The Trillion Dollar Privacy Question - Charles Hoskinson

Transcript

Hey guys. Charles. Here he is. Charles, welcome to the show. Good to see you. How you all been? Good, man. Good, man. Probably not as busy as you fighting all the quantum uh quantum bulls on Twitter. I got six companies, man. I don't sleep. >> [laughter] >> Well, congrats on the midnight launch. The the mainnet was March 31st, I believe. Um you had some big companies in there as federated validators. Um maybe just give us the high level here, Charles. Why midnight? Why does this make sense from your kind of purview of the space and what is needed going forward and really kind of like what is this product? Yeah, so I I've been in the industry a really long time, like a

decade and a half. And one of the problems with being in the industry is that everything starts repeating itself and rhyming. You know, so you hear the same narrative again and again. So you guys probably noticed this too cuz you've been around for a bit. Where like a big company will announce, "We're using cryptocurrency. We're using cryptocurrency. We're going to do this pilot." Everybody gets all excited, like "Oh Google's coming in or Microsoft's coming in or Sony's coming in or whatever." And then like a year or two later is like, "What What ever happened to that Mercedes-Benz bond issue on some Ethereum? Or whatever happened to that project adapt with IBM?" Like I I remember hearing about it. Why did that thing fail? So actually years ago I took the time to start looking into these things cuz I was interested myself as I want to, you know, big people come on

in, do things in the space. And generally speaking, they fail along one of three lines or or collection of the three lines. So it's either it's too hard to use for their user base, the compliance team or regulatory side goes crazy and they say there's just no safe way for us to do this, or the the balance of privacy and publicity is is somehow mismatched and they have to do all this off-chain stuff to add privacy in, uh and then it's no longer a blockchain cuz you have like a centralizing function to do that or some combination of these types of things. So uh what we asked is could we build like a metachain that's like the chat GPT of of privacy and simplicity and compliance, and it can work with Ethereum and Solana and Bitcoin and Cardano and these other

systems, and people can pay in the assets they want to pay in. So, they can pay in Bitcoin or SOL or stable coins or what have you. And what it allows you to do is reason about these things, privacy and abstraction and compliance, and then it makes it very easy to build these things into your application, whether that be a DEX or that be a prediction market or a privacy-preserving stablecoin. And where it gets really fun you can start facilitating cross-chain activity. So, you think of like Bitcoin DeFi as an example. Let's say you're a Bitcoin holder, you can lend your Bitcoin to a stablecoin, you can do that as a taproot transaction on the Bitcoin network, and then you can deploy that stablecoin in some yield-bearing thing somewhere, and then you can, as you get yield, buy Bitcoin with the yield, and

then it comes to your wallet. Now, the end user doesn't want to do 14 steps, know how four dApps work, and six networks. They just have an intention. Okay, so like a chain abstraction type of deal and an account abstraction type of deal. I want to make yield with my Bitcoin. So, I want to click like stake my Bitcoin or something like that. So, you click it. Well, somebody has to be a coordinating layer, and also you'd probably like to do that with some degree of privacy, so people don't know you're doing it, they don't know how much yield is coming in or any of these other things. It's kind of hidden from the space as a whole. So, that's really the space that Midnight occupies. The other thing is Midnight occupies the web 2.5 space. So, the most valuable companies in our industry are not web 3,

they're web 2.5. Like Binance is a great example. There's this big regulated exchange network, but then you also have Binance Smart Chain, and when you put them together, it's 400 million people, and CZ is worth more than Bill Gates. Or you look at Tether, where it's a regulated business, it's it's got bank accounts, and there's an owner, but then there's the Tether asset, and that lives on the blockchain side. But, it's not really one or the other cuz it's kind of a little bit of both. It's the peanut butter and jelly. So, the problem with web 2.5 is there's no obvious way to do that that's repeatable. So what ends up happening is they end up building their own chains, whether it be BNB chain or arc or these types of things. And it reminds me a lot of the like just years ago we had the consortia chains like

fabric and R3 versus the open system. And open systems tend to win over consortia. So we really wanted a home that was open that could live above all the other chains. They could be a natural place to put web 2.5 as well. So those two purposes are related. >> go ahead. The the way that you think about implementing privacy on chain is completely antithetical to the Canton network database institutional private black box then. It it self-sovereignty is the third pillar of it. It's like everything's got to be self-sovereign.

