How do we make this an appealing, small business opportunity for people hey guys and welcome back to Oakland buzz spotlight with me layer, high open the show where we speak to entrepreneurs, innovators and thought leaders in the cryptocurrency and blockchain space joining me today is Charles Hoskinson. The founder of Cardno and the CEO of io HK Cardno launch in 2017 and is set to be the third generation of blockchain of crypto, focusing on scalability interoperability and sustainability. After a long awaited release, Cardno are launching new protocols which aim to revolutionize the space. Don'T. Forget let us know in the comments section below who you want us to interview next, which topics you want us to cover and if you enjoy the show then hit the like button. Music. Charles welcome to all chrome bars it's an absolute pleasure to have you on the show today there's a lot of exciting announcements with Cardno. So how are you doing well, I'm doing great it's great to be on it's been long long weeks. We always knew that June was gon na, be one of the busiest months I think we've ever had as a company everybody's working overtime, everybody's, really putting in the hours and we're just really excited to finally get Shelley out, and also for the summit that we have Coming up July, 2nd to 3rd, we kind of planned that event. Just about a month and a half ago, we already have 4000 people registered to go hundred speakers and getting all that done in a short timeframe.
While everybody else is busy with Shelley has been a definitely a balancing act, but I think we've managed to get through it yeah, absolutely just so much compacted into into June it's a hell of a month for you guys so we're really excited to have you on. At this moment in time, it's gon na be great. So before we go into Shelley, I do kind of want to talk a bit more about card. Ah, no, I want to understand how you would describe to the layman what the differences are between card an out compared to like some Bitcoin on ethereum yeah, the easiest way, I think a layman can have to understand it. Frankly, anybody is to group them into generations, and each generation has some sort of first mover that was defining what was trying to what what what the architects were trying to accomplish so with Bitcoin. You know this was the first mover. This was the first generation really it was the concept of. Can you have decentralized money, decentralized, transfer, value, decentralized, ledger and somehow someway a dynamic and decentralized Network will maintain that this was not the case before Bitcoin. No one had ever pulled anything like this off. There had been attempts to create digital money like digiti cash and so forth, but nobody was able to actually create cryptocurrency where no one owned it. No one was in control of it, anybody could join, anybody could operate and validate the ledger.
So we want to do this with millions to billions of users and also we want this to work with many systems, because there are over 5000 crypto currencies, there's dozens of legacy, financial systems, there's government settlement systems and clearing systems there's, all this stuff floating around and It'S not good enough to just say: hey we're gon na build a system, that's blind and deaf, and it doesn't really understand or see the world around it. We need to build a system that's aware that there are other systems and can communicate with them and move value and information and then finally there's this tale problem of governance and we call it a sustainability problem, mainly who pays and who decides. So. Basically, every time we've been having big fights in the cryptocurrency space, they tend to lead to things like Bitcoin cash and, if you're in classic, and these four currencies, which are ultimately failures in governance and it's, not clear as technology gets more complicated as the scope of These things grow: how are we going to actually make decisions without having a central entity or a governing foundation or a committee or a council? If you want to be truly decentralized, you need to have a way of making decisions, and also you need to have a way of paying for things. You know we had the ICO model to kind of bootstrap new cryptocurrencies, but unfortunately that money runs out. So then, what happens? The day after the initial wave of funding is has run out.
You need to have some sustainable funding source to pay for research and development and more interoperability and more scalability. So when you bundle these three things together, interoperability, scalability and sustainability – that it functionally creates what we call a third generation. Cryptocurrency and Cardno is seeking to do what a theory immed it'd for the second generation and Bitcoin did for the first generation, basically be a philosophy on how to achieve the third generation. Now to do this, we've had to embrace a very different way of designing things. We went back to first principles, so we assumed nothing and we started from designing what is a secure ledger and we wrote a paper on that and then we got a big group of scientists together from many different universities and we've written more than 60 papers. A lot have gone through the peer review process, very rigorous scientific and we basically slowly but surely built up a corpus of capabilities, whether it be consensus, capabilities or alleged your capabilities and program ability or voting systems and governance capabilities. And when you string them all together or that's, basically, what Cardinal is it's a system that will hopefully over time, get faster as we get more users it's a system that can talk to other systems and it's a system that has a built in governance layer that Allows it to actually allow people to vote and make decisions about what direction they want to go and also has a built in Treasury system, so some of that inflation, instead of paying it all to the stagers and the miners of the system you actually set.
