Motion: Tokenization and Smart Contracts are Useful Ideas (Emin Gün Sirer vs. Edmund Schuster)

Guests:

Emin Gün Sirer (@el33th4xor) - debating FOR the motion
Edmund Schuster (@Edmund_Schuster) - debating AGAINST the motion

Host:

Richard Yan (@gentso09)


Today’s motion concerns tokenization and smart contracts. Smart contracts' value proposition is to facilitate programmable transactions of tokens, in a manner that is decentralized, transparent, and cost-effective. A big part of the value, although not all of the value, in tokenization lies in the fact that disintermediated transactions of these tokens can take place via smart contracts.

The only way to experience is the full debate is to listen to the episode in its entirety. Nevertheless for our busy listeners, here is a teaser that reflects part of the content:

Gün argues that tokenization can put constraints on relationships to prevent errors and serve as a check on misbehavior. He cites examples that necessitate blockchain, such as the Dole company fiasco where actual number of shares outstanding exceeded the amount recorded. He agrees that tokenization on first-gen blockchain was flawed in divorcing digital assets from real world jurisdictions, but indicates that next-gen blockchain addresses this flaw by introducing a special set of nodes that hold the ledger, thereby allowing enforcement of jurisdictional legal requirements. Gün also discusses how blockchain combats rent-seeking, fosters automation and creates a trustless system unlike traditional client-server paradigms.

Edmund contends that blockchain tech cannot encapsulate all the intricate details and complexity of real world, thereby necessitating some backdoor to address edge cases. Without it, a synchronization conflict arises between the state acknowledged by law and the state of the blockchain. He also indicate that lawyers can get creative in structuring arrangements to game a smart contract, rendering it useless. He thinks the next-gen blockchain with "privileged parties" that can rectify and reverse transactions looks similar to status quo, which is a trusted party with a database.



Source of select items discussed in the debate:

• Dole Foods had 12 million more shares than the company thought existed: https://www.coindesk.com/dole-stock-crisis-reigniting-push-blockchain
• Ava Labs: https://www.avalabs.org/
• "Cloud Crypto Land" paper by Edmund Schuster: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3476678
• Tokenization of NBA player's salary: https://www.coindesk.com/nba-players-contract-tokenization-plan-can-move-forward-reports
• Illinois' smart contract bill: http://www.ilga.gov/legislation/BillStatus.asp?DocNum=3575&GAID=15&DocTypeID=HB&LegId=120249&SessionID=108&GA=101
• Numerai (crowd-sourced hedge fund): https://numer.ai/

Transcript

Richard: 0:07

Welcome to another episode of the blockchain debate podcast, where consensus is optional, but proof of thought is required. I'm your host, Richard Yan. Today's motion concerns tokenization and smart contracts. Smart contracts are created to facilitate programmable transactions of tokens in a manner that is decentralized, transparent, and cost effective. A big part of the value, although not all of the value in tokenization, lies in the fact that disintermediated transactions of these tokens can take place via smart contracts. Our two guests today are sharp and clear thinkers. The benefits of tokenization and smart contracts may seem obvious to those already in the space, and they have been clearly laid out by the industry insider who argues for the motion today. It's refreshing nonetheless, to hear counter arguments from a law professor who applies legal framework in challenging that motion. Side note, I like to invite no-coiners because as a practitioner in the crypto space, my work environment is an echo chamber and I get information from like-minded folks. Critiques from naysayers can be very sobering at times. I hope you enjoy listening to this debate as much as I loved hosting it. Let's dive right in! Welcome to the debate! Today's motion: Tokenization of real-world assets and smart contracts are useful ideas. To my metaphorical left is Professor Emin Gün Sirer, who goes by Gün, who will be debating for the motion. He agrees that tokenization of real-world assets and smart contracts are useful ideas. Can't say I'm shocked. He's founder and CEO of a well known and much anticipated blockchain project. To my metaphorical right is professor Edmund Schuster, who will be debating against the motion. He disagrees that tokenization of real-world assets and smart contracts are useful ideas. Not surprising from a no-coiner. Gentlemen, it's an honor to have you both. Welcome.

Gün: 2:10

Very nice to be here. Thank you.

Edmund: 2:13

Yeah same here. Thanks for organizing this.

Richard: 2:15

No problem. So a bit of bio for the two gentlemen. Gün Is a blockchain entrepreneur and cryptographic academic. He is the CEO and founder of AVA labs, a company building a layer-one smart contract platform based on the Avalanche protocol. Gün is also an associate professor of computer science at Cornell. His paper on selfish-mining,"Majority is Not Enough: Bitcoin Mining is Vulnerable" is the second most cited Bitcoin research publication after Satoshi's bitcoin whitepaper. Edmund is an associate professor of corporate law at the London School of Economics and Political Science. His research focuses on corporate law, law and finance, takeover regulation as well as the economic analysis of law. In October 2019, he published the paper,"Cloud Crypto Land" that discusses inherent obstacles in the legal system that prevent blockchain systems and smart contracts from being truly useful. He is a self-declared no-coiner. Today's programming consists of three parts: an opening statements from both parties starting with Gün. Then second round of debate is a bit more free-for-all but guided with questions from me, your host. The questions will be clearly directed to one person, but then the other person is highly encouraged to follow up with their response. The last round is audience questions selected from Twitter followed by concluding remarks from both debaters. Currently our Twitter post shows 70% in favor of the motion and 11% against it. We'll have a post-debate poll and whoever tips the ratio more to their side wins the debate. Without further ado, let's get started with the opening statements. Gün please go ahead.

Gün: 3:52

So let's see. We are currently having this conversation in 2020 in the very first days of this new year. We are about 11 years into the blockchain revolution and quite a few things have happened in that timeframe. The first sort of wave of coins came out of this libertarian camp and they came as a response to the financial crisis and they came to essentially provide a replacement for fiat currencies. The faith, people's faith in the financial system was shaken and they were afraid of a ginormous inflationary wave to come and that wave has not hit us, at least not yet. And Bitcoin emerged as an entry as some kind of safe haven assets perhaps in, you know, to look at it in a positive view against a fiat currencies against inflatable supply and against political wranglings that happened with typically governments in charge of the money supply. It's kind of like having the fox in charge of the hen house. But there is something much more exciting going on. So yes, there is the big money fight and we will see if Bitcoin succeeds in this money fight. And there are lots and lots of obstacles on that path, technical and political. And I think, you know, I'm of course most familiar with the technical side of these things and to put it simply, I think that's a very, very challenging path. But an interesting one but it's not the topic of the conversation today. What I think is really exciting is the promise that Bitcoin showed us. It pointed the way to a different universe where institutions are constrained a priori, publicly, and in a way that cannot be subverted- Such that that constraint provides confidence in the population.. This is a huge step. Now if I were to think about other examples or analogies for what's happened here I think the most apt analogy is all the way back going back to Babylon. When sovereign nations first codified- they made a set of laws, written laws, the moment your sovereign is not an arbitrary ruler, but there's restraint in what he or she can do, then you have a very different relationship with your state. You have a very different way of going to sleep at work, or at night because you know what can be taken away from you. You know what your rights are and you have, you know what you're entitled to. And that's, that's a fantastic, fantastic step up for humanity. And we haven't had that in the economic sphere. So if you look at, for example, the wealth we have accrued in various different ways some are constrained and some, especially the financial system is unconstrained. It's uncontrolled. You can wake up and have 30% of your wealth be taken away from you. How do I know this? I lived through this twice myself. And you know, sure, this doesn't happen all that often in the first world. But if you look around, it's a very common refrain in quite a few countries that are maybe top G-20 but not G-7. Devaluations are very, very common. All the Italians know what I'm talking about. All the Turks know what I'm talking about, Argentinians know what I'm talking about. Any Latin American knows what I'm talking about. So that is step number one and one of the biggest sources of complaints and issues. And the second thing, and I think the bigger one is not something that concerns the state, but it concerns private relationships. If you look at you know, very simple things like if you look at anything where there is somebody who provides a service to you and you would like to constrain what they do and how they provide that service in some fashion or form. For example, I would like the company issuing stock certificates to me to be constrained in exactly how many certificates are outstanding. They publicly say N certificates are outstanding and I would like that number N to be exactly what they reported. Well, just very recently, despite all the technology we have today we saw that the Dole company thought they had 38 million shares outstanding. But in reality, in people's hands, there were 53 million claimants seeing that they actually were in possession of Dole shares. So you can imagine that there must've been a period of time when the Dole stock price must have been quite substantially suppressed as a result of our inability to book-keep the most simplest of things to do. And so blockchains could really easily help solve this problem. And there are many other aspects of service provisioning where I would like to, as a consumer want to have some kind of constraint on what the other party can do. A charity for example, to which I donate, I would like those funds to go to one of a small number of other hands. I do not want those funds ending up as administrative oversight fees and so forth. Or just take just about any other kind of a situation where you're entrusting somebody with money. You would also like to place some additional constraints on what they can do. And that is something that smart contracts and private tokenized assets can give us. And what is that something? It's peace of mind. It's assurance. It's auditability. We don't have these things in the way the system is set up today. And the fact that we now have them with blockchains is a huge step up. Earlier we talked about Babylon and what it meant. We may have, Babylon had a lot of neighbors. And I even, I forgot the names. I usually actually have them at my fingertips. Nobody remembers their neighbors and why? Because those people did not did not weigh, weigh enough on the civilization scale. They did not manage to scale up because they didn't invent the most important thing that the Babylonians did. Now, in a similar fashion I believe that the invention of blockchain and digital assets is a game changing event. It's an extinction level event for many incumbents and it's also an enormous opportunity for many small startups because these intermediaries that have taken over every corner of the finance world that collect rent, by virtue of being placed in a particular position in the financial system, we can brush them aside, we can replace them with equivalence that provides a better assurance while providing the same level of service and move the world to a much better spot. And then in the process of doing so, disrupt business, disrupt finance, and open up many opportunities for generations to come.

