DAPPCON 2024: Circles 2.0 - Martin Köppelmann

Transcript

I'm excited to talk about my favorite topic um circles so yeah talk will be about circles 2.0 um Fair money for all or uh how we can actually finally um bring that project to the Big World um let's start again with with the basic uh with the basis of um what circles is so circles is this ambitious project that says we want to reinvent money uh and we want to make it as as Fair as possible and yeah it certainly came as an inspiration um from Bitcoin and I already shared in my opening um that Bitcoin was inspiring and is is still

amazing but I would say Bitcoin still has this property that currently uh roughly 1 or 2% in the world own Bitcoin and it's not to me necessarily clear if the world would be in a better place uh if the rest of the world would also now start using Bitcoin those one or two% to whom I certainly belong uh would be in a much better place but again it's not clear to me uh how it would be um for the others so circles tries to be this project and says we want to have a decentralized um money just like Bitcoin but we want to have it um as fairly and as equally distributed

uh or as fair to all participants as as possible so those are the rules um you can anyone can sign up uh and from that moment on start minting start generating one Circle per hour or 244 per day and then trust connections between the people form and that essentially means that if you if two people trust each other they basically say I'm accepting your money you are accepting um my money and through those trust connections um uh yeah circles and and and payments uh can flow and we will go uh uh into that in in a little bit more detail yeah one Circle uh per hour

simple rule um there is a second very important thing that there is the constant issuance of new money but there is also to eventually come to uh into a balance there's also a constant yeah sync uh destroying of money or demor so essentially in circles all balances wherever they are are constantly slightly reduced by a rate of 7% uh per year and how that looks like on a graph um over 140 year life or or time span uh is yeah kind of that in the beginning you start or this is kind of

just looking at one individual person in the beginning it would start to issue at uh 24 uh 24 um units per per day something like 8,000 per year and it's pretty linear but then of course um the effect of the 7% kicks in so the old balances will yeah reduce and the New Balances will uh or kind of continuously New Balances will uh yeah will will will come into existence until it reaches an equilibrium where the total amount of circles in existence uh 7% of that is pretty much exactly or is will be exactly the same as um the issuance per year and kind of in this hypothetical

scenario the person dies when they are 80 and then they are sto issuing new money and basically their money will still be for some years in circulation but it will over time kind of disappear so how that looks like in a in whole network but not just looking at a single person the whole network will always converge against this magic number of um 125,000 143 circles times uh the number of people in the network so who are participating if that number at some point stays constant at some point also then this the total supply of circles uh will stay um constant here is another

way to uh to think about that so one way to think about circles is to say there is a global tax on all money um and this tax rate is at 7% but the taxes that are kind of Rise um or kind of created through that are constantly redistributed uh among all participants and how you as an individual participant um kind of um yeah end up in the system is that at this magic number that we just discovered this um around uh 124,000 um if you hold that amount of circles then quote unquote the taxes you

are paying are exactly equal to the amount of new circuits you are generating so your quote unquote effective tax rate um would be zero if you hold less than that you are getting more from the system uh so you have a negative text rate and if you have more than that all the way till Infinity your tax rate would kind of start to converge against um 7% so yeah again that system is is called demor and it might sound yeah let's say crazy or or or at least unexpected or or something we are not used to that that

that that this is how money works but actually it's not that different from how Fiat money works so in Fiat money uh yes you still have you can hold your $100 and in 50 years it will still be $100 but uh through inflation and through money expansion the value of that uh of those $100 will yeah go dramatically uh down so so in in total the effect is is is very similar um money if you just let it sitting around will kind of over time um be devalued and I would say the demage is kind of in a way just a more explicit or maybe even

more honest way of um yeah of of of doing that right so now you might argue why would I why would I join the system why would I not join a system um like Bitcoin where I don't have to pay that um tax and I would argue um there is no such thing as a as a trustless money um because you are always you are always dependent on so or money in general is a social construct if you are alone on an island it's totally pointless to have money so money always depends on that

