hello and welcome to future now thepodcast where we discuss new technologies and ideas and how theymight affect your future so today we’re talking about blockchain with FrancisMendoza who is from the blockchain Innovation Societyhe works in what is called the Internet of Things or IOT which are the systemsthat all our wireless technology uses to communicate with each other thistechnology has some pretty massive potential when paired of blockchainwhich Francis is going to walk us through so let’s go ahead and check itout hi my name is Francis Mendoza I’m arising senior here at Arizona State University I major in computer scienceand I am the longest standing undergraduate researcher at the ASUblockchain research lab and it’s been around since the fall of 2017 which is afunny story considering how originally I wanted to go to U of A for college but Iwas just delving into blockchain during my high school and I read an article wasreleased by the state press and it was how ASU and the – crypto currency wasfunding an ASU blockchain research lab in the fall of 2017so as fate would have it I would switch schools change my major to computerscience and the week before I would email professor Boskovic who heads thelab asking if I can join and he said of course and ever since I’ve been doingwork in the space and I don’t regret it in terms of the actual research you dowhat does that look like what kind of space are you working in so there aremany different applications for blockchain and many differentengineering challenges that have to be solved my work specifically deals withutilizing blockchain technology within the Internet of Thingsso basically everything or any interconnected device such as AmazonAlexa – leads of autonomous drones and self-driving cars those are technicallyInternet of Things devices and what I’m trying to do is essentially bring thetransparency and security benefits of the blockchain to basically host theseInternet of Things devices so you have a centralized platform not not centralizedbut a standardized platform in order for those devices to talk to each other andexchange data what do you mean by a standardized platform nobody wants toreally share their data they all want to keep it siloed under their corporateumbrella which makes sense because that is how they generate a profit right andas much as possible they want to extend their initialIOT product to eventually a line of IOT products and here’s the limitation withthat so the business logic makes sense but there is an in curve in terms of thelimitations of the industry there’s no one industry that’s going to be a marketDominator in the IOT space and that’s especially significant because wellunless you somehow manage to evade the wiles of antitrust regulators and havebillions of dollars of bankroll you can’t control the IOT space so thealternative is you get different enterprises who have their own IOTsolutions who essentially work together it’s a cyber physical systems genie likesociety will essentially tell this genie what it wants and the devices andsystems which are owned by different enterprises will essentially worktogether in order to solve that problem and whoever participates in solving itgets a cut of the profits and that’s that’s kind of the philosophy behindblockchain itself right is this idea of cooperation oh yes absolutely so todelve into the history of blockchain so so blockchain was originally devisedwell it’s originally started out with Bitcoin in 2008 an anonymous writer bythe name of Satoshi Nakamoto he publishes the Bitcoin white paper andbasically his frustrations were with the central banking system and our currentthe limitations of our current financial infrastructure so basically as he saw itthe reason why 2008 was able to happen was because he had a bunch of peers notacting within the interest of the entire system and their actions essentiallycaused like the 2008 housing crisis I’m not sure if you’re familiar with how thedetails of those work but essentially it was like it all stems down to theprisoner’s dilemma if you heard of it so oh so this is a very interesting age-oldpsychological question so imagine that you and I went to jail alright so weboth committed some sort of crime now let’s say that the officer says if weboth admit we’re guilty right to doing the crime we only get two years atprison right but if none of us say anything we all if not gonna sayanything we essentially get like let’s say five years right but then here’s thecatch so if you if you say that I did use if you declare yourself innocent andyou say that I’m guilty then essentially you go free but I have to spend tenyears and if I declare myself innocent youdeclare you and declare you guilty I go free you’ve got ten years but if we bothsay that we’re guilty about like we accuse each other of doing the crime weboth get life in prison so so the caveat to that is essentially what is good forthe individual is not necessarily good for the whole from a game theoryperspective it is much better off for both of us to just