Hi, this is Charles Hoskinson broadcasting live from warm, sunny Colorado. I'm back in the office and wanted to make a video about something unique to Cardano. It's time to provide something informative, educational, and positive for change.
Let me go ahead and share my screen and talk about some interesting and important topics. There are a lot of blockchains and cryptocurrency ecosystems, and many people are saying "blockchain, blockchain, blockchain." Right now, the markets are not just reflecting a bear market; they're reflecting an existential crisis. People are asking, "Are cryptocurrencies even a thing? Do they even exist? Do they even matter? Are cryptocurrencies something we should care about, or are they dead, and now we should move on to the next big thing like AI or synthetic biology?"
This video aims to discuss not only why all of this is necessary but also to make the case that, as it stands right now, Cardano is the only one that can actually solve the problem. The value of this problem is at least $300 billion a year.
Let's start with a very basic pattern. You have Bob and Alice. Bob and Alice want to do business with each other, which involves some form of commercial transaction. Bob is going to do something, and he's going to receive something from Alice. What matters is that to enable and facilitate this transaction, there needs to be some concept of trust, which we'll call T. There’s a minimum level of trust required for Alice to do business with Bob and vice versa.
This trust could be in the money that Bob has. For example, if it's US dollars, that looks great, but what if it's pesos? Maybe not. It can also be trust in the claims that Bob is making. Perhaps he has a contract, and there are temporal components involved. You can break business down in many ways, but the root of it all is whether the parties trust each other.
In a modern economy, the cost of establishing trust on a global basis is in the hundreds of billions, even just for well-regulated financial markets. These costs arise from things like insurance, auditing, laws, law enforcement, institutions, and third parties. Thousands of things exist across the world solely to lower the trust threshold so that both Alice and Bob are willing to conduct commerce with each other.
The blockchain industry didn't emerge from a vacuum; it came out of globalization. Those who don't understand globalization or how fragile global markets are often think everything is simple and that trusting the government will resolve issues. They don't grasp the costs and dangers of having so many different third parties, institutions, and layers of trust in a transaction.
If you don't see this middle part, you only see Bob's side—what Bob asserts—and Alice's side—what Alice is claiming. The middle can have two or three dozen actors involved, and any one of them lying, even if Alice and Bob are completely honest, can cause the transaction to fall apart because one of these third parties failed.
The goal of our entire industry is to shrink or remove these third parties on a global basis. The misunderstanding is that people think the answer is a cryptocurrency. Cryptocurrencies play a role and are important, but they're not the solution. Many say, "Oh, the blockchain is the solution." Blockchains are crucial and play a role, but they are not the solution. The solution is something called verifiable reflexivity. It's a property where something carries its own proof of being correct. It seems simple, but it's incredibly powerful—actually the single most powerful concept: verifiable reflexivity.
Let’s use an example to elucidate this concept. Bob wants to vote. He fills out his ballot and submits it. Ordinarily, this just means he puts some information inside the ballot and sends it off to a trusted third party, which will decide whether it's legitimate. This idea of verifiable reflexivity means that when Bob submits his ballot, it has attached to it a proof that is sufficient for anyone observing the system to verify its correctness.
So, do you need a trusted third party in this transaction? The answer is no. You don't need a trusted third party. By looking at the ballot and the associated proof, you can determine its correctness. Blockchains serve as the storage mechanism for these verifiable reflexive transactions. They have great properties: they are global, transparent, and auditable.
Verifiable reflexivity is embedded in the structure of the blockchain itself, in addition to the transactions, which are typically immutable. Once these things go in, they stay forever; nobody can take them out. However, if you don't have the capability to embed verifiable reflexivity within the system, you won't get anything useful. Garbage in, garbage out. If a blockchain just stores random transactions without verifiability, they're useless. You would need to trust a third party to backtrack and verify.
This is why blockchains are being combined with smart contracts and zero-knowledge proofs. These two elements together, especially with recursion, allow for the creation of a verifiable reflexive system. This isn't just for voting; it's applicable to all of finance.
So, where does cryptocurrency fit in? If this system is to be trusted, we want it to be decentralized. However, something has to pay for that decentralization—something must cover the costs of operating the entire system, including compute, network, and data. If you have a cryptocurrency, a token with value, that token can be used as a currency to maintain the infrastructure.
