Upgrading the Systems of the World

Transcript

he is the head of regulated and financial institutions at the cardano foundation and he will be speaking about how blockchain is changing the systems of the world thank you for being here Sandro the floor is yours perfect thank you very much Nikki it's a pleasure and honor to be here again a year passed uh what year it was do we have the ah here we go good um yeah it was it was quite a year uh which which you have behind of us especially when you think about what we experienced across different markets and industries speaking about centralized entities decentralized entities and how blockchain actually plays a role in it so one of the battle fields or spaces we

have or we still had was a bit the discussion about private versus public blockchain so permissionless permissioned blockchains and what type of value do they add to each other and we have seen a shift actually from more the the private permissioned blockchains where we see a move to the public permission space due to actually Enterprises realizes that the value you can create when you look at the blockchain trilemma when you look about security decentralization scalability actually relies on a system which is much for the decentralized and not in the hand of one single entity now the question is how we can merge certain

things in will touch base on this a little later on today but another thing which is very important is that what the industry showed the blockchain industry protocols managed actually to get or to not resolve completely but to get on a very good stage where you have a secure base layer a very good type of decentralization and also a level of scalability which allows Enterprises to run actually a lot of transactions and then high volume businesses uh one of the core discussions we still have from time to time is about consensus uh when we speak about the consensus how we find agreement we still have this kind of narrative that blockchain requires a lot

of energy so uh just briefly most of you will be aware of that but it's always still this narrative we we quickly have to touch base on and discuss what are the different consensus models obviously there are multiple of them so focusing here on the two most common ones especially when you look at actually what happened last year with the merge of eth ethereum and so when we talk about proof of work uh with Bitcoin and previously merge what ethereum was running out that was actually the race to the first so who resolves this mathematical equation as first so if I want to be faster than you I simply buy more CPU and add more more computing power to increase my chances and then

you do the same and so we just race against each other adding more and more computing power while proof of stake is again same Theory so actually depends on the stake you have on the protocol level you actually have this random organization or random way the process that Stakes get chosen and depending on who actually has a stake can validate the the blocks so it's way less energy consumption consumption and you can control it's a bit better in a way that how you actually manage the power so the the more power you have the more chances you have to actually mince the the block or the more stake you have the higher the chances for you

to validate the block so what happened here as well to kind of protect that one stake pool just actually has the maturity of stake what we have on cardano is a liquid staking by Design so what does it mean many people of you as well know that when we talk about proof of stake you suddenly think about lock-in periods you think about slashing you think about all these things which kind of inherit in the risk associated to it when you talk about liquidity the way Cardona is built is actually in a way that you have a so-called delegation key so when I want to delegate my eight I have in my wallet I want to delegate it to your stake pool I

can do this on the architecture level in a way that the delegation key assigns my stake to your stake pool without having my assets ever leaving my wallet so I control those assets I can sell I can transfer without having a lockup period without having a risk of slashing and without of pledgeing the assets that changes a lot in a way when you talk about collateral management for financial institutions as an example when you talk about certain battles three regulations how can you access your assets and how liquid are they and this is something which is very interesting when I speak with banks and other financial institutions the other thing is actually then why should I delegate to a pool and what is

or how can we avoid that a pool gets to to to strong in the ecosystem the way we are working here is a with the so-called K level so what we have is a factoring which is a mathematical way right now the optimal amount of stake pools defined originally is 500 so what happens is now is actually look at how much Ada is right now in circulation you divide this through this optimal amount of pools of 500 and then you get to this so-called saturation level so when you run a stake pool right now it's a bit more than this 64 million you see here because this grows with the higher the circulation is in the ecosystem but uh when we need to find that 64 million so

up to 64 million you can actually grow and the protocol distributes the rewards so at 64 million you have the optimal saturation anything which is above this level will be diminished by the protocol that means there is no incentive for you to grow above 64 million and with this you can start preventing uh one single stake pool to actually get too large what we see now and which is very exciting as well in our journey to actually change governance model and to include the community the ecosystem any one of you who wants to participate in a permissionless blockchain is to actually become part of the future

