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Are L1s in jeopardy?!
Recorded: July 10, 2025 Duration: 1:04:45Space Recording
Short Summary
In a recent discussion, experts explored the evolving landscape of cryptocurrencies, focusing on the potential jeopardy of layer one blockchains, the growing recognition of crypto's economic significance, and the critical role of stablecoins in the financial ecosystem. The conversation highlighted trends in public economics, local governance, and the need for sustainable funding models in decentralized projects.
Full Transcription
Thank you. you
hi ac welcome to the space again great to see. Let's give it a few minutes for people to join and wait for John as well. you Hey Gordon Freeman, good to see you
I think John should be joining any minute now, so then we can kick this off.
Loud and clear great fantastic great how have you been all right how are you doing great great great great can't complain go ahead go ahead oh yeah we're just glad to be having normal storms today was starting to look
like we're going to get some of that crazy flooding yesterday but it came out all right
okay that's that's a good thing i mean i don't know where you are
located but i guess storms uh is never a good thing, right? Right. Yeah, for sure.
Let me see where John and Stephanie are real quick.
Sure, sure. Thank you. you
all right the space is filling up hi brave kieran ob me hope you're all uh doing well today
waiting for the legend john to join because he's gonna talk about uh later once today right because he was at the conference last week i think it was i think it was in milan as well
uh there's john Stephanie okay hey John
all right great how are yourself can't complain I said the same thing.
All right.
Okay.
Let's give yourself a look.
Welcome everyone to a new space like every Thursday for a gig.
So, John, like the topic today is going to be our layer ones in jeopardy. And it came as an outcome from your conference last week.
I think it was in Milan, if I'm right. I'm not sure anymore.
No, no, it was in Naples, actually an island off Naples.
Ah, Naples. It was in Italy.
I hope you enjoyed the food as well. And at the same time, John,
it was beautiful.
Actually the Italians were just so
wonderful and friendly in beautiful place awesome all right so so um so as i said like you were at at an economics conference last week um where you actually made the case that economists must
pay attention to crypto because it is as important to understand as money. Could you explain a bit like what you mean and why?
So, you know, on the one hand, I think most people that are not really in the space kind
of think crypto is a rounding error. But there's about 3.5 or so trillion dollars worth of crypto around.
This is in the top three.
And M1, which is the measure of money, of demand deposits and cash and so forth, there's only about $18 trillion worth of US M1.
So that's on the scale of 15% of M1.
But the interesting thing is that money has really decreased in velocity.
It used to have a velocity of about four or or five per year meaning that it would change hands
four or five times a year but it's gone down since we've been printing money like crazy people uh to
about 1.6 times per year crypto on the other hand has a has these top three. This is Bitcoin, Ethereum, and USDT.
The velocity is about 16.
So it's about 10 times that of ordinary money.
So you put it together and the transactions volume that crypto handles is about 40% more than all of USM1.
So it's bigger than money literally and um uh given that
you know here we we worry about jerome powell and what's going on and what does the fed think well
it turns out that that's in some sense less important than does crypto actually work because
the amount of you know value exchange on crypto is larger than the amount of money
value exchanged with dollars.
Right.
How does the Federal Reserve play a role in this thing, this beast?
Well, it doesn't play much of a role in crypto.
It does some advice, but it's
a fiscal policy or monetary policy. Powell is deciding how much money to print. There's
an interest rate that is set, which is what banks can borrow at over the counter and over
the night. So this allows them to have lower reserves than they would otherwise.
So that federal reserve rate has a huge influence on the interest rates that we pay for mortgages
and so forth. So really, there are two things that Powell can do. He can print more money,
which has an inflationary effect and allegedly stimulates the economy, but it seems like the macro levels are broken.
And then also he can set the interest rates,
which has a profound effect on investment and other things.
So that's what he does.
And why he does it?
Well, we don't know.
It's a bunch of obsolete economists that are advising him.
Right.
In crypto, they say printing money, right? I mean, there's so many means. Right. Encryptors say printing money, right?
I mean, there's so many means.
Yeah.
Well, to be fair, USDT is sort of printing money too.
But at least allegedly they're backing it.
You can't quite be sure, but allegedly they're backing it.
Right.
For the people that are not really familiar with John or his background,
like John's background and long established reputation was as an axiomatic public economist,
I hope I said it right, axiomatic and game theorist. So could you tell us what that basically is?
Could you tell us what that basically is?
Okay.
Well, so I'm an axiomatic...
Well, I'm a game theorist.
And there are two sides of game theory.
There's cooperative and non-cooperative.
Axiomatic game theory relates to a non-cooperative kind of game theory.
And I can go into that.
I think we lost you there, John.
Yeah, I think so.
Oh, OK.
How about that?
Yeah, we can hear you.
All right, sorry about that.
