1 00:00:00,240 --> 00:00:04,800 Point Center's main day-to-day work our #1 mission priority is 2 00:00:04,800 --> 00:00:08,360 always to defend the developers of open blockchain networks from 3 00:00:08,520 --> 00:00:11,560 inappropriate regulations or unjust prosecutions. 4 00:00:11,640 --> 00:00:15,680 I think it's becoming more and more self-evident that a 5 00:00:15,960 --> 00:00:22,160 transparent layer 1 is not a neutral layer one, not in the 6 00:00:22,160 --> 00:00:25,000 long run. Ultimately, transparency will 7 00:00:25,000 --> 00:00:27,840 destroy neutrality. And this is not me saying that 8 00:00:27,840 --> 00:00:29,760 like we should be building things that enable money 9 00:00:29,760 --> 00:00:32,040 laundering. It's me saying, no, we should 10 00:00:32,040 --> 00:00:34,640 build global neutral communications networks for 11 00:00:34,640 --> 00:00:36,160 things like underlying settlement. 12 00:00:36,320 --> 00:00:38,280 This was true of SWIFT in the 80s. 13 00:00:38,280 --> 00:00:40,560 It was neutral. If we're going to build a better 14 00:00:40,560 --> 00:00:42,960 system, we should be building more like SWIFT used to be, and 15 00:00:42,960 --> 00:00:45,840 less like what Swift's becoming, where it's just a fully mediated 16 00:00:45,840 --> 00:00:49,040 underlying settlement Ledger for even for messages for for 17 00:00:49,040 --> 00:00:51,520 settling transactions, let alone transactions themselves. 18 00:00:55,840 --> 00:00:59,200 We're here at Deaf Connect and today we're speaking with Peter 19 00:00:59,200 --> 00:01:04,800 live and in colour. This is It's nice to see you 20 00:01:04,800 --> 00:01:07,280 here I. Sort of worn a more expressive 21 00:01:07,280 --> 00:01:08,680 outfit. If we're yeah, I think we're all 22 00:01:08,680 --> 00:01:10,640 a little bit dropped, but I think it's OK. 23 00:01:10,640 --> 00:01:13,000 Kind of like the background makes up for it. 24 00:01:13,360 --> 00:01:15,880 So it's a it's a little for everyone who's listening to 25 00:01:15,880 --> 00:01:18,640 this. It's a little trippy, but it 26 00:01:18,920 --> 00:01:21,280 trophy and kind of. Creepy AI slop. 27 00:01:21,760 --> 00:01:24,840 It's probably AI. There's some text in there. 28 00:01:24,840 --> 00:01:29,360 That's definitely, Yeah, Chat GPT's idea of words. 29 00:01:29,920 --> 00:01:32,400 How? How has Buenos Aires treated you 30 00:01:32,400 --> 00:01:32,880 so far? Oh. 31 00:01:32,880 --> 00:01:35,960 It's been great. I think, I think one of the and 32 00:01:35,960 --> 00:01:39,280 it's become sort of widely discussed, one of the 33 00:01:39,280 --> 00:01:42,040 interesting things about Devcon this year or Devcon actor, 34 00:01:42,040 --> 00:01:44,120 whatever the big Ethereum conference this year is that 35 00:01:44,120 --> 00:01:46,960 privacy is actually being discussed more fully. 36 00:01:47,480 --> 00:01:52,240 And you know, Coin Center, my organization has been trying to 37 00:01:52,480 --> 00:01:55,440 focus people's attention on the need for financial privacy and 38 00:01:55,440 --> 00:01:58,960 the need to protect the builders of financial privacy for over 11 39 00:01:58,960 --> 00:02:03,200 years now. And sometimes there's periods in 40 00:02:03,200 --> 00:02:06,280 that history where you're like, yeah, like Z cash or things like 41 00:02:06,280 --> 00:02:07,400 that. And sometimes there's periods 42 00:02:07,400 --> 00:02:09,120 where it's like, OK, everything's going to be done 43 00:02:09,120 --> 00:02:13,440 with stable coins on chain and we'll have full transparency 44 00:02:13,440 --> 00:02:15,600 into all transactions. And that's what we'll tell law 45 00:02:15,600 --> 00:02:17,800 enforcement why they don't have to worry about the technology 46 00:02:17,800 --> 00:02:20,560 because it's a panopticon. And now we're kind of swinging 47 00:02:20,560 --> 00:02:23,720 back to like, Oh, well, actually, maybe that would be 48 00:02:23,720 --> 00:02:28,240 bad not just for the criminals. We want it to be bad for the 49 00:02:28,240 --> 00:02:31,080 criminals, but actually bad for all legitimate uses of the 50 00:02:31,080 --> 00:02:33,280 technology as well. Because who wants to use a 51 00:02:33,360 --> 00:02:35,800 global financial system where every time you buy a can of 52 00:02:35,800 --> 00:02:37,880 Coke, a billboard pops up with your name? 53 00:02:37,880 --> 00:02:39,520 It's like Peter just bought a can of Coke. 54 00:02:39,520 --> 00:02:40,760 Everyone. It's bad. 55 00:02:41,920 --> 00:02:44,800 This episode is brought to you by Gnosis building the Open 56 00:02:44,800 --> 00:02:48,760 Internet one block at a time. Gnosis was founded in 2015 and 57 00:02:48,760 --> 00:02:51,560 it's grown from 1 of Ethereum's earliest projects into a 58 00:02:51,600 --> 00:02:54,320 powerful ecosystem for open user owned finance. 59 00:02:54,840 --> 00:02:57,800 Nosis is also the team behind products that had become core to 60 00:02:57,800 --> 00:03:01,320 my business and that are so many others like Safe and Cow Swap. 61 00:03:01,880 --> 00:03:06,280 At the center is Nosis Chain. It's a low fee layer one with 0 62 00:03:06,280 --> 00:03:09,680 downtime in seven years and secured by over 300,000 63 00:03:09,680 --> 00:03:11,920 validators. It's the foundation for real 64 00:03:11,920 --> 00:03:15,000 world financial applications like Nosis Pay and Circles. 65 00:03:15,640 --> 00:03:18,840 All of this is governed by Nosis Dow, a community run 66 00:03:18,840 --> 00:03:22,720 organization where anyone with a GNO token can vote on updates, 67 00:03:22,920 --> 00:03:25,840 fund new projects, and even run a validator from home. 68 00:03:26,400 --> 00:03:29,160 So if you're building a Web 3, or you're just curious about 69 00:03:29,160 --> 00:03:32,680 what financial freedom can look like, start exploring at gnosis 70 00:03:32,680 --> 00:03:34,440 dot IO. How much? 71 00:03:34,440 --> 00:03:37,600 Of that, do you think the interest in privacy is driven by 72 00:03:38,160 --> 00:03:41,280 market movements or, or is it like the demand for privacy 73 00:03:41,280 --> 00:03:43,200 that's driving markets or is it the markets that's driving 74 00:03:43,200 --> 00:03:48,120 privacy like you know? Yeah, it's, it's probably, it's 75 00:03:48,120 --> 00:03:52,000 probably the markets driving privacy because you know, as 76 00:03:52,000 --> 00:03:55,240 much as you, as much as I would like to as an advocate, as a 77 00:03:55,240 --> 00:03:58,720 lawyer, as a person who stands up for like what we should like 78 00:03:58,720 --> 00:04:03,120 normatively what we should have, you can be like, build privacy. 79 00:04:03,120 --> 00:04:05,680 And people are like, why would I build something no one's going 80 00:04:05,680 --> 00:04:06,680 to use? And I like the thing that 81 00:04:06,680 --> 00:04:08,080 infuriates me more than anything else. 82 00:04:08,080 --> 00:04:10,680 At all of these conferences, I meet all these great people and 83 00:04:10,680 --> 00:04:12,840 usually they're like, oh, how can we stay in touch after we 84 00:04:12,840 --> 00:04:15,320 leave this conference? And they're like, do you have 85 00:04:15,320 --> 00:04:17,640 Telegram? And I said to them, why would I 86 00:04:17,640 --> 00:04:23,000 use Telegram like those strange half baked, not encrypted for 87 00:04:23,000 --> 00:04:26,120 group chats and vaguely encrypted for individual chats 88 00:04:26,120 --> 00:04:28,560 platform where they rolled their own hash functions. 89 00:04:28,560 --> 00:04:31,960 Like that's a disaster. Like we've had Signal for 90 00:04:32,080 --> 00:04:33,680 decades now. What's wrong with you? 91 00:04:33,680 --> 00:04:36,920 Why aren't you using Signal? And it's because people don't 92 00:04:36,920 --> 00:04:39,920 take their privacy seriously. Ordinary consumers don't take 93 00:04:39,920 --> 00:04:42,640 their privacy seriously, especially people who are like 94 00:04:42,920 --> 00:04:45,640 new to crypto or new to block chains that we all want to on 95 00:04:45,640 --> 00:04:47,680 board now. Like they have no idea. 96 00:04:47,680 --> 00:04:49,680 And rightfully so. They're time constrained. 97 00:04:49,680 --> 00:04:52,240 They're not sophisticated. But the thing that bugs me is 98 00:04:52,240 --> 00:04:54,400 that sophisticated people, people have been coming to 99 00:04:54,400 --> 00:04:57,160 Devcon for multiple years. People in the Etherium community 100 00:04:57,160 --> 00:05:00,520 are like, let's let's just give all our information to to the 101 00:05:00,520 --> 00:05:04,320 Russian Secret Service, which is compromise this app and and the 102 00:05:04,520 --> 00:05:06,600 the French intelligence services as well, right. 103 00:05:06,600 --> 00:05:08,880 I mean like that, that's just odd. 104 00:05:08,880 --> 00:05:10,440 Why wouldn't we use signal anyway? 105 00:05:10,440 --> 00:05:11,720 I mean, I think. That I think there's a good 106 00:05:11,720 --> 00:05:14,240 reason why people didn't use signal up until recently and 107 00:05:14,240 --> 00:05:16,240 maybe. It's bad for creating a boiler 108 00:05:16,240 --> 00:05:18,320 room because the group chat function is complicated. 109 00:05:18,320 --> 00:05:21,080 Well, the group chat, the group chat function is complicated, 110 00:05:21,080 --> 00:05:24,560 but also up until just a couple years ago, you had to give your 111 00:05:24,560 --> 00:05:26,320 phone number. That's true. 112 00:05:26,360 --> 00:05:29,080 And the UI around that was not great. 113 00:05:29,080 --> 00:05:31,440 I think that gave Telegram the opportunity to really like 114 00:05:31,440 --> 00:05:34,520 create a a huge. You found a more forgivable 115 00:05:34,520 --> 00:05:35,440 argument. Yeah. 116 00:05:35,520 --> 00:05:38,200 But also Eli is not great. The group chat UI was bad. 117 00:05:38,200 --> 00:05:41,160 So like people who wanted to, like, pass insider information 118 00:05:41,160 --> 00:05:43,440 about what thing they're going to pump next, Like we're like, 119 00:05:43,440 --> 00:05:46,000 let's be on Telegram because we can have a good group chat. 120 00:05:46,040 --> 00:05:48,000 Yeah, I don't know. So yeah, I think it's market 121 00:05:48,000 --> 00:05:51,720 driven because not because consumers are demanding it, but 122 00:05:51,720 --> 00:05:54,880 because the new potential consumers of like typical 123 00:05:54,880 --> 00:05:57,320 consumers, new potential consumers of block chains are 124 00:05:57,320 --> 00:05:59,800 institutions. And institutions take their shit 125 00:05:59,800 --> 00:06:02,360 seriously. Because if you're JP Morgan or 126 00:06:02,360 --> 00:06:05,200 you're a proprietary trading firm or whoever you're like, 127 00:06:05,240 --> 00:06:08,080 you're not interested in just hemorrhaging all of your 128 00:06:08,840 --> 00:06:12,880 information to the public block chain because that's not how the 129 00:06:12,880 --> 00:06:14,760 traditional financial system ever worked. 130 00:06:15,040 --> 00:06:17,920 You have trade secrets, you have practices that you don't want 131 00:06:17,920 --> 00:06:20,440 revealed, and that's not because they're nefarious. 132 00:06:20,440 --> 00:06:22,120 That's just because how business is always run. 133 00:06:22,800 --> 00:06:26,600 So we have a more serious sort of institutional potential user 134 00:06:26,600 --> 00:06:28,840 for this tech and I think they demand privacy. 135 00:06:29,320 --> 00:06:31,800 So I think that's real. I think the other thing that's 136 00:06:31,800 --> 00:06:37,000 driving the privacy conversation is also this is maybe more my 137 00:06:37,320 --> 00:06:41,680 biased view because I come from Washington DC and I see the 138 00:06:41,680 --> 00:06:45,280 evolution of these things from a legal standpoint. 139 00:06:45,760 --> 00:06:50,760 The I think it's becoming more and more self-evident that a 140 00:06:52,160 --> 00:06:58,280 transparent layer 1 is not a neutral layer one, not in the 141 00:06:58,280 --> 00:07:01,080 long run. Ultimately, transparency will 142 00:07:01,080 --> 00:07:05,640 destroy neutrality because if you're validating on this chain 143 00:07:05,640 --> 00:07:09,240 and you see all this activity, at what point is someone going 144 00:07:09,240 --> 00:07:11,360 to run up to you and say you're kind of culpable for that 145 00:07:11,360 --> 00:07:13,320 activity? Like maybe you didn't directly 146 00:07:13,320 --> 00:07:15,880 promote it, but you facilitated it, you hated it, you abetted 147 00:07:15,880 --> 00:07:18,120 it. Like if you see a multi sig or 148 00:07:18,120 --> 00:07:23,320 if you see a, a money laundering transaction, multi sig money 149 00:07:23,320 --> 00:07:27,920 laundering and you you you validate that as part of a 150 00:07:27,920 --> 00:07:31,680 larger block. What's your long term argument 151 00:07:32,160 --> 00:07:33,400 for? You're not being complicit, 152 00:07:33,400 --> 00:07:36,240 especially if you could have used chain analysis as a 153 00:07:36,240 --> 00:07:39,800 validator to identify these things and you didn't like. 154 00:07:39,800 --> 00:07:42,640 That's called willful blindness in the United States and it's 155 00:07:42,640 --> 00:07:45,080 not a defense to culpability for criminal law. 156 00:07:45,600 --> 00:07:48,520 Actual blindness is. And so this is the difference. 