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[00:21] welcome welcome if you have a desire to
[00:26] learn a little bit about blockchain and
[00:28] its intersection with the world of
[00:30] finance and money and you're looking for
[00:32] 15 . s 12 you're in the right place if
[00:37] you're here to not do that and just hang
[00:40] out and have a good time I guess you
[00:43] still hopefully are in the right place
[00:44] because we're gonna have a good time
[00:46] this semester my name is Gary Gensler
[00:48] I'm a senior lecturer here at MIT Sloan
[00:52] I'm also an advisor over at the MIT
[00:55] Media Lab and I've spent a lifetime
[00:58] around the world of finance and money
[01:01] and public policy and I've been at MIT
[01:05] this last eight months and we're gonna
[01:08] learn a lot together about blockchain
[01:10] and money we're gonna have a little bit
[01:13] of fun here and see what we're gonna do
[01:14] so we're talking about blockchain and
[01:16] money that's where we are by the way I
[01:20] do cold call I do call on use if you
[01:24] want to leave now I understand because I
[01:28] want to have an interaction a little bit
[01:31] about it so my first question for the
[01:32] class for everyone whether registered or
[01:34] not how many of you have ever owned a
[01:37] cryptocurrency wait wait let's see the
[01:41] yacht's it seems like it's about 45% of
[01:45] you or so all right Livan you want to
[01:50] keep your hand up long and how many of
[01:57] you have ever worked on any blockchain
[01:59] related projects in an entrepreneurial
[02:01] setting or corporate setting anywhere
[02:04] all right good
[02:06] so a better third in the room good all
[02:11] right so you all know probably more than
[02:13] I do
[02:14] but I'm gonna give it a shot I'm gonna
[02:18] always start every week with what are
[02:19] the study questions for the week how
[02:22] many of you actually got the syllabus
[02:23] this is not gonna be graded assignment I
[02:25] just have to have a sense of who's who
[02:27] actually got this syllabus so good many
[02:29] of you and how many of you actually did
[02:32] the two readings it's not graded I just
[02:34] got
[02:34] gage the class oh thank you thank you
[02:37] right those grades down by the way no no
[02:40] all right so the two main questions for
[02:43] this week's lecture really is what is
[02:46] blockchain and why might it be a
[02:48] catalyst and I emphasize the word
[02:50] might it be a catalyst for change in the
[02:52] world of finance we could talk about a
[02:54] lot about things outside of the world of
[02:56] finance and blockchain may indeed have a
[02:59] lot of applications outside of Finance
[03:01] but I've chosen to try to just narrow
[03:04] the scope a bit so this semester is
[03:06] really about blockchain and money or
[03:09] blockchain and finance and secondly you
[03:12] will see index cards on every one of
[03:15] these round tables one assignment by the
[03:18] end of the class you could do it now or
[03:21] later I would like each of you to
[03:23] anonymously write on the court what you
[03:26] want to achieve in this semester it
[03:29] could be anything from this class from
[03:31] learning about blockchain from making
[03:33] money on Bitcoin from I don't care if
[03:36] you tell me it's meeting your future
[03:37] spouse I just like what do you want to
[03:40] achieve in this class I can't help you
[03:43] on the third but I will try to help you
[03:46] hone the things I can help you ID and
[03:48] Sabrina and Toledo will collect them
[03:51] later and next Tuesday will tell you the
[03:53] results what is it that you want to
[03:55] achieve in this class and then we'll see
[03:58] at the end of the semester if we've done
[03:59] that so that's just a way to help guide
[04:03] me help you so that's that's what we're
[04:08] trying to do and so what were the two
[04:10] readings one was a little thing I did
[04:13] and one was a thing I did with some of
[04:15] my colleagues and Tom since I know you
[04:19] would you take out of the readings
[04:29] did you have a good summer did you raise
[04:32] your head did you own Bitcoin know who
[04:37] in the class read the readings and took
[04:39] something different than Tom he said
[04:41] there was potential and your first name
[04:58] okay how many agreed with the line this
[05:04] is a vote
[05:05] they're just two or three how many grids
[05:07] with Tom there's more and how many of
[05:11] you're too shy on the first day to put
[05:13] your hands up most so I'm going to start
[05:17] and go back the internet how do I sort
[05:20] of I've come about this and sort of
[05:21] thought about well what is the WAP chain
[05:23] what is it really about well the
[05:25] internet started many decades ago before
[05:28] most of you were born
[05:29] but 1974 I mean there's some
[05:32] predecessors even from the late 60s the
[05:35] ethernet which is really how two
[05:37] computers communicate and then you had
[05:40] tcp/ip which was really the Internet
[05:43] Protocol of multiple computers compute
[05:47] that talking to each other and then
[05:52] later on in 1990 how do we move forward
[05:56] does anybody know what HTTP is we're at
[05:59] MIT your first name would be helpful
[06:01] Erik Erik it's a protocol for
[06:05] communicate with content web content
[06:09] hypertext Transfer Protocol eek anybody
[06:25] know who's associated with tcp/ip
[06:32] it was a company initiated by MIT I
[06:41] don't know if it was a company in Sochi
[06:44] over there mighty but Vince Cerf may
[06:47] have had some association with it mighty
[06:51] so these are the first three layers and
[06:54] then there were companies
[06:54] commercialization 3com and cisco and of
[06:57] course amazon it's still around today
[07:00] but there was something else going on
[07:02] how do we commercialize the internet
[07:04] does anybody know what this scene is
[07:06] from good thought good thought first
[07:15] pizza sold by Bitcoin but no all right
[07:22] movie hackers the net do you know have
[07:27] you ever seen the movie it's not a good
[07:28] movie so this is the opening scene of
[07:33] the net and yes that's Sandra Bullock
[07:35] and the years 1995
[07:39] it's a cyber thriller you know a
[07:43] president's involved the Defense
[07:45] Department's involved and so forth but
[07:48] actually Pizza Hut is associated with
[07:50] the very first sale online sale anywhere
[07:55] in the world they started something
[07:57] called pizza night this was the screen
[07:59] by the way if you wanted to go on you
[08:01] could order your pizza and and but there
[08:06] was one problem does anybody know what
[08:07] the problem with was Pizza net I mean
[08:10] maybe there were multiple problems no
[08:13] Ilana I've caught on you you couldn't
[08:16] pay online nobody figured out how to
[08:18] move money online you had to pay when
[08:21] you showed up with the pizza so now I'm
[08:24] going to talk a little bit about
[08:25] cryptography we're going to spend a lot
[08:27] of time on cryptography it's crypto
[08:29] currencies and the like what's your name
[08:34] Gigi Gigi Gigi what's cryptography
[08:44] cryptic all right now you got it you got
