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GARY GENSLER: Welcome back.

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People can sit at
that back table,

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or Rob you want to come up here?

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So I said you're
to have a special--

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ROB GENSLER: Focus
on you during class.

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I'm his twin brother.

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GARY GENSLER: Everybody can
meet my twin brother Rob.

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[APPLAUSE]

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Rob's not your guest speaker.

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He's my guest.

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But he will speak
a little later when

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we talk about Nouriel Roubini
and Roubini's thoughts

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on blockchain economics.

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Rob worked at T. Rowe Price
for 25 years, 24 years?

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ROB GENSLER: 20 years, before
that on Wall Street for 10,

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Salomon Brothers mostly.

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GARY GENSLER: So he's from
Salomon Brothers, Wall Street.

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He started his own hedge fund.

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And that didn't work out.

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So he closed that hedge fund.

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He went to work for T.
Rowe Price for 20 years.

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And he ran a global equity fund.

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But before that, he was
doing telecom and investment.

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But I will ask Rob, as an asset
manager around $20 billion

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of money at one point in
time and was successful

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at it, his thoughts about this
cryptocurrency, crypto phase.

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He has not-- as opposed to
everybody in this class,

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he has not read the
readings for today's class.

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But I know you all read
the readings maybe.

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But that will be
when we're talking

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a little bit about the
blockchain minimalist.

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So we're now turning
into what I call act two.

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We've talked a lot about
the economics of blockchain

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throughout talking
about the technology.

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But now we're going to
take today and Thursday

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really to dive a little bit
more into the economics.

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Now of course, we're
talking about the economics

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the entire semester.

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But this is going to be just--

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we're just going to
stay right on that.

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And because my goal
on this journey

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together is that we all get a
little bit closer to the ground

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truth, separating the
hype from the reality,

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I've tried to put
in the readings,

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if you've chosen to sort of even
do the skim read or look in,

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some of the blockchain
minimalists,

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like the Nouriel Roubini
piece that you had.

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And it doesn't get
much more minimalist

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than Roubini's piece.

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But I think it's
relevant to know

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where Paul Krugman
or Nouriel Roubini

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or Joe Stiglitz or others
are on this technology.

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I don't happen to
agree with them.

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But I'm not all the way
over on the other side.

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I'm not with the Tim Drapers.

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And yesterday I had
the honor to appear

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at a conference in New York City
where Fidelity was rolling out

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their new blockchain
digital asset business.

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And so I was the setup
speaker, I guess.

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But one of the
other speakers there

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was Mike Novogratz, who started
a company called Galaxy.

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I would put Mike and some
others closer to the maximalist,

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or he cautioned me he's
not a 10 on the 10 scale.

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He's probably an eight.

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But I've tried to put into
this readings and this course

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so that you can leave this
course with critical reasoning

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skills really what
are the economics.

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So let's go on that
journey together today.

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And also, I say,
think about some

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of what we're talking
about today in light

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of your final projects,
because you're

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going to be looking for
some pain point in finance

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or with a little special
discussion with me

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outside of finance and say
what's a use case that all

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this crazy blockchain
stuff can come together

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and actually work on it.

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So the overview, of
course, as always

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I'll talk a little bit
about what our readings.

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I'll see if we'll do a
little Socratic method.

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So we're going to
talk about blockchain

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economics, a little bit about
blockchain versus the internet.

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That was Joi Ito's article
that kind of set that up.

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And Joi wrote that
several years ago.

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He might write it a
little differently now.

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But I still think
it's really relevant

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to get behind how do we think of
blockchain versus the internet.

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I call them the minimalists,
whether it's Roubini

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or Krugman or Stiglitz, but--

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or Gensler.

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You're going to hear
from one back in--

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that Gensler, who came three
minutes after this Gensler.

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Well, he might have come before
me, actually, because Rob,

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you lived in Botswana.

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And didn't they believe
that the second delivered

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was the first conceived?

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But we're identical, so maybe
it didn't happen that way.

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And some costs--

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I'm sorry.

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I mean, you know, I-- oh yes,
we have to do the twins thing,

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you know?

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How many twins in this class?

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Yeah, yeah, all right.

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It might be just statistical.

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And you said you're
Peruvian, identical twin?

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AUDIENCE: I have
an identical twin.

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GARY GENSLER: Identical twin.

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AUDIENCE: I had--
he's a medical doctor.

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He lives in Peru.

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And in Peru, by the way, they
do say that the second is the--

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GARY GENSLER: The
second delivered is--

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AUDIENCE: Kind of the older.

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GARY GENSLER: So
has the birthright.

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AUDIENCE: I was the first,
so I tend to disagree.

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GARY GENSLER: Rob has
the birthright in Peru.

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We'll talk about
costs and trade-offs.

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We've done a little bit
of this in the past.

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And then we'll wrap it up
and a little fewer slides.

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I slimmed this out just so we
can have a bit more discussion.

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But the study questions--

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how do decentralized
blockchain applications

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affect the cost of verification
and cost of networking?

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And anybody want
to dive into that

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or we want to dive in
when I do the little bit?

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I'll give my read about how
blockchain changes verification

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and networking.

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Those are the two things.

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That was in the
Christian Catalini paper.

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I know you didn't love it that
I assigned a 30-some page paper.

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But Christian's at
the forefront of this.

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He's in the Sloan faculties.

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He's not here.

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He's sort of on a
sabbatical semester.

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But Christian's paper-- he's at
the forefront of the economics

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around blockchain.

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You can't take a good
blockchain course

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without reading
Catalini's paper.

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And it's not just
because he's a Sloanie.

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I think he's kind of got that.

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And then the comparison
to the internet.

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So it's sort of
those two big items.

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And I know I-- as somebody said,
there were too many readings.

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There was only five
that were required.

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Of course, Roubini's was
just low-hanging fruit,

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because he gave
it last Thursday.

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And it was-- how many people
read the Roubini piece?

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It wasn't required, but--

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so about a third or a half.

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Do you agree it was
kind of a slap down?

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What'd do you think, Alene?

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AUDIENCE: It was hilarious.

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I loved it.

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GARY GENSLER: You loved it?

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AUDIENCE: I couldn't
really finish it.

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But it was hilarious.

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GARY GENSLER: How
many of you that

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read the Roubini piece
found that you agreed

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with most of what he said?

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OK, so 2, 3, 4, 5--

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oh, Alene-- 6.

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All right.

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Wow.

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AUDIENCE: I don't know.

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Every time I read
one, I'm like, yeah,

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they totally know what
they're talking about.

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I'm on board.

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And I feel the same way with
all the minimalists now.

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GARY GENSLER: So
you're identifying

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with the minimalists now?

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OK, OK, on Thursday
you're going to read

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things like an open letter to
Jamie Dimon that kind of goes--

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it's not a maximalist.

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But it kind of
goes the other way.

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And then the optional bits.

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So let's start a little bit
with blockchain economics

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and the first
thing, verification.

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So what are you-- what
are the costs, anybody

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who actually dived in or dove
in to the longer Catalini piece?

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The cost of verification.

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And these are things
that I'm not just

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presenting because
somebody wrote about it.

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I think Christian's
right about this.

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I think that the
blockchain can--

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doesn't always, but can really
lower the cost of verification.

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Beau, do you have a--

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AUDIENCE: You talked
about efficiently

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verifying auditing
transactions that happen

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and the cost of audits lowering.

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GARY GENSLER: So efficiently
auditing and lowering

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the cost of auditing
transactions.

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What else do he talk about?

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Kelley?

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AUDIENCE: Part of
that efficiency

00:09:12.110 --> 00:09:13.485
was the fact that
currently there

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is quite a few third-party
actors that are involved,

00:09:16.780 --> 00:09:20.687
separate between the
input and output actors.

00:09:20.687 --> 00:09:21.520
GARY GENSLER: Right.

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So you might have fewer people
in the chain, fewer actors.

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AUDIENCE: [INAUDIBLE].

00:09:27.700 --> 00:09:32.462
They also mention the privacy
policy and also censorship.

00:09:32.462 --> 00:09:33.670
GARY GENSLER: OK, so let me--

00:09:33.670 --> 00:09:37.030
you raised two--
privacy and censorship.

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Do you want to say, or somebody
else, what is it about privacy?

00:09:40.490 --> 00:09:43.100
I mean, because these are
really critical things

00:09:43.100 --> 00:09:44.620
that blockchain can do.

00:09:47.130 --> 00:09:50.840
AUDIENCE: So with privacy,
the addresses are synonymous.

00:09:50.840 --> 00:09:53.260
So there's no name
attached to an address

00:09:53.260 --> 00:09:54.760
that you can interact
with your peer

00:09:54.760 --> 00:09:56.718
without people knowing
who you are necessarily.

00:09:56.718 --> 00:09:57.930
GARY GENSLER: Right.

00:09:57.930 --> 00:09:59.590
But why does that matter?

00:09:59.590 --> 00:10:01.720
So--

00:10:01.720 --> 00:10:05.470
AUDIENCE: Why would people pay
more to be able to do that?

00:10:05.470 --> 00:10:10.276
So there's an
understanding that there's

00:10:10.276 --> 00:10:12.370
a fundamental right to privacy.

00:10:12.370 --> 00:10:15.490
You don't want the world
to know all of your doings.

00:10:15.490 --> 00:10:19.450
GARY GENSLER: So some of
it's about rights and values.

00:10:19.450 --> 00:10:20.240
James?

00:10:20.240 --> 00:10:22.780
AUDIENCE: The key
element was hacking.

00:10:22.780 --> 00:10:25.090
These are examples when
people's information

00:10:25.090 --> 00:10:28.903
are so readily available
that a third party can hack.

00:10:28.903 --> 00:10:30.070
GARY GENSLER: Totally agree.

00:10:30.070 --> 00:10:32.020
But what's the big
commercial thing that's

00:10:32.020 --> 00:10:36.080
going on right now in big data?

00:10:36.080 --> 00:10:40.330
AUDIENCE: [INAUDIBLE] can
profit from that information

00:10:40.330 --> 00:10:41.320
they're gathering as--

00:10:41.320 --> 00:10:43.270
GARY GENSLER: I
mean the dominant--

00:10:43.270 --> 00:10:43.890
I'm sorry.

00:10:43.890 --> 00:10:48.560
AUDIENCE: I think resale of
the data as well as the--

00:10:48.560 --> 00:10:49.330
[INAUDIBLE]

00:10:50.642 --> 00:10:52.600
GARY GENSLER: So what
Sean and Eric are saying,

00:10:52.600 --> 00:10:56.080
the dominant revenue
model in tech today,

00:10:56.080 --> 00:11:01.960
whether it's big tech like
Facebook and Google and so

00:11:01.960 --> 00:11:06.160
forth or any tech-- the dominant
revenue model, not the only,

00:11:06.160 --> 00:11:11.050
is basically give me some of
your data, let me analyze it

00:11:11.050 --> 00:11:15.370
and either advertise against
it or somehow in these days use

00:11:15.370 --> 00:11:17.980
machine learning
and AI to analyze it

00:11:17.980 --> 00:11:23.560
and really market other
products back to you maybe.

00:11:23.560 --> 00:11:24.380
We all do it.

00:11:24.380 --> 00:11:25.330
We live in this.

00:11:25.330 --> 00:11:29.200
We give up our data, some more
so than others, some less so.

00:11:29.200 --> 00:11:30.940
But it's a big piece.

00:11:30.940 --> 00:11:34.090
Blockchain, Catalini
raises, well maybe

00:11:34.090 --> 00:11:37.657
you can get a little bit
more privacy if you wish it.

00:11:37.657 --> 00:11:39.240
It might be part of
the revenue model.

00:11:39.240 --> 00:11:40.270
How about censorship?

00:11:40.270 --> 00:11:44.605
What was the point
about censorship?

00:11:44.605 --> 00:11:46.090
Anybody?

00:11:46.090 --> 00:11:49.590
So when you're dealing
with a central authority,

00:11:49.590 --> 00:11:52.320
a commercial bank,
they can decide

00:11:52.320 --> 00:11:54.060
whether to extend credit or not.

00:11:54.060 --> 00:11:55.740
That's a form of censorship.

00:11:55.740 --> 00:11:59.010
It's a form of
allocating something.

00:11:59.010 --> 00:12:01.590
But it can be as simple
as to whether to even

00:12:01.590 --> 00:12:06.030
sell you the ticket to the
movie theater or not in a sense.

00:12:06.030 --> 00:12:09.260
It doesn't happen to us often.

00:12:09.260 --> 00:12:15.280
But distributed
decentralized platforms

00:12:15.280 --> 00:12:19.860
are more censorship resistant,
I mean on a spectrum.

00:12:19.860 --> 00:12:22.130
Anything else from verification?

00:12:22.130 --> 00:12:23.640
So let's see how we did.

00:12:23.640 --> 00:12:27.800
So this was how I sort of take
it back, these six points.

00:12:27.800 --> 00:12:30.260
The direct costs-- there
may be a cost trade-off

00:12:30.260 --> 00:12:34.260
that blockchain could have a
lower cost of verification.

00:12:34.260 --> 00:12:39.600
That doesn't always, but a
lot of verification in finance

00:12:39.600 --> 00:12:43.080
has multiple back offices
trying to reconcile

00:12:43.080 --> 00:12:44.310
between the ledgers.

00:12:44.310 --> 00:12:46.560
We've talked a lot in
this class about ledgers--

00:12:46.560 --> 00:12:49.390
ledgers recording
property rights.

00:12:49.390 --> 00:12:51.090
So you can have
one bank recording

00:12:51.090 --> 00:12:53.560
the property rights, another
bank recording a property

00:12:53.560 --> 00:12:54.060
right.

00:12:54.060 --> 00:12:56.370
It could be the
ownership of equities.

00:12:56.370 --> 00:12:59.370
It could be cash
called payments.

00:12:59.370 --> 00:13:02.220
So there's a lot of direct
costs that it can lower.

00:13:02.220 --> 00:13:05.460
And I would say in the
permissioned blockchain space,

00:13:05.460 --> 00:13:09.540
a lot of big banks are looking
at that very first point.

00:13:09.540 --> 00:13:14.100
We just lower our direct
costs of the back office.

00:13:14.100 --> 00:13:16.540
Stop there, straight and simple.

00:13:16.540 --> 00:13:19.520
We have a lot less
reconciliation costs.

00:13:19.520 --> 00:13:22.700
Privacy and data leakage costs.

00:13:22.700 --> 00:13:25.820
I call it both privacy,
which sounds like Hugo

00:13:25.820 --> 00:13:28.730
and I want my personal
privacy, or I just

00:13:28.730 --> 00:13:31.640
know Facebook is taking my data.

00:13:31.640 --> 00:13:33.380
I call that data leakage.

00:13:33.380 --> 00:13:36.600
I'm not terribly
worried about it.

00:13:36.600 --> 00:13:37.790
But it's something.

00:13:37.790 --> 00:13:38.730
Alene.

00:13:38.730 --> 00:13:41.120
AUDIENCE: So I'm very curious,
is there a use case here?

00:13:41.120 --> 00:13:43.190
Because I really
fail to see one.

00:13:43.190 --> 00:13:46.520
I could see privacy in the sense
that you could transfer coins

00:13:46.520 --> 00:13:48.872
from anonymous spenders
to anonymous receivers

00:13:48.872 --> 00:13:50.330
and you could even
hide the amount.

00:13:50.330 --> 00:13:53.018
And that's useful for
business, because businesses

00:13:53.018 --> 00:13:55.310
don't want other businesses
knowing what they're up to.

00:13:55.310 --> 00:13:56.743
But what other
use case is there?

00:13:56.743 --> 00:13:58.910
GARY GENSLER: Oh, I think
it's a very good question.

00:13:58.910 --> 00:14:00.285
Anybody have an
answer for Alene?

00:14:00.285 --> 00:14:02.120
Because I do, but
I just-- do others?

00:14:02.120 --> 00:14:06.150
Like a business
use case where you

00:14:06.150 --> 00:14:10.710
might have users not
giving up as much

00:14:10.710 --> 00:14:14.320
of their data and privacy.

00:14:14.320 --> 00:14:15.930
I'm going to use Uber.

00:14:15.930 --> 00:14:18.060
Oh, did you--

00:14:18.060 --> 00:14:20.880
AUDIENCE: Yeah, I think
an example I can think of

00:14:20.880 --> 00:14:23.482
is, for example,
the hedge fund in--

00:14:23.482 --> 00:14:24.690
GARY GENSLER: The which fund?

