Grassroots Cryptocurrencies: A Foundation for a Digital Economy with Ehud Shapiro | a16z crypto

Transcript

uh okay welcome everyone to today's a16z crypto research seminar very pleased to welcome back Udi Shapiro a professor at Weitzman uh yesterday he told me something about himself which I didn't know but was not very surprised to hear which is that every project he's taken since he was in high school he was immediately told was far too ambitious uh sometimes it turns out maybe that means that you're on to something but I think you'll also see that reflected in his talk today about Grassroots cryptocurrencies so all your CD thank you so um we're going to start actually this is a cartoon from The Economist for two or three weeks ago when threads was started so let me read it in case it's

too small in a desperate search for a better tomorrow millions of migrants from around the world are taking the daunting leap from alone Elon musk's pocket to Mark Zuckerberg's okay so that's a good advertisement for my talk but the actual title is a Grassroots cryptocurrency is a foundation for Grassroots digital economy and if we take a look at the digital realm today what we mostly see is red uh autocracies client server cloud-based systems where one person controls them or a small group of people um Facebook YouTube WeChat Airbnb Amazon

Marketplace Etc up and coming cryptocurrencies who aim to change this uh Power structure for the better as team keeps insisting and I agree for the better uh so that not the single person controls the platform but it's a control is distributed uh but if you look at the underlying architecture of the existing platforms Bitcoin ethereum essentially all these Technologies they're all what's called in social sciences or political sciences plutocracies and I'm using this term as an objective descriptor not as a derogatory term it's an objective descriptor of uh control is divided according to the amount of stake or

currency or uh or wealth that you have improve of work uh this wealth is translated into how many computer racks you can buy and operate and how many coal mines do you own and power stations Etc uh in ethereum where proof of stake it's directly the the how much money that how much ethereum you own which allows you to participate more uh broadly in in proof of stake protocols and if we look for democracies uh that operate on a democratic platform uh actually to the best of my knowledge we don't find any okay so that's why it's it's it should be infinitely small but I cannot draw it

so they're just small with a question mark um so as I said the over-ambitious long-term vision of our research is uh have an egalitarian Digital Society and the goal or the way to achieve that is to find the galitarian alternatives to Global digital platforms which are today not egalitarian and uh the means that we offer to achieve that goal is a new architecture for the digital realm so I'm gonna what I describe is is in this talk will be something that came up along uh this this overall research and I should say that this has this work has been going on for more or less seven

years in in my research group at the Weisman Institute uh starting with the Nimrod Talman who was a postdoc at Weitzman at the time and he taught me uh everything I know about the social Choice Theory and um uh than other postdocs and PhD students and colleagues around the world which we have uh written paper three and this is sort of the proposed architecture that that came up as a result uh I will not spend too much time on this right now maybe if there's time for questions or before the if I don't ex exhaust all the time of the talk talking about cryptocurrencies I can talk some more but what I want to

point your attention is uh to this part Grassroots dissemination and equivocation exclusion and the Grassroots cryptocurrencies are sitting on top of that so the blue part is the protocol or protocol stack and the whatever color it is brown or whatever uh these are the applications and what you can see what they spoke about last year those who were here or is about a consensus protocol which actually involves these these three layers for consensus you need dissemination equivocation exclusion and ordering all these tasks you need to achieve and on top of that then you achieve consensus here in this protocol stack they're separated into different layers of the

protocol because you don't need all of those to do for example social networking uh there's a paper it just came out everything everything I talk about is on the archive by the way so and I will share this PDF so these are live links you can you can go to these papers later if you're interested so if what you want is is social networking it's enough to have dissemination you don't need the equivocation exclusion or ordering and there's a fairly old result by Rashid gorillo maybe 10 years old that if you all you want is a payment system you don't you also don't need full consensus it's enough to have a provocation exclusion and you can have a payment system on top of these two so Grassroots cryptocurrencies actually don't sit on top of consensus but sit on

top of these uh these two layers and my focus is will be on Grassroots cryptocurrencies now I've used the word Grassroots like already 20 times so what is Grassroots uh we know about it from social sciences political sciences Grassroots movements or movements that come up from the people from below from the Grassroots so it's a well-known term in social sciences in computer science uh as far as I know it has not been used before and we use it to describe systems of this property actually there's a formal definition in this paper this formal definition which is short but it takes about 15 pages of definitions for this to make sense so

I'll not get into this we'll settle with a less formal definition a distributed system is Grassroots if it can have autonomous and independently deployed independent deployments okay in different places over time that can interpret one since what's once interconnected so it has two requirements first of all it can start independently in multiple places once here once here we can start our own little Grassroots protocol or system and others construct it in the next floor and independently but if for some reason we inter we interconnect we can interoperate okay so these are two requirements Independence but also interoperability um let me say that all the systems you know

are not Grassroots uh client service systems are not Grassroots because you cannot have two Facebooks you know operating let alone interacting once they find each other you cannot have also two Bitcoins or interpreting the Bitcoin depends on global resources and Global addresses seed miners or root miners boot mine boot nodes uh ethereum as well they have Global port numbers so you cannot have two ethereums working you know uh independently and then discovering each other and interoperating neither of these can happen so why is this interesting well because we believe that Grassroots systems are possible and actually the first example