[08:46] to start there anybody want to help GE
[08:49] out does anybody want to help you yeah
[08:52] tell me your first name we're gonna ask
[08:54] we're gonna figure out how to have
[08:56] everybody have name plates by next week
[08:58] but we will work with Ryan and do it
[09:00] that way so it's how do you encrypt
[09:17] something so it's not detectable by
[09:19] others or in essence it's communications
[09:22] in the presence of adversaries you have
[09:26] an adversary who wants the communication
[09:29] you want to communicate and not let your
[09:31] adversaries know that communication and
[09:34] this is this is true for ancient times
[09:37] so in ancient times there was something
[09:40] called the cypher and this was a way
[09:42] that you take a piece of leather or
[09:43] Peetha cloth and have a lot of letters
[09:46] and both sides
[09:49] you'd encrypt and decrypt because there
[09:52] were different measurements of the
[09:55] cylinder has anybody seen the movie
[09:58] imitation games all right
[10:02] the Enigma machine now it the movie was
[10:06] wonderful because it said Turin cracked
[10:08] it and he did help crack it in an
[10:11] automated way but actually the Polish
[10:13] government had cracked it in the 1930s
[10:16] before they fell to the Germans but and
[10:19] and touring built on all of that and
[10:21] cracked it further and then in the 1970s
[10:25] and this was here at MIT to some extent
[10:28] there's private key public key
[10:30] cryptography which I'm not going to dive
[10:33] into today but it's it's the heart of
[10:36] Bitcoin and blockchain it's at the heart
[10:39] of the Internet but it's about the key
[10:43] thing is communications in the presence
[10:45] of adversaries how do you keep a secret
[10:48] when everybody wants in and get that
[10:50] information
[10:51] and there's a long history and mi t--'s
[10:55] at the center of a lot of that a lot of
[10:59] early cryptography failed on the
[11:02] Internet in the early 90s and late 80s
[11:04] David cha and others tried to do things
[11:06] and we're not going to debate these
[11:07] today but you'll have one reading I
[11:10] think it's either next week which will
[11:13] give you that history and it's
[11:15] worthwhile knowing about the history of
[11:16] failure but cryptography is the reason
[11:21] why the internet works today does
[11:22] anybody want to tell me what SSL and TLS
[11:26] is do we have any computer scientists
[11:29] remember your first name encryption
[11:39] using symmetric keys which is public key
[11:42] cryptography
[11:45] right so it basically uses asymmetric
[11:49] cryptography which we're going to talk
[11:51] about two lectures from now but it
[11:54] secures the whole Internet so all of a
[12:00] sudden you could deliver the pizza and
[12:02] get a passcode and I have to tell you I
[12:05] never knew how this worked before I was
[12:07] at MIT so PayPal came along in 1998 I
[12:13] mentioned this a whole bunch of other
[12:15] digital currencies then failed but some
[12:21] of these people who will read later like
[12:23] will read Nick Sabo's piece on smart
[12:26] contracts later Adam back who created
[12:29] hash cash some of these innovations were
[12:33] what Satoshi Nakamoto later used some
[12:38] innovations which were really helpful
[12:40] and worked where a leap a and M paisa
[12:43] does anybody know what M pace is in
[12:53] essence they found out in Kenya this was
[12:58] ten twelve years ago that people were
[13:00] trading mobile minutes they were
[13:02] unbanked but they had cellular phone
[13:05] and they were trading their minutes as a
[13:07] form of currency and Safaricom realized
[13:10] that and said way we could help people
[13:13] be part of the digital economy even if
[13:16] they're unbanked and in Africa today 1/2
[13:20] of the adult population according to
[13:23] world bag figures is still unbanked but
[13:26] half of that half has mobile phones and
[13:32] pace has 20 million customers in Kenya
[13:35] right now so it's a it's a form of money
[13:38] that's kind of swapping mobile minutes
[13:42] but the riddle remained how do you move
[13:44] money on the internet where in essence
[13:46] how do you move value peer-to-peer
[13:48] without a centralized intermediary and
[13:51] that's the core of blockchain technology
[13:56] so who solved the riddle and they're
[14:00] ready to tell me who solved the riddle
[14:02] who solved this riddle now have you you
[14:09] you're wearing a t-shirt that says
[14:10] Quentin Tarantino so I think Quentin
[14:13] Tarantino should solve over it all
[14:14] what's that what's your name so a
[14:23] peer-to-peer cash this is the actual doc
[14:25] top of an email that was sent out on
[14:27] Halloween 2008 by Satoshi Nakamoto we
[14:35] don't actually know who's Satoshi
[14:37] Nakamoto is but it's a study question a
[14:40] few lectures from now to ask you to tell
[14:43] me who you think Satoshi Nakamoto is so
[14:45] I won't ask that now and he started with
[14:49] a very simple sentence in his email I've
[14:52] been working on a new electronic cash
[14:54] system that fully peer-to-peer with no
[14:58] trusted third party it's kind of a
[15:01] modest statement and so the question is
[15:06] is this another internet layer we're
[15:10] gonna explore that this whole semester I
[15:12] don't I don't really have the answer I
[15:14] don't think the best minds at MIT could
[15:18] really yet tell you
[15:19] there are some who are maximalist and
[15:22] say yes it will be and there are others
[15:26] who will say no no no and in this course
[15:28] we're gonna we're gonna review the
[15:30] minimalist and the maximalist we're not
[15:31] we're not kind of try to Center it in
[15:33] one place but that's the key key kind of
[15:36] question so what is a blockchain we're
[15:40] gonna do this in a lot of lectures but
[15:42] I'm gonna try to do it in this short
[15:44] version so it's time-stamped append logs
[15:48] meaning you can add a little bit of
[15:50] information to this and it's
[15:53] time-stamped so these are these blocks
[15:56] being added Satoshi did not invent
[16:01] blockchain there's way earlier does
[16:06] anybody want to guess what what it was
[16:08] you're gonna have a reading about this
[16:10] later but early 1990s what's that Midori
[16:19] Stuart Haber Stuart Haysbert worked for
[16:23] Bell Labs right so one of your
[16:26] assignments it's not gonna be a gray to
[16:27] decide which it's gonna be a fun
[16:29] assignment could any of you I'm gonna
[16:32] say by next Thursday just have some fun
[16:35] find the longest and timewise longest
[16:39] running blockchain it's not Bitcoin and
[16:43] it's been running since the mid 90s and
[16:46] your clue is the New York Times and
[16:51] we'll discuss it next Thursday but this
[16:55] time stamped block block block block of
[17:01] data creates a database an auditable
[17:04] database and we'll talk about Ledger's
[17:07] particularly next week but we'll talk
[17:09] about Ledger's all throughout this
[17:10] course and how it changes the world of
[17:12] Finance
[17:13] now it's secured by cryptography because
[17:15] cryptography remembers communications