Some aside, until I get the centralized account that the system itself can use to finance its own development, so it was a very ambitious project. We'Ve been working on it for over five years, my company has about 240 people in 40. Countries about half or more are allocated to cardenal we've written, probably million lines of code. At this point, and quite a lot unity, you know and we've learned a lot along the way and we're finally getting to a point where we're. Turning on some of the major features as a system or going from a static and federated system to a true decentralized, dynamic and decentralized system, and then we'll turn on smart contracts and turn on governance and all these other things. So this is a really big year for us and it's a year. Five years in the making, it's it's been probably the most work I've ever done in my life yeah, and I think you know I'm in crypto, and I think for me it's just incredible. Just to see how far and how fast things are actually developing, you know you know first generation Bitcoin, second aetherium moving to Colorado and just to see how this space is evolving. Dphi is huge right now so seeing you know what the potential is, what is coming is also so exciting and for everyone – and you mentioned the summit coming up and that's on the second and third of July. So what can we expect ahead of the summit? Well, we have to actually get a lot of the shellye infrastructure out at the door, so right now this week, we're doing a critical test with something called a hard for Combinator and it's, just a something that allows us to go from a static and federated system To a dynamic and decentralized system pending these test results were release the main net candidate for Shelley, either on the 30th or next week on July, 7th, so it's.
One of those is if the weather is good, we get to launch the rocket. Otherwise we have to delay a week like SpaceX does yeah that's? Okay, you know that's that's how this works, and then we also have a new website for Cardinal coming out. Cardano'S org tentatively scheduled for June 30th, including all the new documentation, and we spent months and months and months and months writing documentation. And you know detailing the architecture and polishing the formal, specs and so forth, there's a lot of science and engineering that went into that and then obviously we have the summit on the second, the third and we're gon na a lot of great announcements there and we Have a lot of great guests there. For example, Vint Cerf is coming he's, one of those guys where everybody's used his work, but if nobody knows who he is he's the father of the Internet, he created tcpip so we're having him on a panel where he gets to discuss what he would have done Differently had he got a chance to build the internet again, he knows now so that's gon na be a lot of fun and we have the original Haskell committee coming back for the first time in 30 years to discuss what they would have done differently with Haskell. We have governance people coming. We have some heads of state that are coming the prime minister of Georgia, for example, and perhaps a few others, and so it's it's a pretty diverse crowd, both politically regulatory or legal academic engineering use and utility and commercial, so it's, coordinating all that on such short Notice has been a heck of a lot of work but it's fun because it's, a virtual summit, so it's free to attend and it's the first time we've ever done it.
I think we're using meet you as the as a platform and basically we just flip a switch and anybody anywhere in the world can can attend and it's a great place to make announcements it's a it's, a place to kind of demo and showcase some cool things. Like, for example, we're gon na be showcasing our identity management system, we built for Cardno called prism where we're integrating the did standard. Something comes from the w3c and the DI F. Those are the same guys at standardized, HTML and CSS, and so forth and diff is led by Microsoft and other companies, and we kind of get to talk about how we're gon na bring identity into the future and an able self sovereign identity and allow you to Own your own identity, as opposed to being issued to you so that's, really important, because you see topics like security tokens and defy and so forth. Those regulated products almost always have an identity in a compliance component to them and it's not clear. How are we going to decentralize that? How are we going to pull that into the blockchain space, because you're only as good as your most centralized component that you have in your stack? So, even if your currency is decentralized, if somebody controls your access to that, then you're not really decentralized, so you need to have every component be that way. So prism is an example of where we're kind of liberating identity and pulling it out of the traditional way of doing things and allowing people do things in a more blockchain oriented way.
So we'll have a presentation on that. A lot of discussion about governance and voting. You know we kind of have to beyond armchair politicians and imagine what an ideal system would look like and then, of course, a lot of discussions about what does it mean to issue an asset on card? I know we have a very different way of doing that. Then aetherium does with the RC 20, which we argue is much better. So, are you talking about what that looks like yeah for both the fungible and not fungible side and the permissioned and the non permissioned ownership side, so utility versus securities, and then a lot of discussion about what it's like to write smart contracts in our system? Because we have what we feel is a much more natural model for smart contract development, adapt development, but it's quite different from the way that aetherium is done things because we spent five years building it from first principles with formal methods and peer review. So lots to discuss and lots to kind of build our way up to, but you know it's a it's just a nice event and you know moving forward. What'S cool is we're on such a great release. Cadence. Now we are kind of in development hell for a long time as a project, and now we've got to a point where every two weeks we have releases in our software, so you know literally twice a month or law or faster.