other people around you kind of also believe or or kind of join that social contract and quote unquote honor that social contract and in the case of Bitcoin you hope if you buy it today you hope there will be someone um who at a later point will um will buy it from you now that kind of requires that people who are new to the system um and don't necessarily have an incentive to join that system um would still yeah essentially join the system and and want to at some point acquire Bitcoin and kind of a little bit uh

um uh yeah kind of a cheeky way of saying is that yeah I mean the Bitcoin holders Mex believers they say they they kind of are in this mindset I just need to acquire Bitcoin now then I can wait uh a long time and then I will automatically be rich and that I mean that in itself already shows in my view that the system is not necessarily sustainable because obviously that is that is some uh Behavior or kind of economy well the world doesn't get rich from people um one time buying something and then doing nothing that's not how wealth is um is actually actual wealth is created still I don't want to be uh too critical of Bitcoin I think I I think it has its place and I just want

to say it's not um replacement for circles and those things are complimentary here now I want to show you um a nice project that you can kind of try out um in yeah in person here uh next next I mean here um there's a circles Booth um and we are um yeah selling or or having this donation campaign um where whoops sorry I want to go yeah um this donation campaign where you can um acquire this nft um the amounts the we will also kind of donate um the

amounts or kind of a similar amount of Euros to nonprofit Foundation give directly that supports U but that's just a side note um it is more about kind of understanding how circles transaction work so here um this bottom or this this dot here is the um the the receiving contract or B basically the um yeah um the um we call it organization that accepts circles and and here each of those uh each of those dots is a person that had um donated to it and here the green one is Fredo who did the yeah previous donation and here

you can see kind of the trust Network so here in this row you find people who are directly trusted and essentially we that's number of people I think who were previously already at Decon um that that this account here trusted so basically this account says I'm accepting their circles but those people they trust let's say those people and those people trust trust those people so in that case this person was trusted by that person and that person was trusted by that person and that person but that and that and so on and so finally the the the circles flow through uh 1 2 three four yeah four Hops uh until um they reached

their destination and we will explain why why that is super um critical um again totally encourage you to to try that out uh and you will see a nice life animation um here just looking at similar thing so I we have this graph Explorer and I just for the fin of it checked out the path between vitalic and this nft tree project and yeah if he would donate then um yeah one of those passes um would would be found why is that important um because it is the core mechanism uh of circles to prevent um civil attacks and so again reminder Cil attacks means simply okay

if anyone can create an account I can create many accounts and um in this example Ellis is the attacker and Ellis is actually creating many accounts so here fake account one two three and so on um and here is a shop or or just in general here is the quote unquote honest part of the network and Ellis is trusted by um by by that shop and that's all fine and good so Ellis is able to spend her Ellis tokens um to the shop initially those uh let's say this fake account is also able to spend at the shop by sending fake tokens to Ellis and Ellis will send Ellis tokens um to the shop and that's the really important

part that the shop is only accepting Ellis tokens um so that means as soon as Ellis runs and this is already the example here as soon as Ellis runs out of her personal Ellis token um then this connection is no longer existent so now of course this this this fake token here could still be sent to Ellis and Ellis would then have or maybe all those fake tokens all those so in total 250 tokens could be sent to Ellis but none of them are spendable in the in the real Network so yeah just creating fake accounts and trusting them and maybe even trusting them with each other

or kind of creating more and trusting everyone will in no way harm uh the real Network um which is over here cool so now let's make a brief look into the past and then go into the future what what uh comes next so circles is is an idea already 10 years out old but it was launched uh in 2020 so almost four years now and it was it started with a with a big uh success uh and big went viral So within hours it went from this to this and within weeks it looked like

that so but then yeah it very much um fizzled out or um or the numbers of uh here's distinct users trusting uh each other per week yeah kind of went to almost um almost zero this by the way by the way was a random project I have no to this day no idea who exactly or what exactly that was was um yeah Chinese project I never really understood what it was doing but it was building on on circles in some form um anyhow um so after again this early hype moment we there was circus activity but

it was very small and very local that's what it looked like and was very nice uh we had here an interesting Community um in Berlin but still um yeah it didn't um it didn't uh had really a reach um uh into the world so again that's we had like very local markets nice communities but but but it stayed really really small so now the question is what can we do um to actually enter quote unquote um the big world and yeah had a short uh discussion uh with withal about that and

