Monero Village - Keynote Speech Monero Introduction and Investor Perspective
Kim, Daniel
Learn the basics of Monero and its community. Monero provides benefits to society that all Defcon attendees benefit from. Daniel will express the importance of holders and advocates for cryptocurrencies. He will describe a set of concepts and frameworks to examine market data.
 Dr. Daniel Kim, ABAM PhD, Physics Harvard MBA Yale, is the founder and president of Sweetwater Digital Asset Consulting LLC, which you can see over there, which offers bespoke research and advisory services to institutional trust and family office investors seeking conceptual and practical guidance in considering cryptocurrency exposure for their portfolios. A 2013 winner of the CFA Institute's prestigious Graham and Dodd Top Award for Original Research, he previously served as director of research at a one, around one billion equity asset manager. With a multidisciplinary track record of innovation in the basic science, performing arts, medical and financial sectors, his breadth of knowledge has been well suited to understanding both the technical and socioeconomic aspects of Monero, Bitcoin and other decentralized ledger technologies. Thanks Diego, you're the best. Oh wait, I shouldn't have read that last part. I'm just kidding. Anyway, I'd like to, everyone to give a hand to Dr. Daniel Kim, and yeah. Tell us what you got, man. Blue Monero Village. So it's great to be here, and thanks again to Diego and the team here at Monero Village for putting on this really great opportunity. I was here last year, and spent a lot of time talking with people who came up and wanted to learn more about Monero, and what I found was that even though this is DEF CON, everyone has a super high IQ, and we people in the crypto space tend to think that everyone else has already been thinking about crypto too, but all of us started as kind of technical people who discovered cryptocurrency and kind of fell into the rabbit hole of learning about it. So that's one thing I want to try to do today, is kind of summarize the whole of cryptocurrency, why it's not a scam, why there's genuine innovation in it, for a technically smart but not necessarily crypto-immersed person. Second is that I've had the privilege and pleasure of attending maybe seven or eight Monero only meetups at this point, and there has not really been much representation from investors. So I would like to kind of pause it that there's a certain type of community-minded investor that this project could maybe make a spot at the table for, not saying that it doesn't, but historically this project has been rather more focused on the needs of users, to the detriment, not detriment, but just saying that investors are kind of given maybe a second spot. So that's my second goal in this talk is to talk about, to propose a certain type of investor that is helpful to the project. All right, and as a disclosure, I have clients who have long positions in Monero, and also Bitcoin and its associated forks. And if I'm not your personal advisor, then none of this is going to be financial advice. It's not legal advice, even though I'll mention some legal and regulatory things. That's just as a personal comments as a US citizen exercising his first amendment rights. So the big picture, why is crypto here to stay? So we now are blessed to live in an age where the marginal cost of copying data around the world is zero. So everyone has a smartphone, which is very good at copying packets. So what is rare now that this ability is now commodified and available to everybody? Two things are gonna be rare, digital scarcity, which would be a digital form of money, and secondly, digital privacy. Because these things are packet copying devices, there's a proliferation of data being spread around to everybody, what's gonna be rare is having data all to yourself, i.e. privacy. So these two things are the kind of big picture, societal reasons why cryptocurrency, I think, is not going anywhere. So the theme of Monero Pellage this year is the foundations of money. And so I come up with four foundations of money that I think that are important to satisfy. One is scarcity, two is fungibility. Fungibility just means a property of money in which each unit of money is indistinguishable from the other. So in other words, the money has no history behind it. And if money has no history behind it, then the users then gain by having privacy as a result of using this memoryless money. Third is users. You have to have a group of users who agree that this thing that they're calling money is money. And fourth is culture. So one thing that cryptocurrencies do is separate the concepts of money and state. It's about as big an idea as the separation of church and state was earlier in human history. If you think that money and state might be better off separate, then this is cryptocurrency. And so what this means is that you have ad hoc networks of people coming together and kind of declaring, having a common ethos, a common culture, which leads to the token being exchanged as a unit of value among people of that community. So there's culture. So in the past governments would supply this culture for fiat currencies, for cryptocurrencies. You have user groups that basically become the culture. So the plan for the talk is I'm gonna go down the list, these four big themes and talk about fiat. I'll talk about Bitcoin. I'll talk about Monero. So first, scarcity. So we need digital scarcity in a money. So first I'll talk about fiat. That is government issued currencies, then Bitcoin and Monero. Here's the state of scarcity in fiat currency. So the current situation is that we have national central banks who are completely in charge of maintaining the money supply. Each of these exponential looking graphs that you see here is the supply of M1 money, which is defined as currency, coins and things that act like it, which would include bank accounts, checking and savings. So if you sum up the total of this on a per country basis, you get these charts. So for something that's supposed to be scarce, it can be argued that these charts don't really look so scarce. And the future is probably not gonna be quite so scarce either. So one strategy that countries have when faced with high debt is to inflate their currency, because if you owe somebody $100, it's the easy way out to make the dollar less valuable. Then in the future, when you have to pay back the $100, you have to expend less actual effort to repay your debt. So in the long term, this is a problem that all investors face. So anyone who has worked hard to earn their own assets has no immediate need for it, but wants to use it in the future is basically facing this inflation as a headwind. Now there are other drawbacks to the centralized security model. There's access to the database, the database being who owns what, like what basically the bank databases. Access to that database is protected. There's a firewall moat around it, right? Quite strongly fortified. And there's one authoritative version of the ledger that is held inside the bank walls. They're downsized to this. So number one, as mentioned before, the central banks do not have a completely error-free track record of managing the money supply to avoid things like hyperinflation. There can be insider abuse, so there was a case probably many of you have heard about of one of the national banks basically took their customers' information to create fake new checking and savings accounts in their names and then they proceeded to charge those guys' fees. And then these guys got away with kind of a slap on the wrist for this egregious abuse of their trust that the customers had given them. And of course, traditional finance has been quite slow to improve and adopt technological advancement. That's kind of natural and to be expected when you have a gatekeeper. If you have a central gatekeeper, what incentive does the gatekeeper have to improve their services to become 24, basically to become Amazonized? This is the reason why the banks continue to have Monday through Friday, nine to five, which is kind of, as new generations come up, that's gonna be an increasingly laughable concept. That services were only available when some people decide to show up at the branch office. In contrast to this, the decentralized security model that was introduced in the Bitcoin White Paper and is also adopted in Monero has a decentralized model in which anyone can join the peer-to-peer network that maintains the ledger that keeps track of who owns what. Each of these nodes maintains its own version of the ledger. Now there are downsides to this idea. It's new and so people have to wrap their heads around it. And secondly, it's inefficient because if you have decentralized network of computers that did not have to get approval from anyone to join this network, how are these computers gonna agree with each other on what the state of the accounting ledger is? So that was the innovation, the core innovation of the Satoshi Nakamoto White Paper which came out in late 2008. The Bitcoin Genesis block, that is the very first block containing transactions in Bitcoin happened just over 10 years ago, 10 and a half years ago. And throughout all of 2009, Bitcoin was operational that had zero dollar value. And for those new to crypto, I would encourage you to kind of pretend that we're back in 2009 because now that crypto assets have a price, it tends to mess people's thinking up, right? Because basically it triggers the fear and greed kind of mechanisms that money does. As technical people, it's better to kind of reset your brain, think about the Bitcoin project as it was in 2009 which is simply a project that a few geeks started with trying to create a system of digital scarcity that behaves like money but actually had no real world value. It's a bunch of geeks kicking stuff around. And they did this for over a year until they were satisfied that it behaved like money. And at that point, the very first transaction of Bitcoin for a real world service, the Bitcoin Pizza, which I'm sure many of you are familiar with, in which one brave soul spent $10,000 to get two pizzas delivered to him. Current market value, roughly $110 million for those two pizzas. So, but let's rewind again. We're going back to a time where Bitcoin had zero value and I'm going to attempt to explain this white paper in three slides. The Bitcoin white paper describes a way to synthesize digital scarcity without the need for a central authority to maintain that scarcity. So TLDR1, so the SECP256K1 elliptic curve is Y squared is congruent to XQ plus seven mod this very large 77 digit prime number. So elliptic curves, you'll often see like a kind of curvy shape, right? Which is true if you allow X and Y to be floating point numbers. But that's actually a confusing and unhelpful image because in this context, we're talking X and Y are both integers. And we're talking modulo arithmetic. This is clock arithmetic. So modulo arithmetic, mod 12 would be a clock, right? So one o'clock, 13 o'clock, 25 o'clock, those are all the same because they look like one o'clock on a clock. This is doing the same concept, but now instead of having 12 numbers on your clock, you have a 77 digit large prime number. That's how big your clock is, right? And so finding X and Y points that satisfy this equation is non-trivial. Part of the elliptic curve definition is that there's a solution, X, Y, that is given to you. And as it turns out, if you know a solution to the elliptic curve, you can generate another solution to the elliptic curve by kind of multiplying this point. So basically given any integer n, you can compute another solution to the elliptic curve P sub n. And this is a one-way function, which is crucial to a lot of crypto. If you know n, you can get the point. But if someone tells you the point, you don't know n. There's only one way to do that, and that is to brute force hack your way and try to guess the n that gives the piece of n. Now in technical language, this is called the discrete log assumption that it's basically computationally infeasible to go the other way. So how is this used in Bitcoin? So the public key, the point is a Bitcoin address. I'm simplifying slightly because there's a hash involved and so on. But that public key, which everybody knows is now your Bitcoin address. The private key is that number n, which was used to generate that point. And now that secret knowledge now is the authorized signal, authorized signature that allows the spending of whatever Bitcoin is in that elliptic curve point. So the key takeaway is that getting a new Bitcoin account. All that means is that you're picking a number. So pro tip, if you're asked to pick a number for your Bitcoin account, and your choices are between zero and a 77 digit number, don't pick 12. In other words, the random number generator that is used to pick your account, it's basically like picking a grain of sand off the beach and then declaring that it's yours. So in this sense, there's security by obscurity in that there's nothing stopping anybody else from randomly guessing your particular grain of sand and making off with your money, but then 10 to the 77 is a very large number. All right, so secure message signing is made possible by the elliptic curve cryptography that's defined by the elliptic curve from the last slide. So in secure message signing, just very simply, if you're a sender and you wanna send a message that is crucial for the outside world to know came from you, you'll take your message, you'll kind of wrap it, you'll basically encrypt it with your private key, and the combination of the message and the private key gives you a signature. It's a little data block. So now you send your message out to the world and you send your signature out to the world. So the signature has evidence of your private key in it, but not your actual private key. If you gave your actual private key away, that would be bad. Right, so the signature is a per message thing that you calculate given that you know your private key. Now the recipient gets your message, they also get your signature. They also know your public key, because the public key is supposed to be associated with your personal identity. When you combine those, you can get a binary verification result. You get a thumbs up or a thumbs down. So sending Bitcoin means you send a secure message to the Bitcoin network, right? So here we have a little legacy check from a US checking account. And instead of the bank account, the ABA number and the checking account number, you have the sender's Bitcoin address. The pay to the order of is the recipient's Bitcoin address, and you have an amount, and then you have a signature that you generate. So automatically this is cryptographically much stronger than the legacy check system in which you can just scribble whatever you want for your signature, and it's probably gonna go through, right? So then the concept of ownership of an asset is revolutionized by this idea. So knowledge of the private key, which is speech, which is protected by the First Amendment is money. This is an opposite situation as the Citizens United case that recently came up by the Supreme Court, which ruled that money is a form of speech, and therefore we should not regulate too much money that is donated to political campaigns, because that's speech. And if you curtail that, you're taking away their First Amendment rights. This is the opposite. Now knowledge, which is speech, is tantamount to money. So just to summarize a few other things to get you on board with the Bitcoin White Paper. So what's a miner? A miner is a peer-to-peer Bitcoin accountant. It's a computer that does, it helps to keep track of who sent what to who. A block is a list of the valid signs and spend messages that are received by the network. A hash is a one-way function. I'm glad I don't have to explain this too much to a DEF CON crowd. It's a one-way function in which you give it any sort of input, and it spits out a random looking sequence of bits of a fixed length. And it's useful because if the input changes by one bit, you're gonna get a completely different looking hash out of that. Difficulty is the maximum acceptable value for a block hash. So this is one of the kind of tough things to get your head around if you're new to crypto. In order to submit a valid block to the network, the hash of that block has to be a certain number, it has to be below a certain number. Now usually when you work with hash functions, you don't care about what the actual number is, you just care that it matches, right? So when you download a file and you wanna check that it's of the integrity of the file, you do a like a MD5 sum of your file locally, and then you check that that string matches what you think it should be from the download, right? Like when you check in a code to git and it gets tagged by your hash, that's how you identify that your code got put in and that's how you know that your code wasn't tampered with is that that hash stays the same. In this situation, we're arbitrarily saying the hash of a block must be less than a certain number, right? What does that mean? It means that miners have to work, they have to basically try to brute force guests to come up with a block that satisfies that difficulty requirement. So now you have transactions that are waiting to go into a block, you have a worldwide network of computers each of which is trying to figure out an accounting page, a block to add to the Bitcoin to blockchain, and in doing that, they need to come up with a block that has a certain hash number. In order to do that, they need to modify part of the block. So there's a little data space inside the block that can be modified by the miner, and so the miner brute force guesses a bunch of numbers to try and get the hash of this block to be below a certain number. So the first miner to do that gets a block reward. They get some of the Bitcoin. So this is a key game theoretical innovation in the Nakamoto White Paper, which is that all Bitcoin in existence came into being as a payout to a miner in the past. So it's not necessary to spend any money to get any Bitcoin. All you have to do is get a computer on the network, help out with the accounting, run the software, help process, and if your computer is successful in coming up with a hash block that satisfies the difficulty, then you will get some Bitcoin. This is important to get kind of past the idea that, oh, Bitcoin must be some company out there. Oh, Bitcoin, it's some entity, and then they tried to scam people out of money. Nobody took money for Bitcoin. So Bitcoin all came into existence as a mining reward. Now, basically, as the system was tested throughout 2009 and 2010, and it became clear that this unit of credit that was being accounted for had many properties of money and was very difficult to hack, at that point, it became the case that people who were interested in getting Bitcoin had two choices. You could put your own computer on the network and be a miner, or you could simply pay US dollars to a miner who had already done that. And so that's how the marketplace for Bitcoin, that non-mining Bitcoin was born. So since this network is globally based and there's no coordinator, there's no boss computer telling each of these node computers what the correct state of the blockchain is, what happens if you have a situation where two miners on different parts of the world come up with a block at the same time that satisfies difficulty, and now they spread that block around to their neighbors. So for example, if you have the Great Firewall situation, you could have the blockchain in China is different than the blockchain in the rest of the world because it takes time, because of the latency introduced by the Great Firewall. What happens then is that now the network is in a meta stable state. The people in China will continue mining the next block using their version. The people outside of China will continue to mining the next block with their version, and whoever comes up with the next block, so it's a stochastic process. It's like on average every 10 minutes, a new block happens, but it's push on distributed, which means it's on average 10 minutes, but it could be three seconds, it could be 50 minutes. So basically the next Chinese block versus the next non-Chinese block is highly likely to come at a different time. And so the rule of the network is that the longest chain is deemed to be the authoritative chain. So let's just say for the sake of argument that the Western block was the first to happen. Then that block will propagate across the Great Wall, it'll be slow, but it'll propagate, and the Chinese miners will say, oh, we just got this new blockchain from the West, which is longer than ours, so they will proceed to dump their version and adopt the version from the West. So this is how the network kind of self-heals itself from discrepancies in the state of the network. All right, so that was the white paper in hopefully not too much time. Nakamoto Consensus is a way to synthesize digital scarcity without the need for a central authority to maintain