Richard: 11:17

Okay, great. Thank you very much. Gün. It always makes the host's job easier when both debaters have strongly held opinions. So now let's move on to Edmund. And time for your opening statement.

Edmund: 11:29

Yes. thank you. So I want to say at the outset that I'm not a Luddite, I don't have a problem with technology. Not at all. And I think there's absolutely no question that technology is transforming and will continue to transform how people interact. And that includes certainly includes the legal sphere, but I want to really focus on the very narrow focus of this debate and that is about real world assets and how you can tokenize them. As, as we mentioned before I have a paper on this and I came to this question because of a lot of, I would say overhyped certainly very bullish views about what can be achieved in this sphere. Now my, the question I tried to answer in the question in the paper is the extent to which it is possible to put real world assets on a blockchain and achieve, the kinds of advantages, the kinds of improvements that Gün mentioned. And I come to the conclusion that this is not possible under the current legal framework in the current legal framework. Now I just want to pick up on the two examples that Gün used. So the Dole case. Now the Dole case is a very good example for what can go wrong. Even though people do have access to technology and this is a fairly simple task, but if you look at the details of this case it turns out that we have a number of intermediaries here who all keep their private ledgers and that creates problems because somebody doesn't do their jobs properly. You could have, of course, you could have the same kind of problem at least in the current blockchain system where you have custodial exchanges and where you ultimately also have a number of layered private ledgers that's tried to keep track of things. And I'd be extremely surprised if it weren't the case today that if everyone were to add up their Bitcoin balances, that they believe they have that we would end up with a number that's higher than what should be there. I feel my question is relevant to this question here. And the question I tried to address in the paper is what happens if you put real-world assets on the blockchain? And I approach this question by looking at blockchain technology. And as a lawyer in a non-technical way, I distinguish between fully decentralized, you could say Bitcoin-like blockchain systems. And I say that for these fully decentralized systems, you cannot reliably trade any real-world assets on those blockchains simply because technology does not exist that would allow us to encapsulate in technology and in the protocol, all the intricate details and the complexity of the real world. And so you end up in a state where even though you can deal with the simple cases, there are always complicated cases and these complicated cases, they can not be solved within the protocol. And that simply necessitates that you have some outside power that allows you to reverse transactions, to correct ledger and so on. And I know that not everyone agrees with this point, but I think to the extent that this point is correct, I would argue that in, at least in our current legal environment you end up in a situation where, a fully decentralized system that does not give this outside access will create a situation where the state of the blockchain simply does not reflect in relation to the real world assets that we're talking about does not reflect the state that the law sees. And so if you look at the legal system as something like a metaphorical ledger, that assigns rights and all sorts of assets to different people, that will be a synchronization conflict. The law will say whatever, share or bonds or I don't know, banana, we trade on blockchain, the law will say it still belongs to me. The blockchain may say, no, it is now the property of Gün. And if that happens, that creates the kind of conflict that will ultimately in our system at least render the blockchain impossible- not impossible- just useless, will not be reliable record of who owns what. And I then expand that and try to look at situations where we do have this outside power. Somebody who has higher privileges in some sense to interact with the blockchain. And I argued in this case the added benefits from implementing such a system is very questionable because you end up in a situation where you have all this blockchain security and then you have a backdoor and somebody who can interact with the blockchain in a privileged way, in which case I argue it's easier to just rely on the systems that we currently have. Now, I completely agree with Gün that a lot of things are not working properly at the moment. I just, I'm just not sure that it's right and that we have evidence for saying that the reason for that is lack of technology. I think there are a lot of other reasons that lead to the kind of situation we find ourselves in. It's certainly not a technical problem and it has not been a technical problem for at least 40 years to keep track of the number of shares outstanding for any given traded corporation. There are other reasons, there are other incentives that lead to intermediation and this intermediation is always a source for, for errors. And so I'm not sure that you can do away with it. If I could just very quickly pick up on Gün's second example with the charity. Again, I understand the basic idea here, but I think when I worry about what the charity does with my money, then I cannot conceive of any system of any technological solution to the constraints that I would want to have in place vis-a-vis my charity. So I'm obviously, I'm concerned a bit about then just taking the money and run and maybe there can be some constraints on that, but whether they give the money to somebody who is a consultant and actually brings money or who is a consultant who is, you know, the cousin of the boyfriend and who then runs away with the money. I don't think that this can be solved technologically. And so again, I'm not sure to what extent blockchain and blockchain constraints can actually have. Yeah.

Richard: 19:23

Okay, great. Thank you very much. Edmund, it seems like we already started the second round without me announcing it. But let me just start the second round formally. So thank you for the opening statements. Now we move to a segment where I direct questions to go in and Edmund and some of these questions will be very much reflective of who we just discussed and when answering these questions, feel free to reference any earlier points raised by your opponent. So my first question is for Gün: You have mentioned in some of your past work that AVA, which you guys are building, will be a powerful platform for tokenization that supports multiple scripting languages and multiple virtual machines. But let's step back from the tech a little bit. What do you think are the main benefits of tokenizing assets that are not blockchain native? And can you give us some examples of assets where tokenization makes sense? I know that you have mentioned a few examples.

