Science, Academia, and the Blockchain - Roger Wattenhofer, ETH Zurich

Transcript

[Music] hello and welcome to the blockchain and us we're pioneers and thought leaders talked about their journey in blockchain technology crypto assets enter token economy and I'm your host Manuel staggers if you enjoyed this podcast please give it a top rating and review on iTunes and feel free to follow me on Twitter at Manuel staggers this episode is brought to you by crypto storage crypto storage offers a proprietary solution to enable professional storage of crypto assets the gorge is secured both physically and digitally on the highest grade hardware security modules with detailed configuration possibilities for individual based

access control to learn more visit WWF destroyed CH this episode is brought to you by the cart finance the cart is the leading Swiss digital wealth manager providing its products and services to individuals family offices charitable organisations bank and asset managers its investment strategies lead the way they harness the largest know-how as only a digital investment advisor can to learn more please visit www.carmensognonvi.com/newsletter my guest today is Roger button Hofer Roger is a full professor at the Information Technology and electrical

engineering department at the Swiss Federal Institute of Technology eth his research interests are a variety of algorithmic and system's aspects in computer science and information technology such as distributed systems Positioning Systems wireless networks mobile systems and social networks his work received multiple awards such as the prize for innovation in distributed computing and he has also published the book distributed ledger technology the science of the blockchain and now to the interview hello Roger and thanks a lot for taking time thanks Ivan oil how did your journey into this whole blockchain

field to begin alright so for me it began like for most people I guess back then you know it was cryptocurrencies I learned about Bitcoin basically when he came out but I kind of ignored it back then I thought you know it's nice that someone did that but it's basically an already and I'm really something like 2012 I would say I had a PhD student and he convinced me that this is more than just fun and games that this is actually something which is worthwhile to do in academia and then this PhD student convinced you to work on his PhD in Bitcoin yeah exactly so his PhD was about Bitcoin there and you know as I

said initially I told him to do something else but but he really convinced me that it was the right thing and I became you know quickly hooked about it and maybe 2013 or so we wrote first paper about it and he was maybe the first PhD soon in the world who you know the technological side of the PhD on on Bitcoin and cryptocurrencies that was a Christian Dekker it was Christian Dekker right what was the convincing argument for you when you when you read that white paper not so much the paper I'll say the paper was you know was the clever mix of techniques that were known before but you know this package seemed new in some

ways and it seemed also to have some problem still so that's usually when researchers get excited right you read something it's not perfect you think that there's a problem there and this is also why I never bought be coming back then personally because I always felt there's a technical problem here there's a technical problem there and only later we again with with together with Christian that can we figured out how to solve these things and now you know I reached I should have bought bitcoin back then recently I saw you had a presentation about the 10th birthday of mr. Nakamoto or something like this it was called right yeah so the paper came out in 2008 now we have 2018 so it's

really 10 years since this well now it's still early in the year in terms of late in the year but you know who cares so much and so I you know started to call my talks give it to title because you need a fancy title and yeah usually you know I think of 10 year cycles in research I often ask myself the question you know what was the most exciting thing in our field which happened in the last 10 years I probably can still use that that it is one of the most exciting thing with chat in the last 10 years but soon enough it's not there yes but it took many years of course to take off it's not like the iPhone which came out and then you know made it such a huge splash in

society immediately left after 10 years it can say it's it's now well understood did not research anymore but up for blockchains maybe a few more years might be exciting and then it's something that people just accept what what in your view what have we learned in these 10 years so I personally I was very surprised how much this whole thing you know took off how how important it became it's you know in many ways I've done a lot of research in my life in different areas and you know people are always interested in what you're doing but this is you know an order of

magnitude higher than anything have done so far so you know I still get basically emails every day about people who ask questions and want to collaborate and whatnot so it's a and with all the topics I get an email every month or something right I'm already happy if this happens so so this is something I would not have expected and you know was surprising now in terms of general population and you know how much will be impacted for the rest of the world apart from my personal story is instead I still think that the main ingredients will you know stay there we will have cryptic cryptography as a as a

one of the main things which changed you know society essentially will continue to change society and distribute systems is another area which is really interesting academically and you know we can do all things and practically relevant and then you have combinations of the two lie cryptocurrencies I don't think they will go away I think you would continue to have them but you know many other things will go away of course you know many other ideas around now I don't think you know classic blockchain will be the right tool to solve these things but you know that the area's it's going to study of course when we made the interview last time for the for the

documentary film about about a year ago you um you mentioned there and that got a lot of criticism actually from from people who saw the interview you mentioned there that blockchain was actually an old idea and and cryptocurrencies were or the first application of this pretty old idea that goes back to the 70s can you can you explain that again right so I'm surprised at like a criticism for that actually so I personally never heard anything about that so but you know yeah it's true the cryptography of course nobody would doubt that right was invented kind of in the aftermath or around you know has to do with Bohr's

basically right and and the strong cryptography ladies so-called asymmetric cryptography it's really in the aftermath of the Second World War and the Cold War after that where they wanted to you know let me tell you the story they wanted to do the Impossibles on now right they wanted to give keys to the people in the field without sending somebody there so that they you know can send send secrets to somebody without basically you know having to send somebody there so even with somebody being able to hear everything they tell this person in the field they want to give him as a key to this person sounds like absolutely impossible and that was kind of the starting point I

would say for for today's cryptography and you know this was really in the in the 60s and 70s of Flores century and all the other ingredients were also there you know it's not that Nakamoto had you know anything which was not known in my opinion but I don't want to you know downplay his role her or whoever it is but I think was tremendous to bring these things together and actually implement them and actually try to make him popular somehow to popularize these ideas because many people didn't seem to be aware you know about cryptography even so you use

