hey everybody Charles Hoskinson here I figured I'd make a video a nice one of those whiteboard videos I love making them and let's talk a little bit about decentralisation so I I heard through the grapevine that old Jimmy song and tone days were picking on Cardno and generally I don't reply to tone this isn't really not a rebuttal or reply to him because what's the point I mean you can't really beat stupidity with fax you just you just let it move on fact there was an old saying you never play chess with a pigeon because they'll just strut over the board knocking over the pieces triumphantly and that's exactly what this is about they brought up something about how to centralize this card oh no and call this a little crazy for having the audacity even think about it and there's this concept of decentralization nice big thick pen okay and it's a it's a worthwhile concept to really consider and think about it's worthwhile to really wrap your mind around it you see Bitcoin has this model called proof of work and proof of work is a meritocratic lottery system so basically you have a minor and a minor is sitting there all day long and it's computing basically magic numbers it's looking for a certain number like a ticket to basically win so it's gonna go compute and do hash one and hash two and every second it's able to compute a set of potential tickets to win and eventually a MITRE gets lucky and one of those turns out to be a winning set and then this gives the miner the right to advance Bitcoin now the system is parametrized in a way where this happens hopefully every approximately 10 minutes and the difficulty increase is over time as more people participate and more people have an incentive to participate as the price of Bitcoin goes up so you look at price difficulty goes up as price goes up so here's difficulty okay in price so basically how hard it is to find these magic numbers is directly connected the price because as price goes up more competition occurs more competition occurs more difficult to get ensure that we make bitcoins basically every 10 minutes okay and if you actually sure enough look at the difficulty graphs of Bitcoin you can see that relationship on Bitcoin dot fo or any of your other providers where you can look at the price of Bitcoin the energy consumption and the difficulty there's a very nice tight correlation there that shows those things now here's the problem as difficulty goes up proof-of-work gets more centralized and this is unavoidable okay so why does it get more centralized well you have to go from CPUs so those are processors general processors that live in your computer my computer - increasingly more specialized hardware so anybody can buy a CPU your price of admission is very low there that's Intel AMD arm etc anybody can buy a GPU okay that's Nvidia Andy and they're in pretty good circulation but then when you start getting to increasingly more specialized things like FPGAs or Asics in fact when I made my first videos on Bitcoin we were moving from GPUs to FPGAs that was a big transition back in 2013 and there were already people building Asics application-specific integrated circuits these are custom and many cases they're patented and in many cases they're owned by private companies okay and guess what they don't have to sell these to you if it's patented you can't make it if it's a private company the private company doesn't have to sell it to you and given that it's custom what does it mean the supply chain of these things is very very tight okay so if these are the only devices that you can use to mine then you tell me is the fact that somebody gets the right to decide who gets it open or closed somehow the Bitcoin people they they just have so much difficulty with this topic the other thing is that your ability to profit to make money on Bitcoin mining is directly connected to not only your access to Asics okay that's one but it's also connected to your price of electricity price of power alright well hang on a second here what if you live in a country with very expensive electricity what if you live in a country where you have political connections you get free power or inexpensive power so based on geography and political connections your price of power may vary so how is that fair for people who don't live in countries with subsidized power or very expect or they live in countries very expensive power so we already have two factors that limit access to mining okay two factors that limit access to my geographically and also one in the supply chain so the other thing is because there can only be one winner and if there are multiple winners there's a competition between them and one of the blocks ends up being an orphan block you then have a situation where it tends towards economy of scale okay so what does that mean economy of scale means that the larger actors tend to do better they can optimize things they can build better data centers they can have better network access and so your ticket of admission is now greater than 100 million dollars worth of hardware okay you could certainly run a small-scale ASIC mining operation but you're not going to make a lot of money especially if there are delays in the ASIC supply chain because if you get older generation Asics your margins will be substantially impacted so the people are making real money who have real power those are people who have invested greater than 100 million dollars into their mining operations huge ticket price to entry because of economy of scale these people do very good and people who aren't them really don't make a lot for the ASIC mining side of things on Bitcoin okay not to say you can't make some money and participate but if you want to run a business a professional opportunity there's a huge bias towards the rich okay so Bitcoin you need Asics you need subsidized power you also benefit substantially for economy of scale and there's a huge bias towards the rich and you need a big chunk of money to be able to participate which is why if you look at every single year 2009-2010 since the event of ethics thousand eleven two thousand twelve done