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  • PROFESSOR: I'm excited, because I'm going to get the chance

  • to co-teach today with--

  • I would say one of the students, but it's not really

  • one of the students.

  • But Larry Lessig has consented to join us in a few minutes.

  • So I'm going to be breezing through

  • a little faster than usual.

  • And then we'll co-teach this.

  • Blockchain and Money.

  • Here we are.

  • We're at smart contracts.

  • Everybody seems to be coming back,

  • which is a sign of your interest more than it is in my teaching.

  • But I thank you for being here.

  • We made it through the last three classes

  • together on bitcoin and the basics of that technology.

  • And in one class, we're going to try

  • to chew off a bit on smart contracts,

  • both the technology side, a little bit on the markets,

  • and then the law that Larry is going to take us through.

  • And so as I said, I want to start

  • with a little administrative, because we

  • are on the sixth class.

  • I'm going to review a bit about the projects very quickly.

  • We're going to do smart contracts, the design.

  • What design features?

  • Yes, we're going to go back a little bit

  • about hash functions and Merkle trees but not too much.

  • DApps, which are basically decentralized applications,

  • and token sales.

  • Larry's going to take us through legal issues,

  • and then we'll sum it all up.

  • So let me just, real fast on the administrative side again--

  • class participation, 30%.

  • That's why we're all here together.

  • That means, hopefully, reading the assignments

  • and participating.

  • About half of you have participated,

  • so I guess I'm going to go with a little bit more

  • cold calling starting Thursday.

  • I'm not going to do a bunch of it today, because Larry

  • and I are joining.

  • So you can ease off.

  • But really be conscious.

  • If you haven't been participating, try to get in

  • and join the conversation and discussion.

  • The two individual write-ups, I think we have seven.

  • But it's quite possible some of you have submitted already.

  • It's just meant to be critical business reasoning.

  • We are in a business school.

  • To the extent you just summarize some readings,

  • I'm sure we'll give you a pass on that.

  • But that's not what I'm looking for.

  • I'm really looking for critical reasoning

  • and thinking from a business perspective

  • of, why does this matter?

  • What are its strengths or its values

  • in terms of business reasoning and critical reasoning?

  • One by the 10th class, one by the 23rd, always before class.

  • What it likely means is we'll be getting

  • most of these on the 8th, 9th, and 10th class.

  • I know how that works and so forth.

  • And that's OK.

  • That's OK.

  • But I'm just reminding you of that.

  • In terms of the group research paper,

  • again, Sabrina and Thalita stood up a Google App--

  • I think it's in Google, but--

  • where you can go in and team up in teams of three or four.

  • It's not required to do this by the eighth class next Tuesday,

  • but I'm strongly suggesting it to figure out

  • who your teams are and not sort of wait till the second half

  • of the semester.

  • And I'd like to encourage everybody

  • to choose an area for your use case by midway.

  • Again, you're not going to get graded

  • if it takes you another class or two to figure it out.

  • But I just think it's much better if you know your teams,

  • you know what your use case will be.

  • If it's not about finance--

  • one group has already asked me if that's all right.

  • I just want to know more detailed what it's going to be.

  • I'm probably going to say yes, but it

  • needs a little bit of preapproval

  • if it's outside of finance.

  • So any questions about the requirements?

  • I just wanted to--

  • So the study questions.

  • Today's smart contracts and basically how they

  • compare to regular contracts.

  • And what are the tokens that are used within that ecosystem?

  • And what are the platforms?

  • In a very similar sense to the internet, we have the internet.

  • And then above the internet, you have, you might say,

  • applications--

  • Facebook and other applications.

  • Well, this, too, has a series of platforms

  • and then decentralized applications

  • potentially on top of that.

  • And basically, a quick touch on decentralized applications.

  • Later in the semester, we're going

  • to take two sessions on initial coin offerings.

  • And thus, we're going to talk a lot about token economics.

  • So this will be just the first taste test,

  • and then we'll come back to it later.

  • And then the readings, hopefully, everybody

  • read through "Smart Contracts."

  • I thought the Chamber of Digital Commerce,

  • even though this is almost two years ago,

  • this paper was a very helpful sort of flavor

  • for what folks in commerce are thinking

  • and what developers were thinking.

  • And I love that Nick Szabo wrote the introduction to it.

  • And it's interesting to see and question,

  • why is it that it's two years later,

  • and many of those use cases are still being discussed

  • but haven't fully been adopted?

  • And then the "State of the Dapps,"

  • and then who are the competitors to Ethereum?

  • So don't you feel good?

  • I haven't asked anybody a cold question yet.

  • And then the optional readings, I don't know.

  • Did anybody actually go back?

  • They're optional.

  • Did anybody go back and read either Szabo's original piece

  • from 20 years ago on smart contracts?

  • Oh, a few of you are kind of into that rabbit hole

  • of blockchain and ether.