decision and development here so what we happen right now it's a so-called we have a test poll running right now where we talk about shall this K Factor be changed so instead of 500 pools to thousand pools an example that means that actually saturation level will decrease we can with this support for the decentralization there is also a factor with the minimal fee they receive the staple operators and each stake pool had the opportunity to participate and give the vote to the options provided what they would like to see after the period where the stake pool voted we have another two epochs where the delegators can actually look and see I

have delegated to this stake pool this stake pool voted for option three but is delegate to rather want to see option two I see your stake pool voter for option two I can re-delegate my stake in this period of time now so we give anyone the option to actually participate participate and become an active participant in this in this beautiful ecosystem this is something which is amazing which we we haven't seen like this in the past so when we go back a bit to this blockchain blockchain trilemma where we start off when you think about security decentralization and then scalability within the Cardona foundation and I don't know how we look at it right so we

have see three different three layers when you look at this uh at this graph behind me so the layer at the bottom this is really the core stack that's a network stack this has been built and written in Haskell so this is super solid this is actually the the the validation of the security of the cardano network then you have the second layer so here we talk about the value creation layer here is everything what is built on on top of it right so we have here layer one layer one additions either on the protocol level or also layer 2 Solutions we will come back to this a bit later but what you see and what is important you have

in between you have the stake pool operators right uh on the on the right hand side here so the staple operators again those are the ones operating the network so those are the ones which are so important for the whole ecosystem to function why they have as well the priority or why they have the the recognition from us to actually be a strong participant and be the ones taking a part in the decision making process the other one what we can see a bit more on the left hand side is the so-called member-based organization So within our roadmap towards a new governance model it's the MBO is something we are working on in our Voltaire roadmap in this phase right now

creating an organization which actually has an off-chain governance and this is right now being established through various different entities who are in cardano since the very beginning but also here including anyone who is in the ecosystem already that will be on Saturday there will be a governance Workshop in tsuk in the CV Labs as well where participants from from Texas from from from the community from the nft space various different members who are active in the cardano ecosystem and providing actually a lot of added value being it uh on on on GitHub or wherever they can

contribute they will be there and help to design this new governance model and see how we can help each other to get away uh from from a system as you know today but more into a minimal decentralization and give as much as possible into an open source space so the value creation layer is really here to ensure that we have a predictable reliable and resilience infrastructure for anyone who wants to build on and then you go on to the third level the value capture level here is actually where we see the adoption happening so we have different entities we have different needs how can they Bridge their business model

into blockchain so that can be the Legacy businesses example Legacy business they do need components they do need the tooling to upgrade their systems we have decentralized steps those are the ones which are building natively right so those those don't need maybe the breacher centralized system but they need the tooling to create a new innovative business model and the idea here is that over time and we see this already the screen the the value capture layer becomes bigger while the blue layer it's getting a bit smaller why do I say that the idea again here is actually Community engagement

open sourcing so when we add to open source being it on the code base what we do as the foundation as an example shall be done by the community as well and we see this we see that the community is building and open sourcing it so they provide direct contribution into the value creation layer and this is something which is very beautiful because we can see that it starts become self uh self-continuing right so they they it starts to feed itself from the very engine it lifts off when we talk about again this value capture layer and uh that's on purpose not completely filled here what we have seen it's a very nice move let's call it

like this so when you look at the Circle and the outsides that's the blockchain Skeptics ones so a year two years back a lot of discussions we had were actually with Enterprises with regulators and data set blockchain now stay away so they didn't really wanted to work with blockchain we see a lot of shift happening from traditional financial institutions to actually Enterprises across Industries but also Regulators becoming a bit more uh accepting blockchain as a technology and to want to learn more or do already engaging with it and then we have the Inner Circle where we have the cardano ecosystem why do I showed you to this send as well here there's just some of the names here it's actually to

a highlight where we can focus on so we do see a very strong ecosystem in cardano right now and this is what we have to actually leverage in a way that we have to introduce them and work with them very close helping them become decision maker become part of the governance structure so here is actually this integration happening then we also see the circle in the Middle where we see there is a lot of Institutions and we can as an example say in the Legacy side at Coca-Cola as an example they are they're already having a department looking into blockchain so there is an incentive there for them to work with blockchain and those are the ones we can support through