You you have to own your own identity. You have to own your own wallet. And you need to be in charge of a disclosure regime. Now you can negotiate disclosure. It's a two-way relationship or a multi-party relationship. If somebody has the right to say to do business with me, I need to know certain things. But ultimately, you're the person clicking the button, not a third party on your behalf. You have to have the ability to click that button, say that thing. And the thing is we have all the technology for selective disclosure. You know, when you look at solutions like ZK me, they can already do ZK KYB and KYC. You can do proof of location and all these other things. You can get like you want to blacklist things. For example, I don't want to be under US jurisdiction. Well, how do you prove

that you're not a United States participant? Well, you need to somehow prove like an IP address or some artifact to verify that. Well, I'd like to be able to do that in a zero-knowledge way and say, "Yes, I'm not under US jurisdiction, but I don't want to tell you where I'm at." And it's the same for age verification or any of these other things. And when you have those capabilities, there's no reason for a trusted third party to have all this information and to be a data warehouse. You see, and so Midnight's trying to occupy that part of the space and kind of be the next generation of it. And then suddenly, uh your is compliance, and everything is basically all algorithmically automated, and it becomes very easy to start building uh rooms of execution flow for applications. So, you can have an unregulated and a regulated marketplace,

and you can put your RWAs inside that marketplace, and everything just runs, and it's all seamless, and basically Midnight can do the routing, and you know, it gets a fee, and you pay your fee in whatever currency you want to pay it in, too, cuz the way that we designed the tokenomics for it. So, I think there's a big demand for it, and what's nice is it solves the bootstrap problem because whenever you build new network, they're like, "Well, where do I get the users from, and how do you get liquidity?" and all this other stuff. Well, we're not telling people to leave Ethereum or Solana or Bitcoin or other places. We're saying, "Use this framework, and you can go now abstract and multi-chain and multi-institution, and you get all these emergent capabilities with it, and you pay the fees with your own currency." So, it

feels like a natural extension of Bitcoin or Ethereum or Solana. Um if you look at like last year, 11 million tokens were issued. Didn't really do much, did it? You know. [laughter] No. None of them were successful. So, we don't live in an age of network effect moving rapidly from one chain to another chain. Instead, you have to meet users where they're at, not where you want them to be, and you have to figure out where they're at, what you can do for those users, and how to take care of them. Yeah. Um you know, some of the the uh entrepreneurs that we've talked to with multiple companies, it seems like there's usually a grander vision. Uh I I take it Midnight maybe leveraging some of Cardano, you know, whether it be users or applications.

How How do you think about your company's fitting together? Uh Cardano working with Midnight, your other companies, everyone working together. What is your grander vision for how this could play out? Well, you know, the partner chain model was really built in for Cardano in response to what happened with the layer two model in Ethereum. The layer twos were solving a very specific problem at a very specific point in time. Ethereum didn't scale. So, all these people built these layer twos to scale, but in process they became quite parasitic. They took the traffic, the token value, the users, and then Vitalik is like, well, thanks for all the fish, but you got to come home now. You have to come. And so, there's this natural conflict between the layer two and the layer one. So, what we wanted in the partner chains model is a true partnership. The The partner chain

basically gets something from Cardano. In this case, it gets security, decentralization, a stable place to launch a token. And then the partner chain adds something. It to to the equation. So, in this case, the partner chain now adds privacy to Cardano and it adds all these other capabilities. Cardano more revenue streams for the stake pool operators. So, basically both sides get something out of the relationship. And if you have a natural partnership, it tends to stay stable. And so, a lot of these side side chain schemes are like master-slave. You know, like the primary network basically you're a slave to it. You can't leave.

You can't do anything. With partner chains, we have multi-resource consensus. And so, basically you start on Cardano. But then you can leave. You know, you can actually mix and match the the different consensus algorithms. So, if the partnership is not working for that chain, there's a very natural way to drift off. If it is working, they can stay forever. And what's really cool is because we use Cardano, we were able to do a distribution for the token. We didn't have any VCs. I spent my own money and you know, we gave the token away for free to eight ecosystems, seven blockchains. 33.6 million accounts were eligible. And so, we were able to do this nice beautiful drop. The token launched in December. And within 3 months, it has near ubiquitous liquidity. In fact, at the all-time high in liquidity, it had 9 billion dollars

of trading volume in one day. That's like Tether level or Circle level trading volume. You couldn't do that as a new layer one cuz they have to do all this other work to integrate everything, but that's a Cardano native asset. So, it's kind of like an ERC-20. So, any place that had listed ADA, it was trivial for them to list the Midnight asset and get that trading. So, that alone was worth the price of admission. But then also having a large distribution base and about a million people redeemed out of the 33.6 million, which is a great redemption rate for an airdrop. It's one of the best of all time. Uh you know, so we already have a large community. We already have full decentralization with respect the asset distribution.

