#242 Neha Narula: MIT's Digital Currency Initiative - A Research-Driven Approach to Blockchain

Transcript

[Music] this episode of Epson is brought you by dot-com doctrine is a 2-day developer conference organized by kenosis is taking place in July 19th and 20 in Berlin the conference focuses on the centrist applications tooling and scaling solutions on it here go to DEFCON IO to get you a ticket today hi welcome to epicenter short stock some of the technologies projects and startup started decentralization and the global blockchain revolution

my name is Sebastian with you and my name is Frank event crane we're here today with Neha Neruda she's the director of the digital currency Institute at at MIT at Massachusetts Institute of Technology so we did actually have an episode before a few years ago with Gavin Andresen when we talked a little bit about this cuz he was he was back then with the DCI but the DCI is doing some really interesting work around you know research and policy around cryptocurrencies and blockchain so I'm super excited to have Neha on today yeah thank you Brian and Sebastian for having me I'm really excited to talk to you yes it it seems like since back then the DCI has evolved a lot is suing

a lot of different things and you know we can speak about that in a little bit but we'd be curious to hear from you first like how did you become involved and interested in blockchain yeah totally um so I I really feel like I got into the field kind of late but I think I think a lot of people feel that way probably um and we all have to remember that it's still such early days so I had some really good friends who were very into Bitcoin as early as 2011 and I completely ignored them because I was in the middle of doing my PhD and as I think is kind of notorious a lot of academics weren't really that interested in Bitcoin at the time so I was doing my PhD at MIT in distributed systems and databases and it wasn't until I

graduated in 2015 that I really started getting interested in this area and I when I finished my PhD I did something a little bit unusual I didn't have a plan for what I was gonna do after my PhD so I didn't have a job I didn't have a postdoc I didn't have like a research position or anything I was just kind of floating and the reason for that is because I really feel like I kind of needed a bit of a reset so I didn't want to go and build a database or something like that and you know work for a big company and I was really sort of feeling this disconnect between what I was working on and the problems that I found intellectually

challenging and interesting and helping the world like making a real impact on the world and so so I decided to just take some time off and kind of think about things and it was at this time the summer of 2015 Bitcoin was going through the scaling debate and during my PhD I had been really interested in how to effectively scale systems and so I was like hey you know maybe maybe I could look at this problem a little bit maybe just see what's going on like why is it so hard to scale Bitcoin right this was right before the first scaling Bitcoin conference happened in Montreal so I started learning about it and once I actually figured out how the system worked I was totally hooked and I was

like wow this is amazing this is the largest consensus algorithm in the world you know as someone who had been intellectually interested in consensus algorithms that's an amazing thing and so so from then on it was just down the rabbit hole that's that's a fascinating story then so let's perhaps transition to the DCI the digital currency initiative at the Massachusetts Institute of Technology so can you tell us what is the mission of the DCI yeah so the mission of the DCI is based on its it's pretty lofty but the idea for us is we want to help create the internet of value we want to make this we want to help bring in assure in the set of open protocols that's going to

make it as easy for people to move value around the internet as it is for them to move information so that sort of high-level everything that drives us what kind of derives out of that is we focus on open source technology open systems open access we are pretty fundamentally technology focused a lot of what we're doing right now is about how to solve some really big challenges related to making that vision a reality and those challenges around things like scalability and privacy and figuring out sort of like how we need to operate in this regulatory environment what kinds of things do we need to do as an academic group as part of a university to help

this ecosystem as a whole move forward so you guys are at at MIT right which is of course a well-known University and it's it's in somewhat independent Institute can me explain like what's the relationship between you know the DCI and MIT and maybe more generally the DCI and an academia yeah sure so we're a little bit weird it is it's not a traditional research group so I had the DCI but I'm not a professor we do some research but we don't just do research so we're an initiative at a part of MIT called the MIT Media Lab so the Media Lab is this the MIT has a bunch of different labs there's a Media

Lab there's the computer science and artificial intelligence laboratory there's a ton of other labs around engineering ocean science all sorts of different things and the Media Lab is under the School of Architecture which is a little bit interesting it was founded about a little over 30 years ago and it's kind of this crazy wacky mix of people it's all sorts of different disciplines and topics they're people who are working on synthetic neurobiology there are people who write operas there are people who do art exhibits people who build artificial intelligence systems it's it really runs the gamut and so in some sense this is the perfect home for a group that's

going to focus on cryptocurrencies and blockchain technology so we're a group of a few core research scientists so we're all in the Media Lab at MIT and we work on a variety of different projects but we also work with companies a little bit the Media Lab is actually funded by 85 large companies who are part of a consortium and so those companies go above and beyond to help fund the DCI as well we also work with a lot of different professors and students at MIT so there are a couple of economists there's some computer science professors we work closely with and we have students of course so lots of undergraduate students at MIT like to

work with us we also occasionally sort of talk to PhD students and help advise with their projects and we've had a couple of master students so far at the DCI so that's been really fun the students are great and so you mentioned that 85 companies are funding the Media Lab or is there also like direct funders of the DCI and and are there for example cryptocurrency and blockchain companies that are funding DCI or how is how are there kind of resources where they're coming from yeah great question um so our initial funding came from this this fund route fundraising round that was done in like 2015 to 2016 so I think it helps to

explain a little bit of the origin of the DCI first so the the DCI really it was started by Joey IDO who's the director of the Media Lab and actually Jeremy Rubin who's an undergraduate at from MIT he sort of I I like to think the German like brought Bitcoin to MIT he founded the MIT Bitcoin Club and he did this big thing in 2014 called the Bitcoin drop where every undergraduate got $100 worth of Bitcoin and they designed this huge experiment about it ended up writing a great paper about innovation and how it spreads through communities so Jeremy was one of the people who really made that happen

and he sort of you know helped Joey I think get to the point where he realized how important this technology was and at the time the Bitcoin foundation was kind of imploding you know it was going through a lot of chaos and a lot of trouble but there were these three developers who were employed by the Bitcoin foundation it was Gavin Andresen vladimir van der Laan and corey fields and these developers were working on Bitcoin for a non-profit the foundation they wanted to keep working on Bitcoin but if this foundation went under they wouldn't have a job anymore so um so joy stepped in and said okay look why don't we just support them why don't we you