But I think people are missing the forest for the trees. They have become obsessed with just paying for the maintenance of a blockchain, like what Bitcoin does with mining rewards. They miss that you're not looking for a blockchain or a cryptocurrency. A cryptocurrency is merely an instrument to pay for maintaining your infrastructure. What you want is to maintain an ecosystem.
You will hear the term "ecosystem" repeatedly, and it's important to define it. An ecosystem is a dynamic network of interdependent actors that co-evolve with their environment, characterized by emergent behavior and decentralized agency. A blockchain is certainly a component of this, but when you think about cryptocurrencies, you should consider decentralization and interdependent actors.
In this model, you have infrastructure, utilities, and experiences. There are actors maintaining the infrastructure, utilities that the chain provides, and people enabling those experiences. These interdependent actors are interconnected and co-evolve with their environment, which includes the broader cryptocurrency space and all off-chain linkages.
Emergent behavior is critical. The goal of these systems is to converge towards the definition of verifiable reflexivity. We want every transaction between Alice and Bob to carry its own proof of correctness, allowing them to have a completely decentralized relationship. This improves trust and enables more people to conduct business with each other. Trust thresholds prevent commerce.
If you want emergent behavior, the system's agency will evolve the ecosystem towards greater capacity for verifiable reflexivity. It should be self-healing, meaning if one of these interdependent actors fails, the ecosystem can resolve that issue. It should also be self-optimizing, meaning the cost of operating the ecosystem will decrease over time. The ecosystem should become more efficient, reducing the quantity it needs to spend to promote emergent behaviors while increasing its value.
Additionally, the ecosystem must be self-directing, creating strategies to chase key performance indicators (KPIs) and achieving its goals. You don't want just a cryptocurrency or a blockchain; you want an ecosystem from a complex adaptive system perspective.
So, why is Cardano the only one that can do this? After ten years of R&D, we haven't just produced clever protocols; we've put a lot of careful thought into this. First, you need an engine of decentralization. Without decentralization, you lose decentralized agency, and the network collapses to a small collection of controllers and decision-makers, inviting trusted third parties back into the system.
The engine of decentralization is the Ouroboros protocol. Ouroboros isn't just a science experiment; it was crafted to solve the blockchain dilemma. It provides fast finality with infinite scalability while becoming more decentralized as it scales, all while preserving security. This is extraordinary, and no other protocols have this property. Many are optimized for low-cost operation or fast performance but lack decentralization.
In the web 2.5 space, many consortia chains operate on a permissioned basis, meaning they dictate who can participate. They also implement KYC and AML checks, ensuring compliance with regulations before transactions are settled. This is moving away from a decentralized ecosystem.
The first property is Ouroboros, which is nearing completion after ten years of hard work. It's unique. We also have liquid non-custodial staking and other amazing properties that simplify participation.
The second component is having the right accounting model. Satoshi Nakamoto introduced UTXO, which has the property of local equals global. What you see on your computer is the same as what the network sees, which is incredible. This local determinism isn't present in Ethereum or other systems optimized for performance. If there's a difference between views, trusted third parties are needed to bridge that gap, which is contrary to our goal of removing them.
While UTXO is close, it needs two properties: an "E" for extended UTXO, which allows programmability, and channel isomorphism. This means that as Cardano grows, it can interact with various domains specific to applications, allowing for specialized commerce with unique rules. This is exemplified by the Hydra protocol, which is live and evolving.
The third requirement is modularity of major functionality. Nick Szabo discussed fat versus thin protocols long ago. Thin protocols are simple and require additional functionality on the edges, while fat protocols are complex and do a lot for you. The problem is that as you broaden the scope of your ecosystem, interdependent actors will demand more from the infrastructure, making the protocol fatter.
Alice and Bob might just want to run a small DAO for their local stamp club, but they shouldn't have to bear the burden of the entire world financial operating system. A thin protocol with modularity allows for specialized domains to plug in, adding features like privacy or decentralized infrastructure without overloading the core protocol.
This is what we call partner chains with Cardano. The partner chains model allows for one settlement layer and many computation layers, each tied to specific capabilities. When you plug in a partner chain, you gain that capability globally across Cardano without incurring the costs of the entire ecosystem.