Gün: 20:14

Absolutely. So yeah, so Edmund brought up a bunch of interesting points. I want to, I want to specifically mention one issue and then actually tackle the core problem- I think- at the heart of his objections. So the one issue that he brought up is is whether or not the number of people who, if you sum up the number of people who hold Bitcoin, whether that number matches the actual reality on the chain. The answer is yes. That's, that's something that people do all the time. I recently did it maybe a few weeks ago. When you bring up a Bitcoin node, one of the first things it does is actually make sure that no coins were created out of turn that all the balances sum up, et cetera, et cetera. The integrity of the financial system is checkable by any participant. And that is really a big, big deal. And the trust element is taken out of the equation. That all important thing that you, that Wall Street demands of you is, doesn't have to be there. You can push those people aside. So, so that's a, that's an interesting factoid. Yeah. There might be people who were, who thought they had money in an exchange and they think they have those coins, but the exchange owners ran away with the money. Sure. but they never had the Bitcoin. That is not, they did, that wasn't their coins. They had claims on coins. And so the denomination isn't BTC. The denomination was an IOU. So they were holding IOUs and the sum of IOUs may not match the sum of BTC, but that's a separate issue. They chose to enter into a different kind of a transaction to hold a different kind of an asset. So okay. So, but what's really going on with Edmund's(Interrupted)

Edmund: 21:56

Sorry, is it okay if I just jump in on this, this particular point before we move on or, or do you want to... yeah, so I completely understand your point. And you're, you're of course, right, of you define owning Bitcoin in this way, you're absolutely right. There's no question. But if you define Bitcoin in this way, holding Bitcoin or owning Bitcoin in this way, then to be fair, we should also define holding Dole shares in this particular way. And at no point did the share register of Dole show additional shareholders. That was not the case. That's why I brought up the example of the custodial chain. Everyone who comes, who comes out now and says, I have Dole shares is somebody who helps us through somebody else for various reasons. And I think it's important to acknowledge that the reasons for which people who hold shares not as direct shareholders on the register but through one or more intermediaries are very closely related to the reason that people decide to hold their Bitcoin on custodial exchanges in some wallet where they don't have full control over the private keys and so on. So these two issues are I think it's not right to compare. Bitcoin ownership defined as having the private keys with Dole share ownership defined as having any sort of claim to the shares. I think that the problem is exactly the same. We have people who are believing...(Interrupted)

Gün: 23:46

I see, I see your point. And let me, let me just mention the one thing that actually I think addresses it, which is yes, you're right. So there are similar kinds of pressures for why people hold their coins on an exchange that goes bankrupt, et cetera. But the bottom line is you could actually use the digital the digital tokens and possess it and you could transfer it across the internet. You could send it across jurisdictions without hindrance. And you could do the things with it that you could not possibly do with a paper stock certificate. So so, so they're not exactly equivalent. And the digital nature of these tokens allows them to be traded exchange at an unprecedented scale and takes away many of the reasons for why you needed those intermediaries in the first place. But I want to get to the core of the argument that you brought up. And, and I agree with you that the first generation of blockchains that people built were extra legal. That is, they created their own set of rules. And, and that set of rules was not a set of rules that, that obeyed any other law in any jurisdiction. So when it's time to take a real world asset and put it on a blockchain, what, what's going on behind the scenes as you rightfully pointed out, is you're going from one jurisdiction, one set of rules that apply to this asset. Let's take some real estate. So I take some real estate that's in say, Brooklyn, New York, I'm going to fractionalize it. There was a set of laws that are associated with that tokenization and suddenly the moment I would put that on a traditional first-generation blockchain, I am taking that asset out of its legal jurisdiction and putting it into a format where only the blockchain rules apply. And that is really a deeply unnerving thing. And that's really why that interface has not been a lucrative one. Now what's going on underneath? What's going on underneath is that these first-generation blockchains have one network and that network only has one set of rules and they are not in line with any other legal framework that we are familiar with. These systems create their own legal frameworks. That's why they attract the libertarian crowd. That's why they attract the anti-authoritarian crowd. That's why the predominant narrative associated with them has been one of anti-establishment, taking down the government, creating a new set of laws, et cetera, et cetera. Because mentally behind the scenes, these people want to take down what exists and come up with some set of algorithmic rules. Now, there are societal good reasons for why the legal frameworks are the way they are. There are good reasons for why we don't allow, for example, terrorists to own real estate in Brooklyn. Like that's just something you are not supposed to do, but you can't enforce That on the Bitcoin blockchain. Now what do you do? And you are 1000% right, Edmund, that those two things don't mix, that those kinds of laws cannot be applied in on those kinds of systems. The only narrative that is available to first-generation blockchains is, well we've got what we've got. It enforces its own laws and we're going to take down the whole world and rebuild it in our image. But this, now going back to Richard's point is not the only way you could actually architect systems. And one of the main things we did at AVA was come up with a new concept that is not found in any other blockchain. It's a very simple concept. I'll describe it to you in one minute and it will be very, very simple to understand why it has tremendous ramifications. And essentially what you can do on AVA is create digital assets but also define the set of properties for the nodes that can participate in that system. So for example, I can say, look, I'm going to fractionalize this real estate. I'm going to put it on a blockchain so everybody can see them. The numbers, everybody can track the transfers, everybody can verify that everything is, is on the up and up. And most importantly I have tremendous reach. Now I can go and sell this thing to anybody I like, but the set of nodes that hold this ledger have to be, and now I get to define whatever it is that they have to be. In this particular case, it might make sense to say the set of nodes that hold these, this ledger are those nodes that comply with OFAC restrictions that if given, for example, a list of terrorists or whatever, like unwanted people who are not supposed to hold a real estate in Brooklyn, that they will undo the ledger appropriately. That is to say we now have the technology to create systems that can enforce jurisdictional legal requirements that can create assets with a legal foundation. So I'm really hopeful about the next wave of systems to come. We are the first one. I'm sure other people will start stealing the idea and start incorporating it in different ways. But the core idea of of these subnetworks subject to legal rules, enforcing legal rules was, is the main thing that actually was the biggest impediment to the deployment of these assets.

Edmund: 29:20

Okay. So I think that's obviously a different approach and it's an interesting approach. My objection would be that, so you define the nodes and then let's say they comply with all their rules, but it turns out that the transaction still should not have gone ahead. Now, if I understand the architecture correctly, there is now a reliance on the participating nodes to rectify and reverse transactions in accordance with the legal rules that apply. Is that correct?

Gün: 30:01

That's correct, yes. Yeah. Okay. So I mean, there's no question that you could, that this is a viable way to address the problems. That's absolutely no question that I, I actually, I think that there are other ways that are perhaps less elegant, but other ways to do that. I think most enterprise blockchains in the end, if you look at them you have a bunch of privileged parties and they don't actually need to promise in any meaningful way that they will do that because if you know who they are, that you can just force them to do whatever is necessary to rectify the ledger.

Edmund: 30:46

Now, this is a viable alternative to just having a trusted party with a database. But if I look at this solution, I do not see the reason why this should be transformative in the sense that it doesn't really allow us to do anything that isn't also available without blockchain that isn't also available in a system, let's say, where you have a trusted party and the trusted party is obliged to publish digital records of their database to ensure that they don't mess around with it. So my concern here is that yes, of course you can do it this way, but if there's nothing in the system that allows you to do something that isn't already available and there needs to be some strong reason, some decent reason why this would now lead to the transformation. So I'm not, my point is not that it's impossible to use of blockchains for these purposes. Of course it's possible. The question is where, where do the efficiency gains come from? Why is that transformative? And that is something that I don't see from this description