157 00:07:48,520 --> 00:07:51,080 People say like well how will they ever allow Z cash to be a 158 00:07:51,080 --> 00:07:54,240 thing or something with base layer privacy or Aztec built on 159 00:07:54,240 --> 00:07:56,240 top of Ethereum. My answer is like that's the 160 00:07:56,240 --> 00:08:00,880 only thing they will allow because actual blindness is a 161 00:08:00,880 --> 00:08:04,480 defense to crime. Like if you hadn't literally no 162 00:08:04,480 --> 00:08:09,480 knowledge of some criminal act that you facilitated, you didn't 163 00:08:09,480 --> 00:08:11,800 actually facilitate a criminal act not with intent to 164 00:08:11,800 --> 00:08:14,000 facilitate. And you can't be held culpable 165 00:08:14,000 --> 00:08:15,200 and you shouldn't be held culpable. 166 00:08:15,600 --> 00:08:17,960 And so that's the only way to actually have credibly neutral 167 00:08:17,960 --> 00:08:21,080 systems is to have systems that are actually blind to the 168 00:08:21,080 --> 00:08:22,720 underlying transactions in the block. 169 00:08:22,720 --> 00:08:26,360 I said in my talk the other day, if you really want dumb pipes, 170 00:08:26,880 --> 00:08:29,800 you need the pipes to be actually blind to the shit that 171 00:08:29,800 --> 00:08:32,320 flows through them, because otherwise it's not a dumb pipe. 172 00:08:32,679 --> 00:08:35,520 Yeah, I, I feel like there's, there's a lot to unpack here. 173 00:08:35,520 --> 00:08:37,919 So kind of like, I think we should distinguish between kind 174 00:08:37,919 --> 00:08:40,799 of absolute privacy and relative privacy, right? 175 00:08:40,799 --> 00:08:47,080 So kind of like people, people kind of regular consumers don't 176 00:08:47,080 --> 00:08:51,640 want absolute, don't want, don't want, don't need absolute 177 00:08:51,640 --> 00:08:53,480 privacy. So kind of like, oh, they, they 178 00:08:53,480 --> 00:08:55,960 don't think they need this. So kind of like they have no 179 00:08:55,960 --> 00:08:58,520 issue with Telegram reading their stuff or their bank 180 00:08:58,520 --> 00:09:00,400 knowing kind of like where their money goes. 181 00:09:00,520 --> 00:09:02,120 They don't want everyone to know it. 182 00:09:02,120 --> 00:09:03,920 So they kind of need relative privacy. 183 00:09:04,480 --> 00:09:07,880 And I think kind of like that's, that's also something that that 184 00:09:07,880 --> 00:09:11,600 kind of plays into this a lot. I really feel your discussion, 185 00:09:12,160 --> 00:09:19,240 discussion point on protocol level blindness because we, we 186 00:09:19,240 --> 00:09:21,320 recently did a thing on NOSES chain. 187 00:09:22,160 --> 00:09:25,920 I don't know whether you follow the balancer hack a little bit, 188 00:09:26,080 --> 00:09:28,720 a little bit. So basically there was a hacker, 189 00:09:28,720 --> 00:09:36,000 he was clearly malicious. He stole 128 million across many 190 00:09:36,000 --> 00:09:40,240 chains, almost 10 million of which were on NOSES chain and 191 00:09:40,240 --> 00:09:43,280 there were there were some attempts to kind of freeze some 192 00:09:43,280 --> 00:09:46,520 of it with the freezable stable coins. 193 00:09:46,840 --> 00:09:50,280 And then he concentrated on main net and kind of sold positions 194 00:09:50,280 --> 00:09:52,320 for East. So kind of it gave us a little 195 00:09:52,320 --> 00:09:55,000 bit of time to kind of think what do we do here? 196 00:09:55,000 --> 00:09:59,680 Because clearly this is someone who is stolen actual people's 197 00:10:00,080 --> 00:10:02,040 money, kind of like it was stable, stable foods. 198 00:10:02,040 --> 00:10:05,160 It wasn't kind of like some sort of degen sort of thing. 199 00:10:05,160 --> 00:10:07,160 And it was also a pretty blue chip protocol. 200 00:10:07,160 --> 00:10:09,440 So it was balance of V2 stable pools. 201 00:10:09,440 --> 00:10:12,520 So it's it was yeah. So what we ended up doing is 202 00:10:12,720 --> 00:10:16,440 first we kind of asked a bridge governance to kind of reduce 203 00:10:16,440 --> 00:10:20,360 liquidity so that the hacker wouldn't be able to bridge off 204 00:10:20,400 --> 00:10:25,840 noses chain easily. And then we tried to get 205 00:10:27,240 --> 00:10:33,000 validators on board for a soft fork, meaning kind of, and I 206 00:10:33,000 --> 00:10:35,440 mean, just just to kind of clarify a hard focus where kind 207 00:10:35,440 --> 00:10:38,560 of like you change the state kind of like some some time in 208 00:10:38,560 --> 00:10:41,720 the past and a soft focus basically where everyone agrees 209 00:10:41,720 --> 00:10:43,800 to not process certain transactions. 210 00:10:43,800 --> 00:10:45,560 So kind of like you don't include them in your block and 211 00:10:45,560 --> 00:10:47,040 but you also don't attest to them. 212 00:10:47,400 --> 00:10:50,480 And I think not including things in your block, this is something 213 00:10:50,480 --> 00:10:53,120 that kind of has been done before and is currently done on 214 00:10:53,120 --> 00:10:55,400 Ethereum. But kind of saying I'm not going 215 00:10:55,400 --> 00:10:57,160 to attest to this if it's in there. 216 00:10:57,240 --> 00:11:01,640 Yeah, this is this is a line that so far hasn't been crossed 217 00:11:01,920 --> 00:11:03,920 until now. So on until now, our nose has 218 00:11:03,920 --> 00:11:05,600 changed. I'm not proud of this, but kind 219 00:11:05,600 --> 00:11:08,520 of like it. It made us and kind of it made 220 00:11:08,520 --> 00:11:11,440 us appreciate that kind of like why we still have this power. 221 00:11:11,760 --> 00:11:16,520 It's probably the arguably the right thing to do, but we still 222 00:11:16,520 --> 00:11:20,400 want to get to where we do not have this power anymore. 223 00:11:21,360 --> 00:11:27,120 Yeah, I, I mean, so one thing I think about a lot lately is the 224 00:11:27,240 --> 00:11:31,720 SWIFT interbank settlement. So that's the Society for 225 00:11:31,720 --> 00:11:33,720 Worldwide Interbank Telecommunications. 226 00:11:33,720 --> 00:11:34,640 How is that? What that means? 227 00:11:34,920 --> 00:11:35,920 Something like that? OK. 228 00:11:35,920 --> 00:11:39,040 Yeah, I just learned that. I was started in Belgium in the 229 00:11:39,040 --> 00:11:42,480 1970s and the central bankers at the time didn't even know what 230 00:11:42,480 --> 00:11:44,440 the heck all this computer nonsense was. 231 00:11:44,440 --> 00:11:47,200 And so they didn't, they were, they were like given an option 232 00:11:47,200 --> 00:11:50,280 to have a seat at the table amongst the, the, the banks that 233 00:11:50,280 --> 00:11:51,800 were developing this under bank settlement tool. 234 00:11:51,800 --> 00:11:54,040 And they were like, we don't know, like computers. 235 00:11:54,040 --> 00:11:55,280 That's not what banking is about. 236 00:11:55,920 --> 00:11:59,320 And SWIFT end up ends up becoming the most like single 237 00:11:59,320 --> 00:12:01,760 most important cross cross-border settlement 238 00:12:02,000 --> 00:12:04,520 messaging network. They're not doing the settlement 239 00:12:04,520 --> 00:12:06,040 themselves. They're a messaging network. 240 00:12:06,040 --> 00:12:08,440 Sounds familiar to a lot of stuff in that space in the 241 00:12:08,440 --> 00:12:11,080 world. They settled 150 trillion in 242 00:12:11,080 --> 00:12:12,760 transactions or they don't settle. 243 00:12:12,840 --> 00:12:16,760 They message them so that banks can settle them every year, 150 244 00:12:16,760 --> 00:12:20,800 trillion. And up until 2012, SWIFT was 245 00:12:20,800 --> 00:12:23,120 credibly neutral. And if you think about the early 246 00:12:23,120 --> 00:12:25,360 days of SWIFT as a messaging network, it's all plain text 247 00:12:25,360 --> 00:12:28,800 transactions between their bank, their their member banks, their 248 00:12:28,800 --> 00:12:30,560 member banks. It's a permission set. 249 00:12:31,520 --> 00:12:34,200 But they are credibly neutral in a way because they don't have 250 00:12:34,200 --> 00:12:37,920 the computational ability at that point in history or really 251 00:12:37,920 --> 00:12:40,840 the the wherewithal to accumulate all the messages on 252 00:12:40,840 --> 00:12:43,160 their proprietary network and really know who's sending what 253 00:12:43,160 --> 00:12:45,720 to who and unwind it all. Like it's just not something 254 00:12:45,720 --> 00:12:48,920 that's feasible. By the time we get to the 90's, 255 00:12:48,920 --> 00:12:51,040 the 2000s, of course it's totally feasible. 256 00:12:51,040 --> 00:12:53,040 They know everything that happens on their network and if 257 00:12:53,040 --> 00:12:56,040 they continue to claim to be just a messaging provider, 258 00:12:56,320 --> 00:12:59,160 neutral. And that finally breaks down 259 00:12:59,160 --> 00:13:02,640 when the US government and the EU parliament and others say, 260 00:13:02,640 --> 00:13:06,880 like, you need to stop relaying messages to Iranian banks who 261 00:13:06,880 --> 00:13:10,120 are, you know, facilitating Iranian government's nuclear 262 00:13:10,120 --> 00:13:11,960 program. We have sanctioned them. 263 00:13:12,800 --> 00:13:17,040 Until then, Swift said, we are not an obligated entity for 264 00:13:17,040 --> 00:13:20,240 purposes of US or EU sanctions because we are not actually 265 00:13:20,240 --> 00:13:22,600 involved in the underlying economics of the transaction. 266 00:13:22,640 --> 00:13:24,240 We are just a messaging provider. 267 00:13:25,000 --> 00:13:25,920 And there's a good reason for that. 268 00:13:25,920 --> 00:13:28,880 You want a messaging provider to be globally neutral, otherwise 269 00:13:28,960 --> 00:13:31,800 we won't have a like throughput in the global economy. 270 00:13:31,800 --> 00:13:34,280 Every transaction will end up mediated and a whole council 271 00:13:34,280 --> 00:13:35,640 will have to decide whether to let it through. 272 00:13:35,800 --> 00:13:38,360 And the whole thing collapses when you Fast forward to the 273 00:13:38,360 --> 00:13:44,480 Russian invasion of Ukraine and SWIFT removes the, the, the, the 274 00:13:44,480 --> 00:13:47,400 Russian banks from SWIFT and now, and that was in 2022. 275 00:13:47,400 --> 00:13:49,360 So we're not, we're not long beyond that. 276 00:13:49,720 --> 00:13:52,680 To me, there's this slow moving crisis where SWIFT is going to 277 00:13:52,680 --> 00:13:59,080 become a fully mediated, fully obligated global settlement tool 278 00:13:59,240 --> 00:14:03,280 for messaging for settlements and it just won't have the 279 00:14:03,280 --> 00:14:07,320 throughput and and and viability that a truly neutral tool would 280 00:14:07,320 --> 00:14:09,200 have. It's going to collapse. 281 00:14:09,200 --> 00:14:11,920 This is one thing that makes me actually very bullish about open 282 00:14:11,920 --> 00:14:14,040 blockchain networks is because we're going to have to find 283 00:14:14,040 --> 00:14:16,600 alternative tools that don't become political footballs in 284 00:14:16,600 --> 00:14:20,440 geopolitics if we're going to have actual free and open global 285 00:14:20,440 --> 00:14:22,360 markets. But I think that to to Philly 286 00:14:22,360 --> 00:14:26,040 because example about Gnosis, there's there's a there's a 287 00:14:26,040 --> 00:14:31,480 distinction between coordination within a group of participants 288 00:14:31,480 --> 00:14:33,280 in a blockchain network and coercion. 289 00:14:33,640 --> 00:14:37,080 And in the case of Swift, Swift is being coerced, yeah, by. 290 00:14:37,760 --> 00:14:40,280 But any individual validator can be coerced. 291 00:14:40,280 --> 00:14:42,520 Yeah, right. And I mean, so kind of The thing 292 00:14:42,520 --> 00:14:45,160 is Gnosis is 300,000 validators, right? 293 00:14:45,160 --> 00:14:47,720 I mean, not, not as many individual entities, but kind of 294 00:14:47,720 --> 00:14:50,520 like we still had to make the case to them that this is the 295 00:14:50,520 --> 00:14:52,800 right thing to do. And kind of like they, they kind 296 00:14:52,800 --> 00:14:55,720 of, they had to press the button themselves to kind of upgrade 297 00:14:55,920 --> 00:14:57,520 their node or not upgrade their node. 298 00:14:57,520 --> 00:15:00,480 And kind of like in the, and most of them decided to upgrade 299 00:15:00,480 --> 00:15:03,040 their notes are kind of the soft folk went, went through. 300 00:15:03,640 --> 00:15:06,160 But kind of like if you have a three letter agency kind of 301 00:15:06,760 --> 00:15:09,800 calling you up and saying you're, you're, you're, you're, 302 00:15:09,960 --> 00:15:12,400 you're processing some really dodgy transactions here. 303 00:15:12,520 --> 00:15:16,480 This is, this is the dynamically updated list of things you 304 00:15:16,480 --> 00:15:19,760 shouldn't be processing. And please, please make sure you 305 00:15:19,760 --> 00:15:25,400 subscribe to this and and and and it it informs your, your 306 00:15:25,400 --> 00:15:29,760 validator at any given time that that's a totally different 307 00:15:29,760 --> 00:15:31,680 situation, right? Right. 308 00:15:31,720 --> 00:15:35,880 I mean, I, I think that's true, but I think that we need to make 309 00:15:35,880 --> 00:15:39,640 sure that our systems are resistant to coercion so that 310 00:15:39,640 --> 00:15:41,920 right and maybe privacy fixes this, but like we're are. 311 00:15:42,280 --> 00:15:46,080 Not resistant to coercion. And and the original project of 312 00:15:46,080 --> 00:15:49,160 Satoshi and the project of Vitalik and the larger Ethereum 313 00:15:49,160 --> 00:15:54,880 community is not necessarily to, you know, ensure that validators 314 00:15:54,880 --> 00:15:56,880 are incapable of all malfeasance. 