
But yeah, monthly is just people that show up at least one a month. So, you could have something like that, and then make sure that all five sustain it for like six months or something, so it’s not like a one-off and you can’t game it by like just paying a bunch of people to try it for a month or something. At the very least, it would cost them a lot of money to get them to try it for that long, but something like that where you have five different apps, dApps, that utilize the blockchain, that have a product where you have 10,000 daily active users, 100,000 monthly active users, sustained for six months. I think that’s fair, and I’m willing to bet him some amount of bitcoin. I don’t know what he would be comfortable with.
Laura Shin:
And I’m sorry, at what point in the future would you want to check in on this?
Jimmy Song:
Oh, five years.
Laura Shin:
Five years?
Jimmy Song:
Because that was the question that Amber proposed, five years from now. In fact, the people at ConsenSys were like, “Hey, we’ve got to have you and Joe on a panel in five years so we can talk about this bet.” So, I’m happy to be on a panel with him in five years, yeah.
Laura Shin:
Mark your calendars for, what is this, June?
Jimmy Song:
2023.
Laura Shin:
We can start scheduling that conference now. I’ll be the host, so that way I can generate the ticket sales.
Jimmy Song:
Yeah, that would be fun.
Laura Shin:
Anyway, okay, well, it’s been so great having you on Unchained. Thanks for coming on the show. Oh, and before we go, where can people learn more about you and your work?
Jimmy Song: Yeah, so I’m on Twitter @JimmySong. I’m on Medium @JimmySong. I write a bunch of articles. You can find the code that I’m doing on GitHub@JimmySong. I run my programming blockchain seminar. The next one is in Denver and San Francisco in July, then probably Chicago in August and Czech Republic, Prague in October. But yeah, those are the ones coming up. I also do a YouTube show. I have a YouTube channel, Off Chain with Jimmy Song, and I am in the process of writing a book for O’Reilly, Programming Bitcoin, and that’s going to be fun. Hopefully, I can get that out before the end of the year, but yeah, those are where you can find me.
Laura Shin:
Great, all right, well, thanks so much for joining us.
Jimmy Song:
Thank you for having me.
Laura Shin:
Thanks so much for joining us today. To learn more about Jimmy, check out the show notes inside your podcast episode. New episodes of Unchained come out every Tuesday. If you haven’t already, rate, review and subscribe on Apple Podcasts. If you liked this episode, share it with your friends on Facebook, Twitter or LinkedIn. And if you’re not yet subscribed to my other podcast, Unconfirmed, I highly recommend you check it out and subscribe now. Unchained is produced by me, Laura Shin, with help from Elaine Zelby, Fractal Recording, Jennie Josephson, Rahul Singireddy and Daniel Nuss. Thanks for listening.