00:14:24.690 --> 00:14:25.410
AUDIENCE: Hedge fund.

00:14:25.410 --> 00:14:25.810
GARY GENSLER: Hedge fund.

00:14:25.810 --> 00:14:27.750
AUDIENCE: In asset
management, you

00:14:27.750 --> 00:14:31.230
don't want to know, because for
example, also the hedge fund,

00:14:31.230 --> 00:14:33.570
they hide behind the brokers.

00:14:33.570 --> 00:14:36.900
They have certain
swaps with the brokers

00:14:36.900 --> 00:14:40.620
so they don't have to review
the acquisition they viewed.

00:14:40.620 --> 00:14:44.280
And also they try to do their
position under the 5 percentage

00:14:44.280 --> 00:14:45.460
threshold.

00:14:45.460 --> 00:14:48.600
So in this way,
because any action--

00:14:48.600 --> 00:14:51.850
their action maybe can move
the market over a certain stop.

00:14:51.850 --> 00:14:54.450
GARY GENSLER: OK, so there
is a commercial situation

00:14:54.450 --> 00:14:55.500
as an asset manager.

00:14:55.500 --> 00:14:57.270
I might not want
others to know what

00:14:57.270 --> 00:14:59.743
trades I'm doing, what
positions I'm taking.

00:14:59.743 --> 00:15:01.410
I was going to use a
personal situation.

00:15:01.410 --> 00:15:05.400
You could envision Uber having
been created on a blockchain.

00:15:05.400 --> 00:15:06.680
It's not on a blockchain.

00:15:06.680 --> 00:15:09.660
But I'm saying you could
have envisioned it--

00:15:09.660 --> 00:15:16.690
riders, equipment owners
called car owners, and drivers.

00:15:16.690 --> 00:15:19.450
It's like three communities--
who owns the car,

00:15:19.450 --> 00:15:22.180
who drives the car,
who needs the cars--

00:15:22.180 --> 00:15:24.790
coming together in a blockchain.

00:15:24.790 --> 00:15:28.510
And maybe part of the reason I'm
comfortable with a blockchain

00:15:28.510 --> 00:15:29.110
Uber--

00:15:29.110 --> 00:15:32.680
maybe, maybe-- is I might
have a few girlfriends.

00:15:32.680 --> 00:15:34.330
And I don't want
anybody tracking

00:15:34.330 --> 00:15:36.010
that I'm visiting
different girlfriends.

00:15:36.010 --> 00:15:39.772
This would be-- you would call
it privacy, but perfectly--

00:15:39.772 --> 00:15:40.800
I'm single.

00:15:40.800 --> 00:15:41.840
I'm single.

00:15:41.840 --> 00:15:46.780
But I'm just saying that it's
a perfectly legitimate thing.

00:15:46.780 --> 00:15:48.790
Do I want to share that data?

00:15:48.790 --> 00:15:50.810
We all share a
tremendous amount of data

00:15:50.810 --> 00:15:54.550
if we use a credit card that--

00:15:54.550 --> 00:15:58.330
particularly in today's world
of machine learning and AI,

00:15:58.330 --> 00:16:00.850
that you can take
somebody's spending patterns

00:16:00.850 --> 00:16:03.070
and really narrow it down.

00:16:03.070 --> 00:16:05.560
Let's, for instance,
say that I have

00:16:05.560 --> 00:16:10.660
a certain religious affiliation
or a certain pro-guns

00:16:10.660 --> 00:16:15.280
or anti-guns or any
orientation I might have.

00:16:15.280 --> 00:16:17.440
You get enough
spending patterns,

00:16:17.440 --> 00:16:21.710
you can sort of piece
together that's probably you.

00:16:21.710 --> 00:16:23.163
That's probably your religion.

00:16:23.163 --> 00:16:24.830
That's probably your
sexual orientation.

00:16:24.830 --> 00:16:26.497
That's probably the
country you're from,

00:16:26.497 --> 00:16:30.440
the ethnic group if you pull
enough spending pattern coupled

00:16:30.440 --> 00:16:33.050
with machine learning and AI.

00:16:33.050 --> 00:16:36.830
So use case is people are really
talking about, well, maybe

00:16:36.830 --> 00:16:38.240
there's something
that I can give

00:16:38.240 --> 00:16:41.300
a little privacy-preserving
attribute.

00:16:41.300 --> 00:16:44.240
It won't be the dominant
use case, but something.

00:16:44.240 --> 00:16:48.130
And this class today is
just about economics.

00:16:48.130 --> 00:16:52.355
That's a legitimate economic
thing that's going on here.

00:16:52.355 --> 00:16:53.480
Was there a hand over here?

00:16:56.210 --> 00:16:58.100
Censorship risk.

00:16:58.100 --> 00:17:00.020
Basically that-- oh, I'm sorry.

00:17:00.020 --> 00:17:01.710
AUDIENCE: Can I ask
a related question?

00:17:01.710 --> 00:17:04.369
So in terms of the
privacy, there is--

00:17:04.369 --> 00:17:08.550
[INAUDIBLE] mentioned those
financial institutions,

00:17:08.550 --> 00:17:12.780
like before this, they can just
keep their data inside and only

00:17:12.780 --> 00:17:15.099
maybe reveal that to regulators.

00:17:15.099 --> 00:17:16.849
But if we use the
blockchain, they

00:17:16.849 --> 00:17:19.329
need to make all those
transactions public.

00:17:19.329 --> 00:17:21.319
And it's kind of
like the other--

00:17:21.319 --> 00:17:23.554
it's like the opposite
to keeping it private.

00:17:26.210 --> 00:17:28.860
GARY GENSLER: So to the
regulators you said?

00:17:28.860 --> 00:17:31.850
AUDIENCE: Like, say one
thing it keeps you anonymous.

00:17:31.850 --> 00:17:34.130
So that's kind of
protection of privacy.

00:17:34.130 --> 00:17:36.020
On the other side, we
need to make public

00:17:36.020 --> 00:17:41.030
all the information, which
may otherwise just involve

00:17:41.030 --> 00:17:43.017
some certain institutions.

00:17:43.017 --> 00:17:43.850
GARY GENSLER: Right.

00:17:43.850 --> 00:17:45.728
So you're abso-- remind
me your first name.

00:17:45.728 --> 00:17:46.520
AUDIENCE: Jennifer.

00:17:46.520 --> 00:17:47.478
GARY GENSLER: Jennifer.

00:17:47.478 --> 00:17:48.350
Jennifer is right.

00:17:48.350 --> 00:17:49.890
There is a tension--

00:17:49.890 --> 00:17:53.840
the traditional blockchains
like Bitcoin have both.

00:17:53.840 --> 00:17:56.000
They have-- they
mask a lot of data

00:17:56.000 --> 00:17:58.040
because of the pseudoanonymity.

00:17:58.040 --> 00:18:00.020
But it's not truly
completely masked,

00:18:00.020 --> 00:18:03.290
because you can use
forensics and track things.

00:18:03.290 --> 00:18:08.700
And to verify a permission list
blockchain, it's all public.

00:18:08.700 --> 00:18:09.690
So I agree with you.

00:18:09.690 --> 00:18:10.995
It sort of goes both ways.

00:18:14.260 --> 00:18:16.930
There are technical ways,
whether through zero knowledge

00:18:16.930 --> 00:18:20.280
proofs and other ways,
to have more privacy.

00:18:20.280 --> 00:18:24.360
But I'm saying there's a
legitimate economic cause.

00:18:24.360 --> 00:18:26.940
Paul Krugman's the last
sentence in his op-ed

00:18:26.940 --> 00:18:28.440
was "tell me a use case."

00:18:28.440 --> 00:18:30.990
Tell me-- remember Krugman's--

00:18:30.990 --> 00:18:32.130
he's a Nobel laureate.

00:18:32.130 --> 00:18:33.210
Paul is brilliant.

00:18:33.210 --> 00:18:36.250
And he writes eloquently
for the New York Times.

00:18:36.250 --> 00:18:39.220
But there are-- and
Jennifer, you're right.

00:18:39.220 --> 00:18:40.560
It's not perfect yet.

00:18:40.560 --> 00:18:46.540
But there are privacy attributes
that you can give to a system.

00:18:46.540 --> 00:18:49.060
I do want to clarify, I
only have one girlfriend.

00:18:49.060 --> 00:18:51.180
She lives in New York.

00:18:51.180 --> 00:18:52.780
I just want to make sure.

00:18:52.780 --> 00:18:56.500
It was a hypothetical
about Uber.

00:18:56.500 --> 00:18:57.740
Realized we're on film.

00:18:57.740 --> 00:18:59.740
ROB GENSLER: Now they'll
just all think it's me.

00:18:59.740 --> 00:19:02.765
[LAUGHTER]

00:19:02.765 --> 00:19:03.890
GARY GENSLER: There you go.

00:19:03.890 --> 00:19:04.432
There you go.

00:19:08.320 --> 00:19:08.950
Thank you, Rob.

00:19:11.740 --> 00:19:12.880
There was a story--

00:19:12.880 --> 00:19:13.380
no.

00:19:13.380 --> 00:19:16.490
OK, settlement.

00:19:16.490 --> 00:19:17.900
We've talked about this.

00:19:17.900 --> 00:19:21.550
I think if you don't have some
economics around settlement,

00:19:21.550 --> 00:19:25.030
that you don't need
some immutable record

00:19:25.030 --> 00:19:29.290
of the movement of a right,
particularly a property right,

00:19:29.290 --> 00:19:33.400
you might just as well just stay
with a traditional database.

00:19:33.400 --> 00:19:36.530
I'm not sure I'm entirely
right about that.

00:19:36.530 --> 00:19:40.750
There might be some permissioned
blockchain worthwhile.

00:19:40.750 --> 00:19:42.610
But I'm kind of a
view if you're not

00:19:42.610 --> 00:19:46.030
moving something that matters--

00:19:46.030 --> 00:19:49.000
and settlement means
something that's final.

00:19:49.000 --> 00:19:52.450
We talked briefly six
or eight lectures ago

00:19:52.450 --> 00:19:57.910
about that old lawsuit in
Scotland, the Crawford case,

00:19:57.910 --> 00:20:02.270
that if James steals $1
from me but then hands

00:20:02.270 --> 00:20:05.360
the dollar to Andrew, I can't
get it back from Andrew.

00:20:05.360 --> 00:20:07.790
I have no legal rights to
get my dollar from Andrew.

00:20:07.790 --> 00:20:10.250
I might have legal
rights about James.

00:20:10.250 --> 00:20:11.430
But it's final.

00:20:11.430 --> 00:20:13.940
There's final settlement.

00:20:13.940 --> 00:20:16.500
It's Andrew's dollar.

00:20:16.500 --> 00:20:20.370
So there's some things that
you just want finality.

00:20:20.370 --> 00:20:24.240
One thing I would talk about
is a lot of merchants in the US

00:20:24.240 --> 00:20:30.390
don't like paying 2 and 1/2
to 3% of all their sales

00:20:30.390 --> 00:20:31.910
to the payment system--

00:20:31.910 --> 00:20:33.690
Visa, First Data, and so forth.

00:20:33.690 --> 00:20:37.470
A lot of that goes to the banks,
not to Visa and First Data.

00:20:37.470 --> 00:20:41.400
And a lot of that is also for
what's called chargebacks.

00:20:41.400 --> 00:20:42.990
So I was the chief
financial officer

00:20:42.990 --> 00:20:45.180
of the Hillary campaign.

00:20:45.180 --> 00:20:49.140
Now, it was really lousy that
we lost for a lot of reasons

00:20:49.140 --> 00:20:52.730
beyond this discussion
about blockchain.

00:20:52.730 --> 00:20:55.670
But I continued to be the
CFO for the next six months,

00:20:55.670 --> 00:20:58.250
because we had to
wind down a campaign.

00:20:58.250 --> 00:21:01.190
And we had to deal with
what I called the computer

00:21:01.190 --> 00:21:03.800
and refrigerator graveyard.

00:21:03.800 --> 00:21:07.160
The hundreds of people we
had working at headquarters

00:21:07.160 --> 00:21:08.120
left the equipment.

00:21:08.120 --> 00:21:10.920
And they left.

00:21:10.920 --> 00:21:13.220
But the other thing I had
to deal with for 60 days

00:21:13.220 --> 00:21:14.270
was chargebacks.

00:21:14.270 --> 00:21:17.990
Did you know that
donors could go to Visa

00:21:17.990 --> 00:21:22.960
and say, no, I didn't
really buy that donation,

00:21:22.960 --> 00:21:24.500
whether it was $50--

00:21:24.500 --> 00:21:28.960
low dollar-- or $2,700.

00:21:28.960 --> 00:21:36.370
And so I have a personal sense
of this whole chargeback thing.

00:21:36.370 --> 00:21:38.260
Now, donations to a
political campaign

00:21:38.260 --> 00:21:41.090
are different than
services you buy.

00:21:41.090 --> 00:21:43.030
But it's something
merchants deal with a lot.

00:21:43.030 --> 00:21:43.460
Hugo.

00:21:43.460 --> 00:21:45.127
AUDIENCE: Are merchants
responsible then

00:21:45.127 --> 00:21:47.680
to pay Visa to
refund the client?

00:21:47.680 --> 00:21:50.593
Or is it on Visa and First Data?

00:21:50.593 --> 00:21:52.510
GARY GENSLER: We were
in essence the merchant.

00:21:52.510 --> 00:21:54.740
And yes, we had to pay.

00:21:54.740 --> 00:21:57.700
The campaign-- and this happens
in every losing campaign.

00:21:57.700 --> 00:21:59.200
It didn't have
anything to do with--

00:21:59.200 --> 00:22:01.242
AUDIENCE: What if you've
already spent the money?

00:22:01.242 --> 00:22:02.570
GARY GENSLER: That's a problem.

00:22:02.570 --> 00:22:05.210
That's a real problem.

00:22:05.210 --> 00:22:09.990
And what the payment processing
companies-- in that case--

00:22:09.990 --> 00:22:11.720
it's a matter of public record.

00:22:11.720 --> 00:22:15.230
We used a company called
Stripe rather than First Data

00:22:15.230 --> 00:22:16.610
and so forth.

00:22:16.610 --> 00:22:19.570
I mean, the Stripes
of this world

00:22:19.570 --> 00:22:22.950
are taking some
counterparty risk.

00:22:22.950 --> 00:22:25.100
Now, most merchants
are not shutting down.

00:22:25.100 --> 00:22:28.150
We were shutting down.

00:22:28.150 --> 00:22:29.710
But yeah.

00:22:29.710 --> 00:22:34.220
So effectively it's
on the merchant.

00:22:34.220 --> 00:22:36.720
Cost of trust.

00:22:36.720 --> 00:22:40.020
In blockchain, there
is a cost of trust.

00:22:40.020 --> 00:22:42.150
But it's trusting the code--

00:22:42.150 --> 00:22:43.200
the computer code.

00:22:43.200 --> 00:22:47.250
You're trusting the Bitcoin
core developer, so to speak,

00:22:47.250 --> 00:22:50.080
and the consensus protocol.

00:22:50.080 --> 00:22:52.240
So when some people
say it's trustless,

00:22:52.240 --> 00:22:53.620
it's not truly trustless.

00:22:53.620 --> 00:22:55.120
You still have to
trust the code.

00:22:55.120 --> 00:22:58.600
You have to trust the consensus
protocol versus the trust

00:22:58.600 --> 00:22:59.930
in the central intermediary.

00:22:59.930 --> 00:23:02.070
So it's sort of trade-off of--

00:23:02.070 --> 00:23:02.740
yes, Aline.

00:23:02.740 --> 00:23:04.990
AUDIENCE: You're also trusting
the network in Bitcoin.

00:23:04.990 --> 00:23:06.723
Just a reminder.

00:23:06.723 --> 00:23:08.140
GARY GENSLER: Yes,
you're trusting

00:23:08.140 --> 00:23:09.560
the network in Bitcoin.

00:23:09.560 --> 00:23:10.820
It's a very good point.

00:23:10.820 --> 00:23:13.870
I think by and large we all
trust the network even when

00:23:13.870 --> 00:23:16.160
we're dealing with
Citibank as well.