let me go back the first example or simplest example of Grassroots system is Grassroots social network so let me give you the feel of it uh first of all it runs on smartphones okay no servers no Global addresses no nothing smartphones talking to each other so we can start with this with a Grassroots social networking protocol we can start our own little group here just our smartphones talking to each other and some other people can start it there and we can go forever and ever and ever ignoring everyone else if you don't care about other people we can run forever independently but if maybe someone is a member of this group and that group then the groups can interact maybe if a member of this other group I can transfer messages from here and there so

there are new behaviors as a result of interoperation between groups so and the paper on Grassroots social networking describes it and the the claim I'm making I will not not prove it in this talk but you'll get the feeling is that the the form of cryptocurrencies I'm proposing is also formally a Grassroots system you can have different groups running it here in different different group running in there and later interoperate and actually this goes back the goal of Grassroots cryptocurrencies is to provide for a Grassroots digital economy so what is that okay what did you we know what is digital we know what is economy so what do we mean by Grassroots digital economy uh it's a variant of the formal definition it's

it's a it's a digital so it's a system uh you can have independent digital economies that form and grow without external capital or credit so we can start here start there we don't need outside resources global resources with only other people's money we don't need Bank credit we can start it independently but if two economies touch each other they can interpret so if those child has a son here and a son there then he can call some trade or uh interaction between different hitherto independent economies okay and Grassroots cryptocurrencies aim to provide a foundation for that for Grassroots digital economy so that's the goal of

Grassroots cryptocurrencies uh okay so what are Grassroots cryptocurrencies uh first let me quote ival Noah Harari a colleague from Hebrew University uh money is the most universal and most efficient system of mutual trust ever devised and so Grassroots cryptocurrencies can be summarized in one sentence as a means for digital means for turning Mutual trust into liquidity that's what they do if a community has Mutual trust it can become liquid without external Capital without external credit without external money we can achieve liquidity Among Us that will allow us to trade and operate an economy without external resources just

by Magic turn Mutual trust into liquidity so what is the Grassroots coin actually I brought some with me so here here are Grassroots coins okay Grassroots coin is an IU that can be issued and traded by anyone any person Corporation Bank city state federal whatever so here are Grassroots coins it says iou1 and I'm going to invite my volunteers to uh own and operate their Grassroots currencies so please we have four volunteers if you can sit here

okay so you get a choice what which color you prefer blue okay and you okay and you by the way the reason I'm doing this is I've given many many talks about Sovereign crypto Grassroots cryptocurrencies they were called Sovereign before and I always failed to explain them it's so simple and yet so perplexing that I never never succeeded the first time I succeeded was in Harvard two weeks ago and actually used this experiment with uh uh uh a real procacha students and it worked so that's how I'm explaining Russell's cryptocurrencies okay so each of you has their own

cryptocurrency if you can take one and stick it like this so we know uh which color you are so these are ious so that's all what Grassroots cryptocurrencies are ious okay and there's one principle only in Grassroots cryptocurrencies honor your ious that's the only principle and I'll explain what it means but in addition to these principles there are conventions so let's let's go to the conventions there are actually three conventions regarding minting pricing and exchange and the first convention is minting you can issue coins at your discretion so each of you can issue as many coins as you want and actually you have lots of coins lots of blue coins and so anybody has as many iOS as they want that's the

first principle the second principle is pricing everybody prices their goods and services in terms of their own coins okay so I didn't want you to volunteer to bring goods and services so I did it myself okay so you're the proud owner of two bananas okay and Naomi has two apples okay and Eliza has three apples okay so there's no no Monopoly Here both have no okay

and no sweat is the luckiest of them all he has ah lots of snacks okay okay one more okay so now each of you okay so now each of you has Sovereign cryptocurrencies and has goods and services they can offer and the question is pricing so I will to speed up I will I will tell you what you would have priced them okay but okay so let's say you price

your bananas for two uh mahimna coins so these are mahima coins right so you price your bananas for every banana for two mahima coins and you price your apples uh for three no Army coins a new price for apples for two Eliza coins okay so press them lower it's anybody can choose everybody can press the good and services as they wish a new price for snacks for one one straight coin okay fine that's the second convention the third convention is exchange you create Mutual line of credit that's how liquidity comes out of thin air by coin exchange between among people that you know and trust okay so these

they all know each other you've been around for how long ten and a half weeks okay so you know each other you trust you don't think that they will cheat okay so now you're going to create liquidity everyone will exchange five coins with a person next to him so you give five coins to Normie and she gives you five normal coins and you also give Eliza and unless they give you five coins and you'll give five coins to Normie and five coins to Nusrat okay so now we get liquidity now it's important that you place the coins that you own here on the table because you own two things now you own bananas and mahima owns bananas and he

also owns Five Naomi coins so he owns two two types of things okay so you have five Naomi coins and you own okay fine so you see that everybody here owns both uh real assets and digital assets okay fine so let's say let's trade okay so uh let's say you want to buy an Apple from Naomi uh how how much did we say you press three okay so if you want to buy Apple phone number what do you have to do okay no Army coins you cannot buy it with your own coins you can buy it only with army coins because you price it in omic ones okay so let's do a trade okay okay so now you have three less Naomi

