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  • GARY GENSLER: All right, so we're going to try to--

  • I was giving a little bit more time for more people

  • to show up--

  • chat about what did we cover this semester.

  • So I'm going to try to talk about--

  • we started out-- money and ledgers,

  • and why does that matter, and if you go away from all this.

  • Satoshi Nakamoto's innovation-- what is that again?

  • The economics of blockchain technology,

  • why the financial sector is so entwined in all of this,

  • though it's not the only place we're going.

  • A little bit about crypto finance and public policy

  • frameworks, and then wrap it up with a quote from Ben

  • Franklin-- will be the last thing we talk about at the end,

  • about paying it forward.

  • I don't know how many people read

  • the article I wrote for Coin Desk, which

  • will run in a day or two or something,

  • but that, too, just like helped me wrap up the whole semester.

  • As I told you, I'm neither a maximalist or a minimalist,

  • but in a few minutes, I'm probably

  • going to ask you all to kind of let me know where you ended up.

  • So the role of money.

  • Anybody remember the role of money

  • in an economy, the three things?

  • AUDIENCE: Medium of exchange, unit of account,

  • store of value.

  • GARY GENSLER: Medium of exchange, unit of account,

  • store of value.

  • I don't think we really know, when

  • we go through all the history and the archeology of it,

  • which came first, but all three really matter.

  • So how many people think that Bitcoin--

  • just Bitcoin.

  • I'm not talking about the other 1,600 tokens--

  • Bitcoin fulfills these three roles of money?

  • James, was that a hand up?

  • AUDIENCE: Yeah.

  • Yep.

  • GARY GENSLER: You're saying yes.

  • AUDIENCE: Yes.

  • GARY GENSLER: Alexis?

  • Oh, we got two.

  • Hugo?

  • Somebody take the other side.

  • Tom?

  • AUDIENCE: Nope.

  • GARY GENSLER: That's it?

  • That's it?

  • A whole semester, and all you can say is nope?

  • AUDIENCE: Yeah.

  • GARY GENSLER: Nope?

  • All right.

  • Anybody want to give more?

  • Brotish?

  • AUDIENCE: So not a store of value because of [INAUDIBLE]..

  • GARY GENSLER: So Brotish says not a store of value,

  • but isn't it $60 billion of value right now?

  • AUDIENCE: [INAUDIBLE].

  • So there is a value, but it's too volatile.

  • GARY GENSLER: James?

  • AUDIENCE: I respectfully disagree.

  • It's volatile when you think of it in exchange of a dollar,

  • but if you move your mindset, a bitcoin

  • is a bitcoin is a bitcoin.

  • Right?

  • It's only volatile if you think [INAUDIBLE] a dollar.

  • GARY GENSLER: Oh, my god.

  • Here we go.

  • Ross?

  • AUDIENCE: But that same thing is true of corn, right?

  • A bushel of corn is--

  • I'm with Brotish on this.

  • GARY GENSLER: I'm sorry, were you

  • in the no camp or the yes camp?

  • That it's a store of value.

  • AUDIENCE: I'm in the no camp.

  • GARY GENSLER: No?

  • Is it a medium of exchange?

  • AUDIENCE: Yes.

  • GARY GENSLER: Oh, medium of exchange.

  • Sean?

  • AUDIENCE: In response to [INAUDIBLE] none

  • of the currency can actually be treated

  • as a stand alone currency.

  • Everything has to be treated as a pair.

  • So everything's a relative comparison.

  • So you can't really treat Bitcoin on a standalone basis.

  • AUDIENCE: I don't know if I agree with that.

  • But I would say that pretty much anything can fit into all three

  • of these buckets.

  • It just depends on how dependable it is.

  • In those three buckets, with US dollar's

  • very good at being medium of exchange,

  • very good at being a dependable store of value,

  • and a steady unit of account.

  • But you could also have a bushel of wheat or something.

  • It would be all three of these things,

  • but it wouldn't be equality.

  • GARY GENSLER: Right, but--

  • please, Jihee.

  • AUDIENCE: So the fiat currency-- the reason why

  • I think US dollar is stable is because there

  • is a US central bank that actually backs up that.

  • Because it's just that fiat currency.

  • It is a liability of the central bank,

  • whereas Bitcoin doesn't have a center

  • to worry that banks have.

  • GARY GENSLER: Nice music that we're getting.

  • [INAUDIBLE] a serenade.

  • AUDIENCE: So therefore, I don't think

  • the store of value argument will work.

  • GARY GENSLER: So you think--

  • [INAUDIBLE] saying, well, there's

  • no central bank behind it, so maybe it doesn't hold up.

  • But if you take anything away from the class--

  • and I'm going to have some other takeaways, too.

  • Remember, the three things that about the role of money--

  • but it's a social construct.

  • Even with a central bank--

  • a central bank is, ultimately-- we enshrined in law.

  • We enshrine it in a big institution, and bricks,

  • and mortar, and columns usually.

  • You always have to have those columns.

  • But it's still a social construct.

  • And Bitcoin does, in some ways, have all three of these.

  • It's just not broadly acceptable.

  • It's rarely used as a unit of account,

  • but it is sometimes used as a unit account

  • in some initial coin offerings.

  • It's not used, generally, as a medium of exchange.

  • But some people are paid in Bitcoin some.

  • Software developers are actually paid in Bitcoin.

  • And it's $60 billion.

  • It might be volatile.

  • It has a store value.

  • So I'm not trying to take maximalist or minimalist,

  • but I'm probably between Tom and James,

  • because it does have all of those qualities

  • in to some extent in there.

  • Early money-- remember some of our walk down memory lane.

  • Some of these early monies fell apart, became extinct,

  • when they got debased.

  • And we talked about, early in the semester,

  • even the story about it.

  • It was, I think, a British--

  • when the British got to the island of Yap,

  • they went off a couple miles and quarried the stones

  • and kept bringing more yap stones there.

  • And all of a sudden, it got debased.

  • And then, of course, money turned to paper money.

  • And in the bottom left-hand corner,

  • it started as warehouse receipts.

  • So the paper was just a representation

  • of the store of value--

  • the metal, or the corn, or the wheat that we had earlier.

  • Another important thing was ledgers.

  • Who wants to remind the class what a ledger is?

  • Why do ledgers matter?

  • Anybody want to-- ledgers?

  • All right, clearly I didn't make it on ledgers.

  • Hugo?

  • AUDIENCE: It's transaction history, basically.

  • GARY GENSLER: A store transaction history.

  • What else is there?

  • AUDIENCE: Balances.

  • GARY GENSLER: Balances of?

  • AUDIENCE: Accounts.

  • GARY GENSLER: Accounts.