You get new features and new functionality and we're speeding up and accelerating and we're doing so with some of the highest quality code. That'S ever been written in the history of our space because we're using a really scientific language, Haskell and we're, using formal methods with that which is the same engineering standards that nASA uses and SpaceX uses for their rockets and for their for their. You know life support systems and so forth, where, if the system fails, you lose billions of dollars and people die so it's best that it never fails, but unfortunately writing code. That way is really really hard. I think that's why we have more PhDs and mathematicians and computer scientists than any other cryptocurrency project, there's, probably three or four dozen of them from schools like Cambridge and Oxford. But you know to get that to work in an agile way with reliable deadlines has been a big challenge, but we finally found a way to do that so moving beyond July it's. You know we just get to enjoy the the acceleration of progress and the fact that people are gon na be able to use cardona do a lot of really useful things and build a lot of great utilities. Again. You know you mentioned: you've got to get it right, because if it fails then there's you know people are gon na lose billions of dollars each. As you said, and I know there's been some criticisms over how long it's taken but absolutely right.
You know you've got to get that right and I think, with the summit coming up, it's gon na be so fascinating. Just to have that juxtaposition between you know the people that are behind the internet and what we're seeing now – and you know the future essentially was coming from you guys and from 2020 onwards. So I think that is gon na be fascinating um. But I want to talk about Shelley for a second, so the incentivize Shelley test net phase has been a success. So how do you actually measure that success and could you share the numbers with us, yeah that's, a great question, so we launched the incentivize test that, like all experiments, you don't know how it's gon na pan out and basically the idea was that we wanted to Build up we wanted to do two things. We wanted to build up a large group of operators that would be capable of running Cardno and so it's one of those field of dream things. If you build it, they will come well. We hope that they came and they did over 1200 stake pool showed up and they registered and they started operating the network and they turned the itn into it. It'S, basically, a full cryptocurrency it's, a fully decentralized system that, at the moment, is a hundred times more decentralized than Bitcoin, so it's pretty amazing what they've achieved in in short order. The second thing is that over Boris is a totally new protocol, and what people don't understand is that it's a protocol born of rigorous academic theory, so there are mathematical proofs behind it.
This is not the case for the vast majority of protocols that are developed in our space. There are a few exceptions like Algren, for example, but for the most part, it's it's unique. In that respect, however, being born of theory, there is a gap between theory and application and what we needed is to have a sandbox with real money at stake. That would allow us to verify that the assumptions and ideal functionalities and other things that we'd kind of you know hand waved on the academic side. We'Re gon na come and bite us somewhere. So we needed to basically verify that or Boris works in practice, and we now have six months of examples of data that we've been able to collect, with real rewards being paid to people. So they behave just like they would behave under the normal Network and a lot of people tried to crush the network and break the network and do all kinds of shenanigans. And yet it survived for six months and that's a great victory for us. So I think it's, the first incentivized test as it's ever been done in the cryptocurrency space, but it's a mission accomplished. It inadvertently created a cryptocurrency along the way and now the community kind of has to decide what they want to do with it. But it created a great class of operators, and already a few hundred of them have ported over to the Haskell side and are now running the pioneer test net.
To verify that everything's working properly and we'll even create a course, probably on udemy, to explain how to run a state pool and it's based heavily on the lessons that we've learned from the Pioneer test nets and the ITN so that's. Basically what it is. It'S, a it's, a like a real life testing sandbox like a little world in a box, and we get to use it to to verify that all the things we thought were true were actually true before we we play around with the the two billion dollar actual Card on our network, yeah and we've been speaking a lot about Shelly, so I kind of want to go into it now understand what it is, because it's the biggest launch in cardano's history, so explain to me. How is this gon na evolve? Kadhai, no, and essentially of over the space, really yeah it's, actually one of the hardest launches. I think in the history of cryptocurrency. It would be like ripple waking up one day and saying hey. We don't want to run our own Network anymore. We want to go switch over to proof of stake or something I when you, you get a big network effect, tens of thousands of No dozens of exchanges listing you, people kind of get used to a baseline level of operation and logic behind that system, and you You'Re unable to really make dramatic changes without a lot of effort, so, for example, etherium is going through this with eighth and f2 or they're right now, in a proof of work system, they have about twenty six billion dollars worth of mining capacity there.