that scarcity. This is a huge idea. I mean, so the Nobel Prize requires that you have a person, an identifiable person to give the prize to, but this is basically that level of innovation. So what do I mean by digital scarcity? There are a few different meanings. So at the account level, digital scarcity means if you have a Bitcoin account, you keep your private key secret. So there are lots of stories in crypto land about people who do one of two screw-ups. They lose their key, right? So they set their computer to mine, and then, oops, they forgot their key. Or they do something so sophisticated and complicated in an effort to defend their key against getting hacked that they forget the process that they did to encrypt their own key, right? So there's screwing up that way. The screwing up the other way is you let that knowledge of your key out to people who you don't want it to have it. So when people talk about getting hacked in Bitcoin, it's one of those two things. It's not that the actual protocol itself got hacked. That has yet to happen. It's user error. And then, of course, the press reports it as a fault of the network. At the aggregate level, there's monetary supply. So as I mentioned before, all the Bitcoin in existence is previously given as a reward to miners who help maintain the network. And so the rules of that protocol will govern how many coins are going to be given out to miners now and in the future. So there's a predefined minor reward schedule. All right, so how does Monero differ from this? And now I'm focusing only on the scarcity aspects of the cryptocurrency. So first, the code base. Monero is not a Bitcoin fork. There are thousands of cryptocurrency projects out there. Almost all of them do a copy paste of the Bitcoin GitHub and change a few things and there you go, new crypto. So Monero had basically the guts to start over from scratch. So there's technical hedging there. The elliptic curve is different. So this is yet another very fundamental design choice that's different from Bitcoin. So the elliptic curve views in Monero is ED25519. There are dual private keys in Monero. So there's a spend key and there's a view key. So knowledge of the spend key is needed to spend your Monero. But there's a second view key, private view key, which is derived from the spend key. So it's basically kind of like a subset of the spend key. It's a view key and if you elect to share your view key with others, then those others can basically look at the blockchain and see the money that you received. So it's opt-in transparency for those who want transparency. The address space in Monero is bigger. So if you're worried about collisions, this whole problem of somebody else picking up your grain of sand, there's an extra 16 zeros in the address space for Monero at the cost of having longer addresses. So there's 10 to the 76 addresses available in Monero. The emission schedule is different. So in Bitcoin, every four years, the reward that's given to miners is cut in half. So this is known as the happening and it causes disruption in Bitcoin. Like if you imagine you're a Bitcoin miner, there is a date on your calendar circled in red at which point your income is gonna get split in two. There's lots of drama around that and it gets used to hype things too. So the supply is gonna be cut in half soon. So the price is only gonna go up and people are trying to use this as like a selling point. It's just unnecessary drama from the viewpoint of Monero. So Monero has a continuously decreasing reward schedule. Finally, Bitcoin has a social contract that only 21 million Bitcoin will ever be created. So this is easy to remember and understand for people who are used to the fiat inflationary system and so they latch onto it. But the problem is what happens when the last Bitcoins are given away to miners? Who is going to pay the miners for donating their hardware and electricity bills to support the network? So this is a non-trivial problem. It's contentious in the Bitcoin community. Monero's, as it does with so many other things, I think kind of steps back, looks at what Bitcoin does, thinks about what's happening over there and then comes up with something to address some of the conflict and drama that is in the currently dominant cryptocurrency. So in Monero, there's a tail emission. That is, the block reward will never go under 0.6 Monero per block. So what does this mean? It means that miners are guaranteed to be incentivized to support the network in perpetuity. It's gonna be infinite. There's gonna be money for miners forever. We don't worry about that here in Bitcoin, in Monero. Now, because there's a 0.6 Monero per block emission, that means that there's no fixed, we can't say that there's only gonna be 21 million Monero. There's gonna be more. But that inflation of the money supply is linear. That's crucial. It's linear. It's linear inflation of the money supply. So if you look at the annual inflation rate of something that's growing linearly, it's asymptotically zero. Right? So the quantity of interest in macroeconomics is the annual inflation rate. All the macroeconomic theory frameworks use that as an input. So it's the inflation rate that is macroeconomically relevant. And that is, that is a smoothly decreasing function toward zero in Monero. So you have this great situation in which macroeconomically you have zero, zero relevant inflation, yet you're paying the miners in perpetuity. Here's what that looks like. So this is a 30 year plot. As a long-term investor, I like plots with very long time scales on the horizontal axis. So the dotted blue line here, you're seeing is where we are in the present. There's been 10 years of cryptocurrency so far. And this is showing you how many Bitcoin exist as a function of time and how many Monero exist as a function of time. So Monero is a younger offshoot of cryptocurrency. It's five years old. And so you can see it started from zero. And the tail emission, you can see in the form of Monero's curve going slightly positively linear for all time. Whereas the Bitcoin curve reaches a limit of 21 million and then never grows. But then that introduces the problem that I mentioned before of how are you gonna pay the miners once that reward goes to zero. This is the monetary supply curve. Now if we take this and ask the question, what's the inflation rate? In other words, you look at the number of Monero now versus the number of Monero a year ago. And you get this. So this is basically the first derivative of the previous plot. This is annual supply inflation. And here you can see the black line is Bitcoin. And you can see every four years there's this drastic cutting in half of the block reward. In orange, you see the Monero inflation curve. And to contrast that, I've also added the inflation rate for gold. People usually don't think of gold as inflating, but it's actually being mined out of the ground. And so the world supply of above ground gold is in fact inflating. And kind of interestingly, if you analyze that gold curve and you ask the question, is that gold growth more consistent with linear growth or exponential growth? It's actually more consistent with exponential growth. And as you know, all exponential curves have in common that they have this kind of runaway hockey stick appearance. It doesn't matter how low the exponential growth rate is. It's eventually gonna look like the hockey stick if it's exponential, whereas with linear supply curve, again, the inflation rate is going to asymptotically approach zero. In blue, you see the inflation rate for USM1 currency. So this is the subset of US dollars that is in the form of cash, paper bills, and coins. So one thing that the central governance of money is supposed to do is supposed to kind of adjust the money supply so that it closely matches the actual economic output of society. If you look at the inflation curve for the US dollar, I mean, compared to crypto, it kind of looks like a hot mess. I mean, like, do we really know what we're doing? I mean, I hope we do since the Fed exists, but you look at a curve like this and, you know, well, it looks rather volatile compared to cryptocurrency. All right, there are a couple forms of unwanted scarcity in cryptocurrency that, again, I think Monero is proactively taking steps to address. One is unwanted scarcity and mining hardware. So the miner reward should be linear with miner expense. So in the original Bitcoin white paper, Satoshi put in the phrase one CPU, one vote. The idea is that all the computers in this decentralized network should have sort of an equal probability of hitting the next block, of finding a nonce that satisfies the difficulty that will get them the reward. Because that's what you need to have a decentralized system is you want a bunch of little guys working together to come to consensus. But unfortunately, economies of scale in Silicon hardware development have destroyed this linearity. So if you have a CPU and you join it to the Bitcoin network, now there's basically no chance that you will, like it's vanishingly small, the chance that you will be able to get a Bitcoin block with your little CPU. That is because the algorithms that are used in Bitcoin are simple enough that you can design custom pieces of hardware. In other words, ASICs, custom pieces of hardware have been designed, like from the Silicon up to do nothing but mine for Bitcoin. And when you put those on the network, they obliterate any effort by CPUs to mine. So what's the situation in Bitcoin mining today? It's a Chinese oligopoly because there's been the firms that are producing the ASICs are all based in China. They have their buddies and they have mining farms that buy these ASICs. And if you're not in that network, it's hard to be a big player. Now, this is not a negative because it's China, this is a negative because it's localized. It would be a problem if it were any country that had a localized kind of monopoly on the production of new blocks. So Minero's proof-of-work algorithm is evolving to keep CPU and GPU miners, in other words, the little guys of crypto relevant and in the running to get their own piece of the pie in terms of mining rewards. So the Kryptonite POW algorithm gave way to Kryptonite R once it was learned about a year and a half ago that there was a successful ASIC manufactured from Minero. And now there's a new algorithm of proof-of-work called RandomX, which is technically fascinating. For one thing, it uses floating point arithmetic to basically vet that miners are doing work. And so by doing this, it seeks to neutralize the advantage that ASICs have. Or in other words, an ASIC that is optimized to mine Minero is gonna be the same as a CPU that you can buy from A&D. That's the goal. And this RandomX change has gone through a formal audit. It's been audited four times. We've got green lights, and so it's gonna be implemented in one of the next upcoming updates of Minero. There's another form of unwanted scarcity I wanna talk about, and that is the ability of the little guy to get access to layer one. That is, can the little guy actually get their transaction onto the blockchain? So what happens in Bitcoin is that whenever there's a hype phase in Bitcoin and the price spikes, you see a spike in transactions going to the Bitcoin blockchain. Like basically the interest in price drives interest in adoption. You have noobs buying Bitcoin, and now they wanna use it. They wanna find out what this magical internet money's about. So then they go to write their check. They sign their transaction, say I wanna send a little bit of Bitcoin to my buddy here, and see. The problem is that at times of peak demand, Bitcoin's network clogs up, and so you have thousands of transactions waiting to process in the Bitcoin men pool. Now in the early versions of the code, Satoshi put in a one megabyte limit on the size of each new block. So every 10 minutes, the size of the block in kilobytes is specified, and it's one megabyte. Bitcoin has had a civil war over this. So if you're not kind of tuned into the crypto world, there is a big, it's like an E-Max versus VI battle royale. People are going at each other's throats, debating whether the one megabyte block size should be modified, there's lots of politics. It was exacerbated by the fact that most of the miners are Chinese, and so now you have a culture gap with most of the devs not being Chinese, and then that kind of adds to the drama. Monero avoids this by having an adaptive block size. So in Monero, there is no hard-coded limit on how many transactions can be in a block. There's a block reward penalty that kicks in to the miners if the block that a miner finds is too large. So, but what happens if there's actually organic growth and people are actually wanting to use the network? Well, how are the miners gonna get paid? If they don't get the block reward? The system also has a compensating feature that if there's high demand for transactions on Monero, then the users, the people actually making the spend instructions are asked to pay a bit more in fees. And so those fees go to the miner, right? So, and there's also in Monero ongoing research to reduce the transaction size and to relieve the burden of fees from the users. So this is how Monero has addressed one of the key stumbling blocks and drama points within Bitcoin. All right, the second foundation of Monero is fungibility. This is kind of Monero's key feature. So, and much has been said about it, so I'll just try to go over it quickly. But I want to mention that emphasize that Bitcoin is radically transparent. Bitcoin is completely see-through. So, I'm gonna go ahead and go ahead and go ahead and go ahead and go ahead and go ahead and go ahead and go ahead and go ahead and go ahead and go ahead and see through. So, I think Satoshi was putting together a bunch of different concepts from cryptography, game theory, distributed networks to put together Bitcoin. He needed a network of geeks to download the software, start their own little network, kick the tires, verify that the thing works like it says. If you want that to happen, you need to have a transparent blockchain. You need to have proof that, hey, hey yo, I just sent you a Bitcoin. I see that I spent it. see that you got it. Don't be denying that you got it. You know, I'm trying to hack this system, trying to spend this Bitcoin two times. Gee, I can't do it. Everyone can see I can't do it. Oh, this hacker over here claims that they hacked the protocol, but you go look at the, you know, blockchain, you can see that they didn't. They're full of it. So basically the early versions needed that transparency. Now fast forward ten years. We're in an age of surveillance capitalism. Basically everything you do is tracked. Like all the financial details in the fiat system, it gets, it gets creepy, right? So it's, the right tends to be concerned about the government knowing too much data. The left tends to be concerned about companies knowing too much data. I mean, the situation we have now is a nice combination of both. And so Bitcoin is adding fuel to that fire. It's completely transparent. So in the Bitcoin blockchain, what is visible to everyone and what is etched in the blockchain forever? Every transaction. So who sent, who received, how much? If you know somebody's Bitcoin address, it's trivial to go to a blockchain explorer and find out how much money they have. This is a showstopper for like my client base, which is kind of high net worth and institutional investors. Nobody wants people just being able to snoop on your account. See how much money you have. It's a showstopper. The other thing is that because Bitcoin is transparent, you can trace the record of ownership of every single Bitcoin in existence. You can trace it back to the miner who first got the Bitcoin and who they passed it off to blah, blah, blah until you get it, right? So it's as if you have a dollar bill on which the back of the dollar bill has a neat table, which says at this time this dollar bill was owned by Steve. Then it went to Joe on this date and that stuff is etched into the back of that dollar bill and it's backed up by the proof of work security. You can't fake that. You can't deny that it's not true. So the consequence of this is that it's not just value that transfers when you send Bitcoin to somebody. It's also their reputation. The sender's reputation transfers to the receiver. Now, this is just a screwed up situation with money, right? So you don't want to have to conduct a background investigation on the guy who's trying to send you money for coffee because you're worried that they might be kind of associated with something unsavory, right? It basically introduces a burden of due diligence and know your customer on every little guy who owns Bitcoin. Now, there are companies out there whose job it is to try to start with the Bitcoin blockchain, which is again, it's fully transparent. Everyone can see who sent what to who and then associate each of those Bitcoin addresses to actual humans, right? Names and faces, associating that. And that information is out there. For example, if you buy Bitcoin at Coinbase, you have to go through their KYC process. You have to say who you are. You have to upload photos of yourself holding your passport up, you know, and all sorts of like hoops to prove who you are. That puts a face and name to the Bitcoin address that they give you. And so it's just off to the races with trying to add little pieces of data that will put names and faces on the Bitcoin blockchain and, you know, basically docks everybody. So in the Bitcoin protocol, it encourages guilt by association. It encourages people to say, oh, you got Bitcoin from that bad guy. You must be bad because the people doing blockchain analysis have no other information. Like you might sell your car to somebody who did something bad. You don't know that. You gave you're selling your car. Some guy had Bitcoin. You took it and now you're, you're all of a sudden you're finding your bank accounts being frozen. Like this kind of thing is happening in Bitcoin. The protocol also encourages voyeurism. So like every other day on Reddit there's a new post saying, oh, you know, this whale of Bitcoin just sent their Bitcoins to the Binance address. Are they going to sell? It's frankly creepy. It should be nobody's business that, you know, some person sent their money to an exchange. Finally, there is an important paper that came out by Akerlof in 1970 that talks about the market for used cars. This is not an obscure paper. Akerlof actually won the Nobel Prize in Economics in 2001, largely based on this paper. So here's what this paper says. Think about the market for used cars. You're a used car seller. There are two types of used car sellers. They're used car sellers who did a good job maintaining their car. They took care of it. They did the maintenance. They changed the oil. They have a good one and they're trying to sell it. On the other hand, you have used car sellers who did none of that. They treated their car like junk. They abused it. You know, they didn't get things fixed. You have people like that also trying to sell their used car. Cosmetically they're identical. Enter you, now, you're a buyer. You don't know if you're getting a good used car or a bad used car. You would be willing to pay a higher price for the good one. But for a bad one, you're willing to pay a lower price. But you're ignorant as to the actual identity of the goodness or badness of any given used car. So what do you do? You hedge. You say, oh, I think there's a 50% probability that I'm going to get a bad one. Therefore, I'm going to offer exactly half of the, you know, I'm going to split the difference. I would pay this for a good car and less for a bad car. I'm going to pay, I'm going to offer half. I'm going to offer in between because I don't know if it's a good one or a bad one. When the purchaser of the used car offers half, how do the sellers respond? The sellers of the good car know that they took care of it. So they're going to be insulted by this offer of less money for what they've done. They want to be rewarded for taking care of their car. But the buyers are not offering that because they're suspicious. So the new car buyers are going to exit the market. They're going to keep their cars. The result is the market becomes overrun by the bad cars. Right? So it's a natural kind of feedback loop that happens when you have a state of ignorance on the part of buyers as to what they're buying and there's differential quality levels in what they're buying. It tends to drive out the sellers of the good stuff. Think of this in Bitcoin now. You're a Bitcoin user. You want to sell your Bitcoin to somebody. You could be one of two types. You could be a squeaky clean guy. You know, played by the rules. You have nothing to hide. You want to sell your Bitcoin or you could be one of the 1% of Bitcoin users. This was a Bitcoin, a Bloomberg study that just came out. 1% of Bitcoin is used in transactions that are questionable. Like it's far less than what the media would have you believe. 