hello thank you very much for coming I'm
very very pleasantly surprised to see
such a great turnout on the last day in
one of the last talks I have used the
last of my voice I'm gonna try to eke
out a little bit more and talk to you a
little bit about steak and about
protocols consensus protocols and so
forth so let's get started where are we
at today where I'm 10 years into about
exactly 10 years into since the Bitcoin
white paper multiple years into this
revolution and in this sort of time to
sort of take stock the word blockchain
has become one of these words that
doesn't even take an article we don't
talk about a blockchain we don't talk
about the blockchain we talk about
blockchain the only other word I know
that I can easily remember that has this
treatment is the word god ok so this
thing is really big you cannot walk
around lower Manhattan without seeing
two people in suits turn to each other
and say what's your strategy for
blockchain so every company is trying to
devise a strategy and about eight
billion of VC money bla bla bla lots and
lots of money has gone into stuff and if
one of the interesting things is I've
found myself at tables where there is a
very solid gentleman from the Bank of
England and there is another dark net
dark net market operator right then and
there it's a fantastic crowd this this
is what it means to be in the middle of
a disruption so and then one thing one
additional thing I do on occasion was a
professor to try to see like do I really
have the pulse of the the whatever
through the folks in my hand is to check
sort of extraneous things and one of the
metrics I look at is this is the metric
I looked at is the number of songs on
YouTube written about different
different cryptocurrencies
and it's far exceeds the number of songs
about Google Facebook etc etc right so
even free software so that's an amazing
thing but where exactly are we so this
is a really positive thing so I'm going
to be a little bit negative now and and
I think you know one of the core
distinguishing things about me is is I'm
a scientist at heart and science begins
by being able to observe reality and
being able to admit reality so bear with
me the dream we've solved a very
compelling dream to the masses
it's a decentralized disintermediated
future future it's free from the tyranny
of middlemen is free from regulatory
capture it's free from trusted but
unaccountable parties that is the dream
that has gathered all of us into this
packed room so that's fantastic but and
the bar to succeed is actually very low
okay I know this community is working on
a gazillion different very exciting
projects we heard about a lot of them
over the course of the last four days
three days so uh and we will have
succeeded if we fail at every single one
of them except say I don't know one of
the easiest ones a better infrastructure
for custodial assets if stocks were
slightly better managed if we knew that
the doll company actually has X shares
when it says it has X shares then we
would actually be in a better place or
if we could build better decentralized
exchanges and I know we know that we
have the capability to do so we can
build better exchanges then the sec
keeps demanding of us we can build
better technology untrusted technology
then then then what the Wall Street guys
have so if we could only do a tiny bit
we will have succeeded so the bar is low
but the technology we have to get to
that bar is just not sufficient and it
fails on a multiple on a multitude of
fronts first one is scale you've heard
this multiple times because the Bitcoin
folks have been fighting over this issue
second one is security the state of
every exchange is empty that's their
default low energy state that's what
they seek people lose money all the time
sfy l sorry for your loss is an acronym
you don't even have to spell it down
performance is a big issue you cannot
wait fifteen seconds on the web that is
unheard of you talk to a UX person and
say this is what you have to do it's a
big big problem governance how do we
actually change anything at all with a
big fight that turns out and a lot of
sock puppets that's what I learned and
it's absolutely horrible so that's not
that's no way to build systems the user
experience overall is you know you get
excited I get excited I tell somebody
new and then they say well you know that
I tried to like read the paper or all
that I had to buy this and that change
it to you know convert it to this other
see then I had to like install this I
had to sink oh it's just a crazy crazy
user experience is it possible to do
better
well okay before I get there let me also
mention some some harsh facts that just
came out so this is the number of top
500 ecommerce merchants accepting
Bitcoin it was five five five three
three three three four four four four
okay it's not going up okay we're not
winning the war to replace Fiat it's not
happening and the goal posts are moving
I want to share this slide with you so
you know to detect for this if four
years from now we've changed the
etherium narrative then you will know
that we are failing so here's Bitcoin
when I first sort of heard about it it
was digital cash untraceable nah that
kinda gave way to a whole series of
other narratives it was a store of value
for a while Adam back kept telling me so
and and then you know disruption this
and that and now you know there's yet
another narrative that's that's pushing
these currencies at any one time but it
seems as if they are realizing that the
dream they sold and what they've got are
not really a good match so what do we do
so here this report says why is this not
becoming part of the global financial
system fabric says why it's failing the
high cost of operating a fully trust
list system is pushing early players to
balkanize systems into trusted blog
chains and distributed ledgers also they
forgot to add also exchanges but these
are becoming speculative assets people