Midnight is an example of a partner chain that is growing. Other systems like Polkadot and Cosmos have partial solutions but lack the dual tokenomics and infrastructure we've built. Our model allows for recursive trustless bridges and partner chains that can unplug if their functionality is no longer useful.
The fourth requirement is decentralized governance and control. The common belief is that if you decentralize governance, the system can't operate or evolve. However, this misunderstands complex adaptive systems. An ecosystem doesn't need a controller; it needs specialization.
Your body is a decentralized organism with specialized organs that create emergent properties. Cardano is still working on fully decentralizing governance and control, focusing on creating specialization, which we call executive function. This means having specialized organs within the ecosystem that can navigate KPIs, strategy, and growth to keep the ecosystem healthy.
Cardano has invested heavily in creating specialization and decentralized governance, being the only cryptocurrency with a constitution, liquid democracy, and a constitutional committee. Through recursive evolution, specialization will occur, creating functions for budgeting and strategy that can chase KPIs.
I generated a report on KPIs, which I will share shortly. The top ten vital signs that indicate whether a chain is alive include fees paid by users, active developers, revenue retained by the chain or apps, net supply issuance, stablecoin supply, active users or addresses, stake supply ratio, total locked value, decentralization level, and adjusted transfer value.
These metrics can help generate a strategy that self-reinforces and optimizes the ecosystem. It doesn't matter where you start; if you have the right ecosystem dynamics, it can grow naturally.
In summary, Cardano has the modularity of major functionality, the ability to infinitely expand through partner chains, the right accounting model, and an engine of decentralization. No other cryptocurrency currently possesses these properties.
When you scale in, you can create a dynamic network of independent actors in infrastructure, utility, and experiences, co-evolving towards desired emergent behaviors, such as the growth of those top ten KPIs. What I care about is the holy grail of verifiable reflexivity. If I achieve that, we can remove all trusted third parties from commercial and social transactions, which has immense value.
I generated a simple report on verifiable reflexivity, estimating that the idealized upper bound for the financial industry is $250 to $300 billion per year. Realistically, it's probably around $120 to $160 billion when looking at the trust apparatus in the western financial system, including external audits, regulatory compliance, and more. The total value of all commercial transactions this enables, including a regulatory layer for AI, is in the trillions of dollars per year.
A cryptocurrency is the fuel that enables that. If you solve this problem, the cryptocurrency is worth trillions of dollars sustainably. So, the value per token is immaterial because it's about solving that problem. That's what you're looking for. The solution to the problem isn't just having a lot of DEX volume, a high TVL, or a high token price. If that solution doesn't have the property of verifiable reflexivity, then all you've done is moved water from one side of the bathtub to the other. You go from one trusted third party to another trusted third party. You can change the names; they can go from JP Morgan Chase to Fu Corp, or from Franklin Templeton to Sushi Swap. But at the end of the day, if it's still a trusted third party, it's a trusted third party.
You judge these systems based on their functionality and ask, are they getting more decentralized? Are they a true ecosystem of interdependent actors working together? Do they have those fundamental components where, over time, the system can specialize without centralization? Over time, the system is self-healing and self-optimizing. Over time, the system can increase its social utility. If it can do that, it creates trust, and that trust results in many people building on top of it.
Cardano was built over the last ten years to reflect this vision. What you have before you, embedded within it, is some very special stuff that was remarkably prescient. We predicted all the DeFi hacks, which is why we embraced formal methods. By the way, that's no longer a cost. All coding is moving to specifications as opposed to code. The code is now the compilation step. You write specs like OpenSP spec or, in our case, formal specifications. So, you no longer have to care what the underlying language is. You're asking how to make it correct so the AI can write it. We have a massive built-in advantage there.
We predicted that the majority of things that happen will occur outside of the blockchain. Channel isomorphism solves that problem. It gives you the ability to operate outside of the blockchain, and it's okay because what happens can come back in and has the same security guarantees. With the modularity, we could plug in state-of-the-art solutions without having to change anything in Cardano. Midnight is a technological leviathan. The technology in Midnight is more sophisticated and riskier than the technology in Cardano. If we try to pull it into the base level of Cardano, we create a very fat protocol that is expensive to maintain. Also, if you make a mistake, all of Cardano collapses. When you're modular, if that module fails, it doesn't kill Cardano, which builds trust in the underlying system.
