1 00:00:00,410 --> 00:00:05,120 the following content is provided under 2 00:00:02,540 --> 00:00:07,339 a Creative Commons license your support 3 00:00:05,120 --> 00:00:09,199 will help MIT OpenCourseWare continue to 4 00:00:07,339 --> 00:00:10,279 offer high quality educational resources 5 00:00:09,199 --> 00:00:12,469 for free 6 00:00:10,279 --> 00:00:14,509 to make a donation or to view additional 7 00:00:12,470 --> 00:00:20,710 materials from hundreds of MIT courses 8 00:00:14,509 --> 00:00:20,710 visit MIT opencourseware at ocw.mit.edu 9 00:00:21,989 --> 00:00:28,809 welcome welcome if you have a desire to 10 00:00:26,949 --> 00:00:30,250 learn a little bit about blockchain and 11 00:00:28,809 --> 00:00:32,920 its intersection with the world of 12 00:00:30,250 --> 00:00:37,630 finance and money and you're looking for 13 00:00:32,920 --> 00:00:40,539 15 . s 12 you're in the right place if 14 00:00:37,630 --> 00:00:43,150 you're here to not do that and just hang 15 00:00:40,539 --> 00:00:44,948 out and have a good time I guess you 16 00:00:43,149 --> 00:00:46,089 still hopefully are in the right place 17 00:00:44,948 --> 00:00:48,878 because we're gonna have a good time 18 00:00:46,090 --> 00:00:52,420 this semester my name is Gary Gensler 19 00:00:48,878 --> 00:00:55,149 I'm a senior lecturer here at MIT Sloan 20 00:00:52,420 --> 00:00:58,088 I'm also an advisor over at the MIT 21 00:00:55,149 --> 00:01:01,329 Media Lab and I've spent a lifetime 22 00:00:58,088 --> 00:01:05,319 around the world of finance and money 23 00:01:01,329 --> 00:01:08,379 and public policy and I've been at MIT 24 00:01:05,319 --> 00:01:10,419 this last eight months and we're gonna 25 00:01:08,379 --> 00:01:13,539 learn a lot together about blockchain 26 00:01:10,420 --> 00:01:14,859 and money we're gonna have a little bit 27 00:01:13,540 --> 00:01:16,810 of fun here and see what we're gonna do 28 00:01:14,859 --> 00:01:20,590 so we're talking about blockchain and 29 00:01:16,810 --> 00:01:24,368 money that's where we are by the way I 30 00:01:20,590 --> 00:01:28,150 do cold call I do call on use if you 31 00:01:24,368 --> 00:01:31,239 want to leave now I understand because I 32 00:01:28,150 --> 00:01:32,770 want to have an interaction a little bit 33 00:01:31,239 --> 00:01:34,959 about it so my first question for the 34 00:01:32,769 --> 00:01:37,000 class for everyone whether registered or 35 00:01:34,959 --> 00:01:41,500 not how many of you have ever owned a 36 00:01:37,000 --> 00:01:45,129 cryptocurrency wait wait let's see the 37 00:01:41,500 --> 00:01:50,829 yacht's it seems like it's about 45% of 38 00:01:45,129 --> 00:01:57,250 you or so all right Livan you want to 39 00:01:50,829 --> 00:01:59,469 keep your hand up long and how many of 40 00:01:57,250 --> 00:02:01,599 you have ever worked on any blockchain 41 00:01:59,469 --> 00:02:04,560 related projects in an entrepreneurial 42 00:02:01,599 --> 00:02:06,219 setting or corporate setting anywhere 43 00:02:04,560 --> 00:02:11,348 all right good 44 00:02:06,219 --> 00:02:13,900 so a better third in the room good all 45 00:02:11,348 --> 00:02:14,469 right so you all know probably more than 46 00:02:13,900 --> 00:02:18,158 I do 47 00:02:14,469 --> 00:02:19,598 but I'm gonna give it a shot I'm gonna 48 00:02:18,158 --> 00:02:22,269 always start every week with what are 49 00:02:19,598 --> 00:02:23,859 the study questions for the week how 50 00:02:22,269 --> 00:02:25,750 many of you actually got the syllabus 51 00:02:23,860 --> 00:02:27,280 this is not gonna be graded assignment I 52 00:02:25,750 --> 00:02:29,620 just have to have a sense of who's who 53 00:02:27,280 --> 00:02:32,139 actually got this syllabus so good many 54 00:02:29,620 --> 00:02:34,389 of you and how many of you actually did 55 00:02:32,139 --> 00:02:34,600 the two readings it's not graded I just 56 00:02:34,389 --> 00:02:37,840 got 57 00:02:34,599 --> 00:02:40,389 gage the class oh thank you thank you 58 00:02:37,840 --> 00:02:43,180 right those grades down by the way no no 59 00:02:40,389 --> 00:02:46,569 all right so the two main questions for 60 00:02:43,180 --> 00:02:48,219 this week's lecture really is what is 61 00:02:46,569 --> 00:02:50,379 blockchain and why might it be a 62 00:02:48,219 --> 00:02:52,900 catalyst and I emphasize the word 63 00:02:50,379 --> 00:02:54,579 might it be a catalyst for change in the 64 00:02:52,900 --> 00:02:56,710 world of finance we could talk about a 65 00:02:54,580 --> 00:02:59,680 lot about things outside of the world of 66 00:02:56,710 --> 00:03:01,420 finance and blockchain may indeed have a 67 00:02:59,680 --> 00:03:04,360 lot of applications outside of Finance 68 00:03:01,419 --> 00:03:06,669 but I've chosen to try to just narrow 69 00:03:04,360 --> 00:03:09,160 the scope a bit so this semester is 70 00:03:06,669 --> 00:03:12,699 really about blockchain and money or 71 00:03:09,159 --> 00:03:15,129 blockchain and finance and secondly you 72 00:03:12,699 --> 00:03:18,310 will see index cards on every one of 73 00:03:15,129 --> 00:03:21,519 these round tables one assignment by the 74 00:03:18,310 --> 00:03:23,039 end of the class you could do it now or 75 00:03:21,520 --> 00:03:26,380 later I would like each of you to 76 00:03:23,039 --> 00:03:29,650 anonymously write on the court what you 77 00:03:26,379 --> 00:03:31,870 want to achieve in this semester it 78 00:03:29,650 --> 00:03:33,610 could be anything from this class from 79 00:03:31,870 --> 00:03:36,009 learning about blockchain from making 80 00:03:33,610 --> 00:03:37,690 money on Bitcoin from I don't care if 81 00:03:36,009 --> 00:03:40,299 you tell me it's meeting your future 82 00:03:37,689 --> 00:03:43,240 spouse I just like what do you want to 83 00:03:40,300 --> 00:03:46,150 achieve in this class I can't help you 84 00:03:43,240 --> 00:03:48,600 on the third but I will try to help you 85 00:03:46,150 --> 00:03:51,129 hone the things I can help you ID and 86 00:03:48,599 --> 00:03:53,349 Sabrina and Toledo will collect them 87 00:03:51,129 --> 00:03:55,449 later and next Tuesday will tell you the 88 00:03:53,349 --> 00:03:58,539 results what is it that you want to 89 00:03:55,449 --> 00:03:59,919 achieve in this class and then we'll see 90 00:03:58,539 --> 00:04:03,549 at the end of the semester if we've done 91 00:03:59,919 --> 00:04:08,289 that so that's just a way to help guide 92 00:04:03,550 --> 00:04:10,780 me help you so that's that's what we're 93 00:04:08,289 --> 00:04:13,019 trying to do and so what were the two 94 00:04:10,780 --> 00:04:15,939 readings one was a little thing I did 95 00:04:13,020 --> 00:04:19,239 and one was a thing I did with some of 96 00:04:15,939 --> 00:04:22,649 my colleagues and Tom since I know you 97 00:04:19,238 --> 00:04:22,649 would you take out of the readings 98 00:04:29,360 --> 00:04:37,530 did you have a good summer did you raise 99 00:04:32,730 --> 00:04:39,360 your head did you own Bitcoin know who 100 00:04:37,529 --> 00:04:41,789 in the class read the readings and took 101 00:04:39,360 --> 00:04:45,590 something different than Tom he said 102 00:04:41,790 --> 00:04:45,590 there was potential and your first name 103 00:04:58,399 --> 00:05:05,669 okay how many agreed with the line this 104 00:05:04,680 --> 00:05:07,470 is a vote 105 00:05:05,670 --> 00:05:11,850 they're just two or three how many grids 106 00:05:07,470 --> 00:05:13,590 with Tom there's more and how many of 107 00:05:11,850 --> 00:05:17,730 you're too shy on the first day to put 108 00:05:13,589 --> 00:05:20,310 your hands up most so I'm going to start 109 00:05:17,730 --> 00:05:21,930 and go back the internet how do I sort 110 00:05:20,310 --> 00:05:23,730 of I've come about this and sort of 111 00:05:21,930 --> 00:05:25,019 thought about well what is the WAP chain 112 00:05:23,730 --> 00:05:28,140 what is it really about well the 113 00:05:25,019 --> 00:05:29,579 internet started many decades ago before 114 00:05:28,139 --> 00:05:32,789 most of you were born 115 00:05:29,579 --> 00:05:35,399 but 1974 I mean there's some 116 00:05:32,790 --> 00:05:37,050 predecessors even from the late 60s the 117 00:05:35,399 --> 00:05:40,459 ethernet which is really how two 118 00:05:37,050 --> 00:05:43,530 computers communicate and then you had 119 00:05:40,459 --> 00:05:47,399 tcp/ip which was really the Internet 120 00:05:43,529 --> 00:05:52,949 Protocol of multiple computers compute 121 00:05:47,399 --> 00:05:56,489 that talking to each other and then 122 00:05:52,949 --> 00:05:59,250 later on in 1990 how do we move forward 123 00:05:56,490 --> 00:06:01,949 does anybody know what HTTP is we're at 124 00:05:59,250 --> 00:06:05,120 MIT your first name would be helpful 125 00:06:01,949 --> 00:06:09,779 Erik Erik it's a protocol for 126 00:06:05,120 --> 00:06:25,649 communicate with content web content 127 00:06:09,779 --> 00:06:29,359 hypertext Transfer Protocol eek anybody 128 00:06:25,649 --> 00:06:29,359 know who's associated with tcp/ip 129 00:06:32,079 --> 00:06:44,050 it was a company initiated by MIT I 130 00:06:41,949 --> 00:06:47,740 don't know if it was a company in Sochi 131 00:06:44,050 --> 00:06:51,300 over there mighty but Vince Cerf may 132 00:06:47,740 --> 00:06:54,098 have had some association with it mighty 133 00:06:51,300 --> 00:06:54,960 so these are the first three layers and 134 00:06:54,098 --> 00:06:57,848 then there were companies 135 00:06:54,959 --> 00:07:00,029 commercialization 3com and cisco and of 136 00:06:57,848 --> 00:07:02,560 course amazon it's still around today 137 00:07:00,029 --> 00:07:04,658 but there was something else going on 138 00:07:02,560 --> 00:07:06,038 how do we commercialize the internet 139 00:07:04,658 --> 00:07:15,908 does anybody know what this scene is 140 00:07:06,038 --> 00:07:22,899 from good thought good thought first 141 00:07:15,908 --> 00:07:27,430 pizza sold by Bitcoin but no all right 142 00:07:22,899 --> 00:07:28,779 movie hackers the net do you know have 143 00:07:27,430 --> 00:07:33,250 you ever seen the movie it's not a good 144 00:07:28,779 --> 00:07:35,948 movie so this is the opening scene of 145 00:07:33,250 --> 00:07:39,189 the net and yes that's Sandra Bullock 146 00:07:35,949 --> 00:07:43,718 and the years 1995 147 00:07:39,189 --> 00:07:45,490 it's a cyber thriller you know a 148 00:07:43,718 --> 00:07:48,098 president's involved the Defense 149 00:07:45,490 --> 00:07:50,680 Department's involved and so forth but 150 00:07:48,098 --> 00:07:55,478 actually Pizza Hut is associated with 151 00:07:50,680 --> 00:07:57,158 the very first sale online sale anywhere 152 00:07:55,478 --> 00:07:59,649 in the world they started something 153 00:07:57,158 --> 00:08:01,930 called pizza night this was the screen 154 00:07:59,649 --> 00:08:06,038 by the way if you wanted to go on you 155 00:08:01,930 --> 00:08:07,629 could order your pizza and and but there 156 00:08:06,038 --> 00:08:10,089 was one problem does anybody know what 157 00:08:07,629 --> 00:08:13,418 the problem with was Pizza net I mean 158 00:08:10,089 --> 00:08:16,989 maybe there were multiple problems no 159 00:08:13,418 --> 00:08:18,968 Ilana I've caught on you you couldn't 160 00:08:16,990 --> 00:08:21,550 pay online nobody figured out how to 161 00:08:18,968 --> 00:08:24,908 move money online you had to pay when 162 00:08:21,550 --> 00:08:25,810 you showed up with the pizza so now I'm 163 00:08:24,908 --> 00:08:27,579 going to talk a little bit about 164 00:08:25,810 --> 00:08:29,649 cryptography we're going to spend a lot 165 00:08:27,579 --> 00:08:34,588 of time on cryptography it's crypto 166 00:08:29,649 --> 00:08:40,228 currencies and the like what's your name 167 00:08:34,589 --> 00:08:40,229 Gigi Gigi Gigi what's cryptography 168 00:08:44,578 --> 00:08:49,359 cryptic all right now you got it you got 169 00:08:46,899 --> 00:08:52,409 to start there anybody want to help GE 170 00:08:49,360 --> 00:08:54,759 out does anybody want to help you yeah 171 00:08:52,409 --> 00:08:56,289 tell me your first name we're gonna ask 172 00:08:54,759 --> 00:08:58,480 we're gonna figure out how to have 173 00:08:56,289 --> 00:09:00,429 everybody have name plates by next week 174 00:08:58,480 --> 00:09:17,199 but we will work with Ryan and do it 175 00:09:00,429 --> 00:09:19,448 that way so it's how do you encrypt 176 00:09:17,198 --> 00:09:22,838 something so it's not detectable by 177 00:09:19,448 --> 00:09:26,859 others or in essence it's communications 178 00:09:22,839 --> 00:09:29,320 in the presence of adversaries you have 179 00:09:26,860 --> 00:09:31,839 an adversary who wants the communication 180 00:09:29,320 --> 00:09:34,060 you want to communicate and not let your 181 00:09:31,839 --> 00:09:37,709 adversaries know that communication and 182 00:09:34,059 --> 00:09:40,359 this is this is true for ancient times 183 00:09:37,708 --> 00:09:42,698 so in ancient times there was something 184 00:09:40,360 --> 00:09:43,990 called the cypher and this was a way 185 00:09:42,698 --> 00:09:46,179 that you take a piece of leather or 186 00:09:43,990 --> 00:09:49,980 Peetha cloth and have a lot of letters 187 00:09:46,179 --> 00:09:52,838 and both sides 188 00:09:49,980 --> 00:09:55,060 you'd encrypt and decrypt because there 189 00:09:52,839 --> 00:09:58,769 were different measurements of the 190 00:09:55,059 --> 00:10:02,679 cylinder has anybody seen the movie 191 00:09:58,769 --> 00:10:06,970 imitation games all right 192 00:10:02,679 --> 00:10:08,888 the Enigma machine now it the movie was 193 00:10:06,970 --> 00:10:11,110 wonderful because it said Turin cracked 194 00:10:08,889 --> 00:10:13,120 it and he did help crack it in an 195 00:10:11,110 --> 00:10:16,139 automated way but actually the Polish 196 00:10:13,120 --> 00:10:19,539 government had cracked it in the 1930s 197 00:10:16,139 --> 00:10:21,970 before they fell to the Germans but and 198 00:10:19,539 --> 00:10:25,659 and touring built on all of that and 199 00:10:21,970 --> 00:10:28,839 cracked it further and then in the 1970s 200 00:10:25,659 --> 00:10:30,969 and this was here at MIT to some extent 201 00:10:28,839 --> 00:10:33,040 there's private key public key 202 00:10:30,970 --> 00:10:36,430 cryptography which I'm not going to dive 203 00:10:33,039 --> 00:10:39,399 into today but it's it's the heart of 204 00:10:36,429 --> 00:10:43,659 Bitcoin and blockchain it's at the heart 205 00:10:39,399 --> 00:10:45,879 of the Internet but it's about the key 206 00:10:43,659 --> 00:10:48,539 thing is communications in the presence 207 00:10:45,879 --> 00:10:50,948 of adversaries how do you keep a secret 208 00:10:48,539 --> 00:10:51,610 when everybody wants in and get that 209 00:10:50,948 --> 00:10:55,779 information 210 00:10:51,610 --> 00:10:59,080 and there's a long history and mi t--'s 211 00:10:55,779 --> 00:11:02,110 at the center of a lot of that a lot of 212 00:10:59,080 --> 00:11:04,660 early cryptography failed on the 213 00:11:02,110 --> 00:11:06,850 Internet in the early 90s and late 80s 214 00:11:04,659 --> 00:11:07,959 David cha and others tried to do things 215 00:11:06,850 --> 00:11:10,090 and we're not going to debate these 216 00:11:07,960 --> 00:11:13,240 today but you'll have one reading I 217 00:11:10,090 --> 00:11:15,100 think it's either next week which will 218 00:11:13,240 --> 00:11:16,899 give you that history and it's 219 00:11:15,100 --> 00:11:21,250 worthwhile knowing about the history of 220 00:11:16,899 --> 00:11:22,929 failure but cryptography is the reason 221 00:11:21,250 --> 00:11:26,039 why the internet works today does 222 00:11:22,929 --> 00:11:29,679 anybody want to tell me what SSL and TLS 223 00:11:26,039 --> 00:11:39,339 is do we have any computer scientists 224 00:11:29,679 --> 00:11:42,329 remember your first name encryption 225 00:11:39,340 --> 00:11:45,000 using symmetric keys which is public key 226 00:11:42,330 --> 00:11:49,389 cryptography 227 00:11:45,000 --> 00:11:51,070 right so it basically uses asymmetric 228 00:11:49,389 --> 00:11:54,909 cryptography which we're going to talk 229 00:11:51,070 --> 00:12:00,310 about two lectures from now but it 230 00:11:54,909 --> 00:12:02,350 secures the whole Internet so all of a 231 00:12:00,309 --> 00:12:05,139 sudden you could deliver the pizza and 232 00:12:02,350 --> 00:12:07,540 get a passcode and I have to tell you I 233 00:12:05,139 --> 00:12:13,110 never knew how this worked before I was 234 00:12:07,539 --> 00:12:15,730 at MIT so PayPal came along in 1998 I 235 00:12:13,110 --> 00:12:21,100 mentioned this a whole bunch of other 236 00:12:15,730 --> 00:12:23,289 digital currencies then failed but some 237 00:12:21,100 --> 00:12:26,139 of these people who will read later like 238 00:12:23,289 --> 00:12:29,529 will read Nick Sabo's piece on smart 239 00:12:26,139 --> 00:12:33,639 contracts later Adam back who created 240 00:12:29,529 --> 00:12:38,470 hash cash some of these innovations were 241 00:12:33,639 --> 00:12:40,659 what Satoshi Nakamoto later used some 242 00:12:38,470 --> 00:12:43,480 innovations which were really helpful 243 00:12:40,659 --> 00:12:53,709 and worked where a leap a and M paisa 244 00:12:43,480 --> 00:12:58,090 does anybody know what M pace is in 245 00:12:53,710 --> 00:13:00,190 essence they found out in Kenya this was 246 00:12:58,090 --> 00:13:02,590 ten twelve years ago that people were 247 00:13:00,190 --> 00:13:05,470 trading mobile minutes they were 248 00:13:02,590 --> 00:13:07,300 unbanked but they had cellular phone 249 00:13:05,470 --> 00:13:10,720 and they were trading their minutes as a 250 00:13:07,299 --> 00:13:13,139 form of currency and Safaricom realized 251 00:13:10,720 --> 00:13:16,540 that and said way we could help people 252 00:13:13,139 --> 00:13:20,350 be part of the digital economy even if 253 00:13:16,539 --> 00:13:23,259 they're unbanked and in Africa today 1/2 254 00:13:20,350 --> 00:13:26,470 of the adult population according to 255 00:13:23,259 --> 00:13:32,230 world bag figures is still unbanked but 256 00:13:26,470 --> 00:13:35,019 half of that half has mobile phones and 257 00:13:32,230 --> 00:13:38,170 pace has 20 million customers in Kenya 258 00:13:35,019 --> 00:13:42,090 right now so it's a it's a form of money 259 00:13:38,169 --> 00:13:44,559 that's kind of swapping mobile minutes 260 00:13:42,090 --> 00:13:46,780 but the riddle remained how do you move 261 00:13:44,559 --> 00:13:48,609 money on the internet where in essence 262 00:13:46,779 --> 00:13:51,669 how do you move value peer-to-peer 263 00:13:48,610 --> 00:13:56,820 without a centralized intermediary and 264 00:13:51,669 --> 00:14:00,669 that's the core of blockchain technology 265 00:13:56,820 --> 00:14:02,879 so who solved the riddle and they're 266 00:14:00,669 --> 00:14:09,339 ready to tell me who solved the riddle 267 00:14:02,879 --> 00:14:10,990 who solved this riddle now have you you 268 00:14:09,340 --> 00:14:13,450 you're wearing a t-shirt that says 269 00:14:10,990 --> 00:14:14,980 Quentin Tarantino so I think Quentin 270 00:14:13,450 --> 00:14:23,290 Tarantino should solve over it all 271 00:14:14,980 --> 00:14:25,720 what's that what's your name so a 272 00:14:23,289 --> 00:14:27,490 peer-to-peer cash this is the actual doc 273 00:14:25,720 --> 00:14:35,980 top of an email that was sent out on 274 00:14:27,490 --> 00:14:37,750 Halloween 2008 by Satoshi Nakamoto we 275 00:14:35,980 --> 00:14:40,779 don't actually know who's Satoshi 276 00:14:37,750 --> 00:14:43,029 Nakamoto is but it's a study question a 277 00:14:40,779 --> 00:14:45,789 few lectures from now to ask you to tell 278 00:14:43,029 --> 00:14:49,509 me who you think Satoshi Nakamoto is so 279 00:14:45,789 --> 00:14:52,809 I won't ask that now and he started with 280 00:14:49,509 --> 00:14:54,789 a very simple sentence in his email I've 281 00:14:52,809 --> 00:14:58,209 been working on a new electronic cash 282 00:14:54,789 --> 00:15:01,569 system that fully peer-to-peer with no 283 00:14:58,210 --> 00:15:06,160 trusted third party it's kind of a 284 00:15:01,570 --> 00:15:10,629 modest statement and so the question is 285 00:15:06,159 --> 00:15:12,610 is this another internet layer we're 286 00:15:10,629 --> 00:15:14,588 gonna explore that this whole semester I 287 00:15:12,610 --> 00:15:18,190 don't I don't really have the answer I 288 00:15:14,589 --> 00:15:19,550 don't think the best minds at MIT could 289 00:15:18,190 --> 00:15:22,410 really yet tell you 290 00:15:19,549 --> 00:15:26,009 there are some who are maximalist and 291 00:15:22,409 --> 00:15:28,409 say yes it will be and there are others 292 00:15:26,009 --> 00:15:30,029 who will say no no no and in this course 293 00:15:28,409 --> 00:15:31,889 we're gonna we're gonna review the 294 00:15:30,029 --> 00:15:33,809 minimalist and the maximalist we're not 295 00:15:31,889 --> 00:15:36,360 we're not kind of try to Center it in 296 00:15:33,809 --> 00:15:40,049 one place but that's the key key kind of 297 00:15:36,360 --> 00:15:42,570 question so what is a blockchain we're 298 00:15:40,049 --> 00:15:44,399 gonna do this in a lot of lectures but 299 00:15:42,570 --> 00:15:48,090 I'm gonna try to do it in this short 300 00:15:44,399 --> 00:15:50,100 version so it's time-stamped append logs 301 00:15:48,090 --> 00:15:53,850 meaning you can add a little bit of 302 00:15:50,100 --> 00:15:56,850 information to this and it's 303 00:15:53,850 --> 00:16:01,159 time-stamped so these are these blocks 304 00:15:56,850 --> 00:16:06,540 being added Satoshi did not invent 305 00:16:01,159 --> 00:16:08,429 blockchain there's way earlier does 306 00:16:06,539 --> 00:16:10,049 anybody want to guess what what it was 307 00:16:08,429 --> 00:16:19,849 you're gonna have a reading about this 308 00:16:10,049 --> 00:16:23,399 later but early 1990s what's that Midori 309 00:16:19,850 --> 00:16:26,190 Stuart Haber Stuart Haysbert worked for 310 00:16:23,399 --> 00:16:27,840 Bell Labs right so one of your 311 00:16:26,190 --> 00:16:29,190 assignments it's not gonna be a gray to 312 00:16:27,840 --> 00:16:32,399 decide which it's gonna be a fun 313 00:16:29,190 --> 00:16:35,270 assignment could any of you I'm gonna 314 00:16:32,399 --> 00:16:39,389 say by next Thursday just have some fun 315 00:16:35,269 --> 00:16:43,710 find the longest and timewise longest 316 00:16:39,389 --> 00:16:46,230 running blockchain it's not Bitcoin and 317 00:16:43,710 --> 00:16:51,629 it's been running since the mid 90s and 318 00:16:46,230 --> 00:16:55,850 your clue is the New York Times and 319 00:16:51,629 --> 00:17:01,169 we'll discuss it next Thursday but this 320 00:16:55,850 --> 00:17:04,799 time stamped block block block block of 321 00:17:01,169 --> 00:17:07,589 data creates a database an auditable 322 00:17:04,799 --> 00:17:09,299 database and we'll talk about Ledger's 323 00:17:07,589 --> 00:17:10,740 particularly next week but we'll talk 324 00:17:09,299 --> 00:17:12,450 about Ledger's all throughout