OK, so cooperative game theory looks at notions of fairness
and describes them axiomatically.
Things like if people are identical, they should get identical allocations.
We shouldn't waste resources called creative optimality.
So it's that and various other kinds of axiomatic descriptions
of mechanisms and methods of division.
A non-cooperative game theory
is what people are more familiar with.
That's like Nash equilibrium, strategic behavior,
you know, and a crypto, of course,
is founded allegedly in this non-cooperative incentive mechanism.
Public economics is studying the interaction of the government and
the economy, taxation, spending, public goods, local public goods, things like that. And it can
be done theoretically, which I did, or empirically, which is probably more common. And then recently,
I've been looking at information communication technology economics.
So that's the economics of cloud computing, networks, systems, crypto, of course, and
other kinds of things that are related.
Right.
Okay.
And could I ask you, because you mentioned public goods, what's the public good or
are there some other examples you could show? Tell us basically.
So, economists historically, Chicago economists in particular, and I'm, I did actually go to the University of Chicago as an undergraduate, so I'm sort of
affiliated with that school in a broad sense, but they're described as free market economists,
and free market has a certain appeal. It's a civil libertarian that says that voluntary
associations are things that are often in people's best interests and letting
people make their own decisions is more democratic and fair and so forth. But it has, it's founded on
this idea that markets are efficient, that markets can work and whether or not they work depends upon
whether, you know, certain sorts of market failures. So one of the market failures
is public goods. And public goods have the property that they're non-rival in consumption.
And what that means is that if I broadcast an hour's worth, well, take this discussion,
we have an hour's worth of X. The information that we're generating can be
listened to by five or 10 or a thousand people, and it doesn't diminish anybody else's ability to
also listen in. So once something is produced, any number of people can consume it without
reducing the quantity. If I make a hamburger, if my wife takes a bite, that's one less bite for me.
So it's perfectly rival in consumption.
And it turns out that rival goods, you can show that equilibrium exists sufficient.
It has all these very nice properties.
But with public goods, we get something called free riding.
So if I ask you, how much would you pay for the neighborhood swimming pool?
And I say, well, one of two things will happen. Either everybody else will volunteer to contribute enough and it's going to be built, in which case, if I say $1,000, I get charged $1,000 and I can use the pool. zero it still gets built you know because other people are paying for it on the other hand if
people are not contributing enough and i say a thousand dollars doesn't matter it's not built
because my contribution is not enough so the upshot is that no matter what i do it's better to say
that my my valuation is zero so it's a dominant strategy volunteering to contribute is always
suboptimal except in a very narrow group
of pivotal cases and so free-riding so that means that nobody pays with the
public goods we don't pay for roads we don't pay for schools we don't pay for
national defense everybody would prefer that other people pay for it and this is
why we make the social arrangement that I will agree to have a gun put to my head
if you agree to have a gun put to my head if you agree to have a gun put to your head,
and then we will collect taxes
and we get schools and national defense and police.
And if we don't make that agreement,
well, then we all are eaten by cannibals.
And so that's no good.
Well, I don't know about the guns and the cannibals, John,
but I think the point...
That's exactly right.
I mean, the point is we have a social agreement where we have force.
We've agreed to force.
Well, in a general way, let me rephrase.
In a gentle womanly way, let me rephrase,
which is that the free riding is a clear incentive.
So if you have a number of free riders who won't pay what they actually would want to pay
for the goods that they actually would want to build, have built,
then you will get under provision, right?
That's pretty clear. And so when crypto tries to build infrastructure,
there are many a lot of providers
who aren't checking the code and letting things go.
And the way that we change that in government,
in real life to get more roads and so forth,
the only way around it is to make those taxes mandatory.
And, you know, what I'd love to hear you talk about is, is there any mechanism like
that in crypto for crypto infrastructure? And sorry to interrupt you, dear. Did I lose him?
John, are you there?
I think he has an issue with the mic because I don't see the mic anymore.
Ah, okay.
Yeah, he's a real expert in...
So it's funny, so I'm sorry.
Every time I phone...
Never mind, it's silly.
I think I can figure out how to stop it from doing the title.
OK, so it's an agreement of mutual coercion.
I don't pay my taxes.
If I wasn't threatened with jail, I probably
wouldn't pay my taxes or I'd pay a lot less.
But anyway, so free riding.
There's a lot of cases in which my personal interests don't align with a broader social interest.
And I'd be willing to make an agreement that I'll contribute if you'll contribute.
Crypto, you know, is one of these in some ways because, you know, we have all of these nodes, for example. There's thousands of nodes in Bitcoin and Ethereum
that don't actually receive compensation.
They just transmit transactions, transmit blocks,
and do it just because they enjoy supporting the ecosystem.
So this is a case where there's a voluntary contribution
just because we enjoy the action of contributing.