[17:18] and making sure adversaries can't pick
[17:20] you off we're gonna learn about hash
[17:22] functions and hash functions that are a
[17:24] really important part of cryptography
[17:26] and initially for databases and how to
[17:30] search and store information and
[17:32] database
[17:33] but in this circumstances hash functions
[17:36] were the way to not only append the next
[17:40] block to the prior blocks but really
[17:44] importantly to compress data to make it
[17:48] more manipulatable and to verify it and
[17:51] as I've written here tamper resistance
[17:54] and the integrity digital signatures
[17:57] which has to do the public key private
[17:59] key cryptography there is no
[18:01] prerequisite of this course you do not
[18:03] have had to have taken computer science
[18:05] cryptography algorithms if I could learn
[18:09] a little bit about hash functions and
[18:11] asymmetric cryptography these are the
[18:15] two key important sides and will we have
[18:20] enough computer scientists in this room
[18:22] that can sort us out if I say the wrong
[18:24] thing right mid doors hopefully and then
[18:30] consensus so there's a really important
[18:33] part of blockchain is how do you decide
[18:36] who appends that next block because when
[18:39] I went back here
[18:40] there's block or block each of these
[18:42] blocks somebody has to decide who
[18:44] appends who gets to pick the next block
[18:46] and that's what's called consensus
[18:49] protocol and there's why debates about
[18:51] consensus protocol and will talk a lot
[18:54] about consensus protocol but in essence
[18:57] it addresses something a term called the
[18:59] cost of trust and we'll talk about
[19:01] Byzantine generals problems which is
[19:03] another reading the Byzantine generals
[19:05] problem was laid out as a sort of
[19:07] mathematical game theory issue some
[19:10] thirty as years ago that's what Satoshi
[19:16] Nakamoto solved was this last part that
[19:19] the Byzantine generals problem pizza for
[19:23] bitcoins a year and a half after Satoshi
[19:28] Nakamoto laid out blockchain Bitcoin
[19:33] somebody sends an email and you'll get
[19:36] these slides but this is the real live
[19:38] email I'll pay you 10,000 bitcoins for a
[19:40] couple of pizzas I I just want some
[19:44] pizzas the guy who sent this
[19:46] he says I like onions peppers sausage
[19:48] mushrooms Lazlo
[19:51] now catch the date this is May 18th and
[19:54] he's offering 10,000 bitcoins of 2010
[19:59] but the key line is what I'm aiming for
[20:03] is getting food deliver in exchange for
[20:05] bitcoins nobody had used bitcoins as a
[20:08] medium of exchange 16 months into its
[20:11] existence nobody had used it to buy
[20:14] something and Laszlo is a computer
[20:16] scientist in Florida was just kind of
[20:18] interested and he put this out on an
[20:21] email list three days later he still
[20:26] doesn't have his two pizzas so nobody
[20:29] wants to buy me a pizza is the Bitcoin
[20:30] amount I'm offering too low another day
[20:35] goes by he gets his pizzas and he post
[20:39] pictures so here's a picture of his
[20:42] child reaching for those Papa John's
[20:44] pizzas anybody know what those 10,000
[20:50] bitcoins were worth back in back then
[20:52] Chicago anybody want to say back then
[20:59] what's that $41 and last I was saying
[21:05] two pizzas are probably worth 25 to 30
[21:07] because there's a whole email thread he
[21:09] kept saying why won't anybody get me my
[21:11] pizzas you could make money on this
[21:14] today or earlier late yet last night 66
[21:19] million dollars
[21:21] yeah so it's a cute story may 22nd every
[21:27] year is called pizza day or Bitcoin
[21:31] pizza day or something so so what is
[21:33] block taint technology these are my
[21:35] words but they're sort of picked from
[21:37] the literature and so forth it
[21:39] verifiably moves data on a decentralized
[21:42] network and the economics of blockchain
[21:44] technology are really around that
[21:46] verification and the economics of
[21:49] verification and the economics of
[21:52] networking and in many ways blockchain
[21:56] adds certain costs to the verification
[22:00] through this consensus protocol that
[22:02] we'll be studying but it lowers some
[22:05] other costs of verification because
[22:07] you're not relying on a centralized
[22:09] Authority so it's really a trade-off of
[22:11] cost of verification I don't think it's
[22:14] I'm not a purist that says it's better
[22:16] or worse but it's it's a trade-off of
[22:18] costs of verification through
[22:20] decentralized networks the data can be
[22:24] value like Bitcoin was a money system
[22:27] where the data can be actually computer
[22:30] code and we'll learn a lot about smart
[22:34] contracts and you could have the data
[22:36] being verified computer code and
[22:39] algorithms my world finance this
[22:44] directly goes to the plumbing of Finance
[22:46] because finance is fundamentally about
[22:49] moving money and risk through a network
[22:52] and that network is the seven billion
[22:55] people that live on this world it's
[22:58] moving money and risk and you've all
[23:02] taken finance courses or many of you
[23:04] have and it's the intermediating of
[23:07] money and risk throughout our economy
[23:11] but there's a whole host of challenges
[23:13] and over the course of this semester
[23:16] we'll talk about this challenges
[23:17] technical commercial and public policy
[23:19] hurdles will they be solved will they
[23:23] not be solved but it could be a catalyst
[23:27] but we're not sure yet
[23:30] for change in the world of money and
[23:32] Finance so does anybody want to tell me
[23:35] the role of money in society and tell me
[23:43] your first name come on Tomas between
[23:50] people all right medium of exchange got
[23:53] that one somebody give me a second
[23:59] yellow shirt savings all right so that
[24:05] would be a store of value yeah
[24:06] third I'm sorry the gentleman here Wow
[24:12] all right there we go there we go so
[24:17] we're gonna spend some time next Tuesday
[24:19] talking more about money and the role of
[24:21] money in the history of money which i
[24:24] think is sort of lays a foundational
[24:26] piece of this what about the role of
[24:29] Finance I've already sort of said a few
[24:31] things about that but and I'm sorry I
[24:36] don't know your name but I'm right here
[24:38] the woman yeah role of Finance sorry I'm
[24:45] not going to tell any financial finance
[24:47] professor what your answer is to raise
[24:51] money so keep going I'm gonna anybody
[24:57] else want it can connect savers and
[25:00] borrowers connect savers and bars so
[25:03] connecting is sort of moving money
[25:05] moving valuations so that's the pieces
[25:12] of it sort of moving making valuations I
[25:15] use the words moving allocating and
[25:17] pricing pricing is the valuations of
[25:20] money well let's not forget it's also
[25:24] about risk when you buy insurance
[25:26] that's a transference of risk when you
[25:29] buy an equity stock that's a
[25:30] transference of risk if you enter into a
[25:34] complex credit default swap it's a