1%. So let's say you're 1% of these bad guys. You have a Bitcoin. You got it by hacking something or whatever. And you're trying to sell that. Now you both have what appear to be identical Bitcoins. Right? The same thing is going to happen. We also, we already see evidence of basically virgin Bitcoins being sold for higher prices than used Bitcoins. So there's a premium being paid to Chinese miners who sell them. They're never used before Bitcoin that they received from mining. And the price for the used Bitcoins is becoming lower. That's because the buyer doesn't know what the history of the Bitcoin is. So this exact same process is happening in Bitcoin. It's a fatal flaw. In Monero, the blockchain tracks who sent how much to whom just like in Bitcoin. However, what you can learn from looking at the blockchain, it depends on who you are. If you're just a random person who has no Monero and you look at the Monero blockchain, what you can see is that there were blocks that happened. You can see that each of those blocks had a certain reward that went to a miner. You can see the amount of that reward. And then you'll see a bunch of transactions. You'll see like checks right that were sent from people within from one person in Monero network to the other. But they're all encrypted to you a stranger. They look like encrypted garbage. The sender is encrypted. The receiver is encrypted. The amount sent is encrypted. Now let's say you own a view key from Monero. It could be your own view key. It could be your buddy's view key. If you have a view key, then now you can scan the blockchain with your view key. And then what will happen is that those transactions that have to do with that view key will become decrypted. Everything else will remain encrypted. It's just a very common sense way to run things. Like you should have access to things that pertain to you. You shouldn't have access to the things that don't pertain to you. It's pretty 101. But apparently in blockchain because of the first paper coming out being not having that situation, it's sort of like a niche idea at this point, which makes really little sense. So in Monero, there's technologies that are used together to synthesize fungibility. There's ring signatures which get used for sender privacy. So when you send Monero, your identity is joined with the identities of 10 other people in Monero. And all you know is that one of these 11 people sent the Monero. You can cryptographically prove that one of the 11 sent it, but you can't prove that you actually sent it. So every transaction looks like a group of 11 sending some money to somebody. That's ring signatures. Stealth addresses protect the recipient privacy. So if I send Monero to you, your address does not show up on the blockchain. It's an encrypted version of your address which differs for every transaction. Confidential amounts will hide the amount privacy and there's more math behind that. All three of these ingredients combine to synthesize Monero's fungibility which is on by default. There are some other projects that do not provide privacy by default. You opt into the privacy. This subjects you to the lemon problem. The people who are opting in to get privacy on their transparent coins are going to tend to be the bad ones. So if you're a squeaky clean guy, and that's who I care about, they're my client base, if you're a squeaky clean guy, why would you even engage in this? You're just going to put your reputation at risk. It just guarantees that only the shady people are going to use it. So in Monero, the coins are indistinguishable. They're amnesiac. So user privacy stems from this fungibility. Now unfortunately, I think because Monero is not the market leader right now, it gets subject to some slander. One of those slanders is that only bad guys are going to want Monero. And this I think is an unfortunate situation. Monero benefits people who have nothing to hide. It eliminates the risk that people will receive coins that are tainted due to no fault of the receiver. So this car example before, I sell my car to somebody and unbeknownst to me, they did something that was not so cool. And now I'm getting blamed because I'm associated with that person because the money has a complete transparent history behind it. That's the best, that is the biggest selling point for people who are squeaky clean. It's counterintuitive because you would think that the privacy coin is most useful for people who have something to hide. It's most useful for people who have nothing to hide because they have reputations to protect. For businesses, Monero protects them because it eliminates the risk of competitors snooping around for trade secrets. So if you're a business, you have suppliers, you're a customer to other businesses you get your stuff from, and you have your own customers. That pricing information is not something that companies just give out. It's part of their secret sauce. The identity of their suppliers, how they buy it, how much they buy it. These are trade secrets and people have no problem with that. Like businesses are entitled to have trade secrets. There's nothing nefarious about that. For employees, let's say you work for a company that is crypto savvy and they're doing their payroll in crypto. Well, imagine that they're doing their payroll in a transparent crypto like Bitcoin. Every Friday you see your pay check in Bitcoin. It shows your employer's address. It shows your address. It shows how much you got. Now you know your employer's Bitcoin address. You go to your board one Friday. You go to your thing, your blockchain explorer just at your desk. You browse to an explorer. You type in your boss's Bitcoin address. Now you see how much money they have. Oh, gee. Now there are 50 other payroll transactions. You don't know their payroll, but they happen to happen on the Friday afternoon that you got paid. So what else would it be? Now you have 50 other transactions that go into your buddies. Now you have this nice little voyeuristic puzzle going on. You're going to try and figure out what your neighbors make. Oh, gee. Fred just left the company last week. There's a Bitcoin address that didn't get money this week. I guess I know who Fred is. There's all this snooping that you can do with sensitive information. For high net worth and institutional investors, it eliminates the risk that blockchain research will be used to target them. So there are a number of reasons that Monero benefits people with nothing to hide. All right. The third foundation, users. So they're user types. I'm just going to arbitrarily divide them into short term and long term. Short term users are people who have an immediate need to spend Monero, so they get some Monero and then they spend it. In contrast to that, you have people who don't have an immediate idea for what they want to spend their Monero on, and we'll call them investors. Traditionally, this project has been very in favor. It's emphasized the use case of people needing Monero for their daily lives. We're talking people like whistleblowers who are exposing corruption in their government. They are subject to unjust persecution if they make their knowledge known, and so they want to have a form of value transfer that is not easily traceable. Or you have citizens in repressive regimes who are barred from, for example, taking their money out of their country, and they want some way to preserve their hard earned wealth. And so technically what they would be doing is not kosher by their particular jurisdiction, but it might be just fine in the jurisdiction that they're about to be moving to. So it's use cases like this that have been emphasized by the Monero project, and investors have not been quite so welcome. But I think there's a false dichotomy here. So Gresham's law applies to users too. Gresham's law is the idea that the superior forms of money will get hoarded, and the inferior forms of money will get circulated. So basically it's the Bitcoin pizza thing. So if you own an asset like Bitcoin, which you think is going to be subject to potential massive appreciation in the future, there's no way you're going to spend your Bitcoin to buy a pizza. You're just going to use your US dollars. Why would you give away your kind of lottery ticket when you have just regular old cash that you can use? That's Gresham's law. That applies to everyday users of Monero too. So everyday users of Monero who get a little bit more Monero than they think they're going to use, and then they just store some, like they're a small-time investor. So there's a kind of false dichotomy between these two types. Another thing is that investors are often portrayed as being mere speculators. They're just greedy speculators who don't do anything useful. Consider the example of jet fuel futures, where you have an airline that is worried that jet fuel prices will increase in the future, so they lock down a contract for the future purchase of jet fuel. Somebody has to be on the opposite side of that contract. So if you're a speculator who thinks that the price of jet fuel is actually going to go down, that's a contract that you will agree to participate in with the airline, because you think that jet fuel is going to go down in price. Therefore, in the future, when the airline needs it, you'll be able to buy the fuel for cheap, sell it to the airline for the price that they agreed to in the contract, and make money. That's a speculator. But for some reason, the hedger who's being cautious and prudent is given a sort of moral free pass, whereas the speculator is not. Whereas the reality is you need both parties to make that contract happen. The reality is a little more gray than you might think. I used to be a symphony orchestra musician. I played first violin, and then there was a keyboardist for a, one of the major league US orchestras before it, unfortunately, filed for chapter seven in the Great Recession. But one thing that used to upset me was the fact that there are these rare, strata-various violins that are out there that some investor buys and then puts in a closet. Basically, you have this kind of rare treasure that could be used to play concerts, and yet it's just sitting in some rich person's closet. There's a different perspective to this, though, because every year there are strata-variouses that get destroyed by accident. There are artists who absentmindedly kind of leave their precious strata in the backseat of a New York taxi cab that actually happened. And so you can argue that the act of holding a strata is actually preserving its function for future generations. And so I think there's something similar happening for long-term investors who hold cryptocurrency. Right now we're in a time of history where it's a pain in the butt, frankly, to learn all this stuff, figure it out, buy it yourself, investigate yourself, keep it safe. It's a pain. But people are working on that. And if you project that the fundamental scarcity of your asset is going to be needed in the future, you combine that with the projection of easier users' experience in the future. Basically the investors in that situation, they're putting their capital on the line and being rewarded or not rewarded based on how things go. But the service that they're providing is preservation of a scarce asset for future generations. Finally, there's US tax law's impact on this user mix. So the US tax law holds cryptocurrency to be a, you have to treat it like stock. So if you buy Monero and then you later sell it, you have a capital gain, you're supposed to report the capital gain and pay capital gains tax on it. Capital gains tax is different whether you hold the asset for a year or more or shorter than a year. Basically if you hold the asset for a year or longer, you get a discount on your taxes. That's for most people. It depends on your personal situation. But for most people, long-term capital gains tax rates are lower. What that means is that because the US tax law is the way it is, it rewards people who do their research and pick an asset that has long-term potential. And so for a quality project like Monero, it's going to attract that sort of investor, the one who does their due diligence and looks carefully. I think there's a certain type of community investor that does a bunch of things and kind of deserves a spot at the table. One is that they have the attitude that they're bearing financial risk of the project. By owning a token, you do not become a customer. You become a shareer of the financial risk of the project. The community investor will take self-custody because if you leave your coins on exchange, they're subject to getting hacked and going to somebody that's not trustworthy. By taking your coins off the exchange and into your own custody, keeping your own private key, you do your part in securing that the scarce asset will be decentralized and available for future generations. Community investors zoom out. There's a tendency among new crypto guys to really zoom in, like on the time scale, zoom in on the money scale and do things like, oh gee, I hope the crypto is going to go 5% up today. I mean, it's ridiculous if you zoom out to long time scales. You see that the real game in cryptocurrency is getting in at the right order of magnitude. Not trying to make 5%. You're trying to get in at the right number of zeros. Community investors not only take the step of protecting their scarce asset by owning their own private keys, but they will also take the time and trouble to put legal structures up to also protect the assets. So, for example, using trusts to ensure that assets are there for future generations is something that you can do with cryptocurrency. It's kind of a new field within the trust world, and I work with some very esteemed partners in the trust world who are familiar with that whole, it's like a whole separate planet. And I kind of have the exciting job of being able to liaise with those people to get legal structures like trusts in place for holders of crypto. Community investors actively participate in the project. They actively contribute to the project rather than try to take things from it. And here are the benefits to the project. The assets of the project get safeguarded for future users. Long-term investors will drive the price up because they get on the demand side of the curve. Therefore, the clearing price for the asset will rise. In Minera, we don't particularly care that the price is going to go up on its own because this is not a get-rich-quick sort of ethos project. However, a rising price of Minera does attract miners who have CPUs and GPUs that they can point to the network to help secure it. So, a rising price is a leading indicator. It's a precursor of rising hash power. And so, in that sense, long-term investors serve to strengthen the network. So, a taxonomy of assets. There's non-fungible and fungible. Within decentralized assets, Bitcoin is not fungible. It's totally traceable. Therefore, its competition is things like PayPal. Like, basically, if you're going to be, if you're going to have a form of money that's attached to your name, like, you're competing with PayPal because if you want PayPal, like, PayPal makes it dead easy to send money. That's their thing. And if you're willing to be, you know, associated with your account, then that's who you're competing with. Whereas, Minero is basically gold that understands TCP, IP. Right? I mean, they've tried to put, you know, Ethernet jacks on gold. It didn't work. This is the closest thing humanity has come to that. If you look at the monthly returns since Minero has been in existence, it's, they're pretty spectacular. These are monthly returns. So, I'm showing Minero, Bitcoin versus gold, which is sort of the physical old world analog, US stocks and US bonds. Now, in the traditional investing world, correlations are crucially important. So, what you're looking at here is monthly returns correlated against each other. You can see that the correlation coefficient of Minero and Bitcoin is 0.35, which is significant. So, they tend to go up and down together slightly. But if you look at Minero versus US stocks, you're looking at a 0.02 correlation. US bonds, it's a negative 0.034 correlation. Why is that relevant? Because in modern portfolio theory, and this was another Nobel Prize in economics, Markowitz, 1954, I think, if you take two different assets that have ups and downs that don't correlate together and you add them together to make a portfolio of them, your overall volatility goes down. This should be kind of intuitive. If you have two things that don't wiggle the same way and you add them up, then the sum is going to have less wiggle than if you just doubled one of your investments, right? So, basically, on Wall Street, uncorrelated gains are like everyone's like willing to, you know, put their career on the line to get that. And it's been realized. Now, of course, future results don't, you know, future results are not dependent on past results. But one thing that is, that does tend to persist in finance is correlation structure. So, that is, it's not wise to think that the price went up before, so it'll continue to go up. It's slightly more okay to say that the asset has been uncorrelated in the past, so it's likely to remain uncorrelated in the future. Is Monero just levered Bitcoin? So, because Monero is more volatile than Bitcoin, you could ask the question, well, I'm just going to, you know, borrow money, buy more Bitcoin and then I'll replicate Monero. Can you do that? So, you can do a regression analysis to figure that out. The result that you get is that Monero wiggles up and down like 1.1 times Bitcoin, which means that the outperformance that we've seen historically from Monero is only minimally explained by the risk factors that are subject to Bitcoin. The rest of it is idiosyncratic. It's unique to Monero. And anyone who's been in Monero for a number of years will attest to this, that usually it's pretty boring as an investor being in Monero, but then there are some exhilarating times when the price will triple or quadruple, you know, in a week. And then it's back to normal. It's back to boring. It's basically there are these sharp market realizations that, oh, there's this meritorious project that we've been ignoring. And, you know, let's adjust the price. All right, again, as a long-term investor, you want to zoom out. So, here I'm showing a 10-year timescale of price history. You can see in blue the S&P 500 on this scale, and this is a log scale of price. You see each one of these units on the left-hand side is an order of magnitude. It's an extra zero. So we're talking a 1 million X return on the vertical scale. Now, when you choose a scale like that, the performance of the U.S. stock market looks like a very anemic line. Contrast this with the news coverage where a 20% drop in the S&P, it's like all over CNBC for like three days, right? That's just like a tiny pebble in the road on this. In yellow, you can see the price action of gold, and then we have Bitcoin and Monero. Now, when I look at this, I see that there are two components that can explain this curve. If you look at the Bitcoin curve, it's basically you see a smooth kind of growing component to it, and then on top of that, you have these like massive ups and downs, right? They don't look that massive, but again, keep in mind that one of those units is a factor of 10. So each one of those little hiccups is like a 20X price pump followed by losing 90%. And those happen with some regularity. And those, so basically you have a component of like the smart money who puts in the research to learn the stuff and comes to the conclusion that this stuff is for real. They get on the buy side and they stay there. On the other side, you have less informed investors who, because they don't take the time or trouble to kind of put in the discipline to learn about this stuff, as a proxy for a deep knowledge, they put their finger in the air and they look at what their friends are doing, and then they copy their friends. So in other words, if the price is going up, oh, I better get in. If the price is going down, oh, I better get out. You know, that sort of simplistic thinking. That leads to these bubble and pop cycles. So what you will see in the news coverage is a magnification of the ups and downs, but you'll never see it really talked about that Bitcoin is one of the first assets in the history of humanity to do a 1 million X in a 10-year timespan. If you look at Monero, I think there's a similar dynamic happening. And arguably, there's more potential upside because it's a relatively unknown project. One thing that I want to emphasize, some people get hung up over the actual unit price of things. So this is a trap. This happens in traditional finance too. There are people who think, oh, this penny stock is only worth 3 cents. So if it goes to 4 cents, I'm making it easy, 33%. Thinking that one penny increase is not a big deal because it's just a penny. The reality is the kind of effort, what is needed for a stock to go from 3 cents to 4 cents is the same magnitude to propel a stock from 3,000 to 4,000. It's the percent that is relevant, not the unit. Does that make sense? That's why you don't have companies saying, oh, for every