all the way to 2020 you know what's happened there's an increasingly smaller supply of major mining operations to a point where approximately ten offs run the show okay so 10 big actors less than 10 big actors control more than 51% of the resource so you have guys like Jimmy and tone they ran around to tell you bitcoin is the best thing in the whole wide world mining is the only way to truth by the way can you participate well Bitcoin so decentralized it's so decentralizing you say well the people who maintain the system they live outside of the system they are consuming a custom resource that's patented in private it benefits tremendously from the price of electricity and they got to have a lot of money to be able to play and participate that doesn't sound to me like a decentralized system and lo and behold over time you get increasingly more federated Wow look at that that's the reality we live in right now now let's look at proof of stake proof of state needs a resource - okay our resource isn't an ASIC our resource is the underlying token Edith alright let's look at this do you need subsidized electricity for proof of stake no you don't we're Carles of the price of electricity you can still stake do you need access to proprietary private and patented hardware to be able to participate no you just need to be able to purchase ADA which seems to me to be kind of like the CPUs or the GPUs right it lives on every exchange anybody can purchase that okay does this benefit from economy of scale not really the way that we designed the protocol after a certain home is profits pretty much the same it scales linearly in that respect okay so you don't need a hundred million dollars worth of ADA to be able to participate the system do you need to live in a certain geography to be able to have an advantage over others no it's a gala terian in that particular respect okay so no Geographic restrictions okay no patents open access to resource and the poor can participate and they say but Charles does the network get more centralized or less centralized over time well let's look at that okay so as the price of ADA goes up so as we increase the price you know what happens that k-factor for the amount of state pools goes up two K increases why because it's easy to increase K to make more profit for people when you have a higher value token and we can model that we published a bunch of blog posts that can show this relationship so over time as ADA grows an adoption because it's a finite resource it becomes more scarce as you get more users and utility inside the system the price goes up if the price goes up the K factor which is our optimal amount of state pools in the system increases what does that mean it means that the system has more participants at the staking level actually making blocks this is the inverse relationship of Bitcoin when we go to Vic when we say as the price goes up the difficulty goes up the difficulty goes up you have more economy of scale towards the rich and those who have subsidized power and those who have first access to the Asics win so you end up having fewer and fewer and fewer people participating on the consensus level less and less people like you everyday people and more and more millionaires and billionaires with vertically integrated sophisticated operations and powerful data centers and so forth this is not the case for the system we've constructed here you have an open resource that's always going to be available there's always going to be sellers floating around who are and Entering because markets exist it does not yield geographic restrictions there's no patents there's no restrictions in that supply chain you have open access to the resource as a consequence of liquid markets the poor can participate just as much as the rich can and as the price goes up the k-factor gets larger the system gets more participation then to Jimmy's argument that it's just a signature there's no security I guess he just doesn't understand anything we've done in any of our papers I would encourage him to start by reading the gkl paper and then telling us what's wrong with that model I would encourage him to read the Ouroboros classic paper and tell us what's wrong with that model where that doesn't make any sense he says there's no security at all it's it's nothing it's a paperweight it's like paper clothing it doesn't provide you anything it's like guys then explain what's wrong with the security proofs you can't roll it back you have finality over time you you can bootstrap from Genesis just like Bitcoin can the operating environment is semi synchronous environment just like the coins environment happens to be you know there's detailed and meticulous security proofs about why this system works and why the state of the system is secure and it has the same level of security in terms of Byzantine resistance that Bitcoin does and so as long as you assume that no more than 50% plus one of the holdings of ADA are the hands of honest actors which by the way have a financial incentive for the system to behave correctly the system is secure miners do not have a financial incentive attack that Bitcoin can suffer from is let's assume that there are 2 chainz proof of work 1 and proof of work 2 because they have a shared security resource if these 2 chainz achieve the same price or relatively the same price then assuming markets exist if you have enough of that security resource you actually have an incentive to destroy one of the chains why because you can make just as much money mining chain two as you can make mining chain one so since you you have the shared resource if you destroy chain one and short sell it okay you basically get downside you'll make a windfall profit from the destruction of that chain then you turn all your resources over to chain two and there's no interruption in your mining profit so you make windfall from destroying one system and then your mining another system why it's an external resource it's not connected to the token price at all so there's no vested interest in the resource to protecting the very thing that they're protecting