1 00:00:01,050 --> 00:00:03,420 The following content is provided under a Creative 2 00:00:03,420 --> 00:00:04,810 Commons license. 3 00:00:04,810 --> 00:00:07,020 Your support will help MIT OpenCourseWare 4 00:00:07,020 --> 00:00:11,110 continue to offer high-quality educational resources for free. 5 00:00:11,110 --> 00:00:13,680 To make a donation or to view additional materials 6 00:00:13,680 --> 00:00:17,640 from hundreds of MIT courses, visit MIT OpenCourseWare 7 00:00:17,640 --> 00:00:18,520 at ocw.mit.edu. 8 00:00:22,595 --> 00:00:23,720 GARY GENSLER: Welcome back. 9 00:00:26,640 --> 00:00:28,240 People can sit at that back table, 10 00:00:28,240 --> 00:00:29,640 or Rob you want to come up here? 11 00:00:32,159 --> 00:00:34,140 So I said you're to have a special-- 12 00:00:34,140 --> 00:00:38,040 ROB GENSLER: Focus on you during class. 13 00:00:38,040 --> 00:00:41,170 I'm his twin brother. 14 00:00:41,170 --> 00:00:43,986 GARY GENSLER: Everybody can meet my twin brother Rob. 15 00:00:43,986 --> 00:00:47,850 [APPLAUSE] 16 00:00:48,820 --> 00:00:50,870 Rob's not your guest speaker. 17 00:00:50,870 --> 00:00:52,330 He's my guest. 18 00:00:52,330 --> 00:00:53,980 But he will speak a little later when 19 00:00:53,980 --> 00:00:57,430 we talk about Nouriel Roubini and Roubini's thoughts 20 00:00:57,430 --> 00:00:59,710 on blockchain economics. 21 00:00:59,710 --> 00:01:04,715 Rob worked at T. Rowe Price for 25 years, 24 years? 22 00:01:04,715 --> 00:01:07,090 ROB GENSLER: 20 years, before that on Wall Street for 10, 23 00:01:07,090 --> 00:01:08,645 Salomon Brothers mostly. 24 00:01:08,645 --> 00:01:11,020 GARY GENSLER: So he's from Salomon Brothers, Wall Street. 25 00:01:11,020 --> 00:01:12,790 He started his own hedge fund. 26 00:01:12,790 --> 00:01:14,080 And that didn't work out. 27 00:01:14,080 --> 00:01:15,300 So he closed that hedge fund. 28 00:01:15,300 --> 00:01:18,800 He went to work for T. Rowe Price for 20 years. 29 00:01:18,800 --> 00:01:20,740 And he ran a global equity fund. 30 00:01:20,740 --> 00:01:25,210 But before that, he was doing telecom and investment. 31 00:01:25,210 --> 00:01:29,110 But I will ask Rob, as an asset manager around $20 billion 32 00:01:29,110 --> 00:01:32,500 of money at one point in time and was successful 33 00:01:32,500 --> 00:01:37,000 at it, his thoughts about this cryptocurrency, crypto phase. 34 00:01:37,000 --> 00:01:40,840 He has not-- as opposed to everybody in this class, 35 00:01:40,840 --> 00:01:43,180 he has not read the readings for today's class. 36 00:01:43,180 --> 00:01:48,412 But I know you all read the readings maybe. 37 00:01:48,412 --> 00:01:49,870 But that will be when we're talking 38 00:01:49,870 --> 00:01:53,230 a little bit about the blockchain minimalist. 39 00:01:53,230 --> 00:01:55,960 So we're now turning into what I call act two. 40 00:01:55,960 --> 00:01:59,290 We've talked a lot about the economics of blockchain 41 00:01:59,290 --> 00:02:03,970 throughout talking about the technology. 42 00:02:03,970 --> 00:02:06,580 But now we're going to take today and Thursday 43 00:02:06,580 --> 00:02:10,430 really to dive a little bit more into the economics. 44 00:02:10,430 --> 00:02:12,430 Now of course, we're talking about the economics 45 00:02:12,430 --> 00:02:13,810 the entire semester. 46 00:02:13,810 --> 00:02:15,310 But this is going to be just-- 47 00:02:15,310 --> 00:02:19,190 we're just going to stay right on that. 48 00:02:19,190 --> 00:02:22,150 And because my goal on this journey 49 00:02:22,150 --> 00:02:25,870 together is that we all get a little bit closer to the ground 50 00:02:25,870 --> 00:02:32,190 truth, separating the hype from the reality, 51 00:02:32,190 --> 00:02:34,380 I've tried to put in the readings, 52 00:02:34,380 --> 00:02:38,700 if you've chosen to sort of even do the skim read or look in, 53 00:02:38,700 --> 00:02:40,890 some of the blockchain minimalists, 54 00:02:40,890 --> 00:02:43,820 like the Nouriel Roubini piece that you had. 55 00:02:43,820 --> 00:02:46,440 And it doesn't get much more minimalist 56 00:02:46,440 --> 00:02:48,660 than Roubini's piece. 57 00:02:48,660 --> 00:02:50,880 But I think it's relevant to know 58 00:02:50,880 --> 00:02:53,190 where Paul Krugman or Nouriel Roubini 59 00:02:53,190 --> 00:02:57,990 or Joe Stiglitz or others are on this technology. 60 00:02:57,990 --> 00:03:00,960 I don't happen to agree with them. 61 00:03:00,960 --> 00:03:03,350 But I'm not all the way over on the other side. 62 00:03:03,350 --> 00:03:05,030 I'm not with the Tim Drapers. 63 00:03:05,030 --> 00:03:08,270 And yesterday I had the honor to appear 64 00:03:08,270 --> 00:03:11,450 at a conference in New York City where Fidelity was rolling out 65 00:03:11,450 --> 00:03:17,440 their new blockchain digital asset business. 66 00:03:17,440 --> 00:03:19,622 And so I was the setup speaker, I guess. 67 00:03:19,622 --> 00:03:21,080 But one of the other speakers there 68 00:03:21,080 --> 00:03:24,470 was Mike Novogratz, who started a company called Galaxy. 69 00:03:24,470 --> 00:03:28,160 I would put Mike and some others closer to the maximalist, 70 00:03:28,160 --> 00:03:31,190 or he cautioned me he's not a 10 on the 10 scale. 71 00:03:31,190 --> 00:03:34,330 He's probably an eight. 72 00:03:34,330 --> 00:03:38,870 But I've tried to put into this readings and this course 73 00:03:38,870 --> 00:03:41,780 so that you can leave this course with critical reasoning 74 00:03:41,780 --> 00:03:45,740 skills really what are the economics. 75 00:03:45,740 --> 00:03:48,920 So let's go on that journey together today. 76 00:03:48,920 --> 00:03:51,080 And also, I say, think about some 77 00:03:51,080 --> 00:03:53,450 of what we're talking about today in light 78 00:03:53,450 --> 00:03:56,510 of your final projects, because you're 79 00:03:56,510 --> 00:03:59,690 going to be looking for some pain point in finance 80 00:03:59,690 --> 00:04:02,420 or with a little special discussion with me 81 00:04:02,420 --> 00:04:06,200 outside of finance and say what's a use case that all 82 00:04:06,200 --> 00:04:09,380 this crazy blockchain stuff can come together 83 00:04:09,380 --> 00:04:14,740 and actually work on it. 84 00:04:14,740 --> 00:04:16,422 So the overview, of course, as always 85 00:04:16,422 --> 00:04:18,380 I'll talk a little bit about what our readings. 86 00:04:18,380 --> 00:04:20,715 I'll see if we'll do a little Socratic method. 87 00:04:20,715 --> 00:04:22,340 So we're going to talk about blockchain 88 00:04:22,340 --> 00:04:25,880 economics, a little bit about blockchain versus the internet. 89 00:04:25,880 --> 00:04:28,830 That was Joi Ito's article that kind of set that up. 90 00:04:28,830 --> 00:04:30,860 And Joi wrote that several years ago. 91 00:04:30,860 --> 00:04:32,730 He might write it a little differently now. 92 00:04:32,730 --> 00:04:34,760 But I still think it's really relevant 93 00:04:34,760 --> 00:04:39,650 to get behind how do we think of blockchain versus the internet. 94 00:04:39,650 --> 00:04:42,440 I call them the minimalists, whether it's Roubini 95 00:04:42,440 --> 00:04:45,500 or Krugman or Stiglitz, but-- 96 00:04:45,500 --> 00:04:46,860 or Gensler. 97 00:04:46,860 --> 00:04:48,820 You're going to hear from one back in-- 98 00:04:48,820 --> 00:04:53,400 that Gensler, who came three minutes after this Gensler. 99 00:04:53,400 --> 00:04:56,998 Well, he might have come before me, actually, because Rob, 100 00:04:56,998 --> 00:04:57,915 you lived in Botswana. 101 00:04:57,915 --> 00:05:00,840 And didn't they believe that the second delivered 102 00:05:00,840 --> 00:05:02,310 was the first conceived? 103 00:05:05,190 --> 00:05:09,700 But we're identical, so maybe it didn't happen that way. 104 00:05:09,700 --> 00:05:10,740 And some costs-- 105 00:05:10,740 --> 00:05:11,310 I'm sorry. 106 00:05:11,310 --> 00:05:13,810 I mean, you know, I-- oh yes, we have to do the twins thing, 107 00:05:13,810 --> 00:05:15,000 you know? 108 00:05:15,000 --> 00:05:17,010 How many twins in this class? 109 00:05:22,170 --> 00:05:25,860 Yeah, yeah, all right. 110 00:05:25,860 --> 00:05:28,910 It might be just statistical. 111 00:05:28,910 --> 00:05:33,620 And you said you're Peruvian, identical twin? 112 00:05:33,620 --> 00:05:35,192 AUDIENCE: I have an identical twin. 113 00:05:35,192 --> 00:05:36,400 GARY GENSLER: Identical twin. 114 00:05:36,400 --> 00:05:38,632 AUDIENCE: I had-- he's a medical doctor. 115 00:05:38,632 --> 00:05:39,340 He lives in Peru. 116 00:05:39,340 --> 00:05:43,960 And in Peru, by the way, they do say that the second is the-- 117 00:05:43,960 --> 00:05:46,333 GARY GENSLER: The second delivered is-- 118 00:05:46,333 --> 00:05:47,500 AUDIENCE: Kind of the older. 119 00:05:47,500 --> 00:05:49,938 GARY GENSLER: So has the birthright. 120 00:05:49,938 --> 00:05:51,980 AUDIENCE: I was the first, so I tend to disagree. 121 00:05:54,415 --> 00:05:56,290 GARY GENSLER: Rob has the birthright in Peru. 122 00:05:59,410 --> 00:06:01,340 We'll talk about costs and trade-offs. 123 00:06:01,340 --> 00:06:03,460 We've done a little bit of this in the past. 124 00:06:03,460 --> 00:06:07,960 And then we'll wrap it up and a little fewer slides. 125 00:06:07,960 --> 00:06:11,600 I slimmed this out just so we can have a bit more discussion. 126 00:06:11,600 --> 00:06:14,750 But the study questions-- 127 00:06:14,750 --> 00:06:17,830 how do decentralized blockchain applications 128 00:06:17,830 --> 00:06:21,590 affect the cost of verification and cost of networking? 129 00:06:21,590 --> 00:06:24,460 And anybody want to dive into that 130 00:06:24,460 --> 00:06:27,400 or we want to dive in when I do the little bit? 131 00:06:27,400 --> 00:06:34,210 I'll give my read about how blockchain changes verification 132 00:06:34,210 --> 00:06:35,020 and networking. 133 00:06:35,020 --> 00:06:37,180 Those are the two things. 134 00:06:37,180 --> 00:06:39,580 That was in the Christian Catalini paper. 135 00:06:39,580 --> 00:06:43,630 I know you didn't love it that I assigned a 30-some page paper. 136 00:06:43,630 --> 00:06:46,260 But Christian's at the forefront of this. 137 00:06:46,260 --> 00:06:49,630 He's in the Sloan faculties. 138 00:06:49,630 --> 00:06:50,410 He's not here. 139 00:06:50,410 --> 00:06:52,090 He's sort of on a sabbatical semester. 140 00:06:52,090 --> 00:06:55,600 But Christian's paper-- he's at the forefront of the economics 141 00:06:55,600 --> 00:06:56,980 around blockchain. 142 00:06:56,980 --> 00:06:58,630 You can't take a good blockchain course 143 00:06:58,630 --> 00:07:01,050 without reading Catalini's paper. 144 00:07:01,050 --> 00:07:03,430 And it's not just because he's a Sloanie. 145 00:07:03,430 --> 00:07:07,660 I think he's kind of got that. 146 00:07:07,660 --> 00:07:10,570 And then the comparison to the internet. 147 00:07:10,570 --> 00:07:14,100 So it's sort of those two big items. 148 00:07:14,100 --> 00:07:16,780 And I know I-- as somebody said, there were too many readings. 149 00:07:16,780 --> 00:07:19,630 There was only five that were required. 150 00:07:19,630 --> 00:07:23,110 Of course, Roubini's was just low-hanging fruit, 151 00:07:23,110 --> 00:07:25,780 because he gave it last Thursday. 152 00:07:25,780 --> 00:07:29,440 And it was-- how many people read the Roubini piece? 153 00:07:29,440 --> 00:07:30,940 It wasn't required, but-- 154 00:07:30,940 --> 00:07:33,490 so about a third or a half. 155 00:07:33,490 --> 00:07:36,285 Do you agree it was kind of a slap down? 156 00:07:36,285 --> 00:07:37,410 What'd do you think, Alene? 157 00:07:37,410 --> 00:07:38,535 AUDIENCE: It was hilarious. 158 00:07:38,535 --> 00:07:39,235 I loved it. 159 00:07:39,235 --> 00:07:39,770 GARY GENSLER: You loved it? 160 00:07:39,770 --> 00:07:41,353 AUDIENCE: I couldn't really finish it. 161 00:07:41,353 --> 00:07:42,403 But it was hilarious. 162 00:07:42,403 --> 00:07:43,820 GARY GENSLER: How many of you that 163 00:07:43,820 --> 00:07:46,700 read the Roubini piece found that you agreed 164 00:07:46,700 --> 00:07:49,006 with most of what he said? 165 00:07:49,006 --> 00:07:52,400 OK, so 2, 3, 4, 5-- 166 00:07:52,400 --> 00:07:55,550 oh, Alene-- 6. 167 00:07:55,550 --> 00:07:56,050 All right. 168 00:07:56,050 --> 00:07:56,862 Wow. 169 00:07:56,862 --> 00:07:57,270 AUDIENCE: I don't know. 170 00:07:57,270 --> 00:07:58,740 Every time I read one, I'm like, yeah, 171 00:07:58,740 --> 00:08:00,170 they totally know what they're talking about. 172 00:08:00,170 --> 00:08:00,800 I'm on board. 173 00:08:00,800 --> 00:08:03,930 And I feel the same way with all the minimalists now. 174 00:08:03,930 --> 00:08:05,650 GARY GENSLER: So you're identifying 175 00:08:05,650 --> 00:08:07,420 with the minimalists now? 176 00:08:07,420 --> 00:08:10,570 OK, OK, on Thursday you're going to read 177 00:08:10,570 --> 00:08:14,000 things like an open letter to Jamie Dimon that kind of goes-- 178 00:08:14,000 --> 00:08:15,100 it's not a maximalist. 179 00:08:15,100 --> 00:08:19,150 But it kind of goes the other way. 180 00:08:19,150 --> 00:08:22,310 And then the optional bits. 181 00:08:22,310 --> 00:08:26,390 So let's start a little bit with blockchain economics 182 00:08:26,390 --> 00:08:29,060 and the first thing, verification. 183 00:08:29,060 --> 00:08:31,900 So what are you-- what are the costs, anybody 184 00:08:31,900 --> 00:08:37,929 who actually dived in or dove in to the longer Catalini piece? 185 00:08:37,929 --> 00:08:40,120 The cost of verification. 186 00:08:40,120 --> 00:08:42,789 And these are things that I'm not just 187 00:08:42,789 --> 00:08:45,520 presenting because somebody wrote about it. 188 00:08:45,520 --> 00:08:47,320 I think Christian's right about this. 189 00:08:47,320 --> 00:08:50,290 I think that the blockchain can-- 190 00:08:50,290 --> 00:08:55,260 doesn't always, but can really lower the cost of verification. 191 00:08:55,260 --> 00:08:57,770 Beau, do you have a-- 192 00:08:57,770 --> 00:09:00,040 AUDIENCE: You talked about efficiently 193 00:09:00,040 --> 00:09:02,710 verifying auditing transactions that happen 194 00:09:02,710 --> 00:09:04,480 and the cost of audits lowering. 195 00:09:04,480 --> 00:09:07,060 GARY GENSLER: So efficiently auditing and lowering 196 00:09:07,060 --> 00:09:09,325 the cost of auditing transactions. 197 00:09:09,325 --> 00:09:10,450 What else do he talk about? 198 00:09:10,450 --> 00:09:11,070 Kelley? 199 00:09:11,070 --> 00:09:12,110 AUDIENCE: Part of that efficiency 200 00:09:12,110 --> 00:09:13,485 was the fact that currently there 201 00:09:13,485 --> 00:09:16,780 is quite a few third-party actors that are involved, 202 00:09:16,780 --> 00:09:20,687 separate between the input and output actors. 203 00:09:20,687 --> 00:09:21,520 GARY GENSLER: Right. 204 00:09:21,520 --> 00:09:26,440 So you might have fewer people in the chain, fewer actors. 205 00:09:26,440 --> 00:09:27,700 AUDIENCE: [INAUDIBLE]. 206 00:09:27,700 --> 00:09:32,462 They also mention the privacy policy and also censorship. 207 00:09:32,462 --> 00:09:33,670 GARY GENSLER: OK, so let me-- 208 00:09:33,670 --> 00:09:37,030 you raised two-- privacy and censorship. 209 00:09:37,030 --> 00:09:40,490 Do you want to say, or somebody else, what is it about privacy? 210 00:09:40,490 --> 00:09:43,100 I mean, because these are really critical things 211 00:09:43,100 --> 00:09:44,620 that blockchain can do. 212 00:09:47,130 --> 00:09:50,840 AUDIENCE: So with privacy, the addresses are synonymous. 213 00:09:50,840 --> 00:09:53,260 So there's no name attached to an address 214 00:09:53,260 --> 00:09:54,760 that you can interact with your peer 215 00:09:54,760 --> 00:09:56,718 without people knowing who you are necessarily. 216 00:09:56,718 --> 00:09:57,930 GARY GENSLER: Right. 