share of stock, we're going to give you a million shares of stock, new stock. So now your new shares of stock are worth 3 tenths of the penny and gee, you should really buy it because it could go to 4 tenths of a penny and that's only a tenth of a penny. That sort of logic is rampant in crypto. I think it's just like Wall Street people say really cringy things on a technical level. For blockchain, they're like nubes to investing and the blockchain side, you say things like that and then it's equally cringy to people who have studied finance. So my point being unit prices are not that relevant. So how do you get a sense of whether Monero at 100 bucks, which is the rough price it is today, is that overvalued or unvalued? You can do a ratio. So basically the next chart that I'm going to show is showing you the value of all Bitcoin in the world at a given moment divided by the value of all of the above ground gold in the world at that same moment. It's a ratio. It's a crypto to gold ratio. Here's what you get. You see the meteoric sort of exponential rise and you see that at the current moment, the total value of all the world's Bitcoin and this chart is, I updated it through the end of July. So it's only a few days old. You can see that all the Bitcoin in the world is worth roughly 3% the value of all of the gold in the world. Whereas if you look at Monero, which arguably is a much closer approximation to actual gold because it's fungible, it's much closer to an actual, you know, internetable gold than Monero, than Bitcoin is yet the value of all the Monero in the world is about two tenths of a, two hundredths of a percent of that of all the physical gold in the world. This is the chart that basically humanity is in the process of figuring out what the correct value is and makes it sort of an exciting time to be alive. All right. I'm way over time. Sorry. There's one more thing I have like three slides left. One is culture. So because cryptocurrencies are decentralized assemblages of people, it's not citizenship based, right? It's global. It's any person can opt in and join a cryptocurrency sort of network. And as a result, there's an ethos that gets associated with each project. Monero keeps basically all of the good things of Bitcoin in this regard. In Monero, there's no formal organizational structure. There's no centralized authority to go after the culture. Like I've been to a lot of meetups. I've been to a lot of people. What I find is that consistently there's an idealistic, scientific and yet welcoming cypherpunk community, which I think is a perfect fit for DEF CON. This is basically the if DEF CON people could like sit down and make a crypto from scratch, it would look like Monero. There's also in common this kind of tendency for both people in DEF CON and I would say people in Monero to be mis-portrayed, misunderstood, basically treated with some suspicion for no reason. Well, we still have a thing called innocent until proven guilty in this country. And we still have a thing called the First Amendment, which requires people to actually stand up and exercise their rights, lest they get taken away. So I think participating in a forum like DEF CON, participating in a project like Monero are both ways to exercise your First Amendment right. Monero Research Lab is full-time PhDs that are dedicated to improving the guts of Monero. There's like lots of very smart people on this project. In terms of developer effort, it actually ranks number three behind Bitcoin and Ethereum. Next after that is Monero in terms of developer effort. All right. Also relevant, just like Bitcoin, there was no pre-mine. So some crypto projects will kind of do a bunch of mining for themselves, then announce to the world, hey, there's a new great new crypto that's going to cure cancer, kind of not mentioning that for the last three months they've been mining for themselves a bunch of the tokens. That's a pre-mine. It didn't happen in Monero. There's no pre-sale. There's no Insta-mine. There is no token sale. There are all these kind of rather scammy ways that people have come up with to make a personal buck off of the development of new crypto. None of that happened in Monero. There's no diversion of miner fees. So when a user pays a fee to them to get their transaction through, 100% of it goes to the miner that supported them. Among other things, this ensures FinCEN compliance. So if you want to talk about regulatory compliance, the fact that the miners in Monero are getting 100% of the reward is one of the criteria that the US FinCEN defined as being a decentralized virtual currency, which is the good kind. It's also compliant with privacy regulations. So in Europe, they have some pretty strong privacy regulation because they're concerned about that. Monero is just a natural fit for that. It complies with that. Whereas all these transparent coins do not. It's 100% free and open source software. There's lots of projects out there who do some similar things that decided that, well, we want to try and make trade secrets with our crypto. We're not going to share the source code. That is not Monero. Monero also has, I think, the right mindset when it comes to the pace of innovation. So there are regular six-month hard forks in Monero. This is another point of civil war in Bitcoin because you have basically the dominant people in Bitcoin are basically allergic to hard forks. They insist that any new change in the code must be backwards compatible with the old code. And so this leads to a number of flame wars. I will say that one fantastic thing, if you're a newb coming into crypto, if you look into Monero, you will not be forced to make a decision about which people within Monero you're supposed to hate. Because if you go into Bitcoin, this is like newb 101. You've got to find out, are you in the Bitcoin core, Bitcoin Cash, Bitcoin SVCAMs, and then you have to wage G-HOT against the others because they don't have the right vision. This has not happened to Monero and it's because the project is focused. It has an idealistic vision of the type of user that it wants to help and then everything is subservient to that. It's not so ill-defined that you could have three different projects all calling themselves Bitcoin, all of them vastly different. Finally, there's a tendency within crypto investors to look at the next new shiny thing and go pick it up. A lot of people miss Bitcoin. They had the chance to buy it at a buck and didn't. And so now that it's above 10,000, they're looking at the next new shiny thing because they don't want to miss out. That leads to a phenomenon that actually also happens in the capital markets. IPOs tend to be oversold when they first get listed because there's a bunch of hype to the new projects. And then as the hype kind of dies away, the price settles down. Something like this also happens in crypto. It's like the next new shiny crypto that has like two weeks of history gets like heralded as the new thing. Experience counts because like in Monero, which is a fairly old project at this point in crypto terms of over five years, it has a history of basically doing the right thing for its users. It has a history of basically keeping its mouth shut, not shooting t-shirts out of t-shirt cannons at people, just basically keeping your mouth shut, doing good innovation, writing good code, and then periodically dropping an upgrade on the world. That does something better. Like for example, bulletproofs came out in the last major upgrade. Bulletproofs are a way to ensure that the hiding of the amount that gets sent can be done cryptographically securely with one-tenth of the kilobyte space that it formerly did. So basically overnight, the fee per transaction in Monero got cut by an order of magnitude. Today, the cost to send a private by default transaction in Monero is four-tenths of the penny. And it's because these fundamental improvements in basically the engine under the hood are happening quietly without fanfare, mostly getting ignored by the market. But it's been happening for a sustained pace for over five years now. All right. To summarize the talk, Monero is what Bitcoin nudes think they bought. And that's why I think everyone at DEF CON should be excited about this project and look into participating on their own. After doing their own due diligence research and disbelieving every word that I've just said. All right. Here's a list of Monero resources. I'll just leave it up for reference. Thank you very much.
 Dr. Daniel Kim, ABAM PhD, Physics Harvard MBA Yale,  is the founder and president of Sweetwater Digital Asset  Consulting LLC, which you can see over there,  which offers bespoke research and advisory services  to institutional trust and family office investors  seeking conceptual and practical guidance  in considering cryptocurrency exposure  for their portfolios.  A 2013 winner of the CFA Institute's prestigious  Graham and Dodd Top Award for Original Research,  he previously served as director of research  at a one, around one billion equity asset manager.  With a multidisciplinary track record of innovation  in the basic science, performing arts, medical  and financial sectors, his breadth of knowledge  has been well suited to understanding both the technical  and socioeconomic aspects of Monero, Bitcoin  and other decentralized ledger technologies.  Thanks Diego, you're the best.  Oh wait, I shouldn't have read that last part.  I'm just kidding.  Anyway, I'd like to, everyone to give a hand  to Dr. Daniel Kim, and yeah.  Tell us what you got, man.  Blue Monero Village.  So it's great to be here, and thanks again to Diego  and the team here at Monero Village for putting on this  really great opportunity.  I was here last year, and spent a lot of time  talking with people who came up and wanted to learn  more about Monero, and what I found was that  even though this is DEF CON, everyone has a super high IQ,  and we people in the crypto space tend to think  that everyone else has already been thinking about crypto too,  but all of us started as kind of technical people  who discovered cryptocurrency and kind of fell into  the rabbit hole of learning about it.  So that's one thing I want to try to do today,  is kind of summarize the whole of cryptocurrency,  why it's not a scam, why there's genuine innovation in it,  for a technically smart but not necessarily  crypto-immersed person.  Second is that I've had the privilege and pleasure  of attending maybe seven or eight Monero only  meetups at this point, and there has not really  been much representation from investors.  So I would like to kind of pause it that there's a certain  type of community-minded investor that this project  could maybe make a spot at the table for,  not saying that it doesn't, but historically  this project has been rather more focused on the needs  of users, to the detriment, not detriment,  but just saying that investors are kind of given  maybe a second spot.  So that's my second goal in this talk is to talk about,  to propose a certain type of investor  that is helpful to the project.  All right, and as a disclosure, I have clients  who have long positions in Monero,  and also Bitcoin and its associated forks.  And if I'm not your personal advisor,  then none of this is going to be financial advice.  It's not legal advice, even though I'll mention  some legal and regulatory things.  That's just as a personal comments as a US citizen  exercising his first amendment rights.  So the big picture, why is crypto here to stay?  So we now are blessed to live in an age  where the marginal cost of copying data  around the world is zero.  So everyone has a smartphone,  which is very good at copying packets.  So what is rare now that this ability  is now commodified and available to everybody?  Two things are gonna be rare, digital scarcity,  which would be a digital form of money,  and secondly, digital privacy.  Because these things are packet copying devices,  there's a proliferation of data being spread  around to everybody, what's gonna be rare  is having data all to yourself, i.e. privacy.  So these two things are the kind of big picture,  societal reasons why cryptocurrency,  I think, is not going anywhere.  So the theme of Monero Pellage this year  is the foundations of money.  And so I come up with four foundations of money  that I think that are important to satisfy.  One is scarcity, two is fungibility.  Fungibility just means a property of money  in which each unit of money is indistinguishable  from the other.  So in other words, the money has no history behind it.  And if money has no history behind it,  then the users then gain by having privacy  as a result of using this memoryless money.  Third is users.  You have to have a group of users who agree  that this thing that they're calling money is money.  And fourth is culture.  So one thing that cryptocurrencies do  is separate the concepts of money and state.  It's about as big an idea as the separation  of church and state was earlier in human history.  If you think that money and state might be  better off separate, then this is cryptocurrency.  And so what this means is that you have ad hoc networks  of people coming together and kind of declaring,  having a common ethos, a common culture,  which leads to the token being exchanged  as a unit of value among people of that community.  So there's culture.  So in the past governments would supply this culture  for fiat currencies, for cryptocurrencies.  You have user groups that basically become the culture.  So the plan for the talk is I'm gonna go down the list,  these four big themes and talk about fiat.  I'll talk about Bitcoin.  I'll talk about Monero.  So first, scarcity.  So we need digital scarcity in a money.  So first I'll talk about fiat.  That is government issued currencies,  then Bitcoin and Monero.  Here's the state of scarcity in fiat currency.  So the current situation is that we have  national central banks who are completely in charge  of maintaining the money supply.  Each of these exponential looking graphs that you see here  is the supply of M1 money, which is defined as currency,  coins and things that act like it,  which would include bank accounts, checking and savings.  So if you sum up the total of this on a per country basis,  you get these charts.  So for something that's supposed to be scarce,  it can be argued that these charts  don't really look so scarce.  And the future is probably not gonna be  quite so scarce either.  So one strategy that countries have  when faced with high debt is to inflate their currency,  because if you owe somebody $100,  it's the easy way out to make the dollar less valuable.  Then in the future, when you have to pay back the $100,  you have to expend less actual effort to repay your debt.  So in the long term, this is a problem  that all investors face.  So anyone who has worked hard to earn their own assets  has no immediate need for it,  but wants to use it in the future  is basically facing this inflation as a headwind.  Now there are other drawbacks to the  centralized security model.  There's access to the database,  the database being who owns what,  like what basically the bank databases.  Access to that database is protected.  There's a firewall moat around it, right?  Quite strongly fortified.  And there's one authoritative version of the ledger  that is held inside the bank walls.  They're downsized to this.  So number one, as mentioned before,  the central banks do not have a completely error-free  track record of managing the money supply  to avoid things like hyperinflation.  There can be insider abuse,  so there was a case probably many of you have heard about  of one of the national banks basically took  their customers' information to create fake new  checking and savings accounts in their names  and then they proceeded to charge those guys' fees.  And then these guys got away with kind of a slap  on the wrist for this egregious abuse of their trust  that the customers had given them.  And of course, traditional finance has been quite slow  to improve and adopt technological advancement.  That's kind of natural and to be expected  when you have a gatekeeper.  If you have a central gatekeeper,  what incentive does the gatekeeper have  to improve their services to become 24,  basically to become Amazonized?  This is the reason why the banks continue to have  Monday through Friday, nine to five,  which is kind of, as new generations come up,  that's gonna be an increasingly laughable concept.  That services were only available  when some people decide to show up at the branch office.  In contrast to this, the decentralized security model  that was introduced in the Bitcoin White Paper  and is also adopted in Monero has a decentralized model  in which anyone can join the peer-to-peer network  that maintains the ledger that keeps track of who owns what.  Each of these nodes maintains its own version of the ledger.  Now there are downsides to this idea.  It's new and so people have to wrap their heads around it.  And secondly, it's inefficient because if you have  decentralized network of computers  that did not have to get approval from anyone  to join this network, how are these computers gonna agree  with each other on what the state of the accounting ledger is?  So that was the innovation, the core innovation  of the Satoshi Nakamoto White Paper  which came out in late 2008.  The Bitcoin Genesis block, that is the very first block  containing transactions in Bitcoin happened  just over 10 years ago, 10 and a half years ago.  And throughout all of 2009, Bitcoin was operational  that had zero dollar value.  And for those new to crypto, I would encourage you  to kind of pretend that we're back in 2009  because now that crypto assets have a price,  it tends to mess people's thinking up, right?  Because basically it triggers the fear and greed  kind of mechanisms that money does.  As technical people, it's better to kind of reset your brain,  think about the Bitcoin project as it was in 2009  which is simply a project that a few geeks started  with trying to create a system of digital scarcity  that behaves like money  but actually had no real world value.  It's a bunch of geeks kicking stuff around.  And they did this for over a year  until they were satisfied that it behaved like money.  And at that point, the very first transaction of Bitcoin  for a real world service, the Bitcoin Pizza,  which I'm sure many of you are familiar with,  in which one brave soul spent $10,000  to get two pizzas delivered to him.  Current market value, roughly $110 million  for those two pizzas.  So, but let's rewind again.  We're going back to a time  where Bitcoin had zero value  and I'm going to attempt to explain this white paper  in three slides.  The Bitcoin white paper describes a way  to synthesize digital scarcity without the need  for a central authority to maintain that scarcity.  So TLDR1, so the SECP256K1 elliptic curve  is Y squared is congruent to XQ plus seven mod  this very large 77 digit prime number.  So elliptic curves, you'll often see  like a kind of curvy shape, right?  Which is true if you allow X and Y  to be floating point numbers.  But that's actually a confusing and unhelpful image  because in this context,  we're talking X and Y are both integers.  And we're talking modulo arithmetic.  This is clock arithmetic.  So modulo arithmetic, mod 12 would be a clock, right?  So one o'clock, 13 o'clock, 25 o'clock,  those are all the same  because they look like one o'clock on a clock.  This is doing the same concept,  but now instead of having 12 numbers on your clock,  you have a 77 digit large prime number.  That's how big your clock is, right?  And so finding X and Y points  that satisfy this equation is non-trivial.  Part of the elliptic curve definition  is that there's a solution, X, Y, that is given to you.  And as it turns out, if you know a solution  to the elliptic curve,  you can generate another solution to the elliptic curve  by kind of multiplying this point.  So basically given any integer n,  you can compute another solution  to the elliptic curve P sub n.  And this is a one-way function,  which is crucial to a lot of crypto.  If you know n, you can get the point.  But if someone tells you the point, you don't know n.  There's only one way to do that,  and that is to brute force hack your way  and try to guess the n that gives the piece of n.  Now in technical language,  this is called the discrete log assumption  that it's basically computationally infeasible  to go the other way.  So how is this used in Bitcoin?  So the public key, the point is a Bitcoin address.  I'm simplifying slightly  because there's a hash involved and so on.  But that public key, which everybody knows  is now your Bitcoin address.  The private key is that number n,  which was used to generate that point.  And now that secret knowledge now  is the authorized signal,  authorized signature that allows the spending  of whatever Bitcoin is in that elliptic curve point.  So the key takeaway is that getting a new Bitcoin account.  All that means is that you're picking a number.  