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Nick Szabo

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2017-06-04
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2017-06-04
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  1. “That's exactly what's happening. So I wrote a post on this called The Bitcoin Model for Crowdfunding. And this is a couple years back, and I thought these things called appoints would show up, wherefore every application, rather than going and raising VC money, you just attach a token to it and you crowdfund it. And that's kind of what's happening now with what they call ICOs, initial coin offerings. And there's been hundreds and hundreds of these. You know, it's a little bubbly. In fact, it's very bubbly. A lot of them are getting bit up out of control. Some of it comes from the fact that a few of these protocols do need their own token. They can't use Bitcoin.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  2. “The value is getting captured by the FAT protocol. Yeah, I do recommend this article. It's actually Joel Monnegro. I got his last name wrong, but he wrote a brilliant piece on this. But the thesis is that because these protocols are storing your identity and data in the protocol itself, the applications don't capture you as much. You're not stuck in the applications. And the value is captured by the tokens in the protocol.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  3. “Yeah, there's two key pieces. One is scarcity, which is regulated by a token. So in the Bitcoin protocol, the scarce pieces, the Bitcoin itself. And the protocol is about the exchange of money, and the token is Bitcoin. And then there's data that you can put on the blockchain. Like I could, for example, take an article that I wrote, I could hash it, the one-way crypto hash, put it in the blockchain, prove that it came from me, and then it gets trapped in the amber, again, like the fly, and no one can undo it later and secured by the value of the blockchain. So these new protocols, these fat protocols, are very different. They're going to enable a new kind of internet that we did not have before. That's a thesis of kind of the fat protocol argument.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  4. “I want to give you $10. That has to be scarce in some way. It can't just be, it can't be a free transaction, right? Because this money is exchanging hands. So we need a concept of protocols that underlies scarce resources, that allocate scarce resources. And what's going on is cryptocurrencies and blockchains are creating these what are now being called FAT protocols. And we'll put an article in the show notes about this. But FAT protocols are protocols that actually exchange scarce value and they keep data in the protocol. They maintain data.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  5. “Yeah, and then the internet, these protocols are TCP IP, HTTP, SMTP. Every time your email gets sent from one server to another, it's using the SMTP simple mail transfer protocol. And these protocols power the internet. And the assumption that was made in the early days of the internet was that, well, Ben With is cheap, servers are cheap, hardware is cheap. So it's free. If I want to send you a packet, it's free. If you want to receive the packet, it's free. It doesn't cost anything. But those assumptions are breaking down. We have denial of service attacks, which is basically your computer demands resources from my computer that I'm saying no, but you're asking so many times for free that it just overwhelms me. Spam is another example. I can send you a zillion email that hardly any cost, but it costs you a lot of attention. So these free protocols are becoming poor assumptions. The worst place for a poor assumption on a protocol is a protocol for exchanging money. If I say Tim.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  6. “I'm supposed to pause every five seconds, and then you're supposed to get a chance to speak. That's part of the protocol. We say hello to each other's greeting, that's part of the protocol.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  7. “Yeah, so there's this concept of what Bitcoin and Ethereum and these other cryptocurrencies are doing is they're the new protocols. And what is a protocol? A protocol is kind of like a God, now I'm going to get trapped in definitions, but a protocol is sort of how computers, it's a standard for how computers exchange information. So for example, you and I speaking the English language is a form of protocol, but then also like”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  8. “Yeah, I mean, there are things you can do now with smart contracts, what you call on chain, where you can have all the money and the collateral and the escrow and the data as close to computerized as possible. So the stuff that people are starting to do with smart contracts now is pretty mind-blowing”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  9. “Yeah, so I think some of this is smart contracts, which, by the way, as I said earlier, Nick created not just a concept, the theory behind it. Smart contracts are essentially taking that wet code, converting it into dry code, and then putting it inside blockchain so it's immutable after a while, that it becomes that fly trapped in amber. If we made an agreement, and the simplest smart contract, by the way, is just, I gave you money and you got the money. That's a very, very simple contract that got fulfilled. But you can put much more complex.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  10. “In modern computers, that people can do this at home. You can run a full Bitcoin node where you keep a copy of every single Bitcoin transaction from the dawn of time till now. And all these computers running together essentially validate with each other like RR or ledgers are same. Are we using the same ledger? And whose ledger is correct in case there's a disagreement? And that's where kind of all the blockchain comes in doing all this cryptography.