keep their coins you never actually
touch the system right you do its
fanfare online now you buy and sell on
an exchange without actually using it
that is not what what gets me excited
that is not what many of you are here
for so okay
so what's the situation with these
centralization well we did a big long
study that came out a year and a half
ago I want to share some of the results
with you the curve the main result is
current crop of systems are not
sufficiently decentralized they're
better than a bank okay a bank you're at
the mercy of a single entity but not
much better than a cartel of banks okay
so they are kind of comparable and so
the days of one CPU one
in the white paper are gone though those
that's like a dream it's just gone
you all remember the days when you could
use this to mine things right and then
that got replaced by the days when we
all had to hunt online I'm not sure
what's happening with my pictures when
we had had to hunt online for these
things
okay whatever GPUs and then they became
really expensive and people tried FPGAs
then people tried these things one of my
colleagues has an interesting story they
were redoing the data center at CMU and
underneath the floorboards of the data
center they found another data center
that was mining Bitcoin and so but this
gave way to as you read in the famous
New York Times article of the
fly-by-night operations in China that
were doing mining at you know in like
makeshift locations and they got
suddenly more professionalized there's
nothing China there's another
installation but but then ultimately
turned into this this is the state of
mining right so this is I think a bit
theory water-cooled set up and these are
professional transaction processing
machines type things but they're not
really processing transactions they
never touch a transaction I'm sure
everybody here realizes this the public
at large does not they think that these
things are actually touching or
validating transactions they are not
they're all they're doing is trying to
win the lottery so they can say I am the
one who determines what's happened in
the last 10 minutes so why are we doing
this because okay we need this Hardware
because of the way the Nakamoto
consensus protocol operates it ensures
that a single participant cannot
masquerade as an others if I were to
sort of pester you with a gazillion
crossword puzzles you'd only be able to
solve them at a particular rate and
therefore you would not be able to claim
that you're a million other people
million other people that's that's the
civil control problem it is not there to
try to establish consensus it is solely
there to make sure you don't pretend to
be who you're not okay simple control is
what it really provides the consensus
part of Nakamoto consensus is the
longest chain rule that's what allows
people to snap onto the same reality
the longest hardest chain rule it is not
the proof-of-work side of things so in
addition the investment ensures that the
miners will seek to maximize the long
and short term value of the coin they're
there to try to sort of ensure that you
know that their incentives are aligned
with everyone else I would like to note
that hardware is simply a specialized
kind of state at stake okay it's just
like it's one way of assuring that you
have skin in the game but it's a very
specialized way of ensuring the chip
stays skin in the game its its
production is monopolized by a few
manufacturers nobody in this room I
suspect knows except maybe a couple of
people know how to actually build these
things at scale and then make them fast
and and most importantly being able to
procure hardware and run it effectively
has absolutely nothing to do with
ordering transactions one of them is a
capex effects management problem the
other is a serialization problem so so
that is one of the main issues that's
going to be this has been in the back of
my mind for a bunch of time now that
that decoupling leads to a very strange
scenario so we looked at in our study we
looked at over I think a span of two and
a half years what happened to hash power
in Bitcoin and aetherium this is a paper
that came out a while ago and so this
shows each each cluster of bars is the
is the hash rate of a single single
miner you can see it change over time
and you can see what has happened in
both the theorem and Bitcoin and I think
the most important thing to take away
from this graph is the fact that I only
have 20 okay I don't have more than 20
miners that I need to show to you
so the entirety of the management of the
blockchain is essentially in the hands
of these people here is the same data
shown differently you can see that about
a hundred percent of the of the almost
99 point something percent of the hash
power is in the hands of 20 or fewer
entities and for let's see I think I
have some numbers here eleven mining
pools in Bitcoin seven mining pools and
aetherium control 90% of the of the hash
power if you look at the 50% value it's
4 for Bitcoin 3 for aetherium
of that time this has gotten worse this
is like a year and a half ago stated
stuff so I posit to you that the
Byzantine quorum system with 20 nodes
would have been much more decentralized
yes which a lot of people make fun of
for various different things is 21 block
producers okay so so this is kind of
interesting
all of this expenditure and for what
could we not have had this better now I
know some of you are going to go wow he
doesn't know what he's talking about bla
bla bla you know the whatever the
Twitter trolls will come out because
they always do they're going to say oh
but we have invisible decentralization
these mining pools are made up of many
miners and and if the mining mining
operator were to misbehave then they
would actually rise up and blah blah
blah there's a whole lot of arguments
over that I'm not going to repeat them
this is the invisible decentralization
argument as with any sort of invisible
arguments it doesn't hold water if you