coins and you have an apple and two bananas okay and if you want to buy a snack from nusres then what do you do one which coin okay we got it Okay so we've seen trade okay now let's say you want to buy a snack too you don't these fruits are not for you so how how can you get a coin from a snack from Nusrat ulations I don't know I do like that well at present you can't because we didn't say how much people price their coins okay so without some further Machinery you can buy only from people you have

their coins okay so now comes the one and only principle the only Proto that's the beginning and the end of the protocol of of sovereign of Grassroots cryptocurrencies is called Redemption everybody is obliged to redeem any coin issued by oneself against any coin held by oneself the principle of Grassroots script the only principle is honor your ious and the way you honor your are you use now you have an uh okay let's see you have uh analyze the coin right so it's in IOU from Eliza to you now the way Eliza honors their ious to you is by offering any coin it holds uh to you at the one to one exchange

rate that's the only thing in the protocol okay uh one to one exchange rate okay so you can buy an IOU you can buy a coin that uh Eliza holds using an Elisa coin any coin you want so let's say for you it's more complicated we'll get there now you can buy a snack from nusreth but how you buy a Nusrat coin from Eliza you redeem analyzer coin and now you can buy a snack okay okay we did it okay so that's Redemption any questions until now so you kind of assume honest parties say it again how do you enforce this

Behavior or do you assume honest parties uh exactly like in Bitcoin you have police that with guns that point at the miners that's how you do it Bitcoin right oh no forget uh through other means we'll get there why is it one for one coin rather than a market uh we'll get to Market later but as I said the protocol has one line begin exchange offer to sell any coin that you hold against any coin that you issued for a one-to-one end protocol that's the protocol it's the only so it's the protocol we'll we'll see why this protocol works

and the implications and market value and all that but that's let's let's agree that there is a protocol and this is it there's nothing else in the protocol okay uh okay any other questions yeah for the Redemption is it a requirement like that I must do the swap or like I can engage it you must it's basically think about it is mahimna is offering for sale an apple two bananas and uh no Miss coins he's he's committed when you when he offer to sell when you're surprisedly to say I'm I will sell to anybody who comes a banana for whatever we said and any other coin I own at this point I'm will

I will sell for my one mahimna coin that's that's the one and only commitment of the protocol so basically you offer to sell Goods services and any coins that you own at present okay Redemption provides for first of all fungibility of coins because mahimna can always exchange an army coin against another Nomi coin okay if it does if the coin he doesn't like it it's torn it's uh you know whatever so you can say okay I don't like your coin give me a fresh new coin like in a bank banknote gets rotten then you exchange it so they're fungible in this sense each is unique like in the US every dollar has a number so each digitally each coin is unique but uh they're fungible

first of all uh um equivocations we can't see equifocations here uh we could have torn the coin into two and send them but I will skip that part uh but if you got if uh you got if mahimna got an army coin from someone okay and it's not sure it's a good coin it's a Bitcoin you know so before he gives the Ferrari to the guy who gave him an omico and you say okay no me is this a good coin redeem it for a fresh new coin and if this coin has already been redeemed normally will say no no it's a Bitcoin it's duplicate it's not my IO I've already redeemed this IOU and this is has been double spent I will not redeem it for you and therefore mahim I

will not give his Ferrari because he got a Bitcoin a bad Naomi coin okay sorry Redemption is can be used and is used can be used to prevent or resolve double spends chain payments okay so here we see chain then is now if you want um if you want to buy a snack then you can ask Naomi your friend no me can you get for me a Nusrat coin and Naomi is a friend of Eliza so she can redeem a Nusrat coin from Eliza and now you can redeem no no not yet you have to redeem you have an army coin right you can redeem a Nusrat coin from Noami okay and now you have a Nusrat coin and

now you can buy even though Nusrat is not your friend he doesn't know you whatever it is theoretically I know that practically he's different but theoretically let's see is not your friend you can now through chain Redemption you have a new Swift coin and you can buy from nusras a snacks so okay let's do that okay so we can have a long chain uh transactions and uh whatever you can give him yeah you want you don't want to be exposed how which one you prefer okay so chain payments so that the effect of everything is that a mutually liquid currencies are packed at a one-to-one exchange rate okay the

the end result of all these token assumptions and and and this one single rule is that if there is mutual if there is mutual liquidity between uh mahimna and Nusrat through Naomi and uh and Eliza the currencies are pegged to each other one to one why because if no thirds is going to say I'm going I'm valuing my currency at three dollars and a mahima is violating valuing his currency at one one dollar per currency he can as long as his liquidity he can redeem Nusrat coins and then sell him back to nusres for three dollars a coin so the until there is uh you know you do arbitration so basically Mutual liquidity between two

currencies ensures one-to-one packing because a one-to-one exchange rate otherwise the the the lower cost the lower cost currency will do a barter it will do arbitration and and make uh make profit until either liquidity until either we run out of liquidity so we cannot do arbitration anymore or until the price goes down to to market value okay so Redemption results in pegging of mutually mutually liquid currencies induces one-to-one exchange rate among Grassroots coins with mutual liquidity so we've seen here something you know very minimal but imagine my Village in a tough where I live in Israel has 500