  • So it stores a balance and a transaction.

  • So you can think of it as a flow and a balance.

  • The flow is the transaction--

  • I give Hugo money.

  • Regardless of who gives Hugo money, here's his balance.

  • So an income statement and a balance sheet

  • is a flow and a balance.

  • But ledgers and keeping ledgers go back thousands of years.

  • So blockchain technology is really about money,

  • but it's also about a database that has ledgers.

  • And ledgers usually store things of value.

  • So then we got to fiat currency.

  • And fiat currency, as Jihee said,

  • they were represented by central bank notes, central bank

  • reserves, and bank deposits.

  • So there's three things.

  • Does anybody want to see if anybody

  • listened in those classes?

  • [LAUGHS] I'm kidding around.

  • Elan, you're going to say, why is it those three things?

  • They're all forms of fiat money.

  • AUDIENCE: I thought you were asking

  • about the illicit activity in that list.

  • Is that the question?

  • GARY GENSLER: All right, answer the question

  • you want to answer.

  • AUDIENCE: Yeah.

  • [LAUGHTER]

  • [INAUDIBLE] there are things that

  • are important in fiat currency, or is helpful.

  • Fiat currency is important for paying taxes.

  • And it is allegedly backed by the social understanding

  • that the central bank will respect those notes at the end.

  • GARY GENSLER: Right.

  • So it's actually-- you're on to this.

  • It's accepted for taxes.

  • It's legal tender.

  • So actually, society gets together,

  • through its parliament, through its executive,

  • and passes a law that says it's legal tender.

  • That gives it a huge leg up.

  • But this is what it's really about.

  • It has huge network effects.

  • And I wrote this in the CoinDesk article.

  • The question I have for any new currency

  • is, how does it compete with those incredible network

  • effects?

  • And we talk about Facebook has incredible network effects

  • because--

  • two billion members.

  • But even money, as a technology, has a network effect

  • because people readily accept it as a unit of account,

  • a medium of exchange, a store of value.

  • And it only loses that network effect, usually,

  • when it gets debased, when people

  • can't be confident that it's a good store of value

  • because somebody else can mint a lot of it,

  • or print a lot of it, or a king starts to print too much of it.

  • But it has an extraordinary network effect.

  • On the other hand, sometimes currencies

  • are a little bit challenged, like the euro right now.

  • Will the euro ultimately work?

  • That's for a different class and a different lecture,

  • but will the euro ultimately work long term?

  • I have my doubts whether it will work for decades to come,

  • because there's so many jurisdictions.

  • And there's not a unified fiscal account,

  • not a unified economy, and not truly free movement of labor

  • across that continent.

  • So that's fiat currency.

  • It's sort of the game in town that then Satoshi Nakamoto

  • is was addressing.

  • And you all read the eight-page paper,

  • but that was the first line.

  • "Been working on a new electronic cash

  • system that's fully peer-to-peer, with no trusted

  • third party."

  • Basically, as Jihee said, no central bank.

  • Forget about that central bank.

  • That was the core inspiration that was there.

  • But interestingly, it wasn't the first try.

  • And we talked early in the semester

  • about at least a handful of early attempts

  • that all failed because they were still

  • centralized-- like DigiCash was still very centralized.

  • Or they couldn't solve the double spending.

  • On the internet, you can send an email twice.

  • It doesn't need a central authority.

  • So what if it gets copied?

  • But the double spending is the big issue.

  • So how did he solve it, or she solve it?

  • Does anybody still not know who Satoshi Nakamoto is?

  • No?

  • All right.

  • I was hoping, I was hoping.

  • So we talked about blocks of data

  • using cryptography and consensus.

  • So if you're at a dinner party, and you

  • can't remember anything else from this class, [LAUGHS]

  • maybe just remember, oh, yeah, there's

  • something about blocks of data using a bunch of cryptography

  • and consensus.

  • These slides are on Canvas.

  • Download this one slide, you're the expert.

  • Neha Nerula actually created this slide,

  • and I've been using it a lot.

  • But anybody remember who invented this whole concept

  • of blocks of data?

  • James?

  • AUDIENCE: Adam someone?

  • Back?

  • GARY GENSLER: Adam Back is a good name,

  • but he's not the guy that invented this.

  • He invented something else, which was proof-of-work.

  • Timestamp append-only logs-- what's

  • the longest running blockchain in the world?

  • AUDIENCE: New York Times?

  • GARY GENSLER: New York Times.

  • [INTERPOSING VOICES]

  • AUDIENCE: Crossword.

  • GARY GENSLER: All right, here he is.

  • So two Bell Labs scientists-- this is one of them.

  • Two Bell Labs scientists came up with this concept

  • that you could take a bunch of data, put it through what's

  • called a cryptographic hash function,

  • and that's a commitment scheme.

  • You couldn't change it, because if you changed anything,

  • the hash function would change.

  • So what's a cryptographic hash function?

  • That's when I use this idea of you

  • can take the entire library of Congress,

  • and put it into a little thing called a hash function,

  • and end up with a string of characters,

  • a hexadecimal output.

  • But a hash function is the key to what this guy figured out.

  • And, of course, this.

  • That's the key.

  • There was only two bits of cryptography

  • in this whole class.

  • And I know that it seemed like, oh, why are we teaching this?

  • But it's this idea that you can take a whole bunch of data,

  • put it into this thing called a hash function,

  • and it commits to it.

  • Because if you change any piece of the data--

  • any individual piece-- you're going

  • to get a different output.

  • And so it's really the key to it is that it commits something.

  • You can do it with the New York Times crossword puzzle,

  • and that was just my observation on it.

  • So it's about data commitment.

  • The other thing that Satoshi Nakamoto used

  • was asymmetric cryptography, or digital signatures.

  • I pulled one of the graphics that we talked about.

  • But the idea being that, long ago, cryptography

  • was, how do I encrypt something because I'm

  • in a military campaign?

  • And I would, maybe, just transpose.

  • The simplest cryptography from thousands of years

  • ago was transposing every letter.

  • An A becomes a B, a B becomes a C.

  • That would be a transposition of one.

  • Well, that's pretty hard to imagine that anybody got away

  • with that.

  • But that was early cryptography, thousands of years ago-- just

  • simple transposition.

  • By the mid-20th century, there was

  • very complex transpositions, which

  • were called keys and enigma.

  • If you ever go back and watch that movie Imitation Games,

  • there was five metal rotors--

  • they were electronic rotors--

  • that changed.

  • And every day, the Germans would change the five rotors.

  • But still, they were symmetric cryptography.

  • The U boats actually had the same five rotors

  • as high command out of--

  • Berlin, let's say.

  • So somebody came along in the 1970s

  • and said, what if the key is different?