say nothing and justdo the three years however from an individual perspective my incentive togo scot-free will you get like ten years in prison right then I mean that that’sa very tempting incentive but I have to consider that you might do the samething so it’s sort of like a conflict of interest like yes I could say nothingbut if I say nothing I risk you betraying me so you go scot free and Ispend ten years but if we both betray each other we’ll both get life in prisonso that prisoner’s dilemma is essentially what Satoshi believed as thecrux of the whole 2008 financial crisis so he thought of he had this criticalthought experiment how can we design a monetary system that essentiallyincentivizes people to act in the best interest of the group and that isdirectly correlated you know to their own benefit so what he did is now helike he was a cryptographer and he was a computer expert so what he did is hedesigned a Bitcoin cryptocurrency so unlike your traditional currency whichis controlled by the Federal Reserve Satoshi essentially believed that thatwas a huge problem because just like that one of the central cruxes ofBitcoin is that it’s a cryptocurrency it’s the world’s first currency in whichyou don’t need to trust anyone at all in order for it to function whereas in ourtraditional financial system you need to essentially trust these custodians ofthe financial system the Federal Reserve other financial institutions and trustthat they’re doing the right thing with monetary policy etc so that essentiallyyour currency will still be usable so essentially Bitcoin was released in2008 the key features of it are essentially it’s determined by themarket so the market sets the price so unlike fiat currency the US dollar whichis determined by whoever controls in this case our Federal Reserve Bitcoin isdirectly determined by how many people buy into the system so by buying in theyplace and so essentially as more people buyinto the system the value of Bitcoin is directly correlated with that the otherinteresting thing about Bitcoin is that there will never be more than 21 millionBitcoin ever and that’s very important becauseby having a hard cap you will not experience essentially problems like Iwouldn’t want to say inflation that’s not the technically correct term but byhaving a fixed supply you have a lot more stability in terms of preservingthe purchasing power the the currency is designed to be purely digital that’s thefirst part and the second part was you didn’t want to peg it to the whim oflike some person who controls that currency it’s designed to be of thepeople and for the people so by it’s a trade off essentially by allowing it tobe flexible and letting the market set the price and not having one personsince you can decide what this is worth and how much of it everyone gets it’s alot more volatile and that’s an important part of a currency sovolatility is basically how much a fluctuation the value of a currency hasand you typically don’t want that in the currency because how do I know if Iwanted to buy bread for five dollars how do I know my five dollars it’s stillworth five dollars that’s why people haven’t really switched over yet tocryptocurrencies because the volatility issue is a very big one and that came upa few years ago right wasn’t there I could be crash oh absolutely so theinteresting thing about cryptocurrencies is that their life cycles are they’revery volatile at the beginning of but once they reach like with any othernetwork phenomena they reach a critical mass of adoption essentially their valuewill stabilize at a certain point so and that’s the thing that’s with blockchaintechnology as well so they have this property is when they start out they’revery vulnerable so blockchain and which is the technologythat supports Bitcoin is essentially it’s part database it’s part a set ofcryptographic protocols it’s part it’s a distributed storage and computationplatform that doesn’t rely on any single party or any single person toessentially ensure that the system operates smoothly so blockchainessentially operates like this imagine Google Docs right so Google Docsessentially works by having everyone have axto that same document right if someone makes a change everyone gets to see itright so blockchain essentially works by like imagine so that Google Doc isessentially a record of all the actions that everyone has ever done on theblockchain network right and just like how you can view who wrote what in aGoogle document you could essentially do the same with the blockchainso a blockchain is essentially you have a bunch of computers right and they’reall talking to each other and as they’re talking to each other and doing thingsthey’re all storing what they did into like a file that’s essentially thehistory of what everything everyone has ever done since the beginning of whenthat network started and that’s extremely important because one youcan’t change the record so you have perfect accountability of what everyonedid what anyone did at any given time and if something breaks