it's just false okay so a pool is a
common enterprise okay so these are
people who have purchased the stake for
a singular purpose they have a profit
sharing arrangement they are essentially
a corporation in every aspect except
they don't they haven't filed
corporation papers okay so why to a
series of libertarians this is actually
a big deal that oh but they didn't file
papers and therefore I mean that doesn't
make sense to me I don't understand so
in every in every material way they are
operating together and much more
importantly they actually the
misbehaviour that they would have to
detect is not readily identifiable okay
and as a btg got attacked as a result
nice hash was used and people who
participated in those attacks had no
idea that their hash power was being
used to attack is they're just not
geared up to actually detect any of this
stuff
and there is recent realization going on
cryptocurrencies are experiencing this
this because ASIC manufacture is hard
cheap electricity finding it is hard you
need proximity to other miners you need
to have a spy mining network typically
you have to be a part of a mining cartel
so you hear of other people's blocks
before before so you don't get orphaned
yourself you of course didn't know how
the mining game also in the long term
favors the miner with the lowest capex
effects cost okay so this is a game
where if the miners are reinvesting
there their income back in mining the
one
who has the best the highest profit
margin typically comes out ahead with
much more hash power and ends up out
competing others so if I were to look at
half of my okay here we go follow the
entire slide the left side of this slide
is from two years three years ago and
the other one is from this year right
now and there's almost nothing in common
in terms of mining pools except two I
think one of them is slush and the other
one is I think and pool so there's been
complete churn in the mining space
because this is really not a stable
industry and what's happened here okay
and the energy usage is immense as of
2018 it's about one Austria one Czech
Republic you look around is the big
industrial nation oh the equivalent of
its energy is going into mining -
Denmark's 3 Ireland's you know that's a
lot of energy and maybe like some people
actually don't care right as long as you
make money we're all good fine I mean I
care I would like to see polar Polar
Bears still live but if you don't care
about the polar bears or the ice caps or
the Floridians and so forth then you
should care I mean those people care
deeply about their pockets about the
leakage out of the store of value
we've got you're losing money out of out
of this thing that's supposed to hold
you know the your wealth so a question
can we do better so I want to talk to
you a little bit about about why I think
I'm generally very very hopeful that we
can actually reach the dream so from the
same study we looked at what resources
are available and this is an interesting
graph it shows the amount of bandwidth
available to both Bitcoin and aetherium
nodes so if you look at the I think the
important lines are the red dashed line
that's aetherium and the comparable line
is the let's see the blue solid line
bitcoin so Bitcoin nodes actually have
more bandwidth available than aetherium
aetherium is running its network at a
higher pace and and and and so yeah it's
running at a higher pace maybe a
different slide that's interesting is ah
but the point here is the protocol is
unable to take advantage of improvements
on this graph so over time over the
course of a year we observed all of the
bandwidth go up
by a factor of 1.7 but the protocol
cannot take advantage of it it requires
a hard fork for Bitcoin which isn't
going to happen
requires a whole lot of changes for any
pal set up any Nakamoto Center but here
is a different one so look at this
aetherium graph this is the peer-to-peer
latency in aetherium there is a lot of
aetherium knows more than 20,000 at the
time we did the study and you can see
that they're far away from each other
there's a lot of people who are sort of
distributed around the world there's a
grassroots network you guys connect you
guys sync stuff happens on this network
except you're not really participating
in the mining okay if we could somehow
harness your input then we could
actually go and propel ourselves towards
a much better future so this gives me
hope but the protocol is unable to take
advantage of it so the next question
then is is is what's missing well a
better consensus protocol is what misses
what's missing so I want to summarize
for you the last 40 plus years of
consensus protocols and it's actually
fairly straightforward there have only
been two consensus protocol families in
that whole timeframe okay there been
more
but two main ones one of them is
Nakamoto consensus you know exactly how
it works I'm not going to rehash it it's
very robust okay anybody could join at
any time that's nice
there is no need for precise membership
okay nobody there's no gatekeeper but it
has high latency low throughput does not
scale wastes energy not green not
sustainable and it completely breaks
down if you go over the Byzantine
threshold if you have more than say big
actually if you have more than 33%
people could start mining selfishly if
you have more than 50% then they could
actually start doing even more malicious
things to your blockchain so in contrast
to this even before Nakamoto was what we
call the classical family this was
developed by Barbara Liskov at MIT who
has retired and Leslie Lamport
both of them have touring Awards
Nakamoto of course is six billion
dollars and classical consensus
classical is the classical protocols are
very very nice because they give you
quick finality but they don't scale okay
so they typically require quad
message complexity everybody has to talk
to every one of them you know there are
some optimizations that you know any