So this is why we see people playing music
in public for free, that they're doing it
because the act of creation is enough compensation,
even though they're producing a public good,
hopefully a public good, that other people enjoy
without direct compensation. So we do see that kind of voluntary contribution, but it's less than efficient.
But in crypto, in the mechanisms where you're asking people to handle money, and we know that
it's a heck of a lot of money, there's much more direct interest. It's not a public good in this case.
It's that unless I'm incentivized to look after your interests,
I'm going to look after my interests.
And so this is really much more of what's called a principal agent problem.
That the principal is the network, the mechanism, the bank, the government,
whoever it is we're having to trust to carry out
its job on our behalf uh i'm sorry they're the agent forgive me they're the agent we're the
principal we want them not to steal our money and you know depending upon the kindness of strangers
is a poor idea never works so we have to create some mechanism. With taxes, it's the threat of jail.
With crypto, it's this mechanism of staking or the mechanism of satoshi,
of mining and trying to solve the cryptographic puzzle of proof of work. So those are market factors.
Okay, great.
John, another question as well, because I've been told that one of your specialties is
local public goods.
Could you maybe briefly touch the difference between both of them?
Yeah. So one way you can perhaps get back a degree of efficiency
is if you have competition
between different providers of public goods.
And so the example is that
of counties or a series of cities, and each of them sets a tax rate.
Tax rate could be high, it could be low, but they choose a tax rate.
And then they also choose a bundle of local public goods, things like taxes, like schools
and roads and local amenities, local public goods have the property that there's
a degree of semi-rivalry, semi-competition.
So a school, as an example, I build the school, I have a classroom, I have a teacher, I put
one kid in that class and I have to pay for the whole classroom.
I put two, well, maybe that is
better for the one kid or it's worse, divides the teacher's attention, but it doesn't increase the
cost of providing the service materially. So I can put three, four, five, 10, 30. At some point,
more kids causes the value of a good to go down. So it's like a swimming pool.
You know, a few people is good,
too many people and you can't move.
So it's semi-rider.
So this is why we can't have one big classroom.
You gotta have many classrooms provided locally.
But if we have this arrangement,
now we've got a system of a menu of prices and amenities.
So very high prices, you know, high property taxes for really high quality schools, good quality amenities, low property taxes, you know, for
low quality schools. So this is why, you know, certain suburbs have very high property values
because people are competing to go to those suburbs because they want to enjoy the schools and the other
amenities. So the tax rate is higher but also the amenities are better. So it's
it's a revealed preference arrangement where I can't get what I want unless I
pay for it which is just like private goods. If I want a hamburger I have to
pay for it. So here we pay for it by competition between jurisdictions.
Right. Okay. Stephanie, I see you have your hand up.
People with kids that really like public goods go to one place and people that have no kids might go to the city where the schools are terrible.
Yeah, I had a question. And that is, what does Luke So Ray think? I saw a thumbs down.
So let me say one thing.
How does this relate?
Oh, okay.
Actually, one thing about Geek, which is unusual, I think, is this, I think we've actually figured
out how to have multiple instances of the chain and have them all cooperate.
have multiple instances of the chain and have them all cooperate and we have an
overall protocol but individual chain instances can be differentiated so for
example we might have a chain that specializes in attestations or one that
has a higher a higher commitment rate a higher block rate or one that has a higher commitment rate, a higher block rate, or one that allows lots and lots of data,
and another that has no attestation
and only does microtransactions.
So there are ways that you can customize instances
of the chain.
And this is a kind of local public good.
You have variation in the quality of the amenity
that people can choose which of those instances they want.
And that's also our upgrade strategy,
that if we decide to upgrade to another form of,
let's say cryptography, we don't use, you know,
if crypto gets, sorry, quantum gets better and better,
we may have to improve the cryptography
well rather than saying there's a hard fork and we're going to force everybody to do this whole
new protocol if we can do that do anything instead we say well we'll deploy a new chain instance
and on this chain instances you use this much more computationally expensive quantum
resistant cryptography.
Fees are also higher because it costs more to process these kinds of transactions.
Now you have a choice.
You can stay in the original chain or you can transfer your coins to this new chain.
So this kind of local public competition lets you do an upgrade without
forcing a hard fork on people.
All right. Okay. I mean, that to me is already a little bit clear as well. Sorry?
All right, Robbie, I'm going to go on unless you stop me.
No, I'm going to stop you there.
I don't know to stop you there.
Okay.
I don't know if someone can hear.
John, can you hear me?
Stephanie, I think, asked me to talk about the paper I gave.
So this is an idea that goes back all the way, really, to when I entered the area.
So when I was at Microsoft Research,
I think I've mentioned to many who may have heard,
I was asked to look at blockchain
to see if Microsoft could make anything of it.
The mechanisms were just not good for many reasons.
And so that's what led me to develop proof of honesty, because to say something as bad
as, you know, it's not good as things get.