you're paying them to do that it's mercenary behavior in that respect whereas in a proof of stake system your ADA only works with Cardinal your EOS tokens only work with us your tases tokens only work with Tasos your yes two tokens will only work with aetherium two and if there's a massive decline in price there's no way to get out of that you are stuck in that system so you'd like that system to be secure and resilient your financial interest is directly connected to the price of the token and the security and stability of the system this is not the case with mining you can do a Goldfinger attack at any time throughout the years there's also been things identified like selfish mining look that one up and a litany of other game theoretic attacks that exist in the mining world is not a perfect consensus algorithm there are ways to improve it and make it better and mitigate these things but it is absolutely disingenuous to say Bitcoin style mining which is ASIC heavy is the end-all be-all in the only way to provide security with Genesis we got bootstrap from Genesis and we have another paper coming to give us the ability to recover from spikes of dishonest majority we've already achieved the same synchronisation model and we have the same security threshold as Bitcoin now we detailed all of this in beautiful papers that we wrote and just to give you guys a sense of these papers let's show you okay if you type in gkl 15 right here the Bitcoin backbone protocol cited 853 times you'll see that it's been relentlessly updated it came out in 2015 we've keep updating the paper because it's that useful we give a very rigorous examination of what Bitcoin is what block chains are we talk about the security model and we give strong definitions now I'd love for Jimmy to go through this paper and tell us where these definitions are wrong where these proofs are wrong where this model is wrong because this is a rigorous mathematical model to describe how this stuff works okay now once you have the model then you can talk about security precisely and you can create security proofs so if you go ahead Google or Boris classic heckle O's keep print okay here is the original or porous paper that we wrote we revised in in July of 2019 we exhaustive rewriting of this paper 67 pages long this is the foundations for ora Boris the protocol that we use and again it talks about the prior work that's been done it talks about the challenges in designing a proof of stake protocol talks about persistence and liveness all the typical things that you'd like to have in a consensus protocol talks about time and synchrony talks about how the ledger works and here are the three properties from the gkl paper the common prefix with parameter of the honest chain growth and the existential chain quality with browns okay and then we rigorously go inside the paper step by step by step explaining the protocol is secure then what did we do we wrote another paper called for Boris prale's here we said it's not just good enough to create a synchronized protocol we need a protocol with adaptive security we need a protocol that behaves in realistic network conditions so we modelled it in a fully adaptive corruption and semi synchronous setting okay going down here you can clearly see all the work here and we're actually rewriting this paper to modernize it because there's a whole bunch we've learned since 2017 are we done yet No then we wrote this paper or Boris Genesis okay and sure enough look at this right here it's a key thing that Bitcoin provides the beautiful thing that Bitcoin provides is the ability to bootstrap from Genesis so what does that mean it means that if Europe a Bitcoin user and you've never used the system before and you have a whole bunch of chains candidates that are provided to you you are actually able to do a calculation okay you run that calculation with each chain you've been given and you'll be able to weigh them whichever one has the most work that's the winner and then you say okay that's the real one it's a great property okay you have no knowledge of the system you just do a calculation and you're able to determine chains from each other and get rid of the ones that are less work okay so determinism and chain selection we accomplish that here in this paper worth proof of State was the first of its kind and it was reviewed at a great conference CCS which was one of the most prestigious cryptographic conferences not cryptocurrency cryptographic conferences in the world back in 2018 I believe is when we got the CCS or 2019 I can't remember so anyway yeah it was CCS and or Boris Genesis and there are more papers coming out from here like yet to play with the clock so we created or Boris Chronos here we didn't like relying upon a clock like NTP so we said hey let's go ahead and create clock synchronization by a proof of state let's go do that this is another revolutionary paper for its time we also wanted to model the relationship between a permission and permission list so we created a PFT variant of or bourse okay so we did the work every single day our scientists woke up for year after year after year and they wrote these papers and by the way these papers are not just our own results but if you look at for example or Boris Genesis it's cited 87 times some by papers we wrote a lot by papers we didn't row right from other systems other protocols many cases our competitors okay so here's prale's that's been cited a hundred and fifty times by many many other people all across the world China America so forth if you look at the or Bohr's classic paper that has been cited now 657 times all across Cornell University you know been Tov David look at all these people across the world blockchain without ways proof of stake thunder Ella sleeping model of consensus all across the world hundreds of different scientists that we have that is work proof of work right there proof of scientific work you have created something it passed the rigors of peer review people from MIT on down have cited your work year after year after year you've rigorously told people what you're going to do you've modeled