  • It's asymmetric.

  • There's a private key, and a public key.

  • The public key, everybody gets, but the private key, you keep.

  • And some of those computer sites--

  • cryptographers-- are here, right here, at MIT.

  • Ron Rivest teaches a course in cryptography.

  • But that invention, in the 1970s, is really key.

  • So it's hash functions, and this concept

  • of a private key and a public key,

  • and of course a digital signature that goes with it.

  • You probably don't even need to remember much about this class

  • about this.

  • But just know there's something called

  • a private key and a public key.

  • And then, Nakamoto's real innovation

  • was off of Adam Back.

  • And Adam Back said, if I use some computational work--

  • if I use computational work to find a hash function that

  • has a predetermined number of zeros,

  • it's not much of a puzzle.

  • It's a random number generation.

  • People will say proof-of-work is a computational puzzle.

  • It is simply running--

  • this thing called mining is running-- electricity

  • until you get the right number of leading zeros.

  • But it can be efficiently verified.

  • So the characteristics of proof-of-work is of work is--

  • invented in 1997.

  • Blockchains were invented in 1991.

  • But what Satoshi Nakamoto--

  • what she did was she pulled that together after like 20 or 30

  • failed attempts to have a digital, non-central money

  • and said, that that's where blockchain inspiration is.

  • And so proof of work--

  • I use this little visual.

  • But each block-- do you remember what the word nonce is?

  • What's a nonce?

  • Ross?

  • Make me proud, somebody.

  • Can't remember.

  • AUDIENCE: And once.

  • GARY GENSLER: What's that?

  • AUDIENCE: And once.

  • GARY GENSLER: And once-- a number once.

  • AUDIENCE: Number used once.

  • AUDIENCE: Once.

  • GARY GENSLER: Number used once.

  • And so why is a nonce important for proof of work?

  • AUDIENCE: Because it's a unique number.

  • GARY GENSLER: It's a unique number.

  • AUDIENCE: And so establishing the integrity

  • of that [INAUDIBLE].

  • GARY GENSLER: So all this whole proof of work--

  • I'm just going back as a review, but the whole proof of work

  • is your computer is going to randomly keep

  • picking one thing that changes.

  • All the data, all the transactions are the same,

  • but keep changing this thing called a nonce

  • until I get some leading number of zeros.

  • And the whole Bitcoin network around the globe--

  • all it's really doing is running a random number generation,

  • or nonces, until the hash function

  • is solved to have 18 leading zeros right now.

  • Or I should say--

  • 18 leading zeros when Bitcoin's value was $6,500 a Bitcoin.

  • It wouldn't surprise me if it's going

  • to fall down to 17 leading zeros, or 16 leading zeros,

  • because that would make it easier to find.

  • All of that cryptography is just to make the database structure.

  • This database structure that is in blockchain--

  • to make this work.

  • All that cryptography of hash functions, digital signatures,

  • and a little proof of work is to make it

  • what's called nearly immutable.

  • And I'm putting the word "nearly" in because nothing's

  • truly immutable.

  • You could overwhelm even the Bitcoin network.

  • Questions about the technology?

  • [INAUDIBLE]

  • AUDIENCE: Could you just go over the number of leading zeros

  • concept again?

  • GARY GENSLER: So the concept behind the proof of work

  • that Adam Back came up with in the late 1990s was--

  • gotta run some data through a hash function.

  • In his case, in Adam Back's case, it was emails.

  • Literally run an email all the way through a hash function,

  • and then add an additional bit of data to it--

  • this nonce, a number that's used once--

  • and run that nonce randomly until the hash that comes out.

  • And my little visual at the bottom

  • there has some leading zeros to it.

  • AUDIENCE: So beginning of the hash

  • will be its number of zeros?

  • GARY GENSLER: Yes.

  • So in this case, four leading zeros--

  • in that little visual there.

  • All the data that goes into a block--

  • in Bitcoin, 1,000 to 1,500 transactions all go in.

  • They're rolled up in this thing called a Merkle tree,

  • but it all goes in.

  • And the only thing that's changing

  • is the miners are trying to find a random nonce

  • until the hash has certain number of leading zeros.

  • When Nakamoto wrote the paper, the difficulty was, I think,

  • 10 leading zeros.

  • And you could solve that on a laptop.

  • With eight more leading zeros--

  • and since it's hexadecimal--

  • I guess it's 16 to the eighth power

  • harder, or something like seven trillion times harder.

  • AUDIENCE: Yes.

  • AUDIENCE: Let's assume that you and I were trying

  • to have a transaction today.

  • And I'm going to keep some coins.

  • And I'm [INAUDIBLE] these for everyone

  • who's transacting many, many times

  • and adding layers of difficulty to the transaction that we had.

  • If I want to use my balance in five years,

  • how do we know what my balance is?

  • I need to go back through all the history

  • to know that I have a balance?

  • GARY GENSLER: So at the heart of the blockchain technology,

  • the Bitcoin network, but also all the other networks,

  • is the entire transaction history is public.

  • This both gives us its strength, but it's also

  • one of its challenges.

  • And so, yes, even five years from now,

  • if you want to use one of your Bitcoins--

  • which are stored on the blockchain--

  • you have to be able to show that here is a transaction

  • output from five years ago.

  • If you remember, there is both transaction output models--

  • Bitcoin is a system that keeps all the individual transactions

  • in a set called the UTXO--

  • the Unspent Transaction Output Set.

  • You'd have to be able to show that you have that in 25 years,

  • you said?

  • 2023-- in 2023, you'd have to be able to show that.

  • AUDIENCE: So it's also a balance.

  • They all spent this balance in the transaction [INAUDIBLE]

  • a record.

  • GARY GENSLER: It is a record of an output

  • from an individual transaction.

  • So yes, it is like a balance.

  • But because Bitcoin does not add up all of those individual--

  • if you had 13 individual outputs,

  • the Bitcoin network will not add up those 13.

  • You'd have to use each of those individually as new inputs.

  • AUDIENCE: And that one is on the last block, as well.

  • But I'd have to go back [INAUDIBLE]..

  • GARY GENSLER: All right, so the question is,

  • does the last block--

  • Bitcoin has 550-some 1,000 blocks of data right now.

  • Does the last block store all of the data?

  • And the answer is, no, but it does store a hash function

  • from the previous block, which stores a hash function

  • from the previous block.

  • So your transaction output might be on block number 420,000,

  • 130,000 blocks ago.

  • But what shows that it's verifiable

  • is that each one of these blocks are linked to another block

  • through this thing called a commitment scheme

  • called a hash function.

  • So technically speaking, the latest block

  • has a number in it--

  • a hexadecimal number, but a number in it--

  • called a hash function that is committed to.