people okay not a little bit less than New York 500 people and let's say uh and it seems like you know stupid thing people changing notes but let's say that every person in a tough exchanges 100 coins without every other person you know people not that far nice the Morris know each other they may be willing to do this as a group experiment and these are just you know how you use you know pieces of paper who cares so they'll exchange 100 coins with each other think about it every person will have 50 000 ious from other people okay the exposure of every person to every other person is 0.2 percent and overall there will be 25 million coins of liquidity in the village Okay

so out of thin air out of nothing you suddenly have liquidity of 25 million coins in the village simply by people willing to exchange personal ious with each other okay any questions before our gang of four finishes their task okay you can take whatever you want from uh from this thank you very much thank you you did well you can take both money and and and Merchant and merchandise whatever you want so I must say you can't imagine how many slides I've gone through and animations and explanations and hand waving to explain

this instead of having four people just uh just trading so do you think you understand what's going on okay so success okay so let's talk about this not tough uh every person means 50 000 of these uh gives a hundred coins to everybody else prices every person prices goods and services I'm going to do babysitting for you I'm going to clean your uh your yard I'm gonna pick your fruits whatever uh in their own currency I price in Udi coins etc etc everyone exchanges 100 coins so we have 25 millions and coin Redemption all coins are packed into one as long as residents are solvent okay this goes to

the question who asked what about market value of of the coins so as I said as long as people are solvent as long as as long as there's Mutual liquidity between two people it's always one to one but let's say I'm I worked hard for many years I'm tired I'm gonna I want to be a beach bum for the next year I'm not going to make any money I'm gonna go to the beach spend my money and and Etc and uh um I'm gonna run out of uh uh uh of other people's coins okay so I have 50 000 coins out there to not tough people and I spent 50 000 coins that they gave me and I have nothing left what will happen well people have Woody coins but they cannot redeem them

because I don't have any other people's coins left so what will they do they can always sell them in the free market so they can say it's like bad debt they can sell it at a discount discount but my brother he knows I'm I'm just too take I've taken a year off you know and after I rest for a year and I am going to go back and and work hard and make a lot of money so he's going to buy at a discount or my bad debt because he has privileged information he knows that I'm a good guy and all the people who don't have patience for me and said okay he's lost it he's stopped working and I'm not have nothing to do with his ious so he's going to buy say the 30 30 discount 50 90 discount is going to buy all my coins

from other people and when I come back after a year and start working you know my the value of my cons will be packed again to one and he will make a lot of money because he trusted me and and and the other people's the the people who didn't trust me sold my bad data they discount and lost money okay so that's question of market so of course there is market value for for anything also for coins and and but coins of people which are insolvent should be considered as bad debt which have some discount depending on very intimate knowledge of the of the adapter okay so since there are economies here I want to stress earlier versions of the paper I call them Sovereign cryptocurrencies and then people got confused and said well these

are not States these are people why do you call them servant so now I call them Grassroots cryptocurrencies also because it's a Grassroots system so but uh these are really essentially identical to Fiat currencies of sovereign countries okay why because there are death notes without collateral there's no there's no collateral for U.S dollars there's no collateral for Israeli shekel just trust in in or mistrust in Israel or in in the US so standard Notions of Fiat currencies apply to individuals or to to to those who issue Grassroots cryptocurrencies and if there will be time I'll also talk about how companies can issue them Etc not only people but for in-depth okay for in-depth in in countries is very

easy but here it's the same the foreign debt is how many Udi coins are out there compared to how many other people coins I own so if there are more Udi coins out then other people coins I own then I have a foreign debt if I if I have a net investment position which is bigger than larger than the number of Udi coins out there then I'm a positive net investment positions these are standard terms from from Fiat currencies trade balance is how much my foreign debt changes over time so if I buy more than I I sell okay so the that's this shows that really they're very much like Fiat currencies and velocity is less common but it's also how fast my money moves around if

there's a lot of activity in the money usually it's considered good for liquidity okay you can these are all things that could be measured you know by a piece of software looking at the transactions it's very nobody has to think about it so it's important Grassroots cryptocurrencies are sort of reputation based but there is nothing reputation-based systems are like informal you know how many people believe they give your high rank a low rank you know it's very subjective here every measure I'm talking about is fully objective there's a piece of software I can look at the mathematical behavior of the system and analyze it mathematically what is their all the parameters I'm talking about so I want to stress that uh socially zero foreign debt and zero trade balance are best so uh let's say in a tough okay

there is a maybe a wine producer and everybody wants wines so they they're excellent wine so people pay a lot of money for this wine but this guy just hugs the cash he doesn't pay it out uh he doesn't buy furniture from people who not have he doesn't employ them as as people in his Vineyard so he just Hogs cash so a cash hogger is bad for the community okay because if you're a cash hooker it means that other people are in negative balance so you're you're not returning to the community the profits that you that you're making okay so cash hogging is socially bad it's not it's not good to have a positive uh investment position it's good to have zero investment position socially and