And then we have an operator system to run our network, and those operators have been running Cardano for 8 years, 24 hours a day, 7 days a week. They're very good. They're very well trained. And then when we're ready to grow, we can move beyond that and eventually have a multi-resource network where Midnight can actually be maintained by a collection of networks like Ethereum and Solana and so forth. And what's really cool is it's directly observing all those networks. So we can produce a lot of zero-knowledge capabilities. Like we can fold all those chains and become kind of like an oracle to what's going on in all those systems. You get proofs of that. And so it can offer that service to Cardano as well. So it's very synergistic relationship. We kind of built the partner chains that way. We try to avoid the parasitism of the

Ethereum L2 and say, "Okay, these guys are natural partners, and whether they stay or go, it's completely material." The other really cool thing, and this is very unique to Midnight, is by having a two-token model, a private token that lives on that's capacity token on the main ledger of the system, so the Midnight ledger, and then the Cardano native asset that's kind of like the governance and the consensus and the generating function to create that other token, you can separate public from private. And that means you can list ubiquitously. So we're likely going to be the first privacy framework to be listed in Japan.

And the first one to list it in Korea and other places where they're they're actively removing Zcash and Monero and other systems because it's against their regulation. But yet we still have privacy because of the other asset, and that other asset is decentralized. It's traded on a capacity exchange for consumption. And the the really cool part, too, is the tokenomics are non-inflationary then cuz your returns as a night holder are related to the consumption of the network. It generates dust, and that dust is traded on a capacity exchange. So, you end up getting an index of like Bitcoin and Ether and stable coins and other things.

So, as a token holder, you're actually aligned for cooperative equilibria. Okay. So, I want more people to use midnight, more people to be connected to midnight as opposed to buy night token. It's like, "No, I just want you to use the network, and I want as many networks to use the network as possible." So, it's a non-adversarial tokenomics, which is a very unique thing in the space. Everybody's a maxi, and this is the first coin I think where there's actually an anti-maximalism built into the tokenomics itself. >> Yeah. Yeah. Um from from the the uniqueness standpoint, sometimes it requires a lot of education. And and there was a a fellow that came on here uh somewhat recently kind of kind of gave us this this uh this word, this concept of research fetish, which is something that we've talked about with

relation to the Ethereum community, you know, some some of this fixation on you know, these esoteric uh you know, uh whether it be tokenomics designs or protocol designs or or scientific research uh attempts uh without sort of looking at what the market is is demanding and and gearing more for product market fit, especially in the wake of uh or in the light of something like Hyperliquid, where, you know, they've kind of maybe sacrificed on decentralization, but have gotten a ton of product market fit. What's your reaction to the rise of these sorts of things? You know, you mentioned Web 2 2.5 has kind of been the stronghold of the industry. Also, Hyperliquid, you know, given that it's got somewhat limited in validators, but has so much

so much traction now. How How do you avoid research fetish and you make sure that you you know, you stay steadfast and build things that people want? Yeah. Yeah. And you'll notice a lot of things in midnight are pure pragmatism instead of pureism. So, so you have three buckets when you build a cryptocurrency, and you can't get away from them, and everybody's indexed differently. So, you have pureism, pragmatism, and and aspiration. So, pureism, that's like Bitcoin or Cardano. It's like it's decentralized and this and this and you know you have to be this way and our case formal methods and peer review.

Pragmatism is like Solana or these types of things. It's just whatever works or hyper liquid. Let's just go. We want user acquisition. We'll eventually, you know, figure out the right way later on. And then aspiration is kind of like the meme coins. One day it'll be rich, you know, we'll be valuable. It's stuff that's not quite here. It's not possible, but people aspire to it. Every cryptocurrency has some connection to these things and they kind of rotate back and forth. Every market cycle, there's a different reward function and a different winner. So, in the last cycle, the third generation cycle, it turned out that the Solana approach was actually the way to go. In the first cycle, the purism approach was the way to go. The second cycle, Ethereum won.

It was kind of a more a hybrid of purism and pragmatism. Uh so, now we're in the fourth cycle with the fourth generation where we're really talking about abstraction. We're talking about meta chain. We're talking about smart compliance for RWAs, the web 2.5. We're talking about privacy. Yeah. >> And and so, I think pragmatism is probably still going to be one of the key drivers, but you also now have a huge index on purism as well and security because of uh things like Claude code. When you look at Mythic and project Glasswing, we have maybe 6 to 12 months before AI models get to a point where they have superhuman hacking capabilities. Yeah. And one of the first industries that's going to get hit is the cryptocurrency space because all the code is public, all the platforms are

openly accessible, and there's an actual reward for hacking connected to stealing tokens. So, you're going to see an exponential increase in people attacking uh cryptocurrency smart contracts, protocols, damaging networks for financial gain. So, what's going to happen is the industry is going to overcorrect and and you notice that the Ethereum people are now talking like formal methods, you know, I created the Hoskinson Center for formal mathematics, you know, back in 2021. They didn't really care too much back then about lean, but now it's like everything has to be formal methods because they were actually they understand that this is coming. So, pragmatism will certainly be important, but purism is also going to be important. From our point midnight, we've taken a little bit from everything. Like we used parody