So pro tip, if you're asked to pick a number  for your Bitcoin account,  and your choices are between zero  and a 77 digit number, don't pick 12.  In other words, the random number generator  that is used to pick your account,  it's basically like picking a grain of sand off the beach  and then declaring that it's yours.  So in this sense, there's security by obscurity  in that there's nothing stopping anybody else  from randomly guessing your particular grain of sand  and making off with your money,  but then 10 to the 77 is a very large number.  All right, so secure message signing is made possible  by the elliptic curve cryptography  that's defined by the elliptic curve from the last slide.  So in secure message signing, just very simply,  if you're a sender and you wanna send a message  that is crucial for the outside world  to know came from you, you'll take your message,  you'll kind of wrap it, you'll basically encrypt it  with your private key, and the combination of the message  and the private key gives you a signature.  It's a little data block.  So now you send your message out to the world  and you send your signature out to the world.  So the signature has evidence of your private key in it,  but not your actual private key.  If you gave your actual private key away,  that would be bad.  Right, so the signature is a per message thing  that you calculate given that you know your private key.  Now the recipient gets your message,  they also get your signature.  They also know your public key,  because the public key is supposed to be associated  with your personal identity.  When you combine those,  you can get a binary verification result.  You get a thumbs up or a thumbs down.  So sending Bitcoin means you send a secure message  to the Bitcoin network, right?  So here we have a little legacy check  from a US checking account.  And instead of the bank account,  the ABA number and the checking account number,  you have the sender's Bitcoin address.  The pay to the order of is the recipient's Bitcoin address,  and you have an amount,  and then you have a signature that you generate.  So automatically this is cryptographically much stronger  than the legacy check system  in which you can just scribble whatever you want  for your signature, and it's probably gonna go through,  right?  So then the concept of ownership of an asset  is revolutionized by this idea.  So knowledge of the private key,  which is speech,  which is protected by the First Amendment is money.  This is an opposite situation  as the Citizens United case  that recently came up by the Supreme Court,  which ruled that money is a form of speech,  and therefore we should not regulate too much money  that is donated to political campaigns,  because that's speech.  And if you curtail that,  you're taking away their First Amendment rights.  This is the opposite.  Now knowledge, which is speech, is tantamount to money.  So just to summarize a few other things  to get you on board with the Bitcoin White Paper.  So what's a miner?  A miner is a peer-to-peer Bitcoin accountant.  It's a computer that does,  it helps to keep track of who sent what to who.  A block is a list of the valid signs and spend messages  that are received by the network.  A hash is a one-way function.  I'm glad I don't have to explain this too much  to a DEF CON crowd.  It's a one-way function in which you give it  any sort of input,  and it spits out a random looking sequence  of bits of a fixed length.  And it's useful because if the input changes by one bit,  you're gonna get a completely different looking hash  out of that.  Difficulty is the maximum acceptable value for a block hash.  So this is one of the kind of tough things  to get your head around if you're new to crypto.  In order to submit a valid block to the network,  the hash of that block has to be a certain number,  it has to be below a certain number.  Now usually when you work with hash functions,  you don't care about what the actual number is,  you just care that it matches, right?  So when you download a file and you wanna check  that it's of the integrity of the file,  you do a like a MD5 sum of your file locally,  and then you check that that string matches  what you think it should be from the download, right?  Like when you check in a code to git  and it gets tagged by your hash,  that's how you identify that your code got put in  and that's how you know that your code wasn't tampered with  is that that hash stays the same.  In this situation, we're arbitrarily saying  the hash of a block must be less than a certain number, right?  What does that mean?  It means that miners have to work,  they have to basically try to brute force guests  to come up with a block that satisfies  that difficulty requirement.  So now you have transactions that are waiting  to go into a block, you have a worldwide network  of computers each of which is trying to figure out  an accounting page, a block to add to the Bitcoin  to blockchain, and in doing that,  they need to come up with a block  that has a certain hash number.  In order to do that, they need to modify part of the block.  So there's a little data space inside the block  that can be modified by the miner,  and so the miner brute force guesses a bunch of numbers  to try and get the hash of this block  to be below a certain number.  So the first miner to do that gets a block reward.  They get some of the Bitcoin.  So this is a key game theoretical innovation  in the Nakamoto White Paper,  which is that all Bitcoin in existence came into being  as a payout to a miner in the past.  So it's not necessary to spend any money to get any Bitcoin.  All you have to do is get a computer on the network,  help out with the accounting, run the software,  help process, and if your computer is successful  in coming up with a hash block that satisfies the difficulty,  then you will get some Bitcoin.  This is important to get kind of past the idea  that, oh, Bitcoin must be some company out there.  Oh, Bitcoin, it's some entity,  and then they tried to scam people out of money.  Nobody took money for Bitcoin.  So Bitcoin all came into existence as a mining reward.  Now, basically, as the system was tested  throughout 2009 and 2010,  and it became clear that this unit of credit  that was being accounted for had many properties of money  and was very difficult to hack,  at that point, it became the case  that people who were interested in getting Bitcoin  had two choices.  You could put your own computer on the network  and be a miner, or you could simply pay US dollars  to a miner who had already done that.  And so that's how the marketplace for Bitcoin,  that non-mining Bitcoin was born.  So since this network is globally based  and there's no coordinator, there's no boss computer  telling each of these node computers  what the correct state of the blockchain is,  what happens if you have a situation  where two miners on different parts of the world  come up with a block at the same time  that satisfies difficulty,  and now they spread that block around to their neighbors.  So for example, if you have the Great Firewall situation,  you could have the blockchain in China  is different than the blockchain in the rest of the world  because it takes time,  because of the latency introduced by the Great Firewall.  What happens then is that now the network  is in a meta stable state.  The people in China will continue mining the next block  using their version.  The people outside of China will continue to mining  the next block with their version,  and whoever comes up with the next block,  so it's a stochastic process.  It's like on average every 10 minutes,  a new block happens, but it's push on distributed,  which means it's on average 10 minutes,  but it could be three seconds, it could be 50 minutes.  So basically the next Chinese block  versus the next non-Chinese block  is highly likely to come at a different time.  And so the rule of the network  is that the longest chain is deemed to be  the authoritative chain.  So let's just say for the sake of argument  that the Western block was the first to happen.  Then that block will propagate across the Great Wall,  it'll be slow, but it'll propagate,  and the Chinese miners will say,  oh, we just got this new blockchain from the West,  which is longer than ours,  so they will proceed to dump their version  and adopt the version from the West.  So this is how the network kind of self-heals itself  from discrepancies in the state of the network.  All right, so that was the white paper  in hopefully not too much time.  Nakamoto Consensus is a way to synthesize  digital scarcity without the need for a central authority  to maintain that scarcity.  This is a huge idea.  I mean, so the Nobel Prize requires that you have a person,  an identifiable person to give the prize to,  but this is basically that level of innovation.  So what do I mean by digital scarcity?  There are a few different meanings.  So at the account level, digital scarcity means  if you have a Bitcoin account,  you keep your private key secret.  So there are lots of stories in crypto land  about people who do one of two screw-ups.  They lose their key, right?  So they set their computer to mine,  and then, oops, they forgot their key.  Or they do something so sophisticated and complicated  in an effort to defend their key against getting hacked  that they forget the process  that they did to encrypt their own key, right?  So there's screwing up that way.  The screwing up the other way is you let that knowledge  of your key out to people who you don't want it to have it.  So when people talk about getting hacked in Bitcoin,  it's one of those two things.  It's not that the actual protocol itself got hacked.  That has yet to happen. It's user error.  And then, of course, the press reports it  as a fault of the network.  At the aggregate level, there's monetary supply.  So as I mentioned before,  all the Bitcoin in existence is previously given  as a reward to miners who help maintain the network.  And so the rules of that protocol will govern  how many coins are going to be given out to miners now  and in the future.  So there's a predefined minor reward schedule.  All right, so how does Monero differ from this?  And now I'm focusing only on the scarcity aspects  of the cryptocurrency.  So first, the code base.  Monero is not a Bitcoin fork.  There are thousands of cryptocurrency projects out there.  Almost all of them do a copy paste of the Bitcoin GitHub  and change a few things and there you go, new crypto.  So Monero had basically the guts to start over from scratch.  So there's technical hedging there.  The elliptic curve is different.  So this is yet another very fundamental design choice  that's different from Bitcoin.  So the elliptic curve views in Monero is ED25519.  There are dual private keys in Monero.  So there's a spend key and there's a view key.  So knowledge of the spend key is needed  to spend your Monero.  But there's a second view key, private view key,  which is derived from the spend key.  So it's basically kind of like a subset of the spend key.  It's a view key and if you elect to share your view key  with others, then those others can basically look  at the blockchain and see the money that you received.  So it's opt-in transparency for those who want transparency.  The address space in Monero is bigger.  So if you're worried about collisions,  this whole problem of somebody else  picking up your grain of sand,  there's an extra 16 zeros in the address space for Monero  at the cost of having longer addresses.  So there's 10 to the 76 addresses available in Monero.  The emission schedule is different.  So in Bitcoin, every four years,  the reward that's given to miners is cut in half.  So this is known as the happening  and it causes disruption in Bitcoin.  Like if you imagine you're a Bitcoin miner,  there is a date on your calendar circled in red  at which point your income is gonna get split in two.  There's lots of drama around that  and it gets used to hype things too.  So the supply is gonna be cut in half soon.  So the price is only gonna go up  and people are trying to use this as like a selling point.  It's just unnecessary drama from the viewpoint of Monero.  So Monero has a continuously decreasing reward schedule.  Finally, Bitcoin has a social contract  that only 21 million Bitcoin will ever be created.  So this is easy to remember and understand  for people who are used to the fiat inflationary system  and so they latch onto it.  But the problem is what happens when the last Bitcoins  are given away to miners?  Who is going to pay the miners  for donating their hardware and electricity bills  to support the network?  So this is a non-trivial problem.  It's contentious in the Bitcoin community.  Monero's, as it does with so many other things,  I think kind of steps back, looks at what Bitcoin does,  thinks about what's happening over there  and then comes up with something to address  some of the conflict and drama  that is in the currently dominant cryptocurrency.  So in Monero, there's a tail emission.  That is, the block reward will never go under 0.6 Monero  per block.  So what does this mean?  It means that miners are guaranteed to be incentivized  to support the network in perpetuity.  It's gonna be infinite.  There's gonna be money for miners forever.  We don't worry about that here in Bitcoin, in Monero.  Now, because there's a 0.6 Monero per block emission,  that means that there's no fixed,  we can't say that there's only gonna be 21 million Monero.  There's gonna be more.  But that inflation of the money supply is linear.  That's crucial.  It's linear.  It's linear inflation of the money supply.  So if you look at the annual inflation rate  of something that's growing linearly,  it's asymptotically zero.  Right?  So the quantity of interest in macroeconomics  is the annual inflation rate.  All the macroeconomic theory frameworks  use that as an input.  So it's the inflation rate  that is macroeconomically relevant.  And that is, that is a smoothly decreasing function  toward zero in Monero.  So you have this great situation  in which macroeconomically you have zero,  zero relevant inflation,  yet you're paying the miners in perpetuity.  Here's what that looks like.  So this is a 30 year plot.  As a long-term investor,  I like plots with very long time scales  on the horizontal axis.  So the dotted blue line here,  you're seeing is where we are in the present.  There's been 10 years of cryptocurrency so far.  And this is showing you how many Bitcoin exist  as a function of time  and how many Monero exist as a function of time.  So Monero is a younger offshoot of cryptocurrency.  It's five years old.  And so you can see it started from zero.  And the tail emission,  you can see in the form of Monero's curve  going slightly positively linear for all time.  Whereas the Bitcoin curve reaches a limit of 21 million  and then never grows.  But then that introduces the problem  that I mentioned before  of how are you gonna pay the miners  once that reward goes to zero.  This is the monetary supply curve.  Now if we take this and ask the question,  what's the inflation rate?  In other words, you look at the number of Monero now  versus the number of Monero a year ago.  And you get this.  So this is basically the first derivative  of the previous plot.  This is annual supply inflation.  And here you can see the black line is Bitcoin.  And you can see every four years  there's this drastic cutting in half of the block reward.  In orange, you see the Monero inflation curve.  And to contrast that,  I've also added the inflation rate for gold.  People usually don't think of gold as inflating,  but it's actually being mined out of the ground.  And so the world supply of above ground gold  is in fact inflating.  And kind of interestingly,  if you analyze that gold curve  and you ask the question,  is that gold growth more consistent with linear growth  or exponential growth?  It's actually more consistent with exponential growth.  And as you know,  all exponential curves have in common  that they have this kind of runaway hockey stick appearance.  It doesn't matter how low the exponential growth rate is.  It's eventually gonna look like the hockey stick  if it's exponential,  whereas with linear supply curve,  again, the inflation rate is going to asymptotically  approach zero.  In blue, you see the inflation rate for USM1 currency.  So this is the subset of US dollars  that is in the form of cash, paper bills, and coins.  So one thing that the central governance of money  is supposed to do is supposed to kind of adjust  the money supply so that it closely matches  the actual economic output of society.  If you look at the inflation curve for the US dollar,  I mean, compared to crypto, it kind of looks like a hot mess.  I mean, like, do we really know what we're doing?  I mean, I hope we do since the Fed exists,  but you look at a curve like this and, you know,  well, it looks rather volatile compared to cryptocurrency.  All right, there are a couple forms of unwanted scarcity  in cryptocurrency that, again, I think Monero  is proactively taking steps to address.  One is unwanted scarcity and mining hardware.  So the miner reward should be linear with miner expense.  So in the original Bitcoin white paper,  Satoshi put in the phrase one CPU, one vote.  The idea is that all the computers  in this decentralized network  should have sort of an equal probability  of hitting the next block, of finding a nonce  that satisfies the difficulty that will get them the reward.  Because that's what you need to have a decentralized system  is you want a bunch of little guys working together  to come to consensus.  But unfortunately, economies of scale  in Silicon hardware development  have destroyed this linearity.  So if you have a CPU and you join it to the Bitcoin network,  now there's basically no chance that you will,  like it's vanishingly small,  the chance that you will be able to get a Bitcoin block  with your little CPU.  That is because the algorithms that are used in Bitcoin  are simple enough that you can design custom pieces of hardware.  In other words, ASICs,  custom pieces of hardware have been designed,  like from the Silicon up to do nothing but mine for Bitcoin.  And when you put those on the network,  they obliterate any effort by CPUs to mine.  So what's the situation in Bitcoin mining today?  It's a Chinese oligopoly  because there's been the firms that are producing the ASICs  are all based in China.  They have their buddies and they have mining farms  that buy these ASICs.  And if you're not in that network,  it's hard to be a big player.  Now, this is not a negative because it's China,  this is a negative because it's localized.  It would be a problem if it were any country  that had a localized kind of monopoly  on the production of new blocks.  So Minero's proof-of-work algorithm is evolving  to keep CPU and GPU miners,  in other words, the little guys of crypto relevant  and in the running to get their own piece of the pie  in terms of mining rewards.  So the Kryptonite POW algorithm gave way to Kryptonite R  once it was learned about a year and a half ago  that there was a successful ASIC manufactured from Minero.  And now there's a new algorithm of proof-of-work  called RandomX, which is technically fascinating.  For one thing, it uses floating point arithmetic  to basically vet that miners are doing work.  And so by doing this, it seeks to neutralize  the advantage that ASICs have.  Or in other words, an ASIC that is optimized  to mine Minero is gonna be the same as a CPU  that you can buy from A&D.  That's the goal.  And this RandomX change has gone through a formal audit.  It's been audited four times.  We've got green lights, and so it's gonna be implemented  in one of the next upcoming updates of Minero.  There's another form of unwanted scarcity  I wanna talk about, and that is the ability  of the little guy to get access to layer one.  That is, can the little guy actually get their transaction  onto the blockchain?  So what happens in Bitcoin is that whenever there's  a hype phase in Bitcoin and the price spikes,  you see a spike in transactions going  to the Bitcoin blockchain.  Like basically the interest in price  drives interest in adoption.  You have noobs buying Bitcoin, and now they wanna use it.  They wanna find out what this magical internet money's about.  So then they go to write their check.  They sign their transaction, say I wanna send  a little bit of Bitcoin to my buddy here, and see.  The problem is that at times of peak demand,  Bitcoin's network clogs up, and so you have thousands  of transactions waiting to process in the Bitcoin men pool.  Now in the early versions of the code, Satoshi put  in a one megabyte limit on the size of each new block.  So every 10 minutes, the size of the block  in kilobytes is specified, and it's one megabyte.  Bitcoin has had a civil war over this.  So if you're not kind of tuned into the crypto world,  there is a big, it's like an E-Max versus VI battle royale.  People are going at each other's throats,  debating whether the one megabyte block size  should be modified, there's lots of politics.  