Gün: 32:06

That brings us to the age-old question, why use a blockchain? And you are right. So if the entirety of the blockchain value proposition is you can do illegal things with it then I think there is really no, it's not a very interesting thing to work on as an academic. And I would have closed up shop a long time ago. There was much more going on behind the scenes and I will just sort of give you some vignettes. So you mentioned essentially your point comes down to, look, I could do this with a centralized database and one person would be in charge of that database and they could do everything that the blockchain does. You know, and functionally, yeah, a blockchain is just a ledger and instead of having a decentralized ledger, you could have a centralized ledger. So what is the value of decentralization and why is that transformative? So take for example, any domain name, you know, food.com, you know, JoeSchmo.com, whatever else, you know, any of those work.org et cetera. The going price for any.com name these days is about$9 a year. And the actual cost of providing the name service is about a fraction of a cent. Now, why are you paying about 10 bucks a year? Well, it's because there is a single trusted entity that keeps track of that silly ledger. That's the sole reason. It's because you appointed a person and he became king and he figured out that this is lucrative and now he's charging you an arm and a leg. And these natural monopolies arise everywhere. Our lives are run by natural monopolies. Everything we consume, the thoughts we have been planted thereby say, you know, look at the, the discourse online. It's dominated by a couple of social media companies. They change a few algorithms. They feed us what to think. So look at, look at any aspect of humanity. It is essentially overridden by people in charge who have cornered these very lucrative places in the, sort of the metaphorical Bazaar. And they're not going to move. They're not going to let the small small entities come up at all. And and they collect rent from where they are. So the, the value of decentralization is it opens the field to competition. It allows people to have to compete on an equal footing to provide the same service. So I know how to, for example, create a name service is fairly straightforward and in fact, the Etherium named service is fantastic. It's, it's open, it's decentralized. There is nobody in charge. And the cost of owning a name is indeed a fraction of what you pay to. One of these natural monopolies. So I urge you to apply this thinking to just about every other aspect where you think, Oh, Hey, I'm really happy with this. This monopolist, name me a monopolist that you are actually really happy with. Right? Are you happy with your cable provider? Are you happy with your internet provider? And these are all people who essentially give you very little and over time they play this game with you of upping your your monthly fees until you start to complain. This is sort of the common thing. It's become normal and accepted in, in, especially in American discourse that, that companies will do this, that they will do things at any cost for profit. In fact, people don't even question that. It's okay, I can just defend anything a company does by saying, Oh well they have a responsibility to their shareholders, you know, then the consequences, the environment; and then it was like, it was possible to do and I made more money doing it and therefore I did it. It's actually a perfectly legitimate way of defending anything a company has ever done. Now to flip it allows us to have both the competition that I mentioned and also the last thing that I brought up, which is that constraint on what I can do while I provide a service is essential. For example, a social media company should not be able to take my data and leak it to other parties. I would love to be able to contractually enforced this, but I can't, not with the current technology, they require trust. I give them information than they do whatever they want with it. So it's that that changes the entirety of the picture. That's it's that reason that makes this technology so transformative.

Edmund: 36:16

Yeah. So I think there are indeed cases where you have a purely digital exchange between people where this is where it's imaginable that shaking up the market. And I would argue shaking up the market in any way could provide benefits to consumers. But when I think about natural monopolies and that you mentioned broadband or cable companies I'm not sure I see how a blockchain solution would change the fact that you have physical infrastructure that is clearly operating in the space of, of natural monopoly. And so in this case, whether or not you use a blockchain, you would still have a situation where somebody has to own this infrastructures and people who own these infrastructure would still be able to exercise power. So I think it's a bit the same is true. I don't know for airline travel or something like that. So I don't see how you would, if you go to the kind of, the typical examples for natural monopolies, I don't see how you introduce competition by, by putting anything, they're really on a blockchain.

Gün: 37:42

So, okay. That's an interesting point. And I, you know, after I gave the example, I thought, well, you know, that's actually a, that's hard to describe how one would actually make things better. But let me do it. It's very easy. Go to AT&T. What AT&T does today is it actually pays a very, very, very tiny amounts of tax in the U S what they do is they have their logo designed by a foreign holding company in the Cayman, I believe. And they pay a hefty sum for for licensing. That logo. It's on every receipt they sell, every invoice they send, it's on everything, you know, it's on potholes and so forth. So for all of those users, the money leaves the US and goes overseas and I don't know what happens to it afterward. I would love for us to be able to say, look, you operate in the U.S., here's where that money can go. Or I would love for us to be able to say, look, all of the money I paid to AT&T, I'd like to ensure that a particular percentage goes to this, that, and the other two rural access to city access to to whatever else and and to constrain what they do with that money. And and so instead we have the system that we have today. So I'm not sure that that would save, you know, I don't know how much money that would save. I'm not capable of computing that, but you know, what it would do, it would at least give me some level of assurance as I sleep at night that I'm not just pouring my money into a bottomless hole. You know, just essentially manned by a couple of MBAs who have found out some narratives with which to build money out of out of middle America. So that's, I think that's, that was one of the harder ones. The others I think you would agree are very straightforward, right? The name servers, the name registers of the world, the other intermediaries of the world, who essentially don't provide much value and yet command quite a bit, quite a bit of rent.

Edmund: 39:42

Yeah. So, I mean, with the other use cases, in my paper I say, you know, I have nothing to say about what I call"naked blockchains" where whatever you interact or whatever you transact about on the blockchain is a digital asset, a natively digital asset. And I think that's true for blockchain and for, for, for Bitcoin and all other cryptocurrencies. And I think it could be argued that, that there are other use cases in a purely digital atmosphere. But what, when I look at, you know, the example with AT&T channeling money to save tax and more broadly kind of natural monopolies, we do try to regulate natural monopolies. The problem is that lawyers, who, you know, if you pay a lawyer 1000 bucks an hour, they can get really creative sometimes. And so I worry that, so if I think about any algorithmic solution to that I just don't see why that would be successful. If you know natural language documents that we've been drawing up for decades always contain loopholes and are never solutions to any of the examples you mentioned. And so yes, you can have some constraints on where, where money goes, but there are natural limitations to that and these natural limitations in addition to, of course, very strong political factors. The explanation for the system we have, I don't think it's lack of transparency in the US the IRS or you know, tax authorities all over the world state to understand that, have ways of finding out where money goes. And at the moment they are very big projects on the way to kind of limit the sort of practices you just mentioned, how successful that will be. Nobody knows. Most likely there will be other loopholes. And also, you know, the fact is that very often the money doesn't actually leave the jurisdiction in any physical sense. It's just basically in accounting you could say an accounting trick. And, and so, you know, when you, when you mentioned tax avoidance as an example, I just, I have problems seeing how I'm making the system more formal and more rigid would actually make it in any way more robust. Our experience in tax lower but also in other areas of law is that the addition of rules leads to an addition of, of loopholes. And I think the same is true for increasing the formal nature of an obligation.

Gün: 43:01

So surely we can agree that automated processes have much, much less variance than human backed ones. So take for example, any, any manufacturing process you know, if it's run by a person that's going to have a lot of variance due to innate features of people and the moment you automated, I think this lies at the core of Western civilization. You go to a different playing field. That's what smart contracts do. Am I saying that they are a panacea? They can fix any problem? No, absolutely not. Am I saying that they will do away with the need for oracles? The need for interfacing with the outside world? No, they're not going to do that. You will always need it's going to create a new a new series of tasks and you need to do sets of jobs for people. But but at the bottom of it, all the automation is, is quite capable of reducing variance of enforcing compliance and and keeping, making sure that the counterparty to transaction stays within the bounds that you've established for them.

Edmund: 44:07

Yeah. No, and I agree. I just don't think that this is unique to smart contracts. So an example that I use is in London. If you go to the tube if you take public transport of any sort you, you just use the oyster card, whatever, I'm sure wherever you are, more or less the same. And so if you look at it the system through the eyes of the lawyer, you would say, so here's an agreement I have with the public transport company and it's a very complex agreement. If you actually think about each and every corner case, but 99.9% of the interactions of any user with the system. They're Simple. If somebody who wants to, you know, ride the underground and wants to pay for it. And so you can automate these parts. And by and large, we've done this, we've done this in public transport, whether you have some physical access. We have done this in many, many other respective, I subscribed to, I don't know, the Washington post online now, then I get immediate access and I'm sure that no human will interact with me in the whole process. And there's no question that this is extremely valuable and useful. It's not clear to me why decentralization is a necessary ingredient in that in order to get the kinds of efficiency advantages that we are looking for.