00:23:16.160 --> 00:23:20.680
But you're right that right
in the center of a blockchain

00:23:20.680 --> 00:23:23.260
solution, you're trusting
the network for all

00:23:23.260 --> 00:23:25.360
its communications.

00:23:25.360 --> 00:23:27.880
But even at a
central intermediary,

00:23:27.880 --> 00:23:30.153
there's some trust in a network.

00:23:30.153 --> 00:23:31.820
AUDIENCE: Yeah, but
not for correctness.

00:23:31.820 --> 00:23:33.610
So in Bitcoin, you
can double spend

00:23:33.610 --> 00:23:35.530
if the network never messes up.

00:23:35.530 --> 00:23:39.250
But in a permissioned algorithm,
you cannot double spend--

00:23:39.250 --> 00:23:41.180
GARY GENSLER: There's
different issues.

00:23:41.180 --> 00:23:42.440
I agree with that.

00:23:42.440 --> 00:23:44.095
You had a question?

00:23:44.095 --> 00:23:45.970
AUDIENCE: I would go
one step further and say

00:23:45.970 --> 00:23:48.490
you also trust the ISP, right?

00:23:48.490 --> 00:23:50.770
Not just Citibank, but
you're trusting intermediary

00:23:50.770 --> 00:23:52.420
that gets you to
Citibank's website.

00:23:52.420 --> 00:23:52.720
But then I--

00:23:52.720 --> 00:23:53.803
GARY GENSLER: That's true.

00:23:53.803 --> 00:23:56.680
AUDIENCE: --can put a fake
website in between there.

00:23:56.680 --> 00:23:59.440
So there's layers of
trust all throughout this.

00:23:59.440 --> 00:24:00.900
GARY GENSLER: That's right.

00:24:00.900 --> 00:24:02.540
And I drive a car--

00:24:02.540 --> 00:24:03.680
not when I'm in Boston.

00:24:03.680 --> 00:24:06.080
When I drive a car, I'm
trusting the carburetor as well.

00:24:06.080 --> 00:24:08.390
And I don't really know
how a carburetor works.

00:24:11.360 --> 00:24:13.140
So there's all sorts
of layers of trust.

00:24:13.140 --> 00:24:16.040
But I would say that the central
trade-off with blockchain

00:24:16.040 --> 00:24:17.510
is you're moving
away from trusting

00:24:17.510 --> 00:24:19.520
the central intermediary.

00:24:19.520 --> 00:24:23.950
And you're trusting
code and consensus.

00:24:23.950 --> 00:24:26.410
And then economic rents,
and we've talked about this.

00:24:26.410 --> 00:24:29.890
I mean, it is not the
reason why payment systems

00:24:29.890 --> 00:24:32.530
cost a half a percent
to a percent of GDP

00:24:32.530 --> 00:24:33.640
around the globe.

00:24:33.640 --> 00:24:35.960
But some of that
is economic rents.

00:24:35.960 --> 00:24:37.810
And the financial
sector in the US

00:24:37.810 --> 00:24:40.510
is a trillion and a half
dollars or 7 and 1/2 percent

00:24:40.510 --> 00:24:41.810
of our economy.

00:24:41.810 --> 00:24:45.080
There's a fair degree of
economic rents in there.

00:24:45.080 --> 00:24:48.700
So these are kind of
the six or seven things

00:24:48.700 --> 00:24:52.790
not only that I think is
worthwhile to discern out

00:24:52.790 --> 00:24:56.360
of Christian Catalini's paper,
but it's also to Paul Krugman.

00:24:56.360 --> 00:24:59.960
There are legitimate things
that you would say, well,

00:24:59.960 --> 00:25:03.620
we can maybe lower the
cost of verification.

00:25:03.620 --> 00:25:06.040
The second big
piece in Catalini,

00:25:06.040 --> 00:25:09.980
he talked about networks.

00:25:09.980 --> 00:25:12.440
Now, these are my
words, not his.

00:25:12.440 --> 00:25:15.980
But it's basically the
value of networking,

00:25:15.980 --> 00:25:17.630
moving property rights.

00:25:17.630 --> 00:25:19.380
But again, because I'm
thinking blockchain

00:25:19.380 --> 00:25:20.720
is about property rights--

00:25:20.720 --> 00:25:23.010
I mean, we can
talk differently--

00:25:23.010 --> 00:25:26.000
but moving some property
right or computer

00:25:26.000 --> 00:25:28.660
code that's going to trigger
a smart contract that's

00:25:28.660 --> 00:25:33.200
going to be installed and move
some property rights around.

00:25:33.200 --> 00:25:35.240
And does blockchain
have an ability

00:25:35.240 --> 00:25:39.590
to lower the cost to develop
or operate the network?

00:25:39.590 --> 00:25:45.370
Basically, in Catalini's words,
to jump start the network

00:25:45.370 --> 00:25:49.020
or get over the collective
action challenges.

00:25:49.020 --> 00:25:51.890
And collective action challenges
are always in business

00:25:51.890 --> 00:25:54.410
when you're trying
to start a business.

00:25:54.410 --> 00:25:56.870
Some businesses it's
really hard to get over

00:25:56.870 --> 00:25:59.770
the collective action issues.

00:25:59.770 --> 00:26:01.540
I mean, I don't
know that any of you

00:26:01.540 --> 00:26:07.330
would have read a business
case on Federal Express.

00:26:07.330 --> 00:26:09.610
But when I first went
to business school,

00:26:09.610 --> 00:26:11.860
they still had a case
on Federal Express,

00:26:11.860 --> 00:26:12.850
because the gentleman--

00:26:12.850 --> 00:26:14.410
I think it was Fred Smith--

00:26:14.410 --> 00:26:17.470
who started this
incredible idea,

00:26:17.470 --> 00:26:23.043
how do you do overnight
delivery the first day.

00:26:23.043 --> 00:26:24.960
How do you make sure you
have enough airplanes

00:26:24.960 --> 00:26:28.770
to fly all the packages, in
his case to Memphis, Tennessee,

00:26:28.770 --> 00:26:30.960
and then fly the packages
somewhere else where

00:26:30.960 --> 00:26:34.470
you have no customers
and you have no employees

00:26:34.470 --> 00:26:36.540
and you have all these
collective action

00:26:36.540 --> 00:26:38.910
issues within one company?

00:26:38.910 --> 00:26:44.870
Uber, Bitcoin itself had to
get and jump over and build

00:26:44.870 --> 00:26:45.470
a network.

00:26:45.470 --> 00:26:47.640
Facebook built a network.

00:26:47.640 --> 00:26:51.620
There's all sorts of study
about how you build a network

00:26:51.620 --> 00:26:54.680
and how you sort of
move towards a network

00:26:54.680 --> 00:26:58.490
and get the big pay
day of a network.

00:26:58.490 --> 00:27:01.105
Blockchain can be part of that.

00:27:01.105 --> 00:27:02.480
I'm not saying
it's the only way.

00:27:02.480 --> 00:27:04.890
But it is one thing.

00:27:04.890 --> 00:27:09.900
And Christian speaks
about two things.

00:27:09.900 --> 00:27:12.490
A token-- and yes,
token economics

00:27:12.490 --> 00:27:15.280
might not have much to
do with many things.

00:27:15.280 --> 00:27:21.850
But it might incentivize
and help fund the network.

00:27:21.850 --> 00:27:24.400
So it's a new form
of crowdfunding.

00:27:24.400 --> 00:27:25.930
And economically
speaking, there's

00:27:25.930 --> 00:27:27.580
been crowdfunding for centuries.

00:27:27.580 --> 00:27:31.150
But I mean, it's a new form of
crowdfunding, kind of building

00:27:31.150 --> 00:27:37.000
on what Kickstarter and
others have done, to basically

00:27:37.000 --> 00:27:40.630
have a community of interest
to pre-fund a project

00:27:40.630 --> 00:27:42.130
before it's functional.

00:27:42.130 --> 00:27:44.440
Now we get into all sorts
of public policy issues of

00:27:44.440 --> 00:27:46.330
whether it's a security or not.

00:27:46.330 --> 00:27:49.330
But the raw economics
is it's a form--

00:27:49.330 --> 00:27:53.710
it's a new form of crowdfunding
before the theater is

00:27:53.710 --> 00:27:55.600
going to show its show.

00:27:55.600 --> 00:27:58.330
But it also might be
an incentive mechanism

00:27:58.330 --> 00:28:00.640
during an operating phase.

00:28:00.640 --> 00:28:04.030
That's one where I'm a
little bit less sure of.

00:28:04.030 --> 00:28:06.400
I have to admit, I
might be on the 1 to 10

00:28:06.400 --> 00:28:09.110
scale kind of a two or a three.

00:28:09.110 --> 00:28:11.985
And I don't want my bias
to infect you all, though,

00:28:11.985 --> 00:28:14.110
because there's some people
that think there really

00:28:14.110 --> 00:28:18.500
are lots of token
economics to help operate.

00:28:18.500 --> 00:28:22.030
I think the first one-- it's
a great way to crowdfund.

00:28:22.030 --> 00:28:23.860
I think that's
already been shown.

00:28:23.860 --> 00:28:26.440
I think that's kind
of been proven.

00:28:26.440 --> 00:28:28.710
I'm less sure about
the second one.

00:28:28.710 --> 00:28:33.390
Do we need tokens and token
economics to run a platform?

00:28:33.390 --> 00:28:36.900
But let us not forget there
are many gaming sites that

00:28:36.900 --> 00:28:38.430
effectively have tokens.

00:28:38.430 --> 00:28:41.370
They might be called
hammers and swords.

00:28:41.370 --> 00:28:43.590
How many of you are gamers?

00:28:43.590 --> 00:28:45.340
You don't want to
admit it maybe?

00:28:45.340 --> 00:28:46.780
That's six or seven.

00:28:46.780 --> 00:28:49.970
So what do you have
to pay a lot for?

00:28:49.970 --> 00:28:53.337
Is it shields, swords,
or hammers these days?

00:28:53.337 --> 00:28:55.920
AUDIENCE: Actually, I'm going
to work for Activision Blizzard.

00:28:55.920 --> 00:28:57.940
But you have to--

00:28:57.940 --> 00:28:59.290
one of the big ones is skins.

00:28:59.290 --> 00:28:59.440
It's like--

00:28:59.440 --> 00:29:00.130
GARY GENSLER: Skins?

00:29:00.130 --> 00:29:00.755
AUDIENCE: Yeah.

00:29:00.755 --> 00:29:03.250
GARY GENSLER: Who figures?

00:29:03.250 --> 00:29:05.230
So there's a social community.

00:29:05.230 --> 00:29:09.220
There's a reward and
incentive system in gaming

00:29:09.220 --> 00:29:13.000
that's very real and
has been deeply studied.

00:29:13.000 --> 00:29:18.290
And it's a reward or an
affinity or an identity.

00:29:18.290 --> 00:29:21.650
I mean, some of you probably
have affinity or identity

00:29:21.650 --> 00:29:23.510
points or air miles.

00:29:23.510 --> 00:29:26.870
Anybody collect air miles?

00:29:26.870 --> 00:29:30.920
Do you do it just for the
travel that you can get,

00:29:30.920 --> 00:29:35.360
or do you feel a little cool
when you get extra points?

00:29:35.360 --> 00:29:38.912
You don't have to
admit that, Tom.

00:29:38.912 --> 00:29:41.490
AUDIENCE: Hey, I'll take
anything I can to be cool.

00:29:41.490 --> 00:29:43.260
GARY GENSLER: Right.

00:29:43.260 --> 00:29:50.090
You remember that George
Clooney movie, Up in the Air?

00:29:50.090 --> 00:29:52.850
How many people
saw Up in the Air?

00:29:52.850 --> 00:29:56.270
And do you remember one of the
later scenes when he finally--

00:29:56.270 --> 00:29:57.110
he wins.

00:29:57.110 --> 00:30:00.400
He's like 10 million miles.

00:30:00.400 --> 00:30:05.300
So there is a piece
of human nature.

00:30:05.300 --> 00:30:07.880
And the people who are
maximalist on the last point

00:30:07.880 --> 00:30:11.870
say this is part of an incentive
system like that scene in Up

00:30:11.870 --> 00:30:13.310
in the Air.

00:30:13.310 --> 00:30:16.280
I'm towards the minimalist end.

00:30:16.280 --> 00:30:18.860
But I have to respect
that it might be I should

00:30:18.860 --> 00:30:22.370
be more neutral on that point.

00:30:22.370 --> 00:30:23.180
Metcalfe's law.

00:30:23.180 --> 00:30:26.450
Anybody know Metcalfe's
law other than Alin?

00:30:26.450 --> 00:30:27.160
Brotish?

00:30:27.160 --> 00:30:29.465
Yeah, yeah, I figured.

00:30:29.465 --> 00:30:30.840
Brodish, have you
told the class,

00:30:30.840 --> 00:30:33.070
do you have a PhD too
somewhere or something?

00:30:33.070 --> 00:30:33.570
No.

00:30:33.570 --> 00:30:34.395
No, no, no, no.

00:30:34.395 --> 00:30:35.480
I didn't know.

00:30:35.480 --> 00:30:37.880
That was a word going around.

00:30:37.880 --> 00:30:41.912
AUDIENCE: [INAUDIBLE] the
value of a network, and it

00:30:41.912 --> 00:30:44.377
is proportional to
the [INAUDIBLE]..

00:30:44.377 --> 00:30:45.210
GARY GENSLER: Right.

00:30:45.210 --> 00:30:48.860
So it's an important concept
that the value increases

00:30:48.860 --> 00:30:50.660
with the number of nodes.

00:30:50.660 --> 00:30:53.780
Idea, if I can only call
Alfa and Alfa can call me,

00:30:53.780 --> 00:30:56.780
he doesn't find that very
valuable to call me actually.

00:30:56.780 --> 00:30:58.380
But that's the bit.

00:30:58.380 --> 00:31:00.230
But if Alfa can now
call five people,

00:31:00.230 --> 00:31:03.440
he doesn't view that as just
five times more valuable.

00:31:03.440 --> 00:31:07.340
Maybe it's 5 squared,
the number of nodes.

00:31:07.340 --> 00:31:09.200
Now, further
studies have sort of

00:31:09.200 --> 00:31:11.420
said that doesn't really
work once you get probably

00:31:11.420 --> 00:31:13.460
past 100 or 150 nodes.

00:31:13.460 --> 00:31:14.730
Alfa doesn't really care.

00:31:14.730 --> 00:31:18.460
Once he can call his
first 150 people,

00:31:18.460 --> 00:31:20.690
is it really going
to keep going up?

00:31:20.690 --> 00:31:23.410
So there's a modified
Metcalfe's law

00:31:23.410 --> 00:31:25.510
that talks about n times log n.

00:31:25.510 --> 00:31:28.810
But whatever the
actual value is,

00:31:28.810 --> 00:31:32.660
the concept is that
it's non-linear.

00:31:32.660 --> 00:31:39.940
And that is part of the reason
why Apple and Google and Amazon

00:31:39.940 --> 00:31:41.200
trade where they trade.

00:31:41.200 --> 00:31:45.520
Why are they worth $500
billion to a trillion dollars?

00:31:45.520 --> 00:31:48.640
Rob will tell us why
in the marketplace.

00:31:48.640 --> 00:31:51.280
But part of it is
this Metcalfe's law,

00:31:51.280 --> 00:31:55.270
that it's non-linear
with two billion,

00:31:55.270 --> 00:31:56.650
quote, "users" of Facebook.

00:31:59.860 --> 00:32:03.610
And so part of token economics
are around Metcalfe's law.

00:32:03.610 --> 00:32:05.370
And you'll hear people
sort of say this.

00:32:05.370 --> 00:32:07.900
So I thought I'd make
sure you have it.

00:32:07.900 --> 00:32:09.200
So back to Joi Ito.

00:32:09.200 --> 00:32:09.700
Tom.

00:32:09.700 --> 00:32:11.150
AUDIENCE: Before
we jump to this,

00:32:11.150 --> 00:32:13.200
as I was reading
the Catalini paper,

00:32:13.200 --> 00:32:17.230
I kept thinking about the
transaction costs and the cost

00:32:17.230 --> 00:32:20.230
of hashing, particularly for
Bitcoin in a proof of work

00:32:20.230 --> 00:32:23.440
system and how those things--

00:32:23.440 --> 00:32:25.810
I still just can't wrap
my brain around the idea

00:32:25.810 --> 00:32:30.820
that Bitcoin becomes
so diffuse, but yet

00:32:30.820 --> 00:32:35.480
transaction fees are small
enough that that's possible.