It was exacerbated by the fact that most of the miners  are Chinese, and so now you have a culture gap  with most of the devs not being Chinese,  and then that kind of adds to the drama.  Monero avoids this by having an adaptive block size.  So in Monero, there is no hard-coded limit  on how many transactions can be in a block.  There's a block reward penalty that kicks in to the miners  if the block that a miner finds is too large.  So, but what happens if there's actually organic growth  and people are actually wanting to use the network?  Well, how are the miners gonna get paid?  If they don't get the block reward?  The system also has a compensating feature  that if there's high demand for transactions on Monero,  then the users, the people actually making the spend  instructions are asked to pay a bit more in fees.  And so those fees go to the miner, right?  So, and there's also in Monero ongoing research  to reduce the transaction size  and to relieve the burden of fees from the users.  So this is how Monero has addressed one of the key  stumbling blocks and drama points within Bitcoin.  All right, the second foundation of Monero is fungibility.  This is kind of Monero's key feature.  So, and much has been said about it,  so I'll just try to go over it quickly.  But I want to mention that emphasize that Bitcoin  is radically transparent.  Bitcoin is completely see-through.  So, I'm gonna go ahead and go ahead and go ahead  and go ahead and go ahead and go ahead  and go ahead and go ahead and go ahead and go ahead  and go ahead and see through.  So, I think Satoshi was putting together  a bunch of different concepts from cryptography,  game theory, distributed networks to put together Bitcoin.  He needed a network of geeks  to download the software, start their own little network,  kick the tires, verify that the thing works like it says.  If you want that to happen,  you need to have a transparent blockchain.  You need to have proof that,  hey, hey yo, I just sent you a Bitcoin.  I see that I spent it.  see that you got it. Don't be denying that you got it. You know, I'm trying to hack this  system, trying to spend this Bitcoin two times. Gee, I can't do it. Everyone can see  I can't do it. Oh, this hacker over here claims that they hacked the protocol, but you go look  at the, you know, blockchain, you can see that they didn't. They're full of it. So basically  the early versions needed that transparency. Now fast forward ten years. We're in an age of  surveillance capitalism. Basically everything you do is tracked. Like all the financial details  in the fiat system, it gets, it gets creepy, right? So it's, the right tends to be concerned  about the government knowing too much data. The left tends to be concerned about companies  knowing too much data. I mean, the situation we have now is a nice combination of both.  And so Bitcoin is adding fuel to that fire. It's completely transparent. So in the Bitcoin  blockchain, what is visible to everyone and what is etched in the blockchain forever? Every  transaction. So who sent, who received, how much? If you know somebody's Bitcoin address,  it's trivial to go to a blockchain explorer and find out how much money they have. This  is a showstopper for like my client base, which is kind of high net worth and institutional  investors. Nobody wants people just being able to snoop on your account. See how much  money you have. It's a showstopper. The other thing is that because Bitcoin is transparent,  you can trace the record of ownership of every single Bitcoin in existence. You can  trace it back to the miner who first got the Bitcoin and who they passed it off to blah,  blah, blah until you get it, right? So it's as if you have a dollar bill on which the  back of the dollar bill has a neat table, which says at this time this dollar bill was  owned by Steve. Then it went to Joe on this date and that stuff is etched into the back  of that dollar bill and it's backed up by the proof of work security. You can't fake  that. You can't deny that it's not true. So the consequence of this is that it's not just  value that transfers when you send Bitcoin to somebody. It's also their reputation. The  sender's reputation transfers to the receiver. Now, this is just a screwed up situation with  money, right? So you don't want to have to conduct a background investigation on the  guy who's trying to send you money for coffee because you're worried that they might be  kind of associated with something unsavory, right? It basically introduces a burden of  due diligence and know your customer on every little guy who owns Bitcoin. Now, there are  companies out there whose job it is to try to start with the Bitcoin blockchain, which  is again, it's fully transparent. Everyone can see who sent what to who and then associate  each of those Bitcoin addresses to actual humans, right? Names and faces, associating  that. And that information is out there. For example, if you buy Bitcoin at Coinbase, you  have to go through their KYC process. You have to say who you are. You have to upload photos  of yourself holding your passport up, you know, and all sorts of like hoops to prove  who you are. That puts a face and name to the Bitcoin address that they give you. And  so it's just off to the races with trying to add little pieces of data that will put  names and faces on the Bitcoin blockchain and, you know, basically docks everybody.  So in the Bitcoin protocol, it encourages guilt by association. It encourages people  to say, oh, you got Bitcoin from that bad guy. You must be bad because the people doing  blockchain analysis have no other information. Like you might sell your car to somebody who  did something bad. You don't know that. You gave you're selling your car. Some guy had  Bitcoin. You took it and now you're, you're all of a sudden you're finding your bank accounts  being frozen. Like this kind of thing is happening in Bitcoin. The protocol also encourages  voyeurism. So like every other day on Reddit there's a new post saying, oh, you know, this  whale of Bitcoin just sent their Bitcoins to the Binance address. Are they going to  sell? It's frankly creepy. It should be nobody's business that, you know, some person sent  their money to an exchange. Finally, there is an important paper that came out by Akerlof  in 1970 that talks about the market for used cars. This is not an obscure paper. Akerlof  actually won the Nobel Prize in Economics in 2001, largely based on this paper. So here's  what this paper says. Think about the market for used cars. You're a used car seller. There  are two types of used car sellers. They're used car sellers who did a good job maintaining  their car. They took care of it. They did the maintenance. They changed the oil. They have  a good one and they're trying to sell it. On the other hand, you have used car sellers  who did none of that. They treated their car like junk. They abused it. You know, they  didn't get things fixed. You have people like that also trying to sell their used car. Cosmetically  they're identical. Enter you, now, you're a buyer. You don't know if you're getting a  good used car or a bad used car. You would be willing to pay a higher price for the good  one. But for a bad one, you're willing to pay a lower price. But you're ignorant as  to the actual identity of the goodness or badness of any given used car. So what do  you do? You hedge. You say, oh, I think there's a 50% probability that I'm going to get a  bad one. Therefore, I'm going to offer exactly half of the, you know, I'm going to split  the difference. I would pay this for a good car and less for a bad car. I'm going to pay,  I'm going to offer half. I'm going to offer in between because I don't know if it's a  good one or a bad one. When the purchaser of the used car offers half, how do the sellers  respond? The sellers of the good car know that they took care of it. So they're going  to be insulted by this offer of less money for what they've done. They want to be rewarded  for taking care of their car. But the buyers are not offering that because they're suspicious.  So the new car buyers are going to exit the market. They're going to keep their cars. The  result is the market becomes overrun by the bad cars. Right? So it's a natural kind of  feedback loop that happens when you have a state of ignorance on the part of buyers as  to what they're buying and there's differential quality levels in what they're buying. It tends  to drive out the sellers of the good stuff. Think of this in Bitcoin now. You're a Bitcoin  user. You want to sell your Bitcoin to somebody. You could be one of two types. You could be  a squeaky clean guy. You know, played by the rules. You have nothing to hide. You want to  sell your Bitcoin or you could be one of the 1% of Bitcoin users. This was a Bitcoin, a  Bloomberg study that just came out. 1% of Bitcoin is used in transactions that are questionable.  Like it's far less than what the media would have you believe. 1%. So let's say you're  1% of these bad guys. You have a Bitcoin. You got it by hacking something or whatever.  And you're trying to sell that. Now you both have what appear to be identical Bitcoins.  Right? The same thing is going to happen. We also, we already see evidence of basically  virgin Bitcoins being sold for higher prices than used Bitcoins. So there's a premium being  paid to Chinese miners who sell them. They're never used before Bitcoin that they received  from mining. And the price for the used Bitcoins is becoming lower. That's because the buyer  doesn't know what the history of the Bitcoin is. So this exact same process is happening  in Bitcoin. It's a fatal flaw. In Monero, the blockchain tracks who sent how much to  whom just like in Bitcoin. However, what you can learn from looking at the blockchain,  it depends on who you are. If you're just a random person who has no Monero and you look  at the Monero blockchain, what you can see is that there were blocks that happened. You  can see that each of those blocks had a certain reward that went to a miner. You can see the  amount of that reward. And then you'll see a bunch of transactions. You'll see like checks  right that were sent from people within from one person in Monero network to the other.  But they're all encrypted to you a stranger. They look like encrypted garbage. The sender  is encrypted. The receiver is encrypted. The amount sent is encrypted. Now let's say you  own a view key from Monero. It could be your own view key. It could be your buddy's view  key. If you have a view key, then now you can scan the blockchain with your view key.  And then what will happen is that those transactions that have to do with that view key will become  decrypted. Everything else will remain encrypted. It's just a very common sense way to run things.  Like you should have access to things that pertain to you. You shouldn't have access  to the things that don't pertain to you. It's pretty 101. But apparently in blockchain because  of the first paper coming out being not having that situation, it's sort of like a niche  idea at this point, which makes really little sense.  So in Monero, there's technologies that are used together to synthesize fungibility. There's  ring signatures which get used for sender privacy. So when you send Monero, your identity  is joined with the identities of 10 other people in Monero. And all you know is that  one of these 11 people sent the Monero. You can cryptographically prove that one of the  11 sent it, but you can't prove that you actually sent it. So every transaction looks like a  group of 11 sending some money to somebody. That's ring signatures. Stealth addresses  protect the recipient privacy. So if I send Monero to you, your address does not show  up on the blockchain. It's an encrypted version of your address which differs for every transaction.  Confidential amounts will hide the amount privacy and there's more math behind that.  All three of these ingredients combine to synthesize Monero's fungibility which is on  by default. There are some other projects that do not provide privacy by default. You  opt into the privacy. This subjects you to the lemon problem. The people who are opting  in to get privacy on their transparent coins are going to tend to be the bad ones. So if  you're a squeaky clean guy, and that's who I care about, they're my client base, if you're  a squeaky clean guy, why would you even engage in this? You're just going to put your reputation  at risk. It just guarantees that only the shady people are going to use it. So in Monero,  the coins are indistinguishable. They're amnesiac. So user privacy stems from this fungibility.  Now unfortunately, I think because Monero is not the market leader right now, it gets  subject to some slander. One of those slanders is that only bad guys are going to want Monero.  And this I think is an unfortunate situation. Monero benefits people who have nothing to  hide. It eliminates the risk that people will receive coins that are tainted due to no fault  of the receiver. So this car example before, I sell my car to somebody and unbeknownst to  me, they did something that was not so cool. And now I'm getting blamed because I'm associated  with that person because the money has a complete transparent history behind it. That's the  best, that is the biggest selling point for people who are squeaky clean. It's counterintuitive  because you would think that the privacy coin is most useful for people who have something  to hide. It's most useful for people who have nothing to hide because they have reputations  to protect. For businesses, Monero protects them because it eliminates the risk of competitors  snooping around for trade secrets. So if you're a business, you have suppliers, you're a customer  to other businesses you get your stuff from, and you have your own customers. That pricing  information is not something that companies just give out. It's part of their secret  sauce. The identity of their suppliers, how they buy it, how much they buy it. These are  trade secrets and people have no problem with that. Like businesses are entitled to have  trade secrets. There's nothing nefarious about that. For employees, let's say you work for a  company that is crypto savvy and they're doing their payroll in crypto. Well, imagine that  they're doing their payroll in a transparent crypto like Bitcoin. Every Friday you see your  pay check in Bitcoin. It shows your employer's address. It shows your address. It shows how  much you got. Now you know your employer's Bitcoin address. You go to your board one Friday.  You go to your thing, your blockchain explorer just at your desk. You browse to an explorer.  You type in your boss's Bitcoin address. Now you see how much money they have. Oh, gee.  Now there are 50 other payroll transactions. You don't know their payroll, but they happen  to happen on the Friday afternoon that you got paid. So what else would it be? Now you  have 50 other transactions that go into your buddies. Now you have this nice little voyeuristic  puzzle going on. You're going to try and figure out what your neighbors make. Oh, gee. Fred  just left the company last week. There's a Bitcoin address that didn't get money this  week. I guess I know who Fred is. There's all this snooping that you can do with sensitive  information. For high net worth and institutional investors, it eliminates the risk that blockchain  research will be used to target them. So there are a number of reasons that Monero benefits  people with nothing to hide. All right. The third foundation, users. So they're user types.  I'm just going to arbitrarily divide them into short term and long term. Short term users  are people who have an immediate need to spend Monero, so they get some Monero and then they  spend it. In contrast to that, you have people who don't have an immediate idea for what  they want to spend their Monero on, and we'll call them investors. Traditionally, this project  has been very in favor. It's emphasized the use case of people needing Monero for their  daily lives. We're talking people like whistleblowers who are exposing corruption in their government.  They are subject to unjust persecution if they make their knowledge known, and so they want  to have a form of value transfer that is not easily traceable. Or you have citizens in  repressive regimes who are barred from, for example, taking their money out of their country,  and they want some way to preserve their hard earned wealth. And so technically what they  would be doing is not kosher by their particular jurisdiction, but it might be just fine in  the jurisdiction that they're about to be moving to. So it's use cases like this that  have been emphasized by the Monero project, and investors have not been quite so welcome.  But I think there's a false dichotomy here. So Gresham's law applies to users too. Gresham's  law is the idea that the superior forms of money will get hoarded, and the inferior  forms of money will get circulated. So basically it's the Bitcoin pizza thing. So if you own  an asset like Bitcoin, which you think is going to be subject to potential massive appreciation  in the future, there's no way you're going to spend your Bitcoin to buy a pizza. You're  just going to use your US dollars. Why would you give away your kind of lottery ticket  when you have just regular old cash that you can use? That's Gresham's law. That applies  to everyday users of Monero too. So everyday users of Monero who get a little bit more  Monero than they think they're going to use, and then they just store some, like they're  a small-time investor. So there's a kind of false dichotomy between these two types. Another  thing is that investors are often portrayed as being mere speculators. They're just greedy  speculators who don't do anything useful. Consider the example of jet fuel futures,  where you have an airline that is worried that jet fuel prices will increase in the  future, so they lock down a contract for the future purchase of jet fuel. Somebody has  to be on the opposite side of that contract. So if you're a speculator who thinks that  the price of jet fuel is actually going to go down, that's a contract that you will agree  to participate in with the airline, because you think that jet fuel is going to go down  in price. Therefore, in the future, when the airline needs it, you'll be able to buy the  fuel for cheap, sell it to the airline for the price that they agreed to in the contract,  and make money. That's a speculator. But for some reason, the hedger who's being cautious  and prudent is given a sort of moral free pass, whereas the speculator is not. Whereas  the reality is you need both parties to make that contract happen. The reality is a little  more gray than you might think. I used to be a symphony orchestra musician. I played  first violin, and then there was a keyboardist for a, one of the major league US orchestras  before it, unfortunately, filed for chapter seven in the Great Recession. But one thing  that used to upset me was the fact that there are these rare, strata-various violins that  are out there that some investor buys and then puts in a closet. Basically, you have  this kind of rare treasure that could be used to play concerts, and yet it's just sitting  in some rich person's closet. There's a different perspective to this, though, because every  year there are strata-variouses that get destroyed by accident. There are artists who absentmindedly  kind of leave their precious strata in the backseat of a New York taxi cab that actually  happened. And so you can argue that the act of holding a strata is actually preserving  its function for future generations. And so I think there's something similar happening  for long-term investors who hold cryptocurrency. Right now we're in a time of history where  it's a pain in the butt, frankly, to learn all this stuff, figure it out, buy it yourself,  investigate yourself, keep it safe. It's a pain. But people are working on that. And  if you project that the fundamental scarcity of your asset is going to be needed in the  future, you combine that with the projection of easier users' experience in the future.  Basically the investors in that situation, they're putting their capital on the line  and being rewarded or not rewarded based on how things go. But the service that they're  providing is preservation of a scarce asset for future generations. Finally, there's  US tax law's impact on this user mix. So the US tax law holds cryptocurrency to be a,  you have to treat it like stock. So if you buy Monero and then you later sell it, you  have a capital gain, you're supposed to report the capital gain and pay capital gains tax  on it. Capital gains tax is different whether you hold the asset for a year or more or shorter  than a year. Basically if you hold the asset for a year or longer, you get a discount on  your taxes. That's for most people. It depends on your personal situation. But for most people,  long-term capital gains tax rates are lower. What that means is that because the US tax  law is the way it is, it rewards people who do their research and pick an asset that has  long-term potential. And so for a quality project like Monero, it's going to attract  that sort of investor, the one who does their due diligence and looks carefully. I think  there's a certain type of community investor that does a bunch of things and kind of deserves  a spot at the table. One is that they have the attitude that they're bearing financial  risk of the project. By owning a token, you do not become a customer. You become a shareer  of the financial risk of the project. The community investor will take self-custody  because if you leave your coins on exchange, they're subject to getting hacked and going  to somebody that's not trustworthy. By taking your coins off the exchange and into your  own custody, keeping your own private key, you do your part in securing that the scarce  asset will be decentralized and available for future generations.  