  • Because all the data that's come before it--

  • all the millions of transactions before it--

  • if somebody even changes one of them,

  • you'll know that it's been tampered.

  • AUDIENCE: Let's say I want to use that balance I have.

  • Where do the blockchain verify that I have that?

  • Is it on the last block, or does it

  • go back as long as it finds the [INAUDIBLE]??

  • GARY GENSLER: In essence, it does

  • both, because the last block better be valid.

  • But for you to spend something, it

  • has to really go back and find that the input that you now

  • want to use is an output that has not yet been spent.

  • Eric, did you have something that you were trying to--

  • AUDIENCE: Yeah, it was a very nice explanation.

  • You have to go all the way where your transaction-- where

  • you got the Bitcoin was, whatever

  • block it is [INAUDIBLE] through the blockchain.

  • If you would try to get those coins

  • and use them as a [INAUDIBLE] for whatever transaction

  • you want to do, you have to go all the way back.

  • GARY GENSLER: And this complexity

  • is part of the reason why it doesn't

  • have the same performance--

  • doesn't have the same scalability-- yet.

  • I'm one that believes in a--

  • I'm optimistic that some of these scalability

  • and performance issues will be overcome.

  • But it might take three, five, seven years.

  • And it's not three or seven months.

  • But you're absolutely right, because you

  • have to kind of look back--

  • way back.

  • The Ethereum network doesn't just do it on transactions.

  • It has balances.

  • And so it's a little bit more efficient that way,

  • and has other inefficiencies--

  • many other big inefficiencies, but in some ways it--

  • We talked about smart contracts.

  • Larry Lessig actually spoke to us also about smart contracts.

  • Nick Szabo wrote about this in 1996.

  • I like to talk about the history to say,

  • it's not all about this one person that we don't know--

  • Satoshi Nakamoto-- but a set of promises

  • specified in digital form, including protocols, where

  • parties keep their promises.

  • Think about it as a modern way to automate.

  • So if you're out in business in the future,

  • you're thinking about investing, and somebody

  • raises a smart contract issue.

  • Even if you're a Bitcoin minimalist,

  • you might say, wait, wait, wait.

  • There might be some way I can automate

  • that which is currently done by lawyers,

  • or by back-office folks, or accountants.

  • So there's still something there.

  • And we talked about a use case where the SDA--

  • the Swap Derivatives Association--

  • is looking at smart contracts to try

  • to automate some of the previously written mechanisms.

  • So smart contracts, which have come out

  • of this whole blockchain technology movement,

  • actually predates blockchain technology.

  • But blockchain technology, again, as well-- maybe we

  • can do this in a verifiable, nearly immutable way, as well.

  • So moving value or automating some forms

  • of contractual arrangement.

  • But remember, they're not so smart,

  • and they're not so much contracts.

  • You probably still need the courts,

  • and there's still some ambiguity that can't

  • be pushed into these documents.

  • So then, we talked a lot about the economics

  • of blockchain technology.

  • And it's around verification costs and networking costs.

  • But it's about lowering verification costs.

  • And some of those verification costs

  • might just be the economic rents of the current incumbents.

  • So blockchain technology may be a really important way

  • to lower direct verification costs and deal with censorship.

  • And I think that was a lot of what Nakamoto's innovation was

  • about, was dealing with censorship that somebody

  • could deny me the right to use my money when

  • I want to use my money.

  • But it could also be about lowering economic rents.

  • Any questions?

  • And then we said, how do you assess a use case?

  • And this was at the core of even my CoinDesk article.

  • Before you get to anything else is, how is it going to be,

  • really?

  • It's what's the value creation proposition?

  • Again, what are the verification and networking costs that

  • are really going to be reduced?

  • And what are competitors doing?

  • With a keen eye on--

  • in trade finance, there's 20 or 30 efforts,

  • so it's worthwhile looking at those 20 or 30.

  • I don't know which field you all go into,

  • but if you're in a field where nobody has used blockchain

  • technology, no competitor, then ask the question,

  • well, how are competitors using traditional databases?

  • And that might be the opportunity for you.

  • And it might be a golden opportunity.

  • But always look-- what's the value proposition?

  • What verification and networking cost?

  • What's the competition?

  • And then, you get into the sort of tough details.

  • And if you're investing, if you're

  • a venture capitalist and somebody

  • can't really tell you why multiple stakeholders need

  • to write to the ledger, and what's their data--

  • what data are they going to be storing on this append-only

  • log--

  • then I might suggest you invest in something else.

  • I mean, you can always invest in something

  • because you think that it's a momentum play.

  • And if you invest, it's an early seed investment,

  • and somebody will bail you out.

  • But most venture capitalists-- you're

  • investing for three to six years, or three to five years.

  • And so I wouldn't always expect somebody

  • is going to bail you out.

  • Ask the tough questions.

  • Jihee?

  • AUDIENCE: But just because that is the best solution,

  • it doesn't mean that they're going to be successful later,

  • right?

  • There are multiple examples of products, or services,

  • or [INAUDIBLE] that are clearly not the best solution

  • but have taken dominant position in a market.

  • So I was curious, should it be the best solution?

  • GARY GENSLER: Well, I think that's one of the questions.

  • But you're saying, well, what if it's not the best solution?

  • Going back to what Jeff Sprecher said,

  • can it do something cheaper, faster, or better?

  • And it might not be the best solution.

  • But if it can at least answer the question,

  • is it cheaper, better, or faster,

  • you're probably not going to be successful.

  • And in some cases, it's not the best data solution,

  • but there's such high economic rents

  • that however the mortgage product, the health care

  • product, the product that is being delivered now,

  • the payment solution that you're saying, ah,

  • it's not the best solution.

  • But this is my solution on how I'm going to do it cheaper,

  • because they have so many economic rents.

  • So maybe that the word should say,

  • why is this a better solution, rather than best solution.

  • I'll agree with that.

  • Other queries?

  • And then, if there's a native token,

  • I think that's where you start to lose May.

  • But now, I'm going to ask the class.

  • How many people have come out of this semester thinking

  • there's a lot of initial coin offerings

  • that you'd want to personally invest in?

  • [LAUGHTER]

  • All right, is there anybody in the class

  • that owns an initial coin offering-- a non-Bitcoin token?

  • OK, do you want to tell us why?

  • AUDIENCE: Yeah.

  • GARY GENSLER: Give us the value proposition, or the pitch.

  • AUDIENCE: So I went to work for a startup, [INAUDIBLE]

  • this summer.

  • And after the summer, they paid me US dollars.

  • But after the summer, they gave me a lot of tokens they have.

  • And I saved a little bit of them.