know try to get a university backed fun together to support core protocol development so that's what happened and we raised a fund we raised a fund that I think was from like 20 different Bitcoin related companies and individual in the space and we have a blog post about it no more that it was like on the order of a million dollars and no more than a hundred thousand was from any one company so it was like pretty well distributed since then our funding has come from the companies that fund the Media Lab like I said and those are pretty large companies and also individuals who have wanted to give us

money and who have wanted to support our mission you mentioned something before that was interesting before we started the podcast that you know cryptocurrencies are kind of this new field like so how does that kind of fit in do you think that this is a sort of testbed then that it becomes like an academic discipline or do you think because it is a new field it actually makes sense that it is more in a sort of you know almost tangential attachment to academia or how do you see that evolving that's a great question so one thing I think that really distinguishes the work that we do at MIT from other places is that the DCI is is about multiple

different departments and multiple different schools of thought coming together it's not just the computer science department and I think that's actually really important because cryptocurrencies and blockchain technology are so much more than just computer science like yes it's distributed systems it's cryptography it's networking but it's also regulation and game theory and market design finance law like there's so many different areas that all need to come together and we we need to figure out and like something that's been really difficult for me is all these different areas speak very different languages so it's hard for people for experts in them to even talk to each other effectively so it's been it's been

really interesting to watch this happen and part of the reason that I'm at the DCI is because we have like we have people who are world-class economists like world-class former regulators and world-class computer scientists all working together now about like what this is gonna be you know I mean I think we all recognize something very special is happening here like I said it's more than computer science I think that this could go in a lot of different directions one thing I've been thinking about a lot lately is the history of computer science so seventy years ago computer science didn't really exist like it wasn't its own discipline it was

like mathematics and engineering and then I think it was at Purdue in the 60s that the first PhDs in computer science were awarded and now like computer science is the top undergraduate major at MIT and Stanford and if you think about it so many years is not a lot of time to go from like zero to sixty right like that you know now it's the most popular undergraduate major it's like a huge discipline it's affecting everything in our lives and it didn't even exist seventy years ago so I could see something like that happening in the space as well or maybe it's something that sort of you know is a layer that goes across many different disciplines so it's not a new department per se but

in computer science and economics in law there's sort of like sub specialties where you can kind of like you know learn this field and and we see new disciplines like emerging all the time bioinformatics is relatively new people are starting to create a field a discipline of study around AI and ethics so I think it's really exciting and I think it's part of our job to help Shepherd this in to help create this because you really need in order to create a new discipline you need really rigorous well-thought-out foundations like you need really good models and I think at MIT were in a unique place to be able to create that so many disciplines were born at MIT like the

internet was partially born at MIT so I think we're in a really good place we have a history of sort of shepherding these new fields forward and so that's something that we really want to do so currently what is the status at MIT when you look at the you know the normal University life of you know courses being taught and different departments how is blockchain infiltrating that and where is it taught in which ways yeah so um I think we at the DCI taught the first blockchain technology class at MIT in 2015 in the fall of 2015 and it was really popular and a lot of really great things came out of that and then

we topped that class through the Media Lab and it was kind of more application focused we had a lot of guest speakers a lot of people come in and talk about different things but 2015 was really it was a very different time you know it was like the etherium Network had just launched and so you know things were still developing we taught a class in 2016 a graduate computer science class I co-taught it with Silvia McCauley and that was really great so that was a kind of a different intersection of students it was sort of computer science graduate students who were learning about the space for the first time and we're really like learning the fundamentals and then this past spring Tad's Raja and I taught sort of a more

like design and engineering focus class or own cryptocurrencies and blockchain technology so and that class was really about like what are the fundamentals you know like signatures and hashing and proof of work and transaction formats and forks and you know really about like how do you put these pieces together and why are they designed the way that they are and that was also really fun but they've been like three really different classes because I think we're still figuring out what the right way is to teach this topic one thing that has been true of all our classes is that on the first day they are completely over subscribed they are so popular we've also had a couple classes through your slow in the business school also incredibly popular there's just like

this hunger for some students to learn more about the space which is really exciting so the the DCI has several different areas of research that focuses on and if you go to the website some of the some of the ones that are featured they're variable and there's some really good explanations on on each of those research topics but before we go into detail on some of those topics tell us you know when when looking at research topics in the blockchain space it seems like there's just an ocean of research topics there's just so many things that one can look at UM from the technical side to the economics sort of social change I mean like it just

runs the gamut when when looking at different topics to research what are what are some of the things that goes into decision-making about which ones you choose and which ones you focus on that's a really great question and that's really hard um and part of the challenge is that this space moves so fast that you think you have a handle on things you think you're like okay this is how things are laid out this is what we're gonna do and then something new happens and you're just like mind is blown um so I think what we've landed on is really trying to think about okay we're not like a team of 30 software engineers who are gonna churn out a product right we're not in it to make

money either we're an academic group but we want to do what is necessary to move the space forward and we want to do the things that other people are not necessarily going to do and so there's a few different ways that we choose what to work on first of all we're a group of research scientists we kind of get to pick what we want to work on which is really exciting so you know it's not like it's not as top-down as you might think I believe that people do the best work when they're really motivated and passionate about the work that they're doing so people should be able to decide from themselves what to work on but aside from that I think that our values drive a lot of our work so you know we have a big focus on technology and like I said earlier I think that there are a

few really big pieces in the space that need to be figured out before we can get it to a billion people a major major major part of that is scalability how do we build functionality in a way that is going to scale beyond you know a few million people but into the billions another another really challenging area is around privacy so you know it's just not really feasible to have a financial system in which every transaction is out there in the public but at the same time you know we can't just hide everything it doesn't work for society like you have to be

able to measure things about the financial system as a whole you have to be able to understand what's going on and so how do we like address this tension between this need for privacy with this need for like some sort of transparency that's something else that we really spend a lot of time on and then a third thing I think is that you know this field could really go in a couple different directions so one sort of thing I like to bring up a lot is BitTorrent so BitTorrent at one point in time was like a huge majority of the traffic of the on the Internet peer-to-peer file-sharing and now I think it's around three percent so you know BitTorrent really showed people that they could get music and movies