education and new tools to actually make the step then we have on the decentralized steps you have probably as well uni swap right you can put many many names there those are the ones which we see are active and now the question is how we can actually support them and how we can create as well support interoperability with them so the focus is in the Inner Circle the middle circle but less on the Outer Circle as it was back in the days we still have to educate we still have to to do marketing there to raise awareness and change some of the narratives but we have a very strong inner and middle circle where we can now create change and drive adoption within the foundation when we look at

how can we achieve our core uh goals for 2023 as well so the focus areas we have is operational resilience adoption and education how can we get there and how can we help on the value uh creation layer to to actually help anyone who wants to build on cardano it's the cardano mainnet support So as well again making sure that this very layer zero the network stack that this remains as robust as it is also making sure that we have Technical and enablers which allow you to actually not only use Haskell because most of the people who speak with developers when we speak uh with with

banks for example they don't have people with the skill set so enabling other languages you can write on and there is a there is a good amount of new languages you can actually use to bridge even with the with someone who is skilled in JavaScript or whatsoever to actually write and put put the new a new a new dap or on cardano and that's that's something we have to drive we have to support and open the space to make it accessible for everyone military governance I already touched base a bit on before education uh it's it's one of the key element mentioned before so we do have regular exchange with regulatory bodies around the globe to actually help to understand what blockchain can do

what it cannot do and what this is about is actually to allow smart regulation so we need to have international standards if we want to go back talking about Legacy businesses they need to adhere to local jurisdiction they have to comply with regulatory requirements so we need to have regulatory standards we need to have an agreement as well with The Regulators how we can be executed so that's why we strongly as well communicate and educate we participated with the financial stability board in a questionnaire and are very close to uh to the FCA or as well to the MSA in Singapore so there are various different conversations happening on this on this side uh you also see the growth enablers so

how can we help the community and new partners to grow that's one of it is the cardano summit as an example we have seen this last year it was here in Switzerland in lausanne where we brought actually a lot of people together and that was beautiful to see so we had the existing ecosystem support the potential new partners who wanted to build on cardano teaching educating helping each other to find the right right gateway to get where they want to be and the result is actually that we have seen new businesses new ideas actually arising building and interconnecting with existing Partners but also leveraging new partners this is something which is very beautiful to actually bring the community and new people together

then we have the educational program The cardano Academy we launched this year the alpha program where we're right now collecting the feedback what we can improve but what we realized as well is there is a lot of education happening around different uh blockchain topics uh which which you can participate in universities or some special programs from industry Partners what we said we need to have a program which doesn't only teach about blockchain but it's also certified on the blockchain so the alpha program we had first now was really about the basics so if you don't have any idea about blockchain you

can get from actually not knowing what blockchain is to to a level where you understand how you can actually connect to to mainnet how you can run certain applications and understand what the the opportunities with blockchains are in the next phase it will be a bit more cardona-centric and this is being built on the idea here is blockchain or blockchain the education should be accessible to everyone this is one of the key elements here we're still going back to this permissionless public permissionless access right right so we building this cardano Academy which will be accessible for everyone you will see a link later on if you want to register for an early access which I highly recommend for anyone to check because

this is something which is very beautiful we are speaking with Enterprises we're speaking with universities who actually want as well to implement what we are building here because all the content we are creating is is open sourced so that means that you as an institution or university you can insert this and provide your employees a platform where you can educate and certify them on chain and this is something which has a lot of actually positive feedback from the market that we start helping them to to get on to the next level about this beautiful technology open source another topic which is very important and just here with the academy one of the

examples but it's also our community I saw that we had for our Bluetooth backend applications example one of the Community member open sourced the code towards the the whole industry so anyone knows how they can actually connect with with mainnet one of the things we are proud of and we always wanted to achieve is change the mindset change the way so upgrading the world means as well changing the way we're interacting today and what we did with the unhcr is that's the United Nations uh organization organization which looks after the refugee refugees and displaced people so what we did with the unhcr we had the

discussion with them last year about donations and what you usually do you have this one of the nation I come to you ask you for 50 Swiss franc on Swiss franc you give it to me uh it left your pocket and they have a one one-off uh one-off payment and work with them so we said how can we use technology to make something which is more sustainable and which actually helps the unhcr on the long term so not on the short term Whenever there is something happening somewhere in the world because they have so many different places they support which we start to ignore we always see what happens in the media but there are so many other regions they are supporting which don't have the media attention and people always donate to a