cryptography on a daily basis when you enter HTTP in your web browser we use cryptography the very same cryptography deck that the blockchain uses people are not aware about that and I think it kind of needed money to tell them that something's going on there no like real money people accepted that you can do secret communication with your bank somehow without somebody being able to you know hack into your account but the money idea seems to be even stronger right you can have money and you can only spend it once and nobody can really steal it from you and it's just numbers that seems to be for many people so

mind-blowing that they started to look into this more seriously often when when companies approach you to collaborate which approach do you see them take to this idea right so so when companies ask or other institutions ask for some of them I believe it's still true that they just you know want to be modern right they want to be hip and they wanna you know have a blockchain tag and their web page or something like that I think that still exists but but maybe these times are gone now so companies understand what they can use these things for and why they want to use it for still you know in half the cases I

would say you know why don't you just do this okay why don't you just have a database and that's it right but we see a few of these applications which may be you know needed a bit more than just a database I would still say that the methods of the 70s and the 80s you know still prevail from any applications they are the better methods than what you know like a Bitcoin kind of blockchain gives you but but nevertheless you know the Bitcoin hype made them think about these possibilities they didn't think about those before and to be honest to you know follow up on that I had many

friends who worked at banks for instance in Switzerland okay and we had these banking scandals you know where people stole customer information and put it on a CD of all places you know and then leaked that to other people and I always told my bank friends why's this even possibly know how can like a tech guy in your company have access to all your data so easily you know to the real data and to say I want this can itself access because it needs to you know fix the system but I always told them you know that's not that shouldn't be the case okay and I think now we are at a time where where everybody understands this a bit

better right that there's this cryptography out there and you can use it for all sorts of things and and back then not so long ago you know but before the blockchain time people just didn't seem to be aware and the tech guys in the banks didn't seem to tell their bosses that they should secure their data more seriously but still I mean many of those applications in in the corporate world or in maybe you know traditional finance don't necessarily need the blockchain in your view they need just a database that is secure and encrypted raw and that's it yeah Russ yeah but that's that's definitely true so for many companies they don't need a blockchain now we can argue that the blockchain might be a

better database to some degree because the kind of already has is fault-tolerance built in you know you don't have to stuff at one site and thanks of course Nord is already right they wouldn't store their customer information at one location right they know that if meteor hits this location and this problem right so they already built this is the resistance but but they may be built it in a more traditional sense that they had you know a database and then they replicated the database and a blockchain maybe puts this replication ID a bit more to the front makes it the fundamental idea of the system and you can kind of you know rebuild your system that way maybe that's a better thing and maybe some

people think about that also right now to kind of replace their old database with blockchain based database in some cases this might make sense in other cases if not might not make sense what what are interesting applications that you've seen of distributed ledger technology recently all right that's a good question so you know broadly they fall into two categories I think and one is just you know the financial world cryptocurrencies and stuff or other financial you know assets that you want to keep track off but the other world is a bit about you know just tracking other

goods and tracking information I would say this is like kind of a very general about ten people say you know you want to do insurance with this and whatnot so there's lots of applications spawning out of this so of course people say can you use it for society that's also one of the the aspects that's something I like very much you know because it goes with away from the money perspective and from the company's perspective say can we use this for for our society and well I recently thought about this a little bit I wrote even a newspaper article about it where I would say you know in Switzerland please we used to have these these you know these boats where

everybody would gather at the central place in your city and then you know by raising hands you show people but whether you want to have this or that and so this has a problem of course because everybody can see what you're voting right people don't like that and then people more and more even though in Switzerland we still have these voting by hand situations but we have more or less everybody votes by paper now and people believe that this is the holy grail of of voting right you kind of you know writes yes or no on a sheet of paper and send it into into the voting booth or or we actually buy Post but this also has a problem because you cannot really know that you won't

actually count it right so you have to trust your government so in Switzerland of course everybody trusts their government for some reason but if we were in another country you know people would say well how do I know that my vote actually counts and this is a problem and and something like a blockchain you know doesn't need to be a blockchain but something like a blockchain could help there where people have actually the possibility to see that their vote was actually counted and to give you a bit more background even you know it I read recently that for some elections in Switzerland that can become very complicated they say about 25 percent the votes are not legal they're not counted and you know I don't

know why maybe instead of writing 35 names on the sheet of paper people write 36 names on sheet of paper or they write the guy three times or I don't know what right and the whole thing doesn't count and this is a problem in my opinion my opinion it's a problem that that paper doesn't give you any feedback right it just sits there and lets you write things however if you had if you did things electronically with an app you could of course give you instant feedback or it could you know you could tell what you want to vote for you can say you know I'm interested in this or that issue and I feel this or that way about these issues and for instance and I don't want

any lawyers on my you know on my ticket and I don't want any people who are too big in companies so to speak and my ticket and whatnot and there could be programs which help you dislike your your remote right you wanna vote for and so yeah so this could help us a lot or to give you another example so so recently we had this vote whether we want to continue to pay for this state television it was like a huge thing in Switzerland and if we did it by app it's also possible with the paper but by app it's easier everybody could just submit the number okay

could say that's my number that's how much I'm willing to pay for for national nationwide television and then we could choose the median of those numbers so that half the people would like to pay more and have people would like to pay less we would have a real vote on behind what you're gonna pay for this so there's so many possibilities to do things electronically there's a new kind of democracy and I could go on and on with this okay so you have to stop me at some point I think it's an interesting it's an interesting topic and it's related to blockchains but how exactly is it related to blockchains because before you said many applications can just have a database and they can be encrypted but does does do these