217 00:09:57,930 --> 00:09:59,590 But why does that matter? 218 00:09:59,590 --> 00:10:01,720 So-- 219 00:10:01,720 --> 00:10:05,470 AUDIENCE: Why would people pay more to be able to do that? 220 00:10:05,470 --> 00:10:10,276 So there's an understanding that there's 221 00:10:10,276 --> 00:10:12,370 a fundamental right to privacy. 222 00:10:12,370 --> 00:10:15,490 You don't want the world to know all of your doings. 223 00:10:15,490 --> 00:10:19,450 GARY GENSLER: So some of it's about rights and values. 224 00:10:19,450 --> 00:10:20,240 James? 225 00:10:20,240 --> 00:10:22,780 AUDIENCE: The key element was hacking. 226 00:10:22,780 --> 00:10:25,090 These are examples when people's information 227 00:10:25,090 --> 00:10:28,903 are so readily available that a third party can hack. 228 00:10:28,903 --> 00:10:30,070 GARY GENSLER: Totally agree. 229 00:10:30,070 --> 00:10:32,020 But what's the big commercial thing that's 230 00:10:32,020 --> 00:10:36,080 going on right now in big data? 231 00:10:36,080 --> 00:10:40,330 AUDIENCE: [INAUDIBLE] can profit from that information 232 00:10:40,330 --> 00:10:41,320 they're gathering as-- 233 00:10:41,320 --> 00:10:43,270 GARY GENSLER: I mean the dominant-- 234 00:10:43,270 --> 00:10:43,890 I'm sorry. 235 00:10:43,890 --> 00:10:48,560 AUDIENCE: I think resale of the data as well as the-- 236 00:10:48,560 --> 00:10:49,330 [INAUDIBLE] 237 00:10:50,642 --> 00:10:52,600 GARY GENSLER: So what Sean and Eric are saying, 238 00:10:52,600 --> 00:10:56,080 the dominant revenue model in tech today, 239 00:10:56,080 --> 00:11:01,960 whether it's big tech like Facebook and Google and so 240 00:11:01,960 --> 00:11:06,160 forth or any tech-- the dominant revenue model, not the only, 241 00:11:06,160 --> 00:11:11,050 is basically give me some of your data, let me analyze it 242 00:11:11,050 --> 00:11:15,370 and either advertise against it or somehow in these days use 243 00:11:15,370 --> 00:11:17,980 machine learning and AI to analyze it 244 00:11:17,980 --> 00:11:23,560 and really market other products back to you maybe. 245 00:11:23,560 --> 00:11:24,380 We all do it. 246 00:11:24,380 --> 00:11:25,330 We live in this. 247 00:11:25,330 --> 00:11:29,200 We give up our data, some more so than others, some less so. 248 00:11:29,200 --> 00:11:30,940 But it's a big piece. 249 00:11:30,940 --> 00:11:34,090 Blockchain, Catalini raises, well maybe 250 00:11:34,090 --> 00:11:37,657 you can get a little bit more privacy if you wish it. 251 00:11:37,657 --> 00:11:39,240 It might be part of the revenue model. 252 00:11:39,240 --> 00:11:40,270 How about censorship? 253 00:11:40,270 --> 00:11:44,605 What was the point about censorship? 254 00:11:44,605 --> 00:11:46,090 Anybody? 255 00:11:46,090 --> 00:11:49,590 So when you're dealing with a central authority, 256 00:11:49,590 --> 00:11:52,320 a commercial bank, they can decide 257 00:11:52,320 --> 00:11:54,060 whether to extend credit or not. 258 00:11:54,060 --> 00:11:55,740 That's a form of censorship. 259 00:11:55,740 --> 00:11:59,010 It's a form of allocating something. 260 00:11:59,010 --> 00:12:01,590 But it can be as simple as to whether to even 261 00:12:01,590 --> 00:12:06,030 sell you the ticket to the movie theater or not in a sense. 262 00:12:06,030 --> 00:12:09,260 It doesn't happen to us often. 263 00:12:09,260 --> 00:12:15,280 But distributed decentralized platforms 264 00:12:15,280 --> 00:12:19,860 are more censorship resistant, I mean on a spectrum. 265 00:12:19,860 --> 00:12:22,130 Anything else from verification? 266 00:12:22,130 --> 00:12:23,640 So let's see how we did. 267 00:12:23,640 --> 00:12:27,800 So this was how I sort of take it back, these six points. 268 00:12:27,800 --> 00:12:30,260 The direct costs-- there may be a cost trade-off 269 00:12:30,260 --> 00:12:34,260 that blockchain could have a lower cost of verification. 270 00:12:34,260 --> 00:12:39,600 That doesn't always, but a lot of verification in finance 271 00:12:39,600 --> 00:12:43,080 has multiple back offices trying to reconcile 272 00:12:43,080 --> 00:12:44,310 between the ledgers. 273 00:12:44,310 --> 00:12:46,560 We've talked a lot in this class about ledgers-- 274 00:12:46,560 --> 00:12:49,390 ledgers recording property rights. 275 00:12:49,390 --> 00:12:51,090 So you can have one bank recording 276 00:12:51,090 --> 00:12:53,560 the property rights, another bank recording a property 277 00:12:53,560 --> 00:12:54,060 right. 278 00:12:54,060 --> 00:12:56,370 It could be the ownership of equities. 279 00:12:56,370 --> 00:12:59,370 It could be cash called payments. 280 00:12:59,370 --> 00:13:02,220 So there's a lot of direct costs that it can lower. 281 00:13:02,220 --> 00:13:05,460 And I would say in the permissioned blockchain space, 282 00:13:05,460 --> 00:13:09,540 a lot of big banks are looking at that very first point. 283 00:13:09,540 --> 00:13:14,100 We just lower our direct costs of the back office. 284 00:13:14,100 --> 00:13:16,540 Stop there, straight and simple. 285 00:13:16,540 --> 00:13:19,520 We have a lot less reconciliation costs. 286 00:13:19,520 --> 00:13:22,700 Privacy and data leakage costs. 287 00:13:22,700 --> 00:13:25,820 I call it both privacy, which sounds like Hugo 288 00:13:25,820 --> 00:13:28,730 and I want my personal privacy, or I just 289 00:13:28,730 --> 00:13:31,640 know Facebook is taking my data. 290 00:13:31,640 --> 00:13:33,380 I call that data leakage. 291 00:13:33,380 --> 00:13:36,600 I'm not terribly worried about it. 292 00:13:36,600 --> 00:13:37,790 But it's something. 293 00:13:37,790 --> 00:13:38,730 Alene. 294 00:13:38,730 --> 00:13:41,120 AUDIENCE: So I'm very curious, is there a use case here? 295 00:13:41,120 --> 00:13:43,190 Because I really fail to see one. 296 00:13:43,190 --> 00:13:46,520 I could see privacy in the sense that you could transfer coins 297 00:13:46,520 --> 00:13:48,872 from anonymous spenders to anonymous receivers 298 00:13:48,872 --> 00:13:50,330 and you could even hide the amount. 299 00:13:50,330 --> 00:13:53,018 And that's useful for business, because businesses 300 00:13:53,018 --> 00:13:55,310 don't want other businesses knowing what they're up to. 301 00:13:55,310 --> 00:13:56,743 But what other use case is there? 302 00:13:56,743 --> 00:13:58,910 GARY GENSLER: Oh, I think it's a very good question. 303 00:13:58,910 --> 00:14:00,285 Anybody have an answer for Alene? 304 00:14:00,285 --> 00:14:02,120 Because I do, but I just-- do others? 305 00:14:02,120 --> 00:14:06,150 Like a business use case where you 306 00:14:06,150 --> 00:14:10,710 might have users not giving up as much 307 00:14:10,710 --> 00:14:14,320 of their data and privacy. 308 00:14:14,320 --> 00:14:15,930 I'm going to use Uber. 309 00:14:15,930 --> 00:14:18,060 Oh, did you-- 310 00:14:18,060 --> 00:14:20,880 AUDIENCE: Yeah, I think an example I can think of 311 00:14:20,880 --> 00:14:23,482 is, for example, the hedge fund in-- 312 00:14:23,482 --> 00:14:24,690 GARY GENSLER: The which fund? 313 00:14:24,690 --> 00:14:25,410 AUDIENCE: Hedge fund. 314 00:14:25,410 --> 00:14:25,810 GARY GENSLER: Hedge fund. 315 00:14:25,810 --> 00:14:27,750 AUDIENCE: In asset management, you 316 00:14:27,750 --> 00:14:31,230 don't want to know, because for example, also the hedge fund, 317 00:14:31,230 --> 00:14:33,570 they hide behind the brokers. 318 00:14:33,570 --> 00:14:36,900 They have certain swaps with the brokers 319 00:14:36,900 --> 00:14:40,620 so they don't have to review the acquisition they viewed. 320 00:14:40,620 --> 00:14:44,280 And also they try to do their position under the 5 percentage 321 00:14:44,280 --> 00:14:45,460 threshold. 322 00:14:45,460 --> 00:14:48,600 So in this way, because any action-- 323 00:14:48,600 --> 00:14:51,850 their action maybe can move the market over a certain stop. 324 00:14:51,850 --> 00:14:54,450 GARY GENSLER: OK, so there is a commercial situation 325 00:14:54,450 --> 00:14:55,500 as an asset manager. 326 00:14:55,500 --> 00:14:57,270 I might not want others to know what 327 00:14:57,270 --> 00:14:59,743 trades I'm doing, what positions I'm taking. 328 00:14:59,743 --> 00:15:01,410 I was going to use a personal situation. 329 00:15:01,410 --> 00:15:05,400 You could envision Uber having been created on a blockchain. 330 00:15:05,400 --> 00:15:06,680 It's not on a blockchain. 331 00:15:06,680 --> 00:15:09,660 But I'm saying you could have envisioned it-- 332 00:15:09,660 --> 00:15:16,690 riders, equipment owners called car owners, and drivers. 333 00:15:16,690 --> 00:15:19,450 It's like three communities-- who owns the car, 334 00:15:19,450 --> 00:15:22,180 who drives the car, who needs the cars-- 335 00:15:22,180 --> 00:15:24,790 coming together in a blockchain. 336 00:15:24,790 --> 00:15:28,510 And maybe part of the reason I'm comfortable with a blockchain 337 00:15:28,510 --> 00:15:29,110 Uber-- 338 00:15:29,110 --> 00:15:32,680 maybe, maybe-- is I might have a few girlfriends. 339 00:15:32,680 --> 00:15:34,330 And I don't want anybody tracking 340 00:15:34,330 --> 00:15:36,010 that I'm visiting different girlfriends. 341 00:15:36,010 --> 00:15:39,772 This would be-- you would call it privacy, but perfectly-- 342 00:15:39,772 --> 00:15:40,800 I'm single. 343 00:15:40,800 --> 00:15:41,840 I'm single. 344 00:15:41,840 --> 00:15:46,780 But I'm just saying that it's a perfectly legitimate thing. 345 00:15:46,780 --> 00:15:48,790 Do I want to share that data? 346 00:15:48,790 --> 00:15:50,810 We all share a tremendous amount of data 347 00:15:50,810 --> 00:15:54,550 if we use a credit card that-- 348 00:15:54,550 --> 00:15:58,330 particularly in today's world of machine learning and AI, 349 00:15:58,330 --> 00:16:00,850 that you can take somebody's spending patterns 350 00:16:00,850 --> 00:16:03,070 and really narrow it down. 351 00:16:03,070 --> 00:16:05,560 Let's, for instance, say that I have 352 00:16:05,560 --> 00:16:10,660 a certain religious affiliation or a certain pro-guns 353 00:16:10,660 --> 00:16:15,280 or anti-guns or any orientation I might have. 354 00:16:15,280 --> 00:16:17,440 You get enough spending patterns, 355 00:16:17,440 --> 00:16:21,710 you can sort of piece together that's probably you. 356 00:16:21,710 --> 00:16:23,163 That's probably your religion. 357 00:16:23,163 --> 00:16:24,830 That's probably your sexual orientation. 358 00:16:24,830 --> 00:16:26,497 That's probably the country you're from, 359 00:16:26,497 --> 00:16:30,440 the ethnic group if you pull enough spending pattern coupled 360 00:16:30,440 --> 00:16:33,050 with machine learning and AI. 361 00:16:33,050 --> 00:16:36,830 So use case is people are really talking about, well, maybe 362 00:16:36,830 --> 00:16:38,240 there's something that I can give 363 00:16:38,240 --> 00:16:41,300 a little privacy-preserving attribute. 364 00:16:41,300 --> 00:16:44,240 It won't be the dominant use case, but something. 365 00:16:44,240 --> 00:16:48,130 And this class today is just about economics. 366 00:16:48,130 --> 00:16:52,355 That's a legitimate economic thing that's going on here. 367 00:16:52,355 --> 00:16:53,480 Was there a hand over here? 368 00:16:56,210 --> 00:16:58,100 Censorship risk. 369 00:16:58,100 --> 00:17:00,020 Basically that-- oh, I'm sorry. 370 00:17:00,020 --> 00:17:01,710 AUDIENCE: Can I ask a related question? 371 00:17:01,710 --> 00:17:04,369 So in terms of the privacy, there is-- 372 00:17:04,369 --> 00:17:08,550 [INAUDIBLE] mentioned those financial institutions, 373 00:17:08,550 --> 00:17:12,780 like before this, they can just keep their data inside and only 374 00:17:12,780 --> 00:17:15,099 maybe reveal that to regulators. 375 00:17:15,099 --> 00:17:16,849 But if we use the blockchain, they 376 00:17:16,849 --> 00:17:19,329 need to make all those transactions public. 377 00:17:19,329 --> 00:17:21,319 And it's kind of like the other-- 378 00:17:21,319 --> 00:17:23,554 it's like the opposite to keeping it private. 379 00:17:26,210 --> 00:17:28,860 GARY GENSLER: So to the regulators you said? 380 00:17:28,860 --> 00:17:31,850 AUDIENCE: Like, say one thing it keeps you anonymous. 381 00:17:31,850 --> 00:17:34,130 So that's kind of protection of privacy. 382 00:17:34,130 --> 00:17:36,020 On the other side, we need to make public 383 00:17:36,020 --> 00:17:41,030 all the information, which may otherwise just involve 384 00:17:41,030 --> 00:17:43,017 some certain institutions. 385 00:17:43,017 --> 00:17:43,850 GARY GENSLER: Right. 386 00:17:43,850 --> 00:17:45,728 So you're abso-- remind me your first name. 387 00:17:45,728 --> 00:17:46,520 AUDIENCE: Jennifer. 388 00:17:46,520 --> 00:17:47,478 GARY GENSLER: Jennifer. 389 00:17:47,478 --> 00:17:48,350 Jennifer is right. 390 00:17:48,350 --> 00:17:49,890 There is a tension-- 391 00:17:49,890 --> 00:17:53,840 the traditional blockchains like Bitcoin have both. 392 00:17:53,840 --> 00:17:56,000 They have-- they mask a lot of data 393 00:17:56,000 --> 00:17:58,040 because of the pseudoanonymity. 394 00:17:58,040 --> 00:18:00,020 But it's not truly completely masked, 395 00:18:00,020 --> 00:18:03,290 because you can use forensics and track things. 396 00:18:03,290 --> 00:18:08,700 And to verify a permission list blockchain, it's all public. 397 00:18:08,700 --> 00:18:09,690 So I agree with you. 398 00:18:09,690 --> 00:18:10,995 It sort of goes both ways. 399 00:18:14,260 --> 00:18:16,930 There are technical ways, whether through zero knowledge 400 00:18:16,930 --> 00:18:20,280 proofs and other ways, to have more privacy. 401 00:18:20,280 --> 00:18:24,360 But I'm saying there's a legitimate economic cause. 402 00:18:24,360 --> 00:18:26,940 Paul Krugman's the last sentence in his op-ed 403 00:18:26,940 --> 00:18:28,440 was "tell me a use case." 404 00:18:28,440 --> 00:18:30,990 Tell me-- remember Krugman's-- 405 00:18:30,990 --> 00:18:32,130 he's a Nobel laureate. 406 00:18:32,130 --> 00:18:33,210 Paul is brilliant. 407 00:18:33,210 --> 00:18:36,250 And he writes eloquently for the New York Times. 408 00:18:36,250 --> 00:18:39,220 But there are-- and Jennifer, you're right. 409 00:18:39,220 --> 00:18:40,560 It's not perfect yet. 410 00:18:40,560 --> 00:18:46,540 But there are privacy attributes that you can give to a system. 411 00:18:46,540 --> 00:18:49,060 I do want to clarify, I only have one girlfriend. 412 00:18:49,060 --> 00:18:51,180 She lives in New York. 413 00:18:51,180 --> 00:18:52,780 I just want to make sure. 414 00:18:52,780 --> 00:18:56,500 It was a hypothetical about Uber. 415 00:18:56,500 --> 00:18:57,740 Realized we're on film. 416 00:18:57,740 --> 00:18:59,740 ROB GENSLER: Now they'll just all think it's me. 417 00:18:59,740 --> 00:19:02,765 [LAUGHTER] 418 00:19:02,765 --> 00:19:03,890 GARY GENSLER: There you go. 419 00:19:03,890 --> 00:19:04,432 There you go. 420 00:19:08,320 --> 00:19:08,950 Thank you, Rob. 421 00:19:11,740 --> 00:19:12,880 There was a story-- 422 00:19:12,880 --> 00:19:13,380 no. 423 00:19:13,380 --> 00:19:16,490 OK, settlement. 424 00:19:16,490 --> 00:19:17,900 We've talked about this. 425 00:19:17,900 --> 00:19:21,550 I think if you don't have some economics around settlement, 426 00:19:21,550 --> 00:19:25,030 that you don't need some immutable record 427 00:19:25,030 --> 00:19:29,290 of the movement of a right, particularly a property right, 428 00:19:29,290 --> 00:19:33,400 you might just as well just stay with a traditional database. 429 00:19:33,400 --> 00:19:36,530 I'm not sure I'm entirely right about that. 430 00:19:36,530 --> 00:19:40,750 There might be some permissioned blockchain worthwhile. 431 00:19:40,750 --> 00:19:42,610 But I'm kind of a view if you're not 432 00:19:42,610 --> 00:19:46,030 moving something that matters-- 433 00:19:46,030 --> 00:19:49,000 and settlement means something that's final. 