They have kind of a way of how aetherium runs and now they're trying to throw all that to the trash can and say: okay, let's go to f2 and it's a completely different way of running, and you know it's a Herculean effort to upgrade well similarly, it's The same for us, you know cardano's been out as a cryptocurrency and I'm a net running in a mode quite similar to how ripple runs their network since 2017 and now we're saying hey guys. You know July 29th, we're gon na flip the switch and instead of having a federated set of nodes running this now you are running this, so we had to come up with all kinds of mechanisms to make that as graceful as possible. So basically, all the user has to do is just download an update for their wallet and then it kind of works, but then the people responsible for running it are also well trained to come in and do it correctly from day one. So we had to invent things like a heart for Combinator that allows us to gracefully go from the Byron era: consensus rules to the Shelley rules that took months of research and a lot of very sophisticated code, so that it's, just like flipping a switch and doesn't Really disrupt anything and no bad user experience, we had to train up all these pioneers to teach them how to run it. We had to come up with a decentralisation metric where, over time, more and more blocks are made by the state pools as opposed to the federated actors.
So, instead of just going from federated to decentralize, you go gradually over time and we also have to turn out all the peer to peer components inside the system and that'll be done over the next few months as well. So it's a it's, a huge upgrade and mostly because we prioritize user experience and prioritize no disruption of service. We also have to get all the exchanges to upgrade as well and we've been working directly with finance and other partners, and we completed a completely new way of listing ADA. We have something called address Tia and it has all these beautiful libraries and it uses graph QL and we try to make it so that it's soup easy to list ADA and for an exchange operator and it's very secure and it's built with the formal methods and Everything so it's, probably one of the most reliable wallet, backends and notes that they've ever worked with, but getting all the API is right and getting it to a point where it's changes are comfortable with. It has been quite a challenge and we've worked with a lot of major exchanges to try to polish that and also future proof it, because cardano's gon na be a multi asset system. We wanted to make it easy if you issued an asset on card ATO for exchange to list that asset if they've already listed ADA, so they don't have to do anything special. They just you know, kind of flip a flag and then suddenly you have liquidity with that.
So there's been a lot of foresight that we've had to put into the architecture as well, and that team has been working for over a year and a half with partners to try to get to a point where all those things kind of come together and the The so Shelley has all these things coming native assets, the centralization peer to peer stake, pools the stake, pool interface, it's, also, a new economy. You know if your stake pool operator you're a business just like a mining pool is a business, and so we had to think around. How do we make this an appealing, small business opportunity for people and how do we make sure that they have the tools and the support that they need to succeed as a small business operator? So we've? We have a great dialogue with these state pool operators and we have several telegram channels with thousands of people in it and we regularly communicate with them and survey them and focus group them and actually even building special tools just for them from data visualization tools to Tools to help them advertise and so forth, so they can be competitive and Dedalus itself. Our canonical wallet even has a state pull Center. So when you click on it, you actually display all the different stake polls and it's like a marketplace, and you get to decide who you want to delegate to as well. You know there's a lot of other ecosystem things that we've had to work on.
Like trusted. Hardware or working with ledger and vacuum labs, as well as treasure and we're updating them so that they support Shelley and it's, easy to use them with Dedalus in your ROI, but then also it's easy to use them to stake. So you can do cult staking where you can leave your private keys on the ledger device. But then you can also use that device to delegate to stake pools right from the Daedalus interface. So you have the security of a we're wallet, but then you also have this beautiful, easy to use interface to delegate and you don't have to really worry about the security side. So this is an example. Just all the stuff that's happening with Shelley and there's. Just so many teams in so much code, I think there's, like seven teams, working full time and they're all poly lithics, so they're they're, building individual components and then they have to wire all those components together and that's. What we've been doing over the month of June it's been a hell of a lot of work? Yeah, it sounds it and you know, talk about user experience and you know that being a priority, and I think that is so important. And particularly when we, you know, you look at mass adoption, how we're gon na sort of make this thing bigger, and I think you know that's one of the biggest problems and but very interesting with regards to Leger and cold staking and all that stuff.
So I'm really excited to see and what comes with what comes out of Shelly and we spoke about proof of stakes – let's go into that a little bit more because card. A note is pioneering proof of stake, so talk to me about the history of it and how does it actually help with decentralization that's a good question, so the problem with proof of work is that you get a lot, but you give up a lot, so we Weren'T actually sure all the things that proof work gave us until we actually started writing formal papers. So the first part of the research agenda and 2015, when we got started with Cardno, was to do a really deep and rigorous scientific analysis of what is a blockchain. What is proof of stake? What security properties are nice to have? Which ones are essential for decentralisation and we modeled all of that in the gkl paper, which has over 800 citations now and we've, updated it probably three four times since it was originally published, and basically that gave us a security baseline to have a conversation about. If you were gon na build a competitive protocol, something to compete with this to get rid of some of the trade offs, what properties must that protocol satisfy? So we started the or Boris agenda in 2016 and we've written half a dozen papers now and each and every one of them have been gradually building up the security properties of proof of work, so basically an equivalent protocol in terms of capabilities.