also trade balance it's not good to have a positive trade balance because it means that other people are a negative trade balance okay necessarily so it's good whatever you make you spend so maybe because you had this Vineyard you bought a lot of furniture from the guard we have a good carpenters in a half so maybe you bought furniture for your house and you you have a beautiful house and you have beautiful Furniture which is fine you have more assets but you haven't hogged cash so it's okay to be productive and have uh nice things but in the social context I described being rich is not bad it's okay to to make money and use it but cash hogging is bad so it's two different things okay

because this this per this wine maker if he paid all the money he made to the carpenters in a tough to build in beautiful carpentry for his house it's quite it's good from accounting also this is all new to me but maybe some people who learned it in economy so the standard the accounting measures used for measuring uh liquidity and and credit worthiness credit standing of Corporations they apply here immediately cash ratio quick ratio and current ratio cash ratio is just the ability of of a bank or person to withstand a bank run in terms of Grassroots cryptocurrencies it's very simple it just means that for every person let's say I uh I hold ND coins and Andy holds Udi coins so I hold at

least as many Andy coins as Andy holds Udi coins which means that when Andy wants to redeem uh his Udi coins I can he can redeem it against anti-coins that I own and I can close the close the depth so if for if Forever This is the ideal situation if for every person that has Woody coins I have the same amount or at least the same amount of this other person's coins I can withstand the bankrupt everybody redeems their coins I can redeem them promptly everything is fine so this is the exact equivalent of a cash ratio in uh in corporate finance quick ratio is more flexible it means that I may not have enough anti-coins uh but I have Team Coins and team has Andy coins so I if to prepare

for a bank run I can do some finite amount of exchanges I can redeem from Team uh the Andy coins using Team Coins that I own and prepare for the background and then I'm I'm in good good shape for the bank run so that's the quick ratio that you can you have enough coins but you may need to shift them around to address all your obligations and the current ratio is the is the weakest of them all uh it just means how many coins just means how many coins I have so I may have my uh my aging mother who is in uh a home for the elderly she issued me a million coins okay a million mothers coins and I gave him I gave her a million Woody coins so we're sort of I have many or maybe I

have only 50 audio coins and I have a million mother coins so on on paper I have lots of uh coins but this is bad debt I mean there's nothing we can do with it so the the current ratio includes Ultra bed debt and that's just means that the number of coins I have is larger than the number of coins I've issued about the number the the coins I have could be bad depth of someone okay so the whole point of this is that very basic and standard measures of Fiat currencies and corporate finance apply as is to Grassroots cryptocurrencies so even even though they seem kind of strange they're very they fit right into

the mold of standard Finance Theory okay let's say the people in a tough these 500 people I mentioned in my Village they're tired of paying Udi coins Joe coins anti-coins you know Etc say okay enough of that let's have a tough coin okay coin of the village so they come together with where Democratic Village we have an elected board so we we have a meeting and decide that we want to open an attack Bank well you should not have coins and we'll all trade in a tough coins instead of Woody coins Joe coins [Music] very complicated okay so what the what's happening how does it work anybody can issue

Grassroots coins including illegal a new legal entity which we form called notaf Bank they have a multi-signature account maybe three board members can sign every transaction and it operates so this does not need smart contract or anything it's governance is off-chain it's just another a multi-signature account similar to all the accounts that we have in Atta for here signed by whoever is legally authorized to sign on behalf of nataf okay so no no consensus no smart contract nothing just a multi-signature account behind it stands the legal entity which is the board of nataf and they decide to issue open a mutual line of credit of hundreds of tough

coins with every resident who agrees to accept not of coins in addition to personal coins so the bank gives everybody including me a thousand natafcoins and in return I gave them a thousand Udi coins okay so now every Resident Evil has 50 000 other people coins other people's coins from inside notaf and one thousand uh not of coins and everybody agrees to to price their goods and services not only in their personal coins but also not tough coins so if someone wants to need to clean the Garden or babysit they can pay me in a tough coins not only in Udi coins okay so now life is simple yes but it's intergenerational stuff work say it

again how does it work intergenerationally in this model so when I'm born I get coins of every other person on it when I'm born what happens when you're what sorry oh no no no no nothing happens this okay um this was a fictitious mathematical example of 500 people doing this but in real life you'll get credit you'll open Mutual line of credit like here with your friends with your family with your blood brothers and if they want to give your credit fine if they don't they don't so you there's nothing that is given to you automatically you have to earn uh you have to earn uh the the the the trust of

other people who are willing to open a mutual line of credit between you and them so your mother will give you a hundred mother coins and you give me other 100 of your personal coins and your brother and your friends and your siblings and maybe you'll have a few hundreds or thousand coins of other people so it's like banking in the US in the 1800s where there's like a community being the issues like Community Banks like script basically and you trade with the bank back and forth like the star graph yes but uh the community has to decide actively to open credits to everybody or to to whom and here it's just it might have been confusing but it's a special case of 500 people not a million people 500 people who know and trust

each other more or less you know I know most of the people in nataf and let's say we democratically agree to do that and we agree to up and agree that the bank will open this line of uh credit okay so it's it's a bit artificial but let's suspend your disbelief a few more a couple of minutes and you'll see how this this uh this this pans out okay uh in my chat two questions now tough coins wouldn't be considered a Grassroots currency correct no no uh Grassroots the question is whether or not tough coins are Grassroots or not Grassroots is the property of a system okay the system is Grassroots and one of the entities in the Grassroots