And so I developed this proof of honesty mechanism that solves, I think, a lot of these problems.
We'll talk about that later.
So I thought that was it.
I'd done it.
And I remember I went some point later, I'm not going to name names, but to talk to a
large corporation, one of our good friends. And our contact there was called a three down,
meaning he had two reports between him and the CEO.
And he had a technology expert who was like five down,
two down from him.
And so I explained what we were doing
and explained about proof of honesty
and the problems with Bitcoin.
And mostly it was Bitcoin at that point. Ethereum was not as big.
And I said, well, the problem is that you can easily get equilibrium that you don't want,
that do not involve honesty. And I explained it to him. And he just absolutely rejected. He says, the network would stop it.
Which is saying that we're just going to depend upon the kindness of strangers.
That by some magical means, any kind of bad behavior will simply be prevented because people are good that way.
Well, you know, with this much money at stake, there's a lot of temptation not to be good.
But I've encountered that a lot of temptation not to be good so um but i've
encountered that a lot it surprised me honestly i thought here's the example as easy to understand
okay
oh it's just getting good and i lost him again
yeah his mic is not willing to work today it seems seems. All right. Let me go talk to him in physical world.
And maybe, hey, crypto satire man, why don't you jump in?
Sorry about that.
Ron, you keep going in and out.
Robbie, are you back?
Yeah, we've been here.
We've been here.
You're back.
Okay.
Okay.
Well, then I'll take it from there.
All right. Let me talk about what I did and why I think it's important.
So it's a very simple paper, really.
It's simple only because I worked...
Okay. All right
Hang on everybody
The real world to a something that is tractable
So this is what theorists do
The world is just too complicated
We can't capture everything
And so the trick
It's an art
To trim away the things That exist in the real world that are not important and develop a model that retains the realistic and important factors that affect things. It's a sequential game.
We have a block committed, and then we have another block committed, and then another
block committed.
So it's an infinitely repeated game.
And in addition, it's a game with incomplete information and asymmetric information and
agency problems.
And so, the thing about incomplete
and asymmetric information is that now my strategies
depend upon my beliefs.
And this makes it very complicated.
You know, for example, I might decide to sacrifice chickens to the chicken god if I believe that that would result in my portfolio increasing.
So my belief system, completely arbitrary that an action results in a reaction, if I believe it, it's totally consistent for me to do whatever my beliefs suggest is optimal.
So beliefs are really essential in what motivate people. And writing those beliefs in a game and
describing what beliefs might be credible and how they might affect how people work is something
that's difficult to do. But in blockchain, it's absolutely essential.
So there aren't really very many good models
of blockchain as a result.
All right, so I developed a model.
And here's the essential feature of it, I think,
which gets me something.
And that is, there's an assertion with Ethereum
and also with Bitcoin,
but especially with proof of stake,
that what prevents the network from behaving dishonestly is a fear that their dishonest
behavior would result in a loss of token value. Okay, well, and if that's true, if bad behavior
results in a loss of token value, then staking should cause the the interests
of the of the nodes to align with the users so we're all in the same boat if i screw you the
token value is destroyed and therefore the value of the stake is also destroyed so the stake should
serve as a kind of surety bond that aligns the interests of the network and the users.
So that's intuitive.
This turns out to be wrong, unfortunately.
And the other assertion, the other sort of security
assertion is that the network is safer
if there is a diffuse and
state that it's much harder to glue.
So small stakers instead of concentrated stakers should align interests.
Okay, so those are the two assertions. Instead of concentrated stakers should align interests.
Okay, so those are the two assertions.
So it turns out this is really simple to understand actually. Hard to write and hard to prove,
but pretty simple to understand.
All right, so let's look at the first one.
What do nodes believe will happen if they are to behave dishonestly?
Let's suppose they all believe that any deviation from honest behavior results in a 99% drop
in token debt.
So really catastrophic beliefs for even minor deviations.
Well, now let's think of what might be an equilibrium.
So here's an equilibrium.
All the nodes say that...
And these blocks are not honest. A good example might be perhaps I don't think the mining report, the blocking report is
high enough.
So unilaterally, we all decide instead of a thousand Ethereum per block.
This is just an arbitrary non-correct sequence of blocks.
And our strategy is that anybody, any node, any block leader that proposes anything
but this incorrect block when it comes time to
propose a block if you don't propose that incorrect block all of us are going
to vote against it or at least I'm going to vote against it and if once a node
has has fallen off this this incorrect path we're going to label that node as
non-cooperative so for the entire future of
the game we will never accept a block from that node so in other words that node is excluded it
never gets block rewards ever again and we won't even take the transaction from the node that lets
it extract its its state we'll just leave it there. All right, so if all the nodes
have that exact same strategy,
what's my best response as a node?
So I'm a small node, 1% of the stake.