434 00:19:49,000 --> 00:19:52,450 We talked briefly six or eight lectures ago 435 00:19:52,450 --> 00:19:57,910 about that old lawsuit in Scotland, the Crawford case, 436 00:19:57,910 --> 00:20:02,270 that if James steals $1 from me but then hands 437 00:20:02,270 --> 00:20:05,360 the dollar to Andrew, I can't get it back from Andrew. 438 00:20:05,360 --> 00:20:07,790 I have no legal rights to get my dollar from Andrew. 439 00:20:07,790 --> 00:20:10,250 I might have legal rights about James. 440 00:20:10,250 --> 00:20:11,430 But it's final. 441 00:20:11,430 --> 00:20:13,940 There's final settlement. 442 00:20:13,940 --> 00:20:16,500 It's Andrew's dollar. 443 00:20:16,500 --> 00:20:20,370 So there's some things that you just want finality. 444 00:20:20,370 --> 00:20:24,240 One thing I would talk about is a lot of merchants in the US 445 00:20:24,240 --> 00:20:30,390 don't like paying 2 and 1/2 to 3% of all their sales 446 00:20:30,390 --> 00:20:31,910 to the payment system-- 447 00:20:31,910 --> 00:20:33,690 Visa, First Data, and so forth. 448 00:20:33,690 --> 00:20:37,470 A lot of that goes to the banks, not to Visa and First Data. 449 00:20:37,470 --> 00:20:41,400 And a lot of that is also for what's called chargebacks. 450 00:20:41,400 --> 00:20:42,990 So I was the chief financial officer 451 00:20:42,990 --> 00:20:45,180 of the Hillary campaign. 452 00:20:45,180 --> 00:20:49,140 Now, it was really lousy that we lost for a lot of reasons 453 00:20:49,140 --> 00:20:52,730 beyond this discussion about blockchain. 454 00:20:52,730 --> 00:20:55,670 But I continued to be the CFO for the next six months, 455 00:20:55,670 --> 00:20:58,250 because we had to wind down a campaign. 456 00:20:58,250 --> 00:21:01,190 And we had to deal with what I called the computer 457 00:21:01,190 --> 00:21:03,800 and refrigerator graveyard. 458 00:21:03,800 --> 00:21:07,160 The hundreds of people we had working at headquarters 459 00:21:07,160 --> 00:21:08,120 left the equipment. 460 00:21:08,120 --> 00:21:10,920 And they left. 461 00:21:10,920 --> 00:21:13,220 But the other thing I had to deal with for 60 days 462 00:21:13,220 --> 00:21:14,270 was chargebacks. 463 00:21:14,270 --> 00:21:17,990 Did you know that donors could go to Visa 464 00:21:17,990 --> 00:21:22,960 and say, no, I didn't really buy that donation, 465 00:21:22,960 --> 00:21:24,500 whether it was $50-- 466 00:21:24,500 --> 00:21:28,960 low dollar-- or $2,700. 467 00:21:28,960 --> 00:21:36,370 And so I have a personal sense of this whole chargeback thing. 468 00:21:36,370 --> 00:21:38,260 Now, donations to a political campaign 469 00:21:38,260 --> 00:21:41,090 are different than services you buy. 470 00:21:41,090 --> 00:21:43,030 But it's something merchants deal with a lot. 471 00:21:43,030 --> 00:21:43,460 Hugo. 472 00:21:43,460 --> 00:21:45,127 AUDIENCE: Are merchants responsible then 473 00:21:45,127 --> 00:21:47,680 to pay Visa to refund the client? 474 00:21:47,680 --> 00:21:50,593 Or is it on Visa and First Data? 475 00:21:50,593 --> 00:21:52,510 GARY GENSLER: We were in essence the merchant. 476 00:21:52,510 --> 00:21:54,740 And yes, we had to pay. 477 00:21:54,740 --> 00:21:57,700 The campaign-- and this happens in every losing campaign. 478 00:21:57,700 --> 00:21:59,200 It didn't have anything to do with-- 479 00:21:59,200 --> 00:22:01,242 AUDIENCE: What if you've already spent the money? 480 00:22:01,242 --> 00:22:02,570 GARY GENSLER: That's a problem. 481 00:22:02,570 --> 00:22:05,210 That's a real problem. 482 00:22:05,210 --> 00:22:09,990 And what the payment processing companies-- in that case-- 483 00:22:09,990 --> 00:22:11,720 it's a matter of public record. 484 00:22:11,720 --> 00:22:15,230 We used a company called Stripe rather than First Data 485 00:22:15,230 --> 00:22:16,610 and so forth. 486 00:22:16,610 --> 00:22:19,570 I mean, the Stripes of this world 487 00:22:19,570 --> 00:22:22,950 are taking some counterparty risk. 488 00:22:22,950 --> 00:22:25,100 Now, most merchants are not shutting down. 489 00:22:25,100 --> 00:22:28,150 We were shutting down. 490 00:22:28,150 --> 00:22:29,710 But yeah. 491 00:22:29,710 --> 00:22:34,220 So effectively it's on the merchant. 492 00:22:34,220 --> 00:22:36,720 Cost of trust. 493 00:22:36,720 --> 00:22:40,020 In blockchain, there is a cost of trust. 494 00:22:40,020 --> 00:22:42,150 But it's trusting the code-- 495 00:22:42,150 --> 00:22:43,200 the computer code. 496 00:22:43,200 --> 00:22:47,250 You're trusting the Bitcoin core developer, so to speak, 497 00:22:47,250 --> 00:22:50,080 and the consensus protocol. 498 00:22:50,080 --> 00:22:52,240 So when some people say it's trustless, 499 00:22:52,240 --> 00:22:53,620 it's not truly trustless. 500 00:22:53,620 --> 00:22:55,120 You still have to trust the code. 501 00:22:55,120 --> 00:22:58,600 You have to trust the consensus protocol versus the trust 502 00:22:58,600 --> 00:22:59,930 in the central intermediary. 503 00:22:59,930 --> 00:23:02,070 So it's sort of trade-off of-- 504 00:23:02,070 --> 00:23:02,740 yes, Aline. 505 00:23:02,740 --> 00:23:04,990 AUDIENCE: You're also trusting the network in Bitcoin. 506 00:23:04,990 --> 00:23:06,723 Just a reminder. 507 00:23:06,723 --> 00:23:08,140 GARY GENSLER: Yes, you're trusting 508 00:23:08,140 --> 00:23:09,560 the network in Bitcoin. 509 00:23:09,560 --> 00:23:10,820 It's a very good point. 510 00:23:10,820 --> 00:23:13,870 I think by and large we all trust the network even when 511 00:23:13,870 --> 00:23:16,160 we're dealing with Citibank as well. 512 00:23:16,160 --> 00:23:20,680 But you're right that right in the center of a blockchain 513 00:23:20,680 --> 00:23:23,260 solution, you're trusting the network for all 514 00:23:23,260 --> 00:23:25,360 its communications. 515 00:23:25,360 --> 00:23:27,880 But even at a central intermediary, 516 00:23:27,880 --> 00:23:30,153 there's some trust in a network. 517 00:23:30,153 --> 00:23:31,820 AUDIENCE: Yeah, but not for correctness. 518 00:23:31,820 --> 00:23:33,610 So in Bitcoin, you can double spend 519 00:23:33,610 --> 00:23:35,530 if the network never messes up. 520 00:23:35,530 --> 00:23:39,250 But in a permissioned algorithm, you cannot double spend-- 521 00:23:39,250 --> 00:23:41,180 GARY GENSLER: There's different issues. 522 00:23:41,180 --> 00:23:42,440 I agree with that. 523 00:23:42,440 --> 00:23:44,095 You had a question? 524 00:23:44,095 --> 00:23:45,970 AUDIENCE: I would go one step further and say 525 00:23:45,970 --> 00:23:48,490 you also trust the ISP, right? 526 00:23:48,490 --> 00:23:50,770 Not just Citibank, but you're trusting intermediary 527 00:23:50,770 --> 00:23:52,420 that gets you to Citibank's website. 528 00:23:52,420 --> 00:23:52,720 But then I-- 529 00:23:52,720 --> 00:23:53,803 GARY GENSLER: That's true. 530 00:23:53,803 --> 00:23:56,680 AUDIENCE: --can put a fake website in between there. 531 00:23:56,680 --> 00:23:59,440 So there's layers of trust all throughout this. 532 00:23:59,440 --> 00:24:00,900 GARY GENSLER: That's right. 533 00:24:00,900 --> 00:24:02,540 And I drive a car-- 534 00:24:02,540 --> 00:24:03,680 not when I'm in Boston. 535 00:24:03,680 --> 00:24:06,080 When I drive a car, I'm trusting the carburetor as well. 536 00:24:06,080 --> 00:24:08,390 And I don't really know how a carburetor works. 537 00:24:11,360 --> 00:24:13,140 So there's all sorts of layers of trust. 538 00:24:13,140 --> 00:24:16,040 But I would say that the central trade-off with blockchain 539 00:24:16,040 --> 00:24:17,510 is you're moving away from trusting 540 00:24:17,510 --> 00:24:19,520 the central intermediary. 541 00:24:19,520 --> 00:24:23,950 And you're trusting code and consensus. 542 00:24:23,950 --> 00:24:26,410 And then economic rents, and we've talked about this. 543 00:24:26,410 --> 00:24:29,890 I mean, it is not the reason why payment systems 544 00:24:29,890 --> 00:24:32,530 cost a half a percent to a percent of GDP 545 00:24:32,530 --> 00:24:33,640 around the globe. 546 00:24:33,640 --> 00:24:35,960 But some of that is economic rents. 547 00:24:35,960 --> 00:24:37,810 And the financial sector in the US 548 00:24:37,810 --> 00:24:40,510 is a trillion and a half dollars or 7 and 1/2 percent 549 00:24:40,510 --> 00:24:41,810 of our economy. 550 00:24:41,810 --> 00:24:45,080 There's a fair degree of economic rents in there. 551 00:24:45,080 --> 00:24:48,700 So these are kind of the six or seven things 552 00:24:48,700 --> 00:24:52,790 not only that I think is worthwhile to discern out 553 00:24:52,790 --> 00:24:56,360 of Christian Catalini's paper, but it's also to Paul Krugman. 554 00:24:56,360 --> 00:24:59,960 There are legitimate things that you would say, well, 555 00:24:59,960 --> 00:25:03,620 we can maybe lower the cost of verification. 556 00:25:03,620 --> 00:25:06,040 The second big piece in Catalini, 557 00:25:06,040 --> 00:25:09,980 he talked about networks. 558 00:25:09,980 --> 00:25:12,440 Now, these are my words, not his. 559 00:25:12,440 --> 00:25:15,980 But it's basically the value of networking, 560 00:25:15,980 --> 00:25:17,630 moving property rights. 561 00:25:17,630 --> 00:25:19,380 But again, because I'm thinking blockchain 562 00:25:19,380 --> 00:25:20,720 is about property rights-- 563 00:25:20,720 --> 00:25:23,010 I mean, we can talk differently-- 564 00:25:23,010 --> 00:25:26,000 but moving some property right or computer 565 00:25:26,000 --> 00:25:28,660 code that's going to trigger a smart contract that's 566 00:25:28,660 --> 00:25:33,200 going to be installed and move some property rights around. 567 00:25:33,200 --> 00:25:35,240 And does blockchain have an ability 568 00:25:35,240 --> 00:25:39,590 to lower the cost to develop or operate the network? 569 00:25:39,590 --> 00:25:45,370 Basically, in Catalini's words, to jump start the network 570 00:25:45,370 --> 00:25:49,020 or get over the collective action challenges. 571 00:25:49,020 --> 00:25:51,890 And collective action challenges are always in business 572 00:25:51,890 --> 00:25:54,410 when you're trying to start a business. 573 00:25:54,410 --> 00:25:56,870 Some businesses it's really hard to get over 574 00:25:56,870 --> 00:25:59,770 the collective action issues. 575 00:25:59,770 --> 00:26:01,540 I mean, I don't know that any of you 576 00:26:01,540 --> 00:26:07,330 would have read a business case on Federal Express. 577 00:26:07,330 --> 00:26:09,610 But when I first went to business school, 578 00:26:09,610 --> 00:26:11,860 they still had a case on Federal Express, 579 00:26:11,860 --> 00:26:12,850 because the gentleman-- 580 00:26:12,850 --> 00:26:14,410 I think it was Fred Smith-- 581 00:26:14,410 --> 00:26:17,470 who started this incredible idea, 582 00:26:17,470 --> 00:26:23,043 how do you do overnight delivery the first day. 583 00:26:23,043 --> 00:26:24,960 How do you make sure you have enough airplanes 584 00:26:24,960 --> 00:26:28,770 to fly all the packages, in his case to Memphis, Tennessee, 585 00:26:28,770 --> 00:26:30,960 and then fly the packages somewhere else where 586 00:26:30,960 --> 00:26:34,470 you have no customers and you have no employees 587 00:26:34,470 --> 00:26:36,540 and you have all these collective action 588 00:26:36,540 --> 00:26:38,910 issues within one company? 589 00:26:38,910 --> 00:26:44,870 Uber, Bitcoin itself had to get and jump over and build 590 00:26:44,870 --> 00:26:45,470 a network. 591 00:26:45,470 --> 00:26:47,640 Facebook built a network. 592 00:26:47,640 --> 00:26:51,620 There's all sorts of study about how you build a network 593 00:26:51,620 --> 00:26:54,680 and how you sort of move towards a network 594 00:26:54,680 --> 00:26:58,490 and get the big pay day of a network. 595 00:26:58,490 --> 00:27:01,105 Blockchain can be part of that. 596 00:27:01,105 --> 00:27:02,480 I'm not saying it's the only way. 597 00:27:02,480 --> 00:27:04,890 But it is one thing. 598 00:27:04,890 --> 00:27:09,900 And Christian speaks about two things. 599 00:27:09,900 --> 00:27:12,490 A token-- and yes, token economics 600 00:27:12,490 --> 00:27:15,280 might not have much to do with many things. 601 00:27:15,280 --> 00:27:21,850 But it might incentivize and help fund the network. 602 00:27:21,850 --> 00:27:24,400 So it's a new form of crowdfunding. 603 00:27:24,400 --> 00:27:25,930 And economically speaking, there's 604 00:27:25,930 --> 00:27:27,580 been crowdfunding for centuries. 605 00:27:27,580 --> 00:27:31,150 But I mean, it's a new form of crowdfunding, kind of building 606 00:27:31,150 --> 00:27:37,000 on what Kickstarter and others have done, to basically 607 00:27:37,000 --> 00:27:40,630 have a community of interest to pre-fund a project 608 00:27:40,630 --> 00:27:42,130 before it's functional. 609 00:27:42,130 --> 00:27:44,440 Now we get into all sorts of public policy issues of 610 00:27:44,440 --> 00:27:46,330 whether it's a security or not. 611 00:27:46,330 --> 00:27:49,330 But the raw economics is it's a form-- 612 00:27:49,330 --> 00:27:53,710 it's a new form of crowdfunding before the theater is 613 00:27:53,710 --> 00:27:55,600 going to show its show. 614 00:27:55,600 --> 00:27:58,330 But it also might be an incentive mechanism 615 00:27:58,330 --> 00:28:00,640 during an operating phase. 616 00:28:00,640 --> 00:28:04,030 That's one where I'm a little bit less sure of. 617 00:28:04,030 --> 00:28:06,400 I have to admit, I might be on the 1 to 10 618 00:28:06,400 --> 00:28:09,110 scale kind of a two or a three. 619 00:28:09,110 --> 00:28:11,985 And I don't want my bias to infect you all, though, 620 00:28:11,985 --> 00:28:14,110 because there's some people that think there really 621 00:28:14,110 --> 00:28:18,500 are lots of token economics to help operate. 622 00:28:18,500 --> 00:28:22,030 I think the first one-- it's a great way to crowdfund. 623 00:28:22,030 --> 00:28:23,860 I think that's already been shown. 624 00:28:23,860 --> 00:28:26,440 I think that's kind of been proven. 625 00:28:26,440 --> 00:28:28,710 I'm less sure about the second one. 626 00:28:28,710 --> 00:28:33,390 Do we need tokens and token economics to run a platform? 627 00:28:33,390 --> 00:28:36,900 But let us not forget there are many gaming sites that 628 00:28:36,900 --> 00:28:38,430 effectively have tokens. 629 00:28:38,430 --> 00:28:41,370 They might be called hammers and swords. 630 00:28:41,370 --> 00:28:43,590 How many of you are gamers? 631 00:28:43,590 --> 00:28:45,340 You don't want to admit it maybe? 632 00:28:45,340 --> 00:28:46,780 That's six or seven. 633 00:28:46,780 --> 00:28:49,970 So what do you have to pay a lot for? 634 00:28:49,970 --> 00:28:53,337 Is it shields, swords, or hammers these days? 635 00:28:53,337 --> 00:28:55,920 AUDIENCE: Actually, I'm going to work for Activision Blizzard. 636 00:28:55,920 --> 00:28:57,940 But you have to-- 637 00:28:57,940 --> 00:28:59,290 one of the big ones is skins. 638 00:28:59,290 --> 00:28:59,440 It's like-- 639 00:28:59,440 --> 00:29:00,130 GARY GENSLER: Skins? 640 00:29:00,130 --> 00:29:00,755 AUDIENCE: Yeah. 641 00:29:00,755 --> 00:29:03,250 GARY GENSLER: Who figures? 642 00:29:03,250 --> 00:29:05,230 So there's a social community. 643 00:29:05,230 --> 00:29:09,220 There's a reward and incentive system in gaming 644 00:29:09,220 --> 00:29:13,000 that's very real and has been deeply studied. 645 00:29:13,000 --> 00:29:18,290 And it's a reward or an affinity or an identity. 646 00:29:18,290 --> 00:29:21,650 I mean, some of you probably have affinity or identity 647 00:29:21,650 --> 00:29:23,510 points or air miles. 648 00:29:23,510 --> 00:29:26,870 Anybody collect air miles? 649 00:29:26,870 --> 00:29:30,920 Do you do it just for the travel that you can get, 650 00:29:30,920 --> 00:29:35,360 or do you feel a little cool when you get extra points? 