49 - Moon Math: The Bull Case for Cryptography | Justin Drake

welcome to bankless where we explore the frontier of internet money and internet finance this is how to get started how to get better and how to front run the opportunity i'm ryan sean adams i'm here with david hoffman and we're here to help you become more bankless david this is the type of episode we've not done on bankless before what makes this one so special you know i don't think anyone has done an episode like this uh justin drake who is a cryptographic researcher at the ef

he loves cryptography and that is one of the harder subjects to do a podcast about especially when you know you're not you're generally non-technical and justin is extremely technical yet he did a fantastic job breaking down cryptography so we could help understand how it's going to fill some of the chinks in the armor that we have in this cryptocurrency industry right so the we use uniswap as like the the premier example of the the application that everyone knows and has probably engaged with yet there are a few trust

bottlenecks for engaging with uniswap metamask is a truss bottleneck the front end of the website is a trust bottleneck and there's a number of other things that you are implicitly trusting when you use an application like uniswap that aren't anything to do with the uniswap the protocol itself but are still holes in the armor when it comes to trust and so what this episode was about was how we are just at the beginning of the crypto economic revolution we start off this episode defining crypto economics and justin says uh talks about how you know

originally the cypherpunk vision was all about a cryptography enabled world yet that was super ambitious and perhaps never going to happen and therefore the integration of economic assurances or assumptions with cryptographic assurances or shromson's assumptions is really powerful and basically what this industry stands on and we have so much left untapped potential in the realm of cryptoeconomics that we have not yet applied to our daily interactions with

the ethereum blockchain with the bitcoin blockchain so this is all about moon math what we can do with all of these crypto economic tools that we've developed yet we have not yet applied justin is really bullish on the future of cryptographic cryptoeconomic tools for helping improve the trustlessness of these systems that we use on a day-to-day basis really a fantastic episode i think one of my favorites yeah and you know part of the reason this is important guys is because bankless is all about

um giving you mental models for how to think about crypto and ultimately how to guide what you do in crypto how you use it your investments how what you do in your kind of daily life using uh defy systems and i think there are kind of two schools of thought about crypto that guide investing paradigms one is sort of crypto is an economic movement uh an emphasis on the money bitcoiners tend to be more that side uh and the other is crypto is a a software uh it could

evolve and change over time our episode recently david with chris dixon uh more expressed that mentality and you know what the truth is is it's both of those things it's not just a money and it's not just software it's software money you have to understand both sides of that coin in order to guide your investment decisions and have the correct mental models for this industry and this was a beautiful blend of i think those two things it really showed the the softwareness and the

upgradability and the enhancement potential of the software compute layer of crypto without sacrificing the economics piece of it which is so important crypto economics it's both of these things together in this episode we talked about uh justin's heuristics his his rules of thumb for engaging with crypto economics he says that if cryptography doesn't do it doesn't solve the problem you can therefore rely on crypto economics or add in crypt crypt

add in economic assurances on top of your cryptography but then he also says if you can do it with just cryptography you should do it with just cryptography and that resonates with the protocol sync thesis if we can relegate things to math we totally should that was one of my big takeaways we end the conversation this this marathon of a conversation over two hours long our longest episode yet we end this conversation with a thought experiment about how cryptography is changing and things in

this industry need to change with it and justin believes in and apparently crypto the industry or the academic study of cryptography points in this direction that quantum computing will come to eventually break bitcoin the blockchain and ethereum the blockchain unless we can pivot and put in new uh new tools new security mechanisms that prevent quantum from computing from breaking these systems we talked about bitcoin's calcification and how it might not be able to pivot to a post-quantum

world and in that world we could actually create a scenario where btc the asset separates from bitcoin the blockchain and uploads itself to the blockchain that does have these new uh new uh holes these security holes as a result of quantum computing patched which we think of course is going to be ethereum 2.0 that is a fascinating conversation imagine a decoupling of btc the asset from bitcoin to blockchain and then it exists entirely on a new blockchain that was a fancy fan as an absolutely

fascinating part of the conversation as usual guys we have a full debrief where david and i go over our thoughts immediately after the episode so if you're a premium subscriber to bankless make sure you check that out we will include a link as usual without further ado david we should talk about our sponsors if you are looking for a product that connects your fiat bank account with d5 tokens and products you need to download the dharma mobile app dharma is a non-custodial smart contract wallet and