[25:36] transference of risk so finance is not
[25:39] just the movement of money it's the
[25:41] movement of risk as well throughout the
[25:46] economy and I always think finance I
[25:50] always I've thought this when I was at
[25:53] Goldman Sachs for 18 years that finance
[25:55] sits at the neck of an hourglass and
[25:58] it's why it collects so much economic
[26:01] rents from society because when you sit
[26:04] at the neck of an hourglass and billions
[26:07] literally trillions of grains of sand go
[26:10] by if you collect some of those grains
[26:14] of sand you get uber wealth and that's
[26:20] those are for other classes but finance
[26:22] can collect a lot of economic rents the
[26:26] financial sector though has a bunch of
[26:27] challenges we'll have one lecture later
[26:29] in the semester about some of those
[26:31] challenges and we have a reading I think
[26:33] sheila bair wrote something recently
[26:35] that I asked you all to read later in
[26:36] the semester but we'll talk about the
[26:38] financial crisis and some of the
[26:40] problems but it's had a lot of crises
[26:42] fiat currencies have a lot of what
[26:44] instabilities of course we have
[26:47] centralized intermediaries as I laid out
[26:51] and we'll talk about collect a lot of
[26:52] economic rents so there's there's
[26:55] opportunity blockchain has real
[26:57] opportunity to kind of come under this
[27:00] world of Finance and maybe do some
[27:02] things better central banking also have
[27:05] a bunch of legacy payment systems and
[27:07] there's legacy payment systems or slowly
[27:10] adapting but it's slow and why did Ally
[27:15] pay do so well in China is part of the
[27:18] story because there were so many
[27:19] unbanked just like m-pesa in Kenya but
[27:22] here in the US we still pay 2 and a half
[27:25] to 3 percent for our interchange charges
[27:28] for Visa MasterCard and the like and a
[27:32] lot of clearing and settlement still has
[27:34] a lot of counterparty risk and one that
[27:37] I care deeply about Financial Inclusion
[27:39] there's still 1 point 7 billion people
[27:41] in this world who are unbanked and so we
[27:45] don't think of it as much in the
[27:46] developed countries
[27:47] but it's certainly true in many products
[27:51] even here in the US and these are to me
[27:55] the opportunities finance is 7 and a
[27:58] half percent of the US economy that's
[28:00] one and a half trillion dollars of
[28:01] revenues so any of you that are thinking
[28:04] about entrepreneurial opportunities the
[28:08] payment system just here in the US is a
[28:10] half a percent to one percent of our
[28:11] economy that's 100 to 200 billion
[28:14] dollars or revenues
[28:15] I think these is about 18 billion just
[28:18] you know but if you you know when you
[28:20] add up the whole payment system that's a
[28:22] hundred to two hundred billion dollars
[28:24] in payment revenues so that's kind of
[28:26] the opportunity can blockchain
[28:28] technology come in it's got problems
[28:30] it's slow its its performance issues
[28:34] but can it compete with that here are
[28:37] some of the problems the financial
[28:39] sector would say with blockchain
[28:41] these are real live things that we're
[28:43] going to study later in the semester
[28:44] they say it doesn't have the performance
[28:47] scalability a modern payment system you
[28:50] need to be able to move about a hundred
[28:52] thousand payments a second a modern
[28:54] securities clearing the the Depository
[28:57] Trust Corporation the Securities and
[29:00] Exchange Commission says you do about
[29:03] thirty thousand transactions a second
[29:05] but we need you to scale and your
[29:06] computers and everything have to be
[29:08] resilient to a hundred thousand
[29:09] transactions a second Bitcoin you can do
[29:14] about seven transactions a second visa
[29:17] currently depends on the the second does
[29:21] anywhere from twenty two seventy
[29:22] thousand a second yeah so it's just a
[29:25] sense of scalability and performance we
[29:28] might get there it might be three to
[29:30] seven years away I'm optimistic but
[29:33] there's still a bunch of performance and
[29:35] scalability issues privacy and security
[29:38] blockchains by their nature or public so
[29:42] they're not fully censorship resistant
[29:44] but there's a lot of innovation about
[29:46] making them more private but then that
[29:49] makes the public sector a little nervous
[29:53] interoperability they don't necessarily
[29:55] work yet with other legacy systems or
[29:59] with each other the internet one of the
[30:01] great innovations of the internet it
[30:03] became interoperable that all of these
[30:07] different websites could kind of speak
[30:08] with each other governance is a very big
[30:12] issue we'll talk about and one of the
[30:15] things about governance is it's hard to
[30:17] update the software of a blockchain
[30:21] because if you create a decentralized
[30:23] where no one's in control no one can
[30:26] collect economic rents you also don't
[30:28] have sort of somebody with the ability
[30:32] to necessarily update the software and
[30:35] we'll talk later about how Bitcoin
[30:37] updates its software and what Bitcoin
[30:39] core developers are and so forth but
[30:43] Facebook you do know one thing though
[30:46] there there a company that collects a
[30:48] lot of profits and economic rents off of
[30:51] their two billion members they know how
[30:55] to update their software it's it's a
[30:59] governance issue that's a real life
[31:02] challenge and that's why the financial
[31:05] sector says I'm not sure this works this
[31:07] is ready yet for me and then thus what
[31:10] are the commercial use cases and what
[31:12] are the public policy issues so right
[31:15] now the financial sector favors
[31:17] permission blockchains versus permission
[31:19] list this is going to be about four
[31:22] weeks from now we'll kind of go through
[31:24] these two differences but I want to just
[31:26] frame this briefly permission
[31:29] blockchains have a noun group of people
[31:31] who actually participate the half of you
[31:36] that said you've owned Bitcoin you know
[31:38] it to be something where anybody can
[31:40] update the ledger permission blockchains
[31:43] you can't do that in essence you pick
[31:47] the three or twenty the Australian Stock
[31:49] Exchange is updating their clearing and
[31:51] settling they announced they're doing a
[31:53] blockchain project they're doing it with
[31:55] digital assets and they're using the
[31:59] hyper ledger blockchain which is an IBM
[32:02] software open source software but the
[32:06] Australian Stock Exchange is going to
[32:07] put it on three computers which is
[32:10] called three nodes that they control all
[32:12] three of them
[32:14] the Depository Trust Corporation is
[32:17] looking at blockchain inspired solutions
[32:19] for some of their data warehouses but
[32:22] they too are gonna control the nodes I'm
[32:25] just giving it that's permission
[32:27] blockchains there's nothing wrong with
[32:28] that that's just how they are the
[32:30] they're looking at this permissionless