315 00:15:56,920 --> 00:16:00,160 But that there are so many validators that even if some are 316 00:16:00,160 --> 00:16:03,400 like regularly censoring or blocking, either because they've 317 00:16:03,400 --> 00:16:06,440 been coerced or because they are themselves not interested in the 318 00:16:06,440 --> 00:16:08,720 free and open blockchain. There will be some minority 319 00:16:08,720 --> 00:16:11,480 participants on the network, like located in far-flung areas 320 00:16:11,480 --> 00:16:13,960 of the world who will continue to put things in in the 321 00:16:13,960 --> 00:16:16,160 blockchain, right? But I think. 322 00:16:16,160 --> 00:16:19,080 No longer true kind of as as long as kind of like you have 323 00:16:19,080 --> 00:16:22,640 this attestation thing, right? Because then you kind of need a 324 00:16:22,680 --> 00:16:25,440 two third majority kind of like to to attest to this. 325 00:16:25,440 --> 00:16:28,160 So kind of like not only do you need a block builder who knows 326 00:16:28,400 --> 00:16:32,040 this, but you also need to kind of like to luck out and have 2/3 327 00:16:32,040 --> 00:16:38,600 of the testers kind of be on the on the non three data agency. 328 00:16:39,600 --> 00:16:43,680 I'm just learning about this here at Devconnect, But this 329 00:16:43,720 --> 00:16:49,120 proposal fossil, which would be a theorem improvement proposal 330 00:16:49,120 --> 00:16:53,160 where in block builders would have to sort of the mandatory 331 00:16:53,160 --> 00:16:56,880 and be required to include the transactions that are validated 332 00:16:56,880 --> 00:16:59,800 by like a committee of some 16 or something like that. 333 00:17:00,280 --> 00:17:02,880 And there'd be minority members in that committee who might be 334 00:17:02,880 --> 00:17:05,359 the people likely to put in transactions that aren't wanted 335 00:17:05,359 --> 00:17:08,480 by the majority of the staking power on the network. 336 00:17:09,319 --> 00:17:11,560 It's like, this is interesting because it's like, oh, let's, 337 00:17:11,680 --> 00:17:14,119 let's rebuild censorship resistance in a world where 338 00:17:14,119 --> 00:17:16,599 we're starting to lose it because we we don't have those 339 00:17:16,599 --> 00:17:20,319 far-flung validators on chain. This is actually very bad from a 340 00:17:20,319 --> 00:17:22,480 regulatory standpoint. If you don't get this with 341 00:17:22,480 --> 00:17:26,839 privacy, because now an American staking individual or company is 342 00:17:26,839 --> 00:17:29,920 going, if they want to build ballot box is going to be forced 343 00:17:29,920 --> 00:17:32,560 to include transactions in the block that might that might 344 00:17:32,560 --> 00:17:36,640 violate say OFAC sanctions law. And I don't know what their 345 00:17:36,640 --> 00:17:38,800 defense is going to be. If it's if it's a plaintext 346 00:17:38,800 --> 00:17:41,440 transaction that clearly actually can be read by law 347 00:17:41,440 --> 00:17:44,000 enforcement or anyone with chain analysis or blockchain analysis 348 00:17:44,000 --> 00:17:46,960 tools that shows North Korea using the Etherium blockchain. 349 00:17:47,160 --> 00:17:50,120 You had to put it in your block. They come to you as a validator 350 00:17:50,120 --> 00:17:52,480 and say, why did you put this sanction transaction in a block? 351 00:17:52,480 --> 00:17:55,160 And you say, well, the Etherium protocol demands that I do it. 352 00:17:55,160 --> 00:17:57,240 And then they say, well, you don't have to be on the Etherium 353 00:17:57,240 --> 00:17:58,920 protocol, right? You violated sanctions. 354 00:17:58,960 --> 00:18:01,200 Law, but I think kind of like, I think that's, that's an 355 00:18:01,200 --> 00:18:03,240 interesting distinction here because kind of like the, the 356 00:18:03,240 --> 00:18:08,040 kind of like putting, not putting certain transactions in 357 00:18:08,040 --> 00:18:09,680 blocks. This is currently the status 358 00:18:09,680 --> 00:18:11,480 quo, right? I mean this is and it's been 4 359 00:18:11,480 --> 00:18:15,720 years but kind of not attesting to them this is new. 360 00:18:15,760 --> 00:18:16,840 This is new. OK, right. 361 00:18:16,840 --> 00:18:19,520 So it's that hasn't been done before. 362 00:18:19,520 --> 00:18:23,720 Clearly it can be done. But yeah and yeah and I think, I 363 00:18:23,720 --> 00:18:27,120 mean I think it'll happen and you goes put kind of like it 364 00:18:27,120 --> 00:18:31,840 just drives home kind of like how we need to improved system 365 00:18:31,840 --> 00:18:37,840 such that you have no way of knowing what you're validating. 366 00:18:37,840 --> 00:18:41,560 Be actually blind, not willfully blind and not and certainly not 367 00:18:41,560 --> 00:18:44,720 just like eagerly looking at me like, yeah, sure, I'll get that 368 00:18:44,720 --> 00:18:46,200 one and then wait for the knock on the door. 369 00:18:47,320 --> 00:18:50,960 The case that Coin Center has recently worked on that really 370 00:18:50,960 --> 00:18:54,560 brought this into focus for me just before Dev Connect here is 371 00:18:54,560 --> 00:18:58,320 actually the Pereira Bueno case. The Pereira Bueno brothers are 372 00:18:58,320 --> 00:19:01,880 the the guys who found the exploit in the MEV Boost 373 00:19:02,120 --> 00:19:06,800 software and then sandwich attacked sandwich attackers and. 374 00:19:06,800 --> 00:19:08,720 It was hilarious. It was hilarious. 375 00:19:08,920 --> 00:19:13,200 What's kind of not hilarious and rather terrifying is that you 376 00:19:13,200 --> 00:19:15,960 could have imagined that the victims victims, because they 377 00:19:15,960 --> 00:19:18,040 also just lost in cutthroat competition. 378 00:19:18,040 --> 00:19:20,680 They didn't actually like get, I don't think they're criminal 379 00:19:20,680 --> 00:19:23,200 victims, but the victims of that exploit. 380 00:19:23,400 --> 00:19:26,360 They could have brought a civil case maybe and said, like you 381 00:19:26,840 --> 00:19:30,120 misused the MEV boost software in a way that that hurt us. 382 00:19:30,120 --> 00:19:32,160 We want to reclaim our $20 million. 383 00:19:32,360 --> 00:19:35,080 That didn't happen. That would have been bad enough. 384 00:19:35,360 --> 00:19:38,000 What actually happened is prosecutors in the Southern 385 00:19:38,000 --> 00:19:41,480 District of New York, criminal, federal criminal prosecutors 386 00:19:41,840 --> 00:19:45,400 brought a wire fraud case against the brothers, saying 387 00:19:45,440 --> 00:19:49,640 your behavior on the Etherium blockchain as a validator is 388 00:19:49,640 --> 00:19:52,840 fraudulent, is wire fraud because you were not. 389 00:19:52,840 --> 00:19:55,160 And this is a quote from the jury instructions that they 390 00:19:55,160 --> 00:19:57,800 actually asked the judge to provide the last moment in the 391 00:19:57,800 --> 00:20:00,600 case a couple weeks ago because you were not an honest 392 00:20:00,600 --> 00:20:02,640 validator. But this is absurd because kind 393 00:20:02,640 --> 00:20:05,520 of like the entire point of MEV boost is that kind of like you 394 00:20:05,560 --> 00:20:09,960 extract from from unwitting users of kind of whatever defy 395 00:20:09,960 --> 00:20:13,640 protocol, yes, like let the robbers rob in peace. 396 00:20:13,640 --> 00:20:15,920 Yes, well, I'm not even let the robbers rob in peace. 397 00:20:15,920 --> 00:20:21,040 It's just like you wouldn't go to a marketplace that is known 398 00:20:21,040 --> 00:20:23,520 for having established rules of commercial conduct that are 399 00:20:23,520 --> 00:20:26,280 effectively like. Like if you rely as bitter, you 400 00:20:26,280 --> 00:20:29,360 win. It doesn't matter if if you made 401 00:20:29,360 --> 00:20:32,040 people think you were going to bid lower earlier or bit higher 402 00:20:32,040 --> 00:20:33,520 earlier. Like if this is a market where 403 00:20:33,520 --> 00:20:36,760 the expectations of all the participants is that like people 404 00:20:36,760 --> 00:20:40,840 will profit maximize up to the bare rules of the protocol, then 405 00:20:40,840 --> 00:20:42,720 there is no fraud or misrepresentation. 406 00:20:43,000 --> 00:20:46,400 Everyone knows that in the world of minor extractable value, 407 00:20:46,640 --> 00:20:49,400 people are going to compete to extract as much maximum 408 00:20:49,400 --> 00:20:51,840 extractable value, as much as they can get out of the 409 00:20:51,840 --> 00:20:55,240 protocol. And that might be not desirable, 410 00:20:55,240 --> 00:20:59,000 but we intend to fix that using technology, not layering a whole 411 00:20:59,000 --> 00:21:02,840 system of duties and honor that would then be enforced by 412 00:21:02,840 --> 00:21:05,680 criminal prosecutors on top of all validators. 413 00:21:05,680 --> 00:21:09,000 Because if that's what happened, we'd be in a very bad situation. 414 00:21:09,440 --> 00:21:12,560 And there's specific claims in in that prosecution, because 415 00:21:13,200 --> 00:21:16,320 they did equivocate according to the Etherium consensus rules. 416 00:21:16,720 --> 00:21:20,520 They presented 2, you know, blocks that can't be reconciled 417 00:21:20,520 --> 00:21:23,000 with each other simultaneously, for which they got slashed. 418 00:21:23,840 --> 00:21:27,120 And so in a, in a highly technical, like going all the 419 00:21:27,120 --> 00:21:30,640 way back to the Satoshi's white paper, what is an honest on 420 00:21:30,640 --> 00:21:33,360 honest chain? They did something that is not 421 00:21:33,800 --> 00:21:35,600 honest validation. They equivocated. 422 00:21:36,240 --> 00:21:39,600 But this is not dishonest, dishonest commercial conduct in 423 00:21:39,600 --> 00:21:42,840 the wire fraud sense where they made a representation to someone 424 00:21:42,840 --> 00:21:45,800 that someone relied on in a fiduciary or contractual 425 00:21:45,800 --> 00:21:48,760 relationship and then they were able to profit from that. 426 00:21:49,240 --> 00:21:54,000 And so this notion that like honest validation and dishonest 427 00:21:54,000 --> 00:21:56,160 validation being something that you could actually criminally 428 00:21:56,160 --> 00:21:59,640 prosecute just further indicates that we're going to have a huge 429 00:21:59,640 --> 00:22:04,320 problem with transparent ledgers wherein the government's going 430 00:22:04,320 --> 00:22:07,240 to see validator behavior and figure out all kinds of ways to 431 00:22:07,240 --> 00:22:09,760 get jurisdiction over it, including when they're being 432 00:22:09,760 --> 00:22:11,840 self interested in a way that maybe some people in the 433 00:22:11,840 --> 00:22:13,480 community don't want them to be self interested. 434 00:22:13,480 --> 00:22:17,200 But everyone knows that they're self interested and it's, it's 435 00:22:17,280 --> 00:22:21,320 just, it's not going to work. So we filed an emergency amicus 436 00:22:21,320 --> 00:22:24,560 brief in this case because that jury instruction was something 437 00:22:24,560 --> 00:22:26,400 the defense flagged. And we've been in touch with the 438 00:22:26,400 --> 00:22:29,120 defense, and they were like, we can't have the jury decide that 439 00:22:29,120 --> 00:22:31,720 they committed wire fraud because they were a dishonest 440 00:22:31,720 --> 00:22:34,800 validator. That that doesn't make sense. 441 00:22:35,200 --> 00:22:38,480 And so we wrote an emergency brief basically explaining the 442 00:22:38,480 --> 00:22:41,200 history of that term, honest validation within these networks 443 00:22:41,440 --> 00:22:44,480 and how the Etherium blockchain and the community at large has 444 00:22:44,480 --> 00:22:49,160 an expected penalty. So a slashing fine or a slashing 445 00:22:49,160 --> 00:22:52,160 fee for exactly that behavior. And that's carefully calibrated 446 00:22:52,160 --> 00:22:55,360 to be actually quite modest just to prevent constant equivocation 447 00:22:55,360 --> 00:22:57,480 on chain. And to think that you'd have now 448 00:22:57,480 --> 00:23:01,400 a slashing penalty for that behavior and possibly like 449 00:23:01,760 --> 00:23:04,080 multiple years in jail from a felony criminal charge 450 00:23:04,360 --> 00:23:09,320 completely unseats the the calibrated norms and established 451 00:23:09,320 --> 00:23:13,440 rules within the protocol and it just would make Ethereum not 452 00:23:13,440 --> 00:23:15,600 work. Yeah, yeah. 453 00:23:15,960 --> 00:23:19,160 This is a lot, but yeah, no, it's fascinating me lately and. 454 00:23:19,200 --> 00:23:21,200 Yeah. I mean, it's, yeah, I, yeah. 455 00:23:21,200 --> 00:23:23,960 It kind of, it breaks kind of like this closed system game 456 00:23:23,960 --> 00:23:26,440 theory of kind of, of, of the protocol itself. 457 00:23:27,680 --> 00:23:30,400 What, what kind of what struck me while you were talking? 458 00:23:31,160 --> 00:23:34,360 I mean, obviously, kind of like we have this entire situation 459 00:23:34,920 --> 00:23:39,600 way worse on a way bigger silver platter with L twos, right, kind 460 00:23:39,600 --> 00:23:42,200 of like and kind of like the multi sig L twos where kind of 461 00:23:42,200 --> 00:23:47,600 like you can you can upgrade from hopefully you're Mikey Sig 462 00:23:47,600 --> 00:23:51,120 and not a single address. I mean, this is, there's also 463 00:23:51,120 --> 00:23:55,120 some of the EOA whatever, whatever, but kind of like and 464 00:23:55,200 --> 00:24:00,280 where you can, where you typically have a single sequence 465 00:24:00,280 --> 00:24:03,280 of a very small set of sequences. 