651 00:29:35,360 --> 00:29:38,912 You don't have to admit that, Tom. 652 00:29:38,912 --> 00:29:41,490 AUDIENCE: Hey, I'll take anything I can to be cool. 653 00:29:41,490 --> 00:29:43,260 GARY GENSLER: Right. 654 00:29:43,260 --> 00:29:50,090 You remember that George Clooney movie, Up in the Air? 655 00:29:50,090 --> 00:29:52,850 How many people saw Up in the Air? 656 00:29:52,850 --> 00:29:56,270 And do you remember one of the later scenes when he finally-- 657 00:29:56,270 --> 00:29:57,110 he wins. 658 00:29:57,110 --> 00:30:00,400 He's like 10 million miles. 659 00:30:00,400 --> 00:30:05,300 So there is a piece of human nature. 660 00:30:05,300 --> 00:30:07,880 And the people who are maximalist on the last point 661 00:30:07,880 --> 00:30:11,870 say this is part of an incentive system like that scene in Up 662 00:30:11,870 --> 00:30:13,310 in the Air. 663 00:30:13,310 --> 00:30:16,280 I'm towards the minimalist end. 664 00:30:16,280 --> 00:30:18,860 But I have to respect that it might be I should 665 00:30:18,860 --> 00:30:22,370 be more neutral on that point. 666 00:30:22,370 --> 00:30:23,180 Metcalfe's law. 667 00:30:23,180 --> 00:30:26,450 Anybody know Metcalfe's law other than Alin? 668 00:30:26,450 --> 00:30:27,160 Brotish? 669 00:30:27,160 --> 00:30:29,465 Yeah, yeah, I figured. 670 00:30:29,465 --> 00:30:30,840 Brodish, have you told the class, 671 00:30:30,840 --> 00:30:33,070 do you have a PhD too somewhere or something? 672 00:30:33,070 --> 00:30:33,570 No. 673 00:30:33,570 --> 00:30:34,395 No, no, no, no. 674 00:30:34,395 --> 00:30:35,480 I didn't know. 675 00:30:35,480 --> 00:30:37,880 That was a word going around. 676 00:30:37,880 --> 00:30:41,912 AUDIENCE: [INAUDIBLE] the value of a network, and it 677 00:30:41,912 --> 00:30:44,377 is proportional to the [INAUDIBLE].. 678 00:30:44,377 --> 00:30:45,210 GARY GENSLER: Right. 679 00:30:45,210 --> 00:30:48,860 So it's an important concept that the value increases 680 00:30:48,860 --> 00:30:50,660 with the number of nodes. 681 00:30:50,660 --> 00:30:53,780 Idea, if I can only call Alfa and Alfa can call me, 682 00:30:53,780 --> 00:30:56,780 he doesn't find that very valuable to call me actually. 683 00:30:56,780 --> 00:30:58,380 But that's the bit. 684 00:30:58,380 --> 00:31:00,230 But if Alfa can now call five people, 685 00:31:00,230 --> 00:31:03,440 he doesn't view that as just five times more valuable. 686 00:31:03,440 --> 00:31:07,340 Maybe it's 5 squared, the number of nodes. 687 00:31:07,340 --> 00:31:09,200 Now, further studies have sort of 688 00:31:09,200 --> 00:31:11,420 said that doesn't really work once you get probably 689 00:31:11,420 --> 00:31:13,460 past 100 or 150 nodes. 690 00:31:13,460 --> 00:31:14,730 Alfa doesn't really care. 691 00:31:14,730 --> 00:31:18,460 Once he can call his first 150 people, 692 00:31:18,460 --> 00:31:20,690 is it really going to keep going up? 693 00:31:20,690 --> 00:31:23,410 So there's a modified Metcalfe's law 694 00:31:23,410 --> 00:31:25,510 that talks about n times log n. 695 00:31:25,510 --> 00:31:28,810 But whatever the actual value is, 696 00:31:28,810 --> 00:31:32,660 the concept is that it's non-linear. 697 00:31:32,660 --> 00:31:39,940 And that is part of the reason why Apple and Google and Amazon 698 00:31:39,940 --> 00:31:41,200 trade where they trade. 699 00:31:41,200 --> 00:31:45,520 Why are they worth $500 billion to a trillion dollars? 700 00:31:45,520 --> 00:31:48,640 Rob will tell us why in the marketplace. 701 00:31:48,640 --> 00:31:51,280 But part of it is this Metcalfe's law, 702 00:31:51,280 --> 00:31:55,270 that it's non-linear with two billion, 703 00:31:55,270 --> 00:31:56,650 quote, "users" of Facebook. 704 00:31:59,860 --> 00:32:03,610 And so part of token economics are around Metcalfe's law. 705 00:32:03,610 --> 00:32:05,370 And you'll hear people sort of say this. 706 00:32:05,370 --> 00:32:07,900 So I thought I'd make sure you have it. 707 00:32:07,900 --> 00:32:09,200 So back to Joi Ito. 708 00:32:09,200 --> 00:32:09,700 Tom. 709 00:32:09,700 --> 00:32:11,150 AUDIENCE: Before we jump to this, 710 00:32:11,150 --> 00:32:13,200 as I was reading the Catalini paper, 711 00:32:13,200 --> 00:32:17,230 I kept thinking about the transaction costs and the cost 712 00:32:17,230 --> 00:32:20,230 of hashing, particularly for Bitcoin in a proof of work 713 00:32:20,230 --> 00:32:23,440 system and how those things-- 714 00:32:23,440 --> 00:32:25,810 I still just can't wrap my brain around the idea 715 00:32:25,810 --> 00:32:30,820 that Bitcoin becomes so diffuse, but yet 716 00:32:30,820 --> 00:32:35,480 transaction fees are small enough that that's possible. 717 00:32:35,480 --> 00:32:38,290 GARY GENSLER: If you're worried that in Bitcoin's case 718 00:32:38,290 --> 00:32:40,900 that the proof of work and the electricity 719 00:32:40,900 --> 00:32:44,670 and the hashing function is just-- 720 00:32:44,670 --> 00:32:47,493 by design is going to be costly for a long time. 721 00:32:47,493 --> 00:32:48,160 AUDIENCE: Right. 722 00:32:48,160 --> 00:32:49,860 I mean, we think back to last winter 723 00:32:49,860 --> 00:32:51,840 where there were too many transactions 724 00:32:51,840 --> 00:32:56,220 for a Bitcoin blockchain and transaction fees. 725 00:32:56,220 --> 00:32:58,953 GARY GENSLER: So one of the big-- 726 00:32:58,953 --> 00:33:01,620 I'm going to hold this point for a bit, but you're going to see. 727 00:33:01,620 --> 00:33:03,750 One of the big thing the minimalists, 728 00:33:03,750 --> 00:33:05,430 I call them-- the minimalists would say 729 00:33:05,430 --> 00:33:08,400 is by its very design and nature, 730 00:33:08,400 --> 00:33:12,090 blockchain is meant to be complex. 731 00:33:12,090 --> 00:33:16,240 It's meant to have some latencies because it's doesn't 732 00:33:16,240 --> 00:33:17,770 have a central authority. 733 00:33:17,770 --> 00:33:20,170 And the trade-off of having a central authority 734 00:33:20,170 --> 00:33:21,370 is some complexity. 735 00:33:21,370 --> 00:33:23,920 You called it the hashing, the proof of work, 736 00:33:23,920 --> 00:33:26,060 the other-- the network, Alene would say. 737 00:33:26,060 --> 00:33:28,600 Well, you've got to propagate on a network. 738 00:33:28,600 --> 00:33:29,770 You have some latencies. 739 00:33:29,770 --> 00:33:34,440 In Bitcoin's case, blocks are added every 10 minutes. 740 00:33:34,440 --> 00:33:37,440 Whatever that bucket of complexity and design 741 00:33:37,440 --> 00:33:42,100 features, to not have a central authority 742 00:33:42,100 --> 00:33:44,540 that by its very nature the minimalists say 743 00:33:44,540 --> 00:33:50,010 will never take off in any scalable way. 744 00:33:50,010 --> 00:33:53,340 Though I respect each piece of that argument, 745 00:33:53,340 --> 00:33:57,030 I think, one, we might move to other consensus formulas. 746 00:33:57,030 --> 00:34:00,150 Two, it doesn't have to take off in every use case. 747 00:34:00,150 --> 00:34:03,240 Question is whether in some use cases 748 00:34:03,240 --> 00:34:08,133 it will provide an alternative to a central intermediary. 749 00:34:08,133 --> 00:34:09,300 AUDIENCE: Just think about-- 750 00:34:09,300 --> 00:34:11,467 GARY GENSLER: But if you're saying about Bitcoin how 751 00:34:11,467 --> 00:34:13,920 it's designed right now, I think Bitcoin-- 752 00:34:13,920 --> 00:34:17,370 it's very hard to get to very big scalable solutions. 753 00:34:17,370 --> 00:34:19,679 AUDIENCE: Like the idea of using Bitcoin 754 00:34:19,679 --> 00:34:23,420 to buy a cup of coffee versus my Visa card 755 00:34:23,420 --> 00:34:26,715 when the required transaction cost is-- 756 00:34:26,715 --> 00:34:28,710 GARY GENSLER: It's probably too high right now. 757 00:34:28,710 --> 00:34:29,790 That's probably true. 758 00:34:29,790 --> 00:34:36,560 But we're going to hear on November 15-- 759 00:34:36,560 --> 00:34:39,360 we are going to have not just guests, but guest 760 00:34:39,360 --> 00:34:42,060 speakers when Jeff and Kelly-- 761 00:34:42,060 --> 00:34:45,000 Jeff Sprecher and Kelly Loeffler are coming. 762 00:34:45,000 --> 00:34:46,830 Jeff is the chief executive officer 763 00:34:46,830 --> 00:34:48,780 of Intercontinental Exchange. 764 00:34:48,780 --> 00:34:51,150 And I hope you stick with the class or even 765 00:34:51,150 --> 00:34:53,940 if you don't stick with the class you come, 766 00:34:53,940 --> 00:34:55,080 because Jeff and Kelly-- 767 00:34:55,080 --> 00:34:59,790 Kelly is the CEO of their new startup Bakkt. 768 00:34:59,790 --> 00:35:03,100 Hold your question for Jeff and Kelly. 769 00:35:03,100 --> 00:35:07,790 Jeff's one of the great entrepreneurs in the US. 770 00:35:07,790 --> 00:35:10,880 So the question that Ito raises in his write up 771 00:35:10,880 --> 00:35:14,360 is, is Bitcoin kind of the next layer? 772 00:35:14,360 --> 00:35:17,930 Did we go-- all these protocols of the internet-- and these 773 00:35:17,930 --> 00:35:19,780 are just the four big known. 774 00:35:19,780 --> 00:35:23,160 There's dozens of other protocols, sub-protocols 775 00:35:23,160 --> 00:35:24,000 and so forth. 776 00:35:24,000 --> 00:35:28,320 But is Bitcoin kind of that next protocol? 777 00:35:28,320 --> 00:35:33,450 So what did you all take out of Joi's work? 778 00:35:33,450 --> 00:35:35,683 And again, it was about three years ago. 779 00:35:35,683 --> 00:35:37,350 But if Joi were here today, he's still-- 780 00:35:37,350 --> 00:35:38,730 this is his architecture. 781 00:35:38,730 --> 00:35:41,850 He started-- he runs the Media Lab. 782 00:35:41,850 --> 00:35:44,790 He started the first internet service provider 783 00:35:44,790 --> 00:35:50,320 in his bathroom in Tokyo at 23 years old. 784 00:35:50,320 --> 00:35:51,790 And he's lived in. 785 00:35:51,790 --> 00:35:53,460 Any thoughts from his piece? 786 00:35:56,286 --> 00:35:58,650 No? 787 00:35:58,650 --> 00:35:59,460 Same. 788 00:35:59,460 --> 00:36:01,220 Do I code call? 789 00:36:01,220 --> 00:36:02,670 Akira, did you read the-- 790 00:36:02,670 --> 00:36:04,500 AUDIENCE: Yeah. 791 00:36:04,500 --> 00:36:07,620 Interesting point for me is the email 792 00:36:07,620 --> 00:36:11,520 was the application for internet. 793 00:36:11,520 --> 00:36:14,300 And Bitcoin could be [INAUDIBLE].. 794 00:36:17,452 --> 00:36:18,910 GARY GENSLER: So what do you think? 795 00:36:18,910 --> 00:36:21,110 Do you agree with Ito or not? 796 00:36:21,110 --> 00:36:25,170 AUDIENCE: Controversial [INAUDIBLE] Bitcoin, 797 00:36:25,170 --> 00:36:32,550 because as Dr. Roubini said, the concentration of the miners 798 00:36:32,550 --> 00:36:36,510 and association, et cetera. 799 00:36:36,510 --> 00:36:39,000 GARY GENSLER: So blockchain versus the internet, 800 00:36:39,000 --> 00:36:40,980 some thoughts. 801 00:36:40,980 --> 00:36:43,188 Both are open protocols. 802 00:36:43,188 --> 00:36:45,230 I mean, they're a little bit different protocols. 803 00:36:45,230 --> 00:36:51,300 But broadly for this level, both are open protocols. 804 00:36:51,300 --> 00:36:55,580 Both transport packets of data around a distributed network. 805 00:36:55,580 --> 00:36:59,240 Now, in the case of blockchain or certainly Bitcoin, 806 00:36:59,240 --> 00:37:01,130 those packets are packets of data 807 00:37:01,130 --> 00:37:04,160 representing some property right that 808 00:37:04,160 --> 00:37:06,728 then becomes known as value. 809 00:37:06,728 --> 00:37:09,020 Remember, when blockchain start-- when Bitcoin started, 810 00:37:09,020 --> 00:37:10,910 it wasn't worth anything. 811 00:37:10,910 --> 00:37:12,860 It was kind of an idea. 812 00:37:12,860 --> 00:37:16,930 But then all of a sudden, it was worth a penny of coin, 813 00:37:16,930 --> 00:37:18,800 so to speak. 814 00:37:18,800 --> 00:37:26,050 And when those two pizzas were delivered May 22, 2010, 815 00:37:26,050 --> 00:37:27,700 it took a year and a half for anybody 816 00:37:27,700 --> 00:37:33,196 to transact 10,000 Bitcoin for two pizzas. 817 00:37:33,196 --> 00:37:35,770 So it started to have some value. 818 00:37:35,770 --> 00:37:37,950 But at first, it was just an electronic code, 819 00:37:37,950 --> 00:37:43,440 a property right, whereas the internet is content. 820 00:37:43,440 --> 00:37:48,100 Both have apps built on top of a protocol level. 821 00:37:48,100 --> 00:37:52,480 So Facebook is really an app on top of a protocol level. 822 00:37:52,480 --> 00:37:55,040 And there's many other apps on top of a protocol level. 823 00:37:55,040 --> 00:37:58,070 And we studied smart contracts. 824 00:37:58,070 --> 00:38:01,550 So just for your thinking about this 825 00:38:01,550 --> 00:38:05,580 and if you're investing in it or if you're managing around this, 826 00:38:05,580 --> 00:38:10,510 is somebody pitching you on a protocol level like Ethereum, 827 00:38:10,510 --> 00:38:13,840 like Bitcoin, a new protocol level that other things are 828 00:38:13,840 --> 00:38:18,400 built on top of, or is it an app built on top of it, usually 829 00:38:18,400 --> 00:38:20,950 through a smart contract, not always. 830 00:38:20,950 --> 00:38:23,590 Layer one is like Bitcoin and ether. 831 00:38:23,590 --> 00:38:26,790 Layer two is like the Lightning Network. 832 00:38:26,790 --> 00:38:31,540 And maybe there should be something that's interoperable. 833 00:38:31,540 --> 00:38:35,050 And one of the reasons he thinks of Bitcoin as an app-- 834 00:38:35,050 --> 00:38:37,020 I don't use that vocab-- 835 00:38:37,020 --> 00:38:38,740 there's not settled vocab-- 836 00:38:38,740 --> 00:38:42,990 what you've highlighted there is not settled vocabulary. 837 00:38:42,990 --> 00:38:44,550 Like, this would be a heck of a class 838 00:38:44,550 --> 00:38:47,790 to give a vocabulary test in, because in fairness 839 00:38:47,790 --> 00:38:50,430 to students, there's not a settled vocabulary, even 840 00:38:50,430 --> 00:38:54,180 on the word blockchain or permissioned systems blockchain 841 00:38:54,180 --> 00:38:55,140 or not. 842 00:38:55,140 --> 00:38:57,330 The purist would say no. 843 00:38:57,330 --> 00:38:59,100 I would say, well yes, it's blockchain. 844 00:38:59,100 --> 00:39:03,572 I might not be that pure around blockchain. 845 00:39:03,572 --> 00:39:05,690 Just want to make sure. 846 00:39:05,690 --> 00:39:06,450 Is that right? 847 00:39:06,450 --> 00:39:09,520 No, Rob's not going to answer. 848 00:39:09,520 --> 00:39:12,880 Both are said to be open network development. 849 00:39:12,880 --> 00:39:15,310 But I would contend really in both there's 850 00:39:15,310 --> 00:39:19,180 a lot of centralization. 851 00:39:19,180 --> 00:39:23,297 And Joi Ito writes about how a group around ICAN 852 00:39:23,297 --> 00:39:24,880 really does a lot of the centralized-- 853 00:39:24,880 --> 00:39:27,580 I'm talking about internet protocol, not the apps 854 00:39:27,580 --> 00:39:28,810 on top of it. 855 00:39:28,810 --> 00:39:32,400 And of course, the Bitcoin core developers or in Ethereum, 856 00:39:32,400 --> 00:39:35,500 if Vitalik Buterin sneezes, everybody 857 00:39:35,500 --> 00:39:38,680 wants to know which way did he sneeze. 858 00:39:38,680 --> 00:39:40,870 So there's a lot of centralization 859 00:39:40,870 --> 00:39:42,280 around development. 860 00:39:42,280 --> 00:39:44,740 But it is open. 861 00:39:44,740 --> 00:39:45,730 It's on GitHub. 862 00:39:45,730 --> 00:39:46,980 It's open source. 863 00:39:46,980 --> 00:39:52,590 It's highly centralized kind of in both cases. 864 00:39:52,590 --> 00:39:57,130 Interoperability, and this goes back to Joi's point. 865 00:39:57,130 --> 00:40:00,180 Bitcoin is not interoperable with ether, 866 00:40:00,180 --> 00:40:03,850 which is not interoperable with EOS, et cetera, et cetera. 867 00:40:03,850 --> 00:40:07,150 They all are kind of in their own space. 