this 325 00:17:10,740 --> 00:17:13,109 course and how it changes the world of 326 00:17:12,450 --> 00:17:15,720 Finance 327 00:17:13,109 --> 00:17:18,029 now it's secured by cryptography because 328 00:17:15,720 --> 00:17:20,039 cryptography remembers communications 329 00:17:18,029 --> 00:17:22,170 and making sure adversaries can't pick 330 00:17:20,039 --> 00:17:24,990 you off we're gonna learn about hash 331 00:17:22,170 --> 00:17:26,519 functions and hash functions that are a 332 00:17:24,990 --> 00:17:30,269 really important part of cryptography 333 00:17:26,519 --> 00:17:32,309 and initially for databases and how to 334 00:17:30,269 --> 00:17:33,210 search and store information and 335 00:17:32,309 --> 00:17:36,279 database 336 00:17:33,210 --> 00:17:40,740 but in this circumstances hash functions 337 00:17:36,279 --> 00:17:44,920 were the way to not only append the next 338 00:17:40,740 --> 00:17:48,609 block to the prior blocks but really 339 00:17:44,920 --> 00:17:51,580 importantly to compress data to make it 340 00:17:48,609 --> 00:17:54,729 more manipulatable and to verify it and 341 00:17:51,579 --> 00:17:57,490 as I've written here tamper resistance 342 00:17:54,730 --> 00:17:59,829 and the integrity digital signatures 343 00:17:57,490 --> 00:18:01,660 which has to do the public key private 344 00:17:59,829 --> 00:18:03,220 key cryptography there is no 345 00:18:01,660 --> 00:18:05,460 prerequisite of this course you do not 346 00:18:03,220 --> 00:18:09,430 have had to have taken computer science 347 00:18:05,460 --> 00:18:11,789 cryptography algorithms if I could learn 348 00:18:09,430 --> 00:18:15,190 a little bit about hash functions and 349 00:18:11,789 --> 00:18:20,259 asymmetric cryptography these are the 350 00:18:15,190 --> 00:18:22,210 two key important sides and will we have 351 00:18:20,259 --> 00:18:24,970 enough computer scientists in this room 352 00:18:22,210 --> 00:18:30,519 that can sort us out if I say the wrong 353 00:18:24,970 --> 00:18:33,100 thing right mid doors hopefully and then 354 00:18:30,519 --> 00:18:36,220 consensus so there's a really important 355 00:18:33,099 --> 00:18:39,339 part of blockchain is how do you decide 356 00:18:36,220 --> 00:18:40,480 who appends that next block because when 357 00:18:39,339 --> 00:18:42,339 I went back here 358 00:18:40,480 --> 00:18:44,140 there's block or block each of these 359 00:18:42,339 --> 00:18:46,720 blocks somebody has to decide who 360 00:18:44,140 --> 00:18:49,210 appends who gets to pick the next block 361 00:18:46,720 --> 00:18:51,549 and that's what's called consensus 362 00:18:49,210 --> 00:18:54,370 protocol and there's why debates about 363 00:18:51,549 --> 00:18:57,309 consensus protocol and will talk a lot 364 00:18:54,369 --> 00:18:59,439 about consensus protocol but in essence 365 00:18:57,309 --> 00:19:01,000 it addresses something a term called the 366 00:18:59,440 --> 00:19:03,340 cost of trust and we'll talk about 367 00:19:01,000 --> 00:19:05,319 Byzantine generals problems which is 368 00:19:03,339 --> 00:19:07,329 another reading the Byzantine generals 369 00:19:05,319 --> 00:19:10,689 problem was laid out as a sort of 370 00:19:07,329 --> 00:19:16,509 mathematical game theory issue some 371 00:19:10,690 --> 00:19:19,090 thirty as years ago that's what Satoshi 372 00:19:16,509 --> 00:19:23,500 Nakamoto solved was this last part that 373 00:19:19,089 --> 00:19:28,720 the Byzantine generals problem pizza for 374 00:19:23,500 --> 00:19:33,750 bitcoins a year and a half after Satoshi 375 00:19:28,720 --> 00:19:36,940 Nakamoto laid out blockchain Bitcoin 376 00:19:33,750 --> 00:19:38,950 somebody sends an email and you'll get 377 00:19:36,940 --> 00:19:40,990 these slides but this is the real live 378 00:19:38,950 --> 00:19:44,470 email I'll pay you 10,000 bitcoins for a 379 00:19:40,990 --> 00:19:46,930 couple of pizzas I I just want some 380 00:19:44,470 --> 00:19:48,819 pizzas the guy who sent this 381 00:19:46,930 --> 00:19:51,720 he says I like onions peppers sausage 382 00:19:48,819 --> 00:19:54,759 mushrooms Lazlo 383 00:19:51,720 --> 00:19:59,880 now catch the date this is May 18th and 384 00:19:54,759 --> 00:20:03,460 he's offering 10,000 bitcoins of 2010 385 00:19:59,880 --> 00:20:05,950 but the key line is what I'm aiming for 386 00:20:03,460 --> 00:20:08,470 is getting food deliver in exchange for 387 00:20:05,950 --> 00:20:11,799 bitcoins nobody had used bitcoins as a 388 00:20:08,470 --> 00:20:14,529 medium of exchange 16 months into its 389 00:20:11,799 --> 00:20:16,720 existence nobody had used it to buy 390 00:20:14,529 --> 00:20:18,970 something and Laszlo is a computer 391 00:20:16,720 --> 00:20:21,430 scientist in Florida was just kind of 392 00:20:18,970 --> 00:20:26,230 interested and he put this out on an 393 00:20:21,430 --> 00:20:29,200 email list three days later he still 394 00:20:26,230 --> 00:20:30,819 doesn't have his two pizzas so nobody 395 00:20:29,200 --> 00:20:35,680 wants to buy me a pizza is the Bitcoin 396 00:20:30,819 --> 00:20:39,220 amount I'm offering too low another day 397 00:20:35,680 --> 00:20:42,730 goes by he gets his pizzas and he post 398 00:20:39,220 --> 00:20:44,920 pictures so here's a picture of his 399 00:20:42,730 --> 00:20:50,230 child reaching for those Papa John's 400 00:20:44,920 --> 00:20:52,990 pizzas anybody know what those 10,000 401 00:20:50,230 --> 00:20:59,160 bitcoins were worth back in back then 402 00:20:52,990 --> 00:21:05,259 Chicago anybody want to say back then 403 00:20:59,160 --> 00:21:07,540 what's that $41 and last I was saying 404 00:21:05,259 --> 00:21:09,879 two pizzas are probably worth 25 to 30 405 00:21:07,539 --> 00:21:11,589 because there's a whole email thread he 406 00:21:09,880 --> 00:21:14,340 kept saying why won't anybody get me my 407 00:21:11,589 --> 00:21:19,720 pizzas you could make money on this 408 00:21:14,339 --> 00:21:21,569 today or earlier late yet last night 66 409 00:21:19,720 --> 00:21:27,850 million dollars 410 00:21:21,569 --> 00:21:31,089 yeah so it's a cute story may 22nd every 411 00:21:27,849 --> 00:21:33,909 year is called pizza day or Bitcoin 412 00:21:31,089 --> 00:21:35,500 pizza day or something so so what is 413 00:21:33,910 --> 00:21:37,360 block taint technology these are my 414 00:21:35,500 --> 00:21:39,609 words but they're sort of picked from 415 00:21:37,359 --> 00:21:42,519 the literature and so forth it 416 00:21:39,609 --> 00:21:44,679 verifiably moves data on a decentralized 417 00:21:42,519 --> 00:21:46,960 network and the economics of blockchain 418 00:21:44,680 --> 00:21:49,299 technology are really around that 419 00:21:46,960 --> 00:21:52,539 verification and the economics of 420 00:21:49,299 --> 00:21:56,529 verification and the economics of 421 00:21:52,539 --> 00:22:00,309 networking and in many ways blockchain 422 00:21:56,529 --> 00:22:02,410 adds certain costs to the verification 423 00:22:00,309 --> 00:22:05,529 through this consensus protocol that 424 00:22:02,410 --> 00:22:07,960 we'll be studying but it lowers some 425 00:22:05,529 --> 00:22:09,549 other costs of verification because 426 00:22:07,960 --> 00:22:11,950 you're not relying on a centralized 427 00:22:09,549 --> 00:22:14,710 Authority so it's really a trade-off of 428 00:22:11,950 --> 00:22:16,509 cost of verification I don't think it's 429 00:22:14,710 --> 00:22:18,490 I'm not a purist that says it's better 430 00:22:16,509 --> 00:22:20,500 or worse but it's it's a trade-off of 431 00:22:18,490 --> 00:22:24,849 costs of verification through 432 00:22:20,500 --> 00:22:27,990 decentralized networks the data can be 433 00:22:24,849 --> 00:22:30,909 value like Bitcoin was a money system 434 00:22:27,990 --> 00:22:34,029 where the data can be actually computer 435 00:22:30,910 --> 00:22:36,640 code and we'll learn a lot about smart 436 00:22:34,029 --> 00:22:39,509 contracts and you could have the data 437 00:22:36,640 --> 00:22:44,710 being verified computer code and 438 00:22:39,509 --> 00:22:46,869 algorithms my world finance this 439 00:22:44,710 --> 00:22:49,380 directly goes to the plumbing of Finance 440 00:22:46,869 --> 00:22:52,989 because finance is fundamentally about 441 00:22:49,380 --> 00:22:55,540 moving money and risk through a network 442 00:22:52,990 --> 00:22:58,390 and that network is the seven billion 443 00:22:55,539 --> 00:23:02,049 people that live on this world it's 444 00:22:58,390 --> 00:23:04,090 moving money and risk and you've all 445 00:23:02,049 --> 00:23:07,149 taken finance courses or many of you 446 00:23:04,089 --> 00:23:11,309 have and it's the intermediating of 447 00:23:07,150 --> 00:23:11,310 money and risk throughout our economy 448 00:23:11,549 --> 00:23:16,269 but there's a whole host of challenges 449 00:23:13,890 --> 00:23:17,980 and over the course of this semester 450 00:23:16,269 --> 00:23:19,960 we'll talk about this challenges 451 00:23:17,980 --> 00:23:23,230 technical commercial and public policy 452 00:23:19,960 --> 00:23:27,600 hurdles will they be solved will they 453 00:23:23,230 --> 00:23:30,360 not be solved but it could be a catalyst 454 00:23:27,599 --> 00:23:32,829 but we're not sure yet 455 00:23:30,359 --> 00:23:35,529 for change in the world of money and 456 00:23:32,829 --> 00:23:43,659 Finance so does anybody want to tell me 457 00:23:35,529 --> 00:23:50,049 the role of money in society and tell me 458 00:23:43,660 --> 00:23:53,140 your first name come on Tomas between 459 00:23:50,049 --> 00:23:59,349 people all right medium of exchange got 460 00:23:53,140 --> 00:24:05,080 that one somebody give me a second 461 00:23:59,349 --> 00:24:06,969 yellow shirt savings all right so that 462 00:24:05,079 --> 00:24:12,999 would be a store of value yeah 463 00:24:06,970 --> 00:24:17,679 third I'm sorry the gentleman here Wow 464 00:24:12,999 --> 00:24:19,329 all right there we go there we go so 465 00:24:17,679 --> 00:24:21,429 we're gonna spend some time next Tuesday 466 00:24:19,329 --> 00:24:24,339 talking more about money and the role of 467 00:24:21,429 --> 00:24:26,409 money in the history of money which i 468 00:24:24,339 --> 00:24:29,138 think is sort of lays a foundational 469 00:24:26,409 --> 00:24:31,929 piece of this what about the role of 470 00:24:29,138 --> 00:24:36,008 Finance I've already sort of said a few 471 00:24:31,929 --> 00:24:38,169 things about that but and I'm sorry I 472 00:24:36,009 --> 00:24:45,700 don't know your name but I'm right here 473 00:24:38,169 --> 00:24:47,499 the woman yeah role of Finance sorry I'm 474 00:24:45,700 --> 00:24:51,729 not going to tell any financial finance 475 00:24:47,499 --> 00:24:57,278 professor what your answer is to raise 476 00:24:51,729 --> 00:25:00,220 money so keep going I'm gonna anybody 477 00:24:57,278 --> 00:25:03,759 else want it can connect savers and 478 00:25:00,220 --> 00:25:05,858 borrowers connect savers and bars so 479 00:25:03,759 --> 00:25:12,159 connecting is sort of moving money 480 00:25:05,858 --> 00:25:15,038 moving valuations so that's the pieces 481 00:25:12,159 --> 00:25:17,499 of it sort of moving making valuations I 482 00:25:15,038 --> 00:25:20,729 use the words moving allocating and 483 00:25:17,499 --> 00:25:24,759 pricing pricing is the valuations of 484 00:25:20,729 --> 00:25:26,979 money well let's not forget it's also 485 00:25:24,759 --> 00:25:29,200 about risk when you buy insurance 486 00:25:26,979 --> 00:25:30,999 that's a transference