over the Internet and at the time that wasn't something that people just took for granted and and like none of the incumbent media companies were offering that but because of BitTorrent because BitTorrent existed the companies realize that this was something that people really wanted and they realized that they needed to step up and create it or they were gonna go out of business and so now we have things like Netflix and HBO go and Amazon Prime I don't think we would have those things if it weren't for BitTorrent so one way this technology might go I'm not saying it's the way I want it to go but one way this technology might go is it's a like it catalyzes the incumbents to change and get better and I mean I think no matter what happens it's going to catalyze the incumbents to change and get better but

that doesn't mean that the incumbents will still be around but that's sort of one way that this could go and if it goes that way I think part of that is motivating central banks and motivating sort of the people who control the currency in the world to move closer to cryptocurrency in the way that our fiat currencies exist so another big project that we're working on is around digital fiat currency so what would it look like how would we want that to look if we were to take sort of the best parts of cryptocurrency and move them over to design a digital dollar a digital euro or a digital pound you know what would

that even what should that be and I think we're in a good place to work on that because at MIT we can work with central banks like we can actually talk to them directly and we can we can guide them and so we're working with a group of six central banks to kind of answer some of the really thorny questions that exist around that like sort of the issues that exist around this question of like how would you design a digital fiat currency okay well let's maybe stay on this topic for a little while and we can address other other research initiatives at the DCI later in the episode so let's talk about this notion of a digital fiat currency this is a topic that we've

discussed on the show quite a few times and so what is the work that the DCI is doing and you mentioned also that you're working with central banks or at least discussing with central banks can you tell us about how this topic is being received how digital currencies in this sort of form that they take in terms of like cryptocurrency and blockchain like how is that topic being received at central banks yeah so um I was just in Geneva a couple a month or so ago at this event called the Geneva conference which was a lot of European central bankers and it's really interesting they're very skeptical that crypto currencies like Bitcoin could replace

fiat currency I think rightly so they raise a lot of the challenges around scalability and privacy and energy consumption and people losing private keys etc etc like all the usual questions but at the same time they're a bunch of nerds and they're fascinated by this technology too I think they're really interested in they're really excited about it actually yeah it was really interesting from this is the first time I'd spent a lot of time around economists and especially central bankers central bankers are quite conservative like they're very focused on maintaining financial stability that's very very important to them they see that as their job and so I think when you realize they're coming at it

from that lens you understand why they're like not jumping up and down for joy about about crypto currencies it's it's pretty disruptive but at the same time their interest um I don't think that like we're working with a pretty large with pretty large central banks so we're working with the Federal Reserve the ECB Monetary Authority of Singapore the Bank of Japan Bank of Canada and this is all on our website so you can you can go look and see um and you know I don't think that any one of these institutions is gonna be the first to really issue digital fiat currency but I think that probably a smaller central bank will really really soon like it's gonna happen we're gonna start experimenting with it

there's still so many like if you if you realize that the focus of these institutions is on financial stability though like it's really hard to figure out how to do that in a way that's safe that's not gonna totally destroy your economy or cause a run on the banks or or you know just have like these really unintended side effects and I think a major challenge standing in the way is around user experience and UI and sort of like what's the interface with the average citizen when you're talking about digital fiat currency like right now people can't even handle usernames and passwords like people are getting fished and hacked constantly like public private key pairs is like a whole nother paradigm that people don't really

understand so we're we're still like really far away from being able to just give everybody a digital wallet and have them hold their money on their phone or in their in a hardware wallet you know it's not we're not ready for that yet there's still a lot of stuff to figure out on the way yeah I agree and like as an example we just had Eric Levesque of Ledger on last week and although they're doing fantastic work on the user experience side and also on the security side we're still a lot years away from being able to give you know just your average person a hardware wall and say hey like these are your keys and you know you're gonna have to manage your own your own currency you know but one could imagine some sort of an intermediary solution where a central

bank could be some sort of custodian or at least partly custodian of the keys and and also perhaps some intermediary companies like payment service providers also providing security there but where ultimately the sovereignty of your keys lies in your ability to sign like a Multi signature transaction or something like that yeah I think we're getting closer like we're you know we're starting to experiment and try to figure these things out again you have to remember central banks are coming from this position of like extreme conservatism right like they just want to make sure the economy doesn't explode the person leading this effort here at the DCI is a former central banker actually his name is Rob Ali and he was the former manager of digital currencies at the Bank of

England so he really understands kind of both sides and he has some really interesting ideas about a new type of structure because central bank's probably aren't going to like they are not in the business of servicing customers directly that's just not what they do that's not what they're good at they would mostly rather that the private sector kind of handle that side of things and that's kind of why we have the banking industry that we have today banks are the ones who interface with the customers but but can we create a different structure around that and what does that structure look like that that's sort of the question is there any thought given to an others probably quite unlikely but is there any thought given to sort of the scenario where

central banks begin to in some places be disrupted by initiatives like cryptocurrency initiatives and decent decentralized currency initiatives I mean I think that's why central banks are paying attention because this is something happening in the private sector that's a new form of money it really is a new form of money and it is possible that a lot of people will really start using it right so I think I think that there is a potential for that but I think that's a good thing I think that puts pressure on the central bankers and sort of that ecosystem to kind of step up and start thinking about what could this look like you know I

think I do want to mention one thing which is I think I don't know if we've been having the most productive conversation across the two worlds the cryptocurrency world and the central banking world I think you know there's a lot of talk about how like fiat currency is dead and like cryptocurrencies are gonna replace it and central bankers are just like what are you talking about you can do seven transactions per second this is like this is not gonna fly why are you telling me this and you know I I kind of I get both sides like on one side well this is not forever we are like cryptocurrencies are moving forward we're gonna address the scalability issues we're gonna address a lot of these issues but at the same time fiat currency has a place like there's a reason that countries have their own