My turn to propose a block.
If I propose a correct block,
I know it's not gonna get committed
and I'll never commit a block again.
I can't extract my stake
and so if i do anything but the incorrect block i get zero forever and i lose my stake
And he's gone again.
I know.
I know.
It's really interesting how he takes these models apart.
And how he, you know, when John says he's an actual United Games here,
it's really what that means.
He keeps digging and digging into the bottom of the model, stripping away.
Cut off partly there.
All right, so I get a small reward for it or I can lose my stake and get no rewards if I propose an honest block.
And so we get to a situation where we can actually support any sequence of blocks.
we can actually support any sequence of blocks. So any sequence of blocks you care to name
can be supported by this equilibrium for any set of beliefs. So the belief system, it turns out,
is completely irrelevant. At a sort of more formal level, it turns out that any kind of consensus mechanism is majoritarian.
So majoritarian means that the majority wins, sometimes a supermajority.
But because of that, it's a coordination game.
So coordination games are like, should we drive on the left side of the road or the right side of the road?
drive on the left side of the road or the right side of the road.
It doesn't matter which we pick.
Doesn't matter which we pick.
But if everybody's going to drive on the left side of the road,
well, I'm going to also drive on the left side of the road
because otherwise I'll crash.
And if they choose the right side, great, I'll do that too.
So there are equilibrium, but many of them,
all of them involving coordination.
So we all have to choose the same outcome
or else the individual gets punished.
So the same thing here.
If I don't go along with majority's decision about what to commit,
regardless of what it does to token value, I'm worse off.
So the bottom line is blockchain. blockchain
many even in the case of blockchain most of them are bad so the game theory of staking and punishment and so forth actually provides literally no guarantee
John would you start over with the bottom line
because we lost you there.
So, okay, I'll go on, Robbie,
but you don't want to interrupt me.
Okay.
Go ahead, go ahead.
Okay, all right, so that's one.
What if one staker had two-thirds of the stake?
Well, sort of ironically,
now that node can internalize the effect.
It doesn't have to coordinate with any other nodes
because it by itself can commit blocks.
So yeah, it may, it's certainly going to seek its own interests.
And its interests are not aligned with the users natively.
But if the users now decide that if I see any dishonest behavior, now that belief, if the node believes that that's how users will respond, well, now we've
aligned interests.
If the node believes a user will punish it, if it doesn't behave honestly, well, now it's
in the interest of that one large node to behave honestly.
And that's the only equilibrium so staking plus stake concentration plus the right
belief system will give you a good outcome
stakers will give you any outcome you know for any set of beliefs it's not
just that you have a particular set of beliefs that might make you do something crazy no
matter what any beliefs you might have anything could be an equilibrium so all right stephanie
or robbie say something because i'm getting bored of myself yeah can you hear us? Hello? Hello?
John, you're having trouble hearing.
Well, then I'll take the ball.
Okay.
So that's, what do you think?
It turns out when you think about it as a coordination game, this becomes obvious.
And Bitcoin, unfortunately, is also a coordination game.
It's a slightly different one.
I can't hear you.
You can't hear any of us. So we're going to be together on this.
I wondered.
You've gone in and out.
Okay, so go ahead.
Okay, so.
All right, have you, Robby, do you have both of us now?
Yeah, but if someone's speaking, the other one should be on mute, so we don't hear in
echo.
Okay, you need to mute, John.
Okay.
I'm going to mute.
He's out of the group anyway, so it's fine.
It's fine.
All right, all right.
Sorry about this, everybody, because this is actually really exciting stuff.
Okay.
I was wondering why I kept going on.
Yeah, nobody was interrupting you.
Usually I would interrupt you so um if you say
that uh let's recap that the in a staking protocol yeah um where everybody's voting and sort of
passing along the blocks you're saying that even if the stakeholders have every incentive to say that,
oh, they'll protect the chain.
Well, yeah, that's just cheap talk.
The point is that no matter what they believe the users are going to do
to punish them, that doesn't actually cause them to behave poorly
or to behave well.
It's just what they believe the other nodes will do.
And there's actually evidence of this.
The reason that we had Stigwit and we had the rolling back of the Dow
and several other, Bitcoin had an upgrade too that resulted in a fork.
too, that resulted in a fork.
And in all those cases, the nodes coordinated
on a new equilibrium, on a new fork, a hard fork
that they believed users wanted.
So it was a forking for good, but it was still a fork.
It was not protocol.
They broke protocol.
It was okay.
Okay, and so you can't count on the nodes in a proof of stake to follow the protocol.
And if the users are trying to condition their beliefs and investment decisions based on what they're told protocol should be, then they can't necessarily count on that.
Is that sort of the bottom line?
That's right.
And like I say, we have evidence of breaking the protocol.
It happens all the time.
And sometimes it's really bad and sometimes it's good.