certain course they are aware of so they forget about Congo or whatever what happened in other regions and this is something where we said okay we need to change as well this narrative and give people the options a bit to vote to begin with what we did is actually we set up a stake pool with unhcr the stake pool parameter is set to a hundred percent marginal fee what that means is if I delegate Ada to the stake pool all the rewards will go to the unhcr 80 percent of the rewards to unhcr places uh straight onto the field with refugees and 20 go into the Innovation fund where we now look into other applications how we can change the

operating system uh based on blockchain to support the unhcr on various different um uh ways to to make to make it more efficient and transparent so what is the difference now in the main mindset as I mentioned before I come to you today ask can you give me 50 Swiss Francs you say yes you give it to me and then it's gone so you don't have this 50 Franc anymore if I come to you now and would say would you uh actually be open to delegate your Ada to the stake pool waive the future Rewards but not losing any of your liquidity it changes the way how you can donate because you you don't lose money straight away lose money or it's yeah

but you actually just weigh future rewards and if something happens today if you break lack now and you need money for the hospital for transport whatsoever you take the the data you delegate it it's always liquid right so you can take it and this changes a lot in the way how people can donate and we have seen that this is as well when we're talking with private individuals but also with Enterprises uh a totally different way uh to to to participate because it also opens a way that you can say how can I support humanitarian AIDS and have a reliable reporting EST reporting behind it and this can be accomplished with Solutions like this you will hear later on today uh unhcrc

as well Olivier from him a lot of thought what they are doing they are super active in the blockchain space and I'm happy to see whatever they do being at ricardon or with other protocols to actually support blockchain within the United Nations what helps blockchain to survive and how we can can change the system of the world we bridging from permission to permissionless from private to public blockchains but obviously certain industry certain institutions they need to have a private layer they need to make sure that they can have the Privacy so one of the things we can do is actually working with side chains and

as an example what I can see here what you can see here is a Hydra side chain so it's a isomophoric state Channel which means that actually what you can do you have the on-chain cardano mainnet you have an opening balance you can actually move on to the Hydra side Channel and then on the hydro section you have your participants so you can control your participants you can control all the transactions you can including the fees including the the conditions you set on on the state Channel and then you have your transactions that can be that you want to say you you actually put them on an hourly basis on a daily basis depending

on your business business model you can put actually the closing balance on chain again and make it immutable by having it on the mainnet but before you do that you can actually have your own closed environments with your own conditions and with your privacy layer so this allows you actually to start connect the value of a public commissioner's blockchain being immutable being secure with this private layer where you can have your own conditions and this is something where we as well see breaching a lot of Legacy systems into uh the the public permissionless world the other thing is we always have to think about how can we survive or when

we Implement a solution today will it be here in the next 20 30 years because this is when we want to change social system Financial systems that's not something for today and tomorrow but that's for the decades to come so you also have to consider when you look into the different protocols how do they survive over time so there needs to be a rewards mechanism supporting the stateful operation operators who operate the the protocol but also making sure that there is a sustainable way with a fixed Supply that there will always be also a reward to be to be paid out so it's important that you make sure that you have a transaction fee that you have a fee model which is sustainable which is predictable

so when you look at cardano what we have is a so-called base fee and then you have a second fee which is based on the amount of bytes you put on top of it so in difference to some of the other protocols you may know so that means you don't rely on the contingency of the network but you can actually calculate the fee based on your business model so it's predictable you can run it on a test net to if you want to do it first but it's predictable and it's reliable and it's resilient so now coming back about what does this have to do with actually funding the the reserve for making sure that there is enough incentive for staple operators to participate in the system

this is all about transaction diversity so the more diverse transaction transactions are the more comes into this Reserve part so in this example uh it's about the metadata so what's important with metadata jumping a bit faster in consideration of time what is important here with metadata when you look into a transaction a single transaction if I transfer one Ada from A to B that's super cheap there is not a lot of bytes in it but when I start to add metadata into such a transaction you pay more because you transfer more value and we have here as an example uh just to give a bit an idea what we're talking about here you can see Bitcoin with about 50 bytes you can see ethereum