substrate instead of Cardano's as a base architecture, so it's all written in rust, but then we put some Cardano technology in. The programming language of midnight is compact, which is a variant of typescript, the most common programming language in the world, and we built it from the ground up to be a chain abstraction and account abstraction. So, when you look at these open standards, you can create Bitcoin wallets with midnight or create Ethereum wallets with midnight or these other things. So, we learned a lot from the near ecosystem, you know, for this type of stuff. So, midnight is really a combination of best practice thinking from about a half dozen cryptocurrency ecosystems cuz we wanted to re-index on pragmatism, and then we can lean into Cardano for some of the purism that comes. And so, we have both sides

basically, and you get the best of both worlds with that. Uh, and you know, very quickly you can get a large amount of user acquisition. This is why we were able to do deals so quickly like the Monument Bank deal, 250 million pounds of tokenized deposits to be moved on chain. That's a regulated UK bank. It's not a small entity, and that's a lot of money to be moving on to a new project. The reason why they feel comfortable is because of that pragmatism that's come through and the fact that we're using a lot of technology that's already well proven, and we know where to innovate, and you know, we know where to be conservative uh with that type of stuff.

We have a 10-year track record of making mistakes and fixing those things and learning where we go. So, we're pretty good at this stuff at this point. Yeah. Charles, I'm curious um I know you're, you know, a big Bitcoin bull, you know, and and you're around in that era. Obviously, Zcash is getting like this privacy kind of construct as a way to, you know, get excitement around it. Are are you a believer in Zcash? Are you bullish on Zcash? What what is your your take on the state of privacy tokens? Well, I mean Zcash we use some of their technology in Midnight. They invented Halo 2 and it's it's the proof system heart of Midnight right now. We have a replacement system we're working on called

Nightstream which uses lattice-based folding so it's post-quantum. But, you know, Zcash's legacy is legion. These guys were the OGs of OGs and they they did many of the amazing things. The biggest issue right now is Zcash not programmable and so it's a fixed function ledger and so they they do have a path to it. They created a framework called ZEXE for that and they've been doing amazing things, but we're the first to market right now with programmable Zcash. You know, so it's it's a big step change and we kind of read each other's papers and there's a lot of professional respect and mutual admiration.

Very principled project, you know, the way they distributed was proof of work and the team is you know, they're they're cypherpunks at their core. So, those are examples of good actors. You know, you may have philosophical disagreements or you may have you know, like engineering disagreements about what the approach is or product market fit, but you don't dislike them or think they're bad actors and you think they add a lot of value to the space. Whereas other projects, you know, maybe you have a different opinion. The big thing that Zcash has to contend with is liquidity because if you look at where regulation is going protocol-level privacy where the asset is shielded by default that is having a harder and harder time getting listed on

exchanges. You know, and so that's why they're losing liquidity not gaining liquidity and they're having a hard time maintaining it. And so they have to kind of always contend with that. The dual token model sidesteps this cuz you have public asset private asset. So, you get the utility of privacy through a capacity token, but then you you basically use a pseudonymous token that has the same characteristics as Bitcoin or ADA for the listing purposes and everybody seems to be okay with that compromise. So, we think we have a better liquidity story than they do, but you got to understand it's like there was a different era when they launched their token. It was a very different time in cryptocurrency, and you can't like retroactively go back and change the fundamental social contract of your tokenomics. So, we had the benefit of hindsight, whereas they did not. Uh so,

we learned a lot from them. There's obviously collaborations that are possible, and you know, we we we like our our approach to privacy a little bit better because it's more holistic. We're also including multi-party computation and trusted execution, and we have direct line of sight how to do homomorphic encryption. They can't quite do that with Plonky 2 Halo 2. You know, the other thing is our arithmetization of the system, we're going to translate to tensors, and when you have a tensor CCS arithmetization, it works natively with all the AI GPUs. So, we can use that hardware in linear scale with that hardware, and there's trillions of dollars of data centers that are being built to optimize for that function, and that's not the case with these legacy systems or what Ethereum is doing with hashes. So, I think we have a lot better

long-term scalability story as well in addition to a better post-quantum story, and also a more holistic PET framework, you know, for these things. But, you got to understand it's like I have the benefit of 7 plus years of hindsight on the on that project. So, it's unrealistic to assume that, you know, they're they're they're just going to be able to keep up with with a new project in that respect. But, they have the network effect. Yeah. Charles, you mentioned that you were inspired with some of the tech from NEAR side. Perhaps it was their sharding with regards to creating this kind of like more commutative properties with the you know, types of different kind of like chains within this ecosystem or or