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excited to have on justin drake who is a cryptographer he's a researcher at the ethereum foundation and to say he played a key role in the development of eth2 is probably an understatement he's been a key force behind us he's here to tell us all about how early we are in this crypto revolution the advances that are coming in cryptography that are about to change everything we think we know about cryptography crypto and this entire industry justin how are

you doing today sir i am doing great guys thank you so much for having me you know what i've got to ask this before we get into the the moon math and the really fun stuff eth launched in 2020 wow how does that feel eth2 launch amazing um i mean i've spent three years of my life dedicated to this um and it was a great reward and seeing that we have you know three billion dollars um you know staking and that we basically haven't had uh issues so far is is pretty astounding

so justin this is actually kind of a unique episode i think that's about to come out of the bankless podcast because this is the first episode where uh you actually pitched the episode to us and this is something that i would not have thought about to be able to or or the skills or the knowledge to produce this sort of conversation so i mean and i know that you are absolutely fired up to talk about what we are going to talk about maybe you could kind of give us the the to the tl dr the elevator pitch for what we are about to talk about and why you are so stoked about this conversation

yeah for sure um i mean i was inspired by you because you had this this bullish ethereum um you know series and i'm just so bullish ethereum i don't want to you know reflect on why am i so bullish and you know one of the big reasons is that the fundamentals are so strong right the whole space is built on crypto economics which is you know part cryptography and part and game theory and incentives and you

know the the crypto the cryptography part in particular we're at the very beginning there's so much room to grow and it's a story that i think will unfold over many years possibly even decades um and there's just so many reasons to believe that the the reality we live in today is very very primitive um and you know it might sound like um you know we're moving to to to to worlds

you know when they describe trying to describe the future it might sound like sci-fi but i really do believe that we're moving towards that end goal so where does this conversation start uh one of the the lines that you put into the agenda was that uh you know with regards to cryptography and crypto economics we are just in the most primitive age the stone age where we have like you know the fire and the wheel but so much of the world's inventions are ahead of us where does this conversation start yeah um so i think um

you know one interesting you know starting point i think is the the cyberpunk uh movement right so they had this amazing dream in the 80s which is can we try and rebuild all of society on really strong foundations and specifically cryptographic foundations and people back then were really fired up you know for ideological reasons in a similar way that some people today in the crypto space are really fired up um but to to a large extent um i think that dream kind of didn't pan

out the way that people hoped and you know we had a few decades of of of silence there um and then you know we had we had a few clues you know things like like bittorrent um which uh basically allowed us to to um have really strong foundations in the sense that bittorrent to a large extent is just cryptography plus you know peer-to-peer networking and plus even a little bit of incentivization in the early days um and then we had uh you know satoshi's big breakthrough uh

bitcoin which to me is kind of the the birth of crypto economics in in a really uh big way um and now we're um i guess we're we're reaching a point where um kind of this you know this this um point in the in the exponential curve where is the inflection point everything happened quite slowly but now we're going to see this explosion uh you know largely driven uh with ethereum where does that inflection point come

from like what about the what's different about bitcoin and cryptoeconomics that we didn't have before why is why is there this cambrian explosion going on now yeah um i mean one of the the the big things i guess and it was the key innovation of the theorem is is programmability um so now we're in a position where ethereum can absorb all the innovation that we we need to absorb to solve all these

these problems that we have so in the crypto space where you know we're starting from the foundation so we have to reinvent the whole stack uh we're reinventing the wheel to a large extent and so even though we have lots of superpowers such as you know decentralization and trustlessness and things like that like that we also have a lot of trade-offs um and you know this the superpowers are so awesome that we're happy to live with the trade-offs but oftentimes um in fact you know almost all the time i believe that these

trade-offs that we have relative for example to to existing services like centralized exchanges in the context of decentralized trading i think we can basically fill in all the gaps um that we have today and be at least as good as centralized services in every single respect and in some so in some key respects this totally outshine them uh you know by by a fact of 10 or 100 x can we can we talk about this idea of crypto economics for a second in the context of of bitcoin because i just

want to make sure that that's clear to all of our listeners right so um the the the cypherpunks were very much into cryptography and the revolution that it could bring self-sovereign money privacy all of these things but they were missing something they were missing the economics part that made bitcoin so special and that made satoshi's white paper so special i'm not necessarily sure that that's completely intuitive to people the sorts of things you can do when you

blend not just cryptography but it's cryptography plus economics it's both of those two things together that was the major innovation and discovery of bitcoin can you talk about that for a minute yeah so um you know one metaphor that i have is that cryptography is this very powerful tool it's a very powerful building block like like the brick right you want to build a wall and you have you have the bricks but if you have bricks alone that's not

going to work you need something to glue the bricks together you need the mortar and the the economic part kind of fills in the gap and glues everything together so that you have a coherent system that breathes life if you take cryptography alone it's kind of somewhat dry and somewhat abstract and once you bring in the economic part which could be a relatively thin layer but you know a critical layer then then suddenly you have uh pieces of