applications that you just mentioned do they really need blockchain technology right so I I won't go as far to say this really need to blockchain technology I would say it would be fine with a database here as well but of course you could register votes some kind of an anonymized way in some sort of blockchain right so people could you know go onto any machine which stores solve this blockchain and could check with an app or maybe even manually but certainly with an app that their vote actually counted right and you don't need the central government anymore which really controls the whole infrastructure we could say you know instead of just the central government we have a whole bunch of organizations

in the country so that it just at least one or two of them right and it could be even in our non-government organizations which participate there and together they store this data and that of course gives you much more trust than just say you know it's basically one centralized government agency which stores all these things as I said you know for people in Switzerland they don't even understand the argument because they trust the government so much that they say you know move why would I do that right but if I go to other countries and you know North Korea for instance I think people would understand that there's a this is better and now of course this needs to be anonymized right you cannot you know

just write it plain name in there saying you know this guy voted yes for this issue and you're back to we know raising your hand even worse but this can be done you know people have-have means to to fix this that it's really anonymized and nobody really knows what you voted for and you know in the a simple solution in the blockchain sense for this i can explain a simple solution in you know one minutes let me do that it's just that you know you can you can get this as a token and the token gives you the right to have a vote and now it could exchange those tokens you could you know meet strangers and say let's

exchange our tokens and they can do this several times maybe you know you exchange token 20 times with strangers nobody knows anymore who you are at the end right of course if you do the last time you kind of anonymously do that but nobody knows who you are anymore and then you can check you can vote with that token that you have in your at that point and then you can check that your token actually counted so it seems to be quite easy so now if I explain it let that way everybody would agree yeah you know why don't we do that right so of course there's some technicalities behind this but basically this can be done and in my opinion it should be done I think it would really bring our democracy to a new level what kind of blockchain would be

necessary for this so for this you can use the plain old Bitcoin or aetherium blockchain it's not you know don't need to invent many new things he could do that to prove work basically if you want to to have the machines participate there or you could do some kind of authenticated system where you say you know government goes out and they asks organisations who want to be part of this and they are then you know part of this tariff get an authenticated machine and with that they can participate in this blockchain but you know it's blockchain technology for this kind of problem doesn't have to be improved very

much I think whatever we need for that is out there I think that I think the real technical challenge here is to basically make it simple enough for users that maybe where the technical challenge comes in right it's of course easy to write something in a piece of paper and post in the envelope and send it out it's somewhat hard to understand those apps I guess maybe we can make it in such a way that you don't have to understand it but I don't think you're there right now but maybe there's some research needed for that so the front end doesn't really exist but the back end exists that's what you're saying yeah that's a good way to put it have

you seen applications for this voting is voting concept like it's just described have you seen that oh it exists even in Bitcoin it exists right so in Bitcoin when you when some people want to know what is the opinion of other Bitcoin users about some issue than the do this they say you know whenever you add a block to the blockchain you have specified some bit and with this bit you've got a signal how you feel about things this has been done many times and so it's not something which is impossible of course in Bitcoin then who is voting it's the miners right and a miner is very rich and has a lot of mining equipment of course have much more votes than a man who has no mining equipment almost so it's not a democracy

that's another problem you have to solve you have to give you know everybody his or her vote it's token so to speak about what this exists you know and many other ideas already exist for instance this thing called liquid democracy where the idea is you can transfer you all to somebody you trust and you know as long as this other person or any organization does a good job you just keep trusting this organization at some point if you think the organization was the wrong way you can just override this organization so you don't even have to worry about it anymore it just just tell your beliefs and you put it in give it to somebody where you think this person represents

your belief system very nicely and that's a big difference from now where we just vote every four years and as soon as we go to the politicians decide you know I'm gonna I'm gonna support these other companies nevertheless right I got this guy's whoa now I can do whatever I want right you can immediately stop stop such a behavior so it would be would have a tremendous influence on societies and I think this is something Switzerland would be a very good place to think about that because we already have this culture of you know continuous voting about issues I think once you have this people understand this and it would be possible to

implement it to you did you speak to the government about it no however it's just a joke but maybe I should say it so I got an invitation by the European Commission at the other day to talk about blockchain and for me this is you know the European Commission and blockchain is like the opposite right it's like the total opposite of each other and I've told them I won't come but then I thought about it again you know should I actually go there and make a talk just how the European Commission is just the opposite of you know having this open society and democracy somehow they don't have it really in my opinion so it would be interesting to talk to them after all all right maybe I should accept this

annotation but I didn't talk about with the Swiss government about this but but to be honest you know there's many things going on in Switzerland for instance there's a there's an idea to have a large research project in this domain and of course this will be one of the main one of the main topics people would study and then this connection to government will be very immediate and very obvious and so I don't have to talk to them right now we are beginning now with these pilots for ID right on the blockchain I mean what what's your view on that so yeah so for many of these applications it would be important that you know who you deal with right so especially if you want to cast votes I

think it will be important that you know have real people who cast the votes and not just machines and for this you need IDs and yeah that's a good it's also good research area how you do that you know how to have IDs how to have IDs that you maybe multiply these so that you can depending on the context you can use one or the other I like the topic but does that application really require a blockchain technology or is that just another case also also just encrypting and database that would be sufficient I don't think it messes not nothing requires the blockchain okay so that's always true

but but sometimes it helps okay does it help here it might help because you know blockchain as I see it now it often stands for this idea that you that the data is open somehow that everybody can check whether the data is correct and maybe that would help right if the if the government just you know if the government just has a database is that these ideas then you have to trust the government again to maybe to an extent which is not healthy in some countries but I I always assume that this is given for the things I have done

so far in this domain so but this is something where people really should look into when you present blockchain technology or your views on how to use it to people who have never heard of it for example before you mentioned the European Commission so I'm sure there is not too many blockchain experts there what are the reactions you usually get so the time now that people don't haven't heard of it this it's almost vanishing so everybody has heard the term of the people I talked to at least and they often have an idea what it is well I think they they think of it as a