and clearly Capital uh can make a big difference and if it requires 100 million we need to find a way to get 100 Millions for circles um just to give you an um yeah view of what entering the big world uh looks like more than kind of the pictures I just showed you that's like entering the big world but that's certainly also not exactly uh what we want so if you if you go through Bon uh you find in in in many places kind of those huge ads and banners and I mean you probably know the the orbs um so I'd say on the one ex on the one side we

have the extreme kind of this very local very uh nonprofit very small and on the other side we have the extreme of well big big Tech uh Silicon Valley startup hundred of millions um yeah kind of penetrating uh the world as I like to say um so can we find a middle ground can we find a way to get sufficient um resources behind it to be able to yeah really scale and or really get really make a difference essentially in the world um but without uh compromising its core values and to some extent the fairness that is so important uh to us

in circles is a challenge because um there is not necessarily someone who has a direct immediate or kind of huge um Financial incentive in circles so again in the in the world coins of this world of course there is a quite decent um yeah investor team allocation so of course there's a huge incentive and huge money can flow in to uh to make this work work in something like Bitcoin again I mean there was not necessarily investors but the early early Bitcoin holders again had a huge incentive to um to grow the system so how does this work in circles because yeah again it tries

to be fair so yes everyone gets their fair share but no one gets so much that they would really uh um uh push it so how can we solve um that problem and my answer to that is um while circles at its core uh I would not compromise and and and would keep uh keep the way it is as a public good or kind of in in the ma maximum possible Fair way but of course there are different um different entities uh that can build things around it or on top it or that can very well uh take a fee and the first the first thing is already a

chain so at this point circles is only I mean circles is in principle an idea it's not tied to Nosa chain but right now the contracts are on on on on nosis and in that sense nosis is the first entity that would have an interest in circuit because simply lots of circus users means lots of nosus chain users who are paying uh transaction fees um the second one is wallets and I'm definitely suggesting that wallets should simply take a fee so out of the 24 if if if there's wallet that integrate circles and you get 24 um circuit a day I think there's absolutely nothing wrong with the wallet simply saying okay one or two out of those 24

circles um that you get every day we immediately take um as a fee and again that's of course a mechanism for the wallet to have a well big interest in getting circles to many users and making sure that those circles uh have um have a value and we can do the same thing for invites so if I or if someone trusts or kind of invites new people to the system we could actually do a similar thing that this new person by default um uh gives some part to the wallet but also some part again maybe another one out of those 24 circles to the person that invited them maybe for the first one or two years and those things I think it's important that they are not

in the core protocol but absolutely they should be used because we need those incentives and we need people who spend large resources to uh make all of that happen so I am uh proposing um yeah in a way to no ST uh to do a 30 million um investment in circles buying circles and I will in a way now switch uh switch my head and uh kind of argue more from a um Dow perspective why why out of a out Dow perspective that is interesting uh first how to not do it so kind of just injecting Capital does not

always certainly certainly doesn't um or certainly you need to inject uh capital in smarts in smart ways so absolutely no or absolutely I I really like and respect all other projects that are working on uh on on on on Ubi and that was uh one of them the Ubi token but yeah so that's how we certainly that's what we certainly want to try to avoid how a circle price graph um could look like so what I'm proposing um and there will be a detailed proposal is roughly that nosis is now in a position and or in a situation I went over that already

in my opening that we have a range of projects um from yeah nosis pay CS things like EST europee um money markets um in a in a in a yeah I think well we are at the stage where where we believe those products are uh good and interesting and we should um we should now really focus on users and and and and and getting users in and it's a simple thing to do or the obvious thing and people have asked us already to do it for for example for something like nosis pay yeah you can of course use G incentives and do some form of cash back or or something like that and what I'm arguing is that we can do it even more efficiently we can say um we are not

directly um we are not directly uh giving giving gno out but instead users will automatically be or kind of that's at least the default that users are noses will yeah be guided or invited to immediately become circles users so they will more or less automatically get some circles and then if they use deps then that will essentially allow them or that that or kind of no Dow will set up in many way uh in many different ways uh schemes to then buy circles from those users uh for yeah for Geno and that of course makes um that of course provides an additional incentives

for the for the users to to use those apps or come even to the chain it also helps in um making sure that we achieve one of our goals that we want users of the chain to be also um owners of the chain but for for the Dow of course that can be in many ways interesting because yeah more more activity on the chain will generate more fees and kind of the Dow partially also has ownership in um in in in in in some of the apps um so yeah uh that is that's a um that is my proposal and we'll write that out in in in in in much more detail and share in the