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  11. “Yeah, sorry to interrupt you, but basically what's going on is if I give Tim $10 and then Tim gives Nick those $10, the way we keep track of it is through a piece of paper or in the old days with the Yurk Indians it would be a shell of a certain measurement. But now with Bitcoin, there's a ledger. We basically just keep track in a ledger entry that Naval moved this $10 to Tim. Tim moved the $10 to Nick. Now, the problem is who maintains the sanctity of that ledger? Can you just forge that ledger? So historically, the central bank wouldn't maintain the sanctity of the ledger or the fact that you have a certain dollar bill with a serial number and it maintains the sanctity of the ledger. But now Bitcoin has the craziest answer you can imagine, but it turns out to work, which is everybody has a copy of the ledger. So every one of the Bitcoin network who's running a node keeps a copy of the ledgers from the dawn of Bitcoin till now. And that is a testament to the computing power and memory that we have available.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  12. “It's just layers of understanding. Like, I don't know how to write code for a Merkle tree. I don't know how to take apart a Bitcoin block and analyze it. So at some level, I'm still a new hitchy-hippie trying to figure it out. But I think it's worth getting into what is the blockchain computer and how does it enable Bitcoin?”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  13. “Well, it's also just new. It's hard to figure out. These are very abstract concepts, ideas being turned into code. And Bitcoin is almost to computers. What like quantum mechanics is to physics? It throws a lot of people in the field off.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  14. “Yeah, so I think it's worth getting into what is the Bitcoin computer, right? Because there is basically you can abstract and think of Bitcoin as running on a blockchain computer. And maybe Nick can take a stab at defining what it is. By the way, this is one of those things where I think if you ask 10 different people in cryptocurrencies what Bitcoin is and what a blockchain is and what a blockchain computer is, you'll get 10 different answers.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  15. “Yeah, no, I think we should get into it. First, I want to make sure that we understand what blockchains and Bitcoin are, right? It might be worth going into, like, what are the key innovations that enabled Bitcoin?”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  16. “This is one of the craziest things about this concept because money and speech turn out to be the same thing. Money information math. They're the same thing. So in a Bitcoin world, I can literally write down my Bitcoin address and keys on a piece of paper and put in a safety deposit box. And it's basically in cold storage. I could even put it in my head. I can memorize the key phrases and I could cross borders with a billion dollars in my brain. So it's a very powerful but mind-bending literally concept in that sense.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  17. “Yeah, there's a zillion ways to store Bitcoin. You could do it on your computer, but then your computer is connected to the internet. It's a security hole. You could put it in an online exchange, but then you're just trusting an unregulated bank. You can put it in a hardware wallet, which says Nick said a dedicated device. You can put it on a piece of paper and stick it in your bank account.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  18. “It does seem a little bubbly, which is you kind of say, well, it's only money because everyone believes this money. But one definition I really liked of money is money is the bubble that never pops. So if the tulip bubble had never popped, we'd probably be dealing in tulips today. Now it popped for fairly good reasons, which is tulips make for lousy money. They're hard to store. They're hard to transport. They're hard to subdivide. But cryptocurrencies actually are the exact opposite end of that scale. They're easier to store, easier to transport, easier to subdivide, cheaper in many ways, and more defensible than almost any other form of money or gold or commodity.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  19. “And within my social circle, there is a large group of people who will take Bitcoin as legal tender. You can go to them and settle debts in Bitcoin and they will happily take it.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  20. “Do that occasionally. So it is all of those things. And I think one of the places where people fall down on cryptocurrencies is they say, well, no one's using Bitcoin to buy anything right now. So it may not be fulfilling the medium of exchange function, but it may be fulfilling a different function like store of value. It might be the Swiss bank account and everyone's pocket or in their mind. Or it might be the defense against a cypress style bank haircut”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  21. “Transport exactly, and then it's also a unit of account. So, in other words, like you have to denominate prices in something. I'm not going to tell you how many loaves of bread a car costs. So I need to be able to just pick a unit of account to do it.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  22. “Yeah, so I mean, on the money thing, I've also tried to wrap my head around this. And as Nick said, economists would say it's a medium of exchange. As the historical record shows, it's a store of value. So even if you're not exchanging it, you just want to build store of value. You may not want to store bread or rocks or houses. Or there may be shells.