database which is not so wrong I think they think of a database maybe they think of a public database where everybody can look into so which is you know pretty much right on the spot right I often you know what I often do is I explain them also a bit of cryptography explain them a bit how this works there's a lot of math involved is that so don't get me wrong this is very complicated and I cannot explain that but there's the easy ways how to explain that with colors and whatnot and I I do that so explain cryptography colors and they understand that to some degree and I explained him a bit sometimes about the problems of Bitcoin or why it's so complicated and these kind of things and they also surprised by that so there's

some things which surprises them and they also explain them I would say that you know that there's not one single blockchain in my opinion in the whole blockchain is a a high dimensional Beast and you can have trade offs there you can have more security and more privacy and more efficiency more scalability and whatnot and that probably also surprises some of them they kind of think of blockchain as one thing which is you know always the same thing so that's maybe the three biggest surprise points I see with people when I talk about these things okay what are the most common misconceptions that you that you see them having now I would say one of the

most common misconceptions is really that they think there's this one block chain one block chain fits all I think that's that's a misconception I come across often and another thing is that they maybe think that they would need this one block chain for their company for this one application they have but if I think of some of the talks I gave the companies sometimes you know I get very funny reactions from the audience something like but our company still uses Windows 95 or something like this okay you know what are we talking about here you know this is so far far in the future for us we won't want to have this so this is a funny thing I once had or

twice so so it's sometimes maybe they think that this is really far far in the future for themselves even though I usually say that all the ingredients have been at least thirty years old right so that's that's some other problem maybe some people you know they think in things which are out there you know like something which has been there for many years can I just use this directly whereas as a scientist you even you think of just ideas and how to combine them in the best possible way right you want to have the best possible system for some application so you think about what ingredients do I need what

ideas do I need and then if you think that big Bitcoin blockchain not much is there that hasn't been known before right proof-of-work for instance has been known long before the Bitcoin blockchain this idea to attach blocks to other blocks you know this is something CI students have learned in semester since fifty years old right so it's not it's nothing new there right reading can't find this one big ingredient where I would say what's the huge invention of Nakamoto in in you in your function as a professor you're you're obviously working with students

young people at ETH what kind of approach do you see them take to cryptocurrencies right so I would say my PhD students just a bit the older breed many of them I had a hard time convincing them that this is you know that this is something they should do researching so when this topic took off a few years back it was becoming more and more clear that I should invest more and more time in this topic that I should focus on this topic almost but I I couldn't convince any of my PhD students to work in this area for on the

graduates of our younger students that I teach and work with this is a bit different they seem to like the topic very much always like the topic recently there was you know undergraduate had to write can a project proposal really invent something without a professor and about a third of the students won't do something in the domain of blockchain which is you know huge more much more than any other topic came up do you think cryptocurrencies are here to stay oh yeah definitely so this is this is something I don't doubt they are here to stay we will see all sorts of different cryptocurrencies even those are here to

stay I don't believe that you know there will be only one cryptocurrency as some people say many cryptocurrencies right now the way they are proposed are still very centralized you know they still have this centralized basically blockchain decentralized centralized so to speak right but everybody has all the information and that's that's just wrong okay so in order for cryptocurrencies to thrive you need something like lightning or what week used to call it this full duplex micro payment channels now you see why the other one made the race but you need this kind of channel to be able

to trade not in the main blockchain but kind of PHP okay really between people and that's of course you know I think the most important idea that people had in the last really in the last ten years in over the last five years and this makes scalable cryptocurrencies possible and and you know somebody should implement that well it is being implemented one could argue it is being implemented but lightning somehow didn't really take off so it was a bad combination together with Bitcoin kind of Bitcoin cannot be changed to the point where lightning

would thrive so it would be better on the theorem you see this now that you have some implementations going on right now and I think it's not really thriving so well as far as I can tell I haven't seen much about it and maybe bitcoin is the wrong platform right what what would be the right platform so we do have a platform on on paper okay we wrote at some point the paper what would be the right combination of channels and and blockchain so to speak to make this happen it's just you know if you really want to make it happen a professor is just the wrong guy

that's it's just this is just a sad truth you know one of the students who worked on this in our group should have continued with this you know after finishing master's degree or something I still daydream about these things from now from time to time you know whether we should do that or not I was recently talking to you know some agencies in Switzerland whether you want to have a governor based cryptocurrency based on this idea some companies and agencies who are in this domain they would say the current system works pretty well why would you

need that and it's true I would guess that it wants you have a cryptocurrency which is sort of government-sponsored you would see new new applications you know new things people do with it and you would see invention and I would like to see that ok don't get me wrong but I think you know somebody has to be in the driver's seat they have to push this and I can I'm happy to you know tell them my opinion how to do things but I don't want to be the guy who who does that I father interest wouldn't a government-backed cryptocurrency have the same problems though like you just mentioned that it's decentralized but

centralized so yeah but you can make when you do with the channels you can make things really decentralized decentralized so does the double decentralized so because any government together with the banking system to behave right now this will people's so now I said they were banking and government and so on right these are usually you know very bad words in this context right Bitcoin lovers would say well are you now working for the devil or something right so so for me I don't see it that way right I see technology and they can be applied in various ways but you really need a reason why I do it right

and of course money today is already electronic right the only difference to my system is that or our system should say my group system is that with this electronic money there's still a lot of trust involved right banks have to trust each other they can kind of send each other emails so to speak simplified speaking and you know I send you tomorrow that and that money if you do this for me today but but with cryptocurrencies you can make it really without trust you don't have to trust each other at all that you just can go and claim all these there's eventually and this will be a change I'm not sure where the banks are actually so interested in this

because their whole business is about trust right now this is important that they are trustworthy and if somebody comes and says we'll have technology here everybody can trust perfect in you say well what's my role the bank then and as I guess this is one of the reasons why it doesn't take off so much soul of course you could have new companies who kind of provide this kind of banking services without being a bank but then if it's about money it's highly regulated which is rightly so and you know and it needs you have to go through all sorts of legal trouble to do that and that's like the last thing I would like to do but maybe a central bank I mean I read recently that central banks

actually have more applications for state backed cryptocurrencies then and retail or corporate banks right that's that's true I also see that as the most interesting application in the financial system so to speak central banks talking to other you know normal customer banks or between themselves I would expect there's interest in that so in my country in Switzerland the central bank is a bit conservative it doesn't really want to do that it's my feeling when I talk to representatives there doesn't seem to be on their menu all there seem to be further ahead other countries the