  • GARY GENSLER: All right.

  • So you got paid in tokens.

  • AUDIENCE: No, I was paid in US dollars.

  • After the summer, they gave me most of the--

  • like a bunch of-- some of the tokens.

  • GARY GENSLER: As a bonus or?

  • AUDIENCE: As a bonus, yeah.

  • GARY GENSLER: I see.

  • As a bonus, you got--

  • all right.

  • And you sold some of them?

  • AUDIENCE: Some of them, sold them.

  • GARY GENSLER: And I see.

  • AUDIENCE: Some of them I still [INAUDIBLE]..

  • GARY GENSLER: All right.

  • And do you think that there's a use for these native tokens?

  • AUDIENCE: This specific startup?

  • GARY GENSLER: Yeah.

  • Names will not be repeated.

  • It's being filmed.

  • AUDIENCE: I don't know.

  • GARY GENSLER: I don't know.

  • Sean.

  • AUDIENCE: So I thought of it-- well,

  • I just thought a little of like Tron, which is a--

  • GARY GENSLER: Tron.

  • AUDIENCE: Yeah, it's a gaming.

  • GARY GENSLER: Gaming site.

  • AUDIENCE: Which is a-- basically a company

  • started by a friend of mine.

  • So it's kind of a token of support

  • instead of like [INAUDIBLE].

  • GARY GENSLER: All right.

  • So you bought some tokens as a token of support

  • for a friend, who started a company.

  • Do you think they have some use?

  • Can you use the token?

  • AUDIENCE: I don't think there's-- well--

  • [LAUGHTER]

  • Well, it's supposed to be the--

  • building up to the biggest gaming network [INAUDIBLE]..

  • GARY GENSLER: But is it pre-functional,

  • or is it functional?

  • It's pre-functional.

  • Hugo?

  • AUDIENCE: Yeah.

  • GARY GENSLER: You have-- you are?

  • AUDIENCE: I have-- yeah.

  • GARY GENSLER: All right.

  • You don't-- all right.

  • He's got a whole portfolio.

  • I can tell.

  • AUDIENCE: I don't know.

  • I've been interested in this for over a year now.

  • So I wanted to make a whole radical

  • of like, oh, this one looks like it's going to go well,

  • but this one's a scam.

  • And there are some that seem like sure-- in the long run,

  • they may retain some value.

  • But I probably made some bad investments.

  • GARY GENSLER: Right.

  • So I don't want to make you sort of grieve those bad investment

  • decisions, but are any of your tokens that you have held

  • or hold currently-- are any of them functional?

  • Like, they can be used on a network?

  • AUDIENCE: Yeah.

  • And I actually use at least one of them.

  • GARY GENSLER: All right.

  • Here.

  • Are you an owner, or you've got a question?

  • AUDIENCE: I'm an owner, but not--

  • I haven't voted.

  • Both the tokens-- I'm mining the tokens.

  • But in any case, I wouldn't disregard maybe

  • tokens that's a valid way of generating a means to jumpstart

  • a network and create some sort of valid way

  • to drive collective action for some disintermediation effort,

  • because I mean I--

  • and I think it's a little bit unfair

  • to ask if we kind of join or support ICOs

  • in the context of there's huge amount of scams

  • that are [INAUDIBLE] right now in the media.

  • But I wouldn't disregard the whole concept of tokens here.

  • GARY GENSLER: [INAUDIBLE].

  • I admit it might have been an unfair question.

  • I was just trying to get--

  • I was just trying to get some support in the room for tokens.

  • AUDIENCE: The concept for me is absolutely valid.

  • I would explore, seriously explore--

  • if I launch a startup in the blockchain space,

  • seriously explore the possibility

  • of using maybe tokens in the permissionless environment.

  • So I suppose the permission--

  • GARY GENSLER: So I think that there is definitely

  • a future in this overall technology of making

  • a database harder to tamper with,

  • more immutable on a scale, maybe not

  • 100% immutable, but closer to that immutable

  • and inverifiable.

  • I think that native tokens could help jump start a network.

  • What I think the challenge is I think the challenge is,

  • how do you compete with fiat currency

  • that has such extraordinary network effects?

  • So the Ernst & Young study, the recent study, I think

  • captures this a bit when they looked at the 140 largest ICOs

  • from 2017.

  • Only about I think it was 17 of 140

  • have a functioning network right now,

  • where you can use the token, 13%.

  • But of those 17, I think seven of them,

  • the networks that are live, instead of, well,

  • guess what, we'll also take fiat currency for this service

  • that we're providing, whether they're providing

  • file storage or something else.

  • So they definitely used a native token

  • to jumpstart the network as a crowdfunding,

  • but then when they got to the later functional stage,

  • the operator, the entrepreneur says,

  • I don't want to limit my users.

  • I'm going to also take fiat currency to buy or secure

  • whatever service I'm having.

  • And I think that's the business model challenge.

  • And it may well be that there are networks,

  • just like in gaming sites, where you want skins or shields,

  • and there's something about only trading those tokens.

  • But to date, that's been a limited class.

  • That's where I probably will declare myself.

  • I think, of course, there's a bunch of tradeoffs

  • over the next three to seven years

  • that will be sorted out around performance, privacy, security.

  • We talked about layer 2.

  • If any of you are actually interested in work

  • in the blockchain technology field,

  • you're going to learn a lot about layer 2 solutions

  • and side chains and all the performance scalability things

  • that colleagues over at the Digital Currency Initiative

  • are spending a lot of time on this question right here.

  • And then, of course, this is a business model.

  • Just purely as a venture capitalist,

  • you have to think about, how do I get adoption?

  • How do-- what's my customer user interface?

  • I'm sure, Iman, you're thinking a lot about this, right?

  • You could have the best idea on a data structure.

  • You could have a really nifty idea on a native token.

  • But you still have to deal with whatever

  • venture capitalist has to do is, how do I get users to use this?

  • Adoption.

  • What's my UI?

  • And it's sort of a much more generic set of issues.

  • Iman.

  • AUDIENCE: That was my answer to Jihee.

  • She's totally right.

  • It's all about-- it's a tension between adoption and quality

  • of product.

  • And that's why we moved from Ethereum

  • to the public blockchain.

  • But we didn't think that it will be mass adopt by--

  • massively adopted by the incumbents.

  • So we moved to a permission blockchain

  • because of the adoption.

  • GARY GENSLER: And I can't remember if you're able to say.

  • Which are you using--

  • Hyperledger Fabric or Corda or?

  • AUDIENCE: We're using Corda because of the state channels

  • solution that they provide.

  • GARY GENSLER: So we talked about frameworks.

  • Over time, it's my thought that that orange line, the slope

  • of that will come down, and we'll move more

  • towards the decentralized side.