the security assumptions and you achieve the security properties that they care about okay now is proof of stay perfect no there are still many little things here and there and systematically we're working our way through to resolve those edge cases as is al-quran and all the other science coins doing that is proof of work perfect absolutely not it has very real and meaningful problems as stated above and guess what these problems are not resolvable with science you can't change the fact that proof of work tends towards these Asics for the way that bitcoin is implemented it bitcoins not going to change they've accepted that Asics are fine and over time access to them will not become commoditized it will become increasingly more specialized to a point where these companies don't even bother to sell them you can't change the cost of power and that some company countries have cheaper electricity than others and also you can't change the fact that as the price goes up difficulty goes up and it creates a larger and larger economy of scale which makes a smaller and smaller set of participants in the system okay and the proof of stakes system if the price goes up more people divest the markets get stronger at any given time that resource will always be available in some capacity so you get more and more equal access and we modeled how we can increase the k-factor with price so as the token gets more valuable there's more profit for the stateful operators so you can crease k-factor to get more diversity in the stateful operators which means you get more and more and more more stick fools so you go from a hundred to a thousand to ten thousand and so forth so if the system is worth the same as Bitcoin it'll be thousands of times more decentralized in that respect and decentralized means real human being small businesses are running a node in making blocks by the way because of this two layer model where you have the regular everyday user and then you have the state fool operator what does that mean it means that you have a trusted layer in the system to deploy layer two solutions they always ask where we gonna get the lightning channels from where are we gonna get Oracle's from where are we gonna get cross chain interoperability from well we have a special class of small business act operators who are in our system we trust to make blocks for us that's in getting more diverse and has an incentive to watch each other and compete with each other well that means that over time those peels will add more services to the system okay and what does that mean it means there's more use in utility for the system and more profit for the SPOs so we have an incentive to increase the use and utility by increasing the diversity of stateful operators because they're trusted actors because they've pledged amounts and they have brand and reputation side the system and if they're caught doing bad things they lose the stake that's delegated to them and they kind of get kicked out of the system in that respect you basically can use them as a stable set of actors to do things whether it be generating random numbers or providing time stamps or Oracle services etc etc and the system can be run anywhere let's say China bans Bitcoin tomorrow okay they keep doing that these all those miners in China what the hell do they do if you have a hundred million dollar facility if the government takes it over maybe they just throw them all into a warehouse and then the hash power goes down dramatically well with a system like this if your country passes laws that says running a stake pool is illegal what you do is you just incorporate abroad in a different country and then you just run the stake tools under that legal structure so let's say Germany has bad laws maybe you go to Switzerland or leashing Stein or somewhere else and because it's a virtual resource at a click of the button it can be moved from one country to another country at a click of a button you cannot do that with a physical resource and oh by the way that physical resource has bizarre game theoretic things where you can do selfish mining gold finger attacks as well so it's just laughable it's absolutely laughable when I see these these insane videos come out from these maximalist where they just pretend this is the end-all be-all our system is 1.6 million times more energy efficient than Bitcoin at the moment 1.6 million times and if their continuing success means that we only get more demise by the way we have an incentive to reduce the energy consumption because that energy consumption has nothing to do with your performance as a state pool operator so the cheaper hardware that you can use the more energy-efficient hardware you can use to do the same job the better for you in your bottom line so your incentive for energy consumptions per user is getting lower over time in Bitcoin anytime you have an energy gain you buy more miners so you can generate more magic numbers to find that winning lottery ticket to advance the network so it has the opposite effect any energy gain means more purchase of Hardware more miners are brought in to sway not a reduction of power that's just the economics of the system as it is they can't seem to understand the papers they'd only want to read them or discuss them or talk about what areas could improve or what assumptions we've made are unrealistic or how our security model is wrong the people who do care are professional cryptographers from across the world and we know they kind of like what we do because they cite our papers and they use them as foundations for their own papers so that's the centralization of control notice they never even talked about the centralization of the network layer of the system and bitcoin is a very primitive Network stack and as a consequence there's all kinds of shenanigans and chicanery that can be done there notice they never talk about the centralization of development or decision-making inside the system so what if the people who make decisions of what goes into the core protocol aren't willing to entertain certain ideas then they censor you and how do you as a