currency there's a reason nation-states exist and and you know they need to be able to control their own economy so you can't just say like one or the other it we're gonna live in a world where both exist and and the question is how are they but gonna both exist and also like are they going to move closer together I think those are really interesting questions yeah so for people interested in this we did an episode this was several years ago maybe three years ago I don't know with David and old father I don't know if you know him but he was he's a the Fed and he wrote this he's a researcher there and he wrote this article with these articles on this idea of a Fed coin and it was interesting because we did this episode and actually talking

with him Ovilla we we realized just how disruptive the idea of a Fed coin is too because at least it seemed like it's actually incompatible with like fractional reserve banking you know if it's a bearer asset even whether it's issued by a central government or not then you can't really have fractional reserve banking so that was very interesting so it's hard for me I should reconcile how you could have fractional reserve banking and even if you had digital currency at the same time is that also I guess one of those throw any questions or yeah I would say so I think that's the question that I've heard the most talking to central bankers is what about you know if digital fiat currency coexists with the current system of

fractional reserve banking then what does that mean in times of crisis is there a flight is it you know are you gonna exacerbate the potential of a run on the banks I think that's a big question that a lot of people would like to think about and understand and have answers to I don't know the answer I don't know how both systems can coexist effectively but what I do know is that with the advent of more and more stable coins like this is you know we're I think something's gonna have to happen like people are putting stable coins out into the market at a pretty fast clip because there's a real desire for stable coins and by stable coins I mean like coins that are kind of pegged try to be

pegged to the dollar you know whether or not those are good designs is another question but I think that part of the reason that stable coins even exist is because of the lack of a digital fiat currency with cryptocurrency like properties so in some ways the private sector is stepping up already and just saying hey we're gonna figure out how to do this whether it's with reserves or an algorithm and so I think that I think that i think that central bankers and governments are gonna have to deal with this oh yeah absolutely I think there would be a fascinating area of activity in the next year's this episode of episode is brought to you by Def Con Berlin top con is a non-profit 2-day

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so you mentioned scalability before so we'd love to come to that topic you know one interesting thing that struck me kind of looking at your background is that your PhD thesis the title was like parallel execution for conflicting transactions now this sounds like a perfect description of like you know the problem of shorting right but you have like you want to parallel they execute these transactions and well they may conflict right maybe they're double spins or some curious like how how do you think that research like carries over to the blockchain space yeah that's a really good question I mean this is why I got in the space at the beginning was because of the scalability issue and I think it's really fascinating so I worked on

charting in distributed databases during my PhD and I worked at Google before my PhD and so I kind of looked you know there was a lot of sharding and partitioning of just of databases at Google as well it's not a trivial undertaking like even when you're dealing with a system where where it's under one company's control so they can set everything they can set the partition key they can set the number of nodes they can like redo everything whenever they feel like it you know they control the traffic even when it's entirely under one company's control is really difficult it's very workload dependent and sometimes the performance ends up being worse than if you just had one really

fast machine I think that was what was sort of most interesting and at the same time frustrating to me was that if your workload could fit on one machine it was almost always better to just run it on one machine than to partition and to Chardon try to get better performance that way now that said we're dealing with a whole different ecosystem here and I you know I wrote this post about layer 2 scalability and in the post I was like pretty pessimistic about sharding for the reasons that I just said but that doesn't mean I mean I think that it will be helpful like I think it's just gonna be hard it's gonna be a lot harder than people think it's not like oh we're gonna roll out sharding next year I don't think that

that's gonna happen or I think if that does happen it's gonna turn out to be broken or not performant and really subtle ways it's gonna take a long time to figure out so it's not that I think it's impossible I just think it's gonna be a lot harder than people are making it out to be and I don't think it's like the magic like the silver bullet for scalability I think that in order to reach a billion people we really have to think about what needs to be on chain and what needs to be off chain but the really exciting thing to me is that we can do things off chain with similar security guarantees to what we can do on chains like that's amazing that's like magic to me right like you don't have to run and

everything on chain that's really cool and that means that we can shift a lot of the work that was being done on chain to off chain and that's through layer 2 protocols like the Lightning Network or Raiden or even things like true--but so we had a conference here in Boston called the layer 2 summit that we put on with fidelity where we invited like all the people that we could think of and I know we missed a bunch which is really unfortunate and I wish that we hadn't but we're still learning about the space we invited all the people who are working on layer 2 type projects to come and explain what they're doing and then we had a hackathon where people could build using their api's which was really fun and it was really great because it

was like okay where's your code show us your layer to solution show us how to use it and we're gonna have people students and all the other people who are participating the hackathon actually build stuff and that was really eye-opening for me to see where all of the different projects were in terms of maturity I'm still really excited about layer 2 I think there's quite a bit to do the incentives are what worried me the most right now like how do you incentivize people to work on layer 2 to build to create projects to create companies without issuing a token because I don't think you need a token I don't think that's the point of layer 2 so um so that's like that's a pretty big open question for me right now is how do we sort of have and I also just felt like there wasn't enough attention on

this space like people were always talking about sharding and they were always talking about proof of stake and as a solution to scalability and I don't think it that they are by themselves a solution to scalability at all so I really just wanted to help shed more light on the space and to get more people thinking about it and working on it and this kind of goes back to actually sort of a core thesis of the DCI which is that the best way for this space to develop is in layers so if you look at the internet for example the internet is composed of these layers of open protocols you've got Ethernet a base layer for how to connect machines together you've got tcp/ip or for routing messages around a network HTTP the web on top of that and each of these protocols developed independently