SegWit, for example, there were people on both sides.
People thought it was good.
People thought it was bad.
So to bring it back to present day, I was reading L2B.
I always read L2B when I can at L2B. I always read L2B when I can at L2B
because they monitor the layer twos on Ethereum.
And there was recently a post that said
there have been long reorgs on the L2s.
And that's really scary
because everybody who is using the l2 thinks well
they're protected by the security of the of the ethereum l1 but if they're getting reorganized on
l2 um and then the users understand that the nodes will just do whatever they want to do and not necessarily protect the
users. What the user's recourse is, is to exit down to the L1, but the L1 is so slow that it can't
accommodate all those exit requests. So guess what happens? The people who understand the system are
the ones who are able to get out and
everybody else gets stuck. So I really think that people have to understand the underlying security
principles of these protocols, or at least read things like L2B so that they know, you know, if I
get on this particular protocol, it's counting on proof of stake for security,
I may never get out again.
I think that's a really big risk that everybody has to understand.
No, it's disappointing to me because the concentrated interests turn out, in fact.
turn out, in fact, in fact, a reason a lot of the smaller chains might be working today
is because they do have concentrated staking.
You know, the original founders have all the tokens and their buddies have bought a certain
amount.
So, you know, Algorand, for example, is a very concentrated staking pool, mostly with
the founders and with the original investors.
And ironically, that may provide a higher security guarantee, even though it sounds
like insider trading.
So that's, you know, but it is only until it's in their interest to do something else.
And so it's not a guarantee.
It just is better than having a diffuse staking pool.
And sadly, Bank of America is better because it's also concentrated.
That really disappoints me.
So that's kind of it, Robbie. Those are the big
takeaways. Yeah, and then that brings me to
a question as well. What makes Geek's approach to consensus different?
Oh, well, we don't do any of that.
I mean, really, in a nutshell, John has studied these things.
We're very concerned about the conflicts between concentrated power and majority rule imposing things on the freedom of one person.
And so the geek is unique in the sense that all the nodes have incentives aligned with
the users because we are the users.
That's the network we want.
John wants to say something.
Yeah, so that would be our claim.
But the reason it's true is because we don't use consensus.
Consensus fails.
Consensus is majority.
Majority is coordination games,
and coordination games are not a security guarantee.
I hate politics.
Yeah, I mean, voting is the same kind thing kind of so there we go so we can't have a majoritarian protocol period can't
be that's that is the if you have it you cannot escape the failure of the game it's just not
possible so you have to escape consensus you have to escape escape majoritarianism. And the way we do it is that
each individual user looks at, you know, if there's a disagreement among the network,
the honest part of the network, and there only can be one honest part of the network,
can prove to each individual user that it's correct and the other any of the dishonest parts can't do it
so honesty can be proven dishonesty is always evident and so uh users individually make a
judgment for themselves so it's not about you decide if you want to you can see the truth
and you decide if you want to accept the truth. You don't have to say, well, most people think that this is true.
It's clearly up to you and you can prove it.
So that's the difference.
So, you know, I got called to go to Justin Bond's spaces today
and I could barely stay there,
but he was talking about the point of decentralization
is really freedom.
And I think we-
That's a good point, I like that.
Yeah, I like that point.
Yeah, that's why I made it.
So we really adhere to that
because if you don't like what's going on and you can see what's going on
then you have the right to leave and go somewhere else you know we're not based on trying to trap
you you should have well sovereign control over your but it's stronger than that we've designed
it so we can't track you. You can't trust us either.
I'm an economist. I can't trust an economist.
But the point is that if you can be trapped, if you can be robbed,
you should assume that you will be trapped and you will be robbed.
I mean, that's just the way of things in all the world forever.
So the mechanism is designed so you simply cannot be trapped,
that you are free.
You should be free. That's a nice viewpoint. But you are able to be free. That's a little bit more
difficult to guarantee the right to be free. And that's what Geek does.
How about questions, Ravi? Oh, Rod. Hey, Rod.
Gordon Freeman, go ahead. Oh, Rod. Hey, Rod.
Gordon Freeman, go ahead.
Yes, hey there.
Can you guys hear okay?
Wow, hey!
Awesome. Hey there.
Yes, I mean, of course, like a million things.
You guys are just awesome. I'm curious about because L2s exist because it seems like every time a project gets big enough and popular enough, traffic becomes a problem for the first time.
And so a lot of smaller projects that say, hey, we're much more efficient and cheaper than Bitcoin and people use the chain and then it gets popular. Then they
realize, oh, we really do have transactional traffic issues. So it's like L2s are supposed
to alleviate that pressure so that things can work and transact. But obviously if you're leaving the
chain, you're also leaving whatever safety is supposed to be on that chain. And so you run into, you know, you can get trapped off the chain
or even going from one chain to another.