But you have much better trade offs. So when you think about these protocols in general, they generally have three steps. You have to decide. Somebody has the right to update the system so there's like the first step of picking somebody who gets to go from block one to block to block 3 to 4 or 4 to 5, etc. Ok, then, second, that person has to make that block in a proper way and then 30s propagated through the network, and the network has to accept it as legitimate, real, so proof of work 99.9999 of all the energy and difficulty goes in step, one that selection part. So that's, what mining is all about. People are looking for a magic set of numbers that, if they get it, it gives them like a golden ticket to advance that network. Okay. So what proof of stake does? Is it says we're going to do all three of those things just like proof. Work does, however, for that first step, we're going to create a synthetic lottery instead of a mining, meritocratic lottery and we're going to use an internal resource instead of an external resource that internal resources the token now this is a really interesting idea, because what you're doing Is you're directly aligning the success of the network with the resource? This is not the case with with mining in mining. If you have miners, if there are many chains that follow the same consensus algorithm, you can choose to mine, you know, Z, cash, aetherium or you know another proof of work system aetherium or whatever you can just repurpose your GP or your CPU.
Whereas proof of stake, you can only perform actions within that system, so your your endogenous you're within the system, so it's a different model, but the the benefit is that you don't have any energy consumption for that lottery to select a winner. So, instead of consuming more energy than the entire country of Switzerland, you can build a system at the same scale and use 10 kilowatts of power, which is about how much power my farm here uses so so it's pretty extraordinary. The energy savings that you get and also you have an incentive to reduce energy consumption and reduce operating cost, whereas proof of work has the opposite incentive, the more valuable the token becomes, the more energy gets expended and there's nothing. You can do to kind of make that a better scenario, because any power efficiency gains that you have means that people just build more miners. They don't actually run it at that that lower power rate, so there it was very difficult over the last five years to figure out if we could theoretically match all the security properties of proof work, because there are a lot of great ones that bootstraps from Genesis. The the synchrony model is really desirable. It has adaptive security because you don't know the miners ahead of time who are gon na win. So you don't know which going to DDoS there's a lot of magic there with proof of work, and we had to work really hard and put a lot of very sophisticated cryptography and invent a lot of new concepts and new theory.
To get to a point where we felt very comfortable with our proof of stake model and it wasn't just us, we we've set a very high bar. So when we wrote a paper, we submitted that paper to an academic conference. This is another thing that we've done, that other projects have not done so if you become Peters scientist, a professional cryptographer generally, the metric of success is: can you publish your work and in the computer science, world publications are generally done through conferences, not journals, so the Most prestigious conference is in the crypto cryptography world or a crypto and euro crypt and CCS and so forth and generally speaking for every 10 papers submitted. One to two are accepted, so it's very hard to get your papers on and we've consistently done. That or Boris has been accepted at crypto euro Crips, CCS and other major venues year after year, and some of the world's top cryptographers have not only read the papers and and credit critique them and improved them, but they're starting to do derivative work as well. So that means other scientists unrelated to Cardinal unrelated to IO. Global unrelated to us are actually taking our work and using it as a basis for future research. Like recently, there was a paper out of UIUC and Stanford that was written, called Nakamoto proof of stake, which is a derivative of a research line that that we started so that's very encouraging, because it means that they've accepted the ideas to a point where they're willing To improve them and bring new ideas to the table, which is exactly what you want to look for, so there are trade offs.
You know you have to accept endogenous security versus exogenous, there's, different incentive models and so forth, but overall the the benefits of proof of stake are enormous. You get significantly better performance, you get flat energy consumption, so it's much more ecologically stable. The fact that you can build things like steak pools mean that you have dedicated actors that are on 247 you're spaced, enhance your network protocol or build interoperability layers for lightning in Hydra or for for side chains, and things like that so cross chain communication. So there's just a lot more that you get with this model, but it's a very expensive bottle from a research perspective it takes years and years and years to get it exactly right. It'S, the same for theory, 'm they've been working on casper stuff for as long as we have with ora, boris and alga red. Actually, I think the first publication there was in 2016 – and this was out of MIT with one of the world's greatest living computer scientists and they're just now, starting to commercialize and roll out that technology, so it's not for the light of heart it's. Definitely a lot of work whenever you want to improve things and move the tradeoff profile and and then obviously the market has to decide. You know right now: we're still a majority proof of work market, but in over the next 24 to 36 months, we'll see if that paradigm shifts and proof mistake becomes the majority who knows yeah.