  • But for the orange line, the slope to come down, in essence,

  • the costs of the scalability, security, even the coordination

  • needs to come down.

  • It's always going to be some challenge on governance.

  • In essence, who is going to pay for the software

  • development in a truly decentralized network?

  • And Bitcoin has been supported, for instance, by, really,

  • an incredible group of Bitcoin Core developers,

  • in part because they just believe

  • in it, in part that some are funded

  • by institutions like MIT.

  • But it's still-- it's always a challenge in a truly

  • decentralized space.

  • Who's going to fund--

  • who's got the economic interest to fund the continued updates

  • and software?

  • I think Uber could be completely a decentralized network.

  • And probably, drivers would get paid more.

  • But then where would be the incentive?

  • Who would work on the software development

  • to update their ride app?

  • So there's a key tradeoff there.

  • The financial sector-- well, it moves and allocates

  • money and risk.

  • We talked about that.

  • But it relies on a system of ledgers,

  • and it's always had a symbiotic relationship with technology.

  • The opportunities-- these are the key opportunities,

  • which I think any thought fintech--

  • it's not just blockchain but even AI and machine learning--

  • has around finances.

  • The customer interfaces-- there's

  • a lot of legacy customer interfaces

  • that you can actually compete with,

  • if you're doing a startup.

  • The economic rents are high.

  • There's 7 and 1/2 percent of the economy is finance.

  • Not all of the 7 and 1/2 percent is rents,

  • but there is a lot of extra--

  • excuse the expression-- a lot of extra vig or juice

  • in that model.

  • And, of course, we've had repeated crises

  • and instability.

  • And financial inclusion-- we talked about products

  • like Alipay and M-Pesa that were really

  • about financial inclusion using new technologies.

  • So what are the technologies in our time?

  • I just put up a nice little graphic here.

  • I'm doing some work with a group called

  • FinTech at CSAIL, the Computer Science and AI Lab here.

  • And when we leave with the funding companies,

  • the big funding companies of that unit over there,

  • blockchain is on their list, but it's not number one.

  • To just put it in context, in terms of their technologies,

  • they're thinking about machine learning

  • and AI would probably be the biggest piece.

  • But just to give a flavor for--

  • but it's one of the top three or four.

  • But as we've talked about, they have challenges.

  • The financial sector sees a lot of challenges.

  • AUDIENCE: I just want to go back to previous slides,

  • and how would the virtual reality impact finance?

  • I'm not sure.

  • [INAUDIBLE]

  • GARY GENSLER: That has happened--

  • AUDIENCE: AR and VR, [INAUDIBLE] tech, finance.

  • GARY GENSLER: I'm not familiar with the projects

  • in that space.

  • But where-- and I'm sure I'm getting now,

  • you're going to inspire me to do some research

  • in the next day or two to shoot your email with some projects.

  • But virtual reality and hearing it does

  • allow for more financial inclusion.

  • And the question really is, can you just, rather--

  • think of the user experience.

  • If you can find an enjoyable way to spend more money

  • through virtual reality, the banking system

  • wants to tap into that.

  • It's not one of the top things at FinTech at CSAIL,

  • I'd say AI, machine learning, biometrics, and blockchain.

  • Everything's in the cloud, so they're not

  • asking, right now, MIT to help them with cloud issues.

  • Open API is a really big issue, particularly in London

  • and in the UK, where it's been regulated that the banks need

  • to use Open API.

  • So I'd say AR and virtual reality

  • is probably eighth on the list there.

  • And I just include it, because I kind of think it's--

  • they'll find a way to change a user interface.

  • We talked about there's a bunch of issues,

  • and that's really leading to the use.

  • We talked about traditional databases, which--

  • where parties can just create, read, write,

  • the ledger, the private blockchain, which,

  • of course, is what most of trade finance, most of payments,

  • all the big central banks that have looked at it

  • or moved from Ethereum to doing Hyperledger projects--

  • Singapore and Canada's Jasper--

  • and maybe permissionless.

  • But the finance is really in the second bucket right now.

  • Eric, it's not to say that native tokens won't take off

  • and, Hugo, that your portfolio will be worth something, maybe.

  • So here, we went through a bunch of use cases.

  • But the biggest use case so far has been the $20 to $30 billion

  • that's been raised through ICOs.

  • I personally think that's going to come down, way down.

  • But payment systems--

  • I mean we might differ on the views of XRP, a token,

  • but Ripple and other companies have

  • done a lot to try to be a catalyst for change and payment

  • systems.

  • We talked a lot about trade finance.

  • Again, they're more in the permissions

  • than the permissionless.

  • Clearing and settling-- what's going on in Australia.

  • Again, permissionless, not-- I mean permissioned, not

  • permissionless.

  • And then some of the non-financial--

  • had a lively discussion about supply chain management,

  • and James, I'll forever remember that you're not a fan of it.

  • But Walmart and Cargo might disagree with James.

  • And they have active projects on it.

  • And Lauren gave-- where's Lauren?

  • She's here, maybe-- gave a reason why

  • in supply chain sustainability that you

  • might be on the other side.

  • Digital ID was the last thing we talked about.

  • So there's a lot going on, and when there's $20 or $30 billion

  • raised, there's going to be-- these projects

  • will have some life to them.

  • We'll learn a lot from them along the way.

  • Crypto finance-- when I first put this slide up,

  • it wasn't $110 billion.

  • And gosh knows I did this yesterday,

  • so I don't even know what it is today.

  • Pretty volatile market.

  • Interestingly, Bitcoin staggered about 55% or 57% of the market.

  • So there's a high correlation, though Ethereum slid, and XRP

  • is number two in that market since we first got together

  • in September.

  • Here, what I think the challenge is, as an investor--

  • I'm not trying to pick on you, Hugo, but you know,

  • an investor.

  • But I think that's the number one challenge.

  • I really do.

  • What's the viability of that token?

  • And Eric, I'll agree with you.

  • Some tokens will be worth something.

  • But it's assessing that.

  • But the markets are readily susceptible to fraud.

  • How do I keep custody for the private key?

  • Fidelity has announced they're going

  • to have a new private key solution,

  • so it's interesting that big incumbents are coming in.

  • It's not just the Zappos and the early stage custody solutions.

  • Even Backed, the Intercontinental Exchange,

  • has put a lot of money into it.

  • And they'll, in essence, have a custody solution,

  • because you could buy Bitcoin, one day futures,

  • have a Bitcoin, and then they would, in essence,

  • hold custody for you.

  • And then we talked about crypto exchanges.

