EB112 – Casey Kuhlman: Permissioned Blockchain And Disrupting Industrial Application Design

Transcript

hi everyone since this episode is about ays Industries I did want to point out that Brian does work there although the most of you probably already know that uh in order to stay as unbiased as possible he decided that he wanted to sit this one out so I'll be doing it with mayor our interest and our desire to interview ays is in no way influenced by Brian's position there we are generally fascinated by what they're doing and as we do every week uh we try to bring you the most informative and interesting interviews with uh people working on fascinating projects and startups in this Bitcoin blockchain cryptocurrency space and this is in no way different than anything we do every other week so with that I'd like you to sit back and enjoy the [Music]

show this episode of epicenter Bitcoin is brought to you by high. me protect yourself and hackers and Safeguard your identity online with a first class VPN go to high. me/ epicenter and sign up for a free account today hi welcome to epicenter Bitcoin the show which talks about the technology projects and startups driving decentralization and the global cryptocurrency Revolution my name is Sebastian K and I'm M Roy today we have a very special guest joining in from Aris Industries uh today we'll be talking to Casey kouman who is the CEO there uh we we'll go through we'll talk about themes such as smart contracts business process automation what is trying to do Etc but

before we start perhaps it's best we have an introduction from you Casey tell us a bit about your background sure thanks uh my background began um I'm American and I I did uh a little bit of Engineering in a former life but instead of uh building things which I was sort of destined to do I decided that might be more interesting if I went the other way and so I became an infantry officer in the Marine Corps um after that uh then I decided instead of um a very aggressive uh background maybe I should uh go explore the other side and and became a hippie and a ski bum for quite a while and did a did a decent amount of writing after that I

decided that uh being a ski gum bum might not be uh the best career choice so I ended up going to law school um and then instead of uh doing the big law firm and big corporate firm which a lot of folks do I ended up uh going to Africa and working in the intersection of uh legal development uh and uh sorry International Development and and the legal world so I worked at uh war crimes Tribunal for a little while and then afterwards I uh was in the West Africa and uh sorry in East Africa and there I was uh responsible for running a project for for a while and uh then I ran my own law firm uh in the Horn of Africa for

quite a few years after that I took a job as the head of Legal Information Systems for the US Open data Institute and then we founded AIS wow so that's that pretty much spans the spectrum of human activity right from engineering to the Marine to studying in law school to being a lawyer in Somalia and now to the CEO of Aris Industries so like when and how did you get interested in this in smart contracts for the first time sure I I don't actually remember how I stumbled upon it but uh it must have been in late January or early February 2014 I was uh I had been researching for a long time uh the intersection of Law

and Technology particularly this idea that we could have computable contracts um and uh and so it was in the course of that uh research that I stumbled upon at that time what was just very theoretical the ideas uh that eventually ethereum ended up working on and building and so they were they really captured my imagination coming from a a legal and Tech background uh which I was in at that time so um you're uh you're Brian's boss how was it like working with Brian I mean I know I I I know I know how he is working with him as as a

colleague but how is he as an employee really as an employee um he's not my worst employee um so that's uh no I actually love working with Brian I must say uh he has a a super strong conception of what this technology can do uh particularly in industrial applications and he's uh really helped uh bring our bring SS to the next level in a lot of ways I have no doubt uh yeah no I was just I was just joking about that um so yeah well let's Dive Right into era so please describe I mean we we had Preston burn on before that was quite a while ago and I think things have changed quite a bit since then um can you uh tell us about ays uh you know

generally and what the Company's trying to achieve sure generally what we're trying to achieve is is to be able to make this Tech usable in an industrial setting and eventually in a govern it setting but uh we want to start uh particularly in an industrial setting the the most easy way that I can describe uh Aris is as a blockchain operating system so it's a base platform which allows uh use of various blockchain designs uh particularly focused on those which have a smart contract machine uh in them but uh not not exclusive to that uh and we we really open up uh this technology on a

on a on a wider scope than a lot of other blockchains uh companies and so how how has ays evolved since I guess last year when we had Prest on I mean back then you had a specific technology stack and it seems to has have evolved since then uh in fact you were then using ethereum as a consensus mechanism and now you've switched over to Tender can you talk about some of the changes that has been through since uh since its conception sure so we've really been always exploring two things uh for those that uh are are unfamiliar with the Genesis story of arys Industries we came out of

a bounty uh in the summer of 2014 when Olivier yansen was uh interested in a uh Suite of software that could replace a the decision-making processes of a foundation and at that time what we there were two technical problems that we really needed to address in order to get at that number one was at the Smart contract level of what does a suite of uh smart contracts that t that uh work on Collective decision- making what does that look like from an architectural perspective as well as a tactical implementation perspective so that was one set of challenges which we uh were working on at that time and we're still

exploring this idea of packages of smart contracts uh is is still embedded within the ays platform the other thing that we had been needing to work on at that time and still are uh chewing on is this idea of being able to merge uh different distributed protocols and to be able to provide a harmonized interface that one can use uh in a very simple environment such as your web browser um a and so the ays platform uh has evolved significantly um and one of the things that we've really been uh has been our overall design goal is to build these systems so

that they are much much more modularized a lot of blockchain designs in in our opinion are very monolithic in how they uh in in the software stack they're uh dealing with and we think that a more Unix modular approach is uh is more beneficial so in the early designs when Preston was on uh last uh we had a little bit more rigid than we would have liked uh stack that uh but it it did get at these two ideas of uh moving uh information uh across distributed protocols and or harmonizing information that you get from uh various distributed protocols along with uh working at the at the Smart contract

level so you mentioned that uh like one of the two ideas that you were pursuing is uh you wanted like a harmonized lack of a better word harmonized user interface to a lot of different distributed protocols like some system where I could basically interact with a lot of different protocols and achieve some goal um now the question is um what are the kind of protocols that you're looking to harmonize with and what are the kind of components that you think are needed to achieve this great so one of I think that there's two main protocols which uh two types of protocols in which it's interesting uh to explore in this area one of which is