Well, I mean you know. I didn't use the web pioneering lightly. Hope – and I said that clear, you know what you guys are doing, but with all of that in mind, then do you think that card on o could become more decentralized than Bitcoin? I think you know the answer to this we're going well yeah and that's, and that depends on your perspective, so there's this centralization in terms of development there's, the centralization in terms of the quantity of full nodes, there's, the centralization in terms of the operators of the Consensus algorithm and in that last category that's, a very low bar you know, bitcoin, is among one of the most centralized of all crypto currencies, because the economics of mining tend towards vertical integration, subsidized power in private mining pools with with Asics, and so basically, what that Means is that you know if, if you want to be a miner in Bitcoin of any prominence now, you have to invest hundreds of millions of dollars into building a private pool and many cases they actually create their own hardware, which is not publicly accessible. So the everyday mom and pop that resource that you buy to participate in some cases you can't even buy it and if you can't, buy it it's meaningless, because your contribution is very small. Now compare that to you know a proof of steak style system. You know, Eddy tokens are always available on exchanges, there's, always liquidity there's, always a person willing to sell so it's much more egalitarian and it's easier to get access into that system than mining provides.
So the centralization of consensus is a is a is a low bar on the proof of work versus proof of stake side. On the other hand, Bitcoin is a very decentralized ecosystem in terms of the amount of available full nodes and in a very decentralized ecosystem. In terms of development there's, a lot of Bitcoin developers floating around doing things so that's a lot harder and there you have to have a good governance system to compete fairly. So you need to have an improve them. A proposal process. You need to have a good voting system. You need to have dedicated funding for independent developers. You need to have alternative clients. You need to have reference specs, there's, a lot of dimensions that you you have to work really hard at to try to achieve that scale. The theorem has definitely achieved it and, as have certain other projects, erotically. Some very centralized projects like hyper ledger fabric, for example, there's a lot of adherents into centralization of development there through the hyper ledger group – and we have a pretty good strategy for how to achieve that. So I believe over time, because we have better economics and we have a better strategy and we have the benefit of hindsight. We can achieve a lot more there than Bitcoin has because, because kind of stalled out, there's there's, no more diversity, that's being added, and I don't foresee them growing beyond, where they're at in terms of decentralisation of development decision making they're they're pretty comfortable at this stage.
But I think we can leapfrog them there and we have already, with the itn, demonstrated a hundred times more decentralized than bitcoins core nodes, they're they're mining nodes, so we we're going to beat them easily there as well. But you know that there there's a corollary to the centralization that's, really important it's, not mentioned often in the space, which is inclusive accountability. So what that basically means is you check each other's homework? So one of the core tenets philosophies of Bitcoin is that anybody can run a full node and anybody can validate history and verify histories correct. So when I send your business, a Bitcoin transaction, your business is able to verify that those coins exist and that they have not been double spent. The problem is that this only works until it doesn't and what I mean by that is Bitcoin is currently a replicated system like most cryptocurrencies and as a consequence, once you get too big. No it's gon na be the case that very few people are actually going to have the resources necessary to verify truth. Okay, so let's say your blockchain gets too many petabytes or exabytes in size, okay. Well, that means that only Google or the NSA, or you know some big agency – would actually have a full copy of the history, and so, if somebody sent you a transaction, you'd lose the property of inclusive accountability. You'D no longer be able to verify if the coins exist or if they, if they haven't, been double spent without trusting a central actor, and this is actually one of the reasons why the block debate, the block size debate was so precious.
You know what the core developers realize that if they let the block size grow without bounds and within 10 or 15 years, the Bitcoin blockchain would just simply be too large for any normal computer to host it. So only a small group of actors would actually run full notes, so the system would become less decentralized over time. It'D be it'd, be like a bacterial colony poisoning itself after its it's grown too large, so that's a that's, a big challenge and it's a problem that has yet to be fully resolved in our space, but it's a barrier for large scale centralization we get to millions To billions of users, you know there's gon na be millions to billions of transactions and millions to billions of utilities and things going on, and so the system will be just simply too large for any one actor to possess the whole thing or run a full node. I want to move on just to focus on use cases now katanas use case. So can you talk to me about your plan to actually onboard more use cases defy enterprise and, of course, stable coins? I'M. Quite a fan of stable coins actually say this will be interesting yeah. We have a whole working group on stable coins, in particular, it's led by Bruno paleo. He'S he's got two doses of brains, the guys have brilliant brilliant man and he's. Actually a logician there's. Not many proper computational logicians floating around, and I said he studies, logic and computer science.