466 00:24:03,280 --> 00:24:06,840 So basically, in fact, in fact, in effect, the entire chain is 467 00:24:06,840 --> 00:24:11,840 built by a single entity. How, how do you think we'll see 468 00:24:11,840 --> 00:24:16,640 that play out in a choose first? Or do you think they'll go for 469 00:24:16,640 --> 00:24:20,360 for the base layer? I think no, no, that's going to 470 00:24:20,360 --> 00:24:23,120 be a very appetizing target because you'll, you'll have an 471 00:24:23,120 --> 00:24:26,400 identify identifiable criminal defendant. 472 00:24:27,080 --> 00:24:31,840 They have very clear control over a lot of relevant aspects 473 00:24:31,840 --> 00:24:34,840 of the transaction flow. If we're talking about some 474 00:24:34,840 --> 00:24:37,200 illicit transaction in the bundle that they that the 475 00:24:37,240 --> 00:24:41,160 sequenced and they're probably well moneyed defendants too. 476 00:24:41,160 --> 00:24:43,360 So you could extract large penalties from them because 477 00:24:43,360 --> 00:24:45,880 they're all like these companies that raise tons of money to 478 00:24:45,880 --> 00:24:48,680 build L twos, right? So it's a very dangerous state 479 00:24:48,680 --> 00:24:51,680 of affairs. And I mean, I've said for a long 480 00:24:51,680 --> 00:24:56,760 time that we need truly decentralized sequencing on L 481 00:24:56,760 --> 00:24:58,800 twos and there's efforts to build that. 482 00:24:59,080 --> 00:25:02,040 I do feel like some of those efforts got maybe stymied or put 483 00:25:02,040 --> 00:25:05,680 on the back burner when, you know, like American politics 484 00:25:05,680 --> 00:25:08,200 changed and everyone was like, oh, the SEC is maybe not going 485 00:25:08,200 --> 00:25:10,960 to care as much anymore, which is not necessarily true, by the 486 00:25:10,960 --> 00:25:14,720 way, but also still not the right way to build because you 487 00:25:14,720 --> 00:25:16,080 should be building decentralization for 488 00:25:16,080 --> 00:25:18,240 decentralization's sake, not just because you're afraid of a 489 00:25:18,240 --> 00:25:21,320 wells notice from the SEC. And then the other thing I would 490 00:25:21,320 --> 00:25:25,680 say is like, I'm much more for obvious, like this was not a 491 00:25:25,760 --> 00:25:27,120 would not be a surprise to anyone right now. 492 00:25:27,120 --> 00:25:30,760 I'm much more of a fan of like the the let's find ways to to 493 00:25:30,760 --> 00:25:34,400 have fully private blind sequencers like a like an Aztec 494 00:25:34,400 --> 00:25:37,080 type model. So that, you know, even if we 495 00:25:37,080 --> 00:25:39,480 have a certain amount of centralization with the 496 00:25:39,480 --> 00:25:44,200 sequencer, they are not, they are not like looking into what 497 00:25:44,200 --> 00:25:46,800 they're actually sequencing in a way that would make them 498 00:25:46,840 --> 00:25:50,200 responsible for mediating disputes. 499 00:25:50,200 --> 00:25:53,840 Whether that's filtering out, you know, transactions that 500 00:25:53,840 --> 00:25:56,560 might be related to money laundering or whether it's just 501 00:25:56,560 --> 00:25:58,880 like favoring their own transactions on chain or a 502 00:25:58,880 --> 00:26:01,040 number of other things for which they could be held culpable. 503 00:26:01,400 --> 00:26:03,560 And this is not me saying that like we should be building 504 00:26:03,560 --> 00:26:05,160 things that enable money laundering. 505 00:26:05,600 --> 00:26:08,160 It's me saying, no, we should build global neutral 506 00:26:08,160 --> 00:26:10,520 communications networks for things like underlying 507 00:26:10,520 --> 00:26:13,480 settlement because that's the only way we're going to have a 508 00:26:13,480 --> 00:26:15,880 global economy that actually functions at the scale and 509 00:26:15,880 --> 00:26:18,440 efficiency that we want the global economy to function. 510 00:26:18,640 --> 00:26:20,640 This was true of SWIFT in the 80s. 511 00:26:20,640 --> 00:26:23,000 It was neutral. They were just moving money for 512 00:26:23,000 --> 00:26:25,800 Iran all the time. And that was a necessary cost of 513 00:26:25,800 --> 00:26:28,440 having a liquid and free and open global economy. 514 00:26:28,440 --> 00:26:31,120 And you say that like this is ultimately going to be good for 515 00:26:31,120 --> 00:26:34,680 human freedom because totalitarian regimes will suffer 516 00:26:34,680 --> 00:26:37,760 in that world, even if they get occasionally the benefit of the 517 00:26:37,760 --> 00:26:40,120 underlying transaction rails because they're free and open. 518 00:26:40,400 --> 00:26:42,920 You lock them down, you actually empower totalitarians. 519 00:26:42,920 --> 00:26:45,600 And so like, if we're going to build a better system, we should 520 00:26:45,600 --> 00:26:48,240 be building more like SWIFT used to be and less like what Swift's 521 00:26:48,240 --> 00:26:51,240 becoming where it's just a fully mediated underlying settlement 522 00:26:51,240 --> 00:26:54,560 Ledger for even for messages for for settling transactions, let 523 00:26:54,560 --> 00:26:56,440 alone transactions themselves, you know? 524 00:26:57,240 --> 00:27:02,200 I'd love to talk about KYC AM L and compliance as it relates to 525 00:27:02,200 --> 00:27:04,560 privacy. I have a hunch that a lot of the 526 00:27:04,560 --> 00:27:08,560 reasons why we have so many. Let me let me put this another 527 00:27:08,560 --> 00:27:11,840 way. The the the compliance cost to 528 00:27:11,840 --> 00:27:15,240 companies to funds not even just in crypto, just broadly 529 00:27:15,440 --> 00:27:19,880 individuals is absolutely massive yes. 530 00:27:19,880 --> 00:27:22,480 I don't know that there are any real estimations of what this 531 00:27:22,480 --> 00:27:25,880 costs to the economy, but I'm I'm sure it's in the. 10s or 532 00:27:25,880 --> 00:27:27,360 perhaps hundreds of billions of dollars. 533 00:27:27,520 --> 00:27:29,680 Yeah. I think, I think of a reliable 534 00:27:29,680 --> 00:27:33,240 estimate was some firms in the US spending upwards of 20 535 00:27:33,240 --> 00:27:37,680 billion just individually and that the total cost was 536 00:27:37,680 --> 00:27:39,800 something like 300. Yeah. 537 00:27:40,760 --> 00:27:45,200 I mean, there's some guy named Robert Pohl who's a big a very 538 00:27:45,200 --> 00:27:47,240 good critic of anti money laundering. 539 00:27:47,240 --> 00:27:49,400 We've also published a report recently, so I hope I'm not 540 00:27:49,400 --> 00:27:52,360 misstating any of these. I'm sometimes bad with decimal 541 00:27:52,360 --> 00:27:54,040 points, but I think we're actually on target here. 542 00:27:54,040 --> 00:27:56,480 We were published a report called Tear Down this Walled 543 00:27:56,480 --> 00:27:58,720 Garden. It's a Coin Center report. 544 00:27:58,720 --> 00:28:01,800 It was authored by myself and he admires and the first half of it 545 00:28:01,800 --> 00:28:07,800 or maybe the first quarter just lays out how expensive MLKYC is. 546 00:28:08,240 --> 00:28:12,040 And that would actually be fine if it had bang for buck. 547 00:28:12,600 --> 00:28:16,080 But there's also good, there's actually more reliable estimates 548 00:28:16,120 --> 00:28:20,680 as to like how much illicit finance is actually deterred and 549 00:28:20,680 --> 00:28:24,400 how many, how much illicit money is actually frozen or blocked in 550 00:28:24,400 --> 00:28:27,000 the economy. These are estimates from they're 551 00:28:27,000 --> 00:28:30,400 not estimates from weird crypto libertarian org. 552 00:28:30,400 --> 00:28:33,800 That's the United Nations and the Financial Action Task Force. 553 00:28:33,960 --> 00:28:37,360 Their estimate of the amount of illicit funds actually seized 554 00:28:37,360 --> 00:28:41,640 within the global economy thanks to a MLKYC is sub 1%. 555 00:28:41,720 --> 00:28:45,800 In fact, it's about point 2% of all illicit funds and. 556 00:28:45,800 --> 00:28:48,760 This is coming from the FATF, the very organization that is 557 00:28:48,760 --> 00:28:51,080 implementing or pushing to implement. 558 00:28:51,080 --> 00:28:53,880 The Financial Action Task Force, yes, they have a stock take that 559 00:28:53,880 --> 00:28:56,400 actually basically puts that number up and the UN as well. 560 00:28:56,600 --> 00:29:00,360 So these systems, now a counter argument to that is, OK, yeah, 561 00:29:00,360 --> 00:29:03,560 the seizure and blockage rate is actually extraordinarily low 562 00:29:03,560 --> 00:29:05,680 compared to how much illicit money is out there. 563 00:29:06,600 --> 00:29:08,960 But the deterrence is what makes it work. 564 00:29:08,960 --> 00:29:12,080 When a criminal goes to use one of these tools, they go, Oh no, 565 00:29:12,080 --> 00:29:14,920 I have to put in my mother's maiden name, they're going to 566 00:29:14,920 --> 00:29:18,920 catch me now, you know, and I'm making this counter argument 567 00:29:18,920 --> 00:29:21,520 sound too weak. Maybe there probably is some 568 00:29:21,520 --> 00:29:24,880 deterrence, especially for like low sophistication criminals. 569 00:29:25,280 --> 00:29:27,720 There's no deterrence for high sophistication criminals. 570 00:29:27,720 --> 00:29:30,040 In fact, the very fact that financial institutions have been 571 00:29:30,040 --> 00:29:33,400 collecting all of these documents and keeping them in 572 00:29:33,400 --> 00:29:37,280 insecure facilities means they constantly get hacked. 573 00:29:37,280 --> 00:29:40,080 And you can buy on the black market any number of like 574 00:29:40,240 --> 00:29:43,160 identity credentials that you can use to open bogus accounts 575 00:29:43,480 --> 00:29:45,000 if you're a sophisticated criminal. 576 00:29:45,000 --> 00:29:47,640 So sophisticated criminals, I don't think are effectively 577 00:29:47,640 --> 00:29:49,960 deterred at all by the system. If anything, they might be 578 00:29:49,960 --> 00:29:52,320 empowered in a way because they know they can find readily 579 00:29:52,320 --> 00:29:54,360 available fake documents that have been hacked from an 580 00:29:54,360 --> 00:29:57,400 institution that was obligated under law to collect all of them 581 00:29:57,400 --> 00:29:58,760 in the first place from their users. 582 00:29:59,080 --> 00:30:02,520 So that system is not working, and that's the point that we 583 00:30:02,520 --> 00:30:04,480 make in the first quarter of this paper. 584 00:30:04,720 --> 00:30:08,240 The rest of this paper is OK. We're not just here to be mean 585 00:30:08,240 --> 00:30:12,600 to financial crime authorities. We all need to recognize that 586 00:30:12,600 --> 00:30:15,120 there's a deficiency here. And we all do want to stop 587 00:30:15,120 --> 00:30:18,120 terrorism and terrorist usage of financial networks as best as we 588 00:30:18,120 --> 00:30:20,960 can without destroying the global economy, of course. 589 00:30:21,480 --> 00:30:25,080 So what can we do better? This approach clearly isn't not 590 00:30:25,080 --> 00:30:26,320 working. It's not working for law 591 00:30:26,320 --> 00:30:27,840 enforcement. It's not working for ordinary 592 00:30:27,840 --> 00:30:29,600 persons whose privacy is invalidated. 593 00:30:29,840 --> 00:30:32,600 Or I would also add, whenever people factor the cost of KYC, 594 00:30:32,600 --> 00:30:34,800 they, they factor the cost of financial institutions. 595 00:30:35,000 --> 00:30:38,120 You rarely ever see anyone actually measure the, the costs 596 00:30:38,120 --> 00:30:42,440 of say the, the global identity theft losses from people whose 597 00:30:42,720 --> 00:30:45,200 privacy has been compromised or just the psychic losses of 598 00:30:45,200 --> 00:30:47,640 knowing that your privacy is fully compromised, which would 599 00:30:47,640 --> 00:30:51,440 be hard to monetize or, or or account for, but are are real, 600 00:30:51,720 --> 00:30:54,440 like if you believe in, in a right to privacy setting all 601 00:30:54,440 --> 00:30:57,640 that aside, we can do better. And a lot of the technology 602 00:30:57,640 --> 00:31:01,680 that's been pioneered in this space, 0 knowledge proofs, multi 603 00:31:01,680 --> 00:31:06,080 party compute, verifiable credentials is actually like 604 00:31:06,080 --> 00:31:09,040 exactly what you need to sort of brew up in order to build a 605 00:31:09,040 --> 00:31:11,360 system that works better. And we're seeing some of these 606 00:31:11,360 --> 00:31:14,920 as like early proofs of concept prototypes, like in the, in the 607 00:31:14,920 --> 00:31:17,280 Aztec token sale that's happening right now. 608 00:31:17,280 --> 00:31:21,840 I think you can use their own, their own passport, which means 609 00:31:21,840 --> 00:31:24,600 you create a proof that you, your passport, you, you are in 610 00:31:24,600 --> 00:31:26,640 possession of a passport, at least in this moment that says 611 00:31:26,640 --> 00:31:28,680 you're an American and this is your name. 612 00:31:28,680 --> 00:31:31,280 And then they can cross check that against the sanctions list 613 00:31:31,280 --> 00:31:33,920 and things like that. These are still not enough 614 00:31:33,920 --> 00:31:35,240 though. And this is the paper. 