[32:33] block chains are like Bitcoin unknown
[32:35] participants securities based on
[32:36] incentives a crypto currency and crypto
[32:40] economics crypto finance is about two
[32:44] hundred billion but it you know you have
[32:45] to update these slides daily two days
[32:47] ago it was two hundred and thirty
[32:49] billion and this little pie chart is a
[32:55] little over half as Bitcoin the next
[32:58] slice is something called if the
[33:00] and then ripple and down the line we're
[33:02] not going to spend a lot of time in this
[33:04] this semester if you if your goal is to
[33:07] how can you profit and trade a trade
[33:10] Bitcoin and day trade ether god bless go
[33:13] prosper you could stay in the class
[33:16] I just won't give you much advice on it
[33:18] you know this is not a crypto investing
[33:22] centered class but I'm okay if that's
[33:26] what you're doing does anybody know what
[33:29] the worldwide capital market size is
[33:32] anybody want to guess you know this is
[33:35] 200 billion what's it look like I've
[33:38] already said it's modest hundreds of
[33:42] trillions global equity about 80
[33:44] trillion global bond and debt markets
[33:48] 250 trillion so it's still quite modest
[33:54] compared to that broad breadth of
[33:56] capital formation and gold
[34:01] if bitcoins digital gold what's the
[34:04] value of gold all the gold that's ever
[34:07] been 7 trillion so just give you sense
[34:14] of scale so there's also something
[34:17] that's interesting about this space is
[34:19] that it's out sized public attention
[34:22] even as evidenced by the hundred of you
[34:25] in this room versus the size it is real
[34:30] relative to the capital markets today
[34:32] you know there's a bunch of public
[34:35] policy issues we'll have a lecture I'm a
[34:37] former regulator I ran the Commodity
[34:39] Futures Trading Commission so but this
[34:42] course is not about regulation though we
[34:44] have to always come back to regulation
[34:46] we always have to infuse what we're
[34:49] doing with the regulation but let me
[34:52] just give you a little framework and
[34:53] then you'll have to be bored and a
[34:56] handful of weeks and read I gave some
[34:58] congressional testimony on it yes it
[35:00] will be required reading sorry but it's
[35:04] guarding against illicit activity a lot
[35:07] of Bitcoin and crypto currencies started
[35:11] out in the cyber
[35:13] Punk sort of movement and and
[35:16] libertarian movement so forth and it is
[35:19] true you can use this for illicit
[35:21] activity absolutely but I would say
[35:24] crime is not new just the mechanisms and
[35:27] means are new and and so the criminals
[35:31] yes will use this and have used it for a
[35:34] listed activity financial stability
[35:36] central bankers around the globe sort of
[35:39] will this shape finance well it's only
[35:42] two hundred billion the financial
[35:44] markets are three hundred trillion plus
[35:46] not yet is generally what they're saying
[35:49] but for some countries it's a way to get
[35:52] around capital controls and so for those
[35:54] countries worried about capital controls
[35:56] it's a very real and live set of issues
[35:59] and then protecting the investing public
[36:02] and when we do this in a few weeks I'll
[36:05] go through each of these the investor
[36:07] protection issues and yes the sec how we
[36:10] test and and the like for those who wish
[36:14] to do their own initial coin off right
[36:16] now
[36:17] give some you know broad sense of what
[36:21] the sec is trying to accomplish but it's
[36:24] a moving target so this is a very
[36:26] interesting as opposed to many of your
[36:27] sloan classes or your c cell classes or
[36:30] media lab classes this is a very
[36:33] unsettled area of public policy so it
[36:36] makes it interesting and and and and if
[36:39] you all go off and form companies you
[36:41] will actually be helping sort of set the
[36:43] the the edge of that public policy of
[36:46] debate I had always say just remember
[36:49] poet Riley the duck test this is a poet
[36:52] Indiana poets those that aren't from the
[36:54] US might not know the duck test but
[36:56] basically if it quacks like a duck and
[36:58] walks like a duck it's a duck so
[37:00] whenever you're thinking about public
[37:01] policy folks like myself who once was a
[37:05] regulator we think in the duck test and
[37:09] then we secondarily think about the
[37:12] actual words in the congressional act
[37:16] you know where's the common sense and if
[37:18] it quacks and walks like a duck it's
[37:21] probably a security or it's probably
[37:24] this or that
[37:26] the incumbents like this Linus in the
[37:29] corner are eyeing this space because
[37:32] there's a lot of volatility and Wall
[37:34] Street makes money on volatility
[37:36] volatility is the friend of Wall Street
[37:38] it might not be the friend of investors
[37:40] but it's a friend of Wall Street they
[37:42] also like the trading volumes and the
[37:44] spreads coinbase the largest crypto
[37:48] exchange here in the US has 20 million
[37:50] accounts they might not all be active
[37:53] but that's the size of Fidelity's
[37:55] membership or account list and twice de
[37:57] Shaw and Robin Hood how many of you have
[38:01] ever used Robin Hood is a trading app
[38:03] Wow half of you so you know free trading
[38:07] right 5 million members for those who
[38:11] don't know you can download Robin Hood
[38:13] and you can trade stocks for free
[38:16] no Commission and if anybody's
[38:20] interested show up and I'll do office
[38:22] hours when the hell Robin Hood
[38:23] commercializes they commercialize your
[38:26] your order flow and they make money
[38:29] without charging your commissions but
[38:32] it's a sort of wonderful app Millennials
[38:34] love it 5 million members already so you
[38:38] better believe de Shah and the
[38:40] incumbents are worried about things like
[38:41] that the startups are also more willing
[38:44] to beg for forgiveness from regulators
[38:46] they're willing to sort of take risks
[38:48] and beg for forgiveness whereas
[38:50] incumbents tend to have to ask for
[38:53] permission so there's an unlevel field
[38:55] that always it's a asymmetric business
[39:00] set of risk about regulatory risk not
[39:03] always I'm not like crying for JP Morgan
[39:07] I mean the big incumbents have also they
[39:11] have their advantages and coinbase is
[39:14] becoming an incumbent rather than just a
[39:16] you know startup in a sense and we'll
[39:20] talk during the semester about some of
[39:22] the incumbents where we're probably
[39:25] going to get Jeff sprecher here in
[39:27] mid-november he's going to talk to you
[39:28] about what IntercontinentalExchange in
[39:30] the New York Stock Exchange is doing
[39:31] with Starbucks and Microsoft and the
[39:33] like the financial sector use cases I'm
[39:36] not going to go through these but this
[39:37] is the second half of the course is
[39:39] going to go through
[39:40] each of these and we'll do one to two
[39:42] sessions on each payment system central
[39:44] bank digital currency secondary market