00:32:35.480 --> 00:32:38.290
GARY GENSLER: If you're
worried that in Bitcoin's case

00:32:38.290 --> 00:32:40.900
that the proof of work
and the electricity

00:32:40.900 --> 00:32:44.670
and the hashing
function is just--

00:32:44.670 --> 00:32:47.493
by design is going to be
costly for a long time.

00:32:47.493 --> 00:32:48.160
AUDIENCE: Right.

00:32:48.160 --> 00:32:49.860
I mean, we think
back to last winter

00:32:49.860 --> 00:32:51.840
where there were too
many transactions

00:32:51.840 --> 00:32:56.220
for a Bitcoin blockchain
and transaction fees.

00:32:56.220 --> 00:32:58.953
GARY GENSLER: So
one of the big--

00:32:58.953 --> 00:33:01.620
I'm going to hold this point for
a bit, but you're going to see.

00:33:01.620 --> 00:33:03.750
One of the big thing
the minimalists,

00:33:03.750 --> 00:33:05.430
I call them-- the
minimalists would say

00:33:05.430 --> 00:33:08.400
is by its very
design and nature,

00:33:08.400 --> 00:33:12.090
blockchain is meant
to be complex.

00:33:12.090 --> 00:33:16.240
It's meant to have some
latencies because it's doesn't

00:33:16.240 --> 00:33:17.770
have a central authority.

00:33:17.770 --> 00:33:20.170
And the trade-off of
having a central authority

00:33:20.170 --> 00:33:21.370
is some complexity.

00:33:21.370 --> 00:33:23.920
You called it the hashing,
the proof of work,

00:33:23.920 --> 00:33:26.060
the other-- the network,
Alene would say.

00:33:26.060 --> 00:33:28.600
Well, you've got to
propagate on a network.

00:33:28.600 --> 00:33:29.770
You have some latencies.

00:33:29.770 --> 00:33:34.440
In Bitcoin's case, blocks
are added every 10 minutes.

00:33:34.440 --> 00:33:37.440
Whatever that bucket of
complexity and design

00:33:37.440 --> 00:33:42.100
features, to not have
a central authority

00:33:42.100 --> 00:33:44.540
that by its very nature
the minimalists say

00:33:44.540 --> 00:33:50.010
will never take off
in any scalable way.

00:33:50.010 --> 00:33:53.340
Though I respect each
piece of that argument,

00:33:53.340 --> 00:33:57.030
I think, one, we might move
to other consensus formulas.

00:33:57.030 --> 00:34:00.150
Two, it doesn't have to
take off in every use case.

00:34:00.150 --> 00:34:03.240
Question is whether
in some use cases

00:34:03.240 --> 00:34:08.133
it will provide an alternative
to a central intermediary.

00:34:08.133 --> 00:34:09.300
AUDIENCE: Just think about--

00:34:09.300 --> 00:34:11.467
GARY GENSLER: But if you're
saying about Bitcoin how

00:34:11.467 --> 00:34:13.920
it's designed right
now, I think Bitcoin--

00:34:13.920 --> 00:34:17.370
it's very hard to get to
very big scalable solutions.

00:34:17.370 --> 00:34:19.679
AUDIENCE: Like the
idea of using Bitcoin

00:34:19.679 --> 00:34:23.420
to buy a cup of coffee
versus my Visa card

00:34:23.420 --> 00:34:26.715
when the required
transaction cost is--

00:34:26.715 --> 00:34:28.710
GARY GENSLER: It's probably
too high right now.

00:34:28.710 --> 00:34:29.790
That's probably true.

00:34:29.790 --> 00:34:36.560
But we're going to
hear on November 15--

00:34:36.560 --> 00:34:39.360
we are going to have not
just guests, but guest

00:34:39.360 --> 00:34:42.060
speakers when Jeff and Kelly--

00:34:42.060 --> 00:34:45.000
Jeff Sprecher and Kelly
Loeffler are coming.

00:34:45.000 --> 00:34:46.830
Jeff is the chief
executive officer

00:34:46.830 --> 00:34:48.780
of Intercontinental Exchange.

00:34:48.780 --> 00:34:51.150
And I hope you stick
with the class or even

00:34:51.150 --> 00:34:53.940
if you don't stick with
the class you come,

00:34:53.940 --> 00:34:55.080
because Jeff and Kelly--

00:34:55.080 --> 00:34:59.790
Kelly is the CEO of
their new startup Bakkt.

00:34:59.790 --> 00:35:03.100
Hold your question
for Jeff and Kelly.

00:35:03.100 --> 00:35:07.790
Jeff's one of the great
entrepreneurs in the US.

00:35:07.790 --> 00:35:10.880
So the question that Ito
raises in his write up

00:35:10.880 --> 00:35:14.360
is, is Bitcoin kind
of the next layer?

00:35:14.360 --> 00:35:17.930
Did we go-- all these protocols
of the internet-- and these

00:35:17.930 --> 00:35:19.780
are just the four big known.

00:35:19.780 --> 00:35:23.160
There's dozens of other
protocols, sub-protocols

00:35:23.160 --> 00:35:24.000
and so forth.

00:35:24.000 --> 00:35:28.320
But is Bitcoin kind
of that next protocol?

00:35:28.320 --> 00:35:33.450
So what did you all
take out of Joi's work?

00:35:33.450 --> 00:35:35.683
And again, it was
about three years ago.

00:35:35.683 --> 00:35:37.350
But if Joi were here
today, he's still--

00:35:37.350 --> 00:35:38.730
this is his architecture.

00:35:38.730 --> 00:35:41.850
He started-- he
runs the Media Lab.

00:35:41.850 --> 00:35:44.790
He started the first
internet service provider

00:35:44.790 --> 00:35:50.320
in his bathroom in
Tokyo at 23 years old.

00:35:50.320 --> 00:35:51.790
And he's lived in.

00:35:51.790 --> 00:35:53.460
Any thoughts from his piece?

00:35:56.286 --> 00:35:58.650
No?

00:35:58.650 --> 00:35:59.460
Same.

00:35:59.460 --> 00:36:01.220
Do I code call?

00:36:01.220 --> 00:36:02.670
Akira, did you read the--

00:36:02.670 --> 00:36:04.500
AUDIENCE: Yeah.

00:36:04.500 --> 00:36:07.620
Interesting point
for me is the email

00:36:07.620 --> 00:36:11.520
was the application
for internet.

00:36:11.520 --> 00:36:14.300
And Bitcoin could
be [INAUDIBLE]..

00:36:17.452 --> 00:36:18.910
GARY GENSLER: So
what do you think?

00:36:18.910 --> 00:36:21.110
Do you agree with Ito or not?

00:36:21.110 --> 00:36:25.170
AUDIENCE: Controversial
[INAUDIBLE] Bitcoin,

00:36:25.170 --> 00:36:32.550
because as Dr. Roubini said,
the concentration of the miners

00:36:32.550 --> 00:36:36.510
and association, et cetera.

00:36:36.510 --> 00:36:39.000
GARY GENSLER: So blockchain
versus the internet,

00:36:39.000 --> 00:36:40.980
some thoughts.

00:36:40.980 --> 00:36:43.188
Both are open protocols.

00:36:43.188 --> 00:36:45.230
I mean, they're a little
bit different protocols.

00:36:45.230 --> 00:36:51.300
But broadly for this level,
both are open protocols.

00:36:51.300 --> 00:36:55.580
Both transport packets of data
around a distributed network.

00:36:55.580 --> 00:36:59.240
Now, in the case of blockchain
or certainly Bitcoin,

00:36:59.240 --> 00:37:01.130
those packets are
packets of data

00:37:01.130 --> 00:37:04.160
representing some
property right that

00:37:04.160 --> 00:37:06.728
then becomes known as value.

00:37:06.728 --> 00:37:09.020
Remember, when blockchain
start-- when Bitcoin started,

00:37:09.020 --> 00:37:10.910
it wasn't worth anything.

00:37:10.910 --> 00:37:12.860
It was kind of an idea.

00:37:12.860 --> 00:37:16.930
But then all of a sudden, it
was worth a penny of coin,

00:37:16.930 --> 00:37:18.800
so to speak.

00:37:18.800 --> 00:37:26.050
And when those two pizzas
were delivered May 22, 2010,

00:37:26.050 --> 00:37:27.700
it took a year and
a half for anybody

00:37:27.700 --> 00:37:33.196
to transact 10,000
Bitcoin for two pizzas.

00:37:33.196 --> 00:37:35.770
So it started to
have some value.

00:37:35.770 --> 00:37:37.950
But at first, it was
just an electronic code,

00:37:37.950 --> 00:37:43.440
a property right, whereas
the internet is content.

00:37:43.440 --> 00:37:48.100
Both have apps built on
top of a protocol level.

00:37:48.100 --> 00:37:52.480
So Facebook is really an app
on top of a protocol level.

00:37:52.480 --> 00:37:55.040
And there's many other apps
on top of a protocol level.

00:37:55.040 --> 00:37:58.070
And we studied smart contracts.

00:37:58.070 --> 00:38:01.550
So just for your
thinking about this

00:38:01.550 --> 00:38:05.580
and if you're investing in it or
if you're managing around this,

00:38:05.580 --> 00:38:10.510
is somebody pitching you on a
protocol level like Ethereum,

00:38:10.510 --> 00:38:13.840
like Bitcoin, a new protocol
level that other things are

00:38:13.840 --> 00:38:18.400
built on top of, or is it an
app built on top of it, usually

00:38:18.400 --> 00:38:20.950
through a smart
contract, not always.

00:38:20.950 --> 00:38:23.590
Layer one is like
Bitcoin and ether.

00:38:23.590 --> 00:38:26.790
Layer two is like the
Lightning Network.

00:38:26.790 --> 00:38:31.540
And maybe there should be
something that's interoperable.

00:38:31.540 --> 00:38:35.050
And one of the reasons he
thinks of Bitcoin as an app--

00:38:35.050 --> 00:38:37.020
I don't use that vocab--

00:38:37.020 --> 00:38:38.740
there's not settled vocab--

00:38:38.740 --> 00:38:42.990
what you've highlighted there
is not settled vocabulary.

00:38:42.990 --> 00:38:44.550
Like, this would be
a heck of a class

00:38:44.550 --> 00:38:47.790
to give a vocabulary test
in, because in fairness

00:38:47.790 --> 00:38:50.430
to students, there's not
a settled vocabulary, even

00:38:50.430 --> 00:38:54.180
on the word blockchain or
permissioned systems blockchain

00:38:54.180 --> 00:38:55.140
or not.

00:38:55.140 --> 00:38:57.330
The purist would say no.

00:38:57.330 --> 00:38:59.100
I would say, well
yes, it's blockchain.

00:38:59.100 --> 00:39:03.572
I might not be that
pure around blockchain.

00:39:03.572 --> 00:39:05.690
Just want to make sure.

00:39:05.690 --> 00:39:06.450
Is that right?

00:39:06.450 --> 00:39:09.520
No, Rob's not going to answer.

00:39:09.520 --> 00:39:12.880
Both are said to be open
network development.

00:39:12.880 --> 00:39:15.310
But I would contend
really in both there's

00:39:15.310 --> 00:39:19.180
a lot of centralization.

00:39:19.180 --> 00:39:23.297
And Joi Ito writes about
how a group around ICAN

00:39:23.297 --> 00:39:24.880
really does a lot
of the centralized--

00:39:24.880 --> 00:39:27.580
I'm talking about internet
protocol, not the apps

00:39:27.580 --> 00:39:28.810
on top of it.

00:39:28.810 --> 00:39:32.400
And of course, the Bitcoin
core developers or in Ethereum,

00:39:32.400 --> 00:39:35.500
if Vitalik Buterin
sneezes, everybody

00:39:35.500 --> 00:39:38.680
wants to know which
way did he sneeze.

00:39:38.680 --> 00:39:40.870
So there's a lot
of centralization

00:39:40.870 --> 00:39:42.280
around development.

00:39:42.280 --> 00:39:44.740
But it is open.

00:39:44.740 --> 00:39:45.730
It's on GitHub.

00:39:45.730 --> 00:39:46.980
It's open source.

00:39:46.980 --> 00:39:52.590
It's highly centralized
kind of in both cases.

00:39:52.590 --> 00:39:57.130
Interoperability, and this
goes back to Joi's point.

00:39:57.130 --> 00:40:00.180
Bitcoin is not
interoperable with ether,

00:40:00.180 --> 00:40:03.850
which is not interoperable
with EOS, et cetera, et cetera.

00:40:03.850 --> 00:40:07.150
They all are kind of
in their own space.

00:40:07.150 --> 00:40:11.230
They're not that
ultimate base layer.

00:40:11.230 --> 00:40:13.030
And so I think of it--

00:40:13.030 --> 00:40:15.910
I might have the wrong word-- as
almost like the era when it was

00:40:15.910 --> 00:40:19.810
a private intranet and it's
not truly the internet--

00:40:19.810 --> 00:40:21.190
Bitcoin.

00:40:21.190 --> 00:40:24.220
It's not communicating--
that word internet

00:40:24.220 --> 00:40:26.490
meant between networks.

00:40:26.490 --> 00:40:28.295
Alene will correct
my words here.

00:40:28.295 --> 00:40:29.920
AUDIENCE: What does
it mean for Bitcoin

00:40:29.920 --> 00:40:31.330
to be interoperable
with Ethereum?

00:40:31.330 --> 00:40:33.080
So for all intents and
purposes, right now

00:40:33.080 --> 00:40:35.503
you could do this
atomic cross-chain swaps

00:40:35.503 --> 00:40:37.670
where you could swap some
Ethereum and some Bitcoin.

00:40:37.670 --> 00:40:39.128
So that's pretty
amazing in itself.

00:40:39.128 --> 00:40:40.692
What more do you want?

00:40:40.692 --> 00:40:43.150
GARY GENSLER: So Alene is saying
whoa, whoa, wait a minute.

00:40:43.150 --> 00:40:44.020
Wait a minute.

00:40:44.020 --> 00:40:45.440
Slow down.

00:40:45.440 --> 00:40:48.550
You can move something
of value from one ledger

00:40:48.550 --> 00:40:50.560
system, the Bitcoin
ledger system,

00:40:50.560 --> 00:40:52.540
to the Ethereum ledger
system through something

00:40:52.540 --> 00:40:55.610
called atomic swaps,
which we talked about,

00:40:55.610 --> 00:40:59.010
which is a form of a layer, too.

00:40:59.010 --> 00:41:00.720
And maybe I don't
want anything more.

00:41:00.720 --> 00:41:03.660
Maybe that solves this problem.

00:41:03.660 --> 00:41:09.200
But there still is a
problem that Bitcoin code,

00:41:09.200 --> 00:41:12.380
scripting code is different than
the Ethereum scripting code.

00:41:12.380 --> 00:41:15.250
And you might say, so who cares.

00:41:15.250 --> 00:41:18.190
But they are separate networks.

00:41:18.190 --> 00:41:20.320
You have to have
this atomic swap

00:41:20.320 --> 00:41:23.320
to jump between
Bitcoin and ether.

00:41:23.320 --> 00:41:26.260
And you'd have to have probably
a different protocol to jump

00:41:26.260 --> 00:41:28.530
from ether to EOS.

00:41:28.530 --> 00:41:30.530
AUDIENCE: Depends on what
you mean by different.

00:41:30.530 --> 00:41:33.880
Same algorithm, but yeah.

00:41:33.880 --> 00:41:35.582
But they solve
different problems.

00:41:35.582 --> 00:41:37.040
So that's why the
script in Bitcoin

00:41:37.040 --> 00:41:39.420
is different than the EVM
in Ethereum, for example.

00:41:39.420 --> 00:41:43.507
So by nature, they
have to be different.

00:41:43.507 --> 00:41:45.590
GARY GENSLER: I've said
this to this class before.

00:41:45.590 --> 00:41:48.500
I think a lot of the
interoperability challenges

00:41:48.500 --> 00:41:52.430
will get past that.

00:41:52.430 --> 00:41:54.390
But we're really at
a different stage.

00:41:54.390 --> 00:41:58.760
The internet pre-1990s,
before the world wide web

00:41:58.760 --> 00:42:03.920
in '91 or '92 and there were
still more private networks--

00:42:03.920 --> 00:42:06.170
this feels like we're
still kind of closer

00:42:06.170 --> 00:42:07.935
to that stage of the internet.