When you look at Oracore, it's the only protocol that solved the blockchain dilemma. We know this because we spent ten years chasing it. It's so difficult to implement, and we know how to achieve throughput, decentralization, and security altogether. It gets more decentralized over time, not less. Where we have failed is in the narrative war, and the reason is that it's the weakness of a decentralized ecosystem when you aspire to practice what you preach. No one speaks for the decentralized ecosystem. Who's doing the speaking with my body? Is it my lips, my tongue, my brain, my peripheral nervous system, my lungs pushing the air out of my vocal cords? Which one of these things is in charge? I'd like to think it's the brain. The brain is pretty useless if it doesn't have all those other systems. If they're not there, it just won't come out right.
How do I know this is actually right? I have ears, and I'm hearing. If they're not working, what's coming out of my mouth is different from what's being said. It's the problem with a decentralized ecosystem. No person speaks for it. As a result, when people speak on behalf of it from the outside, they reduce the entire ecosystem to a single metric that matters to them, one of those KPIs. If it's price, it's price; if it's TVL, it's TVL; if it's revenue, it's revenue. They say that because it doesn't look good versus a comparable ecosystem. Meanwhile, I look at it as a complex adaptive system and ask, is it recursively self-improving? Is it self-optimizing? Is it able to solve that problem of verifiable reflexivity? If it can, we have created something that has improved the human race.
When you think about the human race, you have to ask a very basic question: Are you happy? Are people happy? Do you have trust? Do you have faith? Do you have happiness? Do you believe that tomorrow will be a better day than today? The answer the vast majority of people in the Western world give is no. They don't believe tomorrow is going to be better. They don't believe their money is going to be worth more. They don't believe institutions are self-correcting and self-improving. They believe things are getting worse.
What we've done to try to solve these problems is become tribes. Tribes feed on strong men and narratives that have no connection to reality. Every major event now has multiple interpretations. How can we do business with each other? How can we trust each other? How can we have empathy with each other? How can we understand each other? How can we build a cohesive society if every time something happens, we look first to our tribe to interpret that, not to the facts in objective reality? We have no basis for verifying things anymore because, without the property of verifiable reflexivity, you have to get it verified by a third party.
You look at the state of California; they're having an election. Ballots are being counted. We don't even care about the election mechanics or any of the things involved in the actual verification. Your political party will tell you whether that's a fair election or not. The media and the Democrats will say it's completely fair, while Trump Republicans will say it's automatically crooked. Neither of them has any connection to the actual mechanics of the vote, and neither is trying to solve the underlying problem. The trust infrastructure is broken.
Shouldn't it be the case that every time a vote is proposed, embedded within the vote is proof that the vote is correct and the voter is legitimate? Verifiable reflexivity. It's pretty simple, and it would completely resolve the trust problem. The absence of that means it's choose your own adventure. It's too easy to just say the third party is corrupt and crooked, especially if the third party has failed in other things, like trains to nowhere and Somali daycares. Depending on one's politics, you look at it and see there's no trust there. I'm not picking a political side; I'm saying the trust infrastructure of the world is badly broken.
If you want to fix society, you have to create common ground that all people, regardless of the tribes they belong to, can agree upon, and we can objectively know that those things are real. The problem with artificial intelligence is that it also damages the foundations of trust. Generative AI is going to make it functionally impossible for us to trust our eyes and ears. You have no idea if a human did something or a machine did it. So, what the tribes will do is if anything you see or hear is contrary to their version of reality, it's fake news or generative AI. Anything that confirms their version of reality is the truth. Does that bring us closer together, or does it drive us further apart? That is why I'm focused so much like a laser on solving that problem.
The blockchain is the container where that solution lives. When you look at the smart contracts, zero-knowledge proofs, recursion, and these other capabilities, that is the raw language upon which we solve that problem. When you look at the cryptocurrency, that's the instrument to pay for all of this and enable a true ecosystem of interdependent actors to form. The ecosystem with decentralized governance creates a self-healing, self-optimizing, self-directing organism that can't be killed and gets stronger every year. If you solve this problem, not only do you create a lot of economic value, making billions of dollars and token prices go up, but more importantly, you create world peace.