the puzzle that stick together to form a coherent um system so before bitcoin the cypherpunks were really trying to solve this problem for almost decades right and they they innovated in many different ways one of them was eagled um there was there's a number of different like bitcoin precursors that i think all relied on pure cryptography right and it was that integration of economics that really was what allowed bitcoin and therefore this whole entire industry to flourish

maybe you could talk about just the relationship between cryptography and economics and maybe um tell our listeners like maybe when it when is it the better time to use cryptography and when is it the better time to use economics and how you think about balancing these two forces right um so i think a lot of the the previous solutions can kind of had um partial decentralization they they used um cryptography to them to the maximum extent possible but they still had this

somewhere in the system some sort of of central party and that led to attacks for example by um by government um like one of the i guess one of the big realizations is that cryptography alone so let's look at the goals of cryptography what is the goal of cryptography it's basically to take a trusted third party that does some sort of functionality and replace it by pure code or pure pure mathematics and it turns out that there's some

impossibility results there's some things that you just fundamentally cannot do and so what you want to do is you want to relax the constraints a little bit so you have this this spectrum of trust right so on the one hand you have very low trust technology like mathematics and then you can walk your way up you have cryptography physics and then maybe economics and then you know you have things that are very you know human um rooted in in human culture things like

the legal system or the monetary system or even religious systems um that are deep in in the narrative and you know you want to go as far as possible into the spectrum but you want to be realistic right there's some things you just can't do with cryptography okay so if we kind of turn it down a notch and include economics um then suddenly this is the inflection point where um you can breathe life into into the cryptography and to be very specific one one problem that cryptography alone

cannot solve is the double spend problem so it's this idea that you need to have some sort of entity that can remember that you've spent something so that it can prevent you from spending it again and that's this notion of of state uh and consensus so cryptography the way i think of it it it um kind of solves stateless problems um so we can it can you can start with a state and then and then it will give you a valid state transition it can prove to you that

something's happened according to the rules or with possibly you know certain security guarantees like privacy or whatever um but one thing that it cannot do is take this graph of all the possible states and state transitions and collapse it down to one canonical one which we call the truth so basically what consensus does is that it it anchors um kind of it's a little bit like a quantum analogy right so you have

in the world in the quantum world you have many different states that live in a superposition and you know you kind of want to choose one you want to collapse it to just one and this is what consensus does and in order to solve consensus you need to move a little bit out of cryptography and and dip your toe into um you know us things that are very economic and more specifically you know we have assumptions like the 51 assumption in bitcoin or you know in the theorem we could have the the two-thirds um assumption and you know we can talk

about this assumption in many different flavors you know we have um things like honesty assumptions where we just model the actors as always behaving according to the rules but we could also have you know maybe um uh rationality assumptions we can assume and this is closer to the the reality of things where um we can assume that for example two-thirds of the of the players are are rational you know they're they're motivated by by money monique is kind of

interesting it's like this this one of the things that really transcends cultures and and and and and boundaries um and you can use money kind of as one of the really strong layers to as the basis as a foundation for for building society so bitcoin is famously known as a string of signatures like in the white paper like satoshi called bitcoins as like a very long string of signatures and that's all cryptography but what you're

saying is that bitcoin as a system is a and determining what the correct string of signatures is is determined by social consensus and that that's and bitcoiners are famously saying like no there is no social consensus to bitcoin there's only math but a lot of coming things coming out of the ethereum camp is like well at the end of the day crypto economics is always one part secured by the social layer so what you what you're saying is that the reason why everyone can come to consensus about what the correct string

of blocks is is incentivized by economics particularly by the bitcoin hard cap the btc hard cap provides the economic incentive to and enables economic assurances but in in your description uh justin you were saying that you know originally the cypherpunks wanted everything to be run by cryptography that was really hard that was really ambitious perhaps even impossible and so therefore we can compromise and instead of just relying on only cryptographic assurances we also

integrate economic assurances or or assumptions as well but to me in my mind that indicates a priority or a tier right where you know if we can do something with cryptography and without economic without economics we should perhaps do it with cryptography if we don't have to make that compromise is that a fair assumption yeah exactly um so we do have this this spectrum of trust that i call it but you know i think you call it the the protocol sync thesis right like the

heavy dense stuff um it wants to go at the at the bottom it sinks to the bottom and that's the foundation um for for for your stack um yeah so that's exactly right when you relax things suddenly a whole world of opportunities appears and they have this kind of heuristic which is that if cryptography doesn't work try crypto economics and usually it will work um and this is actually in the you know in in in research for fm 2.0 this is kind of what helps us push forward like usually like

the very first solution that we come up with is crypto economic and we know yeah you know it's possible to solve this and you know at least we have one solution um and then kind of the next step is okay can we improve upon this and then that brings me to my second heuristic which is that if you can do without crypto economics if you can do it purely with cryptography then that is going to be at least in the long run a superior solution um and so that's what you want to be aiming for long term that is one of the best mental models