615 00:31:35,280 --> 00:31:37,200 The paper we're writing says, look, isn't this cool? 616 00:31:37,200 --> 00:31:40,600 These are already here. But what we really need is 617 00:31:40,640 --> 00:31:46,600 global composable user sovereign digital identity wherein I know 618 00:31:46,600 --> 00:31:49,200 I have a passport, what I can create 0 knowledge proofs of 619 00:31:49,200 --> 00:31:53,000 that I have a bank account, they will allow me to attest to my 620 00:31:53,000 --> 00:31:56,760 balance. I have a Gmail account that's 621 00:31:56,920 --> 00:31:59,840 had this message history for the last 11 years and I can actually 622 00:31:59,840 --> 00:32:01,320 make an attestation to that effect. 623 00:32:01,520 --> 00:32:07,400 And I can compose these myself into a risk score that might be 624 00:32:07,400 --> 00:32:11,560 recognized by some particular authority as being credibly not 625 00:32:11,560 --> 00:32:14,360 a criminal or credibly of a low risk. 626 00:32:14,800 --> 00:32:16,760 And there's some important features there. 627 00:32:16,760 --> 00:32:19,640 It should be multi factor. It should be attribute based. 628 00:32:19,640 --> 00:32:22,120 Maybe they don't learn my identity when they, when, when I 629 00:32:22,120 --> 00:32:24,640 provide them this risk score. They just learned that I had the 630 00:32:24,640 --> 00:32:27,360 ability to construct this risk score out of credentials that I 631 00:32:27,360 --> 00:32:32,640 myself possessed. And it, it should be far better, 632 00:32:32,640 --> 00:32:35,560 I think than than just, you know, oh, you want an open 633 00:32:35,560 --> 00:32:37,320 account? Send us a scanned version of 634 00:32:37,320 --> 00:32:39,840 your passport, which is a garbage version of actually 635 00:32:39,840 --> 00:32:42,320 putting deterrence in. So I think you can build 636 00:32:42,320 --> 00:32:44,800 deterrence into these systems, but you should be building them 637 00:32:44,800 --> 00:32:50,760 with as much as possible attribute proofs from zero 638 00:32:50,760 --> 00:32:53,360 knowledge proofs rather than identity proofs like I am. 639 00:32:53,360 --> 00:32:57,560 This is everything about me. And they need to be modular so 640 00:32:57,560 --> 00:33:01,440 that we can like assemble the right series of credentials that 641 00:33:01,440 --> 00:33:04,560 would be difficult for a bad actor to fake, but actually 642 00:33:04,560 --> 00:33:07,000 quite easy for a normal person who's just a good person to 643 00:33:07,000 --> 00:33:08,280 accumulate. But. 644 00:33:08,400 --> 00:33:12,160 But I mean, sorry you have to be conspiratorial here, but my 645 00:33:12,160 --> 00:33:16,600 feeling is that there is, there will be and probably is a lot of 646 00:33:16,600 --> 00:33:21,560 resistance to these systems because of the amount of control 647 00:33:21,560 --> 00:33:24,720 and information that financial institutions, indeed governments 648 00:33:24,720 --> 00:33:30,480 are able to collect from the blanket capture of everyone's 649 00:33:30,480 --> 00:33:33,160 financial data, companies, financial data documents, 650 00:33:33,160 --> 00:33:35,160 etcetera. And then of course, all the 651 00:33:35,160 --> 00:33:38,000 service providers and businesses that sort of live off of this 652 00:33:38,840 --> 00:33:41,800 off of this model. I guess my, my, what I wanted to 653 00:33:41,800 --> 00:33:44,400 get to here. What what do you think within 654 00:33:44,640 --> 00:33:48,480 United States Congress and and policy makers is the appetite 655 00:33:48,480 --> 00:33:53,800 for moving towards the world where we have more sort of ZK at 656 00:33:53,800 --> 00:33:57,120 the station base KYC and AML compliance rules? 657 00:33:58,280 --> 00:34:01,360 Because, you know, coming from from Europe, I feel like yeah, 658 00:34:01,360 --> 00:34:03,880 the consensus view in Europe is that we should just collect 659 00:34:03,880 --> 00:34:06,000 everyone's information and know what everyone's up to all, all 660 00:34:06,000 --> 00:34:08,159 the time. I don't know if that's the same 661 00:34:08,159 --> 00:34:09,800 in the US. In fact, at the end of the day, 662 00:34:09,800 --> 00:34:11,600 it's the. U.S. policy that will dictate 663 00:34:11,800 --> 00:34:13,280 what the FATF does in the future. 664 00:34:13,280 --> 00:34:14,760 That's usually what happens usually. 665 00:34:14,920 --> 00:34:17,960 Usually the US says to FAT if this should be the global policy 666 00:34:18,560 --> 00:34:21,159 implement it and bullies the world into doing it and then 667 00:34:21,159 --> 00:34:23,679 actually often doesn't implement it for its own citizens because 668 00:34:23,679 --> 00:34:25,320 they're a constitutional right concerns. 669 00:34:25,400 --> 00:34:29,480 So it's a bad I call it policy laundry actually, like we'd love 670 00:34:29,480 --> 00:34:31,400 to impose these on ordinary Americans, but we can't. 671 00:34:31,400 --> 00:34:33,679 So we'll go to we'll go to Brussels and we'll tell people 672 00:34:33,679 --> 00:34:35,520 to do it globally. Then we'll come back to the US 673 00:34:35,760 --> 00:34:37,480 and be like, see, it's now the global standard. 674 00:34:37,480 --> 00:34:39,960 And then Americans will be like, actually, you can't you can't do 675 00:34:39,960 --> 00:34:41,840 that with our anyway, that's a digression. 676 00:34:42,239 --> 00:34:45,960 So to answer your question directly, like what's the 677 00:34:45,960 --> 00:34:49,040 appetite? And you framed it very well in 678 00:34:49,040 --> 00:34:52,400 like maybe it's not conspiratorial, but maybe the 679 00:34:52,400 --> 00:34:56,520 reason people really like AMLKYC is not actually deterring 680 00:34:56,520 --> 00:35:01,200 criminals, it's mass surveillance and there may be 681 00:35:01,200 --> 00:35:03,600 some truth to that. I think that the less 682 00:35:03,600 --> 00:35:07,680 conspiratorial reason why there isn't the appetite we would hope 683 00:35:08,360 --> 00:35:11,640 is simply that if you're a regulated financial institution 684 00:35:11,640 --> 00:35:15,000 today, what incentive do you have to stick your neck out and 685 00:35:15,000 --> 00:35:19,000 try alternative modes of of anti money laundering compliance? 686 00:35:19,640 --> 00:35:22,680 Like, are you really going to be the bank that talks to your 687 00:35:22,680 --> 00:35:26,440 probably like mid level bank examiner and says this year we 688 00:35:26,440 --> 00:35:29,960 decided to stop doing KYC and instead we're relying on these 689 00:35:29,960 --> 00:35:33,160 risk scores, which are actually amalgams of much more credible 690 00:35:33,160 --> 00:35:35,920 information about the likelihood of criminal behavior from our 691 00:35:35,920 --> 00:35:37,480 users. But we don't know their names 692 00:35:37,480 --> 00:35:39,920 anymore. No one is going to do that. 693 00:35:39,920 --> 00:35:42,720 And no, no bank compliance department is going to support 694 00:35:42,720 --> 00:35:45,720 their chief innovation officer going to treasury and being 695 00:35:45,720 --> 00:35:48,200 like, hey, let's do this, right? Like there's there's no money in 696 00:35:48,200 --> 00:35:49,880 it for them. There's no reason for them to do 697 00:35:49,880 --> 00:35:51,360 it. It's just downside risk. 698 00:35:51,760 --> 00:35:54,200 And so it's a collective action problem. 699 00:35:54,200 --> 00:35:57,720 At the end of the day, we might be able to get to a better world 700 00:35:57,720 --> 00:36:01,040 where financial institutions and technologists could build these 701 00:36:01,040 --> 00:36:04,600 tools that actually make a bigger dent in illicit finance 702 00:36:04,760 --> 00:36:06,400 while still protecting our privacy. 703 00:36:06,680 --> 00:36:08,400 But who's going to be the first to do it? 704 00:36:08,600 --> 00:36:10,880 Government's not going to design that system. 705 00:36:10,880 --> 00:36:13,560 They don't have the technical competency, and it's really 706 00:36:13,560 --> 00:36:15,560 maybe not their place to even develop the technical 707 00:36:15,560 --> 00:36:18,080 competency. The private sector, as far as 708 00:36:18,080 --> 00:36:20,720 any individual bank, is not going to lead by sticking their 709 00:36:20,720 --> 00:36:22,560 neck out because there's no incentive for that. 710 00:36:23,080 --> 00:36:26,720 This is why we think there's this opportunity in our space, 711 00:36:26,720 --> 00:36:31,240 in the more novel fintech and blockchain space, for a group to 712 00:36:31,240 --> 00:36:33,400 get together and say, like, actually, we can do a lot 713 00:36:33,400 --> 00:36:36,200 better. Share these ideas with 714 00:36:36,200 --> 00:36:38,760 regulators. Regulators who are general, 715 00:36:38,760 --> 00:36:41,600 genuinely interested in deterring illicit finance, whose 716 00:36:41,600 --> 00:36:45,760 day job is watching terrorist financing and just knowing that 717 00:36:45,760 --> 00:36:47,120 there needs to be a way to stop it. 718 00:36:47,320 --> 00:36:49,800 We're more concerned with that than they are with mass 719 00:36:49,800 --> 00:36:52,240 surveillance, like knowing whether Peter is buying the 720 00:36:52,240 --> 00:36:55,280 wrong books today. Domestic terrorism might kind of 721 00:36:55,280 --> 00:36:57,440 conflate some of these things together, and maybe that gets 722 00:36:57,440 --> 00:36:59,080 questionable. But in the free society, we 723 00:36:59,080 --> 00:37:01,240 wouldn't, we wouldn't want to collect surveillance data on 724 00:37:01,240 --> 00:37:04,120 what books people are reading. So we take these ideas and we 725 00:37:04,120 --> 00:37:06,800 socialize them with those regulators. 726 00:37:07,080 --> 00:37:10,760 And ideally, and this is Coin Center's goal for work over the 727 00:37:10,760 --> 00:37:14,560 next few years, actually, we're we're doing it under a internal 728 00:37:14,560 --> 00:37:17,040 project we call the John Hancock project because it's the most 729 00:37:17,040 --> 00:37:19,080 famous signature on the Declaration of Independence. 730 00:37:19,640 --> 00:37:24,040 The goal is to see if we can actually get regulatory buy in 731 00:37:24,120 --> 00:37:28,080 once we present like truly robust and viable alternatives 732 00:37:28,080 --> 00:37:29,840 to KYC that are privacy preserving. 733 00:37:30,120 --> 00:37:33,360 And by regulator buy in, I don't mean like a strong like yes, if 734 00:37:33,360 --> 00:37:35,400 you build this, it will be 100% compliant. 735 00:37:35,600 --> 00:37:38,440 I simply mean a credible statement from the 736 00:37:38,440 --> 00:37:41,560 administration, from Treasury or maybe from the SEC if they're 737 00:37:41,560 --> 00:37:43,480 starting to talk about tokenizing equities and things 738 00:37:43,480 --> 00:37:47,240 like that, that we are open to doing pilot programs for 739 00:37:47,320 --> 00:37:50,360 regulated financial institutions to do alternative customer 740 00:37:50,360 --> 00:37:54,280 onboarding where a risk score is maybe preferable to a full, full 741 00:37:54,280 --> 00:37:56,920 identity documentation. Because I think if you got that 742 00:37:56,920 --> 00:37:59,920 signal from regulators, that starts to break the collective 743 00:37:59,920 --> 00:38:03,160 action problem, wherein who wants to be the first to stick 744 00:38:03,160 --> 00:38:05,840 their head up with a new, a new system for deterring illicit 745 00:38:05,840 --> 00:38:10,240 finance when everyone seems to be fine with the bad system 746 00:38:10,240 --> 00:38:12,640 that's working today. And there's no no incentive or 747 00:38:12,760 --> 00:38:14,360 or money for you to build a better system. 748 00:38:15,200 --> 00:38:18,280 Well, I'm, I kind of, I, I really commend you for this. 749 00:38:18,280 --> 00:38:21,520 I think it's, it's, it's a terrific initiative. 750 00:38:22,120 --> 00:38:26,560 Are you worried about the fact that most people just don't care 751 00:38:26,560 --> 00:38:30,200 because it deals like, it seems like in principle kind of like 752 00:38:30,200 --> 00:38:33,240 this, this will be kind of like a political fight. 753 00:38:33,480 --> 00:38:38,400 And kind of if if you look at how much people winning the 754 00:38:39,040 --> 00:38:42,720 divide of themselves, how much they use extractive services 755 00:38:42,720 --> 00:38:46,480 despite the fact that they are that feature equivalent private 756 00:38:46,560 --> 00:38:51,520 privacy preserving ones, Do you think it's kind of like a 757 00:38:51,520 --> 00:38:54,640 cultural battle that kind of we have to win first? 758 00:38:55,480 --> 00:39:00,600 So if we were just talking about changing consumer behavior, 759 00:39:00,960 --> 00:39:02,760 yeah, this would be fairly hopeless. 760 00:39:03,840 --> 00:39:05,760 But I'm talking about something. OK, let's drop it off. 761 00:39:07,800 --> 00:39:10,560 I'm talking about something far more narrow, which all down 762 00:39:10,800 --> 00:39:13,800 today, even if you have a consumer who cares deeply about 763 00:39:13,800 --> 00:39:16,720 their privacy, when they go to open an account at a regulated 764 00:39:16,720 --> 00:39:19,520 financial institution, they have to submit something very 765 00:39:19,520 --> 00:39:21,280 specific. They have to it. 766 00:39:21,280 --> 00:39:25,480 In most cases it will be a photo of your passport and your face 767 00:39:25,480 --> 00:39:28,080 right now. And that will be stored in a in 768 00:39:28,080 --> 00:39:31,600 a, probably in an unencrypted database at some point in the in 769 00:39:31,600 --> 00:39:35,440 the flow of data. And that's just bad, right? 