Forum so much for the nosis perspective switching back or maybe one last slide so again a reminder or already in the opening talk but we um hopefully many of you have already seen we released this wallet metri that is trying uh to combine all those things and be a portal for users or kind of a thing for users to uh to to enjoy that and to um yeah kind of become circles SL nosis user um switching back to Circle head um so yeah we we we we hopefully get this

um project going with with with NOS Dow but of course that that is only one way to uh to to bootstrap things so we need of course midterm and long-term other ways to make um circles uh sustainable and here is um one important um yeah uh contrast and that's the contrast between resilience and efficiency so resilience and circles has in initially maxed out on the resilience side so resilience means uh that the system is built in such a way that um yeah some part of the system here should not affect another part of the system here and that is given in circles

through the thing I introduced earlier with with a Cil attack um protection and that is yeah very important and very nice it comes of course at the downside of complexity and many of you might have already experienced that that you want to send then Circle someone and it uh somewhere and it doesn't work it says no capacity whatever you don't even really understand why it doesn't work um and that's kind of quote unquote too much resilience in on on the Other Extreme you have yeah things like let's say yeah again worldcoin where there's only one way to think about it is that everyone is is there trusting everyone as soon as they do this or thing um which of course

means if somehow somewhere uh someone finds a mechanism or way to to game that system and create uh tons of users it essentially affects the whole system and can take down um the whole system so uh yeah so by in when it works it's it's more efficient and and and much easier but again way less resilience and the um the missing piece that we are adding uh two circles are groups so um in circles again so far it's just peer-to-peer trust but we want to establish many many groups um and allow also kind of you to trust a group or or kind of be

automatically trusted by by a group so that makes in a way um yeah finds in in our view the middle ground so how does this concrete look like we will have an app where it's very easy to Define your own group um and then uh we can of course also support uh those groups um in specific ways um yeah working on a nice program that those groups can also become local validators of the chain or have some in some places their yeah let's say dep nodes running um those those rewards uh can also be some factor that that stabilizes this group currency or kind of provide some form of income or Reserve um for the group currency

yeah so more more on that there's a second or a third Pro uh um concept and that is very similar to Regional currencies that have existed for a long time many in Germany but also Bristol Bristol pound and in Switzerland uh and how they usually work is that they are very closely tied to the to the Fiat money because ultimately for for shop of course it's it's a big ask or a big pain to say um I mean even just account wise and TX wise and kind of to say Okay I I I accept Euros but then I also accept this other thing and uh so how Regional currencies often did it is that they more or less uh created and they found

also ways to do that legally and kind of part of the regular economy quote unquote they found ways to say okay we are creating a yeah let's for now call it just Berlin Euro um that is meant to be one to one a Euro but it can in a way only be spent low locally uh in in in berin and only with people who are participating in the scheme however everyone who is accepting that Euro uh this is Berlin Euro has the option to say if they are not able to spend it because people who are their local are not offering what what this person needs then you have the option to exit quote unquote so essentially get quote unquote real Euros uh but that

comes as an with an exis exit text of let's say um 10% and that of course encourages if you can you are trying to spend um that money locally and again this is something we can and should replicate in circles so if we have um if we have uh those groups that I described previously it's quite easy to uh to create essentially the equivalent to those um uh Regional currencies cool I want to end um the talk with just some um yeah technicalities um we are working or we have almost completed uh new contracts

so right now if you're using circles you're still using the the contracts from 2020 and they had they were not perfect um they had uh a bunch of um smaller bigger problems um and we are trying to fix all of them um and there will be a yeah migration process so circuits as a system will completely be be continuous so all balances all trust um is is is meant to be yeah to be taken over to the new system but for those who are a little bit deeper uh into it um few points so yeah those group currencies maybe some of you remember last time Decon where we already kind of uh tried uh to explore with that or use