other you trade off latency for for
message complexity they typically
require precise membership or close to
precise membership in essence what
you're doing is you're building
something like a Senate here is the
hundred of us when I do a write I write
267 of you when he does a read he reads
from 67 of you and then he does that
guarantees that there are 34 people in
common and if 33 of them are Byzantine
there is at least still one good guy to
carry my message over to him that's
really the core of all of these
complicated proofs okay so that's the
classical world Kasper inter ledger
fabric you know whatever hyper ledger
fabric nothing through ledger Korda
etcetera all of these protocols are
based on classical classical consensus
Al Gore and Josh graph and so forth and
they of course completely break down if
the Byzantine threshold is exceeded
right if you have 34 people the
Byzantine or you and I disagree and too
much of the of the membership of the
room then suddenly the whole thing
breaks down I want to tell you about a
new approach to consensus that that
actually combines the best of these two
worlds and works entirely differently it
involves a different mechanism and I'll
try to explain to you how it works in
about three minutes or so this is the
Avalanche consensus protocol it was
drafted on ipfs in May of this year and
it gives us quick finality okay so it
works
it's achieves finality in one to two
seconds it gives us high throughput
about a thousand to ten thousand
transactions per second it scales and
this is I think the most important part
it can accommodate tens of thousands to
millions of nodes you too can
participate you could be the Jihan whoo
of an avalanche protocol okay and jihong
you know he's wonderful at building
machinery is wonderful at running it but
when it comes to serializing
transactions he is no different than you
or me okay and you can do the job that
he does so let's see its robust there is
no need for precise membership dadada
let me tell you how it works okay it's
inspired by gossip networks it's fairly
straightforward and and here's how it
works here's this design
to be deliberately metastable it's a
network that will fall one way or the
other and make a decision how does it
work well let's assume that we're making
a decision between red and blue
okay and we're making that in the room
this big and I don't know how many
people are here let's say a few hundred
and you know you all know some of them I
know some of them but we don't all know
everyone precisely okay there's overlap
but not the precise knowledge what you
do is you pick five people at random
it's the you you you you you okay and
you say hey what color card do you like
is it red or blue and so you ask them
five of them no not much more than that
maybe ten depending on how you want to
parameterize your protocol but you're
not gonna ask everybody else okay in
fact we could do this in a crowded
stadium of fifty thousand or a hundred
thousand people let's do it in this room
I pick five of you and I say which color
would you like to go for and they say
red or blue I get back red red red what
let's see let's color this yeah red red
blue red blue okay at the end of this I
go okay it looks like the at least based
on my sampling people are going towards
right I'm gonna go towards red okay you
do the same thing she does the same
thing and so forth and and that happens
at the you know simultaneously in the
first round and at the end of this
process what what will happen well when
we started the worst thing that could
have happened is we were split 50-50
intermixed you know those Blues and red
and blues and reds intermixed in the
room after one round of everybody asking
five people we will have over sampled
the Reds or the Blues it's incredibly
unlikely that we will remain at 5050
it's possible if we remain that 50/50
there will be another round in fact
there will always be another round
subsequent rounds we will fall to one
side but more than likely we will end up
over sampling one of the colors and the
color distribution will now be oh no
fifty one forty nine second round we do
the exact same process but you can see
now that we have this we have started to
descend down a hill and and now the
second round is much more likely to go
in the direction that got favored in the
first round so if it was fifty one forty
nine red in the first round it's going
to be probably fifty three forty seven
at the end of the second round of of
poling here
beat this up for a third time you repeat
this for a fourth time and so on and so
forth and the math shows that for really
large networks of 50,000 or so somewhere
between 13 to 17 rounds is sufficient
for the entire network to topple over so
you do this process and after the
seventeenth round this incredibly dumb
sounding protocol you do this and you
hold your card on your forehead and you
flip it every time you hear something
you don't even keep track of history you
don't try to attribute malice to anybody
you just go what I just said and at the
end of the 17th round you'll look around
and the entire room will be looking
around with the same colored card saying
hey you've got red I've got red too and
that is consensus you have made a
decision and the the likelihood of
somebody choosing red somebody else
choosing blue at the same time are
minuscule that's what the proofs show
that's what the simulations have all
shown so it's naturally sharded it
creates a graph and and oh and one of
the most important things it's an
egalitarian ecosystem there are no
minors there are no special notes you
can participate in this even with a cell
phone if you were to try to use a
traditional protocol a classical
protocol all you know if we're in a
stadium all 50000 people would have to
talk to all 58,000 other people if you
use this further call you end up doing
five poles of snow in 17 rounds so 85
messages instead of 85 messages per node
instead of 50,000 messages so it's an