a distributed file storage system and those uh you have there are uh numerous options for uh what one might use there of course there's uh IPA ipfs uh there's bit torrent and and uh other distributed file storage systems uh that can uh that can be used on the one hand on the other hand you have Smart contract and blockchain protocols and and for us those are the two main ones in which we have focused uh others have focused on the peer-to-peer messaging layer as a third major component um and I think that that is viable for for many applications as well so can you go into a bit more detail as to what the AIS stock looked

like what what are the different components uh of the AIS open source technology stack so so AIS platform is really a about docker orchestration uh and we we feel that Docker has been able to provide a base framework uh on which a lot of different distributed computing uh can be built and So within the components of ARS we have uh the idea first off of uh of services and services are something that you turn on or off in the AOS platform uh these would typically be if you wanted to if you needed to connect to a public block chain or a public

blockchain backed Service uh you can do that with one command in in the ARs platform uh and then also we have the idea of Aris chains which are sort of our Gateway into the relatively complex world of permission blockchain designs um as well as we have uh smart contract management functions uh built in uh as well as a uh capability and wrappers around working with ipfs which uh we think is is one of the most exciting uh file distributed file storage protocols that's come in the last few years and and you mentioned that you had components there that would allow you to

interop interoperate with other blockchains um so we this is a topic that perhaps we'll cover a bit later uh when we talk about permission blockchains but um can you talk about how that works and and why could be useful for an ays blockchain to interoperate with say a a public blockchain like Bitcoin sure and what specific use cases you might see there yeah interesting yeah so a lot of folks are uh interested in uh being able to build process-based logic uh which can be then uh used with a payment system and so the way that you would interact with that is you would have a a middleware uh which would be uh capable

of talking to both designs uh via their via their apis um and then when something happened either in Bitcoin where you would set up Watchers for example someone makes a payment into uh into a specific account uh then what could happen to the smart contract layer is that then a uh file could be released to them I mean essentially this is very similar in nature to uh one of the things that ethereum has explored with or well consent systems has explored with ujo music or uji music I'm not sure okay I think another interesting use case would probably be for you know document

notarization where you want to have a public record on the blockchain of of documents or data existing time stamping basically yep that would be another very valid use case so when when you started building Aris last year um I remember distinctly that you had the approach of trying to build your own blockchain you had uh folked ethereum at that time and you had this had had a like a blockchain design that you called Honus and over the past year I've seen that you have kind of moved away from that direction of like building and perfecting your own blockchain design into the direction of uh using tender

and their consensus system as your blockchain design now uh what was the motivation behind this Swit and uh how did that go uh the motivation behind the switch is Ethan once said was uh do we want to rely on 30 Geniuses or one genius uh for for upstream and uh at that time uh we had been ethereum was a very very fast moving code base at that time and and it was a real challenge for us to maintain a an upstream project that was being significantly redesigned uh on a weekly or even monthly basis our goal with what

we are trying to do is to be able to bring permission uh smart contract machines to the market now this requires a few different uh modules when you're looking at building a a blockchain design you have on the one hand the virtual machine which is tied to uh the base blockchain uh then you have the consensus mechanism or module which uh which then uh makes sure that all of the clients are looking at the same thing uh and then you have the signing component uh of a blockchain design and what we've always been interested in is having as much modularity here as possible um and so the we felt that number one the

tender uh consensus mechanism made a lot more sense in a permission environment uh than what ethereum had been working on at that time which was just a a fairly Bas proof of work uh algorithm and when you're in the land of permission blockchains proof of work does not really make hardly any sense uh not nearly as much as proof of stake uh does on that on that side tenderman is pretty much the fastest and uh most widely regarded proof of stake uh 2.0 system we could call them and so in that regard we we felt it was a good base uh consensus mechanism uh on that hand and we also

felt that the ethereum virtual machine had a lot of uh Community Support behind it as a virtual machine smart contract interpreter and so what we've tried to do and and I think you know is to harmonize those two strands let's take a short break and talk about high. me have you ever tried watching streaming TV from abroad if you have you've probably been greeted with an annoying error message written by some IDI lawyer telling you that you have no rights and you can't watch this program from outside the country this used to happen to Sebastian all the time when he was in lonely France trying to watch his favorite moose hockey game in Canada and you wouldn't believe how angry he got that's where most of his gray hair comes from with high. me this painful phase of my life is now over

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connect up to five devices so your whole household fits on the plan and you can use any of their exit nodes all over the world and they've got like 30 of them and of course you can pay with Bitcoin so give it a try we would like to thank K me for their support of ENT Bitcoin so now one of the big differences like like you mentioned that proof of work doesn't make sense in a permission context but proof of stake might and ethereum is now also moving into a proof of stake concept and at the Devcon I saw that there are many other groups that are wanting to build permission like like permission blockchains based on ethereum's design so um so I mean in the sense that in the

future we might have designs that permission blockchains that are based built off of tender and then we have um blockchains that are built off of Casper and uh could you explain what what what the difference between these two will be in terms of settlement finality are the main main differentiating factors between these two ideas yeah so the the main what everybody is going to it seemingly within the smart contract space with their blockchain designs number one and and this is an important point to bring out I think is to move consensus out of out of process which means not within the main core blockchain uh client

itself so consensus in uh in the way that rsdb will be just after the new year uh it runs as two separate processes you have the main rsdb process which then talks to uh a tender consensus engine and the only thing that the tender consensus engine is worried about and concerned with is me is the consensus portion of this seemingly ethereum will be moving in this direction as well we see that uh the and maybe I'm not exactly right but the delegated witness project coming out of Bitcoin is also exploring some of these ideas if you look at it from a particular point of view uh that's how we see it at least and so so if you have