He has a PhD of the topic, so he gives these beautiful presentations that are incredibly rigorous and you can never argue with the guy cuz. You know he's, like so damned logical and everything he does okay, so we have a whole group that does nothing but that, and we are actively looking at all the basic defy utilities like Dex's and Oracle's, and these other things and emerge. Oh one of our sister companies, they they decided to partner with a blockchain called Argo specifically for rapid, deep fry prototyping that's easily portable to cardenal, because ergo is a derivative project from a project that we had in our company called score X. So the next six months, as we turn on Gogan capabilities, so that's native assets and smart contracts, we're gon na basically get some funding behind a lot of pioneers and build up a beautiful dphi portfolio, and the advantage that we have is that the first generation of Defy that we saw out of cerium, it has the dual problem of a lot of design flaws, as well as operating costs that are simply just too high for them to be viable. So we have an advantage to kind of redo and learn from all of their mistakes and basically build our own d phi pro folio that operates at a much lower cost, it's much more interoperable with the regular everyday world, and we feel that it'll probably be much Easier to use so the key is to get the right partners and the right funding before the partners and we'll have a lot of announcements about funding and partners at the virtual summit in July and throughout the year and next year.
We'Ll be aggressively building that out and it doesn't take a lot of time to deploy these types of things. You know people have this belief that oh well it's years and years well, it's years and years for the first example like Bitcoin, took years to build and to five years of Bitcoin floating around before people even thought to build something like aetherium. But then after aetherium came out, the smart contract model became very well propagated. Now everybody's got a smart contract model so similarly it's years to build the first set of dfi. But then, once that idea is out, we can rapidly learn from each other and evolve from each other and get a completely new set of defy and the unique advantage that we have at our global is that were heavily invested in the developing world. Like Ethiopia and Georgia – and you know all throughout Africa all throughout Southeast Asia, so we have the ability to ploy these solutions and applications at a scale of millions of users. You know we do one deal, we get six million farmers or we do one government deal and they'll give us a monopoly to work with their entire country, and these are examples of where defy is most useful. You need to centralize lending there. You need better ways of deploying stable coins because the note local currencies aren't so good. You know you need better market places to trade securities on because in some cases they don't even have a stock market in that country.
So it's not good enough just to build the capabilities or have a great platform to host those capabilities. You have to have a customer base that actually is useful for those capabilities and wants those capabilities, and this is not the case where we're aetherium is principally at its mostly in the Western world, and people are like well. Why do I need a peer to peer lending thing if my bank is willing to give me a loan, you know why do I need a stable coin when the US dollar or the pound is relatively stable? You know why do I need these, but when you're in Ethiopia, there's capital control, the currency is not very stable, it's impossible to get a loan if you're in the rural areas, it's impossible to get insurance policy, so it's no longer a question of replacing an incumbent It'S becoming the incumbent and what we have is unique market access there to bring these services to millions of people and actually it erratically. Impaired toxically actually allows us to compete better in the Western world, principally because we can create new financial products from the fact that these people are in the system that are very appealing to the Western world and I'll. Give you one quick example. So right now in Ethiopia, they have a fertiliser voucher program were basically farmers get vouchers to buy fertilizer and the have to repay them at some point. Well, these vouchers get repaid with interest and they have an incredibly high repayment rate like well over 90, which is unheard of in microfinance, and so you can imagine creating financial products.
Debt instruments like fixed income securities that basically have a 15 20 percent interest rate with a 90 plus percent repayment rate, so they're actually high quality credit with a sovereign guarantee behind them. And then you could securitize those and sell those through goldman sachs and other things. In the Western market and all those securities live on a blockchain on the card on a blockchain and and so forth, and the advantage here is, it creates liquidity. So it can bring billions of dollars of capital to the poorest people in the world and allow them to be able to build infrastructure for their farms and plant crops and build wealth. But basically, also in the process provide a very attractive financial instrument that can be traded in the Western world. So these are examples of that marriage of the east of the developing in the developed world. If it's done correctly, where you can get great customers and their existence brings new products to the Western world for us to mutually benefit in and the Western world brings capital into the developing world which allows them to accelerate their growth and it's for me it's, you Know that putting people on that financial map and accelerating that growth, is you saying for me that's one of the most exciting use cases of all of this, so really exciting and stuff there? But just finally, you mentioned a theorem and I have to ask you, of course about it theorem, because um, you know, we've got a theorem 2.