different kind of shards, if you will. Do you have any thoughts on on the intense design from NEAR? >> Yeah, we didn't do anything with the sharded side. So, their sharding scheme is Doom Slug. It's great, and they're great people. I love the NEAR people. Uh, we actually looked at the intense uh, and we've been examining both the intense and the NEAR account model cuz you have to have these days some protocol level strategy for wallet abstraction, account abstraction, as well as chain abstraction. And chain abstraction is like Wi-Fi. You don't invent your own Wi-Fi. There's a standard, adopt those standards. So, there's OIF and the ERC standards and what NEAR is doing, be interoperable with those standards. And that's not hard to do. The account abstraction is a

little bit more opinionated because you have to decide what is your root of trust. And really, when you construct an account abstraction scheme, you have to also, at the same time, really have a strong opinion about how to do account recovery. Cuz what you want is to get to a world where the keys live in a trusted execution environment on a phone or laptop and the user never has 24 keywords. They never have to have the private key or mess with the private key. It's in their custody. It's not connected or possessed by a third party, but it's in an an environment like kind of like Ledger or Trezor where they don't actually mess with those keys and there's some form of interface for that.

What people don't understand is that every phone has a Ledger built into it. It's called trusted execution environment. And actually, the TEEs that Apple builds and Google builds and all these other people build for their phones are actually much more capable than the trusted execution environments that are in Ledgers or Trezors and far more secure. Because, you know, you have these trillion-dollar companies with armies of people basically working on this and you have a much larger attack vector and attack surface for it. And when you look at the the broader world of confidential compute, it's one of the fastest growing verticals in hardware.

In fact, the reports I saw, by 2029, confidential compute will be a $50 a year marketplace and mostly it's being driven by AI. 75% of all enterprise AI workloads will be under confidential compute by 2029. So, when you look at Nvidia and AMD and these other people, they're building these virtualized trusted execution environments into their graphics cards and into their their their integrated cores for phones so that you can do these things. Well, that is the perfect environment for outsourcing computation. That's the perfect environment for a wallet to live within. Then your access control is a fingerprint and a PIN code or a face scan. And then what you do is you just create a recovery system on the back end. So, we work with Algorand,

Hashgraph, and Ripple uh through an alliance called Drec, and we developed a decentralized recovery scheme. So, when you put these two things together, you have a 60-second account creation. You can just scan a QR code. You get something like a passkey inside your trusted execution device. It becomes a master seed for a keychain. You create multiple keychains, and every time you have a cryptocurrency, you just create a bespoke keychain for it. So, you have a Bitcoin keychain, an Ethereum keychain, a Cardano keychain. And then, you know, because it is a universal recovery system, it's easy to go. And by the way, you also use it for your identity and your off-chain encryption keychain. So, then you can link in OneDrive, you can link in Google Drive, you can link in iCloud. And everything that goes to Apple, Microsoft, or Google is encrypted before it gets to them. So, they can't

see And then when you look at the identity side, DIDs can be generated this way, and then you build your disclosure stack on top of it. So, one credential can build an identity, arbitrarily many. One credential can build arbitrarily many accounts. And then you add a name space on it, like Ethereum Name Service or other things. And then you send to Charles@midnight as opposed to an address. And it just goes there, you know? You don't know the mapping. It just magically does cuz it's a privacy-preserving system. And then you put the intents on top of that. And then you have the chain abstraction with the system. So, we call this Midnight Passport. It's a seven-layer model. And we even have an extra layer above it for dApps, where we're using web components and WebGPU, and it's one-click install.

So, you have like the Google Play >> [laughter] >> and the iOS. We don't have to be smart. You You you have 5 billion people in mobile devices and you know, these guys have kind of figured out over the last 20 years how to do that well and have a wonderful user experience with it and they're super secure. I mean, these things are they they geo tagged, they're biometric sensors, they have trusted execution devices and they're you know, there's a lot of money going into making this quite usable. So, what crypto needs to do is add that in. And what's really cool is because of our dual token model, we also are one of the only cryptocurrencies that has uh free transactions if you want.

Because you can have user pay, you you pay with a token for something or you have provider pay, somebody who has night can lend their dust to a user. So, an app builder can basically have like a a certain amount of free transactions per day per user just by giving them an NFT. Cuz you know, when I go to Google, I I maybe I'm not very smart, but I don't see any place where I put a token in to do a Google search. It's free. Yeah. And you like all the normal users, this is their lived experience, right? So, why Why would we go to a model where people have to pay? Usually go in the other direction. So, you have to bring that in if you're going to bring billions of people in. It has to be a simple account creation, it has to be uh

free to use and you have to have one click installs for your dapps and it has to be multi-chain by default. So, you don't really care if you're using an Ethereum dapp or a Bitcoin dapp. What's really cool is once you have this, you have standards like the open wallet standard where you can add agents on top of it. And then you can have delegation. So, you know, do you really want to figure out how to use all this cryptocurrency stuff or do you just want to tell your agent, "Hey, go trade some crypto for me and here's what I want." and it'll go figure that stuff out. So, when you look at intents, they very naturally layer onto externally owned accounts and very naturally layer onto agentic workflows.