of risk when you 487 00:25:29,200 --> 00:25:34,330 buy an equity stock that's a 488 00:25:30,999 --> 00:25:36,970 transference of risk if you enter into a 489 00:25:34,329 --> 00:25:39,608 complex credit default swap it's a 490 00:25:36,970 --> 00:25:41,649 transference of risk so finance is not 491 00:25:39,608 --> 00:25:46,928 just the movement of money it's the 492 00:25:41,648 --> 00:25:50,819 movement of risk as well throughout the 493 00:25:46,929 --> 00:25:53,200 economy and I always think finance I 494 00:25:50,819 --> 00:25:55,450 always I've thought this when I was at 495 00:25:53,200 --> 00:25:58,389 Goldman Sachs for 18 years that finance 496 00:25:55,450 --> 00:26:01,419 sits at the neck of an hourglass and 497 00:25:58,388 --> 00:26:04,058 it's why it collects so much economic 498 00:26:01,419 --> 00:26:07,200 rents from society because when you sit 499 00:26:04,058 --> 00:26:10,450 at the neck of an hourglass and billions 500 00:26:07,200 --> 00:26:14,080 literally trillions of grains of sand go 501 00:26:10,450 --> 00:26:20,240 by if you collect some of those grains 502 00:26:14,079 --> 00:26:22,878 of sand you get uber wealth and that's 503 00:26:20,240 --> 00:26:26,269 those are for other classes but finance 504 00:26:22,878 --> 00:26:27,888 can collect a lot of economic rents the 505 00:26:26,269 --> 00:26:29,749 financial sector though has a bunch of 506 00:26:27,888 --> 00:26:31,278 challenges we'll have one lecture later 507 00:26:29,749 --> 00:26:33,259 in the semester about some of those 508 00:26:31,278 --> 00:26:35,388 challenges and we have a reading I think 509 00:26:33,259 --> 00:26:36,919 sheila bair wrote something recently 510 00:26:35,388 --> 00:26:38,719 that I asked you all to read later in 511 00:26:36,919 --> 00:26:40,369 the semester but we'll talk about the 512 00:26:38,720 --> 00:26:42,679 financial crisis and some of the 513 00:26:40,368 --> 00:26:44,720 problems but it's had a lot of crises 514 00:26:42,679 --> 00:26:47,499 fiat currencies have a lot of what 515 00:26:44,720 --> 00:26:51,079 instabilities of course we have 516 00:26:47,499 --> 00:26:52,999 centralized intermediaries as I laid out 517 00:26:51,079 --> 00:26:55,908 and we'll talk about collect a lot of 518 00:26:52,999 --> 00:26:57,950 economic rents so there's there's 519 00:26:55,909 --> 00:27:00,590 opportunity blockchain has real 520 00:26:57,950 --> 00:27:02,509 opportunity to kind of come under this 521 00:27:00,589 --> 00:27:05,538 world of Finance and maybe do some 522 00:27:02,509 --> 00:27:07,639 things better central banking also have 523 00:27:05,538 --> 00:27:10,819 a bunch of legacy payment systems and 524 00:27:07,638 --> 00:27:15,019 there's legacy payment systems or slowly 525 00:27:10,819 --> 00:27:18,109 adapting but it's slow and why did Ally 526 00:27:15,019 --> 00:27:19,399 pay do so well in China is part of the 527 00:27:18,109 --> 00:27:22,998 story because there were so many 528 00:27:19,398 --> 00:27:25,278 unbanked just like m-pesa in Kenya but 529 00:27:22,999 --> 00:27:28,548 here in the US we still pay 2 and a half 530 00:27:25,278 --> 00:27:32,720 to 3 percent for our interchange charges 531 00:27:28,548 --> 00:27:34,398 for Visa MasterCard and the like and a 532 00:27:32,720 --> 00:27:37,339 lot of clearing and settlement still has 533 00:27:34,398 --> 00:27:39,408 a lot of counterparty risk and one that 534 00:27:37,339 --> 00:27:41,269 I care deeply about Financial Inclusion 535 00:27:39,409 --> 00:27:45,350 there's still 1 point 7 billion people 536 00:27:41,269 --> 00:27:46,878 in this world who are unbanked and so we 537 00:27:45,349 --> 00:27:47,959 don't think of it as much in the 538 00:27:46,878 --> 00:27:51,259 developed countries 539 00:27:47,960 --> 00:27:55,669 but it's certainly true in many products 540 00:27:51,259 --> 00:27:58,669 even here in the US and these are to me 541 00:27:55,669 --> 00:28:00,320 the opportunities finance is 7 and a 542 00:27:58,669 --> 00:28:01,909 half percent of the US economy that's 543 00:28:00,319 --> 00:28:04,368 one and a half trillion dollars of 544 00:28:01,909 --> 00:28:08,119 revenues so any of you that are thinking 545 00:28:04,368 --> 00:28:10,158 about entrepreneurial opportunities the 546 00:28:08,118 --> 00:28:11,928 payment system just here in the US is a 547 00:28:10,159 --> 00:28:14,090 half a percent to one percent of our 548 00:28:11,929 --> 00:28:15,169 economy that's 100 to 200 billion 549 00:28:14,089 --> 00:28:18,349 dollars or revenues 550 00:28:15,169 --> 00:28:20,570 I think these is about 18 billion just 551 00:28:18,349 --> 00:28:22,819 you know but if you you know when you 552 00:28:20,569 --> 00:28:24,200 add up the whole payment system that's a 553 00:28:22,819 --> 00:28:26,658 hundred to two hundred billion dollars 554 00:28:24,200 --> 00:28:28,429 in payment revenues so that's kind of 555 00:28:26,659 --> 00:28:30,950 the opportunity can blockchain 556 00:28:28,429 --> 00:28:34,370 technology come in it's got problems 557 00:28:30,950 --> 00:28:37,819 it's slow its its performance issues 558 00:28:34,369 --> 00:28:39,259 but can it compete with that here are 559 00:28:37,819 --> 00:28:41,149 some of the problems the financial 560 00:28:39,259 --> 00:28:43,369 sector would say with blockchain 561 00:28:41,150 --> 00:28:44,620 these are real live things that we're 562 00:28:43,369 --> 00:28:47,239 going to study later in the semester 563 00:28:44,619 --> 00:28:50,449 they say it doesn't have the performance 564 00:28:47,240 --> 00:28:52,039 scalability a modern payment system you 565 00:28:50,450 --> 00:28:54,380 need to be able to move about a hundred 566 00:28:52,039 --> 00:28:57,349 thousand payments a second a modern 567 00:28:54,380 --> 00:29:00,860 securities clearing the the Depository 568 00:28:57,349 --> 00:29:03,199 Trust Corporation the Securities and 569 00:29:00,859 --> 00:29:05,419 Exchange Commission says you do about 570 00:29:03,200 --> 00:29:06,890 thirty thousand transactions a second 571 00:29:05,420 --> 00:29:08,330 but we need you to scale and your 572 00:29:06,890 --> 00:29:09,680 computers and everything have to be 573 00:29:08,329 --> 00:29:14,029 resilient to a hundred thousand 574 00:29:09,680 --> 00:29:17,930 transactions a second Bitcoin you can do 575 00:29:14,029 --> 00:29:21,049 about seven transactions a second visa 576 00:29:17,930 --> 00:29:22,490 currently depends on the the second does 577 00:29:21,049 --> 00:29:25,819 anywhere from twenty two seventy 578 00:29:22,490 --> 00:29:28,849 thousand a second yeah so it's just a 579 00:29:25,819 --> 00:29:30,559 sense of scalability and performance we 580 00:29:28,849 --> 00:29:33,500 might get there it might be three to 581 00:29:30,559 --> 00:29:35,179 seven years away I'm optimistic but 582 00:29:33,500 --> 00:29:38,440 there's still a bunch of performance and 583 00:29:35,180 --> 00:29:42,620 scalability issues privacy and security 584 00:29:38,440 --> 00:29:44,870 blockchains by their nature or public so 585 00:29:42,619 --> 00:29:46,789 they're not fully censorship resistant 586 00:29:44,869 --> 00:29:49,849 but there's a lot of innovation about 587 00:29:46,789 --> 00:29:53,799 making them more private but then that 588 00:29:49,849 --> 00:29:55,579 makes the public sector a little nervous 589 00:29:53,799 --> 00:29:59,480 interoperability they don't necessarily 590 00:29:55,579 --> 00:30:01,970 work yet with other legacy systems or 591 00:29:59,480 --> 00:30:03,589 with each other the internet one of the 592 00:30:01,970 --> 00:30:07,039 great innovations of the internet it 593 00:30:03,589 --> 00:30:08,779 became interoperable that all of these 594 00:30:07,039 --> 00:30:12,859 different websites could kind of speak 595 00:30:08,779 --> 00:30:15,200 with each other governance is a very big 596 00:30:12,859 --> 00:30:17,119 issue we'll talk about and one of the 597 00:30:15,200 --> 00:30:21,009 things about governance is it's hard to 598 00:30:17,119 --> 00:30:23,869 update the software of a blockchain 599 00:30:21,009 --> 00:30:26,029 because if you create a decentralized 600 00:30:23,869 --> 00:30:28,759 where no one's in control no one can 601 00:30:26,029 --> 00:30:32,089 collect economic rents you also don't 602 00:30:28,759 --> 00:30:35,089 have sort of somebody with the ability 603 00:30:32,089 --> 00:30:37,369 to necessarily update the software and 604 00:30:35,089 --> 00:30:39,949 we'll talk later about how Bitcoin 605 00:30:37,369 --> 00:30:43,389 updates its software and what Bitcoin 606 00:30:39,950 --> 00:30:46,130 core developers are and so forth but 607 00:30:43,390 --> 00:30:48,800 Facebook you do know one thing though 608 00:30:46,130 --> 00:30:51,980 there there a company that collects a 609 00:30:48,799 --> 00:30:55,159 lot of profits and economic rents off of 610 00:30:51,980 --> 00:30:59,930 their two billion members they know how 611 00:30:55,160 --> 00:31:02,950 to update their software it's it's a 612 00:30:59,930 --> 00:31:05,210 governance issue that's a real life 613 00:31:02,950 --> 00:31:07,460 challenge and that's why the financial 614 00:31:05,210 --> 00:31:10,940 sector says I'm not sure this works this 615 00:31:07,460 --> 00:31:12,740 is ready yet for me and then thus what 616 00:31:10,940 --> 00:31:15,680 are the commercial use cases and what 617 00:31:12,740 --> 00:31:17,539 are the public policy issues so right 618 00:31:15,680 --> 00:31:19,910 now the financial sector favors 619 00:31:17,539 --> 00:31:22,700 permission blockchains versus permission 620 00:31:19,910 --> 00:31:24,050 list this is going to be about four 621 00:31:22,700 --> 00:31:26,390 weeks from now we'll kind of go through 622 00:31:24,049 --> 00:31:29,180 these two differences but I want to just 623 00:31:26,390 --> 00:31:31,640 frame this briefly permission 624 00:31:29,180 --> 00:31:36,500 blockchains have a noun group of people 625 00:31:31,640 --> 00:31:38,180 who actually participate the half of you 626 00:31:36,500 --> 00:31:40,190 that said you've owned Bitcoin you know 627 00:31:38,180 --> 00:31:43,299 it to be something where anybody can 628 00:31:40,190 --> 00:31:47,180 update the ledger permission blockchains 629 00:31:43,299 --> 00:31:49,849 you can't do that in essence you pick 630 00:31:47,180 --> 00:31:51,830 the three or twenty the Australian Stock 631 00:31:49,849 --> 00:31:53,779 Exchange is updating their clearing and 632 00:31:51,829 --> 00:31:55,759 settling they announced they're doing a 633 00:31:53,779 --> 00:31:59,299 blockchain project they're doing it with 634 00:31:55,759 --> 00:32:02,019 digital assets and they're using the 635 00:31:59,299 --> 00:32:06,230 hyper ledger blockchain which is an IBM 636 00:32:02,019 --> 00:32:07,789 software open source software but the 637 00:32:06,230 --> 00:32:10,039 Australian Stock Exchange is going to 638 00:32:07,789 --> 00:32:12,680 put it on three computers which is 639 00:32:10,039 --> 00:32:14,230 called three nodes that they control all 640 00:32:12,680 --> 00:32:17,630 three of them 641 00:32:14,230 --> 00:32:19,880 the Depository Trust Corporation is 642 00:32:17,630 --> 00:32:22,400 looking at blockchain inspired solutions 643 00:32:19,880 --> 00:32:25,310 for some of their data warehouses but 644 00:32:22,400 --> 00:32:27,170 they too are gonna control the nodes I'm 645 00:32:25,309 --> 00:32:28,579 just giving it that's permission 646 00:32:27,170 --> 00:32:30,440 blockchains there's nothing wrong with 647 00:32:28,579 --> 00:32:33,019 that that's just how they are the 648 00:32:30,440 --> 00:32:35,059 they're looking at this permissionless 649 00:32:33,019 --> 00:32:36,920 block chains are like Bitcoin unknown 650 00:32:35,059 --> 00:32:40,129 participants securities based on 651 00:32:36,920 --> 00:32:44,300 incentives a crypto currency and crypto 652 00:32:40,130 --> 00:32:45,680 economics crypto finance is about two 653 00:32:44,299 --> 00:32:47,779 hundred billion but it you know you have 654 00:32:45,680 --> 00:32:49,039 to update these slides daily two days 655 00:32:47,779 --> 00:32:55,069 ago it was two hundred and thirty 656 00:32:49,039 --> 00:32:58,730 billion and this little pie chart is a 657 00:32:55,069 --> 00:33:00,059 little over half as Bitcoin the next 658 00:32:58,730 --> 00:33:02,549 slice is something called if the 659 00:33:00,059 --> 00:33:04,200 and then ripple and down the line we're 660 00:33:02,549 --> 00:33:07,230 not going to spend a lot of time in this 661 00:33:04,200 --> 00:33:10,500 this semester if you if your goal is to 662 00:33:07,230 --> 00:33:13,910 how can you profit and trade a trade 663 00:33:10,500 --> 00:33:16,740 Bitcoin and day trade ether god bless go 664 00:33:13,910 --> 00:33:18,920 prosper you could stay in the class 665 00:33:16,740 --> 00:33:22,609 I just won't give you much advice on it 666 00:33:18,920 --> 00:33:26,550 you know this is not a crypto investing 667 00:33:22,609 --> 00:33:29,279 centered class but I'm okay if that's 668 00:33:26,549 --> 00:33:32,659 what you're doing does anybody know what 669 00:33:29,279 --> 00:33:35,910 the worldwide capital market size is 670 00:33:32,660 --> 00:33:38,220 anybody want to guess you know this is 671 00:33:35,910 --> 00:33:42,540 200 billion what's it look like I've 672 00:33:38,220 --> 00:33:44,940 already said it's modest hundreds of 673 00:33:42,539 --> 00:33:48,180 trillions global equity about 80 674 00:33:44,940 --> 00:33:54,150 trillion global bond and debt markets 675 00:33:48,180 --> 00:33:56,690 250 trillion so it's still quite modest 676 00:33:54,150 --> 00:34:01,280 compared to that broad breadth of 677 00:33:56,690 --> 00:34:04,860 capital formation and gold 678 00:34:01,279 --> 00:34:07,440 if bitcoins digital gold what's the 679 00:34:04,859 --> 00:34:14,339 value of gold all the gold that's ever 680 00:34:07,440 --> 00:34:17,130 been 7 trillion so just give you sense 681 00:34:14,340 --> 00:34:19,320 of scale so there's also something 682 00:34:17,130 --> 00:34:22,070 that's interesting about this space is 683 00:34:19,320 --> 00:34:25,200 that it's out sized public attention 684 00:34:22,070 --> 00:34:30,480 even as evidenced by the hundred of you 685 00:34:25,199 --> 00:34:32,509 in this room versus the size it is real 686 00:34:30,480 --> 00:34:35,400 relative to the capital markets today 687 00:34:32,510 --> 00:34:37,620 you know there's a bunch of public 688 00:34:35,400 --> 00:34:39,750 policy issues we'll have a lecture I'm a 689 00:34:37,619 --> 00:34:42,329 former regulator I ran the Commodity 690 00:34:39,750 --> 00:34:44,519 Futures Trading Commission so but this 691 00:34:42,329 --> 00:34:46,440 course is not about regulation though we 692 00:34:44,519 --> 00:34:49,500 have to always come back to regulation 693 00:34:46,440 --> 00:34:52,079 we always have to infuse what we're 694 00:34:49,500 --> 00:34:53,579 doing with the regulation but let me 695 00:34:52,079 --> 00:34:56,009 just give you a little framework and 696 00:34:53,579 --> 00:34:58,139 then you'll have to be bored and a 697 00:34:56,010 --> 00:35:00,120 handful of weeks and read I gave some 698 00:34:58,139 --> 00:35:04,799 congressional testimony on it yes it 699 00:35:00,119 --> 00:35:07,859 will be required reading sorry but it's 700 00:35:04,800 --> 00:35:11,970 guarding against illicit activity a lot 701 00:35:07,860 --> 00:35:13,470 of Bitcoin and crypto currencies started 702 00:35:11,969 --> 00:35:16,679 out in the cyber 703 00:35:13,469 --> 00:35:19,858 Punk sort of movement and and 704 00:35:16,679 --> 00:35:21,809 libertarian movement so forth and it is 705 00:35:19,858 --> 00:35:24,509 true you can use this for illicit 706 00:35:21,809 --> 00:35:27,329 activity absolutely but I would say 707 00:35:24,510 --> 00:35:31,369 crime is not new just the mechanisms and 708 00:35:27,329 --> 00:35:34,409 means are new and and so the criminals 709 00:35:31,369 --> 00:35:36,530 yes will use this and have used it for a 710 00:35:34,409 --> 00:35:39,089 listed activity financial stability 711 00:35:36,530 --> 00:35:42,570 central bankers around the globe sort of 712 00:35:39,090 --> 00:35:44,940 will this shape finance well it's only 713 00:35:42,570 --> 00:35:46,650 two hundred billion the financial 714 00:35:44,940 --> 00:35:49,108 markets are three hundred trillion plus 715 00:35:46,650 --> 00:35:52,470 not yet is generally what they're saying 716 00:35:49,108 --> 00:35:54,989 but for some countries it's a way to get 717 00:35:52,469 --> 00:35:56,909 around capital controls and so for those 718 00:35:54,989 --> 00:35:59,519 countries worried about capital controls 719 00:35:56,909 --> 00:36:02,629 it's a very real and live set of issues 720 00:35:59,519 --> 00:36:05,909 and then protecting the investing public 721 00:36:02,630 --> 00:36:07,829 and when we do this in a few weeks I'll 722 00:36:05,909 --> 00:36:10,469 go through each of these the investor 723 00:36:07,829 --> 00:36:14,039 protection issues and yes the sec how we 724 00:36:10,469 --> 00:36:16,500 test and and the like for those who wish 725 00:36:14,039 --> 00:36:17,039 to do their own initial coin off right 726 00:36:16,500 --> 00:36:21,059 now 727 00:36:17,039 --> 00:36:24,719 give some you know broad sense of what 728 00:36:21,059 --> 00:36:26,190 the sec is trying to accomplish but it's 729 00:36:24,719 --> 00:36:27,899 a moving target so this is a very 730 00:36:26,190 --> 00:36:30,720 interesting as opposed to many of your 731 00:36:27,900 --> 00:36:33,559 sloan classes or your c cell classes or 732 00:36:30,719 --> 00:36:36,598 media lab classes this is a very 733 00:36:33,559 --> 00:36:39,389 unsettled area of public policy so it 734 00:36:36,599 --> 00:36:41,670 makes it interesting and and and and if 735 00:36:39,389 --> 00:36:43,829 you all go off and form companies you 736 00:36:41,670 --> 00:36:46,858 will actually be helping sort of set the 737 00:36:43,829 --> 00:36:49,009 the the edge of that public policy of 738 00:36:46,858 --> 00:36:52,139 debate I had always say just remember 739 00:36:49,010 --> 00:36:54,390 poet Riley the duck test this is a poet 740 00:36:52,139 --> 00:36:56,608 Indiana poets those that aren't from the 741 00:36:54,389 --> 00:36:58,559 US might not know the duck test but 742 00:36:56,608 --> 00:37:00,389 basically if it quacks like a duck and 743 00:36:58,559 --> 00:37:01,679 walks like a duck it's a duck so 744 00:37:00,389 --> 00:37:05,789 whenever you're thinking about public 745 00:37:01,679 --> 00:37:09,379 policy folks like myself who once was a 746 00:37:05,789 --> 00:37:12,300 regulator we think in the duck test and 747 00:37:09,380 --> 00:37:16,130 then we secondarily think about the 748 00:37:12,300 --> 00:37:18,900 actual words in the congressional act 749 00:37:16,130 --> 00:37:21,030 you know where's the common sense and if 750 00:37:18,900 --> 00:37:24,420 it quacks and walks like a duck it's 751 00:37:21,030 --> 00:37:26,810 probably a security or it's probably 752 00:37:24,420 --> 00:37:29,420 this or that 753 00:37:26,809 --> 00:37:32,269 the incumbents like this Linus in the 754 00:37:29,420 --> 00:37:34,400 corner are eyeing this space because 755 00:37:32,269 --> 00:37:36,199 there's a lot of volatility and Wall 756 00:37:34,400 --> 00:37:38,389 Street makes money on volatility 757 00:37:36,199 --> 00:37:40,789 volatility is the friend of Wall Street 758 00:37:38,389 --> 00:37:42,920 it might not be the friend of investors 759 00:37:40,789 --> 00:37:44,750 but it's a friend of Wall Street they 760 00:37:42,920 --> 00:37:48,440 also like the trading volumes and the 761 00:37:44,750 --> 00:37:50,469 spreads coinbase the largest crypto 762 00:37:48,440 --> 00:37:53,570 exchange here in the US has 20 million 763 00:37:50,469 --> 00:37:55,459 accounts they might not all be active 764 00:37:53,570 --> 00:37:57,860 but that's the size of Fidelity's 765 00:37:55,460 --> 00:38:01,670 membership or account list and twice de 766 00:37:57,860 --> 00:38:03,769 Shaw and Robin Hood how many of you have 767 00:38:01,670 --> 00:38:07,940 ever used Robin Hood is a trading app 768 00:38:03,769 --> 00:38:11,210 Wow half of you so you know free trading 769 00:38:07,940 --> 00:38:13,369 right 5 million members for those who 770 00:38:11,210 --> 00:38:16,159 don't know you can download Robin Hood 771 00:38:13,369 --> 00:38:20,089 and you can trade stocks for free 772 00:38:16,159 --> 00:38:22,190 no Commission and if anybody's 773 00:38:20,090 --> 00:38:23,829 interested show up and I'll do office 774 00:38:22,190 --> 00:38:26,300 hours when the hell Robin Hood 775 00:38:23,829 --> 00:38:29,599 commercializes they commercialize your 776 00:38:26,300 --> 00:38:32,240 your order flow and they make money 777 00:38:29,599 --> 00:38:34,670 without charging your commissions but 778 00:38:32,239 --> 00:38:38,329 it's a sort of wonderful app Millennials 779 00:38:34,670 --> 00:38:40,070 love it 5 million members already so you 780 00:38:38,329 --> 00:38:41,869 better believe de Shah and the 781 00:38:40,070 --> 00:38:44,690 incumbents are worried about things like 782 00:38:41,869 --> 00:38:46,940 that the startups are also more willing 783 00:38:44,690 --> 00:38:48,950 to beg for forgiveness from regulators 784 00:38:46,940 --> 00:38:50,539 they're willing to sort of take risks 785 00:38:48,949 --> 00:38:53,210 and beg for forgiveness whereas 786 00:38:50,539 --> 00:38:55,699 incumbents tend to have to ask for 787 00:38:53,210 --> 00:39:00,230 permission so there's an unlevel field 788 00:38:55,699 --> 00:39:03,439 that always it's a asymmetric business 789 00:39:00,230 --> 00:39:07,809 set of risk about regulatory risk not 790 00:39:03,440 --> 00:39:11,780 always I'm not like crying for JP Morgan 791 00:39:07,809 --> 00:39:14,809 I mean the big incumbents have also they 792 00:39:11,780 --> 00:39:16,790 have their advantages and coinbase is 793 00:39:14,809 --> 00:39:20,059 becoming an incumbent rather than just a 794 00:39:16,789 --> 00:39:22,550 you know startup in a sense and we'll 795 00:39:20,059 --> 00:39:25,309 talk during the semester about some of 796 00:39:22,550 --> 00:39:27,170 the incumbents where we're probably 797 00:39:25,309 --> 00:39:28,549 going to get Jeff sprecher here in 798 00:39:27,170 --> 00:39:30,320 mid-november he's going to talk to you 799 00:39:28,550 --> 00:39:31,820 about what IntercontinentalExchange in 800 00:39:30,320 --> 00:39:33,920 the New York Stock Exchange is doing 801 00:39:31,820 --> 00:39:36,380 with Starbucks and Microsoft and the 802 00:39:33,920 --> 00:39:37,550 like the financial sector use cases I'm 803 00:39:36,380 --> 00:39:39,320 not going to go through these but this 804 00:39:37,550 --> 00:39:40,130 is the second half of the course is 805 00:39:39,320 --> 00:39:42,530 going to go through 806 00:39:40,130 --> 00:39:44,930 each of these and we'll do one to two 807 00:39:42,530 --> 00:39:47,840 sessions on each payment system central 808 00:39:44,929 --> 00:39:51,319 bank