blockchain designs which start to move consensus out of uh where the application stack is as we call it uh then you have uh you you open up more modularity and options for folks now one option will be most likely uh Casper will be built as its own uh process engine in a very similar design pattern uh to what we're uh prototyping and exploring right now uh with the way that uh ssdb and tendermint will work together um and so you'll have two different consensus engines that will both be proof of stake 2.0 um and both will be very very interesting the main difference that we see is that Casper uh has taken certain design decisions

vitalic and Vlad have taken design decisions really around this idea of optimizing four public blockchain so at eth Devcon I I I wasn't there but uh I'm pretty sure I saw from some of the slides at least uh that that Vlad was very clear that this his design choices have been me meant for a public blockchain in other words uh he has uh less he had he Casper comes to finality but not uh before blocks are published and and so that's something that uh seemingly makes a lot of sense if you're in the land of public blockchains if you're in the land of permission blockchains though in industrial applications the last what you don't want to see is a a little bit of a uh

unknown period And so in that context what makes more sense at least for us and our clients is that is to move essentially the the negotiation process among validators to be to during the block creation process rather than uh exp poost when a block is is published this is the major as I see it this is the major difference between uh these two protocols as as Jay and both and Vlad both admit uh Jay favors consistency over availability in Vlad favors availability over consistency and what that means essentially is where do we move the valid dator negotiation

process is it before or after blocks are propagated throughout the network right okay well what's interesting here is is idea of modularity that you mentioned earlier where essentially you the the database part The Ledger part is completely decoupled from the consensus part and as more consensus algorithms start to emerge and more Ledger Technologies you know we we have the ability to construct a system that you know serves specific business needs based on you know what these different uh Technologies can offer so I think it's sort of a a um it shows that the technology is sort of maturing in that sense would you you agree yes 100% And one of the things that we were really exploring with felonius going back to

the very early days of what we open source with ays was this idea that consensus is a little bit too rigid in Current blockchain Designs and we wanted to uh work on opening up more experimentation there as well as more optionality there because you know people argue relentlessly about con uh uh about consensus and and fair on them for doing that but uh but it's a little bit awkward for a blockchain design uh to have to go all in on a consensus when you could potentially give some optionality to your users as a blockchain

designer okay so let let's talk about permission blockchains for for a little bit um personally uh so I'm working on this new startup project now called stratum which I've mentioned before and uh we're using permission blockchains to do certain things so and we're also using you know the Bitcoin blockchain for for other types of things uh and one thing that I find very difficult and very challenging is explaining to people what blockchain technologies are and how they're useful without first explaining what Bitcoin is is and how Bitcoin sort of changed the way we think about consensus and such

um I'd like to get your thoughts on on this is is it possible to explain permission blockchains without having to explain Bitcoin essentially it's the question of you blockchains without Bitcoin which people seem to be talking about at this time and uh and I guess my followup question would be how are blockchain Technologies permission blockchain Technologies useful for industry great questions I spend many of my days answering this question so how I explain it is generally I do not start uh necessarily with Bitcoin because when you're in the land of permission blockchains it's actually a little bit easier to start with traditional data and Process

Management Solutions rather than starting at uh at Bitcoin so generally if we're looking at data management and Process Management Solutions uh you'll have a spectrum which will get set up where on the one hand you have uh traditional uh Solutions which are currently maybe distributed but wholly under the control of one Enterprise and then on the other hand you have fully public fully decentralized uh blockchain Solutions and then you have permission blockchains which are somewhere in the middle and so I generally start with this idea that what we're really talking about here with permission blockchains and smart contract technology is is business process Improvement software now there

has been a lot of business process Improvement software that has come up over the years one need really only walk down uh the terminal of any modern airport uh to see uh advertisement after advertisement of Enterprise uh software that is really about business process Improvement but the challenge that that software has had from a strategic point of view is that it cannot really be brand on metal which is outside the control of one organization in order to have the verifiability that one wants and with smart contract technology what we have for the very first time is an ability to build business process

automation software that cuts across different stakeholders and so that's generally where where I begin when I'm talking uh with with folks that's uh very valuable I might that I might use that when I'm explaining blockchains to people um okay so if we're thinking about business process automation then um what is in your opinion the greatest value that blockchains can provide specifically on business process Automation and I guess you know it's the question regarding industry here is what uh H how can it improve business automation business process automation when

multiple parties are involved in a process well that is the that's the sweet spot for uh really blockchain and smart contract technology is yeah exactly it's it's also one of the biggest challenges if you're looking to uh to to Really enable this within Enterprise so it's a double-edged sword in that sense and we can get to some of those challenges later uh hopefully but the the the winner is uh right now business process automation stops as I say at the glass doors of the Enterprise in other words there is a whole bunch of automation that has happened uh around business

processes but those are processes which are internal to a company have been automated now where if you were talking about multiple stakeholders in a deal so let us talk about a a a corporate bond scenario let me say just to pick a Finance use Cas let's go into an example here because I think you people need to wrap their heads around really what this looks like when you have three or four companies working together and how they can implement this yeah exactly so when you have a a corporate bond for example H you have multiple generally you'll have multiple Banks which are underwriting the bond or initiating the bond one can think of uh and then you will also have multiple parties which

will be uh involved in the administration of the bond so you have calculation agents trustees and other parties uh involved in the administration of that Bond over its lifetime you also have the bond holders who generally will have uh some rights and responsibilities uh about this financial instrument and finally you will have the company which issued the bond uh involved in a scenario so so what you're looking at is instantly uh multiple parties uh and and a big range of stakeholders and various outcomes which might be needed uh based on what those stakeholders rights and responsibilities are the way generally

that this works today is that folks uh are able internal to each of the underwriting Banks let me say they're able to administer their duties under the term sheet uh which are inherent to them and they're able to audit sorry to automate the duties uh which are internal to them uh and then uh other the other banks that are underwriting would do similarly and then there will be a Reconciliation process that will be needed uh between the various stakeholders and the idea is that uh that reconciliation process is generally prone number one to human error and number two it's very slow because at