Once we can trust each other again, we'll listen to each other. Once we can listen to each other, we can understand that the people on the other side of the aisle aren't the enemy. They're not evil people; they're just like us. The reason we're not getting along is that we can't trust each other. There's a quote from Longfellow that I want to share: "If we could read the secret history of our enemies, we should find in each man's life sorrow and suffering enough to disarm all hostility." That's the reality. Every person you hate has pain there. Every person you disagree with has a perspective that comes from their life experience. If we can't trust reality, we can never understand that, and we regress back to the groups that give us comfort.
The anchor point to solve this problem is to create marketplaces and interactions built on the principle of carrying proof of correctness with it. It's not a destination; it's a philosophy. Enlightenment is not a destination; it's a philosophy. It's an act you do. You can never truly achieve full verifiable reflexivity. But using a blockchain as a container in a decentralized ecosystem that gets more decentralized over time, that's self-sustaining and self-directing, means every year you gain more of this capability, which allows you to build more trust with people. The institutions built on top of that are self-correcting and self-optimizing. Those institutions then bring millions, if not billions, of people together, and we have no reason to hate or disagree with each other because we understand each other's points of view.
I don't blame anyone for where we're at. Three things have happened in a very short period that have completely destroyed our ability to get along, and it's no one's fault. First, globalization happened. We went from predictable, understandable buckets that were separated from each other, where special people would travel between them, to one big bucket. Those buckets kept their legacy concerns, cultures, languages, biases, and other things, and we didn't resolve that. That alone creates enormous friction of us versus them.
Second, the rise of social media. The algorithms are designed to focus on hate and differences, anything dramatic or speculative, as opposed to things that bring us together. Third, the rise of generative AI has robbed us of our ability to trust our senses. All three of these things have happened simultaneously for the same generations. What it's doing is creating a global miasma. The longer it goes on without resolution, the more drained we become, the more hopeless we become, and the more filled with hate and anger we become. You'll see it if you go to YouTube and see many Gen Z and millennial people saying, "I just don't understand life anymore. Everybody's angry all the time. Everyone is frustrated, and no one seems to have any depth. Everybody's just distracted, and no one really wants to invest in anything. Everyone feels like everything's a lie." They're right because of those three things.
The solution isn't to get rid of the orange man and bring in the California man. The solution isn't to pick this philosophy over that philosophy. The solution isn't to deport everybody and say only one culture will win. Suicidal empathy is the greatest evil of all society. The solution is to focus on the root cause of everything. The tools we used in the past, pre-globalization, to establish trust are too expensive and not capable of dealing with AI and social media. They just don't work. So, we have new tools. The blockchain is the container. Ecosystem thinking is what makes that container work. The programming side of it—smart contracts, zero-knowledge proofs, and recursion—together with a cryptocurrency paying for it, create a global system that exists outside of humanity, outside of nation-states, outside of the world. It's a special ether we've placed in the heavens where we can do business.
We know that when we do something with somebody, they can prove to us beyond a reasonable doubt their proofs of reserves, their proof of solvency, and that they're trustworthy. We understand what risks we're taking on, and we can resolve those quickly. This is why blockchain technology is the fastest-growing and one of the most valuable technical verticals in human history. In 15 years, we've gone from nothing to a multi-trillion dollar ecosystem. The problem is it takes time, and you need something like Cardano to fully solve the problem. Even Cardano has to go through growing pains that are very uncomfortable. Bones have to be broken; growth spurts have to happen; exits and entrances; failures have to occur to build confidence in the system. If I tell you the system is self-healing, you won't believe me unless you take damage and it heals from that damage.
Bitcoin had to have Mt. Gox. Bitcoin had to have Silk Road to exhibit a property of self-healing and self-restoring. We had to have the soft fork to prove that Cardano's there. We have to have governance crises. You have to lose confidence in your founder for Cardano to get to the next level. If it survives that, it means it's a self-healing system. The next level of governance has to demonstrate specialization, or else you're just an amoeba. You have to develop an eye, an ear, a brain—these types of things for the ecosystem to come up with KPIs and achieve them.