770 00:39:35,480 --> 00:39:38,760 It's really bad. And so just that is all a 771 00:39:38,760 --> 00:39:42,680 regulatory function that's not consumer behavior being, you 772 00:39:42,680 --> 00:39:46,960 know, not not conscientious enough about your own online 773 00:39:46,960 --> 00:39:49,080 safety. That's literally just a rule 774 00:39:49,440 --> 00:39:51,720 that is an interpretation of the Bank Secrecy Act in the US that 775 00:39:51,720 --> 00:39:54,280 says institutions need to collect this information for 776 00:39:54,280 --> 00:39:57,320 their customer due diligence. And that rule could be changed 777 00:39:57,680 --> 00:40:01,160 if you had people who cared not in the consumer base, but just 778 00:40:01,160 --> 00:40:04,520 in the regulatory and compliance areas. 779 00:40:04,520 --> 00:40:07,120 And I think I think there are more people that Care now. 780 00:40:07,120 --> 00:40:09,880 Just from my meetings with people in Treasury and the SEC 781 00:40:09,880 --> 00:40:14,200 over the last five years, there is a growing awareness of the 782 00:40:14,320 --> 00:40:19,200 how how bad the current AML efficacy is and. 783 00:40:19,840 --> 00:40:22,560 You know, it's kind of like finding fun common ground with 784 00:40:22,560 --> 00:40:25,040 people. I hate it because it's the 785 00:40:25,040 --> 00:40:27,680 system that destroys my privacy and I have certain civil 786 00:40:27,680 --> 00:40:31,040 libertarian ideological underpinnings. 787 00:40:31,560 --> 00:40:35,400 You hate it not necessarily for exactly the same reason you you 788 00:40:35,400 --> 00:40:38,480 might believe in in a certain like rights to privacy and 789 00:40:38,480 --> 00:40:40,560 freedom, but you hate it because it's just not even stopping 790 00:40:40,560 --> 00:40:43,160 criminals anymore. It's in fact stopping 791 00:40:45,200 --> 00:40:47,800 disenfranchise people, poor people, people who are easily 792 00:40:47,800 --> 00:40:50,360 dissuaded from using financial services when they put up 793 00:40:50,360 --> 00:40:53,080 barriers to them. And it's not dissuading, you 794 00:40:53,080 --> 00:40:56,680 know, hardened criminals who can easily amass a whole dossier of, 795 00:40:56,840 --> 00:40:59,560 of fake passports or passports that are not their own, right. 796 00:41:01,040 --> 00:41:04,000 Yeah. I mean, I I think the there's, 797 00:41:04,000 --> 00:41:06,240 there's two parts to this. I mean, there, there is the 798 00:41:06,240 --> 00:41:13,560 consumer part and I feel like it's probably fintech apps that 799 00:41:13,560 --> 00:41:17,840 would implement this sort of risk based KYC using 800 00:41:17,840 --> 00:41:19,280 attestations. You know, I could see like a 801 00:41:19,280 --> 00:41:24,960 Revolute doing this right for consumers, but it gets so much 802 00:41:25,080 --> 00:41:29,320 more complicated for companies. And we run a small fund and the 803 00:41:29,320 --> 00:41:32,080 cost of compliance and the amount of compliance work that 804 00:41:32,080 --> 00:41:35,280 we have to do is just like, I don't even want to imagine like 805 00:41:35,280 --> 00:41:37,560 a, you know, a fund twice or three times their size or like a 806 00:41:37,560 --> 00:41:40,560 company like Nosis, The amount of compliance work goes into 807 00:41:40,560 --> 00:41:43,400 just day-to-day operations and the cost that has the company. 808 00:41:43,400 --> 00:41:48,520 And if you extrapolate that to the entire economy, it's a huge 809 00:41:48,520 --> 00:41:50,120 number here. You've loaded some numbers 810 00:41:50,120 --> 00:41:52,640 earlier and, and, and I think it gets much harder then because 811 00:41:52,760 --> 00:41:55,280 it's not just, you know, your passport and what your salary 812 00:41:55,280 --> 00:41:58,800 is, why it's, you know, it's the, the entire organizational 813 00:41:58,800 --> 00:42:01,160 structure. You know all of your UB OS and I 814 00:42:01,360 --> 00:42:03,120 mean you know. Well, so much of it is still 815 00:42:03,120 --> 00:42:06,320 human driven today, which is wild and part of the reason the 816 00:42:06,320 --> 00:42:10,160 system doesn't work well. Like if you if you had more 817 00:42:10,440 --> 00:42:15,560 composable proofs that are difficult to that are difficult 818 00:42:15,560 --> 00:42:19,320 to forge and you had some ability, probably from a third 819 00:42:19,320 --> 00:42:22,080 party like a watched dog organization or even the 820 00:42:22,080 --> 00:42:25,560 government to recalibrate. When one particular aspect of a 821 00:42:25,560 --> 00:42:29,800 proof say, like your say, you say a particular financial 822 00:42:29,800 --> 00:42:31,440 institution gets hacked. And they were one of the ones 823 00:42:31,440 --> 00:42:34,240 making at the stations about like past bank transaction 824 00:42:34,240 --> 00:42:37,760 history for civil prevention, just proof of human or maybe 825 00:42:37,880 --> 00:42:40,480 that they'd KYC these people. Then you need to be able to on 826 00:42:40,480 --> 00:42:44,120 the fly devalue that as a bundle of a risk score. 827 00:42:44,120 --> 00:42:46,640 Maybe it doesn't go to 0 within the risk score, but suddenly 828 00:42:46,640 --> 00:42:49,240 that which was providing some robustness to this risk score 829 00:42:49,520 --> 00:42:52,240 gets unweighted to down to like half of what it was before. 830 00:42:52,240 --> 00:42:54,000 Because we think it's compromised and we don't think 831 00:42:54,000 --> 00:42:56,280 all the identity data they have is bad and all the attestation. 832 00:42:56,280 --> 00:42:58,560 So they make it bad, but it should definitely be lower in, 833 00:42:58,760 --> 00:43:02,200 in the, in the, in the ultimate cumulative calculation of of 834 00:43:02,200 --> 00:43:04,400 risk. And like that's what you want. 835 00:43:04,400 --> 00:43:09,000 You want a system that's got the ability to observe threats and 836 00:43:09,000 --> 00:43:12,440 rapidly recalibrate, sometimes referred to as an OODA loop. 837 00:43:13,080 --> 00:43:16,520 It's like observe, I don't know. I don't know what it stands for. 838 00:43:16,520 --> 00:43:19,080 It's it's in like military, it's like a fighter pilots. 839 00:43:19,080 --> 00:43:21,000 They're supposed to like survey their realm and then make 840 00:43:21,000 --> 00:43:23,600 decisions based on new information and rapidly iterate. 841 00:43:23,840 --> 00:43:26,360 That's what you want in an in an environment with revolving 842 00:43:26,360 --> 00:43:28,280 threats, Right. But that's not what we have 843 00:43:28,280 --> 00:43:29,880 right now. Right now we have like people 844 00:43:29,880 --> 00:43:32,080 who actually manually look at passports still. 845 00:43:32,080 --> 00:43:35,440 And like when you go to the airport, all the security theory 846 00:43:35,440 --> 00:43:36,680 is like, yeah, it looks like you. 847 00:43:36,680 --> 00:43:38,720 It's like you have facial tracking now. 848 00:43:38,720 --> 00:43:40,320 Like why are you still doing this? 849 00:43:40,320 --> 00:43:45,160 I don't know anyway. How much I think this is kind of 850 00:43:45,160 --> 00:43:47,360 like part of part of the equation, kind of like making 851 00:43:47,360 --> 00:43:53,320 sure that actual bad guys are more easily catchable, right? 852 00:43:53,560 --> 00:43:56,440 But I think kind of like you can also see it from the other, from 853 00:43:56,440 --> 00:44:01,360 the other side of you actually owning your identity because 854 00:44:01,360 --> 00:44:06,560 kind of like if you, if you look at the way how we use identity 855 00:44:06,560 --> 00:44:11,240 services, mostly we're renting. I kind of like if I kind of like 856 00:44:11,600 --> 00:44:14,400 login with Google, kind of like, what do I have? 857 00:44:14,400 --> 00:44:17,200 I mean, they have they have all my stuff, they have my data, 858 00:44:17,200 --> 00:44:20,880 they know who I am and kind of like I, I am beholden to them 859 00:44:20,880 --> 00:44:23,560 that they don't that they don't off board me. 860 00:44:24,240 --> 00:44:29,120 And same for all other kind of it's there's there's that kind 861 00:44:29,120 --> 00:44:33,360 of like in web tool, there's nothing that's truly yours. 862 00:44:33,360 --> 00:44:36,440 It's kind of like you are the renter for everything. 863 00:44:36,760 --> 00:44:40,640 And it's a huge power imbalance kind of like in kind of puts 864 00:44:40,640 --> 00:44:44,480 every single person at an enormous disadvantage. 865 00:44:44,800 --> 00:44:47,920 And if you could just say this is yourself sovereign identity 866 00:44:47,920 --> 00:44:52,320 and you can kind of you, you can you can use this to validate 867 00:44:52,440 --> 00:44:56,680 your identity in whichever way you choose against whatever you 868 00:44:56,680 --> 00:44:58,920 don't need. You don't need someone else kind 869 00:44:58,920 --> 00:45:00,960 of stand up for you and say, yeah, this is really Peter. 870 00:45:01,720 --> 00:45:04,400 I think, I think this, this, it's super powerful. 871 00:45:04,400 --> 00:45:07,880 I've started saying that like when you are you online, you 872 00:45:07,880 --> 00:45:10,800 have a different name, like going back to like the feudal 873 00:45:10,800 --> 00:45:13,920 medieval period, like where your name was like Peter Blacksmith 874 00:45:13,920 --> 00:45:15,160 because you were the blacksmith, right? 875 00:45:15,600 --> 00:45:19,720 When you're online, you're Peter Instagram or your your 876 00:45:19,720 --> 00:45:23,800 nirajx.com like you're not yourself, you are you are a 877 00:45:23,800 --> 00:45:26,000 vassal of the feudal Lord. That's a problem. 878 00:45:26,440 --> 00:45:28,760 This has long been discussed in crypto circles as being part of 879 00:45:28,760 --> 00:45:33,240 the problem. And a big a big the the the goal 880 00:45:33,240 --> 00:45:37,160 is the end goal is to be self sovereign over your identity 881 00:45:37,160 --> 00:45:40,920 over your persona online. And this does factor into things 882 00:45:40,920 --> 00:45:45,280 like KYC because the simplest way to do better KYC would be to 883 00:45:45,280 --> 00:45:50,520 have one big corporation that collects all of this information 884 00:45:50,520 --> 00:45:54,080 and generates a risk score that is far more computationally 885 00:45:54,080 --> 00:45:57,480 efficient than trying to do it using disparate credentials, 886 00:45:58,040 --> 00:46:02,640 multi party compute, and maybe some like anchoring on open 887 00:46:02,640 --> 00:46:05,120 block chains which require proof of stake or proof of work or any 888 00:46:05,120 --> 00:46:07,600 number of other inefficient non paralyzable processes. 889 00:46:07,600 --> 00:46:09,840 It would be much better if it was just one company. 890 00:46:10,000 --> 00:46:12,200 But then of course we all understand why it shouldn't be 891 00:46:12,200 --> 00:46:14,720 one company, because this is not just one company that collects 892 00:46:14,720 --> 00:46:17,160 all the passports. Now it collects your entire 893 00:46:17,160 --> 00:46:20,560 trail of bread crumbs that you leave across your entire life 894 00:46:21,320 --> 00:46:23,840 that you want to amass into a viable proof. 895 00:46:24,280 --> 00:46:27,880 It should instead be the user using commonly available 896 00:46:27,880 --> 00:46:31,280 transparent open source tools and amazing new privacy 897 00:46:31,280 --> 00:46:34,000 preserving technologies can amass these credentials and 898 00:46:34,000 --> 00:46:37,720 voluntarily themselves generate probably variously differently 899 00:46:37,720 --> 00:46:41,360 calibrated risk scores that might be calibrated by third 900 00:46:41,360 --> 00:46:44,400 parties, but third parties don't hold the underlying data. 901 00:46:45,080 --> 00:46:47,280 The underlying data, all the attestations that the person 902 00:46:47,280 --> 00:46:48,800 wants to make with their credentials are things that they 903 00:46:48,800 --> 00:46:50,160 control in a wallet that they have. 904 00:46:50,160 --> 00:46:53,440 So very much like the alternative to Google sign on 905 00:46:53,440 --> 00:46:56,040 being like sign on with Meta mask or sign on with some sort 906 00:46:56,040 --> 00:46:57,880 of like key pair that you control. 907 00:46:58,200 --> 00:47:00,520 But that would need to be that there's a lot of building left 908 00:47:00,520 --> 00:47:04,520 to do there, obviously. I mean, you say that that entity 909 00:47:04,520 --> 00:47:07,920 shouldn't exist, but kind of like, if you look at what Google 910 00:47:07,920 --> 00:47:11,840 plausibly knows about you, Peter, I mean that that entity 911 00:47:11,840 --> 00:47:14,520 exists, right? And multiple of them actually 912 00:47:14,520 --> 00:47:16,280 exist. I mean, they shouldn't exist. 913 00:47:16,280 --> 00:47:19,120 I think this is yeah. But right now they're not 914 00:47:19,120 --> 00:47:22,720 identified in law as the as the entity that should be doing anti 915 00:47:22,720 --> 00:47:26,760 money laundering verifications they'd probably be really good 916 00:47:26,760 --> 00:47:28,320 at. It they would be accident at it. 917 00:47:28,320 --> 00:47:30,600 Yeah, if you started, if you passed a law that said banks 918 00:47:30,600 --> 00:47:33,000 don't need to do KYC anymore, they just need to ask Google if 919 00:47:33,000 --> 00:47:35,800 somebody's evil or not. And Google can't be evil. 920 00:47:35,800 --> 00:47:38,800 So that would that would probably be much more efficient 921 00:47:38,800 --> 00:47:41,600 as far as like stopping a lot of money laundering and crime, but 922 00:47:41,600 --> 00:47:43,800 it would also be a disaster from a civil liberties standpoint. 