for understanding the protocol sync thesis that i've ever heard and so that i think this is already a super valuable conversation ryan and i have described you know the protocol scene thesis as like you know trust minimized decentralized uh you know credibly neutral but at the end of the day what's going on is we're just boiling back down to that's what cryptography is and so the protocol synthesis i think could be restated in systems that use cryptography more than they use economic or trust-based assumptions

right and actually you can you can look at at this heuristic kind of in the in the fullest spectrum of things so if you look at uniswap for example um you know just to to get started just to get to the real world it's made some compromises you know it relies on infuria it relies on the graph it relies on all sorts of centralized providers but um you know over time you can kind of peel off these um these layers that are higher trust and

kind of shift everything to to to the high trust uh realm and you know with lots of engineering lots of creativity and research we will get there um and you know there's some good reasons to believe um that you know the the end goal is the moon right we will solve all our problems uh we have extremely powerful um arsenal of tools um that have been developed in uh theoretical cryptography and those will make their way

progressively through applied cryptography and then you know the final the final boss which is real world cryptography so i don't think we want to dive into this justin because i don't think people fully understand um the the field of of cryptography and so what what we've basically done in kind of the the past couple of decades is we we discovered this amazing thing called cryptography as as humanity and then uh with bitcoin we blended cryptography with economics and that

gave us the ability to get a digital consensus on things it was a huge unlock for humanity in that it helped us solve the double spend problem so we can have this marvelous thing we call digital scarcity which was not previously a layer on the internet so that's cryptography plus economics digital scarcity right and that is bitcoin and ethereum of course made that sort of a general digital scarcity compute engine but here's the thing cryptography is a changing field and an

advancing field right so the cryptography that bitcoin is based on was that built out in the like 1960s 1970s that sort of era of cryptography maybe you could tell us on that but the exciting thing about this that i want our listeners to know is that um cryptography is advancing too in kind of a similar way where we had the compute revolution with moore's law we had the ability to put more transistors on a chip right with these cryptography

advances we can almost put like more trust on a chain more consensus more it's it helps us these cryptography advances help us scale consensus to all new levels and it's a it's a changing field can you talk about how crypto economics is just getting started because of these new cryptography functions right um so one of the things that i'll say is that as i mentioned there's these different flavors of cryptography right there's the theoretical cryptography which

basically asks can you do something yes or no um and you know usually the way you answer it is if the answer is yes then they'll try and give you a specific construction if the answer is no they'll give you an impossibility result telling you it's impossible to do um but oftentimes if the answer is yes the construction that they'll give you as cryptographers is like uh you know pie in the sky it's it feels very distant from the real world um and for for decades you know we've had

theoretical cryptographers who are you know passionately in love with what they do you know it's very intellectually stimulating but they're disconnected from reality and it turns out that in theoretical compu cryptography we've made huge leaps and bounds um and actually this um kind of in a way culminated this year 2020 with the discovery of what's called code obfuscation um so it's a very powerful cryptographic tool um and now

we know how to do it on very standard cryptographic assumptions and sorry is this anything to do with the cryptocurrency industry or is code obfuscation something that is purely out of the cryptographic domain so um code obfuscation is kind of this beacon of hope for um and it's kind of uh giving us a road map for the next few um you know years and decades and in short what it what it tells us is that

everything that we could wish to do in cryptography we can do it um and so it's basically the zero to one moment where whatever you want to do you can do it unless um you know unless there's some sort of impossibility result but if you can do it you can do it with code obfuscation um so at the very least because we know how to do code obfuscation we know how to do kind of the rest of cryptography the the the term that we we have is that we say that obfuscation is crypto complete this

one building block gives us all the other building blocks which is a really amazing thing that my mind goes to touring completeness is that an okay like metaphor yeah so it's the same word complete um turing completeness is basically once you have a few basic instructions you can run any program um you know that could be run on a computer and it's the same thing here where uh with code obfuscation you actually need two primitives you need once you have hash functions and an obfuscation these

two building blocks alone give you the rest of cryptography um and so this is fulfilling or if so what this answers is perhaps maybe the original cypherpunk vision of can the world be completely run on cryptography and so if if you're telling me that three theoretical cryptography is quote unquote solved by code of eusation does that mean that the original cypherpunk dream of a cryptography run universe is still in the cards no i don't think it's in the cards and you know that you kind of have these

these things that you just can't do with cryptography and and like um for me the the the the separating line is stateless versus stateful so um cryptography can do all the stateless stuff um and then once you combine it with one further ingredient which is you know blockchain or consensus which will give you this state then you can do everything and by everything i mean that you can basically simulate any trusted third party