I think that's really important to note that sort of like they they developed independently but like the people between like with the different layers we're always talking to each other um and at the same time that these layers were kind of evolving you also had these like walled gardens and these these like full-stack things like mini tell or you know AOL is another example of this and the full stacks lost out to the layers now the internet was a whole different time period it didn't have a ton of VC funding when these layers were developing it was it was very very different so it's unclear if the same thing is gonna happen right now but I do think that we need to take more of this layered approach so could you maybe just come back and talking about starting

explain your skepticism in a bit more detail and why you feel broadly that these layered systems are a better approach for scaling yeah so there's a couple of things when you're issuing queries in a distributed system that can kind of end up tricking you up so let's think about let's like break down the cost of issuing a query or and in this case when I say query I mean like submitting a transaction and have it processed right so if you only have to talk to one machine to submit a query then that's great you you know you you have the overhead of communicating with that machine you have the time it takes that machine to sort of process what

it's doing and you have the time it takes to return to you right and in a system like Bitcoin every machine is processing every query but they're kind of all doing so independently like they don't depend on each other but but they all have to process every query and they all kind of need to catch up and get to the same spot now in in a sharded system if a query can be handled by one shard that's great that's awesome then if each shard can sort of independently handle queries and you get this nice parallel speed up because the shards are handling queries in parallel but there are some queries that cannot be handled by one shard because they

sort of touch data that lives on multiple shards this means your workload is not perfectly partition Abal and most a lot of workloads are not perfectly partition ability especially when you think about workloads that are kind of more like graphs right like social networks we're like I'm friends with you but you're friends with Brian and you guys are on different shards right so it's like we can never find a partitioning which makes all of our queries sort of work together because we have friends everywhere and it's just all too complicating connected so like a plot when you apply this idea to things like money money is is like pretty is not a perfectly partition Irbil workload it's very interdependent like there's a

lot of relationships between the money and so what ends up happening is that you have to sort of like stop both of the shards in order to process a query that touches both shards and that means that you're slowing things down you're slowing things down a lot and that overhead with which are slowing things down can be so high that it's actually sort of like worse than if you just did everything together sort of like one at a time it's not always intuitive and it like I mean I'm trying to map like a distributed system onto a cryptocurrency which is a little bit hard to do but it's a it's that basic idea that there's going to be cross shard coordination and that cross shard coordination is really expensive well that's very interesting

oh yeah presumably probably some listeners have heard that hiriam has done some big replanting about their roadmap and now they wanted to caspere like the full caspere as well as charting and at the same time NPLs signatures so threshold relay signatures what are you a fault on that and and put in particular the sharding as they want to do it any cerium so I've only looked a little bit at aetherium charting design I haven't sorted I you know I looked at a small amount look first of all let me say I'm really excited about all of the research the etherium foundation is doing I think it's great that they are pushing forward so fast and all these

ideas that they are putting effort into experimenting and into building into trying all these different things and I I think it's it's really cool because we can learn from it you know I wouldn't believe a promise that this is gonna work necessarily in the next year or two like I don't think we can rely on that I think I think it's great to try all of these different things but from what I've seen like building a really robust distributed system is a challenging task it takes multiple years and that's a system that doesn't even have like the the sort of malicious everybody's trying to attack each other and steal each other sort of facet to it so I just don't see how this

could really happen and work and be robust in this in the time period of like a year for example um can you build something yeah totally you can absolutely build something and you can try it out you can see how it works and it might even work in production for a while but I think eventually you're gonna have you're gonna they're gonna be bugs they're gonna be problems like even distributed systems of protocols that have existed for years and we're like peer-reviewed end up having subtle flaws that people find like many years later um it's really really hard to get these things right and it doesn't you know that I think that's a that's a big challenge in

the space around security and that's something that we've been thinking about a lot and they're trying to figure out how to how to handle just because your system hasn't broken yet doesn't mean that it's secure and just because no one's bothered attacking your system yet doesn't mean it's secure and so what you have to realize is that there's a lot of code out there right now there's a lot of cryptocurrencies out there right now and there's very there aren't that many people who have the expertise to actually effectively evaluate these systems and also evaluating these systems is really time consuming and like and really hard and so um you know it's not necessarily in someone's interest to do it for you so what we're seeing is that there's a lot of code out

there there's a lot of systems out there that are very very broken and nobody knows it I really it's really fascinating to me that the that there are a lot of sort of these 51% attack right now like we all kind we always kind of knew like hey if you don't have enough hash power then it's possible that someone could just kind of invest a bit of money and 51% attack you and double spend but nobody bothered doing it until recently and now we're seeing it happen it's like oh yeah this is a problem hmm we should figure out how to fix this and it's like we always knew it was gonna be a problem it's just no one had bothered doing it and and and that there's just going to be more and more and more of this as things become more valuable cool no that's that's super interesting

now III wanted to zoom in on on on the lair to stuff a little bit more so you kind of hinted at that in your hackathon it seems like you had the impression that oh this is you know there's so much work to do and it's still gonna take a fairly long time so what makes you so much more optimistic and what is your kind of assessment of the current state of you know let's say something like lightning Network the reason I'm optimistic about lightning Network is because people are actually building applications on it so one of the people we had you should have him on your show by the way is Alex Bosworth who's building a bunch of stuff on top of the Lightning Network and his talk was super

interesting because he just had a lot of insights that were based on actual experience like running a website using taking lightning payments and and so that was really cool and you know you just he had done it he'd done it and that's what it's about it's like are you running an application that is using this stuff are you servicing real users and do you have real traffic and it's not like huge amounts of traffic but there were enough projects like Satoshi's place and y'alls and all sorts of things that are actually using the software that are like putting it through its paces that are finding bugs that are realizing you know hey it's kind of annoying to have

to have my keys online in order to like you know sign these transactions like what can we do about this like people are actually building and actually finding out what's going on so that's that was what made me hopeful um there are a lot of layer 2 projects like light he's been around for a long time you know and it's taken a few years for it to get to this point there are some projects that are newer that are that are still I think building and still trying to get to that point but it's all about real users I think it's all about people really using your system we're very keen to see and of course we did lightening it yeah I mean we did a podcast about lightening episode with Taj and Joseph Putin when the white paper came out and I remember we did a

podcast with Greg Maxwell and Adam back like in 2000 maybe it was 2015 or something like that and they had the opinion back then you know they said oh it's gonna take like four five months and he'll be live although of course we also had a thing like metallic on you know two and a half years and he was like six months and like Caspar and proof of stakes so it seems like you know estimating timelines in this industry is a challenge well there was one other thing we wanted to speak about before when it comes to research agendas which is this CK ledger thing can you tell us a little bit about what the ledger is into a problem it's trying to