[39:47] trading the venture capital and initial
[39:51] coin offering space we'll do two a
[39:53] course on that and move through so what
[39:57] are we gonna do in this whole course
[39:59] basically our goal is to learn the
[40:02] fundamentals
[40:03] it's about roughly the first half of the
[40:05] course pivot to two sessions on the
[40:08] economics we're gonna be talking about
[40:10] the economics throughout the whole
[40:11] course but I want to I want to really
[40:13] just focus drill down on the economics
[40:16] of 1/2 of the discussions and then riff
[40:20] through the financial space for the
[40:22] second yeah that's our journey together
[40:26] to me it's for anybody who wants to gain
[40:29] critical reasoning skills this is not
[40:31] just kind of a hey this is going to
[40:35] change the world and revolutionize
[40:36] everything class and so I basically
[40:41] think of an old Defense Department term
[40:44] called ground truths it's when the
[40:46] general doesn't really know what's going
[40:48] on but needs to figure it out and needs
[40:50] to talk to that you know that that
[40:53] corporal on the ground who's got dirt
[40:55] you know all over woman and it's been
[40:58] shot up and says here's the real ground
[41:00] truth we're gonna try to talk about
[41:02] ground truth in this in this in this
[41:04] class and separate the mere assertion
[41:07] from the hype and some of your readings
[41:09] will be some real Bitcoin and blockchain
[41:13] minimalist from Nouriel Roubini that
[41:16] uses words I'm not supposed to repeat on
[41:19] a recording about this stuff to Paul
[41:22] Krugman who and and Joe Stiglitz and
[41:25] other Nobel laureates who say no it's
[41:28] not gonna work or Warren Buffett to to
[41:31] maximalists we're gonna we're gonna try
[41:33] to cover both sides Larry Lessig is
[41:37] honoring me because he's in the back of
[41:38] the class who's an enormous Lee esteemed
[41:42] professor from Harvard I didn't know
[41:45] Larry was gonna be here and I did the
[41:47] slide before but in 1999 I think you
[41:49] wrote this book Larry is that right
[41:54] code and other laws of cyberspace I put
[41:56] you in though but I think it's
[41:58] worthwhile to think about Larry's four
[42:01] bits here and I don't know Larry if you
[42:04] want to say anything but I'm gonna try
[42:06] to infuse this course in just how you
[42:08] think about this the tech we're at MIT
[42:11] the technology and we're gonna get you a
[42:14] lot of technology if you want more than
[42:15] I can give you is is is a former finance
[42:19] sort of type my whole life there's gonna
[42:23] be a bunch of computer science people in
[42:25] the class we're gonna hook and you up
[42:28] together with the folks from the Media
[42:30] Lab and see Sal and and try to connect
[42:33] you to the technology side if you want
[42:35] to swim deeper in that pond but the
[42:38] technology really really matters and
[42:41] that's why we are going to go through
[42:43] hash functions and go through asymmetric
[42:45] cryptography and so forth from a
[42:48] business perspective markets matter why
[42:52] is it that incumbents or startups or are
[42:55] not doing this and that why is it ten
[42:57] years in and nobody's got an
[42:59] enterprise-wide solution yet to payments
[43:02] that use block J the law matters the
[43:05] public policy side matters and the forth
[43:09] of Larry's layout social norms that's a
[43:14] little harder for me to teach that's not
[43:16] what this class is about but it is also
[43:18] a flex all this it's not just the
[43:20] technology the markets and the law so
[43:23] it's not just a three-legged store it's
[43:25] kind of a four legged stool how'd I do
[43:26] Larry
[43:29] I really didn't know Harry is gonna be
[43:31] here so but I wanted to give you a
[43:34] framework for how your faculty member
[43:38] thinks and will be on this journey
[43:41] together range of perspectives we're not
[43:45] gonna be a Bitcoin minimalist or
[43:46] maximalist I'm probably to be self
[43:50] disclosed here a little bit center
[43:53] minimalist on Bitcoin smart contract
[43:58] minimalist max list I'm probably pretty
[44:00] Center Larry's probably a little bit
[44:03] center maximalist I'm guessing so you're
[44:14] still you're still center or Center
[44:16] minimalist what smart contracts and then
[44:22] blockchain maximalist or minimalist I'd
[44:25] say a few weeks ago I was kind of Center
[44:28] maximalist and I'm sort of skidding back
[44:30] to the middle permissioned blockchain
[44:36] I'm a little bit more you know and
[44:39] there's some in here Allah is one of
[44:41] your Sloan cohort that you might know
[44:45] six months ago when we met was working
[44:47] on a permissionless system and now
[44:51] you're working on a permission system
[44:53] you have a startup yeah cuz like you've
[44:56] bounced up into the market realities is
[44:59] and we're gonna talk a lot in this
[45:01] course about critical thinking about
[45:03] when do you really need the advantage of
[45:06] a decentralized peer-to-peer system
[45:08] where the costs of trusts are such that
[45:13] that's the right way to go but I am one
[45:17] who thinks that there's also so much
[45:18] economic rents in the financial system
[45:21] that's that one and a half trillion
[45:23] dollars of revenues or seven and a half
[45:24] percent of our economy or just two
[45:27] hundred billion in the payment systems
[45:28] for instance that there may be times
[45:30] that you don't really need a
[45:32] decentralized system but it just might
[45:35] be your opportunity to tuck in
[45:37] underneath all of those economic rents
[45:40] and all those revenues now in
[45:43] Vince will react you poke an incumbent
[45:47] commercially pokum I mean and they're
[45:50] gonna react and that's why I think
[45:51] blockchain may well be a catalyst for
[45:54] change even if incumbents then adopt a
[45:57] lot of that inside the requirements of
[46:01] the course class participation is a hard
[46:03] thing to judge is a faculty member when
[46:05] I have this many people so but I always
[46:08] think class participation matters we
[46:12] made it 30% it which if you have any
[46:18] advice on this a next semester
[46:21] 30% to to individual write-ups one in
[46:24] the first half which is up to I think
[46:25] lecture 10 which is basically the
[46:28] blockchain fundamentals you pick a topic
[46:31] I don't care which one
[46:32] but it's you'll get you'll get a much
[46:34] better grade if it's about critical
[46:36] reasoning if it's really taking whatever
[46:39] those sets of writings are and and and
[46:43] and and not just repeating that which is
[46:46] in the readings but really going the
[46:49] next step in saying here's what's going
[46:51] on and this is a business goal you don't
[46:54] have to you know convince me that you
[46:57] know something about computer science
[46:59] it's like critical reasoning about the
[47:02] economic opportunities the strengths the
[47:05] weaknesses the opportunities the threats
[47:07] that old business school sort of saying
[47:08] of swaths with regard to that week's
[47:12] whether it's about hash functions early