Gün: 45:49

Right. So I think all the examples you mentioned are are pairwise examples. I think at the core of it's all, I think you're very, very loudly agreeing with the point that automation is great. So that's good. You, you are no Luddite and I appreciate that very much. So what's really going on with the examples you gave though are all pairwise. There is a, there is somebody who is subservient and there is somebody in a position to provide a service and that's what's going on between them. And in distributed systems we refer to this as a client server architecture. This is something that that hit big time in 1993 with the web. The web is based entirely on a client server architecture, the Washington post and the reader is a client and a server. The oyster card user and the London underground, again, a user and the service provider what blockchains allow us to do is allow us to disintermediate multi-party interactions where any of the parties can misbehave. So with that, it's something we did not have before. And it's again hard to predict exactly what it's going to disrupt and how much and so forth. But it is an entirely and qualitatively a different thing. So I can, I can keep records and I can show them to you and you can say, look, that's a client server or a peer to or one to one interaction, but not only that, but you could then turn around and show my records to a third party. And and for example, in finance as you know, there's hypothecation so you can hypothecate. You can, there are a bunch of things one could do with a ledger that are not possible with with the sort of client server mechanisms that don't require trust. So trustless sharing of data is at the root of a lot of agreement problems is that the root of a lot of financial engineering and that gives us a, that is something that that blockchains give us and that elevates us to a different playing field.

Richard: 47:52

Okay, great. Sorry to interject. Obviously very strong points. You guys have basically captured most of the questions I actually wanted to ask in this round. But Edmund, feel free to follow up with Gün. Didn't mean to really interrupt, but I would also like you to talk a little bit more about smart contracts. I know you touched upon it a little bit towards the end of that thread of discussion. So in your paper"Cloud Crypto Land," you discuss two legal problems with replacing legal contracts with smart contracts, one being smart contracts not legally enforceable in some cases like fraud, the other being smart contracts not covering the entirety of all possible scenarios, legal contracts being extremely complex to be replicated in computer code. So feel free to elaborate on that point in addition to whatever you are going to say to Gün next.

Edmund: 48:35

Yeah, so I mean, on the smart contract point if I can just use the example with you know, access to public transport again. So I would say if you look at my relationship between me and traffic for London or whatever you provider is, has a kind of engineering problem. You have very, very rapidly decreasing marginal returns to your engineering efforts. You can very quickly and easily encode, large majority of everything that is going on. And there are good reasons to go a bit further than, you know, just the absolute minimum. And so you can have, you know, refunds, automatic refunds if something is wrong with the train and so on and so on. But the relationship between me and the service provider is far more complex. If, you know, the one in a million case happens where I don't know somebody off the staff starts hitting me or whatever it is. Right? That there are other cases that are so rare that from, I would argue from an engineering standpoint even if you were to assume that it is possible, it's certainly not economical to try and solve them in code. And so the kind of the incompleteness of these arrangements means that in order to move to a world where smart contracts actually encapsulate everything of the agreement, this is, would require, even though I would argue it's impossible. But even if you were to say that it's possible, it's just not, not worth doing. And so I appreciate a gun's comment about the client server model. I would, I would say you should keep in mind that the vast majority of transactions between two parties and are broadly compatible with this description. It's true. There are other more complex exchanges. The question for me here is how often do we have these multi-party complex legal relationships that happen in a space where people have reason to really distrust each other. And I think that it's relatively relatively rare. I think it's useful to try and actually use examples here. And when I think about a smart contract I've kind of challenged people in, in this space to give me an example where they think, okay, we can actually do something algorithmically. That happens in the real world where we can expect some sort of efficiency improvements. And I have yet to hear a really good example here. So you know, people, I've, I've read documentation for instance, of a blockchain bonds that somebody issued. And this documentation makes absolutely clear that there's at least the new way it was implemented. There's absolutely nothing to be gained from that because you can't really constrain what somebody does with the proceeds of a bond in a way that goes beyond the most basic fraud cases. If you lend money to somebody, they will invest it. And there are certain ways for you to check how good the investment is. But I think it did take some logical possibilities of constraining meaningfully. What I do with a million pounds that you invest or lend to me are just very, very limited. And so from that perspective alone, I would say no, no prospect of, of this kind of taking, taking off in, in this financial view. And then the other point you, you mentioned this, that, you know, the smart contracts can be, will not be enforceable and that is basically an unsolvable problem in a fully decentralized service. But I appreciate what Gün said earlier, the example is the kind of infamous five pounds rents that I use to make you sign a transaction that you don't want to sign. And then the question is what happens if the blockchain says this is now mine? And the law says it's not mine. And I appreciate that Gün would say, this system will only allow a limited number of trusted nodes. And these trusted nodes, when they hear about what happens or perhaps once they have a binding core decision that somehow confirms that I was forced to sign a transaction, they will then reverse. But the question this raises for me is, can we then still say that this is trustless because we would then have a system of these trusted nodes and we need those trusted nodes. That is true for property transactions as well as for, for, for smart contract. And if those trusted nodes don't do what we want them to do or what we expect them to do, there is really nothing, nothing much that we could do. So if I go back to the very beginning where Gün mentioned, you know, a situation where the state does this and that I think the, the examples you used were about devaluation of money, but if we kind of translate that into the smart contract or digital or tokenized asset field, you know, if, if, if the state just says this house is no longer yours I'm taking it from you that there are basically two problems, right? If first of all, the state probably doesn't even need to care as much about what the blockchain says in this case, they will just come and take you out to the house and then it's no longer yours. And the second is that if you, if you rely on those trusted nodes and those trusted nodes can also be coerced by the state in the same way that that it always goes. So I'm not sure I, I understand, see the solution here really.