solve yeah totally so um I mentioned that I think one of the fundamental challenges facing the space is sort of this tension between privacy and like having an effective working system so when I first sort of got into the space I was hearing about projects like Z cash and snarks and Lib snark and one of the research scientists at the DCI is madara's fears Oh who's one of the authors of zero cash the paper and and Lib snark so knows a lot about zero knowledge proofs and you know was really interesting talking to him and learning more about the assumptions baked into snarks what's your knowledge

of proofs could do effectively what they can't do effectively I think Zee cash is super cool I just went to Z con zero they have amazing technology they have really high-quality cryptographers working on this stuff and but the the problem that seemed a little bit open to me was oK you've got things like Bitcoin in which the transactions are totally public and then you have things like C cash in which the you know shielded transactions of which there aren't that many right now but you know assuming they were used shielder transactions are totally private and they really don't give a regulator or an outside observer any insight into the system and it seems like insight into the financial system

is actually really important and so we wanted to see we wanted to think about could we find a point in the design space that provided privacy but at the same time also gave the ability for a third party to sort of do provably correct analytics over the system to measure things about the system and so that's why we designed CK ledger it's a research project so we had a paper in n SDI in April and we presented it there and it's more of a design on top of a distributed ledger than an actual distributed ledger so we kind of like abstract out the ledger part but the idea behind the design is you said you have a set of participants they're all working together - they're all creating transactions transferring assets back and forth and these transactions that

you know a participant of a Marc participant might make a transaction transferring let's say like a hundred euros to someone else and the transactions totally private you can't see who's involved in the transaction but it's still publicly verifiable so everyone in the system can look at the transaction and verify that all of the proofs match up even though they can't tell how much the transaction is for or who's involved like they can tell that no assets were created out of nowhere they can tell that whoever's transferring the assets had the right to do so and that sort of everything balances out and then in addition to that a third party could kind of audit the participants of the ledger and run

analytics over the ledger so they can they can say like how much of this assets you have on your balance sheet or what was the average price that this asset traded at over the last month or you know what is the overall sort of distribution of this asset in this network so they can run these provably correct queries and so we designed this sort of like auditing system on top of the zero knowledge proof in the ledger to be able to do this and I think the part of the reason that I'm interested in the space at all is because we recently hired Gary Gensler at Mi and he's the former chairman of the CFTC

and he's working with us pretty closely at the digital currency initiative I think we need to like we really need to have a lot of conversations with regulators I don't think regulators know the zero knowledge proof exists and that they are could be like a really effective tool for preserving privacy and at the same time trying to achieve their their public policy goals like public policy goals are actually pretty reasonable it's like we want these markets to be to have integrity right we want to make sure that participants are like doing the right thing we want to protect consumers like these are reasonable goals public policy goals and I don't think anyone would disagree with them it's just you know it's it's how that regulation is enacted that can kind of

be problematic and so we really wanted to show that there's this technology out there that can help you in your quest to achieve these public policy goals called zero knowledge proof and here's how they work oh that's super fascinating I I'm just maybe one question on like how this actually works so you said okay let's say a regulator could make these queries and and and learn and and so easy gave the example okay for example like how much of these assets you have in your balance sheet so that doesn't seem like how is that preserving privacy or like what I mean what kind of is it does that like you know it's predefined what type of queries can be made upfront and then

it is in those areas that maybe some privacy's is given up or can you yeah it is that you can kind of get these aggregate answers about the system without revealing individual transactions so you never have to open up the individual transactions so so like you know I could I could say how many assets I have on my balance sheet without the regulator knowing that I got them from you or from Sebastian or like you know who they went through or what happened or who have been who my trading partners are basically so so the idea is that you can you can answer aggregate queries and the at the answering is voluntary it's interactive so it's not like the auditor can just like look at

the ledger and figure out all sorts of stuff on its own it has to be this interactive process and so there's always the chance that I just might not answer the auditor in which case they couldn't learn anything but the idea here is you're kind of existing in this system where you want to show you're complying with regulations also it's kind of up to the participants in the auditor to sort of define the acceptable set of queries so our system sort of only supports certain types of queries linear linear functions over the transactions you know we can't do arbitrary things but obviously you shouldn't like answer the question how much of this assets you have on your balance sheet like every five seconds because if you do that that's gonna reveal that's gonna end up revealing the content of the transactions but that can

be something that's kind of determined between the auditor and the participants so what are the interests for this project come from like where do you think that there are some practical applications where this could be applied you know like maybe today or in a few years yeah that's a great question um so we were kind of noticing that a lot of companies were coming to us and they were really interested in using blockchain technology for various sorts of things you know supply chains um all sorts of weird asset transfer sort of use cases but they were not doing it because they didn't want all the transactions to be public and then you have systems like Corte where the design

for how to keep transactions private is use trusted notaries or don't put them on the ledger so that means that they're not publicly verifiable so you're kind of like losing the whole benefit of blockchain technology in the first place so we kind of saw this like tension where people wanted to think about using these Ledger's but the privacy thing was just like a no-go like they were like no we cannot show what we're doing to our competitors like if you think about for example some people think that it's a reasonable use case to use a blockchain for supply chains but the members of that supply chain consortium are probably competitors and don't want to show all their data so so that's that's kind of where this thinking came from in

terms of use cases we're still sort of figuring it out it's a research project at the moment we have a paper coming out soon about how to potentially apply this to the asset backed securities market so that's something that we looked into a little bit and you know we're hoping if when we put that out people will sort of see that and sort of come to us with more use cases is that when speaking to these companies that were interested in using blockchain for these sort of like you know supply chain use cases or traceability use cases what were some of the other sort of negative connotations that they may have had about block chains that that these tools actually provide that tools like like ZK electrical lights I think like the top

two things are probably privacy and scalability but I I want to like be frank here I think mmm like the vast majority of the time watchings don't make sense for these use cases so so you know I think that they rightly have a lot of issues with using blockchain technology because they don't need blockchain technology they just need to run a database and and I kind of want to distinguish between blockchain technology and distributed databases like distributed databases are a thing that have existed they are you know and I I think a lot of the times when you're talking about permission blockchain use cases you're really talking about a distributed database so you know I think that's part of the challenge it's not