[47:14] on cryptography or you sort of wait
[47:17] during the foundational period to
[47:19] permission versus permissionless you
[47:22] pick but to please hand it in before
[47:25] that classes lecture because I might
[47:28] during the lecture say who wrote today
[47:29] do you want to tell us what you think
[47:31] and it might help spur the class
[47:33] participation and then a second write-up
[47:36] in the second half when we're riffing
[47:38] through the use cases again critical
[47:42] reasoning and then lastly the usual
[47:46] approach of teams of up to four no I
[47:50] don't want teams of five
[47:52] to handle that right now three or four
[47:55] just and and and somewhere in the second
[47:59] half of this semester we'll talk about
[48:01] more the content and there's a couple of
[48:04] you in here that worked with me last
[48:06] semester and a smaller group you know I
[48:10] want you to do well so I'm gonna sort of
[48:12] give you a sense of like what do we want
[48:14] to do but it's basically the idea is
[48:16] you're an entrepreneur or you're an
[48:18] incumbent and what sort of use case or
[48:22] you're gonna pick and and and whether
[48:24] it's permissioned or permissionless sort
[48:27] of make a proposal do a use case use
[48:30] your critical reasoning around this new
[48:32] technology somewhere in the broad world
[48:35] of finance
[48:37] I mean you know and I'm glad that define
[48:39] finance really broad you know you'll
[48:42] pick so that's that's kind of a peace
[48:46] act one or the fundamentals I won't go
[48:50] through each of the pieces but you know
[48:52] that's in the syllabus of course Act two
[48:56] is the pivot of the economics and Act
[49:00] three our financial sector use cases and
[49:06] hopefully throughout law will have a lot
[49:08] of fun so the study questions for next
[49:11] Tuesday real quick what are the roles
[49:15] and characteristics of money so I really
[49:17] want to sort of dig behind money money
[49:19] is but a social construct or a social
[49:22] convention medium of exchange store
[49:27] value unit of account there's some
[49:30] readings about the debate whether money
[49:33] first came from the border system or a
[49:37] really good set of anthropologist and
[49:40] and and and archaeologists and
[49:42] everything say no it actually came as a
[49:44] ledger system and no one knows for sure
[49:46] at ten and fifteen thousand years ago
[49:48] whether money came from the out of the
[49:50] border system or more as a unit of
[49:53] account keeping account of credits and
[49:55] ledger but I'd say when you read through
[49:58] some of those readings you start to
[49:59] think well this is just a societal
[50:01] construct and so that I will get behind
[50:05] that what is
[50:06] fiat currency fiat currency which is an
[50:08] invention really only over the last few
[50:10] hundred years and we take for granted
[50:11] Dale but how does that fit into that
[50:14] whole history and importantly how to
[50:16] Ledger's accounting Ledger's I know
[50:20] boring stuff but it's probably why we
[50:23] came out of the dark ages so about five
[50:25] or six hundred years ago with double
[50:27] entry bookkeeping sorry hi I like
[50:31] Ledger's we'll talk a little bit about
[50:35] Ledger's and how that fits into money
[50:37] and securities and so forth and then
[50:41] layering in how Bitcoin fits on top of
[50:44] that history next Tuesday is not deeply
[50:47] about Bitcoin it's just a little dollop
[50:49] on that there'll be five or six readings
[50:53] one of them is a three-minute video the
[50:56] third one it's fun watch it's just a
[50:58] funny little video on what money is
[51:02] there's no need to read nakamoto's full
[51:05] paper when I said the email I mean just
[51:07] the cover email it's one paragraph my
[51:11] goal in the readings each week was not
[51:12] an each session was by and Lord to try
[51:15] to keep less than 50 pages you'd say
[51:18] you're gonna look sometimes you go it
[51:19] looks like it's more and maybe it is I
[51:21] figure you're all gonna figure out for
[51:24] yourself how to sort through the depth
[51:27] of your knowledge but I will predict
[51:29] that some of you may be as much as a
[51:31] quarter or a third of you are gonna go
[51:33] down a rabbit hole one day and you're
[51:35] gonna be doing blockchain for the next
[51:37] 48 hours and you won't know where the
[51:40] time went because it is an addiction at
[51:43] some point that some of you will get
[51:45] because this is curious notion I'm not
[51:49] predicting that infirmity for all of you
[51:51] I'm just saying some of you will have
[51:53] that happen to you so occasionally I
[51:55] have readings just white a lot it's
[51:57] happen to you let me just conclude and
[52:02] then take any other questions and light
[52:03] up their blockchain I think does provide
[52:07] a peer-to-peer alternative I think that
[52:09] I hope Larry I'll be able to convince it
[52:12] does provide and that peer-to-peer
[52:15] alternative addresses cost of trust it
[52:18] doesn't mean it's the only way to
[52:19] address
[52:19] cost the trust but addresses cost a
[52:21] trust the financial sector does have
[52:25] challenges not just that it has
[52:27] seven-and-a-half percent of our economy
[52:29] in the US and similar ratios around the
[52:32] globe but resilience how it survives
[52:36] shocks the financial crisis and things
[52:39] like that are real and inclusion one
[52:43] point seven billion people unbanked but
[52:45] then if you look at other products who
[52:48] has access to credit cards and mortgages
[52:50] and the like and then fiat currencies
[52:53] Ken Rogoff and others have written a lot
[52:56] about the instabilities that come that
[52:58] fiat currencies and we'll talk about
[53:00] some of the history why central bank's
[53:02] exist and how they they came about next
[53:07] key point is we already live in an
[53:09] electronic age Satoshi Nakamoto and
[53:11] Bitcoin didn't create electronic cash
[53:15] electronic cash I mean Sandra Bullock
[53:19] couldn't pay electronically that was
[53:22] 1995 they did a sort of berated movie
[53:26] about it all but by today you pay your
[53:30] tuition online those of you who work get
[53:34] paid online you pay your auto loans
[53:37] online most of our lives are electronic
[53:43] cash not a hundred percent but in some
[53:46] countries like Sweden it's getting very
[53:49] close to a hundred percent we'll learn
[53:53] together and discover that monies but a
[53:56] social and economic consensus blockchain
[54:02] technology along the crypto finance
[54:03] might be a catalyst for change and
[54:05] they're much masquerades as fact but
[54:10] it's only mere assertion we're gonna try
[54:12] to sort through you know that those
[54:15] differences that doesn't mean that all
[54:17] of you are gonna walk out agreeing with
[54:19] Paul Krugman a Nobel laureate or Nouriel
[54:22] Roubini that this is just a bunch of
[54:25] nonsense some of you might by the way
[54:29] but but I think you'll come out with
[54:31] real critical
[54:33] thinking skills and I hope that some of
[54:35] you will say I figured out actually