with 70 bytes and then you can see cardano has on its uh transaction level 60 000 bytes capabilities on a transaction uh level so what does that mean you can have a transaction where you have the whole chapter first chapter of War and Peace from uh Leo a Tolstoy with 11 500 bytes you can have the first three chapters our beloved Walter with conveit and maxed up at 16 000 bytes so this allows you to put a lot of validation a lot of information into a transaction without the need of running a smart contract at the first place so it starts actually to separate certain ways you interact with the chain what can you do on a transactional basis

versus what you need a small contract for so when we talk about Native assets this is something which super important and valuable to actually build certain businesses on cardano so to to keep it on a high level here it's about time stamping so for all the financial transactions where you need to actually validate when does it transact what time and place a transaction took place uh the authentication we talk about universities so we are working with University of Zurich as well as an example and a lot of universities and when you participate in the summer school with the University of Zurich the certificate will be put on chain so that you can validate and chain the

authenticity of the diploma you receive that's the same what happens on the Cardona Academy and was being pushed on with other institutions validation certification verifiable credential is something which is very very important this goes into uh counter fighting fraud it's actually when you start to have an NFC chip on your shirt or when you have all solutions you're going to see a bit later on but you can validate that it's an original so the the metadata allows you a lot of access to actually create transparency and Trust into various different Industries and I will give you just a few examples later on as well another important thing is about how can we make sure that

not a single entity or single person is actually steering the direction of the developments we talked about a bit the governance model but then we can also talk about the funding side and what we have here is an Unchained treasury with Catalyst it's the way we fund certain projects so rather than you coming to me and asking for XY set amount to support your startup or your project what we have is you can actually apply with the POC with project Catalyst you can say how much money you need for your project and then any Ada holder can actually go and say yes and no to the proposals and the ones which have the the

dissufficient amount of votes they will get funded so it's actually giving the people the ability to participate and to Define in what direction it shall go when you talk about building on the ecosystem then governance as mentioned before is currently being looked at and is being extended but the way it works today already is something which is uh very special in a way that we have actually the community involved so what it is it's you have the so-called sips the Cardona Improvement proposals and what you need to do here is actually so if there is something which needs to change we write that there is a sip is being written it comes into the change

management which checks it from a formality then it gets accepted ideally or approved it goes into the change request where it's actually being documented and updated and then it goes to the acceptance committee acceptance committee that's actually from from the the the three three founding entities and other constitutions being there and checking the validation Is it feasible or not but at the end it's not one single entity deciding yes or no it goes actually into the last step which is this right to refusal so what that means is if we change it on the mainnet it's actually the the staple operators they have to the validators they have to update to the new version and they can say we don't like that we don't update

and if we don't have the maturity of staple operators agreeing to update or pre-update onto the new version it will not be implemented else you would Fork the system but we don't want to so it's already here and this is even getting with the new uh 1694 and so on even stronger and better um I mentioned a bit before we are here for a decade so it's not about building something for tomorrow so it's about maybe a little let's say slow but steady but building really the future social and financial systems so we are planting the trees where our future Generations can work in a better way in a more fair and transparent way uh just to give you one or two small

examples of how something like this can look like what we just speak spoke about whether I speak before it's a traceable supply chain solution what we did here is actually we worked with a Spanish Winery called Pius wines they had an issue that they had a lot of counterfeit so there has been a lot of actually bias Wines in the market not original ones but you never actually knew what type of wine you're drinking and they have a very strong Heritage in wine so what we looked at uh with bias why not is how can we help them to tamper-proof the the wines so the result is that we worked with scan trust scan trust is a Geneva based

company they can create those tamper-proof QR codes and those QR codes are very very mutable we have tried various different ways how can you copy them with the best printers and just how we can make how can you fake those QR codes you cannot it's like for everyone here who drives in Switzerland when you try to remove the vignette it gets destroyed so you cannot just remove it and put it on another bottle and you cannot copying it so by actually scanning this QR code that you can do here with this example we also have at our on our booth we have one bottle uh just to demonstrate it you will get access to the metadata of this bottle

so there are various different verification process in between and signature process as well the problem we have a bit with blockchain is no one wants to reach this it's it's not user friendly so we also need to upgrade the user experience and the user interfaces so when you scan it that you have kind of a picture of the vineyard that you see who's behind that what is it actually telling you so it tells you when the grapes have been harvested and they have been crushed and they have been shipped so you can see in this example then that uh I think it was to Milano it has been shipped to Milano so you can also see where it has been sold and this is coming becoming important for you as a consumer that you can validate it's an original one but