digital currency secondary market 809 00:39:47,840 --> 00:39:53,090 trading the venture capital and initial 810 00:39:51,320 --> 00:39:57,710 coin offering space we'll do two a 811 00:39:53,090 --> 00:39:59,410 course on that and move through so what 812 00:39:57,710 --> 00:40:02,240 are we gonna do in this whole course 813 00:39:59,409 --> 00:40:03,259 basically our goal is to learn the 814 00:40:02,239 --> 00:40:05,389 fundamentals 815 00:40:03,260 --> 00:40:08,510 it's about roughly the first half of the 816 00:40:05,389 --> 00:40:10,099 course pivot to two sessions on the 817 00:40:08,510 --> 00:40:11,690 economics we're gonna be talking about 818 00:40:10,099 --> 00:40:13,849 the economics throughout the whole 819 00:40:11,690 --> 00:40:16,039 course but I want to I want to really 820 00:40:13,849 --> 00:40:20,329 just focus drill down on the economics 821 00:40:16,039 --> 00:40:22,340 of 1/2 of the discussions and then riff 822 00:40:20,329 --> 00:40:26,349 through the financial space for the 823 00:40:22,340 --> 00:40:29,120 second yeah that's our journey together 824 00:40:26,349 --> 00:40:31,670 to me it's for anybody who wants to gain 825 00:40:29,119 --> 00:40:35,029 critical reasoning skills this is not 826 00:40:31,670 --> 00:40:36,769 just kind of a hey this is going to 827 00:40:35,030 --> 00:40:41,570 change the world and revolutionize 828 00:40:36,769 --> 00:40:44,420 everything class and so I basically 829 00:40:41,570 --> 00:40:46,820 think of an old Defense Department term 830 00:40:44,420 --> 00:40:48,619 called ground truths it's when the 831 00:40:46,820 --> 00:40:50,930 general doesn't really know what's going 832 00:40:48,619 --> 00:40:53,349 on but needs to figure it out and needs 833 00:40:50,929 --> 00:40:55,819 to talk to that you know that that 834 00:40:53,349 --> 00:40:58,250 corporal on the ground who's got dirt 835 00:40:55,820 --> 00:41:00,110 you know all over woman and it's been 836 00:40:58,250 --> 00:41:02,360 shot up and says here's the real ground 837 00:41:00,110 --> 00:41:04,490 truth we're gonna try to talk about 838 00:41:02,360 --> 00:41:07,430 ground truth in this in this in this 839 00:41:04,489 --> 00:41:09,919 class and separate the mere assertion 840 00:41:07,429 --> 00:41:13,750 from the hype and some of your readings 841 00:41:09,920 --> 00:41:16,970 will be some real Bitcoin and blockchain 842 00:41:13,750 --> 00:41:19,190 minimalist from Nouriel Roubini that 843 00:41:16,969 --> 00:41:22,250 uses words I'm not supposed to repeat on 844 00:41:19,190 --> 00:41:25,730 a recording about this stuff to Paul 845 00:41:22,250 --> 00:41:28,849 Krugman who and and Joe Stiglitz and 846 00:41:25,730 --> 00:41:31,849 other Nobel laureates who say no it's 847 00:41:28,849 --> 00:41:33,650 not gonna work or Warren Buffett to to 848 00:41:31,849 --> 00:41:37,190 maximalists we're gonna we're gonna try 849 00:41:33,650 --> 00:41:38,930 to cover both sides Larry Lessig is 850 00:41:37,190 --> 00:41:42,610 honoring me because he's in the back of 851 00:41:38,929 --> 00:41:45,109 the class who's an enormous Lee esteemed 852 00:41:42,610 --> 00:41:47,090 professor from Harvard I didn't know 853 00:41:45,110 --> 00:41:49,820 Larry was gonna be here and I did the 854 00:41:47,090 --> 00:41:54,190 slide before but in 1999 I think you 855 00:41:49,820 --> 00:41:56,740 wrote this book Larry is that right 856 00:41:54,190 --> 00:41:58,269 code and other laws of cyberspace I put 857 00:41:56,739 --> 00:42:01,679 you in though but I think it's 858 00:41:58,269 --> 00:42:04,599 worthwhile to think about Larry's four 859 00:42:01,679 --> 00:42:06,519 bits here and I don't know Larry if you 860 00:42:04,599 --> 00:42:08,949 want to say anything but I'm gonna try 861 00:42:06,519 --> 00:42:11,679 to infuse this course in just how you 862 00:42:08,949 --> 00:42:14,139 think about this the tech we're at MIT 863 00:42:11,679 --> 00:42:15,909 the technology and we're gonna get you a 864 00:42:14,139 --> 00:42:19,119 lot of technology if you want more than 865 00:42:15,909 --> 00:42:23,409 I can give you is is is a former finance 866 00:42:19,119 --> 00:42:25,900 sort of type my whole life there's gonna 867 00:42:23,409 --> 00:42:28,629 be a bunch of computer science people in 868 00:42:25,900 --> 00:42:30,460 the class we're gonna hook and you up 869 00:42:28,630 --> 00:42:33,640 together with the folks from the Media 870 00:42:30,460 --> 00:42:35,829 Lab and see Sal and and try to connect 871 00:42:33,639 --> 00:42:38,529 you to the technology side if you want 872 00:42:35,829 --> 00:42:41,739 to swim deeper in that pond but the 873 00:42:38,530 --> 00:42:43,780 technology really really matters and 874 00:42:41,739 --> 00:42:45,909 that's why we are going to go through 875 00:42:43,780 --> 00:42:48,640 hash functions and go through asymmetric 876 00:42:45,909 --> 00:42:52,329 cryptography and so forth from a 877 00:42:48,639 --> 00:42:55,389 business perspective markets matter why 878 00:42:52,329 --> 00:42:57,549 is it that incumbents or startups or are 879 00:42:55,389 --> 00:42:59,109 not doing this and that why is it ten 880 00:42:57,550 --> 00:43:02,350 years in and nobody's got an 881 00:42:59,110 --> 00:43:05,500 enterprise-wide solution yet to payments 882 00:43:02,349 --> 00:43:09,400 that use block J the law matters the 883 00:43:05,500 --> 00:43:14,199 public policy side matters and the forth 884 00:43:09,400 --> 00:43:16,389 of Larry's layout social norms that's a 885 00:43:14,199 --> 00:43:18,579 little harder for me to teach that's not 886 00:43:16,389 --> 00:43:20,889 what this class is about but it is also 887 00:43:18,579 --> 00:43:23,380 a flex all this it's not just the 888 00:43:20,889 --> 00:43:25,059 technology the markets and the law so 889 00:43:23,380 --> 00:43:26,860 it's not just a three-legged store it's 890 00:43:25,059 --> 00:43:29,219 kind of a four legged stool how'd I do 891 00:43:26,860 --> 00:43:29,220 Larry 892 00:43:29,380 --> 00:43:34,989 I really didn't know Harry is gonna be 893 00:43:31,869 --> 00:43:38,890 here so but I wanted to give you a 894 00:43:34,989 --> 00:43:41,728 framework for how your faculty member 895 00:43:38,889 --> 00:43:45,219 thinks and will be on this journey 896 00:43:41,728 --> 00:43:46,748 together range of perspectives we're not 897 00:43:45,219 --> 00:43:50,469 gonna be a Bitcoin minimalist or 898 00:43:46,748 --> 00:43:53,259 maximalist I'm probably to be self 899 00:43:50,469 --> 00:43:58,058 disclosed here a little bit center 900 00:43:53,259 --> 00:44:00,429 minimalist on Bitcoin smart contract 901 00:43:58,059 --> 00:44:03,569 minimalist max list I'm probably pretty 902 00:44:00,429 --> 00:44:14,739 Center Larry's probably a little bit 903 00:44:03,568 --> 00:44:16,509 center maximalist I'm guessing so you're 904 00:44:14,739 --> 00:44:22,179 still you're still center or Center 905 00:44:16,509 --> 00:44:25,719 minimalist what smart contracts and then 906 00:44:22,179 --> 00:44:28,328 blockchain maximalist or minimalist I'd 907 00:44:25,719 --> 00:44:30,459 say a few weeks ago I was kind of Center 908 00:44:28,329 --> 00:44:36,160 maximalist and I'm sort of skidding back 909 00:44:30,460 --> 00:44:39,460 to the middle permissioned blockchain 910 00:44:36,159 --> 00:44:41,889 I'm a little bit more you know and 911 00:44:39,460 --> 00:44:45,329 there's some in here Allah is one of 912 00:44:41,889 --> 00:44:47,920 your Sloan cohort that you might know 913 00:44:45,329 --> 00:44:51,068 six months ago when we met was working 914 00:44:47,920 --> 00:44:53,019 on a permissionless system and now 915 00:44:51,068 --> 00:44:56,498 you're working on a permission system 916 00:44:53,018 --> 00:44:59,139 you have a startup yeah cuz like you've 917 00:44:56,498 --> 00:45:01,389 bounced up into the market realities is 918 00:44:59,139 --> 00:45:03,548 and we're gonna talk a lot in this 919 00:45:01,389 --> 00:45:06,338 course about critical thinking about 920 00:45:03,548 --> 00:45:08,768 when do you really need the advantage of 921 00:45:06,338 --> 00:45:13,150 a decentralized peer-to-peer system 922 00:45:08,768 --> 00:45:17,139 where the costs of trusts are such that 923 00:45:13,150 --> 00:45:18,969 that's the right way to go but I am one 924 00:45:17,139 --> 00:45:21,129 who thinks that there's also so much 925 00:45:18,969 --> 00:45:23,019 economic rents in the financial system 926 00:45:21,130 --> 00:45:24,818 that's that one and a half trillion 927 00:45:23,018 --> 00:45:27,189 dollars of revenues or seven and a half 928 00:45:24,818 --> 00:45:28,659 percent of our economy or just two 929 00:45:27,190 --> 00:45:30,818 hundred billion in the payment systems 930 00:45:28,659 --> 00:45:32,818 for instance that there may be times 931 00:45:30,818 --> 00:45:35,558 that you don't really need a 932 00:45:32,818 --> 00:45:37,630 decentralized system but it just might 933 00:45:35,559 --> 00:45:40,150 be your opportunity to tuck in 934 00:45:37,630 --> 00:45:43,450 underneath all of those economic rents 935 00:45:40,150 --> 00:45:47,579 and all those revenues now in 936 00:45:43,449 --> 00:45:50,259 Vince will react you poke an incumbent 937 00:45:47,579 --> 00:45:51,880 commercially pokum I mean and they're 938 00:45:50,260 --> 00:45:54,040 gonna react and that's why I think 939 00:45:51,880 --> 00:45:57,220 blockchain may well be a catalyst for 940 00:45:54,039 --> 00:46:01,119 change even if incumbents then adopt a 941 00:45:57,219 --> 00:46:03,609 lot of that inside the requirements of 942 00:46:01,119 --> 00:46:05,769 the course class participation is a hard 943 00:46:03,610 --> 00:46:08,590 thing to judge is a faculty member when 944 00:46:05,769 --> 00:46:12,940 I have this many people so but I always 945 00:46:08,590 --> 00:46:18,400 think class participation matters we 946 00:46:12,940 --> 00:46:21,070 made it 30% it which if you have any 947 00:46:18,400 --> 00:46:24,220 advice on this a next semester 948 00:46:21,070 --> 00:46:25,960 30% to to individual write-ups one in 949 00:46:24,219 --> 00:46:28,750 the first half which is up to I think 950 00:46:25,960 --> 00:46:31,119 lecture 10 which is basically the 951 00:46:28,750 --> 00:46:32,679 blockchain fundamentals you pick a topic 952 00:46:31,119 --> 00:46:34,719 I don't care which one 953 00:46:32,679 --> 00:46:36,699 but it's you'll get you'll get a much 954 00:46:34,719 --> 00:46:39,219 better grade if it's about critical 955 00:46:36,699 --> 00:46:43,119 reasoning if it's really taking whatever 956 00:46:39,219 --> 00:46:46,389 those sets of writings are and and and 957 00:46:43,119 --> 00:46:49,839 and and not just repeating that which is 958 00:46:46,389 --> 00:46:51,609 in the readings but really going the 959 00:46:49,840 --> 00:46:54,370 next step in saying here's what's going 960 00:46:51,610 --> 00:46:57,730 on and this is a business goal you don't 961 00:46:54,369 --> 00:46:59,980 have to you know convince me that you 962 00:46:57,730 --> 00:47:02,139 know something about computer science 963 00:46:59,980 --> 00:47:05,230 it's like critical reasoning about the 964 00:47:02,139 --> 00:47:07,269 economic opportunities the strengths the 965 00:47:05,230 --> 00:47:08,920 weaknesses the opportunities the threats 966 00:47:07,269 --> 00:47:12,789 that old business school sort of saying 967 00:47:08,920 --> 00:47:14,980 of swaths with regard to that week's 968 00:47:12,789 --> 00:47:17,860 whether it's about hash functions early 969 00:47:14,980 --> 