cryptocurrency worldwide is a multi-signature account opened by nataf and it participates in the Grassroots economy the fact that behind we should we should distinguish between on-chain and off chain if you remember I didn't talk about it but the the diagram was divided into ancient and off chain off chain of course there is a complicated process of the nataf community meeting and debating and deciding to the to appoint the board to open a bank account and the board makes a resolution which is signed by the attorney that they're authorized to open a bank account maybe there are regulatory restrictions that they have to fulfill I don't know at the end of the day they open a multi-sig account

within the system which is no different from a single signature account and they start issuing a lot of coins that's all so there's nothing non-grass Roots about what's happening on chain we'll talk later if there is time there won't be uh but uh about on-chain governance and this this is a whole new area a whole big area that needs to be addressed but it's not it's not necessary for a Grassroots crypto economy here there's uh Grassroots consensus digital social contracts which are the equivalent of smart contracts but I'll explain maybe if there's time what they are and Grassroots Community Banks Grassroots cooperatives Etc all on chain

okay and Grassroots consensus is actually this is sort of incorrect because this reference is not yet Grassroots and actually the goal one of the goals of Andy and I and maybe ODed are our collaborator is to devise such a protocol okay this protocol does not exist yet okay Grassroots consensus but it will be uh and and on top of that digital social contracts are like smartphone products except they are operated the consensus protocol is operated by the people who are parties to the contract not by third party miners so the answer is that you can do all these Grassroots but what I'm talking about is is is actually this side just Grassroots crypto cryptocurrencies Grassroots digital

economy where all the uh all the governance is happening off chain okay okay so there are very delicate things happening here let me try to explain first of all it's a puzzlement again it seems that things something else we have something out of nothing suddenly we have liquidity suddenly here we're Banks suddenly having money you know what's the collateral when when the nataf bank gives me a thousand coins not tough coins what is the collateral I've gave him Udi coins but what's all the coins it's just these pieces of papers pieces of paper so what is the collateral of the bank okay the answer is that the collateral for bank is the 50 000 other people coins

that I own because if the bank loses trust in me or things sees it I go to the beach stop working they have a thousand Uli coins but they see Andy is hard working and team is hard working they come to the office every morning they say Okay I want to decrease my exposure to UDI and increase my exposure to ndn teams so they can redeem Udi coins against the 100 anti-coins that I own and against the 100 gym coin Team Coins that I own okay so the bank without decreasing my credit line the bank can still keep a thousand uh allow me a credit line of a thousand coins but they can easily shift the risk by reducing the their exposure to me and increase the exposure to other people uh

in the community where the bank deems the bank which is in a tough community so all gossip and they all know what's going on who is working who is not working they can shift their exposure accordingly yes so bank is basically doing like a normalization across the whole society so now I don't I no longer need to trust individual people as long as I trust the whole society as a whole that overall it will make progress it will work then I will be happy to trust the coin Yes except that um uh except that I do not necessarily imagine a huge bank for the whole society but a growing kind of let's look at this example uh next door

to nataf there is a a beautiful Village Abu gosh it's an Arab Village which we're in very good relationships and all the shopping and dining and all is happening there because we have nothing we just have good people and nice view but no shops and no one restaurant but that's all so there's a lot of Commerce and we actually Abu gosh people are employed in a tough et cetera so uh there's commerce between so how can we trade with Abu gosh well let's say Abu gosh also has an abugash coin trust each other enough that they open a mutual line of credit between the banks so the the North Bank gives a thousand enough coins to Abu gosh bank and Abu gosh Bank gives a hundred thousand coins

so I can either pay to the to the merchant in Abu gosh with not of coins and he can go and redeem them in the bank or I can redeem from my bank abugash coins and go to abugash and pay uh the merchant in Abu gosh with Abu gosh coins and then you can have re there's in this idea of optimal currency areas there's a whole research on that so you can have eventually Federal level uh state level uh uh cryptocurrencies which are supported by the local banks with credit lines etc etc so that's sort of um the general idea okay much more to discuss I will not discuss

uh corporate currencies okay any question before I talk about corporate currencies yes so you mentioned like you can take this to the next step and like you can have Federal level currencies so then if you um have that happen at what what point does the local currency kind of become in a sense of obsolete so people will just say okay why do I care about like 500 different currencies I can just take the federal currency now and then you're back to just federally issued you're not back to that because remember that the local currencies are always the cushion and the collateral for every level uses the the currency below it is collateral and if if the the state level loses trust in the liquidity of a certain Community they can stop

they can decrease their uh their exposure to that community and reduce their liquidity and and stuff like that so it's not just okay now everybody has Federal currency coins there's a lot of mutual support and collateral collab realizations happening at all levels to make this happen so if I understand correctly you're saying like everyone can trade only in federal currency but it's still backed by the yes Grassroots and the whole yes and and remember that the key Point here is that every two every two currencies for which there is mutual liquidity are traded one to one so it's not that the federal coins will be worth more they'll be worth one to one with anybody Joe and Jim Coyne okay all coins will be traded one to one as long as