0 coming out soon, so there must be something interesting about the update that excites you well, I I don't know actually, no, When aetherium 2.0 is gon na hit, I don't think they've been fully honest about that rollout and also I don't think they fully thought through the consequences of the upgrade that they're doing we did. It took us years to figure that out and it's not going to be the case that when we go from Byron de chelly that there's going to be Cardinal classic running on Byron and Shelley running at the same time as its own chain. I think there's. A very high probability because there's 26 billion dollars worth of mining capacity running on aetherium that there's going to be an etherion classic classic. So the original earth is going to run in tandem with the new aetherium, so they're still trying to work their mind around all that, and we wish him well and we hope that it's, a successful upgrade but let's be clear. They'Re firing their miners, the people spent years building up all these dedicated operations and have our mining aetherium and then suddenly, when f2 comes out, all of them are go out of business, and you know people like Vlad, Zamfir and others have been incredibly dismissive, called the Miners mercenaries and useless, and we want to put them out of business so out of spite. Maybe those miners will keep the original aetherium rolling and that it will actually become its own chain, so there's always the risk of that.
You know. The other thing is: if they honestly believed that f2 is like out tomorrow, why are they even talking about Prague, POW that's, what I've never understood, so why would you switch your proof of work mining protocol to a different protocol when you're planning on already throwing away All of your proof of work protocol, it just seems like a pointless debate to have that said. F2 is it's converging to a design that probably works. However, it's mired in complexity and I think it's unnecessary for what they want to accomplish. I mean sharding. The ledger is probably the most dramatic and difficult thing you can do as a project it's very expensive, it's very time consuming it's. It reduces your security from half Byzantine resistance to quarter to a third, depending on how you do it and at the end of the day, there's. Just so much more complexity that you now have to think about with the sharded Levinger. And then you know, availability is always an issue and you have to think about that. What we chose to do is use a single short environment in a brace and lt solution, Hydra that will allow us to grow to millions of transactions per second without having to shard the base ledger. So we can use much more classical distributed systems theory and just optimize that, and it should work for four or five years worth of growth in our system, if not more, in fact, at the moment, what's coming with Shelly would be able to run pretty much all The transactions that you would normally encounter with aetherium and ripple and Bitcoin combined and still be able to operate on a single shard environment.
So I just don't see the net necessity to embrace something. This dramatic it's, the classic case of chasing sexy technology, for the seizing the sake of sexy technology, not realizing that you're in getting yourself a really difficult tale. That'S gon na be hard to work through, and you know big companies make these mistakes Intel chased Rambis. You know and they threw in the towel eventually and went to DDR Ram. Then you know: Nissan went with the CVT transmission and that was a elegant, beautiful piece of technology, but it took generations and generations to get to a point where it was reliable. So I think they're gon na have much more problems with this transition. Then then they're, letting on and it's, not clear if the benefits are going to be significant. On the other hand, it's going to be the first example of a purely sharded thing that we all get to learn from and see so there's a lot of great academic knowledge that will be gained from this. This movement of this model, their accounting model, is also going to work against them by the way, the global global State thing that the EVM has is not amenable to sharding, whereas extended UTX. So the accounting model that we use for Cardinal that we spent years designing, is it's much easier to shard that so these are examples of words. Sometimes your design hinders your ability to innovate. You have to go back to the drawing board that's why we chose to use first principles because we kind of knew where we were going from the very beginning, but you know all all cases: SEOs tase, those cerium.
All these things there are upgrades. There is a beneficial to us as they are to them and we have the privilege of being able to learn from it not have to pay for it. So we're actually pretty excited that they're choosing a different model, then we're, choosing and it'll kind of it'll kind of be the markets decision whether they want to embrace something built on granite with peer review and safety and stability, or you know, kind of an experiment that Has a poor track record of having things explode in the users face like the dow hack or the parity hack or other things, and the core entities never pay for that it's. The users who end up paying for that, though they're the ones who lose hundreds of millions of dollars every time these things occur well, Charles, with all of that in mind, then I want to thank you so much as such a pleasure having you on the line With us today, because, like we discussed, you know you're doing such pioneering work so for me personally, it's just such a pleasure to hear it from you directly, and I want to wish you the best of luck with the upcoming launches in the next few weeks. Absolutely we'd love to have you at the summit. If you have some time, it's free to register, and if you just go to Cardinal summit, I ohk dot. Oh, I own, I hope, there's a link in the show notes, we'd love to have you there there's gon na, be a lot of great newsworthy events.
I, hopefully you can score some cool interviews with some old legends. Stephen Wolfram is gon na, be there. I think he just figured out how the whole universe worked and we said Steve. Would you like to present on that? He said sure so, that's gon na be fun. Absolutely I wan na. Thank you so much and I'm looking forward to the summit cheers. Thank you.