Community investors zoom out. There's a tendency among new crypto guys to really zoom in, like  on the time scale, zoom in on the money scale and do things like, oh gee, I hope the crypto  is going to go 5% up today. I mean, it's ridiculous if you zoom out to long time scales. You see  that the real game in cryptocurrency is getting in at the right order of magnitude. Not trying  to make 5%. You're trying to get in at the right number of zeros.  Community investors not only take the step of protecting their scarce asset by owning  their own private keys, but they will also take the time and trouble to put legal structures  up to also protect the assets. So, for example, using trusts to ensure that assets are there  for future generations is something that you can do with cryptocurrency. It's kind of a  new field within the trust world, and I work with some very esteemed partners in the trust  world who are familiar with that whole, it's like a whole separate planet. And I kind of  have the exciting job of being able to liaise with those people to get legal structures  like trusts in place for holders of crypto. Community investors actively participate in  the project. They actively contribute to the project rather than try to take things from  it. And here are the benefits to the project. The assets of the project get safeguarded  for future users. Long-term investors will drive the price up because they get on the  demand side of the curve. Therefore, the clearing price for the asset will rise. In Minera,  we don't particularly care that the price is going to go up on its own because this  is not a get-rich-quick sort of ethos project. However, a rising price of Minera does attract  miners who have CPUs and GPUs that they can point to the network to help secure it. So,  a rising price is a leading indicator. It's a precursor of rising hash power. And so, in  that sense, long-term investors serve to strengthen the network. So, a taxonomy of assets. There's  non-fungible and fungible. Within decentralized assets, Bitcoin is not fungible. It's totally  traceable. Therefore, its competition is things like PayPal. Like, basically, if you're going  to be, if you're going to have a form of money that's attached to your name, like, you're  competing with PayPal because if you want PayPal, like, PayPal makes it dead easy to send money.  That's their thing. And if you're willing to be, you know, associated with your account,  then that's who you're competing with. Whereas, Minero is basically gold that understands  TCP, IP. Right? I mean, they've tried to put, you know, Ethernet jacks on gold. It didn't  work. This is the closest thing humanity has come to that. If you look at the monthly returns  since Minero has been in existence, it's, they're pretty spectacular. These are monthly  returns. So, I'm showing Minero, Bitcoin versus gold, which is sort of the physical  old world analog, US stocks and US bonds. Now, in the traditional investing world, correlations  are crucially important. So, what you're looking at here is monthly returns correlated against  each other. You can see that the correlation coefficient of Minero and Bitcoin is 0.35,  which is significant. So, they tend to go up and down together slightly. But if you look  at Minero versus US stocks, you're looking at a 0.02 correlation. US bonds, it's a negative  0.034 correlation. Why is that relevant? Because in modern portfolio theory, and this  was another Nobel Prize in economics, Markowitz, 1954, I think, if you take two different assets  that have ups and downs that don't correlate together and you add them together to make  a portfolio of them, your overall volatility goes down. This should be kind of intuitive.  If you have two things that don't wiggle the same way and you add them up, then the sum  is going to have less wiggle than if you just doubled one of your investments, right? So,  basically, on Wall Street, uncorrelated gains are like everyone's like willing to, you know,  put their career on the line to get that. And it's been realized. Now, of course, future  results don't, you know, future results are not dependent on past results. But one thing  that is, that does tend to persist in finance is correlation structure. So, that is, it's  not wise to think that the price went up before, so it'll continue to go up. It's slightly  more okay to say that the asset has been uncorrelated in the past, so it's likely to remain uncorrelated  in the future. Is Monero just levered Bitcoin? So, because Monero is more volatile than Bitcoin,  you could ask the question, well, I'm just going to, you know, borrow money, buy more  Bitcoin and then I'll replicate Monero. Can you do that? So, you can do a regression analysis  to figure that out. The result that you get is that Monero wiggles up and down like 1.1  times Bitcoin, which means that the outperformance that we've seen historically from Monero is  only minimally explained by the risk factors that are subject to Bitcoin. The rest of it  is idiosyncratic. It's unique to Monero. And anyone who's been in Monero for a number of  years will attest to this, that usually it's pretty boring as an investor being in Monero,  but then there are some exhilarating times when the price will triple or quadruple, you  know, in a week. And then it's back to normal. It's back to boring. It's basically there  are these sharp market realizations that, oh, there's this meritorious project that  we've been ignoring. And, you know, let's adjust the price. All right, again, as a long-term  investor, you want to zoom out. So, here I'm showing a 10-year timescale of price history.  You can see in blue the S&P 500 on this scale, and this is a log scale of price. You see  each one of these units on the left-hand side is an order of magnitude. It's an extra zero.  So we're talking a 1 million X return on the vertical scale. Now, when you choose a scale  like that, the performance of the U.S. stock market looks like a very anemic line. Contrast  this with the news coverage where a 20% drop in the S&P, it's like all over CNBC for like  three days, right? That's just like a tiny pebble in the road on this. In yellow, you  can see the price action of gold, and then we have Bitcoin and Monero. Now, when I look  at this, I see that there are two components that can explain this curve. If you look at  the Bitcoin curve, it's basically you see a smooth kind of growing component to it,  and then on top of that, you have these like massive ups and downs, right? They don't look  that massive, but again, keep in mind that one of those units is a factor of 10. So each  one of those little hiccups is like a 20X price pump followed by losing 90%. And those  happen with some regularity. And those, so basically you have a component of like the  smart money who puts in the research to learn the stuff and comes to the conclusion that  this stuff is for real. They get on the buy side and they stay there. On the other side,  you have less informed investors who, because they don't take the time or trouble to kind  of put in the discipline to learn about this stuff, as a proxy for a deep knowledge, they  put their finger in the air and they look at what their friends are doing, and then they  copy their friends. So in other words, if the price is going up, oh, I better get in.  If the price is going down, oh, I better get out. You know, that sort of simplistic thinking.  That leads to these bubble and pop cycles. So what you will see in the news coverage  is a magnification of the ups and downs, but you'll never see it really talked about that  Bitcoin is one of the first assets in the history of humanity to do a 1 million X in  a 10-year timespan. If you look at Monero, I think there's a similar dynamic happening.  And arguably, there's more potential upside because it's a relatively unknown project.  One thing that I want to emphasize, some people get hung up over the actual unit price of  things. So this is a trap. This happens in traditional finance too. There are people  who think, oh, this penny stock is only worth 3 cents. So if it goes to 4 cents, I'm making  it easy, 33%. Thinking that one penny increase is not a big deal because it's just a penny.  The reality is the kind of effort, what is needed for a stock to go from 3 cents to 4  cents is the same magnitude to propel a stock from 3,000 to 4,000. It's the percent that  is relevant, not the unit. Does that make sense? That's why you don't have companies  saying, oh, for every share of stock, we're going to give you a million shares of stock,  new stock. So now your new shares of stock are worth 3 tenths of the penny and gee, you  should really buy it because it could go to 4 tenths of a penny and that's only a tenth  of a penny. That sort of logic is rampant in crypto. I think it's just like Wall Street  people say really cringy things on a technical level. For blockchain, they're like nubes  to investing and the blockchain side, you say things like that and then it's equally  cringy to people who have studied finance. So my point being unit prices are not that  relevant. So how do you get a sense of whether Monero at 100 bucks, which is the rough price  it is today, is that overvalued or unvalued? You can do a ratio. So basically the next  chart that I'm going to show is showing you the value of all Bitcoin in the world at a  given moment divided by the value of all of the above ground gold in the world at that  same moment. It's a ratio. It's a crypto to gold ratio. Here's what you get. You see  the meteoric sort of exponential rise and you see that at the current moment, the total  value of all the world's Bitcoin and this chart is, I updated it through the end of  July. So it's only a few days old. You can see that all the Bitcoin in the world is worth  roughly 3% the value of all of the gold in the world. Whereas if you look at Monero,  which arguably is a much closer approximation to actual gold because it's fungible, it's  much closer to an actual, you know, internetable gold than Monero, than Bitcoin is yet the  value of all the Monero in the world is about two tenths of a, two hundredths of a percent  of that of all the physical gold in the world. This is the chart that basically humanity  is in the process of figuring out what the correct value is and makes it sort of an exciting  time to be alive. All right. I'm way over time. Sorry. There's one more thing I have  like three slides left. One is culture. So because cryptocurrencies are decentralized  assemblages of people, it's not citizenship based, right? It's global. It's any person  can opt in and join a cryptocurrency sort of network. And as a result, there's an ethos  that gets associated with each project. Monero keeps basically all of the good things of  Bitcoin in this regard. In Monero, there's no formal organizational structure. There's  no centralized authority to go after the culture. Like I've been to a lot of meetups.  I've been to a lot of people. What I find is that consistently there's an idealistic,  scientific and yet welcoming cypherpunk community, which I think is a perfect fit for DEF CON.  This is basically the if DEF CON people could like sit down and make a crypto from scratch,  it would look like Monero. There's also in common this kind of tendency for both people  in DEF CON and I would say people in Monero to be mis-portrayed, misunderstood, basically  treated with some suspicion for no reason. Well, we still have a thing called innocent  until proven guilty in this country. And we still have a thing called the First Amendment,  which requires people to actually stand up and exercise their rights, lest they get taken  away. So I think participating in a forum like DEF CON, participating in a project like  Monero are both ways to exercise your First Amendment right. Monero Research Lab is full-time  PhDs that are dedicated to improving the guts of Monero. There's like lots of very smart  people on this project. In terms of developer effort, it actually ranks number three behind  Bitcoin and Ethereum. Next after that is Monero in terms of developer effort.  All right. Also relevant, just like Bitcoin, there was no pre-mine. So some crypto projects  will kind of do a bunch of mining for themselves, then announce to the world, hey, there's a  new great new crypto that's going to cure cancer, kind of not mentioning that for the  last three months they've been mining for themselves a bunch of the tokens. That's a  pre-mine. It didn't happen in Monero. There's no pre-sale. There's no Insta-mine. There  is no token sale. There are all these kind of rather scammy ways that people have come  up with to make a personal buck off of the development of new crypto. None of that happened  in Monero. There's no diversion of miner fees. So when a user pays a fee to them to get  their transaction through, 100% of it goes to the miner that supported them.  Among other things, this ensures FinCEN compliance. So if you want to talk about regulatory compliance,  the fact that the miners in Monero are getting 100% of the reward is one of the criteria  that the US FinCEN defined as being a decentralized virtual currency, which is the good kind.  It's also compliant with privacy regulations. So in Europe, they have some pretty strong  privacy regulation because they're concerned about that. Monero is just a natural fit for  that. It complies with that. Whereas all these transparent coins do not. It's 100%  free and open source software. There's lots of projects out there who do some similar  things that decided that, well, we want to try and make trade secrets with our crypto.  We're not going to share the source code. That is not Monero. Monero also has, I think,  the right mindset when it comes to the pace of innovation. So there are regular six-month  hard forks in Monero. This is another point of civil war in Bitcoin because you have basically  the dominant people in Bitcoin are basically allergic to hard forks. They insist that any  new change in the code must be backwards compatible with the old code. And so this leads to a  number of flame wars. I will say that one fantastic thing, if you're a newb coming into  crypto, if you look into Monero, you will not be forced to make a decision about which  people within Monero you're supposed to hate. Because if you go into Bitcoin, this is like  newb 101. You've got to find out, are you in the Bitcoin core, Bitcoin Cash, Bitcoin  SVCAMs, and then you have to wage G-HOT against the others because they don't have the right  vision. This has not happened to Monero and it's because the project is focused. It has  an idealistic vision of the type of user that it wants to help and then everything is subservient  to that. It's not so ill-defined that you could have three different projects all calling  themselves Bitcoin, all of them vastly different. Finally, there's a tendency within crypto  investors to look at the next new shiny thing and go pick it up. A lot of people miss Bitcoin.  They had the chance to buy it at a buck and didn't. And so now that it's above 10,000,  they're looking at the next new shiny thing because they don't want to miss out. That  leads to a phenomenon that actually also happens in the capital markets. IPOs tend to be oversold  when they first get listed because there's a bunch of hype to the new projects. And then  as the hype kind of dies away, the price settles down. Something like this also happens in  crypto. It's like the next new shiny crypto that has like two weeks of history gets like  heralded as the new thing. Experience counts because like in Monero, which is a fairly  old project at this point in crypto terms of over five years, it has a history of basically  doing the right thing for its users. It has a history of basically keeping its mouth shut,  not shooting t-shirts out of t-shirt cannons at people, just basically keeping your mouth  shut, doing good innovation, writing good code, and then periodically dropping an upgrade  on the world. That does something better. Like for example, bulletproofs came out in  the last major upgrade. Bulletproofs are a way to ensure that the hiding of the amount  that gets sent can be done cryptographically securely with one-tenth of the kilobyte space  that it formerly did. So basically overnight, the fee per transaction in Monero got cut  by an order of magnitude. Today, the cost to send a private by default transaction in  Monero is four-tenths of the penny. And it's because these fundamental improvements in  basically the engine under the hood are happening quietly without fanfare, mostly getting ignored  by the market. But it's been happening for a sustained pace for over five years now.  All right. To summarize the talk, Monero is what Bitcoin nudes think they bought. And  that's why I think everyone at DEF CON should be excited about this project and look into  participating on their own. After doing their own due diligence research and disbelieving  every word that I've just said. All right. Here's a list of Monero resources. I'll just  leave it up for reference. Thank you very much.
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Dr. Daniel Kim, ABAM PhD, Physics Harvard MBA Yale, is the founder and president of Sweetwater Digital Asset Consulting LLC, which you can see over there, which offers bespoke research and advisory services to institutional trust and family office investors seeking conceptual and practical guidance in considering cryptocurrency exposure for their portfolios. A 2013 winner of the CFA Institute's prestigious Graham and Dodd Top Award for Original Research, he previously served as director of research at a one, around one billion equity asset manager. With a multidisciplinary track record of innovation in the basic science, performing arts, medical and financial sectors, his breadth of knowledge has been well suited to understanding both the technical and socioeconomic aspects of Monero, Bitcoin and other decentralized ledger technologies. Thanks Diego, you're the best. Oh wait, I shouldn't have read that last part. I'm just kidding. Anyway, I'd like to, everyone to give a hand to Dr. Daniel Kim, and yeah. Tell us what you got, man. Blue Monero Village. So it's great to be here, and thanks again to Diego and the team here at Monero Village for putting on this really great opportunity. I was here last year, and spent a lot of time talking with people who came up and wanted to learn more about Monero, and what I found was that even though this is DEF CON, everyone has a super high IQ, and we people in the crypto space tend to think that everyone else has already been thinking about crypto too, but all of us started as kind of technical people who discovered cryptocurrency and kind of fell into the rabbit hole of learning about it. So that's one thing I want to try to do today, is kind of summarize the whole of cryptocurrency, why it's not a scam, why there's genuine innovation in it, for a technically smart but not necessarily crypto-immersed person. Second is that I've had the privilege and pleasure of attending maybe seven or eight Monero only meetups at this point, and there has not really been much representation from investors. So I would like to kind of pause it that there's a certain type of community-minded investor that this project could maybe make a spot at the table for, not saying that it doesn't, but historically this project has been rather more focused on the needs of users, to the detriment, not detriment, but just saying that investors are kind of given maybe a second spot. So that's my second goal in this talk is to talk about, to propose a certain type of investor that is helpful to the project. All right, and as a disclosure, I have clients who have long positions in Monero, and also Bitcoin and its associated forks. And if I'm not your personal advisor, then none of this is going to be financial advice. It's not legal advice, even though I'll mention some legal and regulatory things. That's just as a personal comments as a US citizen exercising his first amendment rights. So the big picture, why is crypto here to stay? So we now are blessed to live in an age where the marginal cost of copying data around the world is zero. So everyone has a smartphone, which is very good at copying packets. So what is rare now that this ability is now commodified and available to everybody? Two things are gonna be rare, digital scarcity, which would be a