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  23. “Yeah, so it sounds like the common theory is that humans have only been using money for a few thousand years. But I think some of the work you've done on origins of money shows that actually it's hundreds thousand years.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  24. “I didn't even want to start with what is money because we're throwing around the word currency and money and people talk about gold and store of value. And Nick actually created bit gold, which was, some would argue a critical foundational predecessor to Bitcoin. Bitcoin had an additional breakthrough or two that had employed that Bitcoin did not, but Bitcold was the giant on whose shoulders Bitcoin stands. And Nick also created both the phrase and the concept and the theory behind smart contracts, which we're now starting to hear about in the context of other cryptocurrencies like Ethereum. But I think we should just, this is a complicated enough topic that it's worth just starting with, what is money, if you ask 10 people in the street what money is, you'd probably get 10 different answers.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  25. “And the chain of blocks represents the depth of that amber, how long that fly has been trapped in, and therefore how you can trust that honest signal. Anything deep down in the blockchain is mathematically, cryptographically and just economically impossible to undo.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  26. “I actually thought Nick's earlier analogy of a fly getting trapped in amber is kind of brilliant. Like if you see a fly in amber and it's got a millimeter of amber around it, well, that could have been done yesterday or like a year ago. But if you see the fly is trapped in a huge block of amber, you know it's been there for a long, long time. It's been accumulating. So a blockchain is a series of blocks. Each block is a series of computations done by computers all over the world using Sirius cryptography in a way that's very hard to undo. So each block is like another thin layer of amber.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  27. “Cryptocurrencies take the concept of money and they take it native into computers where everything is settled with computers and doesn't require external institutions or trusted third parties to validate things.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  28. “Yeah, so one huge benefit is we don't need any more a trusted third party to verify that transaction. We can do it in the cloud through a distributed network, which is kind of what the cryptocurrency does. But I'll let Nick talk more about this, but he had a great quote that I think is very relevant where he said, this is the dawn of trustworthy computing, right? Because before this, computers are kind of untrusted. Like if I send you money from my computer to your computer, we're really relying on visa and the banks and a bunch of intermediaries just actually say, yes, the money got to you and the money is no longer mine. But computers don't like to operate like that. Computers, you know, computer code, especially stuff that's running in the cloud on its own shouldn't have to rely on an offline wet space, meat space institution to enforce that kind of thing.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  29. “A write only, yeah, it's a one way kind of thing. So, I mean, this is probably beyond the scope of this discussion, but it's worth digging a little bit into what are called one-way hash functions and public keys and private keys, because they underlie a lot of cryptography. And they seem like complicated concepts, but they're not that complicated. And I would argue this is one of those mental models that you kind of have to figure out to start operating the modern technological world. But cryptocurrency is essentially use these one-way hash functions to make statements like I gave Tim $10, right? So if I said I gave you $10, normally we need a central authority to verify that. Like the bank has to verify that and the central bank has to verify it.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  30. “So, private key is what you hold on to that can decrypt and encrypt stuff. Your public key, on the other hand, other people can encrypt to it for you, but they can't use it to decrypt yourself.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  31. “Is that an example of that? Yeah, basically what I've done. So in the old days, if I was encrypting something, we would both have the same key, right? And so I would have a key that I would take your key. I would encrypt with your key, send it to you. You have the key. You can decrypt with the key. But the problem was how do I figure out what your key is? How do I figure out how to encrypt it? Because your key can both encrypt and decrypt. So if I had a hold of your key, then I could open the message. So it was very unsafe to transmit that key. And so one of the innovations that came along with this idea of splitting the key into a public key and a private key.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT

  32. “I would say it's like basically keeping secrets through mathematics. And there are many, many breakthroughs that enable cryptocurrencies. But one of the key things to understand in cryptography is this concept of one-way encoding, one-way hash functions. Basically, I can. Take some data, run it through a mathematical transformation and what comes out of the other side is really hard to undo. It's really hard to work backwards. So it's kind of a one-way thing.”

    2017-06-04 · The Tim Ferriss Show · #244: The Quiet Master of Cryptocurrency -- Nick Szabo · IDENTIFIED FROM THE TRANSCRIPT