00:42:07.935 --> 00:42:09.560
Alene's pointing out,
well, maybe we're

00:42:09.560 --> 00:42:12.320
closer to the world wide
web because the solution is

00:42:12.320 --> 00:42:14.090
atomic swaps and jumping--

00:42:14.090 --> 00:42:16.470
ROB GENSLER: Sorry, I'm
going to jump in here.

00:42:16.470 --> 00:42:18.230
GARY GENSLER: Rob, speak up,
because I can't hear you.

00:42:18.230 --> 00:42:19.897
ROB GENSLER: Sorry
if you can't hear me.

00:42:19.897 --> 00:42:21.705
But like euros and
dollars and yen,

00:42:21.705 --> 00:42:24.080
you still have to worry about
the currency exchange rate,

00:42:24.080 --> 00:42:26.660
no matter what you techies
over here-- sorry-- can say.

00:42:26.660 --> 00:42:28.237
Oh, but I can do
this in my sleep.

00:42:28.237 --> 00:42:29.570
Yeah, but what's it worth to me?

00:42:29.570 --> 00:42:32.070
Because this price is going up
and that price is going down.

00:42:32.070 --> 00:42:36.080
And the minute you get currency
exchange and value questions

00:42:36.080 --> 00:42:39.200
in there, it's not seamless, OK?

00:42:39.200 --> 00:42:40.520
It's just not seamless.

00:42:40.520 --> 00:42:42.690
It might be seamless
technologically.

00:42:42.690 --> 00:42:43.190
But--

00:42:43.190 --> 00:42:44.090
AUDIENCE: But that
was the whole point

00:42:44.090 --> 00:42:45.840
of starting Ethereum,
starting Bitcoin, is

00:42:45.840 --> 00:42:48.048
that you were going to have
two different currencies.

00:42:48.048 --> 00:42:49.160
So just make up your mind.

00:42:49.757 --> 00:42:51.340
GARY GENSLER: So
what Rob is raising--

00:42:51.340 --> 00:42:53.270
what Rob-- this isn't debate.

00:42:53.270 --> 00:42:55.110
There's not one right or wrong.

00:42:55.110 --> 00:42:57.168
What Rob is raising
is there's friction.

00:42:57.168 --> 00:42:57.960
ROB GENSLER: Right.

00:42:57.960 --> 00:42:59.770
If there's so much
value, what is

00:42:59.770 --> 00:43:04.530
my value relative to this
other currency, this other

00:43:04.530 --> 00:43:05.623
[INAUDIBLE].

00:43:05.623 --> 00:43:07.040
AUDIENCE: Just to
clarify, I don't

00:43:07.040 --> 00:43:09.380
understand what people mean
when they say interoperability.

00:43:09.380 --> 00:43:10.670
Like, I really don't
know what they mean.

00:43:10.670 --> 00:43:11.570
I hear this a lot.

00:43:11.570 --> 00:43:13.860
And I don't know what they
mean-- what they want.

00:43:13.860 --> 00:43:15.110
That's what I'm trying to say.

00:43:15.110 --> 00:43:15.995
GARY GENSLER: OK, what I mean--

00:43:15.995 --> 00:43:17.270
AUDIENCE: And I should
understand what they mean,

00:43:17.270 --> 00:43:18.645
because I'm the
technical person.

00:43:18.645 --> 00:43:20.062
GARY GENSLER:
Right, right, right.

00:43:20.062 --> 00:43:22.010
But you haven't gotten
your PhD yet, right?

00:43:24.900 --> 00:43:27.648
You know?

00:43:27.648 --> 00:43:28.572
All right, all right.

00:43:28.572 --> 00:43:30.780
ROB GENSLER: There's the
money side interoperability.

00:43:30.780 --> 00:43:32.310
That's what I'm bringing up.

00:43:32.310 --> 00:43:34.500
Interoperability
technically might be fine.

00:43:34.500 --> 00:43:37.100
But the money side is--

00:43:37.100 --> 00:43:41.100
is one worth two or
is one worth three?

00:43:41.100 --> 00:43:44.850
GARY GENSLER: So what I
mean by interoperability

00:43:44.850 --> 00:43:48.960
is that you, with the
lowest amount of friction,

00:43:48.960 --> 00:43:56.070
one might even say seamlessly
move across various ledgers

00:43:56.070 --> 00:43:56.890
in this space.

00:43:56.890 --> 00:44:00.000
I mean, interoperable can mean
things differently elsewhere.

00:44:00.000 --> 00:44:03.220
But so it's like if I--

00:44:03.220 --> 00:44:06.910
I'm a financial firm and I
set up a blockchain system,

00:44:06.910 --> 00:44:10.720
can it speak to and move
information and data and value

00:44:10.720 --> 00:44:14.530
with my Legacy databases
to the blockchain?

00:44:14.530 --> 00:44:16.300
That's not going to
be zero friction.

00:44:16.300 --> 00:44:18.490
There's going to be some
friction moving stuff

00:44:18.490 --> 00:44:21.650
from the Legacy
systems to this system.

00:44:21.650 --> 00:44:23.260
And if it's blockchain
to blockchain,

00:44:23.260 --> 00:44:26.710
again, what I think of is
can you with the lowest

00:44:26.710 --> 00:44:28.840
amount of friction cost--

00:44:28.840 --> 00:44:31.170
whether the cost or what
Rob's talking about,

00:44:31.170 --> 00:44:35.020
like the currency
risk cost or just

00:44:35.020 --> 00:44:39.280
how you hook up the
API or atomic swaps

00:44:39.280 --> 00:44:41.750
with the lowest
amount of friction.

00:44:41.750 --> 00:44:44.840
And so from a user
interface, is it seamless?

00:44:44.840 --> 00:44:47.590
If I'm an institutional
user, can I

00:44:47.590 --> 00:44:51.140
hop, skip, and a jump
across these systems?

00:44:51.140 --> 00:44:51.820
Let me move on.

00:44:51.820 --> 00:44:54.820
But that would be
my lay definition.

00:44:57.400 --> 00:45:00.910
The incentives-- in blockchain
and particularly Bitcoin,

00:45:00.910 --> 00:45:02.110
you have miners.

00:45:02.110 --> 00:45:06.520
But there are incentives
even in the internet

00:45:06.520 --> 00:45:08.930
that you have registries
and registrars

00:45:08.930 --> 00:45:11.800
that Joi talks about,
but other incentives.

00:45:11.800 --> 00:45:13.720
You have somebody's
got to be motivated

00:45:13.720 --> 00:45:20.030
to keep this thing alive
and program as well.

00:45:20.030 --> 00:45:24.010
And then I would lastly
talk about the government.

00:45:24.010 --> 00:45:27.670
The internet kind of came
out of the government.

00:45:27.670 --> 00:45:29.740
US Department of
Defense and something

00:45:29.740 --> 00:45:31.670
called DARPA in the 19--

00:45:31.670 --> 00:45:34.890
late '60s, '70s-- it kind of--

00:45:34.890 --> 00:45:37.980
government ultimately
by the 1990s

00:45:37.980 --> 00:45:40.770
took a light touch
approach to the internet.

00:45:40.770 --> 00:45:42.420
But it wasn't like
the internet was

00:45:42.420 --> 00:45:50.480
birthed in a libertarian
anti-government way.

00:45:50.480 --> 00:45:55.090
And Bitcoin and Satoshi
Nakamoto and the papers

00:45:55.090 --> 00:45:58.450
all kind of came from the
cypherpunk libertarian

00:45:58.450 --> 00:45:59.650
ethos and culture.

00:45:59.650 --> 00:46:02.530
So it's a little bit
different cultural background.

00:46:02.530 --> 00:46:05.147
It doesn't mean the
internet loves government.

00:46:05.147 --> 00:46:07.480
But it's just sort of a little
bit different background.

00:46:07.480 --> 00:46:10.338
Alexis, was that-- or
you're just thinking?

00:46:10.338 --> 00:46:12.130
I should have said
there's one other point,

00:46:12.130 --> 00:46:13.840
significant investment.

00:46:13.840 --> 00:46:18.200
The internet took 20 to 25
years before a lot of money

00:46:18.200 --> 00:46:18.700
got thrown.

00:46:18.700 --> 00:46:21.460
And an avalanche of money
came into the internet

00:46:21.460 --> 00:46:24.460
by the mid to late '90s.

00:46:24.460 --> 00:46:29.940
Amazon, eBay, and some others
I think were started in 1995,

00:46:29.940 --> 00:46:32.110
Netscape and everything
was going on.

00:46:32.110 --> 00:46:36.150
But by '98, '99, and 2000,
you had that huge avalanche

00:46:36.150 --> 00:46:37.810
of money.

00:46:37.810 --> 00:46:41.590
The avalanche of money into
blockchain is not as big.

00:46:41.590 --> 00:46:43.510
But it came earlier.

00:46:43.510 --> 00:46:47.830
There was a good 15 to 20
years of quiet development

00:46:47.830 --> 00:46:52.120
on research labs like at MIT
and the Defense Department

00:46:52.120 --> 00:46:55.780
before that avalanche of
money came to the internet.

00:46:55.780 --> 00:47:00.410
And here we had it much faster.

00:47:00.410 --> 00:47:06.403
Those are my sense of some
of the differences with it.

00:47:06.403 --> 00:47:08.070
So now let's talk
about the minimalists.

00:47:08.070 --> 00:47:11.540
They're kind of fun, as
the paintings in the corner

00:47:11.540 --> 00:47:13.760
so suggest, minimalist.

00:47:13.760 --> 00:47:17.570
This was the one that I think
was talked about before, Tom.

00:47:17.570 --> 00:47:19.860
So what else do the
minimalists say?

00:47:19.860 --> 00:47:22.790
I'm going to have,
like, 10 or 15 things.

00:47:22.790 --> 00:47:24.213
Who is a minimalist?

00:47:24.213 --> 00:47:25.130
Alene is a minimalist.

00:47:25.130 --> 00:47:28.300
Who else kind of agrees
with Roubini right now?

00:47:28.300 --> 00:47:29.180
Show of hands?

00:47:29.180 --> 00:47:30.520
Anybody?

00:47:30.520 --> 00:47:31.520
All right, so I've got--

00:47:31.520 --> 00:47:33.510
and you're still
coming to class.

00:47:33.510 --> 00:47:34.410
That's good.

00:47:34.410 --> 00:47:36.290
That's good.

00:47:36.290 --> 00:47:38.930
What else is in
the minimalist cap?

00:47:38.930 --> 00:47:41.360
Rob, get ready, because you're
going to give your view.

00:47:41.360 --> 00:47:42.810
AUDIENCE: So a class is one.

00:47:42.810 --> 00:47:47.357
Store of value is another
one because a class is not--

00:47:47.357 --> 00:47:49.940
GARY GENSLER: So you're saying
it's not a good store of value.

00:47:49.940 --> 00:47:51.590
All right, not a
good store of value.

00:47:51.590 --> 00:47:53.740
Let's just kind of roll.

00:47:53.740 --> 00:47:54.240
Tom.

00:47:54.240 --> 00:47:55.250
AUDIENCE: I don't know
if this is the same,

00:47:55.250 --> 00:47:56.648
but it has no intrinsic value.

00:47:56.648 --> 00:47:58.190
GARY GENSLER: Has
no intrinsic value.

00:47:58.190 --> 00:47:58.840
I'll take that.

00:47:58.840 --> 00:47:59.340
Sean.

00:47:59.340 --> 00:48:01.382
AUDIENCE: The one thing
that's really interesting

00:48:01.382 --> 00:48:03.973
is the Gini coefficiency
that you mentioned--

00:48:03.973 --> 00:48:05.390
GARY GENSLER:
Highly concentrated,

00:48:05.390 --> 00:48:07.370
the wealth concentration.

00:48:07.370 --> 00:48:08.630
Wealth concentration.

00:48:08.630 --> 00:48:10.927
Others?

00:48:10.927 --> 00:48:12.010
Remind me your first name.

00:48:12.010 --> 00:48:12.635
AUDIENCE: Jack.

00:48:12.635 --> 00:48:13.720
GARY GENSLER: Jack.

00:48:13.720 --> 00:48:15.350
AUDIENCE: Similar
point is that--

00:48:15.350 --> 00:48:18.340
GARY GENSLER: So there's more
than one Jack in the class.

00:48:18.340 --> 00:48:21.910
AUDIENCE: Jack
[INAUDIBLE],, MBA 2019.

00:48:21.910 --> 00:48:24.850
GARY GENSLER: Good move.

00:48:24.850 --> 00:48:26.980
AUDIENCE: Is that it's
not really centralized.

00:48:26.980 --> 00:48:29.570
So there was some stat
that 99% of transactions

00:48:29.570 --> 00:48:31.097
go through
centralized exchanges.

00:48:31.097 --> 00:48:31.930
GARY GENSLER: Right.

00:48:31.930 --> 00:48:36.630
So I usually ask in talks how
many people have owned Bitcoin.

00:48:36.630 --> 00:48:39.910
Yesterday, I am at a
very high-end conference

00:48:39.910 --> 00:48:46.120
in New York with 150 to 200 what
I call curated invitation list.

00:48:46.120 --> 00:48:48.970
And Fidelity is rolling
out this big announcement.

00:48:48.970 --> 00:48:51.190
So the people in the
room are kind of engaged.

00:48:51.190 --> 00:48:54.430
And Mike Novogratz, who made
personally a half a billion

00:48:54.430 --> 00:48:59.520
dollars on betting on
ether and Bitcoin--

00:48:59.520 --> 00:49:04.290
it was more ether than
Bitcoin, but on those two.

00:49:04.290 --> 00:49:06.210
I asked how many
people own Bitcoin.

00:49:06.210 --> 00:49:09.338
Two-thirds of the hands have
traded or owned Bitcoin.

00:49:09.338 --> 00:49:11.130
Two-thirds of the hands
go up, as you would

00:49:11.130 --> 00:49:12.600
think in a room like that.

00:49:12.600 --> 00:49:16.390
How many had owned it
directly on the blockchain,

00:49:16.390 --> 00:49:20.200
meaning they downloaded the
software, they have the nodes--

00:49:20.200 --> 00:49:23.230
of about 100 hands that went
up that had owned it or traded,

00:49:23.230 --> 00:49:26.740
three hands went up
in that pretty darn

00:49:26.740 --> 00:49:30.130
sophisticated high-touch area.

00:49:30.130 --> 00:49:33.730
So it's rather centralized
because of crypto exchanges.

00:49:33.730 --> 00:49:37.750
Other issues?

00:49:37.750 --> 00:49:40.640
AUDIENCE: 51% issue [INAUDIBLE].

00:49:43.670 --> 00:49:48.620
GARY GENSLER: So it's subject
to the 51% majority attack.

00:49:48.620 --> 00:49:50.180
And as Roubini
points out, that's

00:49:50.180 --> 00:49:54.110
probably more true with
regard to the small coins.

00:49:54.110 --> 00:49:57.410
If you start a coin and there's
only a million dollars of value

00:49:57.410 --> 00:50:00.530
or even $50 million of
value and there's only

00:50:00.530 --> 00:50:04.400
a dozen or 100 nodes,
it's far easier

00:50:04.400 --> 00:50:07.610
to overwhelm it than this
thing like Bitcoin that's

00:50:07.610 --> 00:50:09.680
lived out there in
the wild, one might

00:50:09.680 --> 00:50:13.130
say in the swamp for
all these 10 years.

00:50:13.130 --> 00:50:17.690
But a state actor with a few
probably single digit billions

00:50:17.690 --> 00:50:23.182
to mess around could do a
51% attack even on Bitcoin.

00:50:23.182 --> 00:50:25.640
If the government of China or
the government of North Korea

00:50:25.640 --> 00:50:30.275
really wanted to buy enough
computing power and ASICs,

00:50:30.275 --> 00:50:32.150
or frankly maybe even
the government of China

00:50:32.150 --> 00:50:33.860
would just take over
those two big mining

00:50:33.860 --> 00:50:36.080
pools that are in China.

00:50:36.080 --> 00:50:37.820
I don't know, but--

00:50:37.820 --> 00:50:39.017
or the government of Russia.

00:50:39.017 --> 00:50:40.100
There's a big mining pool.

00:50:40.100 --> 00:50:41.270
And they--

00:50:41.270 --> 00:50:43.520
So 51% attacks.