that as humans of nois token but it was a big pain because was not really compatible and had different do denominations and just hard to use and now group currencies will be natively part of circuit you can also explicitly trust uh group circles and they are um interchangeable in this um in this trust graph the storage uh versus inflation will be native that's was another point of pain right now that the balances you see on the interface are actually different from the balances um on the blockchain because we do this demage only in on an interface level um there were some flow constraints that lead often to a situation that you cannot send someone uh circles even if they trust you um then happy news for

everyone who has an old circuit account that is probably Frozen because in the old rules if you wouldn't uh mint for at least 3 months then your account was permanently Frozen many of of those um who had a circuit account in 2020 might be in the stage good news um you just have to wait for the for the release and for the 2.0 release and then um your account you can keep your account with trust connections and it will start um um producing um yeah circuits again uh and last thing technicality again uh in the previous version we had lots of ec20 tokens um now we using 1155 standard but uh not not not not so important cool I

want to end the talk and say yeah we believe it is time to bring Fair and decentralized money to the quote unquote big uh big world and we believe we are uh prepared for that thank you very much thank you thank you Martin it it can sometimes be lost that money is a form of speech so thank you for your great talk we have a few moments for questions and right down here at the front thank you Martin I want to ask about if there is a possibility to bring privacy given the graph if you can compute in a privacy way and maybe a stupid question why 7% uh we know 2% inflation how is

that calculated right so maybe starting with the with with the 7% question um actually if you look at the um the expansion of money so if you just look at the dollar let's say over the last 50 years and you calculate the average increase of money supply from each year to to the next year then uh it is actually 7% so um so it is more less taking the parameter that is somewhat working or somewhat really well working of course inflation um is was lower for for for a long time and or probably also

will be lower uh than 7% but that is uh that is because um yeah just more more more goods are are produced so if if every if every year also 7% more Goods would be be produced then I mean again very simplified Mass but then let's say inflation would be zero maybe uh growth was only again super simplified Mass 5% so inflation is the difference what that would mean for circles is that uh it's quite possible that the value of a circle of a single Circle uh will actually go up over time your your second question um privacy yes um there are at least two things to it uh

one is right now everything is public it's it's public the trust graph is public but also all kind of payments are are public the quite quote unquote easy part would be to make um payments uh private doing the trust graph uh also private is much harder but certainly possible and there are people um uh researching on it with groups it becomes significantly easier to add privacy because if you have um yeah because essentially if you have a group currency um you have a single currency within that group and

then you can just use establish established um yeah privacy pools where people um within that group um can yeah transact privately or maybe if they um if they want to transact across groups then you just see someone out of this group transacted with someone out of that group um but but not more details we have also here um prototypes or even at last stepcon or yeah there is a project called um Bermuda Bermuda Bay uh working on on uh exactly that and even have integrated that with circuits we had another question down here yeah I I have a question about the

social aspect of it how how do we penetrate these big people how do we get into into into them right is it marketing is it people in the in the field or or just multiplying Pilots how do you get to the people mhm yeah I mean yeah the tradition here is that um we are um we are actually trying in in in that proposal I would say we should try to get nosis products to the people things like nosis pay and initially use circles quote unquote just as a way uh to um yeah to get extra benefits so I mean again a very simple example is is

uh um the pay uh um uh product where people often enjoy things like cash b or some form of reward um program so I would say shortterm that can be a totally valid um Tech um but of course there need to be many ones so the second one I mentioned here was um uh groups and and essentially making it very easy and also allowing very different forms of of of groups or communities to uh to start in in in different places and maybe also with very different approaches um and and essentially try to feed those where we see that um organic activity um is is merging in principle I would say um if

Circle somewhat works it's very very easy to grow it because I mean who doesn't like free money I mean or or how I we we um once did a test with with with a jet DPT to create a marketing phrase or kind of agents to create marketing phrases for circles and they came up with what's better than free money free money every day so yeah we're unfortunately out of time please you can find Martin uh outside and you can talk to him personally thank you so much Martin for your great talk