just like oh I can't use a blockchain because of the privacy it's like yeah you probably shouldn't be using a blockchain anyway it's one topic that we want to bring up here and that is a post that you wrote in September of last year so not quite a year ago about some of the vulnerabilities cryptographic vulnerabilities in Nyota that you discovered can you tell us why you decide to look into iota yeah um so I you know this started like early last year it was totally a side project so I want to make it clear we don't do this full-time um this was kind of a side thing and what happened was one of the people in the DC I was coming to us and was

talking about this awesome new project called iota and how it solved all of the problems with block chains my colleague tad got really grumpy about this and was there's no way that it does all this and I was like tad you say this about everything that might be true but you have to start proving it and so tad was like fine and so tad and went and looked at the code for iota and one of the things he noticed almost immediately was that they were using their own hash function and that it like it looked like pretty pretty weird and he didn't think that that there was any way that this hash function could be

secure so tajen noticed it and then he happened to be having lunch with ethan Heilmann ethan is a PhD student at BU who was starting a company at the time and ethan has done a lot of work on security and hash functions and things like that so Ethan saw this and got really intrigued and was curious if he could break the hash function using differential cryptanalysis so Ethan I think like the story is that he actually missed going to someone's going-away party because he stayed at home to like work on breaking this hash function he was so interested in it so II think kind of figured out a technique for getting

the time down to find collisions pretty low and then we the three of us started working together on getting that down even further and later on we started talking to Medeiros who's a really good cryptographer to see if he could find sort of a parallel technique for trying to break it but he ended up not doing that and so then the three of us were kind of working on it and we were like okay you know I wonder if you could actually use this to produce an iota they're called bundles not transactions but to actually produce bundles that collide and so we worked on that for a bit and we were able to produce bundles that we were able to produce two bundles

that spent money like different amounts of money to different addresses but hash to the same thing and thus had the same signature so that means you could use a signature for one bundle on another bundle so that's what we did that's what we were trying to show that we did and we did this in parallel with doing a vulnerability disclosure to the iota folks so Ethan emailed them and told him about what he found and they were skeptical that it seemed like they were skeptical that we could actually use the hash function collision to produce bundles that that that were this way they pointed out you know a lot of

checks in the code like look the the time stamp has to look like this and the values look like that and like you know it has to it has to and yeah those are constraints but I those constraints weren't enough to make it unreasonable to produce the colliding bundles the things you have to realize with with hash functions and and collisions and things like that is yes all hash functions have collisions but it's supposed to take you a ridiculously long time to find them and if you can find them faster than a ridiculously long time that's really bad that's really really really bad and usually if someone can find a way to get that time down even a little bit it means that

with more work you're gonna be able to get that time down a lot more like it's just a matter of time so we were able to get the time down to a point where we can produce colliding bundles on my machine like in less than a minute so that's you have any idea why they would choose to design their own hashing function and not just use the ones that you know everybody uses and they've been tried and tested for for decades no they've set a lot of different things about this I don't know I'm not sure why I don't think it's a good idea well so what was the reaction life the reaction was surprising and I think that part of the problem again was that we were speaking very different

languages so there's a community that sort of does vulnerability disclosures and understands the process for that right like you contact the team you give them time to fix it and then once you fix it you're allowed to share the story about what you did like that's interesting to people people want to hear the story and how it worked and what it was like and it's also like good for the team to share that so we were kind of operating under that paradigm and I think that the iota community didn't hadn't had a lot of experience with that paradigm and so you know they were confused about why we published the vulnerability disclosure after it had

been fixed well it's like we're not gonna publish it before it's been fixed because then people could use it to attack the system and we don't want that to happen so obviously you publish it after it's been fixed no we're not saying we found something new we're explaining what we did find that was new when we found it so you know the reaction was was surprising and I think it probably had a lot to do with a difference in sort of backgrounds or where we were coming from but you know honestly uh the yeah that it was it was a it was a very strange experience spend like a minute on on the action vulnerability right so let me maybe please correct me if it gets correctly

right so let's say in Bitcoin right I had that you have an address and there's a particular amount of or you know a big amount of bitcoins are kind of you know tied to particular address so then if you can produce basically transaction hash with anything but that private key right if I can generate somebody use some other key and create a transaction house that like matches that you get the same hashed and I could basically you know create a transaction move that money to myself submit it you know and steal the money without actually having the private key is that sort of what the situation was and how one could have used it or was it in a different way yeah um well it was really different than Bitcoin it's like it's like a

really different design so it's hard to kind of map it on to Bitcoin directly um maybe maybe like at a high level so signatures in iota are on the hash of the bundle so if so you sign the hash of the bundle and that signatures which shows that you know you know the private key that can that can spend these funds so if two bundles hashed the same thing then a signature on one will apply to a signature on the other it doesn't mean that you've cracked someone's private key and it doesn't mean that you can generate brand-new signatures on

anything it definitely does not mean that it just means that if you have a signature for a bundle so if you see like out there in the wild a bundle that is signed and you can produce a different bundle that hashes to the same thing you can just copy that signature over and it'll be a valid signature assuming you know that the bundle is valid as well so that that's kind of the attack does that make sense yeah okay so so let's say you send the transaction and you know you have relayed in the network I'm the first one I'm the attacker I'm the first one to get that transaction you know maybe I don't relay it

because you just connected to me and then I use this attack to produce my own bundle stealing the money and then sending it out with your signature into the network that sort of thing and I guess if you could get the time down to second or less then you could maybe be successful that yeah we didn't go all the way in trying to produce the attack and and just to be clear you know we never sent any messages on the iota network we never actually tried to do this attack all we did was produce conflicting bundles but I think the thing is you shouldn't even be able to do that like even just being able to do that is really bad so whether or not it's sort of like feasible to actually

steal someone's money with this is sort of a different question in my mind I think that we just didn't even try to answer that question we I mean I think that we could produce two different bundles that had the same hash that doesn't necessarily mean that someone's sitting on the network could like take any bundle and produce something else that would be accepted by the network but was bad like it's a that's not the case at all like this you know this is something that only works in sort of really special circumstances and it's unclear how often those circumstances happen but the fact of the matter is you don't want a cryptocurrency that has this sort of problem to begin with at all no matter