00:50:43.520 --> 00:50:45.440
It's kind of an
interesting thing.

00:50:45.440 --> 00:50:47.250
Other things?

00:50:47.250 --> 00:50:47.783
Jihee.

00:50:47.783 --> 00:50:49.200
AUDIENCE: No killer
app, so it's--

00:50:49.200 --> 00:50:50.570
GARY GENSLER: No killer apps.

00:50:50.570 --> 00:50:52.028
So hey, where's
the "there, there"?

00:50:55.960 --> 00:50:58.180
AUDIENCE: There are a lot
of bugs in their code.

00:50:58.180 --> 00:50:58.660
GARY GENSLER: A lot of--

00:50:58.660 --> 00:50:59.285
AUDIENCE: Bugs.

00:50:59.308 --> 00:51:00.100
GARY GENSLER: Bugs.

00:51:00.100 --> 00:51:02.623
Bugs in the-- so there's
still a lot to work out.

00:51:02.623 --> 00:51:03.790
So let me show you the list.

00:51:03.790 --> 00:51:06.700
And then Rob's going to
tell us what he thinks.

00:51:06.700 --> 00:51:08.290
There's many
technical challenges.

00:51:08.290 --> 00:51:10.210
We've talked about this
at an earlier lecture.

00:51:10.210 --> 00:51:12.370
We're not through the
scalability performance

00:51:12.370 --> 00:51:14.360
end of this.

00:51:14.360 --> 00:51:17.760
Again, I keep contending I
think in single-digit years--

00:51:17.760 --> 00:51:19.410
not months, but years--

00:51:19.410 --> 00:51:21.750
we'll get through a lot of
these scalability things.

00:51:21.750 --> 00:51:25.200
Maybe I'm too cockeyed
optimist about the ability

00:51:25.200 --> 00:51:27.180
of technologists here
at MIT and elsewhere.

00:51:27.180 --> 00:51:29.410
But I think we'll
get through a lot.

00:51:29.410 --> 00:51:31.410
We won't necessarily get
through the governance.

00:51:31.410 --> 00:51:33.493
There's still a bunch of
collective action issues.

00:51:33.493 --> 00:51:36.590
But I think maybe we're already
through the interoperability.

00:51:36.590 --> 00:51:39.750
I think there's still
stuff to do there.

00:51:39.750 --> 00:51:41.100
They lack intrinsic value.

00:51:41.100 --> 00:51:43.180
That was said.

00:51:43.180 --> 00:51:45.365
You didn't say there's
a lot of volatility.

00:51:45.365 --> 00:51:46.990
A lot of people raise
that there's just

00:51:46.990 --> 00:51:50.800
a ton of volatility
in these things.

00:51:50.800 --> 00:51:52.600
That's not a technical bug.

00:51:52.600 --> 00:51:56.530
But it's a feature
of the crypto itself.

00:51:56.530 --> 00:52:00.080
And we talked about
limited adoption.

00:52:00.080 --> 00:52:03.620
Paul Krugman's piece says, hey,
they're not accepted for taxes.

00:52:03.620 --> 00:52:05.750
They're not legal tender.

00:52:05.750 --> 00:52:08.180
Fiat currencies
have an advantage,

00:52:08.180 --> 00:52:11.660
because over the last
300 or 400 years,

00:52:11.660 --> 00:52:13.730
nearly every society
around the globe

00:52:13.730 --> 00:52:17.360
has said let's accept them
for taxes and legal tender.

00:52:17.360 --> 00:52:18.680
Good point to Paul Krugman.

00:52:18.680 --> 00:52:19.610
He's right.

00:52:19.610 --> 00:52:22.790
Can't get around that.

00:52:22.790 --> 00:52:25.790
Having multiple currencies
counter an economic history

00:52:25.790 --> 00:52:26.630
and logic.

00:52:26.630 --> 00:52:28.370
This is Roubini's point.

00:52:28.370 --> 00:52:34.370
But do we really need 20, 50,
100, 1,000 separate currencies?

00:52:34.370 --> 00:52:38.220
Maybe not, but on
the other side,

00:52:38.220 --> 00:52:40.613
why is it-- what did
you call it, skins?

00:52:40.613 --> 00:52:41.530
AUDIENCE: Skins, yeah.

00:52:41.530 --> 00:52:43.655
GARY GENSLER: Yeah, why is
it that some people will

00:52:43.655 --> 00:52:49.380
value skins in the middle of a
gaming site or affinity points?

00:52:49.380 --> 00:52:52.690
So I wouldn't necessarily
discard it completely.

00:52:52.690 --> 00:52:54.155
It's like, I just--

00:52:54.155 --> 00:52:58.710
I think that's too simplistic
to completely discard it.

00:52:58.710 --> 00:53:02.770
And then token monetary policy.

00:53:02.770 --> 00:53:04.410
We've talked about
at Bitcoin, you

00:53:04.410 --> 00:53:08.640
can have the maximum of 21
million coins by the year 2140.

00:53:08.640 --> 00:53:11.820
It's put in the code.

00:53:11.820 --> 00:53:15.600
Do we want it to be the base
currency-- it's not technically

00:53:15.600 --> 00:53:18.700
the monetary policy; it's the
base monetary policy-- only

00:53:18.700 --> 00:53:21.480
in code, or do we want humans?

00:53:21.480 --> 00:53:23.170
The minimalists
would also tell you

00:53:23.170 --> 00:53:28.530
that blockchains tend towards
centralization, whether it's

00:53:28.530 --> 00:53:32.160
crypto exchanges, whether it's
development, the mining pools

00:53:32.160 --> 00:53:37.130
themselves, the holders, and
even alternative consensus

00:53:37.130 --> 00:53:38.152
protocols.

00:53:38.152 --> 00:53:40.610
So right now you're thinking
you're going to go to the door

00:53:40.610 --> 00:53:42.360
and get out of this
blockchain class.

00:53:42.360 --> 00:53:43.958
But it's important
to kind of know

00:53:43.958 --> 00:53:45.500
these things to
think, all right, now

00:53:45.500 --> 00:53:48.650
where can it have a place?

00:53:48.650 --> 00:53:52.880
Nobody raised the
private key thing.

00:53:52.880 --> 00:53:58.850
You lose your private
key, you're done.

00:53:58.850 --> 00:54:03.800
In most ledger systems, we have
backdoor ways to correct that.

00:54:03.800 --> 00:54:09.460
If I lose my password,
if a bank sometimes get--

00:54:09.460 --> 00:54:12.850
somehow gets hacked, there's
a way to backdoor and protect

00:54:12.850 --> 00:54:13.960
against the loss.

00:54:13.960 --> 00:54:16.060
This is the other
side of finality.

00:54:16.060 --> 00:54:18.460
If we truly want
final settlement,

00:54:18.460 --> 00:54:20.580
this is the other side.

00:54:20.580 --> 00:54:23.370
Buterin's trilemma-- I'm not
going to review that again.

00:54:23.370 --> 00:54:25.500
We talked about.

00:54:25.500 --> 00:54:28.410
And then people doubt the
claims of token economics.

00:54:28.410 --> 00:54:31.840
I'm probably a little
bit in that camp.

00:54:31.840 --> 00:54:33.530
Oh, no killer app.

00:54:33.530 --> 00:54:36.140
The scams and frauds.

00:54:36.140 --> 00:54:39.340
All right, Rob,
what do you think?

00:54:39.340 --> 00:54:41.240
Rob ran $20 billion funds.

00:54:41.240 --> 00:54:43.315
And he's not read a single
thing on the syllabus.

00:54:43.315 --> 00:54:45.440
ROB GENSLER: No, I haven't
even read a single thing

00:54:45.440 --> 00:54:46.580
on blockchain.

00:54:46.580 --> 00:54:49.345
In the '90s, I was a--

00:54:49.345 --> 00:54:50.470
GARY GENSLER: Covert twins.

00:54:50.470 --> 00:54:52.070
ROB GENSLER: Yes.

00:54:52.070 --> 00:54:54.470
In the '90s, I was a tech
and telecom investor.

00:54:54.470 --> 00:54:59.690
And it's relevant to inform
my biases, because I saw--

00:54:59.690 --> 00:55:01.328
Google wasn't the
first search engine

00:55:01.328 --> 00:55:03.245
that came public and
came through our offices.

00:55:03.245 --> 00:55:05.210
It wasn't even the top five.

00:55:05.210 --> 00:55:07.970
It was the sixth or
seventh, if I recall,

00:55:07.970 --> 00:55:09.570
search engine that came through.

00:55:09.570 --> 00:55:11.750
And the first five didn't
have a monetization case.

00:55:11.750 --> 00:55:14.720
And Google wound up
figuring out the puzzle.

00:55:14.720 --> 00:55:17.780
And I saw all the
things in the '90s

00:55:17.780 --> 00:55:19.490
and the tech crash and all.

00:55:19.490 --> 00:55:21.560
What intrigues me
about this is-- and I'm

00:55:21.560 --> 00:55:23.810
not a minimalist
as to blockchain

00:55:23.810 --> 00:55:25.590
has no economic basis.

00:55:25.590 --> 00:55:27.080
It actually probably does.

00:55:27.080 --> 00:55:29.280
And some will figure it out.

00:55:29.280 --> 00:55:31.030
And I'm very reminded--

00:55:31.030 --> 00:55:32.530
I'm going to give
you the bull side,

00:55:32.530 --> 00:55:34.460
and then I'll give you my real--

00:55:34.460 --> 00:55:36.920
is when I first met,
in the '80s actually,

00:55:36.920 --> 00:55:38.030
the head of Bell Labs--

00:55:38.030 --> 00:55:43.690
if anyone doesn't know that,
it was AT&T's labs and all.

00:55:43.690 --> 00:55:47.348
He said-- and I asked him,
all his years in research,

00:55:47.348 --> 00:55:49.640
what was the biggest lesson
I could take away and learn

00:55:49.640 --> 00:55:51.630
in my tech investing.

00:55:51.630 --> 00:55:54.800
He says, when big
change happens,

00:55:54.800 --> 00:55:58.190
it always takes longer
than you think to happen.

00:55:58.190 --> 00:56:00.200
Always much longer.

00:56:00.200 --> 00:56:01.820
He says, but when
it does, it happens

00:56:01.820 --> 00:56:06.740
much faster than you could ever
imagine when it finally does.

00:56:06.740 --> 00:56:10.578
And where that compares to all
of technology evolution, even

00:56:10.578 --> 00:56:11.870
this-- this is what worries me.

00:56:11.870 --> 00:56:14.120
Maybe I'm wrong in my--
because I'm bearish, actually.

00:56:14.120 --> 00:56:15.267
But maybe I'm wrong.

00:56:15.267 --> 00:56:16.850
So I'm going to give
why it could be--

00:56:16.850 --> 00:56:19.100
Maybe we're in that first
stage where all the hype is

00:56:19.100 --> 00:56:22.340
happening, because usually
you have excitement, hype,

00:56:22.340 --> 00:56:26.040
disappointment, and then
years later the use case,

00:56:26.040 --> 00:56:28.023
the broad use case
actually happens,

00:56:28.023 --> 00:56:29.690
because right now I
really feel strongly

00:56:29.690 --> 00:56:32.000
we're in that first
excitement hype.

00:56:32.000 --> 00:56:34.820
I don't know whether the broad
use case will ever happen.

00:56:34.820 --> 00:56:36.080
It might.

00:56:36.080 --> 00:56:38.400
But what worries me about
Bitcoin in particular--

00:56:38.400 --> 00:56:40.000
I'm just a markets guy.

00:56:40.000 --> 00:56:40.760
That's all I am.

00:56:40.760 --> 00:56:42.320
I don't think much--

00:56:42.320 --> 00:56:45.340
and I'm a practical
guy, not a research guy.

00:56:45.340 --> 00:56:47.780
And in markets, it's like,
OK, Bitcoin comes along.

00:56:47.780 --> 00:56:50.950
And it's going up because the
taxi driver's talking about it.

00:56:50.950 --> 00:56:52.160
And everybody is in it.

00:56:52.160 --> 00:56:53.780
Why do they own Bitcoin?

00:56:53.780 --> 00:56:56.140
They own it because the
greater fool theory.

00:56:56.140 --> 00:56:58.747
I'm going to find someone
to pay me a higher price.

00:56:58.747 --> 00:57:00.580
And I'm going to miss
out if I don't own it.

00:57:00.580 --> 00:57:02.600
And I got to be involved
in it and all the rest.

00:57:02.600 --> 00:57:04.933
And then you see how many
other coins are there if you--

00:57:05.180 --> 00:57:05.690
GARY GENSLER: 1,600.

00:57:05.690 --> 00:57:07.550
ROB GENSLER:
--CoinMarketCap.com, and you're

00:57:07.550 --> 00:57:09.740
just like, oh my god, supply.

00:57:09.740 --> 00:57:12.920
You know, the last thing you
want is interoperability.

00:57:12.920 --> 00:57:16.760
If you've got interoperability,
then supply is infinite.

00:57:16.760 --> 00:57:18.170
So the value of
these-- now, they

00:57:18.170 --> 00:57:21.440
may still have an
amazing use case

00:57:21.440 --> 00:57:26.740
as being a utility to provide
this ease of transactions

00:57:26.740 --> 00:57:28.550
and all the positive things.

00:57:28.550 --> 00:57:31.117
But what I'm bearish on
is the value of Bitcoin,

00:57:31.117 --> 00:57:31.700
if you notice.

00:57:31.700 --> 00:57:34.225
I'm not bearish on
blockchain having value.

00:57:34.225 --> 00:57:35.600
But if they're
all interoperable,

00:57:35.600 --> 00:57:38.570
actually it would be great,
or if the medical system all

00:57:38.570 --> 00:57:41.630
figured out a way to keep
medical records in some better

00:57:41.630 --> 00:57:44.540
way that used blockchain,
wow, wouldn't that be great?

00:57:44.540 --> 00:57:48.380
But would we be using Bitcoin
as a very high-value thing?

00:57:48.380 --> 00:57:50.430
And I'm also reminded,
I think Bitcoin--

00:57:50.430 --> 00:57:52.010
sorry, I'm real
biased about this--

00:57:52.010 --> 00:57:55.020
is a massive
regulatory arbitrage.

00:57:55.020 --> 00:57:57.320
I don't want the
governments, the officials

00:57:57.320 --> 00:58:00.140
anywhere in the world
to know something.

00:58:00.140 --> 00:58:04.010
I want to create a system
that's beyond governments.

00:58:04.010 --> 00:58:06.050
Have you found anything--
maybe in the history

00:58:06.050 --> 00:58:07.940
of humankind there
is something--

00:58:07.940 --> 00:58:10.820
where officially-- the official
sector doesn't come back

00:58:10.820 --> 00:58:14.330
with a vengeance and
get its fair share?

00:58:14.330 --> 00:58:17.280
So I think blockchain can
be very good as a utility

00:58:17.280 --> 00:58:18.560
to make a lot of other things.

00:58:18.560 --> 00:58:20.685
It's like, what are the
killer apps that will come?

00:58:20.685 --> 00:58:22.102
And it was true
with the internet.

00:58:22.102 --> 00:58:23.750
When the killer apps
came, guess what.

00:58:23.750 --> 00:58:26.150
Amazon was a killer app
and Apple was a killer app.

00:58:26.150 --> 00:58:29.120
Well, Apple's different,
but Facebook, et cetera.

00:58:29.120 --> 00:58:30.560
And oh by the way, all of them--

00:58:30.560 --> 00:58:32.643
so because you were going
to say, why would it say

00:58:32.643 --> 00:58:35.280
there weren't $500 billion
or a trillion of them.

00:58:35.280 --> 00:58:39.110
Remember, there was an
installed base of value--

00:58:39.110 --> 00:58:43.930
Amazon's case, 100% of global
retail that they could disrupt.

00:58:43.930 --> 00:58:46.067
Wow, they have not even 5% yet.

00:58:46.067 --> 00:58:48.400
I don't know whether you
should own Amazon stock or not.

00:58:48.400 --> 00:58:49.525
I'm not trying to say that.

00:58:49.525 --> 00:58:52.820
But all of global advertising--

00:58:52.820 --> 00:58:57.710
that's what's Google-- wow,
and they're disruptive.