And what OWS did is they built a whole standard stack for everything for the agent. So, how the agent has the wallet X.402 for how they do payments and with intents they can navigate any chain, and they can act as a solver and a settler once they have permission to to do that from the application. So, uh so we're also building that direction, and we have a framework called Midnight City, where we're going to test all of this at scale, and we'll probably integrate with the OWS standard in a few months, and then we can pull that into the system and make it part of Midnight Passport, and then, you know, it it's really easy to use crypto cuz it's just one-click install with your phone. You never have the keys. You know, if you lose your phone, there's a recovery mechanism.

It's secure. And, you know, you often you're just going to use an agent to use crypto. And you don't even particularly care what crypto you're using. And and to get the the wallet inside of the TEE, and then you can start to layer on the identity and the passkeys and the security, the replication, these accounts, intents, and so on and so forth. W- What What is the initial penetration into that hardware device? Is Because the Apple Store, I guess, for for so long has been somewhat at odds with the cryptocurrency industry and the app developers at large have kind of they've had uh you know, these differences where they've had to you know, recoup some of those earnings uh from those apps. How do you initially get this into the hands of, you know,

everyone with a phone? Yeah, so how we do things, we write a specification, and then we actually create a website for the specification. So, this is an interactive website, and this is actually the design of uh Midnight Passport V1, and we're we're still going through the design and going to write a whole thing. You're asking a question like here, the trusted execution environment. So, uh Strongbox is for Android, and Secure Enclave is for iOS, but these are built-in capabilities, and they do not require uh app installation to work. You have direct access of them, and you and the reason why is because of passkeys. And then you have your wallet layer, then you have your account model, your identity credentials, your naming system. So, this is what gives you that Alice@midnight or, you know,

Robbie@midnight. Then your chain abstraction, and then then you have your DApp operating system and you have to use a standard for your DApp connector if you want it to be multi-chain. But really you build this around this idea that you want in 60 seconds for the user to be able to create their account. So they scan the QR code and then they get into the enclave and then you start initializing all the stuff and then you kind of get some dust air dropped to you so you can kind of use the system to start with and then you link it to some sort of payment capability for a perpetual on turn use. So in 60 seconds is the benchmark and then you have design principles and so these are some of the principles that we have and then over here we have like 21 different use

cases. So you have like DApp upgrades and keychain synced encrypted backup and borrowing and token swap lending staking so you can model the flow for each of these use cases as a primitive of how would that work with a wallet system like this and then you personas. So these are different people. So here's like Nadia and it's a description of who she is and then what she wants to do and then how does that persona fit in with each of these layers of the system. And then you have the off-chain and you have the on-chain component. So the off-chain component is all the non-derivable data. Well that has to be stored somewhere so you create an encrypted keychain so you use technology in this case we're looking at Bitwarden's open source technology and you encrypt it and then you basically upload it to OneDrive or

Google Drive or other things and from the user experience it's just one click. Link to OneDrive. Link to Google Drive and it does all the syncing between devices. So that's how you move between a laptop to a cell phone to other such things. And what's nice is you know this right here is super secure and if you lose your phone you have a a pretty good way of getting that credential back and then everything flows up from it. And it doesn't require installing a dedicated application per se on the phone. We you can and there's a lot of things you can do but if you want to bypass the web store you just use those APIs or use a progressive web application you know to be able to bypass that. But this will go into a special skunk works in my organization called ARC, Applied Research and

Creative Engineering. You turn this into a formal specification and into a improvement proposal. And then we have several partners that will go and build this with us. And about 80% of this is open standards. And most of those standards have been around for at least 3 years, some over 5 years. So they're pretty mature at this point. So we have high confidence in the design of the system. And it works in both post-quantum and it works in legacy. So you can do it with elliptic curves, you can do it with lattices. And so what we'll do, probably after Night Stream launches, is upgrade the system so it's resistant to quantum computers as well.