Gün: 55:42

Okay. Well let me start with the, with the interesting points that you made about real contracts versus smart contracts. I think my, my colleague Karen Levy at Cornell has a very nice paper on the, on the differences on the things that people do with real contracts that smart contracts won't admit. And so one of the things that people do all the time is they have not legally enforceable clauses. So you have, you put something into a contract, you know that it's not exactly right, but you do it to set the norms, to set the expectations. And so this happens and and you know what, it's hard to convert the smart contract territory. People, things in real contracts like use purposefully vague language to try to cover more than than than what they would cover if they were to write everything and code everything in code. So that happens all the time in contracts and we, we refer to arbitration or we refer to the court system to resolve things. And the third and final thing that people do is there are enforceable breaches of contract quite often that people don't pursue. And smart contracts are typically going to have automatic measures where they penalize you just that in the very first instance of a breach. So these things happen all the time. And so you are exactly right that the legal system is you know, there's so much leeway in it because it's based on these soft measures. It's based on language and it's based on soft enforcement via humans and it's, and that meets space is very, very different from the hard reality of code. And so what's going to happen? Well, I think if your point is, well, we can't encode everything as a smart contract. I agree with you. Yeah, we cannot and we should not, we shouldn't even try. That's not where the value is going to be. The 99% of interactions that we do want to cover are not one of these three categories. And I believe that they are fairly straightforward and token in tokenizing real world assets in, in increasing their reach, in being able to create assets here and open them up to different markets around the world to different people. We have a tremendous opportunity. I encourage all the listeners to check out, for example, these applications like there's one called Numerai it's an interesting blockchain application where they use machine learning. They get, they get the users to participate in the machine learning experiment from around the world. And all these high schoolers from Eastern Europe are apparently participating in this this this machine learning experiment trying to win trying to make some money along the way. And then, it opens up a, a set of opportunities to a set of people who are essentially cast out of the system. They're capable, they're just not able to penetrate. And suddenly this is an even playing field and all of a sudden they're, they're running strategies against against wall street assets you know, on, on a, on an equal footing with what the JPMs and the Goldman Sachs of the world. So that's an amazing thing to do. And yes, there will be these things that we can't do. And that's okay. We're not trying to be a 100% replacement for what exists. It's going to be something that is essentially the first step replacement for the vast majority of the straightforward cases. So how often you asked is, is it a problem that you have multi-party transactions where the parties don't trust each other? I would say all the time, all of finance is exactly this, almost all of it. So know I don't know where to begin, but start with an options contract. Start with anything really. And collateral, collateralized debt obligations. Just take a look at any, any older financial instrument and you will see so many parties that it's actually hard to keep track of how many of them there are. That's the kind of thing machines are fantastic for. And that is the kind of thing that, that we built AVA for. Now. I don't want people to get the wrong idea about AVA, so I want to spend maybe half a minute describing the platform. It's it's a blockchain platform with its own set of rules, just like every other blockchain. And that is for the AVA tokens. But it allows people to create their own tokens on top for digitizing real world assets. So you can create your own token, whether it's in a collateralized debt, whether it's a fractionalized real estate income sharing agreements or something fancier, whatever it might be. And to, to have that those those new instruments that you created be tradable by anybody. So, and then in defining that instrument, you define the, the realm it lives in the sub-network that it lives in. And and so all, it's only those instruments that are subject to whatever rules you make up. Now you don't have to necessarily, you don't have to make the rules immutable. You can say something like, well, I'm you know, you can say things like in the, my nodes have additional features and resources. This has been a big problem in crypto circles where you have a single network. Every node has to have the same resources and therefore it's kinda hard to scale the network and network up. But but in AVA you can create a sub, you can create tokens on sub networks and create sub-networks with additional resource requirements that can achieve way higher performance in the base network. Or you can create a sub networks that enforce blacklists, white lists that require bonds and so forth. And these tend to go towards the legal compliance requirements, compliance requirements of certain tokens that that are required in certain domains. So what's that to say? This is, that's to say that there is a new generation of systems coming in. We saw the first generation, they typically were just money and they typically were were extra legal. They, they only held their own rules. And we're now seeing a new generation come in and we're going to see them take a bite into the simple cases. It's not going to be 100%, but I, we shouldn't be nihilists where if it's not 100%, it's a fail. It's not. I think that the vast majority of interactions are fairly straight forward and we can create these fungible really exciting tokens that can be traded around the world, that can be opened up and we can set up so all of a sudden have great reach for our markets. We can have much more liquidity and we can bring finance into people who most deserve it. Professors, this is fascinating. Unfortunately, in the interest of time we need to move on, but before we move to the next segment with audience, I just have one last question. This is for both of you. This is in relation to some recent developments in the industry. So first of all, the state of Illinois has signed into law the affirmation of smart contracts as legally enforceable, at least to my non-lawyer-y eyes. That's what it reads. I'd love to get your opinion on that development. And then the second piece is tokenization that the NBA contract by this NBA player where basically a year or two out of his annual salaries is now getting securitized and it will be issued via some public blockchain where the holders will be entitled to distribution of his proceeds in the years to come. So in regards to these two pieces of development, what are your thoughts, hype, real progress or just something for show? Oh, I think I'll jump in. And I think the Illinois development is fantastic. I think all I'm very proud of what has happened in the US by the way, the regulators have typically taken a very light stance when it comes to regulating this, this originally industry. I think they realize unlike many other regulators and quite a few advanced countries, they realize that it cannot be stopped. That's the nature of this technology that there is really nobody to serve the subpoena to. So so because it cannot be stopped they have taken the right approach of of of, of taking a light light handed approach. And so it's fantastic that we're seeing better integration of blockchain technologies with the legal system as we have it now. And income sharing agreements are something that I'm really, really excited about. So the NBA case is fantastic. It's going to pave the way for a lot more to come in the same fashion. I think a big problem in the US is financing of education. A lot of people end up, ended up leaving college with enormous debt. And I, I see two possibilities. One of them is to go towards Europe and to a more socialized state and and without judging, I think I don't see that happening in the US it's like the current narrative. The zeitgeist does not seem to be in that going in that direction. And so then if that's something you can't have, then what are we going to do? Well, this is a very creative finance, finance financing technique and it doesn't just apply to ISS. One could fractionalize any old thing. So you know, if anybody needs to raise money for any purpose then these assets, these digital assets allow one to do that fundraise across the globe. You do not need special reach. In some fashion, if the right way to think of a blockchain here is a, is a rendezvous mechanism. It's a global bulletin board through which people can interact and exchange value. And so that opens up really exciting opportunities for the future.

Edmund: 1:05:08

Okay. So unsurprisingly, I have a slightly different view on that. So first on the Illinois statute, I did look at it. My assessment is that there is nothing interesting in there because what it clarifies is that a smart contract is not invalid because it's a smart contract. What it doesn't do is address any of the problems with enforceability of blockchain based smart contracts that are more fundamental about enforceability. You prove, you know, fraud and duress and a lack of capacity and so on. So this doesn't really change much. And if you look at other jurisdictions it's not really a pressing question whether or not you can agree to something digitally. You know, digital signatures have been around for a long time and have been recognized by many jurisdictions for a long time. I don't have read the legislation, I don't think that there's this really much, much in there. The same is true. Liechtenstein also did that for instance, they changed their core private law document to endorse to a certain extent blockchain transactions. But they also make clear that this is really just about making sure that a transaction is not invalid because it's on the blockchain. A little, little beyond that now on, on the NBA example and, and income sharing, I actually, I came across this years ago when I talked to, to, to, to a friend who had somebody proposed something similar to that. Basically finance students who would sell off their future future income. And of course, I mean the problem with that does help with, I don't think it has much to do with blockchain. As, as such. The problem with these agreements is moral hazard and that was selection. Perhaps in the case of a famous NBA player both these factors are less relevant when it comes to applying this more broadly. I think these two factors that once you sold off part of your future income, this necessarily dilutes your incentive. So you have this moral hazard point. But also we have to focus on a use case where it's not so clear what the quality for you will receive some signal about the quality of the person selling their future income. But this will not be perfect information because I think no matter what you think about our current system, if you have perfect information about these future income streams, I think there's no question that you could monetize this as things stand. And so I don't, I don't see selling of future income as economically, economically viable on a, on a larger scale. So I, I'm fairly fairly doubtful about that.

Gün: 1:08:44

So I want to follow up on that a little bit. Not because I'm an expert or anything, but just just, just my own observations. There are a couple of things that are fairly straightforward I think to see here. Yes, you make very, very valid points. You are right, there is moral hazard involved. I would worry a little bit about people making decisions early on in their lives that affect them for years to come afterwards. And how we prepare them for that decision. I mean that was, those are all issues that are in the back of my mind. On the other hand, of course, people make these decisions even now, they, they become indebted when they go under. That's that they cannot pay back later. And in fact, even bankruptcy cannot save you from some of these debts, but but deep down there's a very simple mechanism for dealing with these things, which is you batch them. So we deal with this all the time. In finance. You pool these these income sharing agreements into larger instruments and yes, you're right. Some pay less, some pay more. But but you can actually do actuarial odds on exactly what you will get paid back and then you can come up with a fair market price for these assets. So I think that's a, that's pretty interesting. And if there's one thing I have learned, so my company recently moved to Brooklyn about maybe nine, nine months ago. We've been talking to wall street about different kinds of digital digital assets, digital tokens and so forth. If there's one thing I've learned through this, it is, if you come up with, with with liquid financial instruments, people are, or they jump into trade it. Wall Street is there to trade it right up ahead of them. And and they're very eager to, to provide to, to be part of the market. And and that I think is a, is a source of financing for a set of people who would otherwise not be able to, to raise money. And so I'm excited about that. I think we can you know, we can do away with the traditional forms of, you know, tax and spend and replace it with more creative ways of financing such as such as ISS income sharing agreements.

