Welcome to Beyond Disruption, where you'll learn how emerging tech is changing the world of accounting, business and finance. Our guest experts break down the latest news and everything from blockchain to robotics, artificial intelligence to human intelligence. Tune in to find out how you can stay ahead of the curve. Okay. Welcome to the Beyond Disruption podcast. My name is Zineda and today I'm joined by Jameson Lopp, who is a professional cypherpunk, a Bitcoin enthusiast and a speaker on blockchain technology and crypto assets. Welcome Jameson. Thanks for having me. So there are a lot of buzzwords in this space like cryptocurrency, crypto assets, blockchain. Can you clarify for us what those mean? Well, cryptocurrency was really the original term and that's what was used to describe Bitcoin. And there are many cryptocurrencies and this mainly comes down to like what is the primary function of the network that was built. And so usually you're going to see cryptocurrencies be the ones that are built primarily for payment mechanisms or direct financial value transfer in a pretty simple fashion. Whereas crypto assets can include cryptocurrencies, but more broadly is generally referred to things like tokens or cryptographic protocols that are being used to represent value that may be a real world asset or may be tied to some other digital unique collectible or may even be what is called a utility token where it basically allows you to unlock some sort of functionality in a distributed system. So most of the time, these various cryptographic token based systems, it really just comes down to what you're using it for because even the ones that are more like collectibles could be used as a form of currency if there is widespread enough adoption for them. Like crypto kitties. Exactly. And I mean, this is partially what confounds a lot of regulators and other folks in traditional finance because these systems can kind of be hybrids or even like chimeras where they have properties, several different types of assets. And what really matters is how you individually are using them. Yeah. So something has value if people attribute value to it. Pretty much. So it's great to get a software engineer perspective on this as you seem to be at the forefront of new development in this space. So you are an infrastructure engineer at CASA, which is a personal key solution. Can you tell us a little bit more about CASA? Sure. So at CASA, we are trying to build the ultimate user friendly be your own bank solution. So what we're really putting together in order to facilitate that is a non-custodial multi-signature wallet. Specifically, this is a three out of five key solution, which means that there are five sets of public private key pairs and you need to sign a transaction with three out of those five sets of keys in order to be able to spend money out of the wallet. So what we're trying to do is merge the user friendliness that you get from a mobile app with the security properties that you get from a hardware key signing device. And so that would be something like a Trezor or Ledger, KeepKey, what have you. And when you create a wallet with us, you are mainly using the software that we're building as the mobile app. But then in order to actually initialize the wallet or spend money out of it or generate addresses or whatever, you are having to go around and plug in these hardware devices that are actually keeping the private key data. So the idea being that you're going to be safe from every possible threat vector that we can think of, both from a cybersecurity standpoint of not being able to get hacked because your private keys are not actually online and from a physical security standpoint of being safer from physical attackers because your private key data is going to be spread out across three or four or five different physical locations, which are hopefully also controlled access and secure against any number of other disaster scenarios. So we're just trying to build a comprehensive product that really lowers the bar for people to get in and actually manage their own private keys. Great, and just to clarify, this is specifically a wallet system for crypto assets, is that correct? Yes. So we're starting with Bitcoin and then getting into Ethereum and tokens and stuff. But our really long term view is that as these blockchain and crypto systems continue to proliferate and as we get more into a digital economy where you have things like digital identity and you're controlling all kinds of different accounts and services and assets with private keys, that in general having a better private key management solution is going to be a necessity in the future. That makes sense. You mentioned digital ID cards and that's something that Estonia is already trying out and I can really see innovative solutions such as these eventually being used for things like medical records, employee records and much more. So James and you are a professional cypherpunk. So for those who don't know, what are cypherpunks? Well the cypherpunk movement and ideology really goes all the way back to the 1980s with a bunch of nerds in Silicon Valley who kind of foresaw a potential dystopian future of what could happen with a highly connected internet age that didn't have any privacy. So they were kind of afraid of Orwellian type futures and they decided that it was important to build technologies that focus on enhancing and increasing privacy for individuals. So a cypherpunk is kind of a vague thing. It really just means anyone who is promoting the use of privacy enhancing tools through the use of strong cryptography and technology as a route towards social change. And that can mean any number of things. For me specifically in the crypto assets movement, it basically means that we're trying to empower individuals, you know, take the power away from these massive authoritarian institutions and give power back to individuals to have more control over their assets in their day to day lives. Yeah and we've heard about cypherpunks in relation to Bitcoin and the banking and Bitcoin documentary dives