868 00:40:07,150 --> 00:40:11,230 They're not that ultimate base layer. 869 00:40:11,230 --> 00:40:13,030 And so I think of it-- 870 00:40:13,030 --> 00:40:15,910 I might have the wrong word-- as almost like the era when it was 871 00:40:15,910 --> 00:40:19,810 a private intranet and it's not truly the internet-- 872 00:40:19,810 --> 00:40:21,190 Bitcoin. 873 00:40:21,190 --> 00:40:24,220 It's not communicating-- that word internet 874 00:40:24,220 --> 00:40:26,490 meant between networks. 875 00:40:26,490 --> 00:40:28,295 Alene will correct my words here. 876 00:40:28,295 --> 00:40:29,920 AUDIENCE: What does it mean for Bitcoin 877 00:40:29,920 --> 00:40:31,330 to be interoperable with Ethereum? 878 00:40:31,330 --> 00:40:33,080 So for all intents and purposes, right now 879 00:40:33,080 --> 00:40:35,503 you could do this atomic cross-chain swaps 880 00:40:35,503 --> 00:40:37,670 where you could swap some Ethereum and some Bitcoin. 881 00:40:37,670 --> 00:40:39,128 So that's pretty amazing in itself. 882 00:40:39,128 --> 00:40:40,692 What more do you want? 883 00:40:40,692 --> 00:40:43,150 GARY GENSLER: So Alene is saying whoa, whoa, wait a minute. 884 00:40:43,150 --> 00:40:44,020 Wait a minute. 885 00:40:44,020 --> 00:40:45,440 Slow down. 886 00:40:45,440 --> 00:40:48,550 You can move something of value from one ledger 887 00:40:48,550 --> 00:40:50,560 system, the Bitcoin ledger system, 888 00:40:50,560 --> 00:40:52,540 to the Ethereum ledger system through something 889 00:40:52,540 --> 00:40:55,610 called atomic swaps, which we talked about, 890 00:40:55,610 --> 00:40:59,010 which is a form of a layer, too. 891 00:40:59,010 --> 00:41:00,720 And maybe I don't want anything more. 892 00:41:00,720 --> 00:41:03,660 Maybe that solves this problem. 893 00:41:03,660 --> 00:41:09,200 But there still is a problem that Bitcoin code, 894 00:41:09,200 --> 00:41:12,380 scripting code is different than the Ethereum scripting code. 895 00:41:12,380 --> 00:41:15,250 And you might say, so who cares. 896 00:41:15,250 --> 00:41:18,190 But they are separate networks. 897 00:41:18,190 --> 00:41:20,320 You have to have this atomic swap 898 00:41:20,320 --> 00:41:23,320 to jump between Bitcoin and ether. 899 00:41:23,320 --> 00:41:26,260 And you'd have to have probably a different protocol to jump 900 00:41:26,260 --> 00:41:28,530 from ether to EOS. 901 00:41:28,530 --> 00:41:30,530 AUDIENCE: Depends on what you mean by different. 902 00:41:30,530 --> 00:41:33,880 Same algorithm, but yeah. 903 00:41:33,880 --> 00:41:35,582 But they solve different problems. 904 00:41:35,582 --> 00:41:37,040 So that's why the script in Bitcoin 905 00:41:37,040 --> 00:41:39,420 is different than the EVM in Ethereum, for example. 906 00:41:39,420 --> 00:41:43,507 So by nature, they have to be different. 907 00:41:43,507 --> 00:41:45,590 GARY GENSLER: I've said this to this class before. 908 00:41:45,590 --> 00:41:48,500 I think a lot of the interoperability challenges 909 00:41:48,500 --> 00:41:52,430 will get past that. 910 00:41:52,430 --> 00:41:54,390 But we're really at a different stage. 911 00:41:54,390 --> 00:41:58,760 The internet pre-1990s, before the world wide web 912 00:41:58,760 --> 00:42:03,920 in '91 or '92 and there were still more private networks-- 913 00:42:03,920 --> 00:42:06,170 this feels like we're still kind of closer 914 00:42:06,170 --> 00:42:07,935 to that stage of the internet. 915 00:42:07,935 --> 00:42:09,560 Alene's pointing out, well, maybe we're 916 00:42:09,560 --> 00:42:12,320 closer to the world wide web because the solution is 917 00:42:12,320 --> 00:42:14,090 atomic swaps and jumping-- 918 00:42:14,090 --> 00:42:16,470 ROB GENSLER: Sorry, I'm going to jump in here. 919 00:42:16,470 --> 00:42:18,230 GARY GENSLER: Rob, speak up, because I can't hear you. 920 00:42:18,230 --> 00:42:19,897 ROB GENSLER: Sorry if you can't hear me. 921 00:42:19,897 --> 00:42:21,705 But like euros and dollars and yen, 922 00:42:21,705 --> 00:42:24,080 you still have to worry about the currency exchange rate, 923 00:42:24,080 --> 00:42:26,660 no matter what you techies over here-- sorry-- can say. 924 00:42:26,660 --> 00:42:28,237 Oh, but I can do this in my sleep. 925 00:42:28,237 --> 00:42:29,570 Yeah, but what's it worth to me? 926 00:42:29,570 --> 00:42:32,070 Because this price is going up and that price is going down. 927 00:42:32,070 --> 00:42:36,080 And the minute you get currency exchange and value questions 928 00:42:36,080 --> 00:42:39,200 in there, it's not seamless, OK? 929 00:42:39,200 --> 00:42:40,520 It's just not seamless. 930 00:42:40,520 --> 00:42:42,690 It might be seamless technologically. 931 00:42:42,690 --> 00:42:43,190 But-- 932 00:42:43,190 --> 00:42:44,090 AUDIENCE: But that was the whole point 933 00:42:44,090 --> 00:42:45,840 of starting Ethereum, starting Bitcoin, is 934 00:42:45,840 --> 00:42:48,048 that you were going to have two different currencies. 935 00:42:48,048 --> 00:42:49,160 So just make up your mind. 936 00:42:49,757 --> 00:42:51,340 GARY GENSLER: So what Rob is raising-- 937 00:42:51,340 --> 00:42:53,270 what Rob-- this isn't debate. 938 00:42:53,270 --> 00:42:55,110 There's not one right or wrong. 939 00:42:55,110 --> 00:42:57,168 What Rob is raising is there's friction. 940 00:42:57,168 --> 00:42:57,960 ROB GENSLER: Right. 941 00:42:57,960 --> 00:42:59,770 If there's so much value, what is 942 00:42:59,770 --> 00:43:04,530 my value relative to this other currency, this other 943 00:43:04,530 --> 00:43:05,623 [INAUDIBLE]. 944 00:43:05,623 --> 00:43:07,040 AUDIENCE: Just to clarify, I don't 945 00:43:07,040 --> 00:43:09,380 understand what people mean when they say interoperability. 946 00:43:09,380 --> 00:43:10,670 Like, I really don't know what they mean. 947 00:43:10,670 --> 00:43:11,570 I hear this a lot. 948 00:43:11,570 --> 00:43:13,860 And I don't know what they mean-- what they want. 949 00:43:13,860 --> 00:43:15,110 That's what I'm trying to say. 950 00:43:15,110 --> 00:43:15,995 GARY GENSLER: OK, what I mean-- 951 00:43:15,995 --> 00:43:17,270 AUDIENCE: And I should understand what they mean, 952 00:43:17,270 --> 00:43:18,645 because I'm the technical person. 953 00:43:18,645 --> 00:43:20,062 GARY GENSLER: Right, right, right. 954 00:43:20,062 --> 00:43:22,010 But you haven't gotten your PhD yet, right? 955 00:43:24,900 --> 00:43:27,648 You know? 956 00:43:27,648 --> 00:43:28,572 All right, all right. 957 00:43:28,572 --> 00:43:30,780 ROB GENSLER: There's the money side interoperability. 958 00:43:30,780 --> 00:43:32,310 That's what I'm bringing up. 959 00:43:32,310 --> 00:43:34,500 Interoperability technically might be fine. 960 00:43:34,500 --> 00:43:37,100 But the money side is-- 961 00:43:37,100 --> 00:43:41,100 is one worth two or is one worth three? 962 00:43:41,100 --> 00:43:44,850 GARY GENSLER: So what I mean by interoperability 963 00:43:44,850 --> 00:43:48,960 is that you, with the lowest amount of friction, 964 00:43:48,960 --> 00:43:56,070 one might even say seamlessly move across various ledgers 965 00:43:56,070 --> 00:43:56,890 in this space. 966 00:43:56,890 --> 00:44:00,000 I mean, interoperable can mean things differently elsewhere. 967 00:44:00,000 --> 00:44:03,220 But so it's like if I-- 968 00:44:03,220 --> 00:44:06,910 I'm a financial firm and I set up a blockchain system, 969 00:44:06,910 --> 00:44:10,720 can it speak to and move information and data and value 970 00:44:10,720 --> 00:44:14,530 with my Legacy databases to the blockchain? 971 00:44:14,530 --> 00:44:16,300 That's not going to be zero friction. 972 00:44:16,300 --> 00:44:18,490 There's going to be some friction moving stuff 973 00:44:18,490 --> 00:44:21,650 from the Legacy systems to this system. 974 00:44:21,650 --> 00:44:23,260 And if it's blockchain to blockchain, 975 00:44:23,260 --> 00:44:26,710 again, what I think of is can you with the lowest 976 00:44:26,710 --> 00:44:28,840 amount of friction cost-- 977 00:44:28,840 --> 00:44:31,170 whether the cost or what Rob's talking about, 978 00:44:31,170 --> 00:44:35,020 like the currency risk cost or just 979 00:44:35,020 --> 00:44:39,280 how you hook up the API or atomic swaps 980 00:44:39,280 --> 00:44:41,750 with the lowest amount of friction. 981 00:44:41,750 --> 00:44:44,840 And so from a user interface, is it seamless? 982 00:44:44,840 --> 00:44:47,590 If I'm an institutional user, can I 983 00:44:47,590 --> 00:44:51,140 hop, skip, and a jump across these systems? 984 00:44:51,140 --> 00:44:51,820 Let me move on. 985 00:44:51,820 --> 00:44:54,820 But that would be my lay definition. 986 00:44:57,400 --> 00:45:00,910 The incentives-- in blockchain and particularly Bitcoin, 987 00:45:00,910 --> 00:45:02,110 you have miners. 988 00:45:02,110 --> 00:45:06,520 But there are incentives even in the internet 989 00:45:06,520 --> 00:45:08,930 that you have registries and registrars 990 00:45:08,930 --> 00:45:11,800 that Joi talks about, but other incentives. 991 00:45:11,800 --> 00:45:13,720 You have somebody's got to be motivated 992 00:45:13,720 --> 00:45:20,030 to keep this thing alive and program as well. 993 00:45:20,030 --> 00:45:24,010 And then I would lastly talk about the government. 994 00:45:24,010 --> 00:45:27,670 The internet kind of came out of the government. 995 00:45:27,670 --> 00:45:29,740 US Department of Defense and something 996 00:45:29,740 --> 00:45:31,670 called DARPA in the 19-- 997 00:45:31,670 --> 00:45:34,890 late '60s, '70s-- it kind of-- 998 00:45:34,890 --> 00:45:37,980 government ultimately by the 1990s 999 00:45:37,980 --> 00:45:40,770 took a light touch approach to the internet. 1000 00:45:40,770 --> 00:45:42,420 But it wasn't like the internet was 1001 00:45:42,420 --> 00:45:50,480 birthed in a libertarian anti-government way. 1002 00:45:50,480 --> 00:45:55,090 And Bitcoin and Satoshi Nakamoto and the papers 1003 00:45:55,090 --> 00:45:58,450 all kind of came from the cypherpunk libertarian 1004 00:45:58,450 --> 00:45:59,650 ethos and culture. 1005 00:45:59,650 --> 00:46:02,530 So it's a little bit different cultural background. 1006 00:46:02,530 --> 00:46:05,147 It doesn't mean the internet loves government. 1007 00:46:05,147 --> 00:46:07,480 But it's just sort of a little bit different background. 1008 00:46:07,480 --> 00:46:10,338 Alexis, was that-- or you're just thinking? 1009 00:46:10,338 --> 00:46:12,130 I should have said there's one other point, 1010 00:46:12,130 --> 00:46:13,840 significant investment. 1011 00:46:13,840 --> 00:46:18,200 The internet took 20 to 25 years before a lot of money 1012 00:46:18,200 --> 00:46:18,700 got thrown. 1013 00:46:18,700 --> 00:46:21,460 And an avalanche of money came into the internet 1014 00:46:21,460 --> 00:46:24,460 by the mid to late '90s. 1015 00:46:24,460 --> 00:46:29,940 Amazon, eBay, and some others I think were started in 1995, 1016 00:46:29,940 --> 00:46:32,110 Netscape and everything was going on. 1017 00:46:32,110 --> 00:46:36,150 But by '98, '99, and 2000, you had that huge avalanche 1018 00:46:36,150 --> 00:46:37,810 of money. 1019 00:46:37,810 --> 00:46:41,590 The avalanche of money into blockchain is not as big. 1020 00:46:41,590 --> 00:46:43,510 But it came earlier. 1021 00:46:43,510 --> 00:46:47,830 There was a good 15 to 20 years of quiet development 1022 00:46:47,830 --> 00:46:52,120 on research labs like at MIT and the Defense Department 1023 00:46:52,120 --> 00:46:55,780 before that avalanche of money came to the internet. 1024 00:46:55,780 --> 00:47:00,410 And here we had it much faster. 1025 00:47:00,410 --> 00:47:06,403 Those are my sense of some of the differences with it. 1026 00:47:06,403 --> 00:47:08,070 So now let's talk about the minimalists. 1027 00:47:08,070 --> 00:47:11,540 They're kind of fun, as the paintings in the corner 1028 00:47:11,540 --> 00:47:13,760 so suggest, minimalist. 1029 00:47:13,760 --> 00:47:17,570 This was the one that I think was talked about before, Tom. 1030 00:47:17,570 --> 00:47:19,860 So what else do the minimalists say? 1031 00:47:19,860 --> 00:47:22,790 I'm going to have, like, 10 or 15 things. 1032 00:47:22,790 --> 00:47:24,213 Who is a minimalist? 1033 00:47:24,213 --> 00:47:25,130 Alene is a minimalist. 1034 00:47:25,130 --> 00:47:28,300 Who else kind of agrees with Roubini right now? 1035 00:47:28,300 --> 00:47:29,180 Show of hands? 1036 00:47:29,180 --> 00:47:30,520 Anybody? 1037 00:47:30,520 --> 00:47:31,520 All right, so I've got-- 1038 00:47:31,520 --> 00:47:33,510 and you're still coming to class. 1039 00:47:33,510 --> 00:47:34,410 That's good. 1040 00:47:34,410 --> 00:47:36,290 That's good. 1041 00:47:36,290 --> 00:47:38,930 What else is in the minimalist cap? 1042 00:47:38,930 --> 00:47:41,360 Rob, get ready, because you're going to give your view. 1043 00:47:41,360 --> 00:47:42,810 AUDIENCE: So a class is one. 1044 00:47:42,810 --> 00:47:47,357 Store of value is another one because a class is not-- 1045 00:47:47,357 --> 00:47:49,940 GARY GENSLER: So you're saying it's not a good store of value. 1046 00:47:49,940 --> 00:47:51,590 All right, not a good store of value. 1047 00:47:51,590 --> 00:47:53,740 Let's just kind of roll. 1048 00:47:53,740 --> 00:47:54,240 Tom. 1049 00:47:54,240 --> 00:47:55,250 AUDIENCE: I don't know if this is the same, 1050 00:47:55,250 --> 00:47:56,648 but it has no intrinsic value. 1051 00:47:56,648 --> 00:47:58,190 GARY GENSLER: Has no intrinsic value. 1052 00:47:58,190 --> 00:47:58,840 I'll take that. 1053 00:47:58,840 --> 00:47:59,340 Sean. 1054 00:47:59,340 --> 00:48:01,382 AUDIENCE: The one thing that's really interesting 1055 00:48:01,382 --> 00:48:03,973 is the Gini coefficiency that you mentioned-- 1056 00:48:03,973 --> 00:48:05,390 GARY GENSLER: Highly concentrated, 1057 00:48:05,390 --> 00:48:07,370 the wealth concentration. 1058 00:48:07,370 --> 00:48:08,630 Wealth concentration. 1059 00:48:08,630 --> 00:48:10,927 Others? 1060 00:48:10,927 --> 00:48:12,010 Remind me your first name. 1061 00:48:12,010 --> 00:48:12,635 AUDIENCE: Jack. 1062 00:48:12,635 --> 00:48:13,720 GARY GENSLER: Jack. 1063 00:48:13,720 --> 00:48:15,350 AUDIENCE: Similar point is that-- 1064 00:48:15,350 --> 00:48:18,340 GARY GENSLER: So there's more than one Jack in the class. 1065 00:48:18,340 --> 00:48:21,910 AUDIENCE: Jack [INAUDIBLE],, MBA 2019. 1066 00:48:21,910 --> 00:48:24,850 GARY GENSLER: Good move. 1067 00:48:24,850 --> 00:48:26,980 AUDIENCE: Is that it's not really centralized. 1068 00:48:26,980 --> 00:48:29,570 So there was some stat that 99% of transactions 1069 00:48:29,570 --> 00:48:31,097 go through centralized exchanges. 1070 00:48:31,097 --> 00:48:31,930 GARY GENSLER: Right. 1071 00:48:31,930 --> 00:48:36,630 So I usually ask in talks how many people have owned Bitcoin. 1072 00:48:36,630 --> 00:48:39,910 Yesterday, I am at a very high-end conference 1073 00:48:39,910 --> 00:48:46,120 in New York with 150 to 200 what I call curated invitation list. 1074 00:48:46,120 --> 00:48:48,970 And Fidelity is rolling out this big announcement. 1075 00:48:48,970 --> 00:48:51,190 So the people in the room are kind of engaged. 1076 00:48:51,190 --> 00:48:54,430 And Mike Novogratz, who made personally a half a billion 1077 00:48:54,430 --> 00:48:59,520 dollars on betting on ether and Bitcoin-- 1078 00:48:59,520 --> 00:49:04,290 it was more ether than Bitcoin, but on those two. 1079 00:49:04,290 --> 00:49:06,210 I asked how many people own Bitcoin. 1080 00:49:06,210 --> 00:49:09,338 Two-thirds of the hands have traded or owned Bitcoin. 