00:58:57.710 --> 00:59:00.230
So maybe Bitcoin
becomes the utility

00:59:00.230 --> 00:59:03.130
that some app resides
on top of and is--

00:59:03.130 --> 00:59:06.602
and this becomes ubiquitous
enough in 10 or 15 years.

00:59:06.602 --> 00:59:08.060
And I actually
think something will

00:59:08.060 --> 00:59:11.820
happen that just will wow us all
that we hadn't even considered.

00:59:11.820 --> 00:59:14.510
But it's in the second phase,
not in this first phase

00:59:14.510 --> 00:59:16.455
of hype, disappointment.

00:59:16.455 --> 00:59:18.830
And I don't think we're anywhere
near the disappointment.

00:59:18.830 --> 00:59:20.122
The disappointment takes years.

00:59:20.122 --> 00:59:22.750
And then all the sudden, like
the Phoenix from the ashes,

00:59:22.750 --> 00:59:24.170
it rises up again.

00:59:24.170 --> 00:59:26.810
And it's once the distributed
process is all out there

00:59:26.810 --> 00:59:29.060
and there's not nodes
like the Bitcoin nodes,

00:59:29.060 --> 00:59:31.680
but nodes of users--
it's like guess what.

00:59:31.680 --> 00:59:34.860
These things in our phone, in
our hands, distributed these.

00:59:34.860 --> 00:59:38.160
Until these were all there,
you couldn't have a Facebook,

00:59:38.160 --> 00:59:38.790
right?

00:59:38.790 --> 00:59:41.460
Facebook needed this
first in a weird sense,

00:59:41.460 --> 00:59:44.040
or they needed the desktop
versions of this first.

00:59:44.040 --> 00:59:47.520
And I still think we're very
early days of this stuff.

00:59:47.520 --> 00:59:48.880
The real value will be made.

00:59:48.880 --> 00:59:50.970
And I'm telling you,
major investment

00:59:50.970 --> 00:59:53.910
dollars somewhere 5
minimum years, maybe

00:59:53.910 --> 00:59:55.710
10 or 15 years out.

00:59:55.710 --> 00:59:58.900
And it'll be some sort of thing
that's enabled because of this.

00:59:58.900 --> 01:00:00.720
But it's not going to
be these first guys.

01:00:00.720 --> 01:00:02.280
There's too much supply.

01:00:02.280 --> 01:00:04.920
GARY GENSLER: And here I had no
idea what he was going to say.

01:00:04.920 --> 01:00:07.080
But that's been
true for 60 years.

01:00:07.080 --> 01:00:07.826
So--

01:00:07.826 --> 01:00:10.034
ROB GENSLER: Sorry, you had
a question for him or me?

01:00:10.034 --> 01:00:10.800
AUDIENCE: Both of you.

01:00:10.800 --> 01:00:12.600
GARY GENSLER: And then I'm going
to do a couple more slides.

01:00:12.600 --> 01:00:13.800
Sean, ask the question.

01:00:13.800 --> 01:00:16.217
AUDIENCE: I think it's really
interesting the way that you

01:00:16.217 --> 01:00:19.100
mentioned that, because
Amazon has a TAM

01:00:19.100 --> 01:00:20.505
and Facebook has a TAM.

01:00:20.505 --> 01:00:22.680
And during the
peak of its bubble

01:00:22.680 --> 01:00:26.057
last year, people were
referring to TAM of--

01:00:26.057 --> 01:00:27.640
ROB GENSLER: Total
addressable market.

01:00:27.640 --> 01:00:28.020
AUDIENCE: Total
addressable market.

01:00:28.020 --> 01:00:28.937
ROB GENSLER: Go ahead.

01:00:28.937 --> 01:00:33.240
AUDIENCE: To let go
to the market of gold.

01:00:33.240 --> 01:00:35.640
And what's your
perception on that?

01:00:35.640 --> 01:00:38.100
And do you think that's a real--

01:00:38.100 --> 01:00:40.345
to some degree a
realistic assumption?

01:00:40.345 --> 01:00:41.220
ROB GENSLER: I guess.

01:00:41.220 --> 01:00:44.250
But gold has 5,000
years or even longer

01:00:44.250 --> 01:00:47.020
of being the scarce resource
that no one understands.

01:00:47.020 --> 01:00:47.770
I certainly don't.

01:00:47.770 --> 01:00:49.970
But it's the-- mining.

01:00:49.970 --> 01:00:53.220
And so it's got a lot
of stability from that.

01:00:53.220 --> 01:00:56.260
If Bitcoin truly was the only
one-- but how many-- you said

01:00:56.260 --> 01:00:57.210
there's 160 of them.

01:00:57.210 --> 01:00:59.190
And you just said they're
going to all be interoperable.

01:00:59.190 --> 01:01:01.107
So I don't know what the
currency exchange is.

01:01:01.107 --> 01:01:02.790
So is supply really constrained?

01:01:02.790 --> 01:01:04.770
I don't know.

01:01:04.770 --> 01:01:06.570
So I don't know.

01:01:06.570 --> 01:01:08.383
Maybe you know better
answer, because I

01:01:08.383 --> 01:01:09.300
know that comparison--

01:01:09.300 --> 01:01:10.175
GARY GENSLER: No, no.

01:01:10.175 --> 01:01:11.310
It's a real challenge.

01:01:11.310 --> 01:01:14.040
One of the things
about valuing--

01:01:14.040 --> 01:01:16.920
one of the things about
valuing any crypto--

01:01:16.920 --> 01:01:18.420
and I told you at
the beginning, I'm

01:01:18.420 --> 01:01:20.640
just not going to run a
class that tells you how

01:01:20.640 --> 01:01:22.520
to invest in or out of crypto.

01:01:22.520 --> 01:01:26.070
But here is just an observation.

01:01:26.070 --> 01:01:28.500
And feel free to
ask more questions.

01:01:28.500 --> 01:01:31.220
But that-- if any token--

01:01:31.220 --> 01:01:33.120
I'm not just talking
about Bitcoin--

01:01:33.120 --> 01:01:38.240
any token-- it could be file
sharing app like Filecoin--

01:01:38.240 --> 01:01:41.120
has a really good, good use.

01:01:41.120 --> 01:01:42.920
And it's being used.

01:01:42.920 --> 01:01:45.560
You have to start
to jump to say, what

01:01:45.560 --> 01:01:47.470
is the velocity of the token?

01:01:47.470 --> 01:01:51.240
And any of you that have
studied a little bit about macro

01:01:51.240 --> 01:01:53.720
economics and you know
the velocity of money,

01:01:53.720 --> 01:01:58.010
it's how many times a piece
of currency turns over.

01:01:58.010 --> 01:02:02.330
It's sort of the economy divided
by the monetary base, whatever

01:02:02.330 --> 01:02:04.170
your measure is.

01:02:04.170 --> 01:02:07.150
So how many times does a
piece of currency turn over?

01:02:07.150 --> 01:02:10.200
In the digital age it
can turn over faster.

01:02:10.200 --> 01:02:13.690
If it was just file storage and
I'd get file storage from James

01:02:13.690 --> 01:02:17.400
and then James wants to get
file storage from Hugo and along

01:02:17.400 --> 01:02:22.150
and along, and if there was high
velocity, you need fewer coins,

01:02:22.150 --> 01:02:24.040
almost like the
higher the velocity,

01:02:24.040 --> 01:02:27.490
the less value in the coin.

01:02:27.490 --> 01:02:31.280
So you almost need some people
to be holding on to the--

01:02:31.280 --> 01:02:33.190
James wants to hold
it because he thinks

01:02:33.190 --> 01:02:39.290
it's a good store of value and
not use it for file storage,

01:02:39.290 --> 01:02:42.710
because if all you're doing is
turning it over, whether it's

01:02:42.710 --> 01:02:47.150
file storage or anything
else, it sort of lowers

01:02:47.150 --> 01:02:49.700
the value, higher velocity.

01:02:49.700 --> 01:02:52.530
And yet it's kind
of counter to it.

01:02:52.530 --> 01:02:53.480
So I don't know.

01:02:53.480 --> 01:02:57.740
There's a mixture in the
valuation mode of speculation,

01:02:57.740 --> 01:03:04.195
store value, usability,
but not too much velocity.

01:03:04.195 --> 01:03:06.070
ROB GENSLER: I'm going
to say one last thing.

01:03:06.070 --> 01:03:08.477
I am convinced there
is huge value that's

01:03:08.477 --> 01:03:09.310
going to be created.

01:03:09.310 --> 01:03:11.620
But it's in the things
that are enabled

01:03:11.620 --> 01:03:13.690
to be able to be done by this.

01:03:13.690 --> 01:03:14.730
It's not in the--

01:03:14.730 --> 01:03:17.230
I don't know if you call them
coins or tokens or whatever.

01:03:17.230 --> 01:03:18.670
They're the enablers.

01:03:18.670 --> 01:03:20.688
And if you've got a
really expensive one,

01:03:20.688 --> 01:03:23.230
somebody else is going to have
a cheaper one that will enable

01:03:23.230 --> 01:03:26.000
all this great potentiality.

01:03:26.000 --> 01:03:28.570
And somebody will-- and there
will be huge value in that.

01:03:28.915 --> 01:03:30.040
GARY GENSLER: Let me just--

01:03:30.040 --> 01:03:30.970
I just want to cover.

01:03:30.970 --> 01:03:32.050
You can stay up, Rob.

01:03:32.050 --> 01:03:32.830
I just want to--

01:03:32.830 --> 01:03:34.690
So we've already
talked about this.

01:03:34.690 --> 01:03:36.340
But I just want to
remind you of this.

01:03:36.340 --> 01:03:39.630
It's sort of like centralization
versus decentralization

01:03:39.630 --> 01:03:44.230
when we're all thinking
together about the economics.

01:03:44.230 --> 01:03:46.830
And again, you could
change the slopes.

01:03:46.830 --> 01:03:50.550
The cost of decentralization
might come down--

01:03:50.550 --> 01:03:52.830
the orange one.

01:03:52.830 --> 01:03:54.810
But as you know, I'm
sort of a little bit

01:03:54.810 --> 01:03:59.280
closer to permission systems
than permissionless systems.

01:03:59.280 --> 01:04:02.070
And in terms of
traditional databases,

01:04:02.070 --> 01:04:03.390
we've done this before.

01:04:03.390 --> 01:04:07.790
But again, the
public blockchains

01:04:07.790 --> 01:04:09.920
versus the traditional
databases-- and I

01:04:09.920 --> 01:04:12.270
don't mean every word
you need to remember

01:04:12.270 --> 01:04:13.770
or anything like that.

01:04:13.770 --> 01:04:18.050
But if you don't need a ledger,
if you don't fundamentally

01:04:18.050 --> 01:04:21.650
need something to move
around property rights,

01:04:21.650 --> 01:04:24.920
I think you're probably in
the traditional database side.

01:04:24.920 --> 01:04:26.360
You can move over
into the middle

01:04:26.360 --> 01:04:30.290
if you think that an
invention of the early 1990s--

01:04:30.290 --> 01:04:35.850
append-only databases,
the blockchain,

01:04:35.850 --> 01:04:38.880
sprinkle a whole bunch of
cryptography on top of it,

01:04:38.880 --> 01:04:42.680
the hash functions, and
the digital signatures--

01:04:42.680 --> 01:04:46.600
that's kind of your
permissioned database systems.

01:04:46.600 --> 01:04:49.750
It can give you
finality of settlement.

01:04:49.750 --> 01:04:52.570
It can give you an awful lot.

01:04:52.570 --> 01:04:54.700
But it's a club deal.

01:04:54.700 --> 01:04:58.950
And amongst the big commercial
banks or amongst some systems,

01:04:58.950 --> 01:05:02.850
they're doing a lot there.

01:05:02.850 --> 01:05:05.470
I think to get to
the right-hand side,

01:05:05.470 --> 01:05:08.850
we'll need to get some of
this performance behind us--

01:05:08.850 --> 01:05:12.960
in some single-digit years, get
the performance up to speed.

01:05:12.960 --> 01:05:16.380
But still, even after those
three or five or six years,

01:05:16.380 --> 01:05:19.080
when we get the
performance up to speed,

01:05:19.080 --> 01:05:22.900
I think you have to
say one of two things.

01:05:22.900 --> 01:05:27.360
One is, is this a lower
cost of verification?

01:05:27.360 --> 01:05:28.430
And it might be.

01:05:28.430 --> 01:05:30.910
And I say this for your
final projects, too.

01:05:30.910 --> 01:05:34.840
If you find a pain point
that has high economic rents,

01:05:34.840 --> 01:05:36.240
this might be a lower cost.

01:05:36.240 --> 01:05:38.700
If you find a pain
point around privacy,

01:05:38.700 --> 01:05:41.810
a pain point around censorship--

01:05:41.810 --> 01:05:44.000
it depends on what
the pain point is,

01:05:44.000 --> 01:05:47.300
or if you're just something
that's not yet centralized--

01:05:47.300 --> 01:05:50.480
I continue to believe that
if you're trying to attack,

01:05:50.480 --> 01:05:53.810
if you all are trying to
attack a centralized system

01:05:53.810 --> 01:05:57.530
with blockchain, you've
got to basically go

01:05:57.530 --> 01:06:01.670
through the door of lower
verification costs, lower

01:06:01.670 --> 01:06:04.610
economic rents, lower privacy,
lower censorship, but lower

01:06:04.610 --> 01:06:07.670
some verification cost.

01:06:07.670 --> 01:06:09.920
If it's currently a
decentralized thing,

01:06:09.920 --> 01:06:12.330
there's no centralized
intermediary,

01:06:12.330 --> 01:06:14.330
it might be the token
economics are a way

01:06:14.330 --> 01:06:18.420
to jump-start the consensus
and the collective action.

01:06:18.420 --> 01:06:20.670
But I remind you, even
in medical records

01:06:20.670 --> 01:06:22.860
where there's no
centralized thing,

01:06:22.860 --> 01:06:24.690
you still have to
think, how is this

01:06:24.690 --> 01:06:27.840
going to jump start and get
over this darn collective action

01:06:27.840 --> 01:06:30.900
problem that has
existed for decades,

01:06:30.900 --> 01:06:34.440
or loan syndication
is another example.

01:06:34.440 --> 01:06:37.170
Collective action--
it might-- it might--

01:06:37.170 --> 01:06:39.390
and by the way, Goldman
Sachs and Morgan Stanley

01:06:39.390 --> 01:06:43.780
and JP Morgan and
Banque Nationale Paris--

01:06:43.780 --> 01:06:48.720
BNP and others-- they trust
each other only to an extent.

01:06:48.720 --> 01:06:52.450
So even the middle category--

01:06:52.450 --> 01:06:56.210
these club deals are
a little odd, too.

01:06:56.210 --> 01:06:57.470
So I'm just repeating.

01:06:57.470 --> 01:06:59.220
This is going to be
something you've seen.

01:06:59.220 --> 01:07:03.670
So can you lower
verification costs?

01:07:03.670 --> 01:07:05.380
That's my core thing.

01:07:05.380 --> 01:07:07.460
Can you lower
verification costs,

01:07:07.460 --> 01:07:10.840
whether it's direct costs,
privacy, censorship, settlement

01:07:10.840 --> 01:07:15.100
and finality risks, and the
cost of trust or economic rents?

01:07:17.970 --> 01:07:21.600
If you can, this might
be an alternative

01:07:21.600 --> 01:07:27.810
to the centralized databases,
or does it jump start

01:07:27.810 --> 01:07:29.610
through some reward affinity.

01:07:29.610 --> 01:07:31.840
And I love the skins.

01:07:31.840 --> 01:07:36.550
Does it somehow help you
jump-start something?

01:07:36.550 --> 01:07:37.050
I'm sorry.

01:07:37.050 --> 01:07:38.508
AUDIENCE: Yeah, I
was just thinking

01:07:38.508 --> 01:07:41.850
about what are your
thoughts collectively on--

01:07:41.850 --> 01:07:43.010
ROB GENSLER: Collectively?

01:07:43.010 --> 01:07:44.670
AUDIENCE: Yeah, both.

01:07:44.670 --> 01:07:45.810
GARY GENSLER: Double.

01:07:45.810 --> 01:07:47.180
AUDIENCE: So Bitcoin is--

01:07:47.180 --> 01:07:50.550
I mean, there's no
necessarily intrinsic value,

01:07:50.550 --> 01:07:55.260
like direct peg where you can
say, this is tied to this.