deeper into that and I definitely recommend it for anyone interested. But you mentioned that privacy is one of its core values. So what do you think is the state of the cypherpunk movement now that we have multiple blockchains and crypto assets that may not necessarily adhere to the founding principles? Well due to the permissionless nature of these systems, anyone can take open source code and change it to suit whatever their own interests are. So of course we have a lot of efforts that are becoming more enterprising and not really caring about privacy. But we also do have a number of projects that are very privacy focused. If you're looking at crypto assets, you know, that could be Monero or Zcash or the Grin project with the Mimble Wimble protocol. So you know, it's going to go in all directions. But I do see that the general interest in privacy seems to be coming more to the forefront as a result of Bitcoin and all of these other crypto assets. And while it's not going to interest everybody, I think that as of today, the size of the general population of people who are interested in privacy enhancing technologies and trying to push those forward to make them stronger and easier to use is it's a lot larger than it was even just five years ago. Okay. So you mentioned Bitcoin and I know for many years you've shared your knowledge and resources about Bitcoin, which is the first conceptualized blockchain. I know that, you know, there were kind of attempts to make something like a blockchain buyer to Satoshi Nakamoto, the person or a group of people that kind of came up with Bitcoin. So in this decade long evolution from cypherpunks to the mainstream fascination last fall, can you kind of summarize how Bitcoin got to where it is today? It's mainly been through a lot of trials and tribulations. There have been, you know, many different types of attacks against Bitcoin, both technical, regulatory, economic and whatnot. And over the years as we continue to see more and more of these attacks fail to kill or cripple Bitcoin or really the vast majority of these systems that gain a decent amount of adoption, the world just begins to realize that it's a lot stronger, a lot more robust than they thought it was. And that can kind of result in, you know, the price volatility where you have massive hype waves and then massive bust cycles where people get really disillusioned. But really the main thing that I see happening like underneath all of the stuff like the mainstream media is covering, the really easy to see stuff like the price movements, is that there is a growing group of people who are continuing to push the technology forward and they don't really care about the hype or whatever the media or other people may be saying about it being awesome or about it being terrible. They've just got their heads down and they're continuing to build, continuing to build. And then eventually the rest of the world starts to catch up to see what's actually being built. And then once that gets adopted, you know, you have another sort of adoption hype cycle happen again. And this has been happening for a number of years now. I expect it to continue to happen in a similar sort of fashion, though I expect it to accelerate. What do you think is the reason behind its parabolic rise last fall? Well we saw a lot more mainstream media interest. I would say like one of the big things is you saw like CNBC basically started covering crypto almost around the clock and a lot of other financial media outlets got up on it as well. And so I think that that sort of increase in awareness resulted in yet another huge bubble where a bunch of people started buying into these systems without actually doing their research and figuring out like what the underlying value is. And I'm sure it's going to happen again. But we hear a lot, especially this year, of kind of the institutional interest and how 2018 may be the year that institutional financial folks start to get into crypto. And I think that what this really is, is this is the culmination of a lot of the larger players who have been dabbling in it for a year or two. And we're going to start to see sort of projects that have been getting developed behind the scenes come to fruition and make it out into production and potentially get some more mainstream adoption as a result of that. Cool. So in addition to the financial institution adoption, where do you think it's going next? I mean, not just Bitcoin, but crypto overall? It's been interesting, especially with all of the ICOs and a lot of money flooding into it. And I actually expect that there needs to be another trough of disillusionment as a lot of these projects, especially the ones that have raised a ton of money, inevitably fail. But then some of them, of course, are going to succeed. And as some of them succeed, that may result in the rest of the market kind of deciding the direction that various companies and enterprises should be focusing on to continue to grow. But there's so many factors at play. It's very hard to specifically guess as to what might really push the next wave of adoption forward. It could be spurred on by external factors like problems in the mainstream economy. It could be spurred on by improvements in the existing technology and like second layer networks. And I expect a blossoming of apps that are built on second layer networks to pop up and start to create more interoperability between these different blockchain based crypto assets. So the main thing that interests me is just that the number of people that are building continues to increase because I think that's really what gives you your fundamental power of evolving the system is that at least people are building stuff, experimenting. And even though many of those experiments will fail, the ones that succeed set the expectations for what direction the system should go. OK, so would you say there is a link between adoption of blockchain technology and crypto asset adoption? Since I don't really work for huge enterprises, I don't have a lot of insight into what the process is for some of them to adopt