923 00:47:43,800 --> 00:47:48,320 So ideally we need to identify in law something else that could 924 00:47:48,320 --> 00:47:52,280 be equivalently superior to the existing AML regime, but doesn't 925 00:47:52,280 --> 00:47:56,440 hand all the power to one big tech corporation or big bank. 926 00:47:56,840 --> 00:47:59,880 And the stuff in our space is the stuff that can build those 927 00:47:59,880 --> 00:48:02,640 systems, though it will be a very difficult thing because 928 00:48:02,640 --> 00:48:05,880 we're competing against much more efficient technology 929 00:48:05,880 --> 00:48:10,120 companies that don't have the costs of civil liberties, which 930 00:48:10,120 --> 00:48:13,080 are spreading data out, decentralization, strong 931 00:48:13,080 --> 00:48:16,080 encryption, things like that. We've we've talked a lot about 932 00:48:16,080 --> 00:48:19,800 privacy and identity. Yeah, it kind of just became the 933 00:48:19,800 --> 00:48:22,080 privacy identity. I hope you don't mind. 934 00:48:22,080 --> 00:48:23,440 No, I think it's a great discussion. 935 00:48:23,520 --> 00:48:26,600 This is perfect. Are those the things that you 936 00:48:26,600 --> 00:48:30,520 think kind of we need to we need to pay the most attention to 937 00:48:30,520 --> 00:48:33,040 right now? Are there are there lesser 938 00:48:33,800 --> 00:48:36,720 publicized things where where you think kind of like this is 939 00:48:36,720 --> 00:48:39,200 something that is currently overlooked that we absolutely 940 00:48:39,200 --> 00:48:41,440 need to get right? I'm glad you asked the question 941 00:48:41,440 --> 00:48:43,640 because, because people who don't know Coin Centre might not 942 00:48:43,640 --> 00:48:46,160 be mistaking me for like, like, like the Digital Identity 943 00:48:46,160 --> 00:48:47,960 Center. And I'm like, no, that's, that's 944 00:48:47,960 --> 00:48:51,120 an initiative that we're just beginning because we realize 945 00:48:51,120 --> 00:48:55,120 there's appetite from regulators to try alternative AML methods 946 00:48:55,120 --> 00:48:56,960 that could better preserve people's privacy. 947 00:48:57,240 --> 00:49:01,800 Coin Center's main day-to-day work, our #1 mission priority is 948 00:49:01,800 --> 00:49:05,400 always to defend the developers of open blockchain networks from 949 00:49:05,480 --> 00:49:08,600 inappropriate regulations or unjust prosecutions. 950 00:49:08,600 --> 00:49:11,560 And so this goes back to our earlier discussion about, say, 951 00:49:11,560 --> 00:49:14,320 the Pereira Bueno case where, you know, you've got people who 952 00:49:14,320 --> 00:49:17,600 are validating on chain, obeying the rules of the protocol, and 953 00:49:17,600 --> 00:49:19,960 yet the Southern District of New York wants to accuse them of 954 00:49:19,960 --> 00:49:22,680 being involved in wire fraud or committing wire fraud. 955 00:49:23,160 --> 00:49:25,240 That's not a good legal precedent to set. 956 00:49:25,240 --> 00:49:27,760 And it's it's, it's going to discourage people from 957 00:49:27,760 --> 00:49:30,520 participating in these free and open networks as validators. 958 00:49:30,880 --> 00:49:33,840 The other big things, the things that we were definitely 959 00:49:33,840 --> 00:49:37,520 discussing more say like last year are the Tornado Cash case. 960 00:49:38,560 --> 00:49:42,160 First, the sanctions of Tornado Cash, which a big win actually 961 00:49:42,160 --> 00:49:48,200 in U.S. policy was Coin Center and others challenged the 962 00:49:48,200 --> 00:49:52,280 legality of those sanctions. And ultimately just this past 963 00:49:52,280 --> 00:49:58,360 spring, those core challenges we won and that means that the the 964 00:49:58,360 --> 00:50:00,280 administration delisted Tornado Cash. 965 00:50:00,880 --> 00:50:03,040 So Americans are now free to use Tornado Cash again. 966 00:50:03,040 --> 00:50:04,800 This is actually like a very real. 967 00:50:05,320 --> 00:50:08,840 Only Americans or well. Let me yeah, let me be clear. 968 00:50:08,840 --> 00:50:10,800 The sanctions only ever applied to Americans. 969 00:50:10,920 --> 00:50:14,200 That sanctions law says these are foreign sanctioned entities. 970 00:50:14,200 --> 00:50:16,920 Americans are are not allowed to transact with them. 971 00:50:17,120 --> 00:50:21,040 Foreign persons could have maybe secondary liability even though 972 00:50:21,040 --> 00:50:23,240 they're not Americans for violations of sanctions law, but 973 00:50:23,240 --> 00:50:27,720 that's less clear. But Americans were just banned 974 00:50:27,720 --> 00:50:30,200 from using Tornado Cash after the sanctions came out. 975 00:50:30,200 --> 00:50:34,000 That was unequivocal, but just. The small tangent here speaking, 976 00:50:34,000 --> 00:50:36,600 does that mean that people who had funded funds in Tornado Cash 977 00:50:36,600 --> 00:50:40,800 can now take them out and you know the Binance and trade them 978 00:50:40,800 --> 00:50:42,560 back for. Bitcoin or whatever, absolutely 979 00:50:42,840 --> 00:50:45,960 really under the law. Under the law, there's the the 980 00:50:45,960 --> 00:50:49,960 the sanctions are now null and it is as if they never existed. 981 00:50:50,000 --> 00:50:53,320 Got it. So you you are not liable for 982 00:50:53,320 --> 00:50:56,880 sanctions violations if you now reclaim your property that left 983 00:50:56,880 --> 00:50:59,200 in the Tornado Cash pool. You should be very careful doing 984 00:50:59,200 --> 00:51:00,360 it. And I'll just say this because 985 00:51:00,560 --> 00:51:04,400 many of the user interfaces to Tornado Cash, the underlying 986 00:51:04,400 --> 00:51:07,360 pools are actually compromised now from what I understand, 987 00:51:07,800 --> 00:51:10,160 because they kind of fell into disuse and people started 988 00:51:10,160 --> 00:51:12,680 setting up like front ends that actually had back doors that 989 00:51:12,680 --> 00:51:14,800 would steal your steal your funds instead of allowing you to 990 00:51:14,800 --> 00:51:18,760 take them. So be careful if you are trying 991 00:51:18,760 --> 00:51:20,880 to reclaim property that was left in Tornado Cash from a long 992 00:51:20,880 --> 00:51:22,600 time ago, but legally you're safe. 993 00:51:23,040 --> 00:51:25,040 But will you ever have a bank account again? 994 00:51:25,200 --> 00:51:27,960 Because kind of like even if kind of like you're you're it's 995 00:51:27,960 --> 00:51:31,200 no longer on the sanctions list, Will it still be flagged? 996 00:51:31,200 --> 00:51:35,880 Will you be de platformed from whatever yeah, traditional rates 997 00:51:35,880 --> 00:51:38,240 you have? I mean, not that I had ever used 998 00:51:38,240 --> 00:51:39,920 Tornado Cash, but I know people who have. 999 00:51:40,800 --> 00:51:43,760 I have used Tornado Cash. I've used it liberally and for 1000 00:51:43,760 --> 00:51:45,040 good reason. So kind of it's. 1001 00:51:45,400 --> 00:51:47,960 This is a tough one because what you all, what you, what you need 1002 00:51:47,960 --> 00:51:50,360 to do to address that is to socialize the fact that there 1003 00:51:50,480 --> 00:51:55,200 there is no legal risk to a financial institution in now 1004 00:51:55,200 --> 00:51:59,000 accepting Ethereum that came from a tornado cash address, 1005 00:51:59,000 --> 00:52:01,320 Especially if you know the customer who's bringing it to 1006 00:52:01,320 --> 00:52:05,600 you, like you know that they're just American who is like 1007 00:52:05,600 --> 00:52:09,000 getting paid their salary on on Ethereum and wanted privacy over 1008 00:52:09,000 --> 00:52:11,080 their salary, like one of our Copley tips in our lawsuit. 1009 00:52:11,840 --> 00:52:14,400 But how can we socialize that amongst all the compliance 1010 00:52:14,400 --> 00:52:16,840 departments of all the banks? So if there's if there's a 1011 00:52:16,840 --> 00:52:19,320 stigma that's still attached, that's something else. 1012 00:52:19,520 --> 00:52:21,120 My point is that the law has changed. 1013 00:52:21,120 --> 00:52:24,040 It is now technically legal to reclaim those funds and to use 1014 00:52:24,040 --> 00:52:25,080 them. Maybe you should run them 1015 00:52:25,080 --> 00:52:28,880 through railgun first before the taking somewhere else to take 1016 00:52:28,880 --> 00:52:31,120 off the tornado cash funk on them. 1017 00:52:31,120 --> 00:52:34,640 They might get new funk from other from other privacy, which 1018 00:52:34,640 --> 00:52:36,960 goes back to our discussion about base layer neutrality. 1019 00:52:36,960 --> 00:52:39,760 Like base layer neutrality, it like no one's going to 1020 00:52:39,760 --> 00:52:42,240 ultimately end up using these privacy tools if they're still 1021 00:52:42,240 --> 00:52:45,560 just islands of privacy within a larger transparent chain because 1022 00:52:45,560 --> 00:52:47,880 you'll always be like hell, the scarlet letter of having gone 1023 00:52:47,880 --> 00:52:49,840 through this little privacy tool, even if you were doing it 1024 00:52:49,840 --> 00:52:52,400 for the right reasons. And we can also watch in real 1025 00:52:52,400 --> 00:52:54,280 time as bad people use these tools. 1026 00:52:55,080 --> 00:52:57,840 And that creates headline risk and it creates, you know, risk 1027 00:52:57,840 --> 00:53:00,880 to the whole technology. So the sanctions are invalided. 1028 00:53:00,880 --> 00:53:03,240 The other big thing that happened this year, and it's not 1029 00:53:03,480 --> 00:53:06,160 it's bad news instead of good news, is the developers of 1030 00:53:06,160 --> 00:53:13,160 Tornado Cash, Roman Storm specifically was found guilty of 1031 00:53:13,160 --> 00:53:16,360 unlicensed money transmission in his court, in his court case in 1032 00:53:16,360 --> 00:53:17,720 the Southern District of New York. 1033 00:53:19,240 --> 00:53:22,160 That is a very bad outcome. It's maybe not the worst outcome 1034 00:53:22,160 --> 00:53:24,240 for Roman Storm because he was also charged with money 1035 00:53:24,240 --> 00:53:27,640 laundering and sanctions evasion but the jury couldn't reach a 1036 00:53:27,640 --> 00:53:30,480 verdict there. So he could get re prosecuted 1037 00:53:30,480 --> 00:53:33,680 for that or may not but he was found guilty of unlicensed money 1038 00:53:33,680 --> 00:53:36,560 transmission and this coin center has done tons of work on 1039 00:53:36,560 --> 00:53:38,840 this. It's just ridiculous because 1040 00:53:38,840 --> 00:53:42,440 Tornado cash never had control over user funds then certainly 1041 00:53:42,440 --> 00:53:45,480 not the developers of Tornado Cash and also not the torn token 1042 00:53:45,480 --> 00:53:46,440 holders. No one did. 1043 00:53:46,680 --> 00:53:51,240 They were in immutable pools on chain and FinCEN, the regulator 1044 00:53:51,240 --> 00:53:54,080 for who needs to register ISM as a money services business in the 1045 00:53:54,120 --> 00:53:56,320 US who is doing money transmission at the federal 1046 00:53:56,320 --> 00:53:59,960 level, has said you're not doing money transmission unless you 1047 00:53:59,960 --> 00:54:02,240 have total independent control over customer funds. 1048 00:54:02,520 --> 00:54:06,960 So you might ask, why is he then guilty in New York of unlicensed 1049 00:54:06,960 --> 00:54:09,960 money transmission if the regulator said he wasn't ever 1050 00:54:09,960 --> 00:54:12,160 doing money transmission? And it's because of the Southern 1051 00:54:12,160 --> 00:54:15,080 District of New York has this sort of wild theory of criminal 1052 00:54:15,080 --> 00:54:16,960 liability for unlicensed money transmission. 1053 00:54:17,280 --> 00:54:19,960 That transmission is something broader than what the regulator 1054 00:54:19,960 --> 00:54:21,960 requires a license for. And they did it. 1055 00:54:21,960 --> 00:54:23,720 And therefore we can charge them with this. 1056 00:54:24,080 --> 00:54:27,640 And what I think what's really happening is it's hard to charge 1057 00:54:27,640 --> 00:54:31,080 someone with money laundering sanctions evasion, because you 1058 00:54:31,080 --> 00:54:34,360 have to prove criminal intent, some specific intent to actually 1059 00:54:34,360 --> 00:54:37,880 hide some specific bad funds. And like, yes, North Korea used 1060 00:54:37,880 --> 00:54:41,400 Tornado Cash, but that was after they published the software. 1061 00:54:41,600 --> 00:54:42,840 And So what did they have intent to do? 1062 00:54:42,840 --> 00:54:45,760 They had intent to publish a privacy tool and then somebody 1063 00:54:45,760 --> 00:54:46,960 used it for money laundering after. 1064 00:54:46,960 --> 00:54:48,320 That's not intent to launder money. 1065 00:54:48,320 --> 00:54:50,680 That's intent to publish a tool that people will use to do lots 1066 00:54:50,680 --> 00:54:53,360 of things. It's much easier to charge 1067 00:54:53,360 --> 00:54:56,800 someone with unlicensed money transmission because there's no 1068 00:54:56,800 --> 00:55:00,280 intent requirement. All you have to ask the jury is 1069 00:55:00,520 --> 00:55:02,200 were they doing money transmission? 1070 00:55:02,200 --> 00:55:05,120 And we will tell you jury that we legally define money 1071 00:55:05,120 --> 00:55:08,760 transmission broadly. And did they knowingly transport 1072 00:55:08,760 --> 00:55:12,280 criminal funds while doing money transmission? 