Bitcoin Q&A: How to Avoid Re-creating Systems of Control - YouTube

"Do we need to take a step back to go forward, letting the big banks store our cryptocurrency keys?"

"In previous videos, you [said] one of the most important next steps for the crypto world [is] to increase liquidity...

by increasing vendors of all kinds, thus making it easier to buy and sell crypto."

"How do you look at custodial banks in the future [having customers store] crypto...

next to their fiat money in their bank [account]?"

"Do you think taking this step back to the banks is necessary for increasing the liquidity?"

[I would say] no to any step that re-adds an intermediary, a counterparty, a custodial owner into the system --

no matter what benefit it gives you in the liquidity or price of cryptocurrencies.

[Maybe] it creates a rally in the market and a few more people get lambos,

but that is not something I would be interested in.

It detracts from the most important principle of this technology, which is decentralization.

If you are interested in decentralization as the most important principle, you are looking to...

remove intermediaries, remove trusted third parties from the world of finance and commerce.

Then you are willing to do so while not having a lambo. That's okay.

When you [ask], "What do you think about custodial banks in the future [having customers store] crypto...

next to their fiat money in their bank [account]?"

I would argue that it is not their crypto and it is also not their fiat. It is the bank's crypto and the bank's fiat.

Part of the problem we have in our modern world is, when you use a custodial third party like a bank,

you have to trust that they [will] give you that money back; in many cases, they don't.

It is not your crypto anymore and it is not your fiat either. It is the bank's crypto and the bank's fiat now.

You have just re-introduced a giant security risk, a concentration of power, an opportunity for corruption.

If that is the way you increase the liquidity, I am not interested in more liquidity.

That is not a trade-off that's worth doing. I am much more interested in maintaining decentralization.

There are some trade-offs worth making and there are some trade-offs not worth making.

This is not a step back. This is complete capitulation. You don't step forward by increasing liquidity of banks.

You don't increase liquidity of the crypto [economy], because you no longer own any of it.

No. Be very careful of people who try to persuade you that, in order to achieve your dreams,

you [must] capitulate on your principles.

[AUDIENCE] You were talking about financial institutions having caused many problems Bitcoin is combating.

Curious [that], as the blockchain ecosystem matures, these same institutions are hopping on the bandwagon.

They are re-creating the same financial instruments, or have ambitions to if they haven't done it yet.

I'm curious what you think the implications are, when these guys hop on the bandwagon.

They will probably [get in] a lot faster than the rest of us,

even if we as individuals can create our own financial instruments on the blockchain.

[ANDREAS] That's a great question. I get that question a lot too. I am not particularly worried.

What most financial institutions are trying to do is...

take the idea and use it to do business- as-usual without changing their practices.

The main feature of this technology is the [systems architecture] we call decentralization, which says:

no one is in charge, no one is in control, and everyone participates.

It is a collaborative project.

[What becomes] recorded in the blockchain is the result of hundreds of thousands of computers.

It is not controlled by any single entity.

They could adopt that, they could adopt decentralization as a principle and make the economy far more robust.

They [will not] do that. They [will] try to pretend to do that, while creating something they control.

The nature of corporations is centralization. The nature of financial corporations is even more centralization.

As to the [question] of whether they will be able to move faster...

There is a pervasive idea that because financial services companies have all the money --

quite literally, because they made it themselves -- that they can simply buy their way into the future.

Fortunately for us, unfortunately for them, there are a few things you can't buy: innovation and creativity.

You can't buy innovation and creativity.

Once these large organizations [grow] beyond a certain size, if innovation arises without their company,

they will strangle it within 72 hours, probably by creating an innovation committee to study it first.

When they see innovation outside their industry and it is not too disruptive, they [will] buy it,

embrace it, ask it to have a haircut wear suits, and get into a 401k plan.

At which point, all of the creative and innovative people will leave. They will be left with a husk of a product.

Unless it is a very disruptive innovation, in which case they won't even try to buy it. They will try to snuff it out.

This technique has worked for them really well in the past.

Financial services could either buy the disruptive competitor, sue the disruptive competitor,

or (their favorite technique) have governments turn their disruptive competitor off for them.

Make sure there are enough regulations in the way that the smaller competitor can't compete [anymore].

Then Bitcoin happens. You can't buy it, it is not [a company]; can't sue it, there's no one to sue.

And the government can't regulate it out of existence because we forgot to ask their permission. [Laughter]

For the first time in 75 years of traditional financial services, they can't do any of those [techniques].

They haven't started panicking yet because hubris is a pretty big mountain to overcome.

But at some point they will [panic]. Some of the smart bankers are already [understanding that].

[Those smart bankers are] taking their Christmas bonus, jumping ship at the end of the year,

and using their Christmas bonus to fund a blockchain startup in January.

I have heard this story repeatedly from former Goldman Sachs bankers, JP Morgan Chase bankers...

The rats are already abandoning the ship, so I am not worried about that.

"Questions about blockchains for other industries."

"Why would a company use a permissioned, centralized blockchain to track supply chain procedures?"

What efficiencies are gained [compared to] using a traditional database or the cloud?

That is a very astute question; if you ever find the answer to that, I would love to know it...

Other than the fact that it allows you to stick every possible buzzword into your marketing brochure,

perhaps raise a whole ton of money in an underground ICO from a non-extradition, tax haven country,

and bamboozle a ton of investors...

I'm not quite sure what the point of permissioned, centralized supply chain blockchains is.

The very term "centralized blockchain" is an oxymoron. "Permissioned blockchain" almost equally an oxymoron.

Blockchains are [data] structures that are useful in [enabling] decentralization and open-access.

Making them centralized and permissioned completely removes the need for running a blockchain.

In that case, it [would] simply [be] a very inefficient database.