holder of that token have a voice and be able to vote on it we have a non chain governance system that same virtual resource that gives you a voice and how the system is going to make blocks in advance itself also gives you a voice on how the system is going to evolve you have none of that with Bitcoin but apparently they're more decentralized so as I often say think for yourself and incentives matter they really do if your system has the wrong economic incentives you don't get more decentralized over time you get less decentralized if you have the wrong incentives you start handing power to a certain group of people and you can't get it back if you have the right incentives the system will self evolve into the state that you want we built card on out with the goal of it being the world financial operating system we built it to be as inclusive as possible and give economic identity to billions of people which means that billions of people have to have a voice in it and billions of people have to be able to control and influence it in some way not twenty five people ten businesses or a handful of hardware manufacturers who basically get to decide who gets what where okay so thank for yourself and finally trust a scientific method this is the single most important part of all of it the scientific method does not care if you're a woman or a man doesn't care what country you're born in the color of your skin it doesn't care if you're rich or poor absolutely doesn't it's a process and it's a process to get rid of bad thoughts and help you converge to good thoughts we didn't start out and say proof of state was great the very first paper that was written was a formalization of what was learned from Bitcoin and what it brought the space because then that was the basis the standard to achieve if we wanted to build a competing protocol with better properties we didn't just say that we had an invented a protocol that had these properties we wrote papers those papers were submitted to conferences the scientific community took a look at them criticized them critiqued them suggested changes and over a period of five years five years of back-and-forth and argumentation and thought process we gradually converge to a system that we thought was better and you know what the scientific method is the most beautiful world method in the world for criticism because everyone paid to be a skeptic but a structured skeptic not skeptical in a sense of well I just don't think it works sceptical in that you have every right to criticize anything you want with a counter-argument you can't just say I don't know you say well here's why I think it doesn't work here's a counter example here's a plot flaw in your thinking or a question about your proof it's a process and the more you run that process the stronger the ideas get the more accepted the ideas get and eventually you can build them on granite so think for yourself do your own diligence incentives absolutely do matter and really think carefully about the incentives that Bitcoin currently has and trust the scientific method of course be skeptical but if you're going to be skeptical then be very specific if you see somebody say it's just a scam it's a scam okay great then tell us where the scam is and if they're selling you something that obviously has defects about it and they profit from it maybe there's an issue there they have to be structured in their criticism you have to be a structured cynic if toner Jimmy had specific criticism about the design model the economic model the incentives trade-offs that we had then you know what this would be a very different whiteboard instead it's proof of work is God there is no other way of doing anything distributed systems doesn't exist Byzantine resistance doesn't exist Leslie Lamport never invented anything in his entire life Paxos was never invented there is only one way to secure a system okay and the only gospel and incentives that matter came from Satoshi ten years ago and no no burden of proof matters no matter papers we write matter not once any argument we make they're so illegitimate we can't even dignify them by discussing them you know Jimmy his smart guy I assume he has the capacity to open up our papers and read them line by line live stream and tell you guys where he has an issue walk right through the proofs and first tell me which proofs are wrong or tell me which assumptions or what weaknesses and trade-offs are there that's a very productive video our scientists would love that gives us something to talk about gives us something to think about and maybe Jimmy has something there I'd love to see the block stream guys do it Adam back certainly has that capability but you know they don't do it why because deep down inside they kind of know that we won this fight they really do this was a bootstrap protocol it started everything it established the PKI it established the industry it was a distribution mechanism for tokens you have to prime the pump you have to start somewhere it was a brilliant bootstrap mechanism but assuming this exists and you have the cryptocurrency economy you can then move on to more elegant refined energy efficient sustainable protocols they're stuck in the past because they own the past and they don't really want people to come in and compete with them that things are 1.6 million times more energy efficient will always get cheaper to operate and always get more decentralized and also this layer to thing scares the hell out of them because that's truly decentralized and their business model if Bitcoin is working is to be for profit private companies that live in the orange okay that's their business model they don't like the state pool operators why because they're being replaced by them and they're being replaced at a much lower scale you don't need a hundred million dollars of funding from Silicon Valley to start your own block stream you can be a single mom in Georgia you can be stay-at-home mom and Wyoming and do the exact same thing on a Raspberry Pi that's what we've built here so until next time y'all have a nice day and I'd love the rebuttal Cheers