you can trace toa amazing level of precision who did what and why so essentially that’s thefirst benefit of the blockchain network and with the analogy for Google Docsessentially this record everyone who’s running on the blockchain protocol has acopy of that record so it’s not like and you can’t change it because if you tryto change it essentially people will you suspect that you know you’re trying tocheat and then they’ll just boot you off the system or no or not listen to you sothat’s essentially an inbuilt security feature of the blockchain but the otherimportant part of the blockchain is it’s not just immutable so it’s like youcan’t just change the record but distributed systems blockchain includedhave this interesting property called fault tolerance so-so fault tolerance isbasically like a certain percentage of the computer nodes in a network at anygiven time you have to assume that certain percentage of them will not actwithin the best interest of the whole but the just default tolerance isessentially it doesn’t matter how many nodes are not acting within the bestinterest of the entire system as long as it’s below a certain percentageessentially the network will continue to function so that’s a very interestingproperty so it’s sort of I would say blockchain is essentially an electronicdemocracy so it’s about it’s whoever like majority rulesso whatever the majority of the computer nodeson this network say is the proper record that will be the record now that will bethe main version of truth and even you have if you have a certain percentage ofnodes saying no we disagree with that as long as if it’s below a certainpercentage essentially the network will continue to function and it’s not likethose guys who are not acting in the best interest will break it does thatmake sense yeah okay that’s interesting so it’s probably not the word impossiblebut it would be very difficult for some sort of I don’t know the rightterminology but essentially for oh yes so people have discussed concerns aboutis it possible to hack a blockchain absolutely it is possible to hack ablockchain however an important thing to note is there’s a difference betweenbeing theoretically able to hack a blockchain which it is and beingpractically able to hack a blockchain so if we’re talking about if you want topractically hack a blockchain you got to do it well it’s smaller because the theone of the interesting properties of blockchain is essentially it getsstronger over time and it stems from the philosophy that all the nodes arecontinuously just like adding records so essentially what you have is that youhave like all the data all the information is packaged into a unitcalled a block right and then you have multiple blocks and or chained togetherby some fancy math function called you know hash base cryptography so you chainthose together and basically you have a chain of blocks that’s why it’s called ablock chain and it’s called a block chain because essentially as youcontinue to use a network more and more this block chain grows longer and if youwant to hack into a block chain you have to essentially rewrite the entirehistory of the block chain to where that to up until where that transaction likelet’s say if you’re trying to change this transaction you have to rewrite theentire history that proceeds that transaction in order to make it fitversus trying to change one thing at a time like if you were trying to changesomething in a traditional cloud server all you have to do is just change onerecord and you know I hope someone doesn’t notice but with a blockchain youhave to rewrite all the records all the transactions ever since the beginning ofwhen that blockchain was created within a 10-minute window in order tosuccessfully pull it off and you have to do it in broad daylight we know and youhave to do it where everyone can see you because remember thisthis is a democratized electronic network so all these computer nodes areup constantly checking for the version of the truth and if they see that youknow you’re trying to rewrite the version of the truth they’re justbooting you from the network so so back to the crux of why like yestheoretically you can hack a blockchain so you can launch moderately successfulattacks when it’s small and there’s not a lot of peer supporting that happenedyes it has so there are ways to hack the blockchain directly and there are waysto hack the blockchain not because of the blockchain itself but through theway was implemented so we call these like side channel attacksso essentially you hear of exchanges being hackedso essentially you might not be able to hack the blockchain directly but youcould find more success into hacking applications or some sort of sideChannel and then just shifting gears a bit if we’re looking into the futurethere were three stages of blockchains evolution and we’re only in the firststage right absolutely so the three stages of blockchain is evolution so wehave blockchain 1.
0 and 3.
0 we are currently we haven’t yet reached thepeak of blockchain 1.