  • And the key thing-- and if you take anything away

  • about exchanges, other than right now they're unregulated

  • and they're probably highly susceptible to front running

  • and manipulation, is that they're a little bit different,

  • because they're not just matching

  • agents, which the London Stock Exchange or the New York Stock

  • Exchange are [INAUDIBLE],, but they also are counterparties

  • and custodians.

  • The other thing to take away about crypto exchanges

  • is they're highly centralized.

  • So it's a central irony that Satoshi Nakamoto is trying

  • to have decentralization, and yet there's

  • an awful lot of centralization.

  • So I'm just thinking about core takeaways.

  • If you're ever investing, or you're thinking about this,

  • or you're just involved in a dinner party conversation,

  • that central irony in a decentralized space,

  • 95% of the real transactions are happening on crypto exchanges.

  • My thought about crypto exchanges--

  • they'll not be 200 of them that much longer either.

  • We talked about Initial Coin Offerings.

  • Central takeaway is they're fundraising vehicles.

  • Whether you believe in or not believe

  • in the US and Canadian approach under the Howey Test,

  • but they help build a network, raise money in anticipation

  • the tokens are issued before it's functional.

  • I think the latest study was that--

  • what was it-- 1 and 1/2 percent are actually functional,

  • and 98 and 1/2 percent are issued pre-functional.

  • So that's not a problem.

  • It's just-- that's the--

  • means it's probably an investment vehicle, not

  • a utility token.

  • And that whole thing about utility token

  • versus security tokens, it stretched pretty darn thin.

  • We talked about public policy frameworks,

  • guarding against illicit activity, financial stability,

  • investing public.

  • My overall thought on this--

  • and I accept that others will have other views--

  • is that any new technology, if it grows to be economy-wide,

  • needs to live within public policy frameworks,

  • or society will change those public policy frameworks

  • modestly.

  • But you still want to protect the public

  • against core social goods.

  • It happened when the railroad came along.

  • It happened when telegram came along in the 19th century.

  • It happened with the internet.

  • Societies don't have technologies

  • fully outside of whatever social fabric we want to create.

  • And we do that social fabric stuff

  • through politics and parliaments and executives and regulators.

  • But we don't leave big parts of our economy outside of it.

  • This stuff is still small.

  • It's $100 billion.

  • The worldwide capital markets are over $300 trillion.

  • But it's gained a lot of public attention.

  • And particularly, we want to guard against illicit activity.

  • Most folks do.

  • Maybe not everybody.

  • But most do.

  • No, I recognize.

  • Hopefully, you all do.

  • Well, I don't know.

  • So we talked about the US Securities Law, the Howey Test.

  • It's not-- if you forget the Howey Test, it's totally fine.

  • But it's core to these initial coin offerings,

  • and it was that four-part test--

  • investment of money in a common enterprise,

  • expectation of profits.

  • So if you get into some debate, and you

  • want to have some fun with somebody,

  • you can say you know the Howey Test.

  • But it's really more this.

  • I prefer the Duck Test.

  • Just use common sense.

  • This course has been more about critical reasoning skills

  • than anything.

  • So if somebody's trying to sell you something or hustle you

  • on something, and you are now a venture capitalist,

  • and you're investing, use the Duck Test.

  • You can even remember the Duck Test

  • about whether they're trying to sell you something,

  • and it has nothing to do with the law.

  • It just-- so where do I think crypto exchanges will go?

  • I think that they'll have to fix this whole custodial duty

  • stuff.

  • They might all use Fidelity's product.

  • Or they'll keep it in-house or spin it off.

  • I think they'll have to start complying with any money

  • laundering.

  • We saw one study that said a quarter of all exchanges

  • don't even have any AML.

  • I think two years from now, that will be way down.

  • I think margins will compress, and I

  • don't think there'll be 200 exchanges

  • two or three years from now.

  • There'll be five or 10 relevant exchanges

  • at some point in time.

  • On Initial Coin Offerings, I think

  • we're going to keep seeing a high failure rate.

  • There's still about 200 a month, but there'll probably

  • be fewer of them.

  • I think that there's going to be a lot of enforcement actions.

  • Occasionally, you'll see something--

  • the Securities and Exchange Commission or some other--

  • maybe it will be in Japan or elsewhere will

  • be bringing more cases.

  • And what will be interesting in 2019 is to watch,

  • does any of the big ones go live?

  • And I think this will be a real test.

  • Does Filecoin figure out what to do?

  • They raised a quarter of a billion dollars.

  • Telegram raised $1.7 billion.

  • Do they figure out what to do and make

  • a real live effort in 2019?

  • And it will test the economics.

  • And by the way, Eric, it might pull me more

  • towards where you are, right?

  • I mean Telegram's-- they got a lot of smart folks over there

  • working on this.

  • And by the way, Facebook has advertisements out

  • hiring people on blockchain technology.

  • So there's a lot of very big tech companies hiring

  • and recruiting in this space.

  • But I think 2019 will be interesting to see, what does--

  • what is Telegram?

  • What is Filecoin?

  • What do some of the big, hopefully, well-meaning

  • companies do with these tokens?

  • Central banks-- mostly in the monitor phase.

  • But I'd say the thing to watch is Sweden.

  • It'll be really interesting what they

  • do with their E-krona project.

  • Do they go live and say, inspired by blockchain?

  • The E-krona project is not blockchain technology,

  • but it's completely inspired by Satoshi Nakamoto saying, well,

  • we, the central bank, Jihee's the central bank says,

  • we're going to do what Satoshi Nakamoto's--

  • we're going to have a central bank digital token.

  • You can use it at Starbucks.

  • You can use it wherever.

  • I'd watch that.

  • I think Venezuela will probably fail on the other end.

  • But it'll be interesting.

  • There might be some distressed country that does something.

  • So how would I conclude?

  • I think blockchain does--

  • this is my disclosure.

  • I think it does provide a real peer-to-peer alternative.

  • I think it's a legit live application.

  • It might not be the best, but is it better than some others?

  • Is it something you could use?

  • Verification and networking cost--

  • I'm going to repeat on that--

  • is the key.

  • But you always, I think, have to assess, is it

  • the right use case?

  • Is this use case the right use case?

  • But as we've talked, I think there

  • are real use cases more in permissioned

  • than permissionless.

  • Remember anything.

  • Money is just-- we all humans, the 7 billion

  • of us that live now, have to thank somebody

  • about 10,000 years ago, but came up with this technology called

  • money.

  • Store value, medium of exchange, unit

  • of account-- it's just a social construct, which

  • is a reason why I say, we could have a social construct

  • that is decentralized money.

  • I absolutely believe we could have that.

  • But we'd all have to accept it.

  • Where I have less optimism is that you'd

  • want to accept it for a closed, bounded ecosystem

  • only for file storage.