Yeah, Charles. And I wanted to ask you about that, Charles. Yeah, go ahead. Go ahead, Andy. Um I saw you on a clip, I think it was yesterday or the day before, about BIP 361. Um I think you called it Welcome to Shitcoin Land. >> [laughter] >> For Bitcoin. Um so we had Corey Klipsten on yesterday, asked him about the quantum conversation. He said it was total BS, total VC prop up, just classic narrative to get into Bitcoin's head, and that nothing was going to need to be changed, that there's going to be tons of other advancements in computing, and that, you know, Q-day is not something that Bitcoin needs to worry about. Think you may have a different opinion thinking that if there's an

implementation pro proposal that goes through, Bitcoin kind of loses its ossification, loses its immutability. What's your take on this quantum side of things for Bitcoin? Uh first off, you know, I I love it when people who have absolutely no idea in the subject speak about the subject. You know, I have some credibility about post-quantum because we worked on post-quantum standards with NIST, the National Institute of Science and Technology, FIPS 203, 204, 205. Okay. Uh we we also write papers about quantum computers at our research group.

We have over 250 publications and we wrote the very first paper about Bitcoin against a quantum adversary. We wrote that paper in 2019, 7 years ago. So, it's not exactly like a problem that we haven't thought about. So, it's a simple problem to solve. The problem is you don't like the solution. Bitcoin has three options. Only three options, okay? So, option one is do nothing. Everything's perfect. Satoshi's got What will happen is the entire system will be broken if that's the case, if a quantum computer exists. Option two is the soft fork and like Taproot or SegWit, you add a new transaction capability, a new signature scheme and you you now have post-quantum capabilities and you run these systems in parallel

and anything on the legacy side will get stolen at some point. Either in use or keys at rest are vulnerable. About 34% of the accounts are vulnerable on Bitcoin. Okay? So, 34% of the Bitcoin supply is vulnerable to a quantum attacker at rest. Um Option three is to actively might mitigate migrate people. Okay? So, you you put in the soft fork, you add the new quantum signature scheme and then you say you can only spend to that and if you don't, your coins will get frozen.

So, BIP 361 is the most extreme. It's option three. Okay? So, they add in the post-quantum signature scheme and they add a ZK recovery system along with hourglass to to basically try to allow people to recover by proving they they have the BIP 39 derivations. The challenge is it's only a partial recovery capability. What that means is about 1.7 million coins will be lost if they implement BIP 361 as written. Mostly Satoshi's coins and some legacy stuff. Not good. Option two, uh probably 15-20% of the Bitcoin supply will be stolen.

And the reason being is that a lot of those keys that are vulnerable um and they the actual public keys are on the chain uh they they're lost. So, nobody can rotate. And so, basically people will take them with a quantum computer when available and just divest them. You see, so option two, you know, you're going to have a bunch of Bitcoin dumped on the market. And of course, option one is untenable. The whole system breaks down. You know, it's all kinds of attacks with a quantum adversary, which are very problematic. And read our paper if you want to know about it. So, will quantum computers exist or not?

Google's paper is not the paper to read for that. You What you do, if you want objective reality, is you ask who has the biggest incentive and capability to care about this thing. Cuz those are the people that are going to solve the problem one way or the other. You know, if Xi Jinping develops a rare a rare weird disease, it will be the most studied rare weird weird disease in the history of humanity cuz it has all of China to go and do that, right? So, who's the big 800-lb gorilla that wakes up every day and says, "Okay, are quantum computers an issue or not?" The United States military and the United States intelligence apparatus because if they do exist, it's a humongous issue for them. So, they launched something through the brain of the Pentagon, it's called DARPA, called the Quantum

Benchmarking Initiative. It's an open project, you can Google it. If you Google DARPA QBI. And what they basically did is they brought all these gigabrain physicists and engineers together and they created a rigorous way of taking a look at all the different quantum computing approaches that exist. And what they're doing is they're running them through stages and they're seeing who will have a working quantum computer by 2033 and what the capabilities of that quantum computer will be. So, already they've had 11 major companies, IBM, Quantinuum, and so forth, uh through and and all 11 of those have passed phase one. And they have two more phases, B and C is what they call them. So, uh there's a strong belief that in the early 2030s,

sovereigns and major organizations have a high probability of having some form of quantum capability. And there's this a belief that that will be get more democratic over time. Uh so, what will happen more likely than not is China and America will be probably the two first countries to develop quantum capabilities, and then they'll be available through cloud provisioning, and then smaller nations will be able to acquire it. So, China will provision this to North Korea, and the Lazarus Group will use it to steal everybody's stuff that's not secure. And so, there's probably a greater than 50% chance by 2033, according to QBI, uh that a quantum computer will exist.

And then that computer will have enough qubits to be able to defeat uh legacy encryption. So, it's it's not a trivial thing. It's not a minor thing. Uh 34% of all Bitcoin in circulation at rest is vulnerable, according to the paper that Google wrote, uh and the forensics they've done on chain. And it's pretty self-evident, and they also know how to do it, cuz they've wrote in the paper a quantum circuit and created a zero-knowledge proof to prove how that circuit would do these things if it had a infrastructure to run it. So, yeah, these are mathematicians and physicists and engineers, and these are very well-funded endeavors by Fortune 10 companies and nation-states seeking to kill each other or to make billions of dollars. It's not a It's not a VC thing.