1073 00:55:12,280 --> 00:55:15,320 And I guess you could argue like they watched it as it happened 1074 00:55:15,400 --> 00:55:18,640 with their software did it. So it's a, it's a much lower 1075 00:55:18,640 --> 00:55:21,520 bar. There's no, there's no need to 1076 00:55:21,520 --> 00:55:24,440 show the jury that they intended for this to happen or wanted 1077 00:55:24,440 --> 00:55:26,640 this to happen or directly facilitated it happening. 1078 00:55:26,640 --> 00:55:28,080 You just say did you have a license? 1079 00:55:28,400 --> 00:55:30,800 Or not. So it's saying that they watch 1080 00:55:30,800 --> 00:55:33,920 them watch their software do it and did nothing about it. 1081 00:55:33,920 --> 00:55:37,120 It's like insane because like watch, it's like, it's like 1082 00:55:37,120 --> 00:55:40,120 having a gun store and have someone buying the gun and then 1083 00:55:40,120 --> 00:55:43,440 watching that guy mow down a crowd of people as he walks out 1084 00:55:43,440 --> 00:55:45,960 your store, right? And, and that's why we we would 1085 00:55:45,960 --> 00:55:49,840 not usually subject people to a strict liability regime for 1086 00:55:49,840 --> 00:55:51,760 things that are not ongoing conduct. 1087 00:55:51,960 --> 00:55:54,600 We subject money transmitters to a strict liability regime 1088 00:55:54,600 --> 00:55:56,440 because they're always in control of the conduct on their 1089 00:55:56,440 --> 00:55:58,520 platform. And so maybe the reasonable 1090 00:55:58,520 --> 00:56:00,600 liability rule is if you're always in control, you could 1091 00:56:00,600 --> 00:56:03,440 always stop it. So if anything bad happens, 1092 00:56:03,440 --> 00:56:04,760 you're automatically responsible. 1093 00:56:05,440 --> 00:56:08,560 But that only makes sense in the context of a money transmitter. 1094 00:56:08,720 --> 00:56:11,480 If you're a software developer, having strict liability for all 1095 00:56:11,480 --> 00:56:13,840 the things that people do with your software for failure to 1096 00:56:13,840 --> 00:56:16,880 license it is just going to make it impossible to publish 1097 00:56:16,880 --> 00:56:20,200 software because it's everyone knows most people do good things 1098 00:56:20,200 --> 00:56:22,280 with the software. Some people do bad things. 1099 00:56:22,600 --> 00:56:24,880 If you're responsible for all the bad things people do with 1100 00:56:24,880 --> 00:56:26,480 your software, you won't publish software anymore. 1101 00:56:26,760 --> 00:56:30,400 So it's as I said, Roman could have had a worse outcome as far 1102 00:56:30,400 --> 00:56:33,000 as like jail time if they've been convicted of money 1103 00:56:33,000 --> 00:56:34,120 laundering and sanctions evasion. 1104 00:56:34,360 --> 00:56:37,760 But the fact that he was found guilty of unlicensed money 1105 00:56:37,760 --> 00:56:41,960 transmission is a very bad precedent for the space, because 1106 00:56:42,120 --> 00:56:44,400 that charge could be brought up against almost anyone in this 1107 00:56:44,400 --> 00:56:46,000 space. Because their theory of what is 1108 00:56:46,000 --> 00:56:49,360 money transmission that requires a license is any facilitation of 1109 00:56:49,360 --> 00:56:52,040 the movement of tokens on chain, which is something that, like 1110 00:56:52,040 --> 00:56:54,760 everybody who's involved with cryptocurrency has done in some 1111 00:56:54,760 --> 00:56:57,040 way. And most of them, unless they're 1112 00:56:57,040 --> 00:57:00,560 like coins, Coinbase, have not gotten a license to do it. 1113 00:57:00,560 --> 00:57:04,440 So this is a very bad precedent. It needs to be challenged at the 1114 00:57:04,440 --> 00:57:06,880 appeal level. So we're hoping that Roman will 1115 00:57:06,880 --> 00:57:11,840 appeal his guilty verdict. Coin Center is also supporting a 1116 00:57:12,640 --> 00:57:17,040 civil litigant, Michael Llewellyn in Fort Worth, TX, who 1117 00:57:17,040 --> 00:57:19,520 is a developer who wants to release the privacy preserving 1118 00:57:19,520 --> 00:57:22,520 crowdfunding tool. He calls it Pharaohs and is 1119 00:57:22,520 --> 00:57:26,040 willing to sue the Department of Justice for declarative judgment 1120 00:57:26,040 --> 00:57:30,480 before he publishes that tool to get clarity from a judge that 1121 00:57:30,480 --> 00:57:33,760 publishing that tool without licensing with Vincent will not 1122 00:57:33,760 --> 00:57:36,800 be a felony, will not be unlicensed money transmission 1123 00:57:37,240 --> 00:57:38,960 and coin Center is supporting his lawsuit. 1124 00:57:39,280 --> 00:57:42,360 So we have sort of multiple paths to address this particular 1125 00:57:42,360 --> 00:57:45,880 threat, legal threat to the permission that the the freedom 1126 00:57:45,880 --> 00:57:47,360 to build these permissionless systems. 1127 00:57:47,720 --> 00:57:49,240 We also have a legislative effort. 1128 00:57:49,520 --> 00:57:51,600 There's a bill moving through Congress called the Blockchain 1129 00:57:51,600 --> 00:57:54,280 Regulatory Certainty Act, which would create a safe harbor for 1130 00:57:54,280 --> 00:57:57,280 non custodial developers. And I'm actually optimistic it 1131 00:57:57,280 --> 00:58:00,000 already passed the House. It might pass the Senate. 1132 00:58:00,040 --> 00:58:02,080 There's like a good chance we'll actually get a legislative 1133 00:58:02,080 --> 00:58:03,200 solution to this problem as well. 1134 00:58:03,320 --> 00:58:07,400 This is the day-to-day work of Coin Center and now we are all 1135 00:58:07,400 --> 00:58:10,360 increasingly interested in privacy preserving alternatives 1136 00:58:10,360 --> 00:58:15,320 of KYC, but most of our work is in the trenches in the courts, 1137 00:58:15,320 --> 00:58:17,560 in the legislature, trying to protect developers from 1138 00:58:17,680 --> 00:58:21,400 inappropriate liability for other people using the software 1139 00:58:21,400 --> 00:58:22,360 to do bad things. So. 1140 00:58:23,120 --> 00:58:27,040 If you had to make a prediction, one thing that we don't yet see 1141 00:58:27,040 --> 00:58:29,760 coming, kind of like from the regulatory sphere for the next 1142 00:58:29,760 --> 00:58:33,360 12 months, what, what, what would it be? 1143 00:58:34,200 --> 00:58:35,520 You know, this is actually an interesting one. 1144 00:58:35,520 --> 00:58:37,880 People might be expecting me to say, like, something scary and 1145 00:58:37,880 --> 00:58:40,720 bad. The thing that's surprised me 1146 00:58:40,720 --> 00:58:44,640 most recently that I think a lot of people haven't grokked yet is 1147 00:58:44,640 --> 00:58:48,680 that the SEC, which until recently was a very aggressive 1148 00:58:48,680 --> 00:58:51,240 regulator in this space, interested in going after even 1149 00:58:51,240 --> 00:58:54,320 people who were potentially good actors, tried to do their best 1150 00:58:54,320 --> 00:58:57,440 to comply. The SEC has done a 180 and 1151 00:58:57,440 --> 00:59:02,240 actually in a very good way. Hester Purse commissioner there 1152 00:59:02,240 --> 00:59:07,600 and the new chairman Paul Atkins They are they are legitimate. 1153 00:59:07,600 --> 00:59:10,960 They are they are very genuine when they say they want to 1154 00:59:10,960 --> 00:59:13,840 tokenize everything which is actually like Paul Atkins gave a 1155 00:59:13,840 --> 00:59:17,200 speech about this and they are also very genuine. 1156 00:59:17,200 --> 00:59:19,480 They talk about financial privacy Commissioner has to 1157 00:59:19,480 --> 00:59:22,440 purse give an amazing speech in defense of financial privacy 1158 00:59:22,600 --> 00:59:26,400 where she where she said we should celebrate rather than 1159 00:59:26,400 --> 00:59:30,640 attack the availability of technologies that will recreate 1160 00:59:30,640 --> 00:59:33,920 transactions that are like the transactions our forefathers 1161 00:59:34,160 --> 00:59:37,440 understood when they wrote the 4th amendment that if I pay you 1162 00:59:37,440 --> 00:59:41,160 in some coins or some some dollars, there's no record of 1163 00:59:41,160 --> 00:59:43,800 that transaction and that there's no way to surveil that 1164 00:59:43,800 --> 00:59:45,440 transaction in a warrantless way. 1165 00:59:45,720 --> 00:59:50,040 So between tokenizing everything and technologies for financial 1166 00:59:50,040 --> 00:59:52,440 privacy are important and should actually be celebrated. 1167 00:59:52,440 --> 00:59:56,160 Rather than attack, the SEC sounds ready to do a lot of 1168 00:59:56,160 --> 00:59:59,640 proactive things in the space to enable the kind of global and 1169 00:59:59,640 --> 01:00:03,320 open and fair and liberal financial system that we want to 1170 01:00:03,320 --> 01:00:04,920 build. And. 1171 01:00:05,040 --> 01:00:07,840 There's open and liberal financial system and SEC in the 1172 01:00:07,840 --> 01:00:11,000 same sentence as something that I had on my bingo card, but 1173 01:00:11,000 --> 01:00:13,640 it's. And, and lots of people are, are 1174 01:00:13,640 --> 01:00:15,880 now aware of this, but I think I still talk to people who are 1175 01:00:15,880 --> 01:00:19,160 like, should I go in and talk to Commissioner Purse about the, 1176 01:00:19,440 --> 01:00:22,520 the very potentially important tool that I'm building? 1177 01:00:22,520 --> 01:00:26,080 Or is that scary? Should I find a way to say that 1178 01:00:26,080 --> 01:00:29,240 like we can still preserve the role of say transfer agents and 1179 01:00:29,240 --> 01:00:32,360 other intermediaries in the system because they're wary of 1180 01:00:32,360 --> 01:00:36,240 like going full token tokenized? And I'm like, not necessarily 1181 01:00:36,400 --> 01:00:38,400 like everything's on the table. I think there. 1182 01:00:38,400 --> 01:00:41,800 And like there isn't necessarily right now amongst the 1183 01:00:41,800 --> 01:00:45,320 commissioners a desire to reintermediate when that 1184 01:00:45,320 --> 01:00:49,520 reintermediation of securities transactions is inefficient and 1185 01:00:49,520 --> 01:00:52,480 unnecessary. So I think like just fully 1186 01:00:52,480 --> 01:00:55,640 tokenized equities are on the table and I think private 1187 01:00:55,640 --> 01:00:57,840 transactions are on the table. Now, there is an interesting 1188 01:00:57,840 --> 01:01:00,840 thing here where obviously we're not going to have a world where, 1189 01:01:01,640 --> 01:01:04,680 you know, North Korea could steal a bunch of US equities in 1190 01:01:04,680 --> 01:01:08,280 tokenized form and they're not going to find a way to cancel 1191 01:01:08,280 --> 01:01:11,440 those shares. So we will still need tools for 1192 01:01:11,720 --> 01:01:17,520 identity and compliance on these perhaps permissionless new 1193 01:01:17,600 --> 01:01:21,680 securities ecosystems. But that's again, part of why 1194 01:01:21,680 --> 01:01:25,400 I'm interested in finding like privacy preserving alternatives 1195 01:01:25,400 --> 01:01:28,960 to the ineffective KYC regimes we have today so that we can 1196 01:01:28,960 --> 01:01:33,400 find ways to like figure out what the issuer security issuers 1197 01:01:33,400 --> 01:01:36,000 liabilities should be or obligation should be vis A vis 1198 01:01:36,560 --> 01:01:39,040 the wrong person getting a hold of the US equities that they 1199 01:01:39,040 --> 01:01:40,680 issued. But there's ways to address that 1200 01:01:40,680 --> 01:01:44,360 in a tokenized environment that aren't like just rebuild a 1201 01:01:44,360 --> 01:01:47,480 transfer agent who's a person who's just like got a list of 1202 01:01:47,480 --> 01:01:49,880 names of shareholders and is like, well, we can't send that 1203 01:01:49,880 --> 01:01:51,600 to him, you know, like something better than them. 1204 01:01:51,600 --> 01:01:54,440 So so. Tell people working, learn more 1205 01:01:54,440 --> 01:01:56,400 about Coin Center and support your work. 1206 01:01:56,400 --> 01:01:59,200 So I think it's very important work, so. 1207 01:02:00,040 --> 01:02:02,800 All of our work is publicly available at coincenter.org. 1208 01:02:02,840 --> 01:02:06,160 This report that I mentioned on digital identity is one of the 1209 01:02:06,160 --> 01:02:10,280 more recent things we published. And also I think more people 1210 01:02:10,280 --> 01:02:12,800 should take a look at that amicus brief we filed in the 1211 01:02:12,800 --> 01:02:14,800 Pereira Bueno case about Mev boost. 1212 01:02:15,280 --> 01:02:18,480 Whether you're interested in minor extractable value or not, 1213 01:02:18,480 --> 01:02:23,040 it's it is it sort of helps tee up why there is this existential 1214 01:02:23,040 --> 01:02:27,720 threat to neutrality of the base layer, in part because of the 1215 01:02:27,720 --> 01:02:31,520 transparency of the transactions on it and the inevitability of 1216 01:02:31,640 --> 01:02:34,800 regulators or prosecutors inferring legal duties on the 1217 01:02:34,800 --> 01:02:37,880 validators and then arresting them for failure to obey those 1218 01:02:37,880 --> 01:02:40,840 duties. So that amicus is also up on our 1219 01:02:40,840 --> 01:02:43,200 site right now, yeah. Super cool. 1220 01:02:43,360 --> 01:02:46,120 Thanks a lot. Thank you for taking the time 1221 01:02:46,120 --> 01:02:47,760 to. Speak with us. 1222 01:02:48,040 --> 01:02:49,200 It was a pleasure. Yeah.