it's also important for Customs when you think about the whole Customs process today is it original bottle of wine and where has been sold when you think about taxes right so if I cross the border with my car packed with wine going to across the border and I said no no it's uh I already brought it in when I was here before how do you validate where you where you bought it scan it and you know where the bottle has been bought so that changes a lot in the verification process when we talk about verification we also look actually into something with the re restoration process and most of you probably have heard about that but this

is still something which is very amazing when you think about what happens in the world today so especially in Switzerland you can buy clothes and they're telling you tree is being replanted and I believe that they are doing it but I cannot really validate that you can drink a beer and to help you to to plant a tree and so on and so on so what we did is we partnered up with very tree very tree is a Canadian reforestation organization and what we did with them is actually putting the planting of trees onto the blockchain what we did that was in 2021 we started actually a so-called Global impact challenge we challenged our community to plant one million trees

for us to offset carbon so one Ada equals one tree and it took us three months to actually get from the community this one million Ada to plant one million trees so what happens now so I give let's say 100 Ada on the trees um so what's now what happened is actually in return to my 108 I received a token a utility token which confirmed that I spent or I donated 100 Ada so 100 trees will be planted and this is the important thing now here they will be planted they haven't been planted yet back then and then once they had the funding very tree went on the ground

with their partners for us it was in Kenya with mangrove trees and they started planting those trees and then in batches when the police have been trees have been planted it opened up a window where I was able to exchange my utility token into an nft which is a native asset with the metadata included as you've seen before where you can see the cheapest coordination who planted the tree subsequent CO2 subsequence of this specific tree and so on and so on so suddenly I can validate my tree on chain and as it is Unchained it's immutable it's mutable and you can counter fight double Counting what is important with double counting uh in this sense is that I had it when I

was in my grandparents house every now and then I saw a little piece of paper saying uh planted a tree place XY set and that's very nice and that's good but I can copy this change the name give it to you give it to you give it to you give it to you you can go on the ground that the tree is there but you still don't know how often it has been replicated and this you can count the fight thanks to blockchain and this is something which is very very useful and valuable and with this we actually start a lot of discussions when you talk about how can we now breaching centralized systems and how can we change certain ways we are operating today and one of the recent developments we see is actually with the

scope 3 emissions so uh to any of you who is involved in this industry 70 of the scope's re-emission are falling back to transportation and Regulators are pushing more and more to actually create transparency on the mission created so France will be one of the first this year's with very high penalties if you don't adhere to those uh reporting uh requirements what we're doing here is we partnered up with numina digital Lumina digital is based here in Zug as well they are serving uh quite a lot of well-known companies around the globe and one of them is one of the largest logistic providers and

with them they have built logistic platform where all the companies can start actually providing the data and adding the emission which then will be accumulated it will be wrapped up into into our proper reporting for validation and verification reasons today that works or that happens in the traditional way in a centralized centralized database and when you think back being at the diesel Scandal or whatever this how reliable are those I do not say that they are doing it wrong but when you are a regulator and you want to have transparency and if you want to have a trusted Source how can we achieve that blockchain in the example you've just

seen before simply said is a way to get there and this is something where we now start actually building a new system or building the same system replicated on blockchain so transforming uh the the centralized system into a decentralized system where we can start creating carbon offset carbon emission tokens then you can also look at carbon offset tokens carbon utility tokens and you can start create actually a way for each Enterprise to actually demonstrate their efforts to counter fight emissions but you can also start creating accountability so why is your emission higher than yours even though you're in the same industry so you can start

changing Behavior by actually raising awareness of what is happening today and where is the journey going so I've mentioned the Cardona Academy so to any one of you we also have a booth out there uh you're happy and very welcome to be there for any type of questions uh with me or my my colleagues there sign up for the education platform to get an early access uh recommend this uh it is super valuable and then just a quick highlight here on the cardano summit which will takes place second to the fourth in Dubai this year uh a very vibrant Place uh where I would love to see as many faces as possible I see here and with that uh that's my email address

and I said I will be outside for questions please don't hesitate to hesitate to reach out to me and thank you very much for the time and having me here thank you thank you so much son