1081 00:49:09,338 --> 00:49:11,130 Two-thirds of the hands go up, as you would 1082 00:49:11,130 --> 00:49:12,600 think in a room like that. 1083 00:49:12,600 --> 00:49:16,390 How many had owned it directly on the blockchain, 1084 00:49:16,390 --> 00:49:20,200 meaning they downloaded the software, they have the nodes-- 1085 00:49:20,200 --> 00:49:23,230 of about 100 hands that went up that had owned it or traded, 1086 00:49:23,230 --> 00:49:26,740 three hands went up in that pretty darn 1087 00:49:26,740 --> 00:49:30,130 sophisticated high-touch area. 1088 00:49:30,130 --> 00:49:33,730 So it's rather centralized because of crypto exchanges. 1089 00:49:33,730 --> 00:49:37,750 Other issues? 1090 00:49:37,750 --> 00:49:40,640 AUDIENCE: 51% issue [INAUDIBLE]. 1091 00:49:43,670 --> 00:49:48,620 GARY GENSLER: So it's subject to the 51% majority attack. 1092 00:49:48,620 --> 00:49:50,180 And as Roubini points out, that's 1093 00:49:50,180 --> 00:49:54,110 probably more true with regard to the small coins. 1094 00:49:54,110 --> 00:49:57,410 If you start a coin and there's only a million dollars of value 1095 00:49:57,410 --> 00:50:00,530 or even $50 million of value and there's only 1096 00:50:00,530 --> 00:50:04,400 a dozen or 100 nodes, it's far easier 1097 00:50:04,400 --> 00:50:07,610 to overwhelm it than this thing like Bitcoin that's 1098 00:50:07,610 --> 00:50:09,680 lived out there in the wild, one might 1099 00:50:09,680 --> 00:50:13,130 say in the swamp for all these 10 years. 1100 00:50:13,130 --> 00:50:17,690 But a state actor with a few probably single digit billions 1101 00:50:17,690 --> 00:50:23,182 to mess around could do a 51% attack even on Bitcoin. 1102 00:50:23,182 --> 00:50:25,640 If the government of China or the government of North Korea 1103 00:50:25,640 --> 00:50:30,275 really wanted to buy enough computing power and ASICs, 1104 00:50:30,275 --> 00:50:32,150 or frankly maybe even the government of China 1105 00:50:32,150 --> 00:50:33,860 would just take over those two big mining 1106 00:50:33,860 --> 00:50:36,080 pools that are in China. 1107 00:50:36,080 --> 00:50:37,820 I don't know, but-- 1108 00:50:37,820 --> 00:50:39,017 or the government of Russia. 1109 00:50:39,017 --> 00:50:40,100 There's a big mining pool. 1110 00:50:40,100 --> 00:50:41,270 And they-- 1111 00:50:41,270 --> 00:50:43,520 So 51% attacks. 1112 00:50:43,520 --> 00:50:45,440 It's kind of an interesting thing. 1113 00:50:45,440 --> 00:50:47,250 Other things? 1114 00:50:47,250 --> 00:50:47,783 Jihee. 1115 00:50:47,783 --> 00:50:49,200 AUDIENCE: No killer app, so it's-- 1116 00:50:49,200 --> 00:50:50,570 GARY GENSLER: No killer apps. 1117 00:50:50,570 --> 00:50:52,028 So hey, where's the "there, there"? 1118 00:50:55,960 --> 00:50:58,180 AUDIENCE: There are a lot of bugs in their code. 1119 00:50:58,180 --> 00:50:58,660 GARY GENSLER: A lot of-- 1120 00:50:58,660 --> 00:50:59,285 AUDIENCE: Bugs. 1121 00:50:59,308 --> 00:51:00,100 GARY GENSLER: Bugs. 1122 00:51:00,100 --> 00:51:02,623 Bugs in the-- so there's still a lot to work out. 1123 00:51:02,623 --> 00:51:03,790 So let me show you the list. 1124 00:51:03,790 --> 00:51:06,700 And then Rob's going to tell us what he thinks. 1125 00:51:06,700 --> 00:51:08,290 There's many technical challenges. 1126 00:51:08,290 --> 00:51:10,210 We've talked about this at an earlier lecture. 1127 00:51:10,210 --> 00:51:12,370 We're not through the scalability performance 1128 00:51:12,370 --> 00:51:14,360 end of this. 1129 00:51:14,360 --> 00:51:17,760 Again, I keep contending I think in single-digit years-- 1130 00:51:17,760 --> 00:51:19,410 not months, but years-- 1131 00:51:19,410 --> 00:51:21,750 we'll get through a lot of these scalability things. 1132 00:51:21,750 --> 00:51:25,200 Maybe I'm too cockeyed optimist about the ability 1133 00:51:25,200 --> 00:51:27,180 of technologists here at MIT and elsewhere. 1134 00:51:27,180 --> 00:51:29,410 But I think we'll get through a lot. 1135 00:51:29,410 --> 00:51:31,410 We won't necessarily get through the governance. 1136 00:51:31,410 --> 00:51:33,493 There's still a bunch of collective action issues. 1137 00:51:33,493 --> 00:51:36,590 But I think maybe we're already through the interoperability. 1138 00:51:36,590 --> 00:51:39,750 I think there's still stuff to do there. 1139 00:51:39,750 --> 00:51:41,100 They lack intrinsic value. 1140 00:51:41,100 --> 00:51:43,180 That was said. 1141 00:51:43,180 --> 00:51:45,365 You didn't say there's a lot of volatility. 1142 00:51:45,365 --> 00:51:46,990 A lot of people raise that there's just 1143 00:51:46,990 --> 00:51:50,800 a ton of volatility in these things. 1144 00:51:50,800 --> 00:51:52,600 That's not a technical bug. 1145 00:51:52,600 --> 00:51:56,530 But it's a feature of the crypto itself. 1146 00:51:56,530 --> 00:52:00,080 And we talked about limited adoption. 1147 00:52:00,080 --> 00:52:03,620 Paul Krugman's piece says, hey, they're not accepted for taxes. 1148 00:52:03,620 --> 00:52:05,750 They're not legal tender. 1149 00:52:05,750 --> 00:52:08,180 Fiat currencies have an advantage, 1150 00:52:08,180 --> 00:52:11,660 because over the last 300 or 400 years, 1151 00:52:11,660 --> 00:52:13,730 nearly every society around the globe 1152 00:52:13,730 --> 00:52:17,360 has said let's accept them for taxes and legal tender. 1153 00:52:17,360 --> 00:52:18,680 Good point to Paul Krugman. 1154 00:52:18,680 --> 00:52:19,610 He's right. 1155 00:52:19,610 --> 00:52:22,790 Can't get around that. 1156 00:52:22,790 --> 00:52:25,790 Having multiple currencies counter an economic history 1157 00:52:25,790 --> 00:52:26,630 and logic. 1158 00:52:26,630 --> 00:52:28,370 This is Roubini's point. 1159 00:52:28,370 --> 00:52:34,370 But do we really need 20, 50, 100, 1,000 separate currencies? 1160 00:52:34,370 --> 00:52:38,220 Maybe not, but on the other side, 1161 00:52:38,220 --> 00:52:40,613 why is it-- what did you call it, skins? 1162 00:52:40,613 --> 00:52:41,530 AUDIENCE: Skins, yeah. 1163 00:52:41,530 --> 00:52:43,655 GARY GENSLER: Yeah, why is it that some people will 1164 00:52:43,655 --> 00:52:49,380 value skins in the middle of a gaming site or affinity points? 1165 00:52:49,380 --> 00:52:52,690 So I wouldn't necessarily discard it completely. 1166 00:52:52,690 --> 00:52:54,155 It's like, I just-- 1167 00:52:54,155 --> 00:52:58,710 I think that's too simplistic to completely discard it. 1168 00:52:58,710 --> 00:53:02,770 And then token monetary policy. 1169 00:53:02,770 --> 00:53:04,410 We've talked about at Bitcoin, you 1170 00:53:04,410 --> 00:53:08,640 can have the maximum of 21 million coins by the year 2140. 1171 00:53:08,640 --> 00:53:11,820 It's put in the code. 1172 00:53:11,820 --> 00:53:15,600 Do we want it to be the base currency-- it's not technically 1173 00:53:15,600 --> 00:53:18,700 the monetary policy; it's the base monetary policy-- only 1174 00:53:18,700 --> 00:53:21,480 in code, or do we want humans? 1175 00:53:21,480 --> 00:53:23,170 The minimalists would also tell you 1176 00:53:23,170 --> 00:53:28,530 that blockchains tend towards centralization, whether it's 1177 00:53:28,530 --> 00:53:32,160 crypto exchanges, whether it's development, the mining pools 1178 00:53:32,160 --> 00:53:37,130 themselves, the holders, and even alternative consensus 1179 00:53:37,130 --> 00:53:38,152 protocols. 1180 00:53:38,152 --> 00:53:40,610 So right now you're thinking you're going to go to the door 1181 00:53:40,610 --> 00:53:42,360 and get out of this blockchain class. 1182 00:53:42,360 --> 00:53:43,958 But it's important to kind of know 1183 00:53:43,958 --> 00:53:45,500 these things to think, all right, now 1184 00:53:45,500 --> 00:53:48,650 where can it have a place? 1185 00:53:48,650 --> 00:53:52,880 Nobody raised the private key thing. 1186 00:53:52,880 --> 00:53:58,850 You lose your private key, you're done. 1187 00:53:58,850 --> 00:54:03,800 In most ledger systems, we have backdoor ways to correct that. 1188 00:54:03,800 --> 00:54:09,460 If I lose my password, if a bank sometimes get-- 1189 00:54:09,460 --> 00:54:12,850 somehow gets hacked, there's a way to backdoor and protect 1190 00:54:12,850 --> 00:54:13,960 against the loss. 1191 00:54:13,960 --> 00:54:16,060 This is the other side of finality. 1192 00:54:16,060 --> 00:54:18,460 If we truly want final settlement, 1193 00:54:18,460 --> 00:54:20,580 this is the other side. 1194 00:54:20,580 --> 00:54:23,370 Buterin's trilemma-- I'm not going to review that again. 1195 00:54:23,370 --> 00:54:25,500 We talked about. 1196 00:54:25,500 --> 00:54:28,410 And then people doubt the claims of token economics. 1197 00:54:28,410 --> 00:54:31,840 I'm probably a little bit in that camp. 1198 00:54:31,840 --> 00:54:33,530 Oh, no killer app. 1199 00:54:33,530 --> 00:54:36,140 The scams and frauds. 1200 00:54:36,140 --> 00:54:39,340 All right, Rob, what do you think? 1201 00:54:39,340 --> 00:54:41,240 Rob ran $20 billion funds. 1202 00:54:41,240 --> 00:54:43,315 And he's not read a single thing on the syllabus. 1203 00:54:43,315 --> 00:54:45,440 ROB GENSLER: No, I haven't even read a single thing 1204 00:54:45,440 --> 00:54:46,580 on blockchain. 1205 00:54:46,580 --> 00:54:49,345 In the '90s, I was a-- 1206 00:54:49,345 --> 00:54:50,470 GARY GENSLER: Covert twins. 1207 00:54:50,470 --> 00:54:52,070 ROB GENSLER: Yes. 1208 00:54:52,070 --> 00:54:54,470 In the '90s, I was a tech and telecom investor. 1209 00:54:54,470 --> 00:54:59,690 And it's relevant to inform my biases, because I saw-- 1210 00:54:59,690 --> 00:55:01,328 Google wasn't the first search engine 1211 00:55:01,328 --> 00:55:03,245 that came public and came through our offices. 1212 00:55:03,245 --> 00:55:05,210 It wasn't even the top five. 1213 00:55:05,210 --> 00:55:07,970 It was the sixth or seventh, if I recall, 1214 00:55:07,970 --> 00:55:09,570 search engine that came through. 1215 00:55:09,570 --> 00:55:11,750 And the first five didn't have a monetization case. 1216 00:55:11,750 --> 00:55:14,720 And Google wound up figuring out the puzzle. 1217 00:55:14,720 --> 00:55:17,780 And I saw all the things in the '90s 1218 00:55:17,780 --> 00:55:19,490 and the tech crash and all. 1219 00:55:19,490 --> 00:55:21,560 What intrigues me about this is-- and I'm 1220 00:55:21,560 --> 00:55:23,810 not a minimalist as to blockchain 1221 00:55:23,810 --> 00:55:25,590 has no economic basis. 1222 00:55:25,590 --> 00:55:27,080 It actually probably does. 1223 00:55:27,080 --> 00:55:29,280 And some will figure it out. 1224 00:55:29,280 --> 00:55:31,030 And I'm very reminded-- 1225 00:55:31,030 --> 00:55:32,530 I'm going to give you the bull side, 1226 00:55:32,530 --> 00:55:34,460 and then I'll give you my real-- 1227 00:55:34,460 --> 00:55:36,920 is when I first met, in the '80s actually, 1228 00:55:36,920 --> 00:55:38,030 the head of Bell Labs-- 1229 00:55:38,030 --> 00:55:43,690 if anyone doesn't know that, it was AT&T's labs and all. 1230 00:55:43,690 --> 00:55:47,348 He said-- and I asked him, all his years in research, 1231 00:55:47,348 --> 00:55:49,640 what was the biggest lesson I could take away and learn 1232 00:55:49,640 --> 00:55:51,630 in my tech investing. 1233 00:55:51,630 --> 00:55:54,800 He says, when big change happens, 1234 00:55:54,800 --> 00:55:58,190 it always takes longer than you think to happen. 1235 00:55:58,190 --> 00:56:00,200 Always much longer. 1236 00:56:00,200 --> 00:56:01,820 He says, but when it does, it happens 1237 00:56:01,820 --> 00:56:06,740 much faster than you could ever imagine when it finally does. 1238 00:56:06,740 --> 00:56:10,578 And where that compares to all of technology evolution, even 1239 00:56:10,578 --> 00:56:11,870 this-- this is what worries me. 1240 00:56:11,870 --> 00:56:14,120 Maybe I'm wrong in my-- because I'm bearish, actually. 1241 00:56:14,120 --> 00:56:15,267 But maybe I'm wrong. 1242 00:56:15,267 --> 00:56:16,850 So I'm going to give why it could be-- 1243 00:56:16,850 --> 00:56:19,100 Maybe we're in that first stage where all the hype is 1244 00:56:19,100 --> 00:56:22,340 happening, because usually you have excitement, hype, 1245 00:56:22,340 --> 00:56:26,040 disappointment, and then years later the use case, 1246 00:56:26,040 --> 00:56:28,023 the broad use case actually happens, 1247 00:56:28,023 --> 00:56:29,690 because right now I really feel strongly 1248 00:56:29,690 --> 00:56:32,000 we're in that first excitement hype. 1249 00:56:32,000 --> 00:56:34,820 I don't know whether the broad use case will ever happen. 1250 00:56:34,820 --> 00:56:36,080 It might. 1251 00:56:36,080 --> 00:56:38,400 But what worries me about Bitcoin in particular-- 1252 00:56:38,400 --> 00:56:40,000 I'm just a markets guy. 1253 00:56:40,000 --> 00:56:40,760 That's all I am. 1254 00:56:40,760 --> 00:56:42,320 I don't think much-- 1255 00:56:42,320 --> 00:56:45,340 and I'm a practical guy, not a research guy. 1256 00:56:45,340 --> 00:56:47,780 And in markets, it's like, OK, Bitcoin comes along. 1257 00:56:47,780 --> 00:56:50,950 And it's going up because the taxi driver's talking about it. 1258 00:56:50,950 --> 00:56:52,160 And everybody is in it. 1259 00:56:52,160 --> 00:56:53,780 Why do they own Bitcoin? 1260 00:56:53,780 --> 00:56:56,140 They own it because the greater fool theory. 1261 00:56:56,140 --> 00:56:58,747 I'm going to find someone to pay me a higher price. 1262 00:56:58,747 --> 00:57:00,580 And I'm going to miss out if I don't own it. 1263 00:57:00,580 --> 00:57:02,600 And I got to be involved in it and all the rest. 1264 00:57:02,600 --> 00:57:04,933 And then you see how many other coins are there if you-- 1265 00:57:05,180 --> 00:57:05,690 GARY GENSLER: 1,600. 1266 00:57:05,690 --> 00:57:07,550 ROB GENSLER: --CoinMarketCap.com, and you're 1267 00:57:07,550 --> 00:57:09,740 just like, oh my god, supply. 1268 00:57:09,740 --> 00:57:12,920 You know, the last thing you want is interoperability. 1269 00:57:12,920 --> 00:57:16,760 If you've got interoperability, then supply is infinite. 1270 00:57:16,760 --> 00:57:18,170 So the value of these-- now, they 1271 00:57:18,170 --> 00:57:21,440 may still have an amazing use case 1272 00:57:21,440 --> 00:57:26,740 as being a utility to provide this ease of transactions 1273 00:57:26,740 --> 00:57:28,550 and all the positive things. 1274 00:57:28,550 --> 00:57:31,117 But what I'm bearish on is the value of Bitcoin, 1275 00:57:31,117 --> 00:57:31,700 if you notice. 1276 00:57:31,700 --> 00:57:34,225 I'm not bearish on blockchain having value. 1277 00:57:34,225 --> 00:57:35,600 But if they're all interoperable, 1278 00:57:35,600 --> 00:57:38,570 actually it would be great, or if the medical system all 1279 00:57:38,570 --> 00:57:41,630 figured out a way to keep medical records in some better 1280 00:57:41,630 --> 00:57:44,540 way that used blockchain, wow, wouldn't that be great? 1281 00:57:44,540 --> 00:57:48,380 But would we be using Bitcoin as a very high-value thing? 1282 00:57:48,380 --> 00:57:50,430 And I'm also reminded, I think Bitcoin-- 1283 00:57:50,430 --> 00:57:52,010 sorry, I'm real biased about this-- 1284 00:57:52,010 --> 00:57:55,020 is a massive regulatory arbitrage. 1285 00:57:55,020 --> 00:57:57,320 I don't want the governments, the officials 1286 00:57:57,320 --> 00:58:00,140 anywhere in the world to know something. 1287 00:58:00,140 --> 00:58:04,010 I want to create a system that's beyond governments. 1288 00:58:04,010 --> 00:58:06,050 Have you found anything-- maybe in the history 1289 00:58:06,050 --> 00:58:07,940 of humankind there is something-- 1290 00:58:07,940 --> 00:58:10,820 where officially-- the official sector doesn't come back 1291 00:58:10,820 --> 00:58:14,330 with a vengeance and get its fair share? 1292 00:58:14,330 --> 00:58:17,280 So I think blockchain can be very good as a utility 1293 00:58:17,280 --> 00:58:18,560 to make a lot of other things. 1294 00:58:18,560 --> 00:58:20,685 It's like, what are the killer apps that will come? 1295 00:58:20,685 --> 00:58:22,102 And it was true with the internet. 