how like unlikely or likely it is like it's just really bad that this is that this is even a thing right and I think that might have been something that got a little lost in the in the communication yeah I remember following that pretty closely meeting your posts and responses and it was astonishing tested the anger and the vitriol and people like you guys are somehow you know half big financially interesting Nyota competitors and you want to see the eye or the price go down and there was all of these absurd absurd that was sort of like laughable actually because like I don't have any vested financial like I have no material

interest in crypto currencies and this is something that the and and like taja's the same way and to accuse us of conflict of interest was really surprising to me because we really like don't have a financial interest in this stuff like yes we work on open source software projects so does everybody and just because we work on open source software projects doesn't mean that we have a conflict of interest that kind of would COI out like everyone in the space we work really hard to try to stay financially neutral and and it was really like I was really sad that that that that was a story that was being carried around like I never worked on Z cash ir anything like that and I don't understand I really don't understand

where that came from I think um yeah I was really surprised about that so there's an interesting point so you mentioned you you're a financial neutral and in touch as well so I presume that means you guys don't hold cryptocurrencies we don't hold material ammonia we hold small amounts because I think it's important if you're in this field at least lay sure yeah yeah but ya know we're not like you know it's not the case that we are like all about a certain cryptocurrency or something like that and so do you think that's something that is sort of a general approach or policy or stance of the TCI and and and this is something you like require from people on the staff or that they make disclosures or how do you guys

handle that in general yeah that's a great question so um so I think there are sort of like circles concentric circles for sort of some of the core part of the staff people like myself and and Rob who works with central bank's you know that is true there are people who are sort of in out circles of the DCI who we work with who might for whom that might not be true for example Midori Rizzo was a co-founder of Z cash so his research paper ended up getting turned into that so it's not true for everyone in the DCI but I think that we try to make that true for a core part of it so so that's definitely the case and Joey Ito as well sold all of his crypto

currencies holdings and his his shares in companies that invest in crypto currencies when he founded the DCI so that was kind of baked in at the very beginning so we talked about funding much earlier in the episode but this is how does this tie in to funding and organizations that may want to fund the DCI what is your approach there yeah that's a great question so we're starting to sort of figure out our funding our funding philosophy one thing that is true is that we can take donations in in like the popular crypto currencies sort of the ones that are

traded on large exchanges we will convert them to dollars immediately we don't hold cryptocurrency at all and yeah that's pretty much it obviously MIT has certain rules on doing kyc and AML for taking donations and at the moment we're kind of aligning ourselves with MIT as rules for that but my question was more along the lines of you know projects that would potentially fund research that the DCI is conducting is there a philosophy or a policy around that there's that is that even so yeah should be discussed so one thing is we don't do sponsored research at all so

any project that funds us does so through the form of a gift so it's it's a there's no strings attached there's no sort of tit-for-tat we don't sort of do research for people necessarily if you want to fund the DCI it's it's like one it's like a one-time no contract sort of a thing which helps us stay neutral again another thing is we try to make sure that we're taking funding from a really wide variety of sources so no single source has invested a lot of money in what the DCI is doing when it comes to the actual projects that have given the DCI money so far it's mostly been large

companies and individuals like I said except for the initial Bitcoin dev fund and we're sort of still determining the filtering mechanism for taking funding in the future great so as we come to a close here please tell us about the things that you're looking forward to and then in terms of the DCI and what you think it will accomplish in the next say five years yeah so we're really excited about expanding the DCI I think that we have a really important role to play being a place that is really rigorous and that can can help kind of set the foundation for this new field like this this new field is really

exciting everybody has an important role to play large companies startups sort of new projects but it's also the case that like a lot of people in this field have like a financial stake in the game they're selling their platform or they're selling their token and even nonprofit institutions that are formed to govern or certain token are like usually hold a lot of that token and it's just like not the way DCI operates we are not we are not about that and I think that that's a really important role to play I think it's really exciting that this new area of study is developing we don't even really have a shared vocabulary for it yet like you know I don't know how you define what a

blockchain is but I think there are like 50 different definitions out there people are constantly saying different things we just don't have like the terms even site yeah we don't have like the methodology like one thing Joey asked me the other day is like what is a fact you know like what does it mean for something to be a fact in this space does it mean that like there's a white paper about it or does it mean that there's a blog post or doesn't mean that it's been like peer-reviewed like what does that even mean what does it take for something to be accepted by the community like we're still figuring all of this and these are the kinds of questions that we're thinking about here and trying to push the space forward another big part of what we do part of mi t--'s mission is service so MIT actually has

it like baked into its mission statement that it's about service it's about serving the public good and we take that really seriously within the DCI too and so a large part about what we think about is like how can we make sure that as we create the space as we create the framework around it that we're thinking about helping people and we're thinking about making the world a better place we're thinking about things like access and inequality and ethics like what you know what is the set of ethics that we want to have in the space we look at what's happening in AI right now with a lot of people talking about bias and sort of like unintended consequences like how do we use that and apply it to the cryptocurrency space so those are

like some of the high level things that we're thinking about we're also like pushing forward really hard with the layer 2 stuff and with work on privacy and digital fiat currency so more to come they're cool well Neha thanks so much for joining us today it was really fascinating to hear about DCI and all of the progress that has been made on that front and it's very impressive I think activities that totally agree that you guys are doing very important work and hopefully we'll do much more of it thanks for having me guys this is really fun and of course thanks so much for listening for once again tuning in so we're gonna have in the show notes you know links to DCI a few articles that we mentioned and you know kind of all the

things that people can check out if they want to learn more about it there's really quite a few interesting projects and research on there that you know I recommend people have a look at and of course we are going to be back next week and we have another episode in the meantime if you want to subscribe to the show you can do so in iTunes or any kind of podcast application or you can watch the videos on youtube.com slash apps on a Bitcoin and if you want to support the show you can do so by leaving us an iTunes for you that really helps new people find the show so thanks so much and we look forward to being back next week [Music] [Music]