If somebody blocks either of those two sides, you're screwed.
What I'm curious about is can multi-chain increase the number of lanes
while staying on L1. So almost like a L1.5,
where you're still on the whatever it is,
whether it's proof of work,
almost like looking like proof of work
because there's physical mining going on,
but it's protected by proof of honesty in multi lanes
so that it can handle more transactions
without changing the protocol over rules.
Well, so a couple of things. I wish I could remember this Yogi Berra-ism. It was Yogi Berra-ism.
It was, this place was great until it became popular. I forget what the exact quote was,
very funny, very ironic, but that's the problem. If you have a small project, either no one's there
and then it can work or everyone's there and then it can't.
So you're killed by your own success in that case.
But I, unfortunately I don't,
if you're gonna base something on proof of work
or proof of stake or proof of authority for that matter,
all of those are based fundamentally
on practical Byzantine fault tolerance.
So that means you have to have a block proposer because you have to coordinate.
The whole point is to have a consensus, to have one view of what the chain says.
So somebody has to propose a block and then we have to vote to approve the block.
And if it's not a majority, well, if a, you know, if a third can approve a block,
then we have, you know, three blocks
that are approved each time.
So we have to have at least a majority
and we have to have a single proposal.
So that's fundamental to any proof of stake
or proof of work.
So you cannot escape even at the L2 or L3
or the multi-chain, you cannot escape
that failure of game theory um now uh
you know our solution is to have multiple instances and have them coordinate only at
the highest level on the gross treasury um so of course if you have enough chains you have enough
lanes uh but if you try to feed them all into one place,
well, you're creating a bottleneck.
It's like if you have all the entryways go onto a one lane
highway, they can't all fit.
And so if you're trying to pack things down onto an L1
that has limited capacity, even if it did have a good protocol,
you still are not going to be able to get the scaling that you want.
Lisa, that's my view. Maybe you have something else in mind.
LISA HARTMANN. No, I think that's part of where that question lies.
But I'm also interested in, so a lot of people are going to think, okay, so if you want to have both, what would the solution be?
And I mean, the answer is probably like you have to fix it at ground level or you can't have another solution.
But just for the sake of intellectual curiosity, is it then something that if you could safely move to an L2, let's say, I mean, obviously there's risk, but could the L2 provide what the level one did not?
chains working in parallel and you had proof of honesty and there was not a centralized
consensus mechanism there, can that become like its own?
I guess I'm not certain economically how the economic value of that new space of transactional, decentralized transactions would operate. Maybe somebody doesn't actually
want to leave that new environment. That may be completely implausible, but I'm just kind of
curious what happens when that hits your brain. Well, I guess it's not clear to me what you're
gaining by the L1. If you have a completely secure L2,
one that's based on proof of honesty or something else,
why do you want to report to an L1?
What is the L1 buying for you?
So a use that I can imagine would not be a guarantee.
It would be belt and suspenders kind of thing.
So, for example, Geek could commit, well, I mean, we'd have to do it indirectly
because we'd only do it through a smart contract,
but you could commit an attestation that says, here are our block roots.
And that would create another source of block roots
that we would not be able to block or prevent
and also would make our claim
about what the block routes are public.
But then, of course, Ethereum could go away
or not make the data available to people
or could change the data
and there's nothing we could do to stop it.
But it would be suspenders to our belt.
It'd be another source
that people could get information from.
That's usually
i believe what l1 provides it provides a confirmation of the state of where that l2 might be
and and we could use it but it wouldn't be a guarantee it wouldn't be a guarantee it would
just be you know another village heard from at least you know i i can't imagine what else it
would do i i may have a poverty of imagination.
I think to me it's interesting because I watch the issues of, first of all, I don't think that absolute decentralization is possible.
I think that it's a possible protocol, but in use, something has to actually steer something in a direction and
there's always some kind of centralized decision and to me I'm just laughing
because you're presuming that somebody wants to go in a direction we seem to be
going in circles a lot in this space but I'm sorry you go ahead finish please
sure oh no it just you know when I think of the fundamentals with Bitcoin I but I'm sorry, go ahead, finish, please. Sure.
Oh, no, it just, you know,
when I think of the fundamentals with Bitcoin,
I like the fact that there's something that is a physical limitation still.
I mean, it's riddled with problems,
all sorts of different problems.
But because in order to play,
there is an actual physical,
it's not as imaginary, I guess, what has become
of Ethereum in a lot of ways. No, actually, I'm a fan of Bitcoin, actually. I really like Bitcoin
because it does what it says it does and has done it for a long time and it does it for exactly the reasons you say there's skin in the game um and um right the game theory is is the same more or less uh and we have in fact seen
the deviations you know we've seen the hard forks which are exactly the kind of deviation that that
i'm describing those deviations were good deviations. We liked the fact that we broke protocol and got to a better protocol.