1296 00:58:22,102 --> 00:58:23,750 When the killer apps came, guess what. 1297 00:58:23,750 --> 00:58:26,150 Amazon was a killer app and Apple was a killer app. 1298 00:58:26,150 --> 00:58:29,120 Well, Apple's different, but Facebook, et cetera. 1299 00:58:29,120 --> 00:58:30,560 And oh by the way, all of them-- 1300 00:58:30,560 --> 00:58:32,643 so because you were going to say, why would it say 1301 00:58:32,643 --> 00:58:35,280 there weren't $500 billion or a trillion of them. 1302 00:58:35,280 --> 00:58:39,110 Remember, there was an installed base of value-- 1303 00:58:39,110 --> 00:58:43,930 Amazon's case, 100% of global retail that they could disrupt. 1304 00:58:43,930 --> 00:58:46,067 Wow, they have not even 5% yet. 1305 00:58:46,067 --> 00:58:48,400 I don't know whether you should own Amazon stock or not. 1306 00:58:48,400 --> 00:58:49,525 I'm not trying to say that. 1307 00:58:49,525 --> 00:58:52,820 But all of global advertising-- 1308 00:58:52,820 --> 00:58:57,710 that's what's Google-- wow, and they're disruptive. 1309 00:58:57,710 --> 00:59:00,230 So maybe Bitcoin becomes the utility 1310 00:59:00,230 --> 00:59:03,130 that some app resides on top of and is-- 1311 00:59:03,130 --> 00:59:06,602 and this becomes ubiquitous enough in 10 or 15 years. 1312 00:59:06,602 --> 00:59:08,060 And I actually think something will 1313 00:59:08,060 --> 00:59:11,820 happen that just will wow us all that we hadn't even considered. 1314 00:59:11,820 --> 00:59:14,510 But it's in the second phase, not in this first phase 1315 00:59:14,510 --> 00:59:16,455 of hype, disappointment. 1316 00:59:16,455 --> 00:59:18,830 And I don't think we're anywhere near the disappointment. 1317 00:59:18,830 --> 00:59:20,122 The disappointment takes years. 1318 00:59:20,122 --> 00:59:22,750 And then all the sudden, like the Phoenix from the ashes, 1319 00:59:22,750 --> 00:59:24,170 it rises up again. 1320 00:59:24,170 --> 00:59:26,810 And it's once the distributed process is all out there 1321 00:59:26,810 --> 00:59:29,060 and there's not nodes like the Bitcoin nodes, 1322 00:59:29,060 --> 00:59:31,680 but nodes of users-- it's like guess what. 1323 00:59:31,680 --> 00:59:34,860 These things in our phone, in our hands, distributed these. 1324 00:59:34,860 --> 00:59:38,160 Until these were all there, you couldn't have a Facebook, 1325 00:59:38,160 --> 00:59:38,790 right? 1326 00:59:38,790 --> 00:59:41,460 Facebook needed this first in a weird sense, 1327 00:59:41,460 --> 00:59:44,040 or they needed the desktop versions of this first. 1328 00:59:44,040 --> 00:59:47,520 And I still think we're very early days of this stuff. 1329 00:59:47,520 --> 00:59:48,880 The real value will be made. 1330 00:59:48,880 --> 00:59:50,970 And I'm telling you, major investment 1331 00:59:50,970 --> 00:59:53,910 dollars somewhere 5 minimum years, maybe 1332 00:59:53,910 --> 00:59:55,710 10 or 15 years out. 1333 00:59:55,710 --> 00:59:58,900 And it'll be some sort of thing that's enabled because of this. 1334 00:59:58,900 --> 01:00:00,720 But it's not going to be these first guys. 1335 01:00:00,720 --> 01:00:02,280 There's too much supply. 1336 01:00:02,280 --> 01:00:04,920 GARY GENSLER: And here I had no idea what he was going to say. 1337 01:00:04,920 --> 01:00:07,080 But that's been true for 60 years. 1338 01:00:07,080 --> 01:00:07,826 So-- 1339 01:00:07,826 --> 01:00:10,034 ROB GENSLER: Sorry, you had a question for him or me? 1340 01:00:10,034 --> 01:00:10,800 AUDIENCE: Both of you. 1341 01:00:10,800 --> 01:00:12,600 GARY GENSLER: And then I'm going to do a couple more slides. 1342 01:00:12,600 --> 01:00:13,800 Sean, ask the question. 1343 01:00:13,800 --> 01:00:16,217 AUDIENCE: I think it's really interesting the way that you 1344 01:00:16,217 --> 01:00:19,100 mentioned that, because Amazon has a TAM 1345 01:00:19,100 --> 01:00:20,505 and Facebook has a TAM. 1346 01:00:20,505 --> 01:00:22,680 And during the peak of its bubble 1347 01:00:22,680 --> 01:00:26,057 last year, people were referring to TAM of-- 1348 01:00:26,057 --> 01:00:27,640 ROB GENSLER: Total addressable market. 1349 01:00:27,640 --> 01:00:28,020 AUDIENCE: Total addressable market. 1350 01:00:28,020 --> 01:00:28,937 ROB GENSLER: Go ahead. 1351 01:00:28,937 --> 01:00:33,240 AUDIENCE: To let go to the market of gold. 1352 01:00:33,240 --> 01:00:35,640 And what's your perception on that? 1353 01:00:35,640 --> 01:00:38,100 And do you think that's a real-- 1354 01:00:38,100 --> 01:00:40,345 to some degree a realistic assumption? 1355 01:00:40,345 --> 01:00:41,220 ROB GENSLER: I guess. 1356 01:00:41,220 --> 01:00:44,250 But gold has 5,000 years or even longer 1357 01:00:44,250 --> 01:00:47,020 of being the scarce resource that no one understands. 1358 01:00:47,020 --> 01:00:47,770 I certainly don't. 1359 01:00:47,770 --> 01:00:49,970 But it's the-- mining. 1360 01:00:49,970 --> 01:00:53,220 And so it's got a lot of stability from that. 1361 01:00:53,220 --> 01:00:56,260 If Bitcoin truly was the only one-- but how many-- you said 1362 01:00:56,260 --> 01:00:57,210 there's 160 of them. 1363 01:00:57,210 --> 01:00:59,190 And you just said they're going to all be interoperable. 1364 01:00:59,190 --> 01:01:01,107 So I don't know what the currency exchange is. 1365 01:01:01,107 --> 01:01:02,790 So is supply really constrained? 1366 01:01:02,790 --> 01:01:04,770 I don't know. 1367 01:01:04,770 --> 01:01:06,570 So I don't know. 1368 01:01:06,570 --> 01:01:08,383 Maybe you know better answer, because I 1369 01:01:08,383 --> 01:01:09,300 know that comparison-- 1370 01:01:09,300 --> 01:01:10,175 GARY GENSLER: No, no. 1371 01:01:10,175 --> 01:01:11,310 It's a real challenge. 1372 01:01:11,310 --> 01:01:14,040 One of the things about valuing-- 1373 01:01:14,040 --> 01:01:16,920 one of the things about valuing any crypto-- 1374 01:01:16,920 --> 01:01:18,420 and I told you at the beginning, I'm 1375 01:01:18,420 --> 01:01:20,640 just not going to run a class that tells you how 1376 01:01:20,640 --> 01:01:22,520 to invest in or out of crypto. 1377 01:01:22,520 --> 01:01:26,070 But here is just an observation. 1378 01:01:26,070 --> 01:01:28,500 And feel free to ask more questions. 1379 01:01:28,500 --> 01:01:31,220 But that-- if any token-- 1380 01:01:31,220 --> 01:01:33,120 I'm not just talking about Bitcoin-- 1381 01:01:33,120 --> 01:01:38,240 any token-- it could be file sharing app like Filecoin-- 1382 01:01:38,240 --> 01:01:41,120 has a really good, good use. 1383 01:01:41,120 --> 01:01:42,920 And it's being used. 1384 01:01:42,920 --> 01:01:45,560 You have to start to jump to say, what 1385 01:01:45,560 --> 01:01:47,470 is the velocity of the token? 1386 01:01:47,470 --> 01:01:51,240 And any of you that have studied a little bit about macro 1387 01:01:51,240 --> 01:01:53,720 economics and you know the velocity of money, 1388 01:01:53,720 --> 01:01:58,010 it's how many times a piece of currency turns over. 1389 01:01:58,010 --> 01:02:02,330 It's sort of the economy divided by the monetary base, whatever 1390 01:02:02,330 --> 01:02:04,170 your measure is. 1391 01:02:04,170 --> 01:02:07,150 So how many times does a piece of currency turn over? 1392 01:02:07,150 --> 01:02:10,200 In the digital age it can turn over faster. 1393 01:02:10,200 --> 01:02:13,690 If it was just file storage and I'd get file storage from James 1394 01:02:13,690 --> 01:02:17,400 and then James wants to get file storage from Hugo and along 1395 01:02:17,400 --> 01:02:22,150 and along, and if there was high velocity, you need fewer coins, 1396 01:02:22,150 --> 01:02:24,040 almost like the higher the velocity, 1397 01:02:24,040 --> 01:02:27,490 the less value in the coin. 1398 01:02:27,490 --> 01:02:31,280 So you almost need some people to be holding on to the-- 1399 01:02:31,280 --> 01:02:33,190 James wants to hold it because he thinks 1400 01:02:33,190 --> 01:02:39,290 it's a good store of value and not use it for file storage, 1401 01:02:39,290 --> 01:02:42,710 because if all you're doing is turning it over, whether it's 1402 01:02:42,710 --> 01:02:47,150 file storage or anything else, it sort of lowers 1403 01:02:47,150 --> 01:02:49,700 the value, higher velocity. 1404 01:02:49,700 --> 01:02:52,530 And yet it's kind of counter to it. 1405 01:02:52,530 --> 01:02:53,480 So I don't know. 1406 01:02:53,480 --> 01:02:57,740 There's a mixture in the valuation mode of speculation, 1407 01:02:57,740 --> 01:03:04,195 store value, usability, but not too much velocity. 1408 01:03:04,195 --> 01:03:06,070 ROB GENSLER: I'm going to say one last thing. 1409 01:03:06,070 --> 01:03:08,477 I am convinced there is huge value that's 1410 01:03:08,477 --> 01:03:09,310 going to be created. 1411 01:03:09,310 --> 01:03:11,620 But it's in the things that are enabled 1412 01:03:11,620 --> 01:03:13,690 to be able to be done by this. 1413 01:03:13,690 --> 01:03:14,730 It's not in the-- 1414 01:03:14,730 --> 01:03:17,230 I don't know if you call them coins or tokens or whatever. 1415 01:03:17,230 --> 01:03:18,670 They're the enablers. 1416 01:03:18,670 --> 01:03:20,688 And if you've got a really expensive one, 1417 01:03:20,688 --> 01:03:23,230 somebody else is going to have a cheaper one that will enable 1418 01:03:23,230 --> 01:03:26,000 all this great potentiality. 1419 01:03:26,000 --> 01:03:28,570 And somebody will-- and there will be huge value in that. 1420 01:03:28,915 --> 01:03:30,040 GARY GENSLER: Let me just-- 1421 01:03:30,040 --> 01:03:30,970 I just want to cover. 1422 01:03:30,970 --> 01:03:32,050 You can stay up, Rob. 1423 01:03:32,050 --> 01:03:32,830 I just want to-- 1424 01:03:32,830 --> 01:03:34,690 So we've already talked about this. 1425 01:03:34,690 --> 01:03:36,340 But I just want to remind you of this. 1426 01:03:36,340 --> 01:03:39,630 It's sort of like centralization versus decentralization 1427 01:03:39,630 --> 01:03:44,230 when we're all thinking together about the economics. 1428 01:03:44,230 --> 01:03:46,830 And again, you could change the slopes. 1429 01:03:46,830 --> 01:03:50,550 The cost of decentralization might come down-- 1430 01:03:50,550 --> 01:03:52,830 the orange one. 1431 01:03:52,830 --> 01:03:54,810 But as you know, I'm sort of a little bit 1432 01:03:54,810 --> 01:03:59,280 closer to permission systems than permissionless systems. 1433 01:03:59,280 --> 01:04:02,070 And in terms of traditional databases, 1434 01:04:02,070 --> 01:04:03,390 we've done this before. 1435 01:04:03,390 --> 01:04:07,790 But again, the public blockchains 1436 01:04:07,790 --> 01:04:09,920 versus the traditional databases-- and I 1437 01:04:09,920 --> 01:04:12,270 don't mean every word you need to remember 1438 01:04:12,270 --> 01:04:13,770 or anything like that. 1439 01:04:13,770 --> 01:04:18,050 But if you don't need a ledger, if you don't fundamentally 1440 01:04:18,050 --> 01:04:21,650 need something to move around property rights, 1441 01:04:21,650 --> 01:04:24,920 I think you're probably in the traditional database side. 1442 01:04:24,920 --> 01:04:26,360 You can move over into the middle 1443 01:04:26,360 --> 01:04:30,290 if you think that an invention of the early 1990s-- 1444 01:04:30,290 --> 01:04:35,850 append-only databases, the blockchain, 1445 01:04:35,850 --> 01:04:38,880 sprinkle a whole bunch of cryptography on top of it, 1446 01:04:38,880 --> 01:04:42,680 the hash functions, and the digital signatures-- 1447 01:04:42,680 --> 01:04:46,600 that's kind of your permissioned database systems. 1448 01:04:46,600 --> 01:04:49,750 It can give you finality of settlement. 1449 01:04:49,750 --> 01:04:52,570 It can give you an awful lot. 1450 01:04:52,570 --> 01:04:54,700 But it's a club deal. 1451 01:04:54,700 --> 01:04:58,950 And amongst the big commercial banks or amongst some systems, 1452 01:04:58,950 --> 01:05:02,850 they're doing a lot there. 1453 01:05:02,850 --> 01:05:05,470 I think to get to the right-hand side, 1454 01:05:05,470 --> 01:05:08,850 we'll need to get some of this performance behind us-- 1455 01:05:08,850 --> 01:05:12,960 in some single-digit years, get the performance up to speed. 1456 01:05:12,960 --> 01:05:16,380 But still, even after those three or five or six years, 1457 01:05:16,380 --> 01:05:19,080 when we get the performance up to speed, 1458 01:05:19,080 --> 01:05:22,900 I think you have to say one of two things. 1459 01:05:22,900 --> 01:05:27,360 One is, is this a lower cost of verification? 1460 01:05:27,360 --> 01:05:28,430 And it might be. 1461 01:05:28,430 --> 01:05:30,910 And I say this for your final projects, too. 1462 01:05:30,910 --> 01:05:34,840 If you find a pain point that has high economic rents, 1463 01:05:34,840 --> 01:05:36,240 this might be a lower cost. 1464 01:05:36,240 --> 01:05:38,700 If you find a pain point around privacy, 1465 01:05:38,700 --> 01:05:41,810 a pain point around censorship-- 1466 01:05:41,810 --> 01:05:44,000 it depends on what the pain point is, 1467 01:05:44,000 --> 01:05:47,300 or if you're just something that's not yet centralized-- 1468 01:05:47,300 --> 01:05:50,480 I continue to believe that if you're trying to attack, 1469 01:05:50,480 --> 01:05:53,810 if you all are trying to attack a centralized system 1470 01:05:53,810 --> 01:05:57,530 with blockchain, you've got to basically go 1471 01:05:57,530 --> 01:06:01,670 through the door of lower verification costs, lower 1472 01:06:01,670 --> 01:06:04,610 economic rents, lower privacy, lower censorship, but lower 1473 01:06:04,610 --> 01:06:07,670 some verification cost. 1474 01:06:07,670 --> 01:06:09,920 If it's currently a decentralized thing, 1475 01:06:09,920 --> 01:06:12,330 there's no centralized intermediary, 1476 01:06:12,330 --> 01:06:14,330 it might be the token economics are a way 1477 01:06:14,330 --> 01:06:18,420 to jump-start the consensus and the collective action. 1478 01:06:18,420 --> 01:06:20,670 But I remind you, even in medical records 1479 01:06:20,670 --> 01:06:22,860 where there's no centralized thing, 1480 01:06:22,860 --> 01:06:24,690 you still have to think, how is this 1481 01:06:24,690 --> 01:06:27,840 going to jump start and get over this darn collective action 1482 01:06:27,840 --> 01:06:30,900 problem that has existed for decades, 1483 01:06:30,900 --> 01:06:34,440 or loan syndication is another example. 1484 01:06:34,440 --> 01:06:37,170 Collective action-- it might-- it might-- 1485 01:06:37,170 --> 01:06:39,390 and by the way, Goldman Sachs and Morgan Stanley 1486 01:06:39,390 --> 01:06:43,780 and JP Morgan and Banque Nationale Paris-- 1487 01:06:43,780 --> 01:06:48,720 BNP and others-- they trust each other only to an extent. 1488 01:06:48,720 --> 01:06:52,450 So even the middle category-- 1489 01:06:52,450 --> 01:06:56,210 these club deals are a little odd, too. 1490 01:06:56,210 --> 01:06:57,470 So I'm just repeating. 1491 01:06:57,470 --> 01:06:59,220 This is going to be something you've seen. 1492 01:06:59,220 --> 01:07:03,670 So can you lower verification costs? 1493 01:07:03,670 --> 01:07:05,380 That's my core thing. 1494 01:07:05,380 --> 01:07:07,460 Can you lower verification costs, 1495 01:07:07,460 --> 01:07:10,840 whether it's direct costs, privacy, censorship, settlement 1496 01:07:10,840 --> 01:07:15,100 and finality risks, and the cost of trust or economic rents? 1497 01:07:17,970 --> 01:07:21,600 If you can, this might be an alternative 1498 01:07:21,600 --> 01:07:27,810 to the centralized databases, or does it jump start 1499 01:07:27,810 --> 01:07:29,610 through some reward affinity. 1500 01:07:29,610 --> 01:07:31,840 And I love the skins. 1501 01:07:31,840 --> 01:07:36,550 Does it somehow help you jump-start something? 1502 01:07:36,550 --> 01:07:37,050 I'm sorry. 