0 which primarily deals with cryptocurrencies andfinancial technology so essentially the direction that we’re starting to seeright now is we actually actually we have two camps in and blockchain so wehave the first camp which are made up of like libertarians I would say like maybeanarchists or like pure Bitcoin maximalist these are the people whobelieve that blockchain should I mean not blockchain but Bitcoin should be aessentially and other cryptocurrencies should be this niche tool to essentiallyhave independence away from the contemporary financial institutionsessentially they are able to hold a currency that is essentially notcontrolled by any one party or a person related to the government and they haveabsolute freedom of who to get to essentially transact that currency withetc and you have the other other camp which is more moderate so these are thepeople who are looking to find mass adoption within the blockchain industryso like yeah it’s a niche and it started out is this a niche tool but they wanteveryone to use it because there’s utility inlike accountability and security aspects of a blockchain like you can put yourcompany you can track your company operations on the blockchain or yourfinancial transactions on the blockchain and essentially what you’re like there’shuge benefit in the financial sector because of one one of the fundamentalutility one of the points of fundamental utility for a blockchain is essentiallyyou’re able to get rid of the middleman so it’s direct peer-to-peer transactionand in the business world there are a lot of intermediaries especially issomething like escrow or like compliance officers with blockchain you don’treally need that anymore because you’ve basically outsourced the compliance andthe management to software and you can’t bribe software you can and everyone willhave a complete record of like who’s doing what so there is no conflicts ofinterest and there’s no corruption everything happens much faster and it’sa lot cheaper and more efficient in the long run so there’s like a lot of greatreasons as to why financial institutions now are thinking of activelyimplementing block chains especially banks banks haven’t really evolved basedon their from a long time and they see blockchain is like so one of the thingsthat they have to jump on the Bank bandwagon for or else risk beingobsolete because there’s just too many efficiency and security benefits fromthe blockchain that you wouldn’t get anywhere else so we haven’t reached peakadoption for blockchain 1.
0 and because there’s still a lot of regulatory issuesand there’s still some engineering challenges that need to be resolved aswell as getting a critical mass both the public and other financial institutionswho accept it as a standard so right now we’re people are just doing pilots andtrying it out but we’re now starting to move past that because now we’restarting to see some very successful use cases for example ripple ripple isessentially a crypto currency in which you’re able to send remittances from oneperson to another to another it’s like when you send money to a relative overoverseas or something so typically how it works is that like if you want tosend money overseas you have to pay something like – like Western Unionalright but with ripple essentially becauseyou’re essentially getting rid of the middlemanlike Western Union or some other company in this case you’re able to charge a lotlower because you don’t have the expense of you know the human capital needed toupkeep that because it’s literally just software so essentially you’re able todo that entire thing for a cheaper and a lot faster too so essentially whathappens is that consumers get to walk away with like if I send like my grandmaone hundred US dollars like she will get almost exactly one hundred US dollarsbecause like the overhead is so small whereas if you do that for contemporaryinstitution the overhead is a lot larger for that so we’re starting to see usecases and it’s not just a ripple but there’s a bunch of successful use casesthat are starting to come out and the ones that are that don’t have high valueare starting to get weeded out over time so that’s blockchain 1.
0 blockchain 2.
0is primarily about smart infrastructure smart cities the application ofessentially just like smart property and smart assets in general and that’s whereIOT really comes into the picture that’s really my line of work and thenblockchain 3.
0 is primarily concerned about actually overhauling traditionalinstitutions from the ground up so they are more democratized by nature andthey’re running on this blockchain so there is more accountability there is sothere’s more accountability and there’s more security and there’s morecooperability because now you have a shared set of standards that’sessentially electronic cuz like essentially what happens is that it’ssupposed like Bitcoin and blockchain supposed to be a peerless borderlesstechnology in which as long as it doesn’t matter what your politicalaffiliations are or like what government structure like your home country is likeif you adopt a set of standards essentially you’re able to interact withpeople like from the other side of the world in terms of like financialservices cooperation etcetera so an example of something like that would beblockchain based voting so essentially I see a future in which you can literallyput votes on the blockchain and remember that whole immutable record thing youcan literally have a cluster of computers actively check the votinghistory you know like the voting history of who voted for what right and makesure that those votes are accurate Enders andthere’s not like a person tampering with the results of those votes and that’svery important for democracy transparency and accountability are veryare basically two very important pillars for democracy and blockchain is aquintessential technology in order to assist that so there’s a lot of greatthings that seems about about blockchain