this point it's mostly humans that are doing that reconciliation and so this is one of the areas where where you can use blockchain technology to essentially stop making a bunch of API calls which are really human level API calls uh between Banks and to stop doing that and everyone just look at the same uh core data set and that's what a blockchain in a permission environment is is able to open up but I mean bonds are one area but there's a whole range we view this technology as a horizontal so uh so perhaps I could I could go through a different example and you tell me if if something like this is is Mak sense so so today today in the world you have a lot of uh lot of

different markets like uber is a market for example where people who have uh taxis who can drive around people need to be matched with people that that want that ride you have markets like eBay that allow people who want to sell stuff and people want to buy stuff to coordinate so what what happens to is generally like these kinds of markets are formed by one company and there's lot of automation inside that inside the process of that company itself so if you imagine a market for let's say old mobiles then uh the the company might create the market and have a lot of automation inside the inside the market itself but what does not exist is if there's a market uh that's created by

one company and a similar Market created by another company then the users of one of these companies cannot interact with the user of the other company because the automation does not work between companies right like so if there's firm a that creates Market a and firm B that creates Market B LIF and Uber yeah lift and Uber then the user of service a cannot really interact with another service provider in service B because there's no way the flow of automation can go from company a to Company B and what you essentially say is if you have a if you have an architecture where there's a blockchain in the middle and both company a and Company B can offload some of their

automation onto that blockchain then perhaps you could have a new kind of architecture where user of company a of service a can actually interact with user of service b or something like that that's exactly right we call this participatory architecture and the big difference here is uh currently in traditional enterprise software you have to own the data and you own your data management Solution on and what we see this technology opening up and we think that this is going to be particularly important for Information Age organizations which run on a more

distributed environment uh and in a more distributed context we think that the this Paradigm of what I call participatory architecture rather than data ownership is what will really uh enable Information Age organizations to be able to succeed moving forward yeah that's that's that's like a very very nice argument for the use of use of blockchain technology that what what you're trying to say is like there's there's business processes all around the world and blockchain with blockchains you can make business processes that cut across organizational boundaries now what's also interesting is

um that the permission blockchain industry today has many subsections like Eris is one uh this digital asset there are a lot of small teams that are trying to make permission blockchains and a lot a lot of the Mind share for business process automation across organizations if you if you think of that as an industry vertical uh a lot of Mind share goes into only one type of process and that is clearing and settlement that uh people think out of the universe of business processes that can be automated using blockchains they're trying to focus on clearing and settlement between financial institutions so you have ideas like uh what would happen if uh all the

banks in a particular country like England would have share a common blockchain and be able to do different kinds of uh movements of money on that single blockchain a lot of focus goes on into just optimizing steering in settlement for permission blockchain technology whereas uh you have the view that uh this actually isn't a very interesting use case can you shed light on why that is so sure it there's three reasons um that uh that make this a challenge I think number one you have Performance challenges uh with blockchains so blockchains uh as we all know are

generally PR slow uh V ofv existing traditional Solutions um in the very early days when people were trying to understand what we were saying when we were the pretty much the first to Market with a permission blockchain design and people were trying to wrap their minds around it they would constantly uh love to remind us about the fact that blockchains were slow which we were always and remain uh very familiar with and we understand that so on on the one hand when you're talking it a little bit depends on the market I mean uh my hesitancy around this use case mostly is limited to high volume markets I can I could see the use case in in low volume

markets the second reason is when you're looking to embed an emerging technology solution within a legacy infrastructure and within Legacy uh Enterprises or incumbents you have to man you have to always keep a mind on what is the change management calculus that the industry or Enterprise is going to have to go through um in order to really Implement uh this solution and and one of the things that you will be constantly looking at and keeping an eye on is does the benefit actually meet or significantly exceed in this case uh the

cost of what the change would be and when you're talking about infrastructure level software with which blockchains are uh then really what you're talking about is ripping out a significant portion of A bank's infrastructure and in order for a board the board of a bank to approve such a drastic change they have to see a massive massive opportunity opening up and what we're looking at in most clearing and settlement markets is maybe a marginal improvement over what we currently have but I am skeptical and I have yet to see a study that shows that there is a a significant amount that can be gained

from doing pure clearing and settlement on a blockchain uh which is which is not just simply iterative over what we currently have um and and maybe that will come in the short time uh later I'm not sure the third reason that I think this is a real challenge uh is because of if we're talking about these types of markets you number one have to onboard an entire industry which is always much much much more difficult than onboarding a single Enterprise number one and number two you have a massive challenge around privacy and as I always say blockchains are transparency machines and they're really really awful at uh at

trans at privacy because of that there different sides of the same coin and so if you have a challenge around privacy uh that really gets at and brings down even the potential benefits that one might have touching on this uh issue of privacy this is something actually that mayor uh I think you may have told me about one time or opened my mind to this idea of permission blockchains being really bad at privacy which I I hadn't thought thought of before um and you know so the if you have a if you have a blockchain that's behind a firewall you're trusting your you know least or the most malicious uh node to not reveal the data which is inside that firewall

blockchain so essentially if you have maybe like U 100 different um nodes controlled by say 100 different organizations one of those could go Rogue and publish some private data uh and you can't do anything about it how can we address this this is something that really is really important to uh the development of the blockchain space and is it perhaps a barrier what are your thoughts on that I think it's I think it's much more important in a public blockchain context than in a permission blockchain context because in the permission blockchain context as you just said you have a you have other options um and they're not perfect options uh but for us we we

think that when you're using blockchains appropriately uh you should be on the transparency end of the spectrum um and for us at least this is where we see so we like to leverage the advantages rather than trying to hedge against the disadvantages and a lot of that depends on how do you describe uh and how do you implement this technology for example if you implement a single uh Bond as its own permission blockchain and you have everybody on boarded uh which is supposed to onboarded uh uh with respect to all the various stakeholders then you actually want to have full transparency there within that