British at some point they're really you know into this I think they've made a lot of effort there but it's always a question why would you do it and I would say do it and see what happens with it right that's kind of like almost saying why would we invented the internet you know you can look into your text into the light in the library serves over we can do this or that the internet took off because people build all sorts of unthinkable applications on top of it right and that would be the same for an electronic monetary system which is trust less so to speak so I think there's a lot of potential but then somebody has to start this and

surprisingly maybe two years ago I felt that this is closer than it's today so so back then I felt that there's a lot of central banks which which are interested in this and then I was surprised not to see much after that so I'm I think they have their doubts I don't quite know what they are but they seem to have doubts and China might be a good market for it actually because they in China you already have this situation where people don't use credit cards or money to make the payments right they use basically apps to pay for things so everything is already electronic so now

you could ask what's the advantage of cryptocurrencies to electronic and this is very becomes interesting right if it's if it's no big advantage and people trust each other too that the system works and their money's safe so to speak then why would you need it and that's a good argument and I think maybe that's the reason why it doesn't really take off in China China is very interesting you know in many ways because the miners are often from China and now the Chinese government said we don't we're not going to build the next power plant and then you just build a mining station next to it we won't actually use it for economy and it's a interesting country let's take a quick break for a message from our sponsors christos storage is

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des e AR tes - finance calm where do you see all of this going what's the future of this whole crypto asset space that's a hard question still I would say something's changed in this area in my country at least right so if you just go back like a year I think it was pretty much the Wild West in Switzerland everybody could you know do an ICO and gather money and then this the regulator's basically started to

understand that something's going on especially in Switzerland something was going on there was descriptive alley movement and and at least crypto rally guys claimed that you know a lot of crypto money is kind of flowing into crypto realm in the world and so the regulator's gone you know started to look into this and they started to do regulation it's now much more complicated to do things I think it becomes you know as regulated as everything else which is you know to be expected eventually I think regulators have at least in Switzerland they tell

you they have this they they actually must not regulate things too quickly that's what they say themselves right if something new happens they have to give it a bit of leeway they have to give it a bit of freedom at the beginning but now that we have these hundred million dollar companies in Switzerland which are purely based on icos and they they're looking into this so how will this change I would expect you know short term at least we've seen some gold rush in this domain partially also because probably people had a lot of crypto money right lying around and they didn't want to sell it really but they

kind of invested somehow so it was of course a perfect match that he used a crypto money to buy crypto assets but it will certainly like now it already kind of slowed down and will continue to slow down in my opinion maybe you know after this slowing down you will see some progress again this this domain but things are very regulated right now right that's the financial system is so regulated it's amazing right once heard that the Swiss banks keep hiring mostly in deregulation domain you know they replace other people but they mostly hire in regulation domain and for me you

know technology is always first and I think many of these regulations could be much more nicely done with using technology right you don't even start to see a problem it kind of regulated nicely so that the technology solves it for you don't have to look after something you kind of know that it's already correct the way it's done yeah you know we'll continue to see I cos I guess and but this is not I think one year ago so it was a huge boom right everybody starting ICO and everybody gets so much money awesome it's amazing if I could really but but maybe this boom also forced banks and regulators to

step up their game a little bit yeah I know this this was this was true for regulators for sure banks looked into this I know that the Swiss banks tried you know they they knew about cryptocurrencies of course for for many years now already and they tried their things I think and now I know some rumors you know why this didn't take off so but it's only rumors so it's not clear why we don't really have a space cryptocurrency at this stage please for the public not for the public crime and I would say it's a mix between you know if you do it electronically why would you need cryptocurrencies you just trust your bank a little bit and it's fine right

and for for small amounts through right if you have a hundred millions maybe you know then at some point trust becomes an issue but if you are like a regular person doesn't know it's not support you said that you expect maybe a slowdown and a shake out of many of these ideas that look very promising and at some point they have to deliver so that's obviously a lot of the investors maybe overestimated what these companies can do but what what are maybe things that we are under estimating one of those companies will have the main crypto currency of the future right probably some financial people say that

this is true this is a digital good essentially right and in digital goods we often see that one person dominates or a few companies dominate the market we don't need a thousand cryptocurrencies so this is clear and of course if you bet on the right horse today you know what is the real cryptocurrency of the future will be broadly used all your payments will be in that cryptocurrency and all your assets will be stored in the cryptocurrency but not I think if you bet on that horse you're still you know we underestimate but what's that horse first of all and probably not even there in the race that could be horse it comes in future I think that's the reason why people continue to buy these cryptocurrencies because they hope you know if one is gonna replace 50% of the

of the global market in the morning domain then then this would be a real winner right but it's not clear at any of the cryptocurrencies we have today is the right one and many of them have a huge problem I recently did for a newspaper I did an article about energy consumption there was this these ideas flowing around for energy consumption is so it's a huge problem right so you know if you can save Switzerland's energy consumption by just turning off one cryptocurrency you know you know how much we do in this country to get our energy bills down so it's it's amazing right so I think that's a huge problem as well not only for Bitcoin