enormous enormous improvement it's green
when there is nothing to do you do
nothing okay so that's what we call the
quiescent for the comb
I'll very quickly talk about this
product this coin that we're building on
top of it we're building a coin called
our Vantaa it will have multiple virtual
machines there's going to be a token
called Alva and it's going to use steak
and people will stake and will they will
get a mining reward there is no such
thing as slashing conditions okay so we
could identify them and try to punish
them and so forth classical algorithms
typically have to do this we don't have
to do it and we will not be doing it
okay so if you if you steak with Alva
well then you know there is no no risk
of losing your funds should your machine
misbehave sure
and so forth one of the most interesting
things is that we can use this system
the protocol to actually pull the
audience and figure out and determine
parameters of the system itself okay so
that leads us to two techniques that
sort of play into this one individual
one one vote let me talk a little bit
about this governance so there are in
any system there are critical system
parameters like the minting rate Satoshi
had to fix the minting rate you all know
about the 21 million you all know about
the heavens and so forth in Alva we
don't have to do this there will be an
initial default minting rate that you
you know the award reward rate that you
make for steak but but over time you can
actually say something like hey guys
we're currently minting at a rate of
let's say 1% to compensate for it coins
lost but it looks like we're minting too
fast okay ask Z cash folks about minting
too fast right there there are coins out
there that are minting a little too fast
so can do you think that we should go
back down to say zero percent or vice
versa we would like to get more nodes
into the system let's improve the reward
rate to you know four percent and so you
can propose this transaction and if
enough if it's acceptable to enough
people if there is social consensus to
be found then the protocol itself will
actually achieve consensus on this meta
transaction and change the system
parameters so of course you know every
economic system has to be subject to
hysteresis and you shouldn't be able to
change the system from you know one
number to another huge number you know
from one 1% to 10,000 percent or
whatever overnight so there's all sorts
of hysteresis that's going to be built
in and we also are thinking about or
have been developing techniques for
equitable representation so people with
more resources will always get more
resources I don't know how to fix that
if I were to fix that then this would be
a completely different kind of talk and
I would be the next you know marks plus
plus but instead what we will do is is
come up with techniques to to do this
that is people with more resources will
make more rewards yes but when it comes
to these kinds of decisions over the the
fate of the system they still have one
vote like every other
so we're going to build a token platform
on top of this we're thinking about how
to layer it on top of proof-of-work
systems and there has been some interest
from existing coins on how to do that I
won't say too much about this but there
is a lot of movement afoot about how to
build side chains built on top of public
up block chains and and so alva can
actually be a good protocol for these
side chains and so just couple sentences
we plan to support multiple virtual
machines I don't know why but everybody
else is in this mode where they just
think if one one token one scripting
language I think we were the first ones
to say hey that's kind of silly we can
support multiple and many and if you
want to create a new token and you or do
you want your token to have ring
signatures and zero knowledge proof and
also something else you should be able
to do that and we will support exactly
that it supports asynchrony just one
word for Vlad if he's in the audience as
an academic it's kind of odd to say
there's all my colleagues love
asynchrony they demand it because
academics love sundae puzzles that are
hard and we all try to hold each other
to difficult difficult questions
infatuation with asynchrony is kind of
silly I find it to be like academic
really asynchrony helps if your network
partitions itself into non-trivial
partitions if you expect the u.s. to be
decoupled from Europe then you should by
all means support a synchrony and and we
haven't seen that in my lifetime so and
to give up from your best case because
you want to handle this worst case is
actually a bad bad idea but nevertheless
um because we got questions about this
we decided to add a synchrony to to the
avalanche protocol
so to summarize there is a new tool in
our Arsenal for building the dream that
we all share
avalanche gives us a new kind of a
protocol and there's been a lot of false
narratives out there about Bitcoin it
achieves this and that it finds social
consensus it does this and it doesn't do
those things right and in Bitcoin the
only voice you have is as a miner
otherwise you don't you know the only
thing you can do is exit right and
that's what we've been seeing from the
Bitcoin ecosystem
and and so in this system you actually
get to have a voice you get to
participate directly in the decision the
serialization of transactions and the
decisions over the financial future of
the network and overall the area will
rise or sink together I would love to
see I think we're going into a phase
where you know all the crappy coins
already kind of got introduced and we're
going into the phase where we're going
to see more and more sort of worthy
interesting projects introduced and I
would like to see the top ten be a
competition among those kinds of
projects and and I believe the area will
either rise together or sink together
and I'm looking forward to working with
all of you to build an exciting new
platform thank you
you