particular blockchain if you think of uh the fact that we're going to have all blockchain uh sorry all Bonds in the world are all going to be on a single blockchain that challenges this notion of who needs to be able to see what in a much more drastic way than if you say we're going to do one Bond per blockchain so it's it's sort of the lens in which one looks at this technology H differs today's magic word is software s o f t w a r e head over to let stock bitcoin.com to sign in enter the magic word and claim your part of the list [Music]

reward so like coming back to the topic of clearing and settlement that was a pretty interesting answer so what you're essentially saying is um if you if you consider the scenario where like let's say the uh a lot of different banks want to implement one blockchain and do some kind of movement of funds like clearing of exchanges and settlement of exchanges on that single blockchain then there are essentially a couple of different problems with that approach the first is transaction throughput and scalability which which is is a challenge today but which may or which may may may even be solved in the future the the second thing that you mentioned was um uh was the calculus of cost which means if you

want to change the whole financial infrastructure of let's say a nation that's a lot of lot of uh cost to it and what what exactly is the benefit that is that is that is unclear today third thing you pointed out was was the Privacy aspect right um that once you have a blockchain for financial transactions it at that scale it might need to be public and these are transparency machines not privacy machines so is that a good summary of your answer yep yeah so let's move on to Smart contracts um so similarly to you know blockchains and the question I I asked earlier about how you explain

blockchains to Industry professionals how do you approach the question of smart contract s with clients or people that you might talk to at conferences things like that exactly the same way I mean generally I lump the two together I for us I mean the the idea of a blockchain alone doesn't really give anybody anything I mean essentially you need to have some Suite of uh automation on top of it in order to have any benefit within industry sorry that that was a bit that was a bit uh exaggerated uh certainly in the land of public blockchains Bitcoin specifically yes you have definitely some value there I'm not trying to say that but in an industrial

application uh where most Industries and most uh Enterprises that we have talked to they don't have a challenge around uh tracking who owns what when to the extent that they're was a challenge there and perhaps there's some very interesting applications of only that question within an IND within a insurance context uh but outside of that really what you need to focus on is what is the blockchain doing for me um and to get there generally you're talking about what is the virtual machine that is tied to the blockchain uh whether that is a ethereum style virtual machine on which

you can deploy smart contracts or whether that is a more shrink wrapped solution which some of our competitors uh build and and they prefer to take that style for us we think that uh a virtual machine uh which has uh has some capabilities to run scripts is a very powerful uh start uh for beginning uh to look at this technology we think down the road uh that you could probably kind of lock down solutions for particular business problems uh and you might be able to get away from this idea of using an ethereum virtual machine style of blockchain chain uh because you would have much more clear ideas as to what were what were all the steps that need

to be uh taken within a particular business process but at this point in time there's a ton of negotiation that is happening uh within industry as far as how do we track Financial objects how do we uh properly parameterize and then build interfaces for financial objects which are dealt with at a blockchain layer you also have a lot of challenges around what does this stuff even look like and so I think it's a little bit early to optimize for us at least it's a little bit too early to optimize and try to lock down uh into shrink wrap Solutions uh so we prefer uh to tend towards the virtual machine style blockchain design at at least at this

point and so but really how do I explain smart contracts I start with the business process Improvement uh line which which we talked about before because I I view these things together as kind of merged at the hip well I guess it it's just sort of goes to it follow the same logic of modalization that you spoke about earlier and you know we could think of Bitcoin as one of these lock down Solutions where you have the database and also the business logic and the consensus locked into one so the business logic would be the smart contract the database is The Ledger and the consensus mechanisms is proof of work and so what you're saying is that um when you explain to people what a what a what a smart contract is it's

simply the business logic part the the virtual machine uh code execution part of what will essentially uh process data and put it into the Ledger which is the database yep exactly that's that's a really interesting way to look at it I mean I mean of course when we think of blockchains we look at it this way but to explain it this way to to to to people potential Partners it it really shifts your thinking especially when you've been in Bitcoin so long and you know you think of Bitcoin as a currency and then also all of a sudden you have this smart contract thing comes up and you try you somewhat tied to this idea of decentralized currency and you know all the ideas of Bitcoin and to think about it simply as like software and

business logic and database and you know and then the idea of consensus it's an interesting thought experiment that's not always that easy to come to when you come from the Bitcoin space yeah I think that's exactly right when you're coming from a Bitcoin perspective uh it does break down things a lot and we have uh we we we're our company is not the most popular company on our Bitcoin let me say and uh I think a lot of that is because of uh challenges around how to explain uh where we are coming from and our perspective to somebody that has uh taken that background and and has uh for the last X months however many that is

and how long they've been in Bitcoin would be obviously person specific but uh during that time um they have sort of embedded this idea of what a blockchain is and collated it uh sorry um not collated but merged it with Bitcoin as an application so we we view the blockchain as as the core based technology and we view Bitcoin and its blockchain as an application that is built using all of these components which we just talked about but to be able to uh pull those apart a little bit uh for folks is uh has been a little bit of a challenge for folks that are coming from the Bitcoin side for folks that are

coming from the Enterprise side it it makes it a whole lot more approachable than starting all the way at Bitcoin and then having to beat down some of those uh ideas of Bitcoin to get at where the raw technology is which is for us somewhere in the middle how how we Implement Solutions so uh so Casey uh perhaps you are the perfect person to ask this question because you have been a lawyer so um we have the idea of of a smart contract and in certain certain cases we do see that smart contracts can be a uh a replacement for a traditional legal contract or um let's say we could say that smart contracts are a subset of of of legal contracts so uh so the so