surprisingly although also for others you know so what you would need again is to have channels in order to bring the energy consumption down and you probably don't want mining that's I say state-owned cryptocurrencies would be you know the right way what what would you like people to understand better about blockchains so what I usually try my talks is just to tell them what are the ideas which are here to stay and I tell them for instance that this asymmetric cryptography is a is a thing you know it will be staying they always

ask me you know what what are the applications what kind of applications you see there and I usually tell them for instance everything that needs signatures today is you know something which could be disrupted by cryptography essentially and that's already a lot of deals and trades and negotiations we do and all sorts of voting I mentioned before right all sorts of things have to do with the signatures and they're all prone to disruption there that's the main I think I can summarize it in this one sentence do you do you get a lot of criticism for your critical views on cryptocurrencies no not at all

I think people accept that I'm a professor and as such I'm supposed to be somewhat critical I always said and continue to say that I don't I'm not an investor in this you know domain I don't buy cryptocurrencies I never bought cryptocurrencies and I thought you know I can be very objective about it somehow I think that's what some people would value that I am somewhat critical when I get invited to talks I often get specifically asked to be critical about it because maybe when they invite somebody who wants to sell something to them they would always you know hype it up you know but this is the next big thing and you should really

invest in my company right so I'm not like that I don't apart from the advising for this one company I don't you know have any anything to sell so that's why I never I never see these things sometimes you know I took off with colleagues and we have very different opinions about some things so I have colleagues which would say that me calling Bitcoin eventually consistent is totally wrong and it's the opposite of that in the teller no it's exactly like that and he kind of basically in the terms but it has nothing to do with you know supporting some kind of hidden secret plan agenda in the bank and you're not very deep in

in the Bitcoin only community were no not at all I mean used to be the closer is my first PhD student who worked in the Bitcoin domain here so he really worked in the Bitcoin domain and he was really interested in Bitcoin more than anything else I mean he knew that of course back then that the topic was bigger than just Bitcoin but he was you know his heart was it Bitcoin out saying now I don't have he's not my PhD sinner he graduated successfully got a medal for it but I have currently two PhD students who look for in this domain I would say and they are not interested in Bitcoin at all so we now look at other

things and we're always critical about things you know we try to push solutions as well not just you know research in my type of research you have to type thinking and do we can either show that some how something should be done okay here's the new solution it's better than anything before or maybe more surprisingly you could can show that something cannot be done okay you can show that something has a fundamental flaw which cannot be fixed okay I could give you many examples of things out there you know have fundamental flaws okay I don't want to do it because we haven't published it but some things out there don't make any sense okay and one can show that that they don't make any

sense and one can show one can prove that they don't make any sense and one can even more show that the problem is really not solvable game that something engineers don't like to hear right you can prove lower bounds or impossibility results that say you know this is something you can not do it's impossible maybe there's a workaround you know by doing something else but if you formulate the problem formally one can show it's impossible and that something of course companies would never do right there will always solve something it's not that they want to show that you know let's say proof of stake is a fundamentally flawed idea so you already criticized some of the ideas in

cryptocurrencies and in blockchains but what are maybe really fundamentally flawed ideas there I think you know I I think the idea of having a centralized blockchain and if you know everybody shell shares all the information that's for many applications of on-demand fundamentally flawed idea but we know that already for many years but nevertheless it doesn't keep people from just continuing to propose this yeah I think you know we always need these channels very can-do traits on the side right you don't want to have too much centralization you always need channels

on the side things which don't go to the to the main blockchain in my opinion the main block changes just it's just a trust machine it should be there to kind of settle issues between partners okay so we have a channel between the two of us and if we disagree we go to the blockchain and tell you know this guy you know this monument guy tries to cheat me here okay so then we go to the blockchain but as long as we are happily you know doing trades together we always sign these trades okay we always sign this trade so that you know we can go to the blockchain eventually right you can you can prove that I sign something you

can prove the to the blockchain but I think the blockchain is just there to settle these things right all other things should be the unboxing the blockchains justice trust machine is like a court okay it's like an automatic electronic we don't need a judge okay we don't need lawyers we have proofs by digital signatures this is an idea which is very important it's very central to this whole thing but I don't I still think it's not there okay even I told you three years ago we published these papers I still think people don't understand these ideas and don't take them seriously maybe I should explain a bit more since you're asking so so it would really be like a banking system okay so

you would have a channel clear Bank okay and I know customer views I have a channel to the bank to my bank some necessarily banks but maybe our two banks have a channel between them so now if I want to have a coffee I tell my bank to give two dollars to you essentially and my bank would tell your bank that there are two dollars and then you get to you know you have it on your account basically sitting there but this is just you know it's routes like in the internet messages route through kind of the banking system it's exactly like in the Internet and that's how it should be done okay and the blockchain knows nothing about this basically we just sign you know I sign to my bank if this guy to box my banks science through your

bank if this guy to box and someone's just route through this banking system only if somebody tries to cheat somehow then you have to go to the blockchain so it's important of course that these channels they should be you know they are basically initialized using the blockchain the blockchain needs to know that for instance you have a contract with your bank or so that you are can be anonymized or something like this right but the blockchain needs to know so in case later you say this Bank is trying to you know cheat me you can go to the blockchain and proved that the bank is trying to cheat me you're as powerful as the bank in that moment okay this is a huge deal in my opinion in many ways right you you could have a bank account

with millions of dollars if your bank goes bankrupt so to speak shouldn't happen anyway but if it goes bankrupt you can basically go to the blockchain and say I want my money back okay and the blockchain would give you the money so now okay so now we start I'm opening a whole warm box here okay because where is the money if the bank goes bankrupt right so and this becomes you know now we go into this area of who makes money and who owns money and there's an initiative in Switzerland to vote about that you've probably heard of that don't know the English term for it saying in