there's liquidity okay but one of the again long-term ambitious uh uh endings of this is that they'll also be that this could serve as a as a federal level Central Bank digital currency and the reason why it could be more useful than just a dollar based uh currency is because it can allow surgical intervention by by the federal government the way let's say there is a city or state in in disaster okay we declare disaster Zone you don't need to um you don't need to give them cash you can just open a mutual credit line so

you take you know x billion Arizona coins and give Arizona x million Federal coins and when Arizona recovers they just said there's not too many disasters in Arizona but they said when Arizona recovers then you can the government can redeem the Arizona coins and and reduce the exposure to uh or the liquidity of given to Arizona so you can have or you can give it to individual companies or even even individual people you know veterans whatever uh but these are just liquidity it's not cash it's not cash allowance it's liquidity against other people by much opening a mutual credit line anyway that's sort of a bit far-reaching but let's talk about corporate currencies so any cooperation

Corporation Cooperative can form without initial capital or bank credit within this system um for example uh by opening Mutual Credit lines with the employees customers suppliers and start with if they trust if if the customer suppliers and employees trust me and believe I'm a good entrepreneur they may be willing to open a mutual credit line with me maybe with some discount you know so that they can make uh make a profit if I'm liquid for a long time and uh and allow a company to to form without outside investors or Bank external Bank credit um I will not it's easy to implement

Universal basic and communities I will not get into this we discussed several uh central banks over and cryptocurrencies okay implementation uh as I said it's much simpler and faster mainstream cryptocurrency to run on smartphones truly decentralized we need only these there are a couple of papers as I said we need only dissemination and convocation exclusion we don't need even super majorities so there are lots of papers about efficient payment systems based on super majority approval of some form for this basically every entity that issues a cryptocurrency can resolve double spend so we don't there's no super majority and in general in a Grassroots system there's no majorities because you don't

know who it's permissionless you don't know who's participating it's open-ended okay so we have a few more minutes for questions what are you pointing at a question in the chat okay let's open the chat it seems that the protocol allows natafcoin to be sold for less than one meta coin if it's treated as an asset but it seems that it cannot be sold for more than one meta coin by the Redemption is that right okay so the answer is that there's no reason uh to well as long as there's liquidity there's no reason to pay more than one for other people coin because you can just through

Redemption get them at the price of one of course if there is someone who is insolvent uh and people cannot redeem their coins then they may be incentivized to sell them in the open market at the discount but I didn't I don't I disagree with the claim that it says here that for some reason a tough coin should be sold in lesson one not tough the theorem that I said before is that every two coins whether it's personal corporate bank Government Federal any two coins with mutual liquidity uh uh will be traded at a one-to-one exchange rate otherwise people will make money on Arbitrage until either there's

no liquidity or they equalizing value okay so as long as there's liquidity it's one to one yes what's the mechanism for civil resistance here is this kind of proof of personhood or identity base uh excellent excellent question because it all started from civil resilience I mean the motivation for this was civil resilience and I'll try to explain why I mentioned in our uh secret meeting yesterday with the interns uh that one of the one of our early works is about civil resilient Community Information and the Civil resilient Community formation was based on Mutual sureties between people which are backed by money but we didn't give an answer where this money comes from

but if we want the community to grow Grassroots it we can it cannot be assumed that they have outside management we cannot assume they have ethereum or dollars or anything they just they're just people it's most with smartphones okay that's all so this gives an answer the Mutual Credit lines that I that I discussed are precisely the mutual sureties because I will give someone a credit line I will give someone a credit and take their ious and give them my ious only if I trust them that there are real people they're not hiding assets etc etc so the Mutual Credit lines are these Mutual sureties that are needed to form a civil resilient community so so it's so the answer is we have a

solution for civil resilient Community growth in that two years old paper or three years old paper it depends on mutual sureties and now we have a solution a Grassroots solution of how to establish these Mutual sureties through mutual credit lines of personal cryptocurrencies because if you hold my coins and it turns out that I'm a civil I don't exist or I have multiple identities then the coins you you hold worth nothing and that's what algorithm requires it requires that if you support a civil and it is this that the The Entity is discovered to be a civil then you lose your money so the Mutual Credit lines satisfy that because if you give credit to a civil it turns out to be worth nothing and one

more thing which is kind of intricate but important if I happen to maintain two identities okay I I like had a half an hour talk this morning with Andy about that until we resolve it so I'll try to summarize it in two minutes if I have two identities my Israel identity and my New York identity okay and I exchange currencies and mutual credit lines with my family and friends in Israel and I come to here and say hey here's my identity let's let's have a credit line but let's say I earn money here and I don't earn any money in Israel so but I have expenses I have an apartment there I have to pay um you know taxes utilities whatever so suddenly my my Assets in Israel go down until I have no

no no assets left so all my creditors there cannot redeem their currency but I'm here I get my my salary from a16z I'm happy I have lots of money so what did I do I screwed my my family and my friends by creating two identities and hiding assets from my creditors so basically having two two identities which are independent is essentially hiding assets from creditors but these are not Anonymous creditors who will give you a mutual credit line it's your family it's your friends it's your blood brothers it's your people who trust you so normal people will not screw their family and friends by hiding assets from them when they give them credit so