the so the question is um is this is this correct do you think smart contracts are legal contracts and how do you if if in a situation you have a conflict between the results of a smart contract and a legal contract how would the legal system handle cases like that great I love answering this question um generally what you're looking at here is uh two different things so if we say a legal contract let us interpret that for the course of this discussion as a PDF or a piece of paper which you can take into a court and a court will not have a problem interpreting what it is it won't look at you like you're crazy it will say oh

yeah this is a contract I know how what to do with this and let's call those legal contracts for the scope of this discussion uh you also have Smart contracts which for us and uh are are simply scripts that are saved onto a blockchain they NE they don't necessarily have anything to do uh with the legal system despite the fact that they're called contracts by default but what's interesting about this technology is not what smart contracts are able to do and how they are structured by default it's what you can actually do with them so let's take the uh idea that uh you can build a smart contract so that it can fulfill the requirement of a

legal contract so in general what you have with very very simple legal contracts is you need to really satisfy uh three criteria in order for a court to say yes you have a contract here the first criteria is has there been uh offer uh the second criteria is has there been acceptance and the third criteria is is there consideration so consideration means uh am I just giving you the GI a gift or is this a bilateral relationship in other words am I giving you something and you're giving me something um and so we do not have a contract for example for this taping you know I give up my time uh and uh then in

response well what's the consideration coming back well that's very different from an employment relationship in an employment relationship I give arys my time and it gives me money and so there is consideration which goes back and forth now also there has been this idea of uh a contract has been offered by one party and accepted by the other party now you can represent these three ideas without a problem uh in computer code there's no challenges from the legal perspective as far as uh number one Unwritten contracts so uh since legal systems have existed uh people have been able to have strong contracts which have

not been written down this is not something that is new and generally contract law is written to avoid too many formalities uh with the with the some exceptions depending on what domain you're in so as you get into more more and more specific domains there are increasing formalities which need to be required in order for it to for the legal system to be able to interpret an agreement for example as a corporate bond Then There are a whole range of formalities and Necessities which need to be fulfilled by the agreement itself now those most legal systems on Earth do not interpret those as specific words on

a specific sheet of paper in instead they offer them they they need to see what is going on here as far as the relationship between the parties and uh so since the 80s for example in the US I sorry in the in the 90s early 90s in the US we have been able to we've had an electronic transactions uh act which allowed for agreements uh to be comprised completely in computer code uh since that time and those uh generally have been the Computing requirements have been held in kind of a neutral third party a Clearing House a settlement system or some sort of escrow party um now we have the capabilities

not to have that third party but instead we can do this uh back and forth as long as we meet the legal requirements for the financial instrument or the agreement that we're trying to do which are do not mean necessarily specific words on a paper but yet a mechanism of interaction between the two now were you to take today uh an ethereum smart contract to a court you would have a hard time getting a court to enforce that uh so we prefer when we're working with clients to have this idea of dual integration where on the one hand you keep your current contract templates as they as they exist and you add a little Clause at the end that says that this

agreement is being tracked at a smart contract which has address X on blockchain ID y whatever those the address of that smart contract is and whatever the ID of that particular blockchain is and so then you what you end up doing is you are able to uh pull out the self- administering portion of what the contract is doing and you merge that with a document that a court can interpret in a predictable manner because what you don't want to have if you're an organization or an Enterprise is to start to have unnecessary uh unpredictable outcomes from a court if you need to go there so do you think that at some point

we so right now we still have to rely on sort this traditional contract model that can reference a smart contract on a blockchain you think there will L come a day when we can just write contracts in ethereum for example and uh as long as you know one can prove that this is your private key and that it's linked to your identity through some identity systems that perhaps don't exist yet or government IDs that are linked to a private public key uh um system um that uh you know these would potentially stand up in court like how far away do you think we are from that it's not really a function of whether it will stand up in court it's actually getting predictable outcomes

from a judge Judiciary which is not versed in being able to read code so would it there's potentiality here where it would stand where these things could potentially stand up in court today um there's no as far as I can see depending on where you are let's let's assume that you have uh you have accomplished all the legal formalities that you need to do within smart contracts which are mostly doable uh if you fulfilled those legal requirements you could take a smart contract to court today uh because of the way that contract law is written it's quite loose but what you won't have and a court would potentially enforce

that contract but what you don't have is really predictable outcomes on what a court will think that contract is number one meant to do and number two actually doing and so that's where it's going to be a real challenge for the next little while not necessarily around whether a court would enforce it but how a court would enforce it so I mean like like with the how question what what kind of seems interesting to me is um so let's say like like you mentioned two of us are entering a contract and we have a legal contract and in that legal contract we have an integration with the smart contract we had a statement that said

okay part of this logic part of this contract will be handled by this smart contract ID this particular ID running on that that blockchain now uh so we have a legal contract and that's linked to a Smart contract running on a blockchain and when we made the contract we thought that we had the code right now now it turns out that the code actually had a bug and uh the the the the code did not perform the way either you wanted or I wanted and ended up doing something else altoe um now both of us agree in principle that yeah we should disregard what the smart contract did and the

distribution of fund should happen in a in a different way and now we go to court with it what would happen in a scenario like that who like can the can the court actually say that no uh in your legal contract you link to a Smart contract and even if it had it had it bug we have to treat that bug as the real thing or the the court says no we agree that we should disregard the uh the results of of of the smart contract and have a manual exchange of funds on that permission blockchain by the nodes running that permission blockchain what would what would happen in that case what wins does the smart contract win or does the underlying legal contract

win generally the underlying legal contract is going to win wi um in any of these things a cour will a court will most likely I mean it's hard to say exactly but um but most likely a a court would interpret uh uh what it knows so it's going to take the path of lease resistance to enforcement here and most likely the path of least resistance is going to favor uh that the legal contract over the smart contract in that context now that said I mean it's very context specific and these questions what you're trying to get at I think are these questions of what we call factual