German it's full killed in it your TV it's maybe I can say that sentence again but so there's this there's this idea of not having banks customer banks to generate money as it's done right now all right right now Koster banks would generate money if you want to go there and one have a loan they will basically generate that money and then now we vote on that in Switzerland that this is not not going to happen anymore in the future and this has surprising ties to we know what we do in research so to speak when you talk about crypto money doesn't have to but you can you know go either way you can

combine things in various ways is that before you can combine at least in the early space but I think if you just have a plain savings account plain bank account you you just have money on the bank and no loans and stuff like that you can have bank accounts there which are really secure okay no way even if the bank goes bankrupt it's still your money and those are powerful ideas so let's say let's say I have 10,000 Swiss francs I go to a bank open a bank account and then what they would write they would transfer that into crypto money or how would it were right so together with together with the bank you would basically have do a crypto account

with the bank okay you give the bank your fiat money the bank changes this to crypto together with you okay so it's kind of a very you know you're on the same as a bank Kostas you're both sign until you decide do you sign to do the blockchain essential to the central bank maybe okay the central bank will know maybe anonymized maybe they don't know who you are but they know to make a Swiss bank account possible again maybe they know you know there's now this descriptor count of yours now has ten thousand bucks on it okay and now you're guaranteed to get this back so to speak at this point right now you can you know you can do trades with this bank account and trades mean for instance when you buy a coffee you would

tell your bank and assign that you know I will use two of my francs to buy something from that right and the bank might do the same thing in the other way around right so you kind of have money flowing back and forth but eventually you you always have these signatures you know and you always have the last state of your of your account at the bank and this is what you can go to the blockchain rethink and say this was this was how much money I had on the bank can prove it to you so let's say I spent five Swiss francs on their lunch and but I learned 100 Swiss francs so then I have ten thousand and ninety five Swiss francs and the bank would then at the end of the day write that to the

blockchain no it's not it's never written to the blockchain as long as kind of the amount is somewhat you know flowing nicely around these around the initial money and there's some details I didn't tell you but but that would not be sent to the blockchain it's only the blockchain is only involved at the point where the two of you disagree okay very good for instance let's put it let's make a better example let's say you buy a car at some point for ten thousand francs okay and design this and sent this your bank okay but then you go to the blockchain very sneakily okay and you go to the blockchain with the account balance it just had before that trade okay because you don't tell the blockchain about your last buying car

trade and now of course your bank has the opportunity to tell the blockchain no no you know this guy's trying to cheat here don't give him this ten thousand bucks not he's right it's I have proof you if this guy just signs front of the bike are just signed the payment right so that's the last day but that's kind of what the blockchain is for right it kind of is there to settle what was really the last date of your of your channel so to speak of your your account yeah you know but that could just be something maybe that's that would be appended to a traditional banking system of course yeah no yeah it's just that it is flowing around you can make combinations of ideas it's not something which you know would disrupt

anything I think not so much if the banks would continue to be the same companies right so of course there could be and you guys you know I'm now electronic bank creep the bank such-and-such right and I do business that way and then if all people would say well then I want to go to creep the bank such-and-such because I have masked money secured okay I don't trust the current system that would be disruptive for the current banks right of course then they would also have to try to go into that domain but then again maybe you know it wouldn't need any banks anymore in the classical system right because it's mainly just an app right and it has to be maintained so then needs a few guys who maintain the system

but it's not so clear that you need to have a physical branch somewhere where you do your business so maybe Apple or Google could could offer that oh yeah Apple Google Amazon I'm sure they think about this a lot okay so I would be very surprised if they don't have hundreds of designs in there you know on the table and I'm pretty sure that the banks really fear the apples and Google's and Amazon's mostly Amazon I would say in this place in this world or maybe Facebook's and in China it's bit like that right you have this chat app which does also many trend money transfers and of course banks would say you know payments is just you know we don't care about payments we are more in

the loan business and whatnot which is true no but nevertheless I think it would be a chunk of their business if it goes away it will be disruptive and if this goes away who knows what goes away next right so it's not so clear to me you know how how much innovation do you shoot banks have these days I think more than they do probably even I don't quite know what to do okay so I should always say that you know maybe on their table there are all sorts of great ideas which I don't even have but this is the kind of disruption they probably fear you know Amazon coming in there and saying we have our

own bank now and can get loans to wind what not a few years ago I made a lot of interviews in the FinTech space and also with with with traditional banks right with with heads of FinTech at Swiss banks with some CEOs even of banks and many of them said yeah you know who would you rather trust an established Bank or Apple and and they said they made all kinds of you know studies and and most people would trust a traditional bank and not a tech company however now with the with the idea you're proposing if you could say well it's not a tech company or trust it's you trust in cryptology maybe that would

be a deal breaker then for for the banks all right I'm always already surprised by the statement you just made that would say you know because if I would ask a younger generation it's not so clear whether we're trusting Bank more or Google more it's not so clear to me but maybe maybe banks believe that and maybe for the customers each count which half the money right it's not the 20 year olds it's probably the 70 year olds they they would trust banks still more yeah so yeah I said that you said it very well you know banks used to be the place to trust it's not so clear this this is the future so to speak and then

banks have to think what are they right you know if they define themselves as being the place to trust if this was their definition why they are dividing exist and if this goes to cryptography then they I need to know what they are and I can make I want to follow up on that so usually when I say this people say it's not machines you trust it's people you trust you cannot trust the machine and I couldn't disagree more okay I couldn't disagree more sure it's nice to have this pilot you know and I trust pilot and whatnot but you also trust the