1503 01:07:37,050 --> 01:07:38,508 AUDIENCE: Yeah, I was just thinking 1504 01:07:38,508 --> 01:07:41,850 about what are your thoughts collectively on-- 1505 01:07:41,850 --> 01:07:43,010 ROB GENSLER: Collectively? 1506 01:07:43,010 --> 01:07:44,670 AUDIENCE: Yeah, both. 1507 01:07:44,670 --> 01:07:45,810 GARY GENSLER: Double. 1508 01:07:45,810 --> 01:07:47,180 AUDIENCE: So Bitcoin is-- 1509 01:07:47,180 --> 01:07:50,550 I mean, there's no necessarily intrinsic value, 1510 01:07:50,550 --> 01:07:55,260 like direct peg where you can say, this is tied to this. 1511 01:07:55,260 --> 01:07:57,510 But what about, like, tokenization 1512 01:07:57,510 --> 01:08:02,250 of some assets, namely maybe real estate where if you sell 1513 01:08:02,250 --> 01:08:04,590 a piece of real estate or new-- 1514 01:08:04,590 --> 01:08:08,160 on a new-found token, you kind of understand 1515 01:08:08,160 --> 01:08:10,350 where the market value of that piece of real estate 1516 01:08:10,350 --> 01:08:14,520 is from sales comparables, et cetera. 1517 01:08:14,520 --> 01:08:19,470 But the value potentially add from tokenizing the asset is 1518 01:08:19,470 --> 01:08:20,830 lower transaction costs. 1519 01:08:20,830 --> 01:08:24,569 So you can kind of directly peg a value to the real estate 1520 01:08:24,569 --> 01:08:26,910 and also the value from the cost savings 1521 01:08:26,910 --> 01:08:29,160 from not having to pay those transaction fees. 1522 01:08:29,160 --> 01:08:30,720 GARY GENSLER: So the real question 1523 01:08:30,720 --> 01:08:37,040 is, is there an application of blockchain technology to using 1524 01:08:37,040 --> 01:08:42,890 a token to digitize an otherwise either a liquid or liquid 1525 01:08:42,890 --> 01:08:44,590 asset, because it could be. 1526 01:08:44,590 --> 01:08:46,370 Dan used real estate. 1527 01:08:46,370 --> 01:08:48,080 But you could just as well say, is there 1528 01:08:48,080 --> 01:08:52,580 a role to have a blockchain token and underlying 1529 01:08:52,580 --> 01:08:55,399 it is oil, or underlying it is gold, 1530 01:08:55,399 --> 01:08:58,460 or maybe underlying it is a basket of equities or even 1531 01:08:58,460 --> 01:09:00,200 Fiat currency. 1532 01:09:00,200 --> 01:09:02,180 I think yes. 1533 01:09:02,180 --> 01:09:06,290 It's sort of a newer modern-day version of exchange traded 1534 01:09:06,290 --> 01:09:12,800 funds, or it's a modern-day version of warehouse receipts. 1535 01:09:12,800 --> 01:09:16,640 Paper money started exactly this way. 1536 01:09:16,640 --> 01:09:22,460 Paper money was like, please, will you store my grain 1537 01:09:22,460 --> 01:09:24,840 and give me a warehouse receipt. 1538 01:09:24,840 --> 01:09:25,939 And then it was gold. 1539 01:09:25,939 --> 01:09:27,800 And I'll take a warehouse receipt. 1540 01:09:27,800 --> 01:09:31,840 And it was easier to exchange the paper warehouse receipt 1541 01:09:31,840 --> 01:09:34,080 than the gold or the wheat and so forth. 1542 01:09:34,080 --> 01:09:36,560 So I have to say, from an economic point of view, 1543 01:09:36,560 --> 01:09:37,620 there's a long history. 1544 01:09:37,620 --> 01:09:40,160 The answer has to be yes. 1545 01:09:40,160 --> 01:09:45,710 However, caution is particularly when you get to illiquids, 1546 01:09:45,710 --> 01:09:47,569 is it really going to create liquidity 1547 01:09:47,569 --> 01:09:49,700 where there isn't liquidity? 1548 01:09:49,700 --> 01:09:54,610 Real estate is still very idiosyncratic. 1549 01:09:54,610 --> 01:09:57,920 Gold is very fungible. 1550 01:09:57,920 --> 01:10:04,120 Gold is something that doesn't degrade. 1551 01:10:04,120 --> 01:10:05,980 It could be in a warehouse. 1552 01:10:05,980 --> 01:10:09,880 Now, it might be that they start issuing too much paper. 1553 01:10:09,880 --> 01:10:14,520 But so I think that I have to say yes 1554 01:10:14,520 --> 01:10:17,380 with a big footnote that I'm not as sure when 1555 01:10:17,380 --> 01:10:20,720 you get to the illiquid end of the curve. 1556 01:10:20,720 --> 01:10:26,890 But the highly liquid commodity end of the curve-- 1557 01:10:26,890 --> 01:10:28,380 but even on the commodity end, you 1558 01:10:28,380 --> 01:10:31,380 might say, well, why is this any better than an exchange traded 1559 01:10:31,380 --> 01:10:32,620 fund? 1560 01:10:32,620 --> 01:10:35,520 And particularly, by the time the securities regulators 1561 01:10:35,520 --> 01:10:38,130 say yes to it and sprinkle holy water on it, 1562 01:10:38,130 --> 01:10:40,280 it might look like an exchange traded fund. 1563 01:10:40,280 --> 01:10:41,020 Eric. 1564 01:10:41,020 --> 01:10:45,990 AUDIENCE: Just going back from that point to lowering 1565 01:10:45,990 --> 01:10:48,360 verification costs, there's a point 1566 01:10:48,360 --> 01:10:51,360 I think Catalini makes that when you have 1567 01:10:51,360 --> 01:10:54,600 the necessity of matching an offline asset 1568 01:10:54,600 --> 01:10:58,860 to the digital version or representation, 1569 01:10:58,860 --> 01:11:03,750 then you kind of don't gain the same lowering 1570 01:11:03,750 --> 01:11:07,170 costs as you would do when you're dealing with a purely 1571 01:11:07,170 --> 01:11:10,770 digital asset. 1572 01:11:10,770 --> 01:11:14,160 So that could actually set the stage 1573 01:11:14,160 --> 01:11:17,490 for some sort of collaboration with existing intermediaries 1574 01:11:17,490 --> 01:11:21,630 that could kind of work on making sure 1575 01:11:21,630 --> 01:11:26,100 that that offline and digital version matching can be-- 1576 01:11:26,720 --> 01:11:29,220 GARY GENSLER: So what I think Eric's talking in the Catalini 1577 01:11:29,220 --> 01:11:34,530 paper is that a digital token tied 1578 01:11:34,530 --> 01:11:38,830 to some other digital asset-- 1579 01:11:38,830 --> 01:11:43,400 there might be higher benefits than tying it 1580 01:11:43,400 --> 01:11:45,650 to something that's offline. 1581 01:11:45,650 --> 01:11:47,810 I colloquially called them illiquids. 1582 01:11:47,810 --> 01:11:52,610 But not everything offline is illiquid. 1583 01:11:52,610 --> 01:11:57,230 And his point is basically if it's digital-to-digital, 1584 01:11:57,230 --> 01:12:01,850 it probably has more benefit and there's less costs embedded. 1585 01:12:01,850 --> 01:12:04,940 And it could be with less friction. 1586 01:12:04,940 --> 01:12:07,550 And that's one reason why it might have more applicability 1587 01:12:07,550 --> 01:12:10,700 in the world of finance than it does to the world of diamonds 1588 01:12:10,700 --> 01:12:12,835 or supply chain management. 1589 01:12:12,835 --> 01:12:14,210 But one of the reasons I think it 1590 01:12:14,210 --> 01:12:17,060 might have a real benefit in supply chain management 1591 01:12:17,060 --> 01:12:18,830 is supply chain management has not 1592 01:12:18,830 --> 01:12:22,010 dealt with collective action issues in the past. 1593 01:12:22,010 --> 01:12:26,170 So rather than verification, supply chain management 1594 01:12:26,170 --> 01:12:28,000 and health care records are somewhere down 1595 01:12:28,000 --> 01:12:29,650 in the network bag. 1596 01:12:29,650 --> 01:12:33,460 Maybe this is a way to start to jump start or get some 1597 01:12:33,460 --> 01:12:38,280 of the network effects in here. 1598 01:12:38,280 --> 01:12:39,660 Oops, starting or operating. 1599 01:12:39,660 --> 01:12:42,900 I knew there was something else on this page. 1600 01:12:42,900 --> 01:12:44,110 Did you have anything to add? 1601 01:12:44,110 --> 01:12:46,080 No. 1602 01:12:46,080 --> 01:12:51,420 So we're going to do the same thing on Thursday. 1603 01:12:51,420 --> 01:12:54,930 You don't have five readings and five optionals. 1604 01:12:54,930 --> 01:12:56,490 I know it was a long list. 1605 01:12:56,490 --> 01:12:57,870 I think it's only-- 1606 01:12:57,870 --> 01:13:00,150 what is it-- four. 1607 01:13:00,150 --> 01:13:02,070 An open letter. 1608 01:13:02,070 --> 01:13:02,910 Let's see. 1609 01:13:02,910 --> 01:13:06,510 I know you're a bunch of business school students. 1610 01:13:06,510 --> 01:13:10,080 The open letter to Jamie Dimon is kind of brief. 1611 01:13:10,080 --> 01:13:13,510 And the Economist article's two pages and so forth. 1612 01:13:13,510 --> 01:13:17,730 So McKinsey's is so-so. 1613 01:13:17,730 --> 01:13:20,910 I'm not going to say all of these McKinsey's and PWC 1614 01:13:20,910 --> 01:13:22,950 and some of them that I put in-- 1615 01:13:22,950 --> 01:13:24,360 they're general surveys. 1616 01:13:24,360 --> 01:13:27,210 But I like to include them with the academic papers, 1617 01:13:27,210 --> 01:13:29,730 because this is what the business community-- 1618 01:13:29,730 --> 01:13:30,387 they skim. 1619 01:13:30,387 --> 01:13:31,470 They look at these things. 1620 01:13:31,470 --> 01:13:33,120 It's McKinsey-- some of you are going 1621 01:13:33,120 --> 01:13:39,000 to go work for consulting, Tom. 1622 01:13:39,000 --> 01:13:40,500 And so you know, it's good to know 1623 01:13:40,500 --> 01:13:44,730 what that vocabulary and that world's about. 1624 01:13:44,730 --> 01:13:46,920 The Geneva Report-- you've read some of that. 1625 01:13:46,920 --> 01:13:50,680 That's, of course, Simon's and Neha's and Jonah and Michael's 1626 01:13:50,680 --> 01:13:51,180 and mine. 1627 01:13:51,180 --> 01:13:52,440 We came together. 1628 01:13:52,440 --> 01:13:56,010 But we tried to sort lay out some of these economic issues 1629 01:13:56,010 --> 01:13:59,290 in there as well. 1630 01:13:59,290 --> 01:14:01,900 Any other questions? 1631 01:14:01,900 --> 01:14:02,400 Eilon? 1632 01:14:02,400 --> 01:14:06,130 Any other questions for Rob who, like, actually knows something? 1633 01:14:06,130 --> 01:14:08,430 AUDIENCE: That would be relevant, yes. 1634 01:14:08,430 --> 01:14:10,680 Some of the questions-- some of the comments on the-- 1635 01:14:10,680 --> 01:14:14,490 from the minimalist point of view were actually about money. 1636 01:14:17,060 --> 01:14:20,430 They consider cryptocurrency a currency. 1637 01:14:20,430 --> 01:14:23,970 But if they are securities, so there's 1638 01:14:23,970 --> 01:14:28,080 no need for medium of exchange or no need 1639 01:14:28,080 --> 01:14:29,665 for monetary policies. 1640 01:14:29,665 --> 01:14:34,680 There's need maybe for issuance of securities policy, 1641 01:14:34,680 --> 01:14:36,730 but not monetary policies. 1642 01:14:36,730 --> 01:14:40,050 So if it's not coins, I just disagree 1643 01:14:40,050 --> 01:14:41,940 with-- if it's not currency, I disagree 1644 01:14:41,940 --> 01:14:44,220 with some of the comments. 1645 01:14:44,220 --> 01:14:46,710 GARY GENSLER: Let me just step back. 1646 01:14:46,710 --> 01:14:51,410 I hope that many of you going on this journey 1647 01:14:51,410 --> 01:14:53,645 and doing these readings don't need 1648 01:14:53,645 --> 01:14:56,270 to agree with many of the things that are written, whether it's 1649 01:14:56,270 --> 01:14:57,950 by the minimalist or the maximalist, 1650 01:14:57,950 --> 01:15:00,770 whether it's by the tech folks or the McKinsey's that 1651 01:15:00,770 --> 01:15:03,980 are doing big glossy business reviews. 1652 01:15:03,980 --> 01:15:06,320 I hope you come to your own judgment and opinion, 1653 01:15:06,320 --> 01:15:07,940 just like you have. 1654 01:15:07,940 --> 01:15:09,710 I will react to what you're saying. 1655 01:15:09,710 --> 01:15:16,100 I think that whether it's a currency or a security 1656 01:15:16,100 --> 01:15:20,780 is relevant for the regulatory situation. 1657 01:15:20,780 --> 01:15:24,530 It might be relevant to the business cases. 1658 01:15:24,530 --> 01:15:26,960 But I'm not with you on that. 1659 01:15:26,960 --> 01:15:28,790 I'm probably not with you. 1660 01:15:28,790 --> 01:15:31,880 I don't really care if you call it a currency 1661 01:15:31,880 --> 01:15:33,850 or call it a crypto asset. 1662 01:15:33,850 --> 01:15:35,480 What I'm kind of interested in is, 1663 01:15:35,480 --> 01:15:39,080 is blockchain technology and the permission or permissionless 1664 01:15:39,080 --> 01:15:43,700 way something that can either disrupt the incumbents, 1665 01:15:43,700 --> 01:15:45,980 do it cheaper, do verification cheaper, 1666 01:15:45,980 --> 01:15:50,270 do databases, ledgers cheaper, or is it a neat, nifty way 1667 01:15:50,270 --> 01:15:53,270 to jump-start a new network. 1668 01:15:53,270 --> 01:15:56,810 And we're-- literally, if we did not have Uber today, 1669 01:15:56,810 --> 01:15:59,665 I could see, wow, that would be an interesting use case. 1670 01:15:59,665 --> 01:16:01,040 You could use something like this 1671 01:16:01,040 --> 01:16:03,470 to connect a community of people that 1672 01:16:03,470 --> 01:16:05,690 own cars, people that want to drive cars, 1673 01:16:05,690 --> 01:16:08,210 people that want to rent cars. 1674 01:16:08,210 --> 01:16:10,700 ROB GENSLER: And as someone that lived and lost 1675 01:16:10,700 --> 01:16:14,960 a lot of money, made a lot of money for others in disruptors, 1676 01:16:14,960 --> 01:16:20,690 think to yourself, because is Bitcoin and blockchain-- 1677 01:16:20,690 --> 01:16:23,630 I put them together for this statement only. 1678 01:16:23,630 --> 01:16:28,220 Is it going to be a disruptor to traditional stores of value, 1679 01:16:28,220 --> 01:16:31,510 the monetary systems, dollars, euros, yen? 1680 01:16:31,510 --> 01:16:34,220 You could be disrupting that, or is 1681 01:16:34,220 --> 01:16:38,270 it a disruptor for medical records or Uber tech-- 1682 01:16:38,270 --> 01:16:42,680 is it an enabler to disrupt some other industry? 1683 01:16:42,680 --> 01:16:44,690 I'm betting on the second case. 1684 01:16:44,690 --> 01:16:46,160 I actually think this will someday 1685 01:16:46,160 --> 01:16:49,160 be a disruptor to some industry just like, 1686 01:16:49,160 --> 01:16:50,430 guess what, the internet. 1687 01:16:50,430 --> 01:16:51,680 We didn't know it at the time. 1688 01:16:51,680 --> 01:16:55,040 And was a disruptor to the taxi industry. 1689 01:16:55,040 --> 01:16:57,530 Somehow it happened. 1690 01:16:57,530 --> 01:16:59,690 Nobody saw that coming in the '90s. 1691 01:16:59,690 --> 01:17:01,730 But the taxi industry got disrupted, et cetera, 1692 01:17:01,730 --> 01:17:04,280 et cetera, Airbnb and the hotel industry, 1693 01:17:04,280 --> 01:17:06,050 et cetera, et cetera, all this stuff. 1694 01:17:06,050 --> 01:17:08,570 So is-- and it might be a disruptor 1695 01:17:08,570 --> 01:17:10,760 to the monetary system. 1696 01:17:10,760 --> 01:17:12,860 That's one bet I actually am negative-- 1697 01:17:12,860 --> 01:17:14,270 I'm bearish on that bet. 1698 01:17:14,270 --> 01:17:16,760 But I'm very bullish that it will be a disruptor on things 1699 01:17:16,760 --> 01:17:19,148 that we aren't even talking about yet, 1700 01:17:19,148 --> 01:17:20,940 haven't considered, or maybe you guys have. 1701 01:17:20,940 --> 01:17:23,250 And I think that's the more interesting discussion 1702 01:17:23,250 --> 01:17:26,060 is what's going to disrupt as an enabling platform. 1703 01:17:28,640 --> 01:17:30,130 GARY GENSLER: So I thank you. 1704 01:17:30,130 --> 01:17:31,797 We're going to close with your question. 1705 01:17:31,797 --> 01:17:34,490 But also, remember for Thursday, for those of you 1706 01:17:34,490 --> 01:17:36,500 that feel that you wanted another way 1707 01:17:36,500 --> 01:17:40,270 to participate in the class-- it's not required. 1708 01:17:40,270 --> 01:17:41,167 It's not required. 1709 01:17:41,167 --> 01:17:42,000 You can participate. 1710 01:17:42,000 --> 01:17:44,670 We'll have a little bit of this discussion about whether it's 1711 01:17:44,670 --> 01:17:47,550 minimalist, maximalist, blockchain economics 1712 01:17:47,550 --> 01:17:49,920 this Thursday, not discussions of something 1713 01:17:49,920 --> 01:17:52,310 that's not related to Thursday.