ambiguity and factual ambiguity are inherently hard questions uh and uh and really what you're talking about is the intent of the parties which are even harder questions to answer uh within courts but this is why we have courts and this is why lawyers and judges exist in order to help adjudicate these disputes uh should they come to this and so hard to say in the abstract uh indeed impossible to say in the abstract before the show Brian IAL to Brian and U and he he requested that I I specifically ask this question because it seems you have given a lot of thought to this so what do you think about running governments using smart

contracts or in the future converting the entire governance process into a suit of smart contracts running on a blockchain what what would that look like and what would be its impact yeah it's it's quite futuristic for me to think about uh running entire governments on blockchains but let I think it might be a little bit more productive to uh look a little bit closer because that would be probably Generations down the road uh to run entire blockchains on sorry entire government's on the blockchain uh but uh but so one of the things that's very interesting to me and I've worked uh in this area in the past is ideas of uh a

budget transparency uh where you're looking at uh for example uh new infrastructure development so often times the way that this happens is that you'll have multiple public entities which will pull money uh together and sometimes along with private sector money not all the time but depends on what you're building and those funds after they're pulled will be uh then uh administered by usually an accountancy firm or audit firm and what they will end up doing is do wholesale distributions down to three or four or five uh general contractors who then will do uh not usually the work but more of the project management and

then they will hire subcontractors and potentially sub subcontractors that will end up doing the work so if we're building a new highway you'll have multiple levels of government which will typically pull their money and then that will be uh administered by let's say an accounting or auditing firm who will then hire uh sorry will then do wholesale distributions to large contractors and they will then do subcontracts down and then on the way back up there will be a a reporting system which will be put in place now that is actually very something that would be very interesting uh to track uh in smart contracts because you are able to Leverage The Notary

portion of what a blockchain can do you're able to leverage the transparency aspects of what the blockchain can do and you're able to have the module or business process logic Which smart contract uh enabled blockchains can provide for you and so you get around a lot of the limitations that you have in a purely private sector Endeavor such as a a bond chain or whatever for for for the United Kingdom and so I think some of these areas in governance while they will take a little bit of a a time to get up and running will actually be even more powerful than some of the private sector Solutions because you're able to leverage the transparency in a positive way rather than trying to hedge against the Privacy limitations uh which you

will be facing on the p on the private side oh that's that's a very interesting idea I um I always like to take examples when I get like ideas like that so when you when when you were describing the idea the kind of example I got is let's say let's say the Indian government like wants to build a road from the city of Delhi to the city of Mumbai and now this whole project is going to cost I don't know it's going to cost $10 billion to build a super highway from connecting these two cities and there are lots of stakeholders in this process there's the government and now the government doesn't want to build multiple state governments City multiple State multiple state government City governments people

who have the land and the government doesn't want to build the road itself so it's going to announce a tender and somebody's every a lot of people are going to build like I'll build this for for 10 billion somebody else will say I'll build this for 11 billion Etc and the government wants to AO award this to one of them and then the company that wins the tender won't do the job itself it will have like sub tenders to other smaller players to build small chunks of it or say buy the cement Etc so so the kind of imagination I got is what if all of the all of these parties were on one blockchain and that blockchain basically handled all of the business Logic for a complex project like that and any citizen can go to the blockchain and see

what actions what what tenders what bids have already occurred on the system and so there's transparency there's that that they know that there's no corruption going on in this system so the transparency there has a lot of benefits itself and uh the business logic like the like the blockchain helps by automating what all of these parties needs to do right would that be a would that be an imagination would that be a nice imagination for what you're saying well ask me that question again in about the middle of next year and it won't be an imagination it'll be built we're we're already working on this with pretty high level stakeholders you'll see it pretty

soon actually wow that that would be really awesome cuz cuz like like in India the the problem is these types of big projects happen and transparency is a big issue like many people think that the funds are not handled properly and they want continuous updates on this on on what's going on with that project so something like a blockchain might might really be useful there we think so then the question is you know will it be in the government's in India for for instance would it be in the government's interest to actually adopt that and will they generally it is I mean this is what you see out of the open data movement is that there's not there's not a strong constituency within many governments on

Earth of of trying to lock uh down government information coming out you'll obviously have minorities of folks that will perhaps be bad actors within the system that won't want information to come out but across the board we're seeing with the with the open data movement generally that public sector actors get this for the most part I mean unless we're talking you know Security Services or whatever right so before I wrap up I'd like to talk about uh what what we may call blockchain as a service uh we've seen this this uh this term pop up recently specifically uh Microsoft announced that they would uh U have um ethereum AIS and ipfs nodes in their

Azure store so Azure for those who don't know is sort of the equivalent of uh AWS at Microsoft is their Cloud hosting platform you can easily deploy applications there and they have I guess sort of store where now you'll be able to go and simply deploy um ays uh nodes there and this is something that I'm really interesting because at at stratum we're building uh a stack which would enable people to deploy private blockchains very easily and then with apis be able to interact with those blockchains um but the the question that I'd like to ask you and something that we've been thinking about is you if if as a company as an organization or a group of companies working together you uh that you know the value of blockchain

is a service is not having to implement that infrastructure and maintain it yourself uh if as an organization you delegate that to a company like say stratum or could be anyone else for that matter Microsoft then do you not lose the value of controlling your own data and in that case if the solution is that as that organization you also have nodes that you control yourself aren't you just coming back to the same problem of maintaining that infrastructure yeah that's a it's a really interesting formulation and I and I quite like that formulation of the question it hinges really upon one of system design and what you're trying to

accomplish one of the first things that I would consider is is the blockchain as a service running behind a VPN and if it is running behind a VPN uh where is signing happening in other words is signing of things are the nodes using signing out of process or are they using signing in process wherever the keys are that's where the real sort of choke point is and if you're uploading keys to a cloud provider then you have to understand that you're uploading keys to a cloud provider and you'll have whatever security Arrangements you've built in and so on the one hand you have a little