that's sort of a long answer for the Civil resilience I mean at some level that is almost Outsourcing the Civil detection individuals right yes and I mean so the magic there I guess is like you rely on people to do civil identification kind of locally yes right within your Technique it's going to show you get a global notion of civil resistance then right think about the nataf bank okay what does it mean that nataf bank issues credit to or not have members it means that he sees that every nataf member has credit from their neighbors so they know that they don't hold they believe they don't hold other civil accounts which hide these assets because I mean it's a

very tight community and people people are embarrassed to do much more minor things than you know Screw the Earth neighbors for credit uh so it's just it will not happen and so the the nataf bank the fact that everyone has 100 coins from everyone else is the best civil resilience a protection the bank has okay so the bank doesn't have to do identity checks and credits are worth blah blah they just say okay 499 people say that you are you it's fine I mean service similar because as far as the double spend kind of there again yeah I didn't spoke I didn't speak about it but it's very simple so because it's the I mean in effect the issuer of the

coin is very motivated to detect double spends of their own currency that's kind of what it is it's zero motivated okay because I can print as Udi I can print as many Udi coins as I want so I'm I'm much better off printing twice the amount of currency rather than that being double spending my own currency and being detected as a as a jerk and people you know not willing to deal with me anymore dumping my currency and Etc so you're saying the detection happens off change no no Unchained okay uh Grassroots dissemination at this level even for for social networking it does not prevent double spend

but it ensures detection of double spend okay it ensure it social aggressive dissemination ensures that eventually under certain conditions equivocations will be detected now here if we assume that people don't double spend their own currency their own coins and they should never do that because it will be detected and their reputation will be tarnished forever and ever and ever it's like a death sentence you know they can it's not something you cannot recover from if you if you're a double spender you as an individual Udi is a double spender there's no way I can erase that record forever and ever so people will think 100 times before the devil spend their own money or double

spend at all but the guarantee for double spend in Udi coins is is the fact that Udi is not double spending because I will approve any transaction in my coins and I will never technically if you remember the the block list talk to to approve a double spend you have to approve an equivocation you have to equifocate yourself so if I want to approve first of all there's no reason I should if I'm if you're double spending my money and you come to me and say look I double spent your money because I needed a help me approve this I'd say here take more Udi coins it's it's much cheaper for me to give you more Udi coins than to

approve a double spend in audio coins so even if you put a gun in my hand and say approve my double spend I say okay take more money take more money I don't want to approve your double spend I'll just give you more money it's ious so to approve your double spend in Udi coins I need to equivocate myself which I will never do I'd rather give you more money than equivalate so other people who want to know that transactions in Udi coins are okay they just look that I approve them and that's it so once I approve them and if you double spend I will approve one transaction and when I get the second transaction I will not approve it that's it yeah so is it is it like a fair understanding is it like what sorry is it a fair understanding to say that here

the Civil resistance mechanism is reputation but now in a society it's like impossible to expect me to have a reputation support for everyone else like let's say New York City but we resolve this problem by having a hierarchical reputation system because it's much more reasonable for me to have a reputation score for like the people in the office and then now it's more reasonable for different offices to have reputation scores for each other it's actually simpler it's much simpler let me tell you why first of all you need reputation only of someone you own you give credit to why would you why would you give credit to Anonymous people you give credit only to people you know and love and and want to help and or want to meet you have mutual help you want so you will never

give credit to people that you need to go to some credit scoring Society or or you know you give credit to their social and family and work Circle but let's say you want to buy bananas from the only banana Merchant in town to do that you need let's say if there's no Bank coins you need the banana Merchant coins so you need to hold his coins for at least a few seconds you need to gain these coins and then buy bananas from you so you don't care about his reputation all you care about is that you got good banana coin and then paid it to the banana person to get bananas that's all you don't you don't you don't care about the reputation of the banana person as as a as a currency only you care about him as a merchant

like in Amazon you always you always pay Merchants before you get the the the the the the merchandise the always everywhere so you pay the merchant the banana Merchant banana coins the only thing you care about is that the banana coins you got are good coins and their weight there are standard ways to verify it and then you get the bananas and that's it you don't have to invest in banana coins if if you don't know the merchant and you don't care for him because it's like investing in banana coins is giving the banana Merchant credit why would you give him credit okay yep what is the process for when like a new person comes into a different community so like let's say I was in

community a and I have like a bunch of coins there with people there and like I'm going to a different community that was completely disconnected from my previous Community like how do I get integrated into this coins I have from other people I'm sure I mentioned this but the the the the there are a couple of solutions but uh I think the name is uh hawala uh the the I got the name wrong there is this network mostly in the Muslim world of a credit transfer where it's if you have reputation in one Community you can maybe your family can give them some money and then they transfer it to the

local community so you can you can there are ways in which you can use established credit remotely to get credit locally as a starter through virus chains another example is the Rochelle you know he has one son here one son there and he he told me this is good credit give him you know so so your family can give this child's son money and he will this other son will give you money which is in the same idea more or less um you know Rothschild started by having his sons dispersed in in the capitals of Europe and and he did all this Arbitrage that's how he got rich um so um uh and then you establish local connections and get the credit from from

locally from from your friends and look from a new friend you should make new friends and and a Mutual Credit there but it's not yeah that's that's it okay thank you very much