  • Brotish what did you think of-- it's 20 years ago he wrote this

  • thing on--

  • Nick Szabo wrote this thing.

  • AUDIENCE: Actually, I spent more time

  • on the Ethereum white paper.

  • PROFESSOR: All right.

  • So what did you think about the Ethereum white paper one?

  • AUDIENCE: Yeah, I think it was pretty good.

  • It gave me a very good overview of the world potential

  • of the [INAUDIBLE].

  • PROFESSOR: Yeah.

  • And what's interesting is even if you didn't do it

  • for the class and you find yourself more and more

  • interested in this over the next couple of months or even later,

  • going back and reading the Ethereum white paper,

  • it's not highly technical in the first, I don't know,

  • 10 or 15 pages.

  • It really gives a history of bitcoin.

  • It talks about distributed applications

  • and largely written at the time by a 19-year-old, as well.

  • It's a remarkable thing.

  • And then one of Larry's colleague, or maybe it's

  • two of them, but De Philippi paper, as well,

  • on the regulatory issues.

  • So let me talk a little bit about smart contracts

  • and laying groundwork before Larry gives us the law.

  • A smart contract is a set of promises

  • specified in a digital form.

  • I'm going to say four things.

  • It's just a set of promises in a digital form.

  • So it's not handwritten out.

  • It includes protocols.

  • What's a protocol?

  • Andrew.

  • AUDIENCE: Standard operating procedure.

  • PROFESSOR: Standard operating procedure.

  • I like that.

  • Anybody else give me another word for it, maybe?

  • An algorithm.

  • So a set of promises in digital form.

  • But it can include math, basically, if you wish

  • or standard operating procedures-- if-then statements

  • and so forth.

  • And the parties then perform against these promises.

  • And guess what?

  • Nick Szabo wrote that in 1996.

  • And I thought it was still probably the best

  • definition of smart contract.

  • He coined the phrase 22 years ago.

  • He might actually be Satoshi Nakamoto.

  • Three of the tables in here, you all

  • voted that it was Nick Szabo.

  • So I thought that's kind of the best definition

  • if you've got to just-- kind of a root.

  • Now, I would also say, however, that smart contracts may not

  • be so smart.

  • A lot of people have come to be calling them

  • dumb contracts that are just algorithms

  • that perform a function.

  • So don't think of them as artificial intelligence.

  • That's another class provided next semester by Simon Johnson.

  • Think of them almost as just dumb contracts.

  • And in a sense, they're mechanizing

  • what might otherwise be done amongst and between humans.

  • And smart contracts may or may not be really contracts.

  • And that's why Larry's going to speak to it.

  • So remember, even though Nick Szabo calls it smart contracts,

  • they may not be smart, and they may not be contracts.

  • So a little bit about the technical features.

  • Remember our three ways we did this.

  • What are the big technical features that we studied?

  • I'm sorry to do this.

  • Anton, what are the three big buckets?

  • Remember, we took three classes and three buckets

  • of information.

  • It can be one to three.

  • AUDIENCE: Cryptography.

  • PROFESSOR: Cryptography.

  • Great.

  • You got one.

  • Two other people will give me the others.

  • So cryptography.

  • Guess what?

  • Bitcoin and Ethereum all have the same cryptography.

  • It's not identical.

  • But for the purposes of design features,

  • it has cryptographic hashes, timestamps, block headers,

  • Merkle trees.

  • Though Ethereum has more than one Merkle tree, and bitcoin

  • has one.

  • And it has digital signatures and addresses.

  • So everything we talked about three

  • lectures ago about cryptography, both forms of blockchains.

  • Anybody want to give me what our second bucket was?

  • Geramo.

  • AUDIENCE: Decentralization.

  • PROFESSOR: Decentralization.

  • What else did we talk about?

  • Eilon.

  • AUDIENCE: Consensus.

  • PROFESSOR: Consensus.

  • So again, decentralized network consensus.

  • Ethereum actually uses proof of work

  • even there's some talk that Ether

  • will move to proof of stake.

  • But it's currently proof of work.

  • There is a native currency.

  • It's ETH, or "eh-th," or E-T-H, or Ether, instead of bitcoin.

  • And it has a network.

  • The third thing that we talked about, Alpha.

  • AUDIENCE: Transaction format.

  • PROFESSOR: Transaction format.

  • So we talked about transactions and script.

  • Well, guess what?

  • Ethereum does not have a transaction script or UTXO.

  • So that's the one place that Vatalik Buterin, who

  • designed all of this, said no, had to go a different way.

  • Instead of transaction inputs and outputs,

  • there's something called state transitions.

  • Isabella, ledgers.

  • What are the two different types of ledgers

  • that we talked about and set a class to?

  • AUDIENCE: Permissioned and public.

  • PROFESSOR: So permissioned and public

  • are two different types of blockchains.