Edmund: 1:10:48

You know, listening to the income sharing in case I think it's also a good example for what I mean with the incompleteness of any algorithmic solution to that. I mean, you have an NBA player, and even if you ignore the moral hazard and adverse election problems and I accepted, maybe they're not as important here. I don't think there is a good way of capturing all income of this player in a formal code language because there will be a lot of questions about what counts as income. What if, I don't know the brother of the NBA player gets a job for an ad agency that's probably not income. What about sponsorship deals that can be, you know, linked to investment in some other ventures that the basketball players involved in and so on and so on. For all these questions, I think you would still need the traditional legal means. Just to pick up on the point you made earlier, I'm not saying if we don't get to 100%, let's do 0%. It's all useless. What I'm saying is if you don't get to 100%, then you need a backstop. And this backstop looks exactly like all the mechanisms we already have and these backstops will involve trust and they pose much of the same risks. So covering 99% in a decentralized way and having 1% covered in some version of a centralized way, I believe is not, it does not offer the kind of dramatic improvements that people is humid was compared to the case where the backstop takes up a bigger space.

Gün: 1:12:52

So yeah, I agree. I think you're right. That there will always be problems at the interface. So capturing all income flows is, is difficult. Yeah. You are absolutely 100%. Right. so what's going to happen? Well in the short term, there will be people, who you know, perhaps sell things and then, you know, work around the rules and so forth. But eventually we will get in the kinds of systems, that are required to audit these things. So I can imagine that in the case of ISA are there are different ways of post facto all the thing when you know, when, if enough of the shareholders of the ISA raise issues, then you can hold it, this expenditures of the person. So I mean they're there constantly and other things I'm sure like the pros will come up with the, you know, the accountants will come up with much better solutions than I can on the fly here. But the infrastructure is required. Is it's workable. It's possible. So this is kinda like in the early days of aviation pointing out that, you know, planes are kind of clunky and weird and yeah, they are clunky and weird or they were, and they never will replace the horse or the car and whatever. But but but on the other hand you know, they, they are legitimate industry, with a huge, huge future ahead of them. And I'm in only a few percent of the trillions of dollars that are currently sitting on people's balance sheets could be in digital form. I think we would begin to see enormous advantages.

Edmund: 1:14:28

Yeah. I mean, I think I would say about the airline case that if I, even if I look back at the early days of aviation, if somebody tells me, well, this is risky and what not, I would say, yeah, but I can cross the Atlantic in, I dunno, 14 hours and you, you, your horse can't do that and your ship can't do that. So I think that's what I'm looking for. The kind of the killer argument where you say, here's something that you cannot do in other ways. And so please ignore kind of our, our starting problems here because ultimately, you know, he has the vision. I can do something that you cannot do otherwise.

Gün: 1:15:12

So yeah, I hear you. I hear you. And that this is the hunt for the killer app. And so let's rewind back to the early days of the web. What's the web killer app? What's the Internet's killer app? And I saw so many colleagues. I was there in the early days when the internet- Internet's been around far longer than I have. But when it started to go mainstream everyone was looking for that killer app. While it turns out the killer apps are quite prosaic, they're quite boring. Email was the initial killer app. Then the web was a big killer app and then various different kinds of services was a killer app. I mean, it became an enabler. So it's so pervasive now. I don't even know what the name is, the internet and the Internet's main use right now. It's so, so critical. And the same I think is going to happen with blockchains. We're going to see platforms emerge that can support a wide variety of activities and the boring ones are going to be the initial cases. I think we named quite a few of them during this conversation and you can say, yeah, but what about this, that and the other? So to fast forward umpteen years and you can pick issues with them. But I think there's, there's always a big value proposition behind the scenes which is greater reach, greater liquidity, much less friction opening up of of fields to competition providing assurance to, to people at home and allowing them to participate in the financial system firsthand. So you combine those things into a big mix and and what comes out I think is a much, much better outcome than what we have today.

Richard: 1:16:44

Okay. Professors, I'd like to move on to audience questions. This will be the last round and we do have quite a few questions. So in the interest of time, I will merge two questions into one. And both of the debaters can address this question. So this is from Cryptofan and Youngbitness. And the question is what are your thoughts on NFTs, or non fungible tokens for digital collectibles? Is that a good use? And then separately, some crypto projects have come up with ideas of city tokens that keep consumptions in local bounds to help small businesses. So these would be city tokens that have limited amount that in some cases would track the value of Fiat, but they can only be used within local bounds. Your thoughts on this idea? Does it make sense to tokenize?

Gün: 1:17:32

So I love NFTs- NFTs are non fungible tokens for people listening at home and they they range quite a bit. I think the one of the early ones was something called rare pepes. And I was in the very first series, so they printed 25 of them. And and one of them was Satoshi Nakamoto. One of them was me. I think they were mocking me, but I love it. I absolutely still love it, they're fantastic. I grew up in an era where we collected these playing cards and it's kinda like that they're collectibles. And so where do I see NFTs going? So NFTs are as collectibles. They're really fun and interesting. But on AVA, we are building NFTs that serve as credentials. So imagine that you hold an NFT that says I'm an Ave employee and it's got your picture on it. It's a non fungible token. It attests to the fact that you're an employee and and suddenly that NFT is actually a key. It can open the door for you, literally. So that's an amazing thing to be able to do. And so we're turning to make the the user experience around the NFTs is much more fluid and I'm really, really excited about their potential. The second question goes right to my heart, which is local currencies. So I spent quite a bit of time at Cornell. Obviously I am, I was a professor at Cornell. I'm on leave from Cornell right now. And Cornell is in Ithaca, New York, and Ithaca New York was the site of the world's first local currency, something called an Ithaca Hour. And these things are fantastic because they allow a local community to define their own currency and to ensure that that currency circulates in the local fashion within the local geographic region. It has been news that there are many hundreds of local currencies by now. They have been used all around the globe. Some of the more successful ones are in Italy. And I know a little bit about those deployments where it brought a lot of economic activity to the region because you know, the, there are a whole bunch of advantages to to holding these local currencies that essentially the value does not leak out of the community. So both of them are very exciting and and on the AVA platform, we are trying to enable anybody to be able to create you know, creative things like this. You want to create a series of NFTs. That's definitely one of the use cases. You want to issue your own local currency. That's a fantastic use case. I would love to encourage anybody who wants to do this. Anything that makes a human life better is a fantastic application of blockchains.

Edmund: 1:20:20

Yeah. So I completely agree, actually, with Gün on non-fungible tokens. When I first read about crypto kitties which presumably also kind of fall into this category, I think. Yeah, that is fun. And I can see in this particular case how this could be an application where blockchain has something to offer cannot be replicated in the traditional world. Because if you were to try to do that, you would then have to rely on a certain company being around. And I don't know if you play some video game, I don't know if you have world of Warcraft I don't know. Some digital assets there. And obviously this can all change with the value of it can change because they can just assume more swords or whatever it is. And so I, I agree. And that's actually quite, quite an interesting case. On, on local currencies, I'm a bit more skeptical. I think there are cases where local currencies can serve some purpose. Ultimately, I think the idea that you can have widespread use of local currencies just ignores the economic fact of the benefits to trade. And so the local currencies that do exist, they are often a way to encourage, for instance, tourists and others to spend money locally to create these soft incentives. But ultimately, if I have a local currency and I want to buy a coffee with my local currency the value as well as expressive value has to leak out in the sense that they need to buy the coffee beans and, and so on. So there will be some interface. It can serve some useful purpose in some cases, I think in some limited cases. But, but I don't think this is a case for widespread adoption is, is likely.