[54:37] where there's a real opportunity in the
[54:40] world of finance to use blockchain
[54:42] technology and make it a better
[54:45] financial sector democratizing finance
[54:49] or somehow providing a service at a
[54:52] lower cost of better service throughout
[54:55] I hope throughout that we'll learn
[54:58] together and we'll have a bit of fun
[55:00] along the way
[55:00] that's kind of my thoughts questions we
[55:04] have exactly what 18 minutes there you
[55:10] go but we can cut it short - I don't
[55:12] care there we go did you tell me your
[55:16] name and we're gonna do placards Ryan's
[55:18] gonna work to figure out you do placards
[55:20] cuz it's I wonder how our team's form
[55:30] traditionally anybody it's slow and can
[55:33] speak to this too but students do it
[55:35] their own so that the faculty doesn't
[55:38] sort of try to insert themselves to help
[55:40] you but we tend towards the latter half
[55:43] and say well who's formed up in groups
[55:46] and when you know if it's a smaller
[55:49] group it's like well anybody has not yet
[55:50] formed in a team why don't you move to
[55:52] the left hand side of the room and just
[55:54] get together but we could do that
[55:55] electronically - and you know whether
[55:58] talita and Sabrina who you know good
[56:01] help Internet
[56:02] basically have a social network to help
[56:05] form the teams because this is a big
[56:08] group you're right but that's
[56:09] traditionally people those students do
[56:11] it on their own
[56:13] other questions is anybody gonna go out
[56:17] and sell their Bitcoin now Larry what
[56:23] why are you here
[56:28] no no let to the whole feel and you're
[56:41] incredibly informed about the finance
[56:43] side so I want to see the combination of
[56:45] those and whether at the end I am
[56:49] convinced there's a there there as we've
[56:51] spoken because I could radically change
[56:54] the cost of trust around the world
[56:57] benefit the developing nation
[56:59] substantially but I think there's a lot
[57:02] of questions I still have I thank you
[57:08] for coming in any week you could be here
[57:10] any day we benefit and I hope it's
[57:12] really this is meant to be a
[57:14] conversation I'm not that far ahead of
[57:16] you Simon Johnson approached me last
[57:18] October and said what do you think about
[57:19] coming up to MIT and and Tom knows this
[57:23] story and and and we were sitting down
[57:24] for lunch in DC and it was a good time
[57:28] in my life my three girls I have three
[57:30] daughters and I'm a single dad and they
[57:33] were two were in grad school and one our
[57:36] undergrad it was a good time in my life
[57:37] I said why not you know come up here and
[57:40] get engaged in this digital currency
[57:43] initiative over at the Media Lab and
[57:45] I've spent a life I was 18 years ago mid
[57:48] sax on the investment banking side
[57:50] helping people buy and sell companies
[57:52] called mergers and acquisitions and then
[57:54] I went to the trading side fixed income
[57:56] and went off to Asia and did a bunch of
[57:59] I ran the fixed incoming currency and
[58:01] swap trading in Asia and then my last
[58:04] job was the co Finance Officer so we
[58:07] were about a quarter of a trillion
[58:09] dollar balance sheet at that time go
[58:11] goldman sachs this is we were so private
[58:14] which meant if we lost money we were
[58:16] personally I was a general partner was
[58:18] kaput that's a technical word and but we
[58:24] had we had 700 legal entities and one
[58:28] thousand people who could commit the
[58:30] capital of the firm those are people we
[58:33] generally call traders but you know is a
[58:37] fascinating period of time I then went
[58:39] on to
[58:40] public service because Bob Rubin knew
[58:42] that I'd be a soft touch - it's a
[58:44] service
[58:45] he was the Treasury secretary I was a
[58:47] former partner at Goldman Sachs and I
[58:49] went off to the US Treasury as a
[58:51] assistant secretary and undersecretary
[58:53] in the late 90s a little different times
[58:55] than we have now for many reasons but we
[58:58] were paying down the debt we were
[59:00] dealing with the Asian debt crisis
[59:02] long-term capital management that
[59:04] Russian debt crisis is it was sort of a
[59:06] fascinating period of time I worked on a
[59:10] bill with John McCain I didn't get to
[59:13] know Senator McCain that well but it was
[59:16] just remarkable to work with even for a
[59:18] short period of time called ie signature
[59:20] it was a bill that basically said you
[59:22] can sign everything electronically and
[59:24] he was the chair of the Senate Commerce
[59:26] Committee at the time I was a wonderful
[59:27] little yes sometimes in government you
[59:30] can work on small things I worked on the
[59:32] redesign of the currency and I could
[59:35] tell you stories about why it looks the
[59:36] way it does and how you can redesign
[59:38] paper currency and for a future lecture
[59:43] I'll tell you the one design feature
[59:44] that I it's still in the currency and
[59:47] you can visually say it's because and
[59:50] when I asked for it the fella that
[59:52] rather Bureau of Engraving said why and
[59:54] I said because it looks better and I'm
[59:56] the guy that's approving it and maybe
[59:57] could we get it done can we work this
[59:59] out and and it did look better and he
[01:00:02] loved it he was worried about the
[01:00:03] political risk of doing it it was a
[01:00:05] better design he just was I said I'll
[01:00:08] cover you politically let's do it but
[01:00:11] then I worked with Paul sarbanes and
[01:00:13] what became sore Baines Oxley I was his
[01:00:15] senior advisor I worked and kicked
[01:00:18] around some political campaigns we lost
[01:00:20] two of them that would be the o8 Hillary
[01:00:22] campaign and the 16 Hillary campaign I
[01:00:24] was her chief financial officer I was in
[01:00:27] a way the senior advisor doing economic
[01:00:30] policy and outreach and hand-holding and
[01:00:35] and and then in the middle of those two
[01:00:40] campaigns I ran something called the
[01:00:42] Commodity Futures Trading Commission
[01:00:43] which was post-crisis what do we do this
[01:00:47] is a real public policy shortcoming
[01:00:51] and and I looked at as an opportunity to
[01:00:53] as I said democratize finance a bit and
[01:00:56] lower risk and so we tried to bring
[01:00:58] transparency to a three or four hundred
[01:01:00] trillion dollar market caught swaps
[01:01:03] which are just contracts for
[01:01:06] transference of risk and in their form
[01:01:09] of a derivative that that were
[01:01:11] unregulated and we were trying to bring
[01:01:13] transparency to that and lower risk
[01:01:14] through central clearing so that's sort
[01:01:18] of my professional life and as I said I
[01:01:20] got three daughters and they they're
[01:01:22] well situated so when Simon said come on
[01:01:24] up I said great and I love MIT it's just
[01:01:27] terrific and and you you all are great
[01:01:32] unless there's other questions I'm gonna
[01:01:33] let you go early I
[01:01:38] [Applause]
[01:01:49] you