But it does prove empirically that we could go any place.
That we could say, they could decide that, well, we have to do KYC AML because we're being regulated or something.
Maybe we'll comply because there was a big terrorist incident.
We think this is the right thing to do now. So we could force that onto the network and do
the same kind of hard fork. Now, will they? I don't think they will. So I think that there is
kind of a force. But that's exactly, yeah, that's exactly the reason for the question because the
question because the the centralization that I think is the problem is the actual development
centralization that I think is the problem is the actual development. The actual what?
the actual what now and so if you simply get the the actual core development um you know it
because the thing that Bitcoin really needs to do is just stay in in one lane I'm totally with
you 100 and once once you have a trillion dollars of value in something like that it's really
important that it doesn't just shift because there was a developer that didn't understand the economics.
Yes. No, I agree with you.
And I think that happens with Ethereum.
And there's a lot of, well, geez, there's a lot of inertia in Bitcoin. And I think that
there are really, there are fun, I like that Bitcoin is full of fundamentalists. You know,
the old school, why are we looking at
these newfangled kids no that's right just you made a promise you did a thing do the thing be
homage totally in favor of that and that's what makes it strong and powerful um bless their hearts
but I have not been impressed with the Ethereum core people that I have run across.
They're very smart. They have lots of ideas.
But, you know, if you have a protocol that makes promises and you think,
let's move fast and break things, those are incompatible ideas.
If you have promises, you can't break things.
And if you break things, you're not making promises.
Well said.
Let's see.
We have a few minutes, right?
Anybody else want to talk?
There is a question, though, from CautionFund. Is there a link to the Geek GitHub repo available?
NANCY MACKLINI- Nope, right now it's private.
But we do have sample code.
And we have had developers write apps in our last boot camp.
Thank you, Arby. They wrote apps and they connected to their
own test nets. So that is the answer for now. And we're always testing and refining, upgrading. So until we make the promise and,
you know, we just don't believe in moving fast
and breaking things and breaking promises, that's it.
We're working steadily and that's not public.
But let's see.
One thing I wanted to throw out at the end of this was to pick up on John's idea of belt and suspenders, which is that I think as stable coins take the front stage as a use case for crypto.
case for crypto. And as John started this space, he said, you really have to study crypto now.
You have to study it as important as money. And with everybody looking at stablecoins,
that's a place where institutions need belt and suspenders. Because if stablecoin is on some,
say, proof of stake protocol, well, as we've discussed, that's not a guarantee.
stake protocol, well, as we've discussed, that's not a guarantee. So if you really want a stable
coin, you have to be really careful. And that's an area where I think he could help a lot.
Yeah. But with stable coins, you always intersect the real world. And because you're guaranteeing
in a currency and the currency doesn't live on chain. And that's, that's sort of the fundamental, uh, attack surface for any
kind of stable coin, you know, USDT, for example, even if they're totally honest and do everything
they say and have all the good intentions, the government of Singapore could cooperate,
the United States to simply confiscate and lock all of their accounts. You know, they're in a real world bank that's in an international banking system, and they
could simply be confiscated just like that.
So there's nothing on chain you can do to actually protect the guaranteeing assets.
But then again, there's nothing you can do to protect the money in your bank either.
So that's...
Not much different. you can do to protect the money in your bank either so so you know that's that's not my favorite yeah
that's the reason to try to create a value system that is independent of uh of the brick and mortar
world all right um i mean if there's anyone in the audience that has another question feel free to raise your hand I mean in
the meantime we had an awesome awesome overview on like we I mean we covered public goods game
theory to why current blockchains fall short of real descent decentralization and how geek comes
into place I think it was a great spaces as well I think it's important to know what's going on with Proof of Stake, with Geek and Proof of Honesty, for example.
So overall, I thought it was a great space.
In the meantime, I didn't see anyone raising their hand.
So I assume there's no questions.
But as always, people can always reach out in the Telegram,
ask questions on Twitter, tag us,
whatever you would like to do in order to get in touch.
We're very accessible as well, as everyone probably is aware.
I would like to thank everyone for joining another space.
And next week is going to be an interesting space as well, for sure.
Stephanie has someone lined up.
So I'm very stoked for that one as well.
Absolutely. So excited about that. And thank you to John. He is very happy to talk about the
economics of anything. And this is such an important lesson, I think, as we all realize
the place of crypto in our lives.
And thank you, Robbie.
Thanks, Robbie.
Sorry, I talked over you.
I just couldn't hear you.
Thank you, John.
Thank you, John.
Stephanie, thanks.
Gordon Freeman.
Thanks, Rod, as well, for joining again.
Arpi as well.
I think Arpi is in the heart of everything
with Geek also. That's
amazing. Thanks
everyone for joining and
catch you next week on
another space. Thanks
Robbie. Thanks everyone. Bye.