  • That's where I'm a little challenged as to,

  • what is the real economics of that?

  • Financial sector's characteristics

  • and challenges--

  • is it good?

  • It's fertile ground, because finance is built on ledgers.

  • And finance is big--

  • 7 and 1/2 percent of our economy.

  • And around the globe, it's anywhere from 5%

  • to probably 8% of those economies.

  • Most other countries, it's less than the US,

  • but it's still-- it's big.

  • Incumbents are, of course, looking

  • at permissioned blockchains.

  • And unfortunately, crypto finance

  • has a bunch of scams and frauds.

  • And that hurts the development.

  • But I think adoption will come, but it

  • rests on solving a bunch of technical issues,

  • like the Digital Currency Initiative's trying to solve.

  • What are the commercial use cases and the public policy?

  • I wouldn't lead with public policy.

  • I don't think that's the main issue here.

  • But if this is ever going to be anything,

  • it's got to get over that.

  • So mostly, it's probably going to be a catalyst for change,

  • more than actual real thoughts.

  • Questions?

  • Thoughts?

  • Eric.

  • AUDIENCE: On the third point, I--

  • GARY GENSLER: Use cases must address why

  • versus a traditional database.

  • AUDIENCE: I always had the feeling

  • that it seemed the permissioned space, where

  • you have the most or the biggest urge to prove where--

  • if your submission needs a blockchain solution as opposed

  • to a traditional--

  • I mean making a case against the centralized database

  • is kind of easy, versus a distributed database.

  • I think it's a little bit tough.

  • But in the permissionless space, I

  • think you don't have to struggle much,

  • because it's absolutely justified that you can--

  • because you're dealing with a decentralized configuration,

  • where there's no one in charge of guaranteeing

  • that we have a--

  • GARY GENSLER: So Eric's raising the question,

  • why not use a traditional database?

  • Why ever use a permissioned--

  • AUDIENCE: In the permissioned space,

  • because permissionless is perfectly justified.

  • But in the permissioned space, I'm

  • not saying it's not justified.

  • The point is being that in our project,

  • we argued for a permissioned system.

  • We made some justifications in that space,

  • so the point is that I just wanted to get your thoughts so

  • that in the permissionless spaces,

  • you don't have to struggle much in that.

  • GARY GENSLER: Permissionless blockchain technology,

  • looking forward a number of years,

  • looking forward to when some of the scalability and performance

  • gets better, can give you verification costs.

  • And it's censorship-resistant or practically

  • censorship-resistant, unless somebody does a 51% attack.

  • But so I think that the truly decentralized distributed

  • permissionless system has a lot of-- a lot to offer.

  • But it comes with a lot of costs, too, and challenges--

  • hard to do the governance and hard to get coordinated action.

  • And as you've heard me say, I think

  • there's only probably going to be a very limited use

  • cases for native tokens, native product-specific tokens

  • like a Filecoin or a restaurant review coin or a health care

  • coin.

  • I have-- I have my doubts about that.

  • An economy-wide coin, a cryptocurrency like Bitcoin--

  • I think there's more use, particularly

  • if you have a weak central bank, a weak fiscal policy.

  • A country like Venezuela in the future might adopt something.

  • I think there's a lot to be said for permissionless,

  • but permissioned systems versus traditional databases, I think,

  • also gives something.

  • And I'll use the Australian stock exchange for one,

  • but they know their customers.

  • They know they have--

  • I think the number was 77 members.

  • They can take their database and decentralize it and put it

  • on all 77 member companies, if that's the right number,

  • and say, you're now sharing that.

  • And so then there's no single point of failure,

  • and we can lower what's called reconciliation costs,

  • because you all needed some of that data anyway.

  • The historic data-keeping, the historic nature of it

  • came up with each of those 77 members

  • having individual databases.

  • So I could see that there is a real benefit in probably

  • efficiency and lowering costs, which

  • means lowering costs of verification,

  • lowering networking costs, because there's

  • 77 members, trade finance.

  • I could see some of that as well.

  • So that-- but you might be right.

  • Oracle might be able to just adopt

  • that in a traditional database.

  • Sabrina.

  • AUDIENCE: Yeah, so it seems like you're

  • describing that they have some form of distributed consensus.

  • And that's the main reason, right?

  • But there's--

  • GARY GENSLER: And distributed the data

  • stored on multiple nodes, because it's multiple copies

  • of the same data.

  • AUDIENCE: Right, but yeah.

  • There's-- I mean if that still can be implemented without

  • watching.

  • I'm playing the Aleem today, since he's not here.

  • But there's no--

  • GARY GENSLER: No, but we--

  • AUDIENCE: That's been a long solved problem of how consensus

  • algorithms that-- or you can replicate

  • state on the same state on both the machines

  • and tolerate some [INAUDIBLE] number of failures.

  • So I personally don't really see the use of blockchain

  • in permissioned systems, but I do see a lot of potential

  • for permissionless systems, just because those algorithms

  • already exist out there to do [INAUDIBLE]..

  • GARY GENSLER: So what Sabrina's raising--

  • you can take the Sabrina seat.

  • You're-- Sabrina's a master's student at computer science

  • at MIT, so she probably knows what she's talking about--

  • is really saying, well, you can do a lot of that.

  • You can have distributed databases

  • without blockchain technology.

  • You can have-- and there's ways that

  • this Byzantine-fought tolerance has been addressed

  • in distributed databases that you don't

  • need blockchain technology.

  • The concept of a block, commitment hash, block,

  • a commitment hash, block technology.

  • And I accept that.

  • But I'm not going to accept it to say

  • that there's no space for permissioned blockchain

  • technology.

  • What there is space for is the 80 of you

  • in this room to have different opinions on all of this.

  • You want to close out?

  • I want to-- I have one more slide I want to--

  • AUDIENCE: [INAUDIBLE]

  • GARY GENSLER: So this is, of course, about money,

  • so I went back and found a quote from Benjamin Franklin

  • that I like.

  • And to me, it's about a concept that I hope you all live by.

  • It's paying it forward.

  • Paying forward is partly because all of us in this room

  • are privileged.

  • We're at MIT or Harvard or Wellesley, but we're at MIT.

  • And so what did Ben Franklin say?

  • And it does close on money.

  • "I do not pretend to give such a deed.

  • I only lend it to you.

  • When you meet another honest man in similar distress,

  • you must pay me by lending this sum to him

  • and joining him to discharge the debt by a like operation,"

  • paying it forward, basically.

  • "He should be able and shall meet another opportunity,

  • I hope, that this may, though many hands."

  • So Benjamin Franklin, over 200 years ago,

  • he closes, this is a trick of mine

  • of doing a deal good with a little money.

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