blockchain. But I would at least think that as these more enterprisey blockchain technologies start to get adopted, then that will reduce at least the stigma of crypto assets for the people that are using blockchain technology as they realize how similar the crypto assets are to the enterprise blockchains. So hopefully we can close some of the gap there. So why do you think we should embrace blockchain technology and crypto assets? Mainly, at least for me, it's interesting when you can use it to minimize the trust that is required for certain interactions. Like one of the reasons that I think a lot of these projects will fail is because they're not properly taking advantage of some of the properties that you get from these systems with regard to minimizing trust. And it's really easy to screw up because you can have just like one facet of one of these systems that is trusted and it basically makes the rest of the system useless. So in order to really have good trust minimization, you have to think about every different asset, every different aspect of the system and whether or not it is minimizing trust. So James, what makes blockchains an interesting technology to build on? Well, it's actually not the blockchain itself, but rather the rest of the technology of the system that is built around the blockchain. And so what really Bitcoin showed was that it is possible to create a system of a bunch of random people on the internet that can come to consensus about the current state of that system. And that involves using a blockchain as your database, but also using a lot of other functionality within this networking protocol to replicate the data and then requiring a consensus mechanism like a proof of work, for example, is one possible consensus mechanism to make it very expensive for someone to try to go back in time and rewrite that data. So now with the proliferation of the enterprise blockchain technology, we're basically seeing new forms of databases that have improved robustness and security guarantees against tampering with data. And the result that you can usually get from these types of systems is the minimization of trust between the different entities that are using the system. So you can, of course, create a very wide public permissionless system like a cryptocurrency where no one trusts anybody, or there's an entire scale of different levels of trust and levels of performance that you can get. And that's basically what we're seeing these different enterprise blockchain technologies test sort of the different gradients of the scale of performance and trust and reliability to try to find the right tradeoffs for given business and enterprises that may already have semi-trusted relationships and are willing to make tradeoffs in order to get better performance. Okay, so recently a large accounting firm conducted an employee survey and they asked how accounting professionals feel about new technology in their work. And majority of responses included words like anxiety, paranoia, fear. So when it comes to blockchain and crypto assets, do we have something to fear? It's definitely a big change from the current paradigm of what people are used to, especially if we're talking about moving into a permissionless system that has no authority. And so you're in a completely different type of security model where if something gets screwed up, there may not be any way to revert it to go back and fix the mistake. And so you have to take a much more upfront high security perspective to these things. It kind of requires a different form of engineering. And I've likened it to being more like aerospace engineering than like web application engineering. And I think that's one of the things that scares a lot of people is that if you're just building web applications, then most of the time if something goes wrong, you can just find the bug in the code, fix it. Maybe you have to run some sort of repair script to fix any corrupted data, but then you just push that out and now you're good to go and everybody is happy and continues using your service. But if you screw something up on one of these permissionless networks, you can't just push out a code patch and fix the whole system. Because in many cases, you don't actually have control over the code that is being run across this distributed network. So it requires a lot more thoughtfulness and upfront testing and review and game theory and whatnot. And so that kind of creates a bunch of uncertainty for people who are not used to working in that type of system. And I think that's where a lot of the fear comes from. So what is just one last message you have for the accounting and finance professionals who are starting to encounter blockchain technology in their field? So from the sense that a lot of the enterprise uses of blockchain are basically going to be using it as a database, I would just say that there's a lot more to these systems than the data structure itself. You actually have to look at the entire set of protocols that are being built around the blockchain and look at the security model and who actually has control over the different aspects of the network. Because it's very easy to misapply the technology and just start using it as a database in a way that is not actually taking advantage of any of the unique aspects that these distributed networks can provide. So the main thing is to be very careful against just throwing blockchain technology into an existing solution and imagining that it's going to help because you might just be adding a bunch of complexity and decreasing your performance without really gaining anything of value. Great. Jameson, thank you so much for being here. My pleasure. And thanks everyone for listening. Please listen to future episodes where we'll touch on crypto asset taxation, regulation and much more. Thanks for listening to this episode of Beyond Disruption brought to you by the Association of International Certified Professional Accountants. Learn more about today's topic at aicpa-cima.com forward slash disruption. 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