Gün: 1:22:32

Yeah, I agree. I don't think this is a case for widespread adoption. But typically was another thing I should mention is the people who tend to like local currencies tend to be people after my own heart. People who want to do something for their community something that they want. They want to reach an audience. They want to allow people to be included in the financial system. And and if, if we at AVA can help them, I would be delighted to help them. That's a fantastic use of, of this new tech. Even if it's not a big money making proposition, even though obviously it's not going to be, but I think it's a worthy endeavor.

Richard: 1:23:10

Great. Thank you both for offering us so much insight in the preceding debate. Now we're nearing the end. I would love to hear concluding remarks from both debaters starting with Edmund. And in particular, I'm hoping that the debater would mention one thing or two that you found that you learned from your opponent, if any.

Edmund: 1:23:31

I really enjoyed this and I have to say I've had discussions with many blockchain fans and blockchain experts and people working in the industry. And I was particularly delighted to to see somebody who is like good news willing to kind of engage with, with these, with these arguments and acknowledges some of the, the limitations. And I, I really liked the point about about natural monopolies and, and rent extraction. Even though I've, I think I would have to do a bit more thinking about with, with this scenario actually has its limits. Overall I think my, my general gut feeling remains unchanged in that I think all solutions to the problems that I see from a legal perspective. They always reintroduce central pain. They re-centralize or reintroduce trust in some way. And that's not surprising from my point of view. It's not surprising because we say there's the rule of law and the rule of law simply means that we have a hierarchy. We have a hierarchy where the loo is above everything else. And so if we live in this world that has this hierarchy, any useful system that we want to use also has to respect this hierarchy. And because we are in this world where we have to respect this hierarchy, I think the technological solutions that are enabled by blockchain, they run in, they always run into the same problem. They run into the problem that this complete trustless Snus cannot, cannot be applied to the bitter end. So you can't get to 100%. And as I said earlier, I think if you can't get to 100% and you have this small backdoor that looks very much like the traditional system, that this is undermining the value proposition. I also think that if you look at people proposing blockchain solutions more generally very often there is a lack of understanding of why we do things in the terribly inefficient ways that everyone knows we do them in. And often there are reasons that may not be entirely obvious. And I think there are examples for that in the blockchain space where many projects start with bold claims about decentralization and disruption. And then you let them run for a few for a few years and they rebuild the system we already have. And I mentioned before custodial exchanges and how many people have an intermediated relationship with what is supposed to be a public blockchain. And so I, I discussed that a bit in a paper and I, I call this the kind of the junior, the junior business consultant fallacy that you look at the system that has evolved and has been kind of cobbled together over decades or sometimes centuries. And you look there and he said, well, you're all stupid. That's, it can be done much easier. And that's always true, but in order for this to work, you would need the coordinated efforts of many, many players who don't necessarily want to collaborate. And that is the real inhibitor of change. And I don't think that there's currently any indication that blockchain can meaningfully alter this.

Richard: 1:27:28

Okay. Thank you Edmund. Now Gün?

Gün: 1:27:31

So yeah, I too would like to thank Edmund for his incredibly insightful, very cogently stated arguments about the, the challenges facing the space. And I share skepticism in many ways and learned quite a bit. Especially the, in his closing arguments, you mentioned the junior business consultant syndrome or the fallacy that that's, that's certainly something I'm going to take away with me. And so let's see. There's quite a bit of merit to a lot of the points you brought up. The the blockchain revolution is not a cure all, it's not going to, you know, tomorrow replace the dominance of the United States dollar at least. I don't think it will. It's definitely not going to you know, put a Goldman Sachs out of business tomorrow. It's not going to put SwissRe out of the insurance business today after that this is, it's going to take time. But I believe it will happen. The problems that that people often cite with blockchains tend to be problems with the first generation and they tend to be problems at either the political level or the performance level. So I mentioned the political problems before because these blockchains enforce only their own rules and nothing else. Then they are not compatible with any legal system and therefore they cannot coexist. And therein lies the tension. Then you get into a spiral where you attract the extreme, take down the state types and then suddenly you have something that is not going to mix with any of the things we have and you have to reinvent them from scratch. And so, so Edmund is exactly right that we've seen this happen. And in parallel, let me add to his argument, the technical limitations of these platforms have also forced us to do things that stray from the narrative because the first generation blockchains are so slow. Then suddenly people are holding their tokens on exchanges. Exchanges have become the de facto layer twos that we have. Don't work all that well. They have very limited capacity. They have terrible privacy concerns associated with them and therefore people hold their money on Binance or what have you or, or on other exchanges that are even more questionable and they're subject to theft loss. And they have reinvented a trusted system just like the one that, that used to be there in the first place. So that's, that's all correct. But I alluded to the system that we're building that has an entirely different model. It creates an entirely different set of emergent networks and also it has different technological performance wise properties. It can transact so fast with such latency that it can be an everyday payment system as well. And the fact that you can partition these sub networks, you can have a payment system for everyday payments and you can have other systems for, you know, let's say real estate for other kinds of assets and so forth. So so, so he's right, we should not be trying to duplicate what we have and he's, and Edmund didn't make this, but let me argue on, on the other side as well a little bit. The intermediaries, he's exactly right. The intermediaries do bring value. The people who want to take it all down and recreate it from scratch are typically just people who are talking their own book that they would just want to recreate what existed except with the old guys pushed out and them in place in their place. So we saw a similar thing with the web and when people were creating these dot-coms disintermediation was in the air and people wanted to do everything that existed but on the internet and, and without an intermediary and often in doing so, they forgot why the intermediary is there. The intermediaries other than providing some kind of an obvious service to you typically provide a whole slew of things that, that you just, you can't easily replicate. For example, Amazon seems to sell stuff, but what they really do is they, if you could just as well buy those things from China yourself, but you don't know which of the many manufacturers in China to buy it from. They do a reputation game in the back end that you and I would, would be hard pressed to replicate. The, a lot of financial intermediary, stakeholder and risks and, and smooth out a lot of transactions behind the scenes. They provide invisible but crucial value. So I suspect going forward, we're going to always see the crazies, right? We're going to see people say, Oh, blockchain fixes everything. It cured cancer. It's going to take down the state, put an end to wars and so forth. So that's, I don't think that's going to happen. And, and we're also going to see people who valiantly try to replace Fiat and I don't think we're going to be able to do that, at least in the short term and medium and long. I don't know. It's up for grabs. But I think that the projects that, and then there will be some projects that never go away, but Bitcoin is going to be around. I don't know what's going to happen to it. At the technical level, as the incentives will dwindle down, as the number of coins that are in people's hands go up. And the coins that are being minted goes down. I'm not sure if it's a viable system. But the projects that, that I think jump ahead of the queue here are going to be those projects that understand what the legal, current, current legal infrastructure is like, what the current financial infrastructure is like and are able to coexist with it. And and they are going to also be the projects that are able to identify what the intermediaries do and accommodate them in this new universe where where things are much more auditable, much more transparent and much more incontrovertible. So with that said, I'm not going to repeat my previously stated optimism. I believe that this space is, is poised to take off. And we saw the dream, we saw the hope, the hype that goes with it and we saw of course the scams that come along with it. But I believe that we now possess the right technologies and the right infrastructure to tackle the challenges that lie ahead, that my opponent has so, so gracefully laid out for us. So thank you all for listening.

Richard: 1:34:03

Well, Gün and Edmund, thank you so much for participating in today's debate. You've definitely given us much to think about. A central part of the debate is whether the world as depicted on blockchain, can mirror that in the real world; and after adding various features into the system to ensure that's the case, are you left with a system that still boasts of all the benefits of the blockchain? And is there something to be said about the current state of the tech not doing this job right and therefore further perfections can be brought about with future development. Thanks to Gün and Edmund for providing arguments for both sides to illuminate us. So listeners, we would love to hear from you and to have you join the debate via Twitter. Definitely vote in the post-debate poll. Feel free to leave your comments. We look forward to seeing you in future episodes of The Blockchain Debate Podcast. Consensus optional, proof of thought required.