moving forward is there any potentialfor consequences or negative things coming out of implementing this kind oftechnology negative consequences I would say come from their implementation soright now a problem with the Bitcoin blockchain is that the people who havethe most money are the ones that are more inclined to control thecryptocurrency which is ironic considering how the entire purpose of itwas to ensure that you have a fair balanced cryptocurrency that’s owned bythe people it’s not really centered around any one party so you see a lotlike I would say 60% of the Bitcoin nodes are actually centered in China soessentially this presents a centralization problem because thearchitecture was designed so that people around the world essentially set uptheir own Bitcoin own to be able to you know receive and transact and mine theirown Bitcoin but it appears that one of the weaknesses in implementation is thatif you have more capital you have the ability to get more nodes and thereforeyou have control over a lot of the supply so essentially what I would saysociological or economic attack that they figured out is that essentiallyhave these things called Bitcoin whales so Bitcoin whales are essentially asmall minority of people who own a lot of the cryptocurrency and remember how Isaid market controls the price so essentially their behavior whether it’sbuying or selling will have a huge impact on to the fluctuation of thatprice so typical strategies that a whale what is that or a group of whalesessentially like dump they would essentially try to short their holdingsso shorting is essentially when you sell whatever asset you have so that youcause it so then in incites a panic if your uncertainty doubt so that the theprice goes down so that you can buy back in so essentially with the same amountof money that you had you get more of that asset so I’ve seen whales and trythe shorting tactic over and over again and especially if they had the money tobegin with in order to mine the cryptocurrency or to buy it outrightfrom the exchange they directly effect the price and evaluation of that andessentially what happens those people who had weak hands in this industry nowhe had the transfer of wealth from those who were able to hold and from likethose who were who didn’t have a lot of who did who had weak hands on in thecryptocurrency to begin with so we’re starting to see an inadvertent transferof wealth but that’s purely from an implementation standpoint it’s really agenius system because if you’re AME if you’re acting within the against thebest interests Internet of the network no matter what you do like people havealways have the option to opt out and really it’s the decision of theoverwhelming majority that gets to decide what like the essentially thefate of that blockchain network or that cryptocurrency or whatever is hosted onit before we end is there anything about this subject blockchain this is a verywell we’re living in a very interesting time because essentially this isbasically like the 90s this is like the 90s I when it comes to the Internet soessentially like like to draw parallels there is this very slow build-up a lotof experimentation there’s a lot of enterprises that come and go but then ata certain point it starts to boom in a sense of which now you’re starting toreach mass adoption so the history before was that people they’re likethere’s always a hype cycle when it comes to any new technology so whatwould essentially happened was back in 2017 Bitcoin reached like December 2017you reach like around 18 K right and people were so hype it was the next bigthing but what you had was a bunch of people investing in a technology theydid not understand so to reiterate again for everyone out there blockchain isessentially it’s a new computing paradigm it’s a new storage paradigm andit’s also a new a business transaction paradigm but instead of just transactingwith a middlemen in between your transactions now you’re able to directlyinteract directly with the person you want to talk to without any intermediateintermediary at all so there it’s not controlled by anyone the blockchainnetwork is essentially controlled by you the people who are actively using anetwork the users are the owners there is no one person who was too powerfuland essentially there is accountability trust and security throughout thisnetwork so that’s essentially what blockchain is and in terms of thehistory so far so people got super hyped in December 2017 and of course that wasa bubble it popped people became disappointed investors becamedisillusioned and now we were in this period of a long crypto winter so thathappened like we had that exact same period in the 90s with the internet sopeople invested in you know comms and then that bubble bust and thenessentially what’s happening now is that we’re starting to see this a greatculling period of all these projects that don’t have value so the ones thatdon’t have value will essentially get wiped from the marketplace and the oneswho do have value they’ll stay and essentially they will become the nextblockchain Barons they will become the blockchain Barons of this age those usecases are the Amazons the Google’s the Facebook’s of the blockchain era so nowwith ending I would say less than five years we’re going to see the use casesand the companies that we will probably start to use on an everyday basis butthey’re built on the blockchain so it’s a very exciting time it’s not too lateto join and I would if anything since we’re not even past blockchain 1.
0 we’restill just getting started and it’s a very exciting future and I can’t wait tosee what it holds that’s francis mendoza from the blockchain innovation society share in the future of blockchain and the internet ofthings we are in stage one of a three stage development of blockchaintechnology and so the future still has so much to tell from cryptocurrency tosmart cities and for the state press I am Balan over stoles McNair.