00:47:19,840 on cryptography or you sort of wait 970 00:47:17,860 --> 00:47:22,210 during the foundational period to 971 00:47:19,840 --> 00:47:25,390 permission versus permissionless you 972 00:47:22,210 --> 00:47:28,059 pick but to please hand it in before 973 00:47:25,389 --> 00:47:29,589 that classes lecture because I might 974 00:47:28,059 --> 00:47:31,299 during the lecture say who wrote today 975 00:47:29,590 --> 00:47:33,570 do you want to tell us what you think 976 00:47:31,300 --> 00:47:36,370 and it might help spur the class 977 00:47:33,570 --> 00:47:38,470 participation and then a second write-up 978 00:47:36,369 --> 00:47:42,400 in the second half when we're riffing 979 00:47:38,469 --> 00:47:46,389 through the use cases again critical 980 00:47:42,400 --> 00:47:50,260 reasoning and then lastly the usual 981 00:47:46,389 --> 00:47:52,420 approach of teams of up to four no I 982 00:47:50,260 --> 00:47:55,420 don't want teams of five 983 00:47:52,420 --> 00:47:59,500 to handle that right now three or four 984 00:47:55,420 --> 00:48:01,659 just and and and somewhere in the second 985 00:47:59,500 --> 00:48:04,539 half of this semester we'll talk about 986 00:48:01,659 --> 00:48:06,219 more the content and there's a couple of 987 00:48:04,539 --> 00:48:10,089 you in here that worked with me last 988 00:48:06,219 --> 00:48:12,699 semester and a smaller group you know I 989 00:48:10,088 --> 00:48:14,288 want you to do well so I'm gonna sort of 990 00:48:12,699 --> 00:48:16,318 give you a sense of like what do we want 991 00:48:14,289 --> 00:48:18,849 to do but it's basically the idea is 992 00:48:16,318 --> 00:48:22,298 you're an entrepreneur or you're an 993 00:48:18,849 --> 00:48:24,700 incumbent and what sort of use case or 994 00:48:22,298 --> 00:48:27,068 you're gonna pick and and and whether 995 00:48:24,699 --> 00:48:30,338 it's permissioned or permissionless sort 996 00:48:27,068 --> 00:48:32,710 of make a proposal do a use case use 997 00:48:30,338 --> 00:48:35,889 your critical reasoning around this new 998 00:48:32,710 --> 00:48:37,000 technology somewhere in the broad world 999 00:48:35,889 --> 00:48:39,909 of finance 1000 00:48:37,000 --> 00:48:42,518 I mean you know and I'm glad that define 1001 00:48:39,909 --> 00:48:46,568 finance really broad you know you'll 1002 00:48:42,518 --> 00:48:50,889 pick so that's that's kind of a peace 1003 00:48:46,568 --> 00:48:52,690 act one or the fundamentals I won't go 1004 00:48:50,889 --> 00:48:56,139 through each of the pieces but you know 1005 00:48:52,690 --> 00:49:00,159 that's in the syllabus of course Act two 1006 00:48:56,139 --> 00:49:06,239 is the pivot of the economics and Act 1007 00:49:00,159 --> 00:49:08,920 three our financial sector use cases and 1008 00:49:06,239 --> 00:49:11,979 hopefully throughout law will have a lot 1009 00:49:08,920 --> 00:49:15,430 of fun so the study questions for next 1010 00:49:11,980 --> 00:49:17,440 Tuesday real quick what are the roles 1011 00:49:15,429 --> 00:49:19,929 and characteristics of money so I really 1012 00:49:17,440 --> 00:49:22,778 want to sort of dig behind money money 1013 00:49:19,929 --> 00:49:27,909 is but a social construct or a social 1014 00:49:22,778 --> 00:49:30,489 convention medium of exchange store 1015 00:49:27,909 --> 00:49:33,098 value unit of account there's some 1016 00:49:30,489 --> 00:49:37,479 readings about the debate whether money 1017 00:49:33,099 --> 00:49:40,930 first came from the border system or a 1018 00:49:37,480 --> 00:49:42,730 really good set of anthropologist and 1019 00:49:40,929 --> 00:49:44,288 and and and archaeologists and 1020 00:49:42,730 --> 00:49:46,630 everything say no it actually came as a 1021 00:49:44,289 --> 00:49:48,490 ledger system and no one knows for sure 1022 00:49:46,630 --> 00:49:50,798 at ten and fifteen thousand years ago 1023 00:49:48,489 --> 00:49:53,558 whether money came from the out of the 1024 00:49:50,798 --> 00:49:55,989 border system or more as a unit of 1025 00:49:53,559 --> 00:49:58,390 account keeping account of credits and 1026 00:49:55,989 --> 00:49:59,768 ledger but I'd say when you read through 1027 00:49:58,389 --> 00:50:01,449 some of those readings you start to 1028 00:49:59,768 --> 00:50:05,469 think well this is just a societal 1029 00:50:01,449 --> 00:50:06,219 construct and so that I will get behind 1030 00:50:05,469 --> 00:50:08,649 that what is 1031 00:50:06,219 --> 00:50:10,149 fiat currency fiat currency which is an 1032 00:50:08,650 --> 00:50:11,710 invention really only over the last few 1033 00:50:10,150 --> 00:50:14,230 hundred years and we take for granted 1034 00:50:11,710 --> 00:50:16,809 Dale but how does that fit into that 1035 00:50:14,230 --> 00:50:20,108 whole history and importantly how to 1036 00:50:16,809 --> 00:50:23,739 Ledger's accounting Ledger's I know 1037 00:50:20,108 --> 00:50:25,809 boring stuff but it's probably why we 1038 00:50:23,739 --> 00:50:27,699 came out of the dark ages so about five 1039 00:50:25,809 --> 00:50:31,719 or six hundred years ago with double 1040 00:50:27,699 --> 00:50:35,858 entry bookkeeping sorry hi I like 1041 00:50:31,719 --> 00:50:37,779 Ledger's we'll talk a little bit about 1042 00:50:35,858 --> 00:50:41,009 Ledger's and how that fits into money 1043 00:50:37,780 --> 00:50:44,619 and securities and so forth and then 1044 00:50:41,010 --> 00:50:47,410 layering in how Bitcoin fits on top of 1045 00:50:44,619 --> 00:50:49,329 that history next Tuesday is not deeply 1046 00:50:47,409 --> 00:50:53,500 about Bitcoin it's just a little dollop 1047 00:50:49,329 --> 00:50:56,319 on that there'll be five or six readings 1048 00:50:53,500 --> 00:50:58,989 one of them is a three-minute video the 1049 00:50:56,320 --> 00:51:02,369 third one it's fun watch it's just a 1050 00:50:58,989 --> 00:51:05,439 funny little video on what money is 1051 00:51:02,369 --> 00:51:07,750 there's no need to read nakamoto's full 1052 00:51:05,440 --> 00:51:11,230 paper when I said the email I mean just 1053 00:51:07,750 --> 00:51:12,880 the cover email it's one paragraph my 1054 00:51:11,230 --> 00:51:15,880 goal in the readings each week was not 1055 00:51:12,880 --> 00:51:18,160 an each session was by and Lord to try 1056 00:51:15,880 --> 00:51:19,720 to keep less than 50 pages you'd say 1057 00:51:18,159 --> 00:51:21,779 you're gonna look sometimes you go it 1058 00:51:19,719 --> 00:51:24,309 looks like it's more and maybe it is I 1059 00:51:21,780 --> 00:51:27,490 figure you're all gonna figure out for 1060 00:51:24,309 --> 00:51:29,559 yourself how to sort through the depth 1061 00:51:27,489 --> 00:51:31,509 of your knowledge but I will predict 1062 00:51:29,559 --> 00:51:33,279 that some of you may be as much as a 1063 00:51:31,510 --> 00:51:35,470 quarter or a third of you are gonna go 1064 00:51:33,280 --> 00:51:37,570 down a rabbit hole one day and you're 1065 00:51:35,469 --> 00:51:40,088 gonna be doing blockchain for the next 1066 00:51:37,570 --> 00:51:43,269 48 hours and you won't know where the 1067 00:51:40,088 --> 00:51:45,219 time went because it is an addiction at 1068 00:51:43,269 --> 00:51:49,000 some point that some of you will get 1069 00:51:45,219 --> 00:51:51,519 because this is curious notion I'm not 1070 00:51:49,000 --> 00:51:53,320 predicting that infirmity for all of you 1071 00:51:51,519 --> 00:51:55,358 I'm just saying some of you will have 1072 00:51:53,320 --> 00:51:57,400 that happen to you so occasionally I 1073 00:51:55,358 --> 00:52:02,199 have readings just white a lot it's 1074 00:51:57,400 --> 00:52:03,849 happen to you let me just conclude and 1075 00:52:02,199 --> 00:52:07,029 then take any other questions and light 1076 00:52:03,849 --> 00:52:09,789 up their blockchain I think does provide 1077 00:52:07,030 --> 00:52:12,460 a peer-to-peer alternative I think that 1078 00:52:09,789 --> 00:52:15,608 I hope Larry I'll be able to convince it 1079 00:52:12,460 --> 00:52:18,190 does provide and that peer-to-peer 1080 00:52:15,608 --> 00:52:19,420 alternative addresses cost of trust it 1081 00:52:18,190 --> 00:52:19,929 doesn't mean it's the only way to 1082 00:52:19,420 --> 00:52:21,670 address 1083 00:52:19,929 --> 00:52:25,149 cost the trust but addresses cost a 1084 00:52:21,670 --> 00:52:27,909 trust the financial sector does have 1085 00:52:25,150 --> 00:52:29,440 challenges not just that it has 1086 00:52:27,909 --> 00:52:32,980 seven-and-a-half percent of our economy 1087 00:52:29,440 --> 00:52:36,880 in the US and similar ratios around the 1088 00:52:32,980 --> 00:52:39,670 globe but resilience how it survives 1089 00:52:36,880 --> 00:52:43,030 shocks the financial crisis and things 1090 00:52:39,670 --> 00:52:45,519 like that are real and inclusion one 1091 00:52:43,030 --> 00:52:48,519 point seven billion people unbanked but 1092 00:52:45,519 --> 00:52:50,289 then if you look at other products who 1093 00:52:48,519 --> 00:52:53,369 has access to credit cards and mortgages 1094 00:52:50,289 --> 00:52:56,139 and the like and then fiat currencies 1095 00:52:53,369 --> 00:52:58,299 Ken Rogoff and others have written a lot 1096 00:52:56,139 --> 00:53:00,519 about the instabilities that come that 1097 00:52:58,300 --> 00:53:02,560 fiat currencies and we'll talk about 1098 00:53:00,519 --> 00:53:07,210 some of the history why central bank's 1099 00:53:02,559 --> 00:53:09,099 exist and how they they came about next 1100 00:53:07,210 --> 00:53:11,769 key point is we already live in an 1101 00:53:09,099 --> 00:53:15,159 electronic age Satoshi Nakamoto and 1102 00:53:11,769 --> 00:53:19,599 Bitcoin didn't create electronic cash 1103 00:53:15,159 --> 00:53:22,469 electronic cash I mean Sandra Bullock 1104 00:53:19,599 --> 00:53:26,259 couldn't pay electronically that was 1105 00:53:22,469 --> 00:53:30,909 1995 they did a sort of berated movie 1106 00:53:26,260 --> 00:53:34,660 about it all but by today you pay your 1107 00:53:30,909 --> 00:53:37,059 tuition online those of you who work get 1108 00:53:34,659 --> 00:53:43,029 paid online you pay your auto loans 1109 00:53:37,059 --> 00:53:46,840 online most of our lives are electronic 1110 00:53:43,030 --> 00:53:49,450 cash not a hundred percent but in some 1111 00:53:46,840 --> 00:53:53,950 countries like Sweden it's getting very 1112 00:53:49,449 --> 00:53:56,169 close to a hundred percent we'll learn 1113 00:53:53,949 --> 00:54:02,049 together and discover that monies but a 1114 00:53:56,170 --> 00:54:03,730 social and economic consensus blockchain 1115 00:54:02,050 --> 00:54:05,500 technology along the crypto finance 1116 00:54:03,730 --> 00:54:10,179 might be a catalyst for change and 1117 00:54:05,500 --> 00:54:12,309 they're much masquerades as fact but 1118 00:54:10,179 --> 00:54:15,159 it's only mere assertion we're gonna try 1119 00:54:12,309 --> 00:54:17,949 to sort through you know that those 1120 00:54:15,159 --> 00:54:19,629 differences that doesn't mean that all 1121 00:54:17,949 --> 00:54:22,000 of you are gonna walk out agreeing with 1122 00:54:19,630 --> 00:54:25,450 Paul Krugman a Nobel laureate or Nouriel 1123 00:54:22,000 --> 00:54:29,309 Roubini that this is just a bunch of 1124 00:54:25,449 --> 00:54:31,809 nonsense some of you might by the way 1125 00:54:29,309 --> 00:54:33,250 but but I think you'll come out with 1126 00:54:31,809 --> 00:54:35,380 real critical 1127 00:54:33,250 --> 00:54:37,510 thinking skills and I hope that some of 1128 00:54:35,380 --> 00:54:40,809 