We'll get there. People act as if it's not solved now, but the other founders and competitors are telling you their job is to make a token valuable. Are they having this conversation with their followers? There are many ways to make a token valuable, but none of them have the depth, meaning, and social impact that we have. Deep down inside, ask yourself something: Would you like to live in a world where people don't hate each other? Where you can trust what's on the news? Where you can verify anything you see without having to trust anybody? Where you get along with everybody? Or would you prefer an extra million dollars in your bank account? The very naive, the very shortsighted, the starved will say, "I want the million dollars in the bank account." But the wise people will realize they want to live in a world of harmony and peace, where we actually get along with each other.
Money means nothing in chaos. Money means nothing in division, hate, anger, and anguish. The great paradox is that if we create that world, whoever does will have created the single most valuable institution in human history—not trillions, but tens of trillions, quadrillions of dollars of value. Money is meaningless in that context. You can be the richest man in the graveyard, but the true goal is to create world peace.
So, these other founders are running around telling everybody, "We have this strategy. Token price up. We have this prediction market. We have this DApp." Yes, for the time they have it. Then a hack happens, and a DAO loses a third of its TVL. The next guy steps in, and the next guy steps in. You're big until you're not. Vitalik is a hero, and then he's not a hero because Ethereum has some floundering, even though they have the highest TVL and the second-highest market cap. There's an insatiable hunger in all of that because they're chasing the wrong thing.
You have to chase first principles and ask, can you create a world with verifiable reflexivity? If you have that, you can rebuild all the institutions of the world on top of that. The fuel that enables that is so valuable that it becomes a national treasure, a national resource that every central bank, treasury, and Fortune 500 company will guard and hold onto because it becomes the currency of global trust. Does it matter if it takes five years or ten years to get there? No. What matters is that you have the right plan, and when you get there, no one's in charge. You just have specialized organs to do things.
I've already outlined that Cardano is the only one with all these properties. So, there's an inevitability that if people keep pushing, growing, and investing in it, we will win, and we will surpass Bitcoin. There's an inevitability about all of it. I'm not perfect; I'm so far from it. People write books about it. No one is immune to the corruption of social media and the world of excess. The longer you stay in those toxic hellscape tar pits, the more damage it does to you emotionally, spiritually, and physically. It takes from you and makes you old; it wears you out. When that happens, sometimes you lose the forest for the trees and get lost.
I spent some time in reflection and asked a fundamental question: Do I still believe in the things that I built? Do I still believe in the direction and the philosophy? I do. I do. I also know that it's a hard road, and it takes a lot out of you. If something's not working, you have to change strategies and approaches. Each time you do that, you find something better. In the coming weeks and months, that's what we're going to do. It's clear we need to get that specialization in. But we're still okay as an ecosystem. We just have to grow up, myself included, and we have to change and adapt, and we will.
When I look at the competitors, we're playing a different game than them, and that's why we're going to win. They're chasing the flavor of the week, the company of the week, the announcement of the week. We're chasing a desire to change the world. We want the world to be a better place. It's such a simple thing. We want every single person to have infrastructure that brings people closer together, allowing them to have empathy for each other. Eventually, they can start loving each other instead of hating each other. I think that's the most worthwhile thing a person can pursue. That's what I want to do.
I hope this reinvigorates some people and gets them back into the fold, realizing that the work matters. There's a lot to do. We absolutely have to figure out executive function and specialization, and we have to get Leo shipped. The test net is coming June 23rd; it'll be turned on soon. Extended UTXO is growing fabulously, and when it's merged with something like a star stream, it brings us ever closer to that verifiable reflexivity I'm talking about.
We'll keep working on Midnight. We haven't lost sight of the other things. It's important that this system applies to everybody. The digital gold of the world is what Pogan is bringing in, and the unbanked is what RealFi is bringing in. Finally, we get to turn those capabilities on. RealFi is imminent. John O'Connor has left IO and is now the head of the RealFi Foundation, and we're turning on RealFi, which will bring countless billions of people in the developing world into this new paradigm—one where they don't have to trust each other. Because of that, they can trust each other.
Of course, we have more partner chains to build to continue upgrading functionality, allowing us to conquer vertical by vertical. As they grow, they're going to bring in millions, if not billions, of new users. So, we have to
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