bit of a tension there between security and usability and this is not a new tension within blockchain space of course this is an old tension within any public key infrastructure type of situation and perhaps even in all of computer science it's a it's a tension and and how we see blockchain as a service is on the one hand making it much easier to get up and running for prototyping and then over time as you need to start locking things down probably uh what will be happening is you'll move the keys away uh to to areas which you control number one perhaps that's on a you know a server in your office uh where you can where you do all

the key signing and the nodes which are running in the cloud they they simply send an API call when they need to sign something to the computers where you have now you have to Main those computers as well but if you're going towards production and hardening then you're going to have the operational folks uh who would be responsible for that in any production system and so you're repurposing them from other Solutions onto this type of solution but you're still going to have the operational considerations around Security in any event but if you're just trying to get up and and rolling then you probably don't care well I think that from my perspective and specifically you know stratum we're we're not holding any keys and I think we can assume it's a best

practice for industry players not to hold keys or at least have some sort of a multi- signature model where you know the the the organizations deploying the blockchains would have a signing key and um perhaps uh the clients I mean sorry sorry the clients will have a the key and perhaps the companies deploying these blockchains would have a secondary key is and a multi- uh signature schen but um what I was referring to specifically is the the database and consensus um mechanisms I guess specifically the database if if if you're trusting uh a provider to hold all of the database

information in the in the blockchain architecture and that company disappears and you don't have the nodes on your end to also replicate that data and also the smart cont the business logic layer if all the business logic layer is implemented at your with your service provider and that service provider disappears then you're kind of out of luck there what you think how do you how do you see this remedied uh in in a world where multiple service providers right okay yeah I mean unless of course uh that's service provider has some sort of proprietary technology that they're also um adding as a service on top yeah of

course of course yeah and um but but the way that at one of the things that's interesting about blockchain technology is that it scales horizontally and this is very different from traditional architecture Solutions traditional software architecture which has scaled vertically much more easy easily so if you think of a a giant SQL database that is meant to scale vertically rather than horizontally if you think of what blockchains are actually really good at from a data management perspective one of the things is that it scales horizontally so essentially you you fire up a new node on your a different cloud service provider and either you punch

through whatever the VPN is if you're running behind a VPN or firewall you would have to you know integrate that outer layer of security as well but let's assume that problem away as a fairly solvable problem and so now you connect into the blockchain network and it downloads the blocks and it syncs back up uh without a problem uh on the new service provider or on your laptop or whatever on your grandma's computer if you need it it that's one great thing about blockchains and why I'm not I I don't see this as a giant tension at least for us and our users because you can always spin up new nodes on AWS if you're worried about Microsoft going away I think it might be a little bit

different in you guys context but right I I think so too um I guess my my last question is before I wrap up actually this is Brian's question which he he sent to us before we started the show is you know we looked at all of the all the technology stack ranging from the consensus layer to the database layer to you the VM and the applications that will build on top of that uh which which are which ones are you most interested in and um where are you see business opportunities for Comm commonization uh with regards to all this you know Technology stock I think that consensus is uh I don't see a lot of business value extraction opportunities at the

consensus or the database layer um I also don't see them at the outer virtual machine layer I I see them really around uh what is that business process logic doing if we think of blockchains in terms of infrastructure level software very few uh very few infrastructure level software projects have succeeded while being proprietary in fact I can't think of a single major one since since the 90s that has really succeeded I mean things that succeeded before that have continued to do well but that's more inertia rather than new projects coming on board so I think that the base the base platform layer however it's

conceptualized of of consensus of of a virtual machine or many virtual machines uh a as well as the base database for how we think of this the base Ledger components I think all of that will remain will be open source and and I believe strongly around that so if you're in the Land of Open Source uh traditionally over the last uh maybe five 10 years there's been two major business opportunities which have come on one of which is what I call a payper convenience model uh basically this is uh what most continuous integration software does for example uh that I pay uh I pay continuous integration Services uh for to give them

uh so they run things for me uh which are more convenient than me uh running my own continuous integration service and on the other hand you have the paper privacy model uh this is we can think of this as github's business model in that the base GitHub is open and free sorry is free if your projects are open source but if you need to have a some privacy layer then you pay for that now how that actually looks in blockchain land is a little bit of a challenge for me to see exactly I can really see payer convenience models uh develop and that makes total sense to me where uh you know blockchain technology is a little bit of a challenge uh to run it's it's

new it's fast moving and so there's a a real business opportunity I think around uh making it easier for four Enterprises to get on board it and run with smart contract technology and blockchain technology and then the other piece is what's happening at that business at the business process layer and that is not so in my mind does not so clearly need to be open source in fact I think there's a strong argument for it to not be open source but rather to be proprietary and and so if you're thinking along more traditional uh software development lines to where you keep your uh your secret saw secret uh I think that's where the real opportunities are well I think that's a a great note to end on we're definitely

pushing the limits of uh of time here with this episode it was really interesting to talk to you about uh about permission blockchains smart contracts and all these topics which I personally and I think mayor as well thinks of all the time and uh looking forward to seeing what AIS is going to be releasing and what type of interesting Partnerships she'll be talking about in the near future thanks for having me on you're very welcome and of course thanks for to our guests for listening episenter Bitcoin is part of the LTB network of course you can go to letop bitcoin.com to find their uh amazing catalog of shows about Bitcoin cryptocurrencies blockchain Technologies and all that stuff um you can find you can hear new episodes of epicenter

Bitcoin every Monday we release them on Soundcloud iTunes uh or whichever podcast app you use to listen to podcasts you also can watch the videos at youtube.com/ epicenter Bitcoin and if you're a loyal listener you can always send us a uh give us a review uh on iTunes or Stitcher wherever you want to give us a review and if you do so uh send us an email at show epicenter bitcoin.com and we will send you a free t-shirt that's right and new t-shirts have just been made in Switzerland by uh by Brian uh and of course you can always send us a tip and the link to our tipping address will be in the show description so thanks again and we look forward to being back next [Music]

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