01:07:55.260 --> 01:07:57.510
But what about,
like, tokenization

01:07:57.510 --> 01:08:02.250
of some assets, namely maybe
real estate where if you sell

01:08:02.250 --> 01:08:04.590
a piece of real estate or new--

01:08:04.590 --> 01:08:08.160
on a new-found token,
you kind of understand

01:08:08.160 --> 01:08:10.350
where the market value of
that piece of real estate

01:08:10.350 --> 01:08:14.520
is from sales
comparables, et cetera.

01:08:14.520 --> 01:08:19.470
But the value potentially add
from tokenizing the asset is

01:08:19.470 --> 01:08:20.830
lower transaction costs.

01:08:20.830 --> 01:08:24.569
So you can kind of directly
peg a value to the real estate

01:08:24.569 --> 01:08:26.910
and also the value
from the cost savings

01:08:26.910 --> 01:08:29.160
from not having to pay
those transaction fees.

01:08:29.160 --> 01:08:30.720
GARY GENSLER: So
the real question

01:08:30.720 --> 01:08:37.040
is, is there an application of
blockchain technology to using

01:08:37.040 --> 01:08:42.890
a token to digitize an otherwise
either a liquid or liquid

01:08:42.890 --> 01:08:44.590
asset, because it could be.

01:08:44.590 --> 01:08:46.370
Dan used real estate.

01:08:46.370 --> 01:08:48.080
But you could just
as well say, is there

01:08:48.080 --> 01:08:52.580
a role to have a blockchain
token and underlying

01:08:52.580 --> 01:08:55.399
it is oil, or
underlying it is gold,

01:08:55.399 --> 01:08:58.460
or maybe underlying it is a
basket of equities or even

01:08:58.460 --> 01:09:00.200
Fiat currency.

01:09:00.200 --> 01:09:02.180
I think yes.

01:09:02.180 --> 01:09:06.290
It's sort of a newer modern-day
version of exchange traded

01:09:06.290 --> 01:09:12.800
funds, or it's a modern-day
version of warehouse receipts.

01:09:12.800 --> 01:09:16.640
Paper money started
exactly this way.

01:09:16.640 --> 01:09:22.460
Paper money was like, please,
will you store my grain

01:09:22.460 --> 01:09:24.840
and give me a warehouse receipt.

01:09:24.840 --> 01:09:25.939
And then it was gold.

01:09:25.939 --> 01:09:27.800
And I'll take a
warehouse receipt.

01:09:27.800 --> 01:09:31.840
And it was easier to exchange
the paper warehouse receipt

01:09:31.840 --> 01:09:34.080
than the gold or the
wheat and so forth.

01:09:34.080 --> 01:09:36.560
So I have to say, from an
economic point of view,

01:09:36.560 --> 01:09:37.620
there's a long history.

01:09:37.620 --> 01:09:40.160
The answer has to be yes.

01:09:40.160 --> 01:09:45.710
However, caution is particularly
when you get to illiquids,

01:09:45.710 --> 01:09:47.569
is it really going
to create liquidity

01:09:47.569 --> 01:09:49.700
where there isn't liquidity?

01:09:49.700 --> 01:09:54.610
Real estate is still
very idiosyncratic.

01:09:54.610 --> 01:09:57.920
Gold is very fungible.

01:09:57.920 --> 01:10:04.120
Gold is something
that doesn't degrade.

01:10:04.120 --> 01:10:05.980
It could be in a warehouse.

01:10:05.980 --> 01:10:09.880
Now, it might be that they
start issuing too much paper.

01:10:09.880 --> 01:10:14.520
But so I think that
I have to say yes

01:10:14.520 --> 01:10:17.380
with a big footnote that
I'm not as sure when

01:10:17.380 --> 01:10:20.720
you get to the illiquid
end of the curve.

01:10:20.720 --> 01:10:26.890
But the highly liquid
commodity end of the curve--

01:10:26.890 --> 01:10:28.380
but even on the
commodity end, you

01:10:28.380 --> 01:10:31.380
might say, well, why is this any
better than an exchange traded

01:10:31.380 --> 01:10:32.620
fund?

01:10:32.620 --> 01:10:35.520
And particularly, by the time
the securities regulators

01:10:35.520 --> 01:10:38.130
say yes to it and
sprinkle holy water on it,

01:10:38.130 --> 01:10:40.280
it might look like an
exchange traded fund.

01:10:40.280 --> 01:10:41.020
Eric.

01:10:41.020 --> 01:10:45.990
AUDIENCE: Just going back
from that point to lowering

01:10:45.990 --> 01:10:48.360
verification costs,
there's a point

01:10:48.360 --> 01:10:51.360
I think Catalini makes
that when you have

01:10:51.360 --> 01:10:54.600
the necessity of
matching an offline asset

01:10:54.600 --> 01:10:58.860
to the digital version
or representation,

01:10:58.860 --> 01:11:03.750
then you kind of don't
gain the same lowering

01:11:03.750 --> 01:11:07.170
costs as you would do when
you're dealing with a purely

01:11:07.170 --> 01:11:10.770
digital asset.

01:11:10.770 --> 01:11:14.160
So that could
actually set the stage

01:11:14.160 --> 01:11:17.490
for some sort of collaboration
with existing intermediaries

01:11:17.490 --> 01:11:21.630
that could kind of
work on making sure

01:11:21.630 --> 01:11:26.100
that that offline and digital
version matching can be--

01:11:26.720 --> 01:11:29.220
GARY GENSLER: So what I think
Eric's talking in the Catalini

01:11:29.220 --> 01:11:34.530
paper is that a
digital token tied

01:11:34.530 --> 01:11:38.830
to some other digital asset--

01:11:38.830 --> 01:11:43.400
there might be higher
benefits than tying it

01:11:43.400 --> 01:11:45.650
to something that's offline.

01:11:45.650 --> 01:11:47.810
I colloquially called
them illiquids.

01:11:47.810 --> 01:11:52.610
But not everything
offline is illiquid.

01:11:52.610 --> 01:11:57.230
And his point is basically
if it's digital-to-digital,

01:11:57.230 --> 01:12:01.850
it probably has more benefit
and there's less costs embedded.

01:12:01.850 --> 01:12:04.940
And it could be
with less friction.

01:12:04.940 --> 01:12:07.550
And that's one reason why it
might have more applicability

01:12:07.550 --> 01:12:10.700
in the world of finance than it
does to the world of diamonds

01:12:10.700 --> 01:12:12.835
or supply chain management.

01:12:12.835 --> 01:12:14.210
But one of the
reasons I think it

01:12:14.210 --> 01:12:17.060
might have a real benefit
in supply chain management

01:12:17.060 --> 01:12:18.830
is supply chain
management has not

01:12:18.830 --> 01:12:22.010
dealt with collective
action issues in the past.

01:12:22.010 --> 01:12:26.170
So rather than verification,
supply chain management

01:12:26.170 --> 01:12:28.000
and health care records
are somewhere down

01:12:28.000 --> 01:12:29.650
in the network bag.

01:12:29.650 --> 01:12:33.460
Maybe this is a way to start
to jump start or get some

01:12:33.460 --> 01:12:38.280
of the network effects in here.

01:12:38.280 --> 01:12:39.660
Oops, starting or operating.

01:12:39.660 --> 01:12:42.900
I knew there was something
else on this page.

01:12:42.900 --> 01:12:44.110
Did you have anything to add?

01:12:44.110 --> 01:12:46.080
No.

01:12:46.080 --> 01:12:51.420
So we're going to do the
same thing on Thursday.

01:12:51.420 --> 01:12:54.930
You don't have five
readings and five optionals.

01:12:54.930 --> 01:12:56.490
I know it was a long list.

01:12:56.490 --> 01:12:57.870
I think it's only--

01:12:57.870 --> 01:13:00.150
what is it-- four.

01:13:00.150 --> 01:13:02.070
An open letter.

01:13:02.070 --> 01:13:02.910
Let's see.

01:13:02.910 --> 01:13:06.510
I know you're a bunch of
business school students.

01:13:06.510 --> 01:13:10.080
The open letter to Jamie
Dimon is kind of brief.

01:13:10.080 --> 01:13:13.510
And the Economist article's
two pages and so forth.

01:13:13.510 --> 01:13:17.730
So McKinsey's is so-so.

01:13:17.730 --> 01:13:20.910
I'm not going to say all
of these McKinsey's and PWC

01:13:20.910 --> 01:13:22.950
and some of them that I put in--

01:13:22.950 --> 01:13:24.360
they're general surveys.

01:13:24.360 --> 01:13:27.210
But I like to include them
with the academic papers,

01:13:27.210 --> 01:13:29.730
because this is what
the business community--

01:13:29.730 --> 01:13:30.387
they skim.

01:13:30.387 --> 01:13:31.470
They look at these things.

01:13:31.470 --> 01:13:33.120
It's McKinsey-- some
of you are going

01:13:33.120 --> 01:13:39.000
to go work for consulting, Tom.

01:13:39.000 --> 01:13:40.500
And so you know,
it's good to know

01:13:40.500 --> 01:13:44.730
what that vocabulary
and that world's about.

01:13:44.730 --> 01:13:46.920
The Geneva Report--
you've read some of that.

01:13:46.920 --> 01:13:50.680
That's, of course, Simon's and
Neha's and Jonah and Michael's

01:13:50.680 --> 01:13:51.180
and mine.

01:13:51.180 --> 01:13:52.440
We came together.

01:13:52.440 --> 01:13:56.010
But we tried to sort lay out
some of these economic issues

01:13:56.010 --> 01:13:59.290
in there as well.

01:13:59.290 --> 01:14:01.900
Any other questions?

01:14:01.900 --> 01:14:02.400
Eilon?

01:14:02.400 --> 01:14:06.130
Any other questions for Rob who,
like, actually knows something?

01:14:06.130 --> 01:14:08.430
AUDIENCE: That would
be relevant, yes.

01:14:08.430 --> 01:14:10.680
Some of the questions-- some
of the comments on the--

01:14:10.680 --> 01:14:14.490
from the minimalist point of
view were actually about money.

01:14:17.060 --> 01:14:20.430
They consider
cryptocurrency a currency.

01:14:20.430 --> 01:14:23.970
But if they are
securities, so there's

01:14:23.970 --> 01:14:28.080
no need for medium of
exchange or no need

01:14:28.080 --> 01:14:29.665
for monetary policies.

01:14:29.665 --> 01:14:34.680
There's need maybe for
issuance of securities policy,

01:14:34.680 --> 01:14:36.730
but not monetary policies.

01:14:36.730 --> 01:14:40.050
So if it's not coins,
I just disagree

01:14:40.050 --> 01:14:41.940
with-- if it's not
currency, I disagree

01:14:41.940 --> 01:14:44.220
with some of the comments.

01:14:44.220 --> 01:14:46.710
GARY GENSLER: Let
me just step back.

01:14:46.710 --> 01:14:51.410
I hope that many of you
going on this journey

01:14:51.410 --> 01:14:53.645
and doing these
readings don't need

01:14:53.645 --> 01:14:56.270
to agree with many of the things
that are written, whether it's

01:14:56.270 --> 01:14:57.950
by the minimalist
or the maximalist,

01:14:57.950 --> 01:15:00.770
whether it's by the tech
folks or the McKinsey's that

01:15:00.770 --> 01:15:03.980
are doing big glossy
business reviews.

01:15:03.980 --> 01:15:06.320
I hope you come to your
own judgment and opinion,

01:15:06.320 --> 01:15:07.940
just like you have.

01:15:07.940 --> 01:15:09.710
I will react to
what you're saying.

01:15:09.710 --> 01:15:16.100
I think that whether it's
a currency or a security

01:15:16.100 --> 01:15:20.780
is relevant for the
regulatory situation.

01:15:20.780 --> 01:15:24.530
It might be relevant
to the business cases.

01:15:24.530 --> 01:15:26.960
But I'm not with you on that.

01:15:26.960 --> 01:15:28.790
I'm probably not with you.

01:15:28.790 --> 01:15:31.880
I don't really care if
you call it a currency

01:15:31.880 --> 01:15:33.850
or call it a crypto asset.

01:15:33.850 --> 01:15:35.480
What I'm kind of
interested in is,

01:15:35.480 --> 01:15:39.080
is blockchain technology and
the permission or permissionless

01:15:39.080 --> 01:15:43.700
way something that can either
disrupt the incumbents,

01:15:43.700 --> 01:15:45.980
do it cheaper, do
verification cheaper,

01:15:45.980 --> 01:15:50.270
do databases, ledgers cheaper,
or is it a neat, nifty way

01:15:50.270 --> 01:15:53.270
to jump-start a new network.

01:15:53.270 --> 01:15:56.810
And we're-- literally, if
we did not have Uber today,

01:15:56.810 --> 01:15:59.665
I could see, wow, that would
be an interesting use case.

01:15:59.665 --> 01:16:01.040
You could use
something like this

01:16:01.040 --> 01:16:03.470
to connect a community
of people that

01:16:03.470 --> 01:16:05.690
own cars, people that
want to drive cars,

01:16:05.690 --> 01:16:08.210
people that want to rent cars.

01:16:08.210 --> 01:16:10.700
ROB GENSLER: And as
someone that lived and lost

01:16:10.700 --> 01:16:14.960
a lot of money, made a lot of
money for others in disruptors,

01:16:14.960 --> 01:16:20.690
think to yourself, because
is Bitcoin and blockchain--

01:16:20.690 --> 01:16:23.630
I put them together for
this statement only.

01:16:23.630 --> 01:16:28.220
Is it going to be a disruptor
to traditional stores of value,

01:16:28.220 --> 01:16:31.510
the monetary systems,
dollars, euros, yen?

01:16:31.510 --> 01:16:34.220
You could be
disrupting that, or is

01:16:34.220 --> 01:16:38.270
it a disruptor for medical
records or Uber tech--

01:16:38.270 --> 01:16:42.680
is it an enabler to disrupt
some other industry?

01:16:42.680 --> 01:16:44.690
I'm betting on the second case.

01:16:44.690 --> 01:16:46.160
I actually think
this will someday

01:16:46.160 --> 01:16:49.160
be a disruptor to some
industry just like,

01:16:49.160 --> 01:16:50.430
guess what, the internet.

01:16:50.430 --> 01:16:51.680
We didn't know it at the time.

01:16:51.680 --> 01:16:55.040
And was a disruptor
to the taxi industry.

01:16:55.040 --> 01:16:57.530
Somehow it happened.

01:16:57.530 --> 01:16:59.690
Nobody saw that
coming in the '90s.

01:16:59.690 --> 01:17:01.730
But the taxi industry
got disrupted, et cetera,

01:17:01.730 --> 01:17:04.280
et cetera, Airbnb and
the hotel industry,

01:17:04.280 --> 01:17:06.050
et cetera, et cetera,
all this stuff.

01:17:06.050 --> 01:17:08.570
So is-- and it
might be a disruptor

01:17:08.570 --> 01:17:10.760
to the monetary system.

01:17:10.760 --> 01:17:12.860
That's one bet I
actually am negative--

01:17:12.860 --> 01:17:14.270
I'm bearish on that bet.

01:17:14.270 --> 01:17:16.760
But I'm very bullish that it
will be a disruptor on things

01:17:16.760 --> 01:17:19.148
that we aren't even
talking about yet,

01:17:19.148 --> 01:17:20.940
haven't considered, or
maybe you guys have.

01:17:20.940 --> 01:17:23.250
And I think that's the
more interesting discussion

01:17:23.250 --> 01:17:26.060
is what's going to disrupt
as an enabling platform.

01:17:28.640 --> 01:17:30.130
GARY GENSLER: So I thank you.

01:17:30.130 --> 01:17:31.797
We're going to close
with your question.

01:17:31.797 --> 01:17:34.490
But also, remember for
Thursday, for those of you

01:17:34.490 --> 01:17:36.500
that feel that you
wanted another way

01:17:36.500 --> 01:17:40.270
to participate in the
class-- it's not required.

01:17:40.270 --> 01:17:41.167
It's not required.

01:17:41.167 --> 01:17:42.000
You can participate.

01:17:42.000 --> 01:17:44.670
We'll have a little bit of this
discussion about whether it's

01:17:44.670 --> 01:17:47.550
minimalist, maximalist,
blockchain economics

01:17:47.550 --> 01:17:49.920
this Thursday, not
discussions of something

01:17:49.920 --> 01:17:52.310
that's not related to Thursday.