It's a real It's a real concern. And so, you think BIP 361 is the Yes, it is the most aggressive, but it is the best case for not losing for for losing the least amount of Bitcoin due to quantum. >> Well, it cuz this is where you run into a problem of philosophy versus business. So Bitcoin should do option two if they want to be philosophically pure. You add via soft fork a new signature capability, and you let the coins be stolen that don't migrate. And then you just move on as an ecosystem, and you accept the dump like we accepted the collapse of Mt. Gox and accepted the collapse of the Silk Road. But you understand that Bitcoin has new masters now, like BlackRock and MicroStrategy

and all these other things. And I don't think they really like the idea of 10 or 20% of the supply going to North Koreans and being dumped on the open market. I just It's not really a good world for that, man. That's That's problematic. And the issue is it's not like when they steal these coins that somebody puts up, "Oh, those coins have been stolen and and and they're there." Well, the issue is like how do you prove they're stolen? It's just a transaction that occurs on the blockchain. So, you can't differentiate a theft from an upgrade event. Charles, quick quick quick question. Is there a possible reality here where US gets quantum, China gets quantum, and we have some sort of white hat race a black hat, and the American or the Chinese race to Satoshi's coins and get them before

Lazarus Group? Sure. Uh but then that would require stealing, and then how do you give them back? You have a custody issue then. It's It's It's just like, "Okay, I steal Satoshi's coins. Okay, so uh Satoshi, just come to me and I'll give the coin." He's doxxing himself in that process. So, that's that's the fundamental issue is that you And having run into this with the ADA vouchers with Cardano, where you know, you had these people that participated in the ICO way back in the day, trying to give them their ADA for like 10 years, even at $3 ADA when they bought it at 0.2 cents. And it took 10 years to get 99.7% of people redeemed. That was a much much smaller set than historical Bitcoin set.

That was about a few hundred people, and we're talking about millions of people here. So, there's no real good solution to just steal people's coins and then create a redemption pool cuz you're just taking an off on-chain problem making an off-chain problem, but still fundamentally an issue. And who wants to take custody of something like that? And given that the US government's a bag holder, BlackRock's a bag holder, all these other people are bag holders, they're not going to want to live in a world where you know, a big chunk of supply gets stolen and cycled. So, they're going to push aggressively Yeah. behind the scenes for BIP 361, but it will require a hard fork. It's the first time ever that Bitcoin would require a hard fork. And if that's the case, is it really Bitcoin?

I do hard forks all the time with Cardano cuz we have a governance upgrade system called the hard fork combinator. And we have backwards compatibility with old eras. We designed this system to be able to do hard forks. Bitcoin was never designed to have a hard fork. It's just not. There's only one canonical Bitcoin at any time. So, Corey and these other guys, they don't think very highly of me. I don't think very highly of them. Because they they speak out of their ass and they speak out of back holding. He has absolutely no technical knowledge to back up what he's saying. I've just given your viewers things to check. They can go reference our 2019 paper, which was peer-reviewed, published at major universities. They can reference DARPA's QBI. They can read the BIP themself. The 34% didn't come

from me. It came from the Stanford paper and it's in the BIP written by Bitcoin core developers. Yeah. These are facts and they're inconvenient facts, but it's objective reality. Whereas Corey just picks a straw man and says VCs are pushing this thing. No, they're not. Quantum computers, we all want to have them cuz we want superfast AI. We want to be able to come up with magical new batteries. Nation-states want to read each other's intelligence reports. Uh we want to be able to have brand new capabilities like, you know, quantum entanglement for communication and things. So, quantum internet and quantum encryption. Uh all these types of things. So, there's huge financial incentives to build these capabilities that don't even matter to the cryptocurrency space. And you have

hundreds of billions of dollars being put into more than 10 different approaches that are independent of each other. Photonic quantum computers, topological quantum computers, nitrogen vacancy, trapped ion. It's It's not like we're just putting like one company. And I don't know if IBM can do it. A lot of people are working on this problem and there's unlimited money to like fusion to solve this particular problem. It's going to get cracked. We don't know if it's early in the 2030s or later in the 2030s, but it's going to get cracked in the 2030s one way or the other. Yeah, man. And do you believe in Q day now? I I'm I'm still been a non-believer of Q day and Charles is not going to like that. Charles, we're going to have to let you go. Thank you for your time for sharing some insights on midnight on

privacy on some of the leading protocols and themes quantum, Bitcoin at large um first time on our show. We'd would love to have you back in the future, man. Thanks for joining and uh always a fun time hearing your takes, man. Thanks, guys. This was a lot of fun. Cheers. Same here. Thanks, Charles.