You can imagine certain scenarios where a blockchain system could be useful for supply chains,

primarily for organizing supply chain interactions between partners who do not trust each other...

who want a neutral, censorship-resistant, decentralized platform that serves needs in a predictable manner,

where no one [party] is in control.

That is what blockchains do. For that purpose, you can imagine a supply chain blockchain would be useful.

However, that implies that you're using the supply chain across multiple participants in an industry.

The problem is, they all have to agree to [a standard], rather than try to jockey for position and massage it...

until they get relative advantage, as always happens when these things are designed by committee.

[This is] exactly why successive efforts at...

standardizing IT infrastructure and systems [through] industry committees fail, again and again.

It is exactly why things like the internet and the web have [often] emerged from neutral, research-oriented,

scientific, open-source endeavors have succeeded again and again.

So let them try to create a supply chain [blockchain].

What we [will] see: every company tries to make their own, none of them are interoperable,

and all of them give too much power to the company that [created it].

Therefore, none of the competitors will want to use it, and it is just an inefficient database.

Millions of dollars will be wasted on this bullshit.

Phil has some more astute questions for us,

all of which [are about the pitfalls] of using blockchains for other industries.

"Would someone who uploads the hash of a music file on the blockchain prove that he / she is the creator?"

That is precisely the problem with trying to use blockchains in digital rights management,

provenance, and all other stuff [that boils down to]: garbage in, garbage out.

If you have a blockchain that guarantees information is recorded accurately forever,

that doesn't mean the information is true.

It is only true if you can validate it with consensus rules that remove centralized power.

If anybody can simply put a hash out, that [proves very few things]. You can't prove identity,

you can't prove provenance and you cannot prove ownership.

If you have a third party proving the identity, provenance, or ownership, then it is not a decentralized blockchain.

It is simply a database for registering the decisions of a committee or registry agency.

Again, an inefficient database. Furthermore, using hashes to identify unique pieces of content,

like music or video, has been proven again and again to be [pointless for the purposes they ascribe].

[For example]. all you need to do is change one bit [of the content] and the hashes won't match anymore.

You can't verify that a piece of content is [nearly the same with hashes].

In all of this, I think I just demolished the ICO pitches and whitepapers for at least twenty different start-ups...

[who] are playing around with these concepts.

But the truth is, there really isn't much of a use case for provenance of music...

or other things like that, by simply doing proof-of-existence [with a blockchain].

Okay, let's destroy industry number three!

"How would a patient holding his private key [simplify] healthcare record management?"

"How could blockchain-based data be accessed if the patient holding the private keys is in a coma?"

Well, unfortunately, most of these things have been designed by start-up people...

who [were probably] in a coma when they were writing the white paper, because none of this makes sense.

The idea that you would put healthcare data -- [some of] of the most private data [people have]

-- on a public distributed ledger, is asinine at best.

Healthcare probably [has some] of the most narrow applications for blockchain technology,

despite the fact that millions [of dollars are] being raised by companies to do healthcare records management.

Ask yourself this: which problem in healthcare records management do you solve [with]...

a global, neutral, censorship-resistant, decentralized system? Because that is what a blockchain is.

Is someone trying to do censorship on records management? Trying to introduce non-neutral data?

Trying to artificially raise borders in healthcare records management?

Is it a problem in healthcare records management that participants don't trust each other,

and cannot vest power in anyone?

None of these things are solved by a blockchain.

The problems in healthcare records management are not problems that relate to blockchains.

Be very skeptical about industry applications of blockchains.

"Could a blockchain be implemented to distribute credits to the elderly to pay their rent or for social activities,

supposing the credits are validated by certain authorities (priests, social service clerks, etc.)?"

"Can you see a blockchain being created for that application, or could an existing one be used?"

"To timestamp and validate the credits, [prohibit] buying and selling of these credits [for other purposes]."

Steven, I'm sorry. While [this] is an admirable idea and I can see where you are coming from,

what you are describing is money.

Yes, you can create tokenized forms of money.

But when you create tokenized forms of money and try to restrict the circulation and liquidity,

restrict the places they can be spent, and restrict who owns them, that reduces the value of that money.

In the end, you cannot prohibit people from buying and selling these credits;

you cannot prevent secondary markets from existing in anything that is perceived as valuable.

If something is valuable, it is traded. That is the natural rules of economics.

You can't prohibit people from trading these tokens. They will trade them on secondary markets.

They will trade them even if it's illegal to trade them.

If you try to prevent people from trading, all you [will do] is discount the value of that token,

so people will trade it at a discount.

The less liquidity, circulation, and velocity it has, the more you erode the value of that token.

Effectively what you created is simply bad money;

[Gresham's Law says that] people will get rid of good money and replace it with good money.

If people have two forms of money and one of them is considered bad, it is sold at a discount.

They will use that bad money to do all of their spending until they run out of it,

while they hoard the [good money].

These basic rules of economics [won't] be violated. We see these scenarios play out again and again.

We see them in places where you have hyperinflation, like Venezuela and Zimbabwe.

You see it in places where you have demonetisation, as we saw in India.

The demonetised notes flooded the market immediately at a heavy discount. Gresham's law played out in reality.

We see the negative implications of using this kind of restricted [credit].

These were very popular in company towns of the Old West; they are still [used] in certain places where...

disadvantaged and disempowered workers live inside compounds.

For example, [resource extraction companies like] mining and oil.

The only credit they can spend is tokens that are issued by the company, spendable only at the company store,

to buy food and basic amenities.

These [credits] are used as a system of control. Not a good system, not a good outcome.

They are used to control people, for the most part.

So while I appreciate your approach to help people, the laws of economics will work against you in the end.

[These credits would] become a poor substitute for money.