Machine pretty much already in your daily life you know and I don't quite know how banks work internally but I'm pretty sure that you know the information about your bank account this basically just electronic information and don't think is actually you know printed every time you do a transaction I would be surprised if it's still printed every time you do a transaction you know you trust the Machine already to a high degree so so I don't think these people argument is the right argument you know especially if you have code you can look at not you but with a professional look at the codes and and tell you that this is you know trust of a code why would you not trust the Machine I think I would I would trust it maybe

that's one of those things that are so hard to understand people think they have to trust that all these data will be safe and secure and nobody will steal it or tamper with it and and it's it's just not intuitive that with blockchain technology you can write data that is immutable and needs to be signed by many different parties right it's you know you can mess with it if you have a lot of power but it's difficult right that's the the trust comes it's a trade-off right how much do you trust the system right in Bitcoin for instance people know how much do the miners invest in energy to you know do only correct things and that the bad guy needs to

have at least as much energy as all the good guys together and whatnot that's where the trust comes from it comes from energy consumption right now this is not necessarily what we need but I think there's a whole space there of you know how is trust achieved how do you believe that the system is correct that's what it should and I think it's an interesting field and the voting before was just the same thing right you say well I trust this government to do everything correctly and to count the votes correct with of course the dog government is just people at the end and there's all sorts of funny things happening you know and even in our Western society I read the other

day in frankfurter allgemeine it's a item that in Germany they had this election recently and that the areas which where this a new writing party was the strongest was the one which they had most votes which were not counted okay and people suspect something's going on there okay at this point we disap from a know well celebrate newspaper but but it's not clear that you can always trust the government right yeah i i'm i for one even if i've worked for the government I wouldn't trust it too much you know it's better to have a technical way to also control them I think it would be excellent well that was the

whole promise of Bitcoin right trust in numbers right that's the whole promise of Bitcoin I think if we can go there with democracy it would be interesting as well right especially in Switzerland you know we we vote for this for the government every few years and forth yeah and then and then the ministers are even you know elected by the Parliament and they can kind of decide themselves when do when to retire again I think the system makes no sense at all you know what we haven't like I could fix it in so many ways technologically in Switzerland the Swiss system even though people would say it a

nice democracy does things well and I agree it may be one of the best ones in the world but still I see so many ways to improve it and to improve the trust in it and you know to make sure that that we really have a democracy and maybe this is where people would start to have different opinions maybe people don't really want to have a democracy maybe they'd say you know it's nice to have him the democracy on the outside but not really truly democracy right we don't really want our population to vote on things because they are they don't understand really the issue is and so on so we really want to have experts who you want the politician to decide these things and we just sometimes ask the rest of the world you know what we think

about this but but really we don't want that and I think if you take democracy seriously it's flawed right now and it should be reformatted and I think technology could help what cryptology especially but it goes hand in hand with other things you know maybe even machine during some degree but you never mentioned so far but yeah yeah you could you know sometimes them there are decisions made and if humans make them they seem a bit arbitrary could probably think about that this maybe Cosby to for now I don't know I I have I like people

you know but I like machines too okay so I think sometimes it could be an advantage to think about you know how how to use technology in particular cryptography in this domain but you know there there should be other things around it yeah which which are also important somebody has to do it first and then it has to be obvious that it works and then hopefully others will also do it right that's true so yeah and even then it's not clear the people will do it right because if you're in power that's great right if your power it that's what you want to be right many people they want to be in power and they don't want other people to make

decisions for them so no even if you had one country in the world which would thrive and it would be all super democratic liquid democracy people could always decide how to go on and what are the issues and they whatever thriving beautiful country all the convicts might not copy/paste they might think you know I'm now empowered I'll do it the way I want to you know so it's not clear that that good examples will be followed no I I you know I I like to think about politics as much as the next guy and then never quite sure you know whether it's going the right way I I think you

know many things in Switzerland are provided by the government they don't need to be provided by the government it's not clear to me that you couldn't you know the why why does the government need to know whether I'm married or not for instance and maybe they think marry people raise children better or something like that actually Swiss government's the opposite because married people are charged more taxes than unmarried people so for some reason government seems to think that unmarried people are you know or better than marry people or they just never updated their policies but in many ways I wonder about you know how it works and you know to what degree could it be

made linear better and from a technology point of view there's a lot of improvement possibilities there you know I think if companies will be around like that they would not you know sustain very very well because it's it's often it's often done in a way you know just how it used to be all the time and there's not much innovation there so I think that's something to think about that's why I like this idea and I try to go into this direction a little bit you mentioned machine learning but still I mean distributed ledger technology is probably still quite at the core yes yeah though in terms of the trough machine it's certainly at the core right

so that the machine learning will be something to you know maybe be another means to make suggestions you know and maybe could kind of convince people to try suggestion you know maybe that's an idea you know that you could say you know let's try we kind of play this through you know you simulated this new idea and we can see that this works out now right this is often enough a problem menu when when Swiss people vote about issues they don't quite know what will be the result of their boat right if something is to change so they kind of tend to vote for the status quo because they know how to States quo is and they would be

frightened but by this future nobody can really tell right and maybe you know machine learning simulation of structures could help a bit to make statements there which are maybe more you know a objective level somehow because it does not man I'm not sure but but there's potential to think about this I think that's that that's the nice thing about thanks a lot Roger for taking time today yeah thanks a lot Plus for Alex thanks so much for joining us today more info on our guests and our sponsors is in the show notes of this episode and on the podcast website the

blockchain and us comm to help people find it podcast it's important that you download subscribe and give it a top rating and review on iTunes or on the podcast platform of your choice I'm Manuel staggers and I thank you very much for listening you [Music]