you will say I figured out actually 1129 00:54:37,510 --> 00:54:42,520 where there's a real opportunity in the 1130 00:54:40,809 --> 00:54:45,130 world of finance to use blockchain 1131 00:54:42,519 --> 00:54:49,389 technology and make it a better 1132 00:54:45,130 --> 00:54:52,360 financial sector democratizing finance 1133 00:54:49,389 --> 00:54:55,779 or somehow providing a service at a 1134 00:54:52,360 --> 00:54:58,269 lower cost of better service throughout 1135 00:54:55,780 --> 00:55:00,130 I hope throughout that we'll learn 1136 00:54:58,269 --> 00:55:00,989 together and we'll have a bit of fun 1137 00:55:00,130 --> 00:55:04,480 along the way 1138 00:55:00,989 --> 00:55:10,029 that's kind of my thoughts questions we 1139 00:55:04,480 --> 00:55:12,280 have exactly what 18 minutes there you 1140 00:55:10,030 --> 00:55:16,240 go but we can cut it short - I don't 1141 00:55:12,280 --> 00:55:18,250 care there we go did you tell me your 1142 00:55:16,239 --> 00:55:20,799 name and we're gonna do placards Ryan's 1143 00:55:18,250 --> 00:55:30,030 gonna work to figure out you do placards 1144 00:55:20,800 --> 00:55:33,130 cuz it's I wonder how our team's form 1145 00:55:30,030 --> 00:55:35,800 traditionally anybody it's slow and can 1146 00:55:33,130 --> 00:55:38,170 speak to this too but students do it 1147 00:55:35,800 --> 00:55:40,360 their own so that the faculty doesn't 1148 00:55:38,170 --> 00:55:43,840 sort of try to insert themselves to help 1149 00:55:40,360 --> 00:55:46,450 you but we tend towards the latter half 1150 00:55:43,840 --> 00:55:49,090 and say well who's formed up in groups 1151 00:55:46,449 --> 00:55:50,980 and when you know if it's a smaller 1152 00:55:49,090 --> 00:55:52,420 group it's like well anybody has not yet 1153 00:55:50,980 --> 00:55:54,039 formed in a team why don't you move to 1154 00:55:52,420 --> 00:55:55,329 the left hand side of the room and just 1155 00:55:54,039 --> 00:55:58,269 get together but we could do that 1156 00:55:55,329 --> 00:56:01,509 electronically - and you know whether 1157 00:55:58,269 --> 00:56:02,679 talita and Sabrina who you know good 1158 00:56:01,510 --> 00:56:05,260 help Internet 1159 00:56:02,679 --> 00:56:08,349 basically have a social network to help 1160 00:56:05,260 --> 00:56:09,520 form the teams because this is a big 1161 00:56:08,349 --> 00:56:11,529 group you're right but that's 1162 00:56:09,519 --> 00:56:13,530 traditionally people those students do 1163 00:56:11,530 --> 00:56:17,920 it on their own 1164 00:56:13,530 --> 00:56:23,019 other questions is anybody gonna go out 1165 00:56:17,920 --> 00:56:26,220 and sell their Bitcoin now Larry what 1166 00:56:23,019 --> 00:56:26,219 why are you here 1167 00:56:28,280 --> 00:56:43,650 no no let to the whole feel and you're 1168 00:56:41,940 --> 00:56:45,480 incredibly informed about the finance 1169 00:56:43,650 --> 00:56:49,829 side so I want to see the combination of 1170 00:56:45,480 --> 00:56:51,599 those and whether at the end I am 1171 00:56:49,829 --> 00:56:54,869 convinced there's a there there as we've 1172 00:56:51,599 --> 00:56:57,380 spoken because I could radically change 1173 00:56:54,869 --> 00:56:59,579 the cost of trust around the world 1174 00:56:57,380 --> 00:57:02,490 benefit the developing nation 1175 00:56:59,579 --> 00:57:08,250 substantially but I think there's a lot 1176 00:57:02,489 --> 00:57:10,019 of questions I still have I thank you 1177 00:57:08,250 --> 00:57:12,480 for coming in any week you could be here 1178 00:57:10,019 --> 00:57:14,039 any day we benefit and I hope it's 1179 00:57:12,480 --> 00:57:16,110 really this is meant to be a 1180 00:57:14,039 --> 00:57:18,539 conversation I'm not that far ahead of 1181 00:57:16,110 --> 00:57:19,950 you Simon Johnson approached me last 1182 00:57:18,539 --> 00:57:23,070 October and said what do you think about 1183 00:57:19,949 --> 00:57:24,960 coming up to MIT and and Tom knows this 1184 00:57:23,070 --> 00:57:28,410 story and and and we were sitting down 1185 00:57:24,960 --> 00:57:30,150 for lunch in DC and it was a good time 1186 00:57:28,409 --> 00:57:33,299 in my life my three girls I have three 1187 00:57:30,150 --> 00:57:36,180 daughters and I'm a single dad and they 1188 00:57:33,300 --> 00:57:37,769 were two were in grad school and one our 1189 00:57:36,179 --> 00:57:40,409 undergrad it was a good time in my life 1190 00:57:37,769 --> 00:57:43,110 I said why not you know come up here and 1191 00:57:40,409 --> 00:57:45,899 get engaged in this digital currency 1192 00:57:43,110 --> 00:57:48,090 initiative over at the Media Lab and 1193 00:57:45,900 --> 00:57:50,910 I've spent a life I was 18 years ago mid 1194 00:57:48,090 --> 00:57:52,710 sax on the investment banking side 1195 00:57:50,909 --> 00:57:54,839 helping people buy and sell companies 1196 00:57:52,710 --> 00:57:56,699 called mergers and acquisitions and then 1197 00:57:54,840 --> 00:57:59,610 I went to the trading side fixed income 1198 00:57:56,699 --> 00:58:01,679 and went off to Asia and did a bunch of 1199 00:57:59,610 --> 00:58:04,170 I ran the fixed incoming currency and 1200 00:58:01,679 --> 00:58:07,829 swap trading in Asia and then my last 1201 00:58:04,170 --> 00:58:09,000 job was the co Finance Officer so we 1202 00:58:07,829 --> 00:58:11,099 were about a quarter of a trillion 1203 00:58:09,000 --> 00:58:14,039 dollar balance sheet at that time go 1204 00:58:11,099 --> 00:58:16,440 goldman sachs this is we were so private 1205 00:58:14,039 --> 00:58:18,869 which meant if we lost money we were 1206 00:58:16,440 --> 00:58:24,360 personally I was a general partner was 1207 00:58:18,869 --> 00:58:28,289 kaput that's a technical word and but we 1208 00:58:24,360 --> 00:58:30,180 had we had 700 legal entities and one 1209 00:58:28,289 --> 00:58:33,019 thousand people who could commit the 1210 00:58:30,179 --> 00:58:37,139 capital of the firm those are people we 1211 00:58:33,019 --> 00:58:39,269 generally call traders but you know is a 1212 00:58:37,139 --> 00:58:40,289 fascinating period of time I then went 1213 00:58:39,269 --> 00:58:42,630 on to 1214 00:58:40,289 --> 00:58:44,429 public service because Bob Rubin knew 1215 00:58:42,630 --> 00:58:45,088 that I'd be a soft touch - it's a 1216 00:58:44,429 --> 00:58:47,250 service 1217 00:58:45,088 --> 00:58:49,739 he was the Treasury secretary I was a 1218 00:58:47,250 --> 00:58:51,150 former partner at Goldman Sachs and I 1219 00:58:49,739 --> 00:58:53,489 went off to the US Treasury as a 1220 00:58:51,150 --> 00:58:55,050 assistant secretary and undersecretary 1221 00:58:53,489 --> 00:58:58,889 in the late 90s a little different times 1222 00:58:55,050 --> 00:59:00,690 than we have now for many reasons but we 1223 00:58:58,889 --> 00:59:02,460 were paying down the debt we were 1224 00:59:00,690 --> 00:59:04,559 dealing with the Asian debt crisis 1225 00:59:02,460 --> 00:59:06,929 long-term capital management that 1226 00:59:04,559 --> 00:59:10,230 Russian debt crisis is it was sort of a 1227 00:59:06,929 --> 00:59:13,919 fascinating period of time I worked on a 1228 00:59:10,230 --> 00:59:16,108 bill with John McCain I didn't get to 1229 00:59:13,920 --> 00:59:18,000 know Senator McCain that well but it was 1230 00:59:16,108 --> 00:59:20,069 just remarkable to work with even for a 1231 00:59:18,000 --> 00:59:22,199 short period of time called ie signature 1232 00:59:20,070 --> 00:59:24,109 it was a bill that basically said you 1233 00:59:22,199 --> 00:59:26,429 can sign everything electronically and 1234 00:59:24,108 --> 00:59:27,960 he was the chair of the Senate Commerce 1235 00:59:26,429 --> 00:59:30,269 Committee at the time I was a wonderful 1236 00:59:27,960 --> 00:59:32,820 little yes sometimes in government you 1237 00:59:30,269 --> 00:59:35,250 can work on small things I worked on the 1238 00:59:32,820 --> 00:59:36,960 redesign of the currency and I could 1239 00:59:35,250 --> 00:59:38,849 tell you stories about why it looks the 1240 00:59:36,960 --> 00:59:43,199 way it does and how you can redesign 1241 00:59:38,849 --> 00:59:44,670 paper currency and for a future lecture 1242 00:59:43,199 --> 00:59:47,669 I'll tell you the one design feature 1243 00:59:44,670 --> 00:59:50,460 that I it's still in the currency and 1244 00:59:47,670 --> 00:59:52,318 you can visually say it's because and 1245 00:59:50,460 --> 00:59:54,059 when I asked for it the fella that 1246 00:59:52,318 --> 00:59:56,250 rather Bureau of Engraving said why and 1247 00:59:54,059 --> 00:59:57,779 I said because it looks better and I'm 1248 00:59:56,250 --> 00:59:59,789 the guy that's approving it and maybe 1249 00:59:57,780 --> 01:00:02,220 could we get it done can we work this 1250 00:59:59,789 --> 01:00:03,779 out and and it did look better and he 1251 01:00:02,219 --> 01:00:05,909 loved it he was worried about the 1252 01:00:03,780 --> 01:00:08,130 political risk of doing it it was a 1253 01:00:05,909 --> 01:00:11,940 better design he just was I said I'll 1254 01:00:08,130 --> 01:00:13,559 cover you politically let's do it but 1255 01:00:11,940 --> 01:00:15,960 then I worked with Paul sarbanes and 1256 01:00:13,559 --> 01:00:18,150 what became sore Baines Oxley I was his 1257 01:00:15,960 --> 01:00:20,250 senior advisor I worked and kicked 1258 01:00:18,150 --> 01:00:22,710 around some political campaigns we lost 1259 01:00:20,250 --> 01:00:24,929 two of them that would be the o8 Hillary 1260 01:00:22,710 --> 01:00:27,780 campaign and the 16 Hillary campaign I 1261 01:00:24,929 --> 01:00:30,059 was her chief financial officer I was in 1262 01:00:27,780 --> 01:00:35,060 a way the senior advisor doing economic 1263 01:00:30,059 --> 01:00:35,059 policy and outreach and hand-holding and 1264 01:00:35,838 --> 01:00:42,299 and and then in the middle of those two 1265 01:00:40,739 --> 01:00:43,439 campaigns I ran something called the 1266 01:00:42,300 --> 01:00:47,250 Commodity Futures Trading Commission 1267 01:00:43,440 --> 01:00:51,480 which was post-crisis what do we do this 1268 01:00:47,250 --> 01:00:53,610 is a real public policy shortcoming 1269 01:00:51,480 --> 01:00:56,400 and and I looked at as an opportunity to 1270 01:00:53,610 --> 01:00:58,829 as I said democratize finance a bit and 1271 01:00:56,400 --> 01:01:00,780 lower risk and so we tried to bring 1272 01:00:58,829 --> 01:01:03,860 transparency to a three or four hundred 1273 01:01:00,780 --> 01:01:06,570 trillion dollar market caught swaps 1274 01:01:03,860 --> 01:01:09,690 which are just contracts for 1275 01:01:06,570 --> 01:01:11,370 transference of risk and in their form 1276 01:01:09,690 --> 01:01:13,170 of a derivative that that were 1277 01:01:11,369 --> 01:01:14,759 unregulated and we were trying to bring 1278 01:01:13,170 --> 01:01:18,240 transparency to that and lower risk 1279 01:01:14,760 --> 01:01:20,850 through central clearing so that's sort 1280 01:01:18,239 --> 01:01:22,889 of my professional life and as I said I 1281 01:01:20,849 --> 01:01:24,839 got three daughters and they they're 1282 01:01:22,889 --> 01:01:27,599 well situated so when Simon said come on 1283 01:01:24,840 --> 01:01:32,370 up I said great and I love MIT it's just 1284 01:01:27,599 --> 01:01:33,750 terrific and and you you all are great 1285 01:01:32,369 --> 01:01:36,949 unless there's other questions I'm gonna 1286 01:01:33,750 --> 01:01:36,949 let you go early I 1287 01:01:38,250 --> 01:01:44,849 [Applause] 1288 01:01:49,969 --> 01:01:52,029 you