digital form of money, and secondly, digital privacy. Because these things are packet copying devices, there's a proliferation of data being spread around to everybody, what's gonna be rare is having data all to yourself, i.e. privacy. So these two things are the kind of big picture, societal reasons why cryptocurrency, I think, is not going anywhere. So the theme of Monero Pellage this year is the foundations of money. And so I come up with four foundations of money that I think that are important to satisfy. One is scarcity, two is fungibility. Fungibility just means a property of money in which each unit of money is indistinguishable from the other. So in other words, the money has no history behind it. And if money has no history behind it, then the users then gain by having privacy as a result of using this memoryless money. Third is users. You have to have a group of users who agree that this thing that they're calling money is money. And fourth is culture. So one thing that cryptocurrencies do is separate the concepts of money and state. It's about as big an idea as the separation of church and state was earlier in human history. If you think that money and state might be better off separate, then this is cryptocurrency. And so what this means is that you have ad hoc networks of people coming together and kind of declaring, having a common ethos, a common culture, which leads to the token being exchanged as a unit of value among people of that community. So there's culture. So in the past governments would supply this culture for fiat currencies, for cryptocurrencies. You have user groups that basically become the culture. So the plan for the talk is I'm gonna go down the list, these four big themes and talk about fiat. I'll talk about Bitcoin. I'll talk about Monero. So first, scarcity. So we need digital scarcity in a money. So first I'll talk about fiat. That is government issued currencies, then Bitcoin and Monero. Here's the state of scarcity in fiat currency. So the current situation is that we have national central banks who are completely in charge of maintaining the money supply. Each of these exponential looking graphs that you see here is the supply of M1 money, which is defined as currency, coins and things that act like it, which would include bank accounts, checking and savings. So if you sum up the total of this on a per country basis, you get these charts. So for something that's supposed to be scarce, it can be argued that these charts don't really look so scarce. And the future is probably not gonna be quite so scarce either. So one strategy that countries have when faced with high debt is to inflate their currency, because if you owe somebody $100, it's the easy way out to make the dollar less valuable. Then in the future, when you have to pay back the $100, you have to expend less actual effort to repay your debt. So in the long term, this is a problem that all investors face. So anyone who has worked hard to earn their own assets has no immediate need for it, but wants to use it in the future is basically facing this inflation as a headwind. Now there are other drawbacks to the centralized security model. There's access to the database, the database being who owns what, like what basically the bank databases. Access to that database is protected. There's a firewall moat around it, right? Quite strongly fortified. And there's one authoritative version of the ledger that is held inside the bank walls. They're downsized to this. So number one, as mentioned before, the central banks do not have a completely error-free track record of managing the money supply to avoid things like hyperinflation. There can be insider abuse, so there was a case probably many of you have heard about of one of the national banks basically took their customers' information to create fake new checking and savings accounts in their names and then they proceeded to charge those guys' fees. And then these guys got away with kind of a slap on the wrist for this egregious abuse of their trust that the customers had given them. And of course, traditional finance has been quite slow to improve and adopt technological advancement. That's kind of natural and to be expected when you have a gatekeeper. If you have a central gatekeeper, what incentive does the gatekeeper have to improve their services to become 24, basically to become Amazonized? This is the reason why the banks continue to have Monday through Friday, nine to five, which is kind of, as new generations come up, that's gonna be an increasingly laughable concept. That services were only available when some people decide to show up at the branch office. In contrast to this, the decentralized security model that was introduced in the Bitcoin White Paper and is also adopted in Monero has a decentralized model in which anyone can join the peer-to-peer network that maintains the ledger that keeps track of who owns what. Each of these nodes maintains its own version of the ledger. Now there are downsides to this idea. It's new and so people have to wrap their heads around it. And secondly, it's inefficient because if you have decentralized network of computers that did not have to get approval from anyone to join this network, how are these computers gonna agree with each other on what the state of the accounting ledger is? So that was the innovation, the core innovation of the Satoshi Nakamoto White Paper which came out in late 2008. The Bitcoin Genesis block, that is the very first block containing transactions in Bitcoin happened just over 10 years ago, 10 and a half years ago. And throughout all of 2009, Bitcoin was operational that had zero dollar value. And for those new to crypto, I would encourage you to kind of pretend that we're back in 2009 because now that crypto assets have a price, it tends to mess people's thinking up, right? Because basically it triggers the fear and greed kind of mechanisms that money does. As technical people, it's better to kind of reset your brain, think about the Bitcoin project as it was in 2009 which is simply a project that a few geeks started with trying to create a system of digital scarcity that behaves like money but actually had no real world value. It's a bunch of geeks kicking stuff around. And they did this for over a year until they were satisfied that it behaved like money. And at that point, the very first transaction of Bitcoin for a real world service, the Bitcoin Pizza, which I'm sure many of you are familiar with, in which one brave soul spent $10,000 to get two pizzas delivered to him. Current market value, roughly $110 million for those two pizzas. So, but let's rewind again. We're going back to a time where Bitcoin had zero value and I'm going to attempt to explain this white paper in three slides. The Bitcoin white paper describes a way to synthesize digital scarcity without the need for a central authority to maintain that scarcity. So TLDR1, so the SECP256K1 elliptic curve is Y squared is congruent to XQ plus seven mod this very large 77 digit prime number. So elliptic curves, you'll often see like a kind of curvy shape, right? Which is true if you allow X and Y to be floating point numbers. But that's actually a confusing and unhelpful image because in this context, we're talking X and Y are both integers. And we're talking modulo arithmetic. This is clock arithmetic. So modulo arithmetic, mod 12 would be a clock, right? So one o'clock, 13 o'clock, 25 o'clock, those are all the same because they look like one o'clock on a clock. This is doing the same concept, but now instead of having 12 numbers on your clock, you have a 77 digit large prime number. That's how big your clock is, right? And so finding X and Y points that satisfy this equation is non-trivial. Part of the elliptic curve definition is that there's a solution, X, Y, that is given to you. And as it turns out, if you know a solution to the elliptic curve, you can generate another solution to the elliptic curve by kind of multiplying this point. So basically given any integer n, you can compute another solution to the elliptic curve P sub n. And this is a one-way function, which is crucial to a lot of crypto. If you know n, you can get the point. But if someone tells you the point, you don't know n. There's only one way to do that, and that is to brute force hack your way and try to guess the n that gives the piece of n. Now in technical language, this is called the discrete log assumption that it's basically computationally infeasible to go the other way. So how is this used in Bitcoin? So the public key, the point is a Bitcoin address. I'm simplifying slightly because there's a hash involved and so on. But that public key, which everybody knows is now your Bitcoin address. The private key is that number n, which was used to generate that point. And now that secret knowledge now is the authorized signal, authorized signature that allows the spending of whatever Bitcoin is in that elliptic curve point. So the key takeaway is that getting a new Bitcoin account. All that means is that you're picking a number. So pro tip, if you're asked to pick a number for your Bitcoin account, and your choices are between zero and a 77 digit number, don't pick 12. In other words, the random number generator that is used to pick your account, it's basically like picking a grain of sand off the beach and then declaring that it's yours. So in this sense, there's security by obscurity in that there's nothing stopping anybody else from randomly guessing your particular grain of sand and making off with your money, but then 10 to the 77 is a very large number. All right, so secure message signing is made possible by the elliptic curve cryptography that's defined by the elliptic curve from the last slide. So in secure message signing, just very simply, if you're a sender and you wanna send a message that is crucial for the outside world to know came from you, you'll take your message, you'll kind of wrap it, you'll basically encrypt it with your private key, and the combination of the message and the private key gives you a signature. It's a little data block. So now you send your message out to the world and you send your signature out to the world. So the signature has evidence of your private key in it, but not your actual private key. If you gave your actual private key away, that would be bad. Right, so the signature is a per message thing that you calculate given that you know your private key. Now the recipient gets your message, they also get your signature. They also know your public key, because the public key is supposed to be associated with your personal identity. When you combine those, you can get a binary verification result. You get a thumbs up or a thumbs down. So sending Bitcoin means you send a secure message to the Bitcoin network, right? So here we have a little legacy check from a US checking account. And instead of the bank account, the ABA number and the checking account number, you have the sender's Bitcoin address. The pay to the order of is the recipient's Bitcoin address, and you have an amount, and then you have a signature that you generate. So automatically this is cryptographically much stronger than the legacy check system in which you can just scribble whatever you want for your signature, and it's probably gonna go through, right? So then the concept of ownership of an asset is revolutionized by this idea. So knowledge of the private key, which is speech, which is protected by the First Amendment is money. This is an opposite situation as the Citizens United case that recently came up by the Supreme Court, which ruled that money is a form of speech, and therefore we should not regulate too much money that is donated to political campaigns, because that's speech. And if you curtail that, you're taking away their First Amendment rights. This is the opposite. Now knowledge, which is speech, is tantamount to money. So just to summarize a few other things to get you on board with the Bitcoin White Paper. So what's a miner? A miner is a peer-to-peer Bitcoin accountant. It's a computer that does, it helps to keep track of who sent what to who. A block is a list of the valid signs and spend messages that are received by the network. A hash is a one-way function. I'm glad I don't have to explain this too much to a DEF CON crowd. It's a one-way function in which you give it any sort of input, and it spits out a random looking sequence of bits of a fixed length. And it's useful because if the input changes by one bit, you're gonna get a completely different looking hash out of that. Difficulty is the maximum acceptable value for a block hash. So this is one of the kind of tough things to get your head around if you're new to crypto. In order to submit a valid block to the network, the hash of that block has to be a certain number, it has to be below a certain number. Now usually when you work with hash functions, you don't care about what the actual number is, you just care that it matches, right? So when you download a file and you wanna check that it's of the integrity of the file, you do a like a MD5 sum of your file locally, and then you check that that string matches what you think it should be from the download, right? Like when you check in a code to git and it gets tagged by your hash, that's how you identify that your code got put in and that's how you know that your code wasn't tampered with is that that hash stays the same. In this situation, we're arbitrarily saying the hash of a block must be less than a certain number, right? What does that mean? It means that miners have to work, they have to basically try to brute force guests to come up with a block that satisfies that difficulty requirement. So now you have transactions that are waiting to go into a block, you have a worldwide network of computers each of which is trying to figure out an accounting page, a block to add to the Bitcoin to blockchain, and in doing that, they need to come up with a block that has a certain hash number. In order to do that, they need to modify part of the block. So there's a little data space inside the block that can be modified by the miner, and so the miner brute force guesses a bunch of numbers to try and get the hash of this block to be below a certain number. So the first miner to do that gets a block reward. They get some of the Bitcoin. So this is a key game theoretical innovation in the Nakamoto White Paper, which is that all Bitcoin in existence came into being as a payout to a miner in the past. So it's not necessary to spend any money to get any Bitcoin. All you have to do is get a computer on the network, help out with the accounting, run the software, help process, and if your computer is successful in coming up with a hash block that satisfies the difficulty, then you will get some Bitcoin. This is important to get kind of past the idea that, oh, Bitcoin must be some company out there. Oh, Bitcoin, it's some entity, and then they tried to scam people out of money. Nobody took money for Bitcoin. So Bitcoin all came into existence as a mining reward. Now, basically, as the system was tested throughout 2009 and 2010, and it became clear that this unit of credit that was being accounted for had many properties of money and was very difficult to hack, at that point, it became the case that people who were interested in getting Bitcoin had two choices. You could put your own computer on the network and be a miner, or you could simply pay US dollars to a miner who had already done that. And so that's how the marketplace for Bitcoin, that non-mining Bitcoin was born. So since this network is globally based and there's no coordinator, there's no boss computer telling each of these node computers what the correct state of the blockchain is, what happens if you have a situation where two miners on different parts of the world come up with a block at the same time that satisfies difficulty, and now they spread that block around to their neighbors. So for example, if you have the Great Firewall situation, you could have the blockchain in China is different than the blockchain in the rest of the world because it takes time, because of the latency introduced by the Great Firewall. What happens then is that now the network is in a meta stable state. The people in China will continue mining the next block using their version. The people outside of China will continue to mining the next block with their version, and whoever comes up with the next block, so it's a stochastic process. It's like on average every 10 minutes, a new block happens, but it's push on distributed, which means it's on average 10 minutes, but it could be three seconds, it could be 50 minutes. So basically the next Chinese block versus the next non-Chinese block is highly likely to come at a different time. And so the rule of the network is that the longest chain is deemed to be the authoritative chain. So let's just say for the sake of argument that the Western block was the first to happen. Then that block will propagate across the Great Wall, it'll be slow, but it'll propagate, and the Chinese miners will say, oh, we just got this new blockchain from the West, which is longer than ours, so they will proceed to dump their version and adopt the version from the West. So this is how the network kind of self-heals itself from discrepancies in the state of the network. All right, so that was the white paper in hopefully not too much time. Nakamoto Consensus is a way to synthesize digital scarcity without the need for a central authority to maintain that scarcity. This is a huge idea. I mean, so the Nobel Prize requires that you have a person, an identifiable person to give the prize to, but this is basically that level of innovation. So what do I mean by digital scarcity? There are a few different meanings. So at the account level, digital scarcity means if you have a Bitcoin account, you keep your private key secret. So there are lots of stories in crypto land about people who do one of two screw-ups. They lose their key, right? So they set their computer to mine, and then, oops, they forgot their key. Or they do something so sophisticated and complicated in an effort to defend their key against getting hacked that they forget the process that they did to encrypt their own key, right? So there's screwing up that way. The screwing up the other way is you let that knowledge of your key out to people who you don't want it to have it. So when people talk about getting hacked in Bitcoin, it's one of those two things. It's not that the actual protocol itself got hacked. That has yet to happen. It's user error. And then, of course, the press reports it as a fault of the network. At the aggregate level, there's monetary supply. So as I mentioned before, all the Bitcoin in existence is previously given as a reward to miners who help maintain the network. And so the rules of that protocol will govern how many coins are going to be given out to miners now and in the future. So there's a predefined minor reward schedule. All right, so how does Monero differ from this? And now I'm focusing only on the scarcity aspects of the cryptocurrency. So first, the code base. Monero is not a Bitcoin fork. There are thousands of cryptocurrency projects out there. Almost all of them do a copy paste of the Bitcoin GitHub and change a few things and there you go, new crypto. So Monero had basically the guts to start over from scratch. So there's technical hedging there. The elliptic curve is different. So this is yet another very fundamental design choice that's different from Bitcoin. So the elliptic curve views in Monero is ED25519. There are dual private keys in Monero. So there's a spend key and there's a view key. So knowledge of the spend key is needed to spend your Monero. But there's a second view key, private view key, which is derived from the spend key. So it's basically kind of like a subset of the spend key. It's a view key and if you elect to share your view key with others, then those others can basically look at the blockchain and see the money that you received. So it's opt-in transparency for those who want transparency. The address space in Monero is bigger. So if you're worried about collisions, this whole problem of somebody else picking up your grain of sand, there's an extra 16 zeros in the address space for Monero at the cost of having longer addresses. So there's 10 to the 76 addresses available in Monero. The emission schedule is different. So in Bitcoin, every four years, the reward that's given to miners is cut in half. So this is known as the happening and it causes disruption in Bitcoin. Like if you imagine you're a Bitcoin miner, there is a date on your calendar circled in red at which point your income is gonna get split in two. There's lots of drama around that and it gets used to hype things too. So the supply is gonna be cut in half soon. So the price is only gonna go up and people are trying to use this as like a selling point. It's just unnecessary drama from the viewpoint of Monero. So Monero has a continuously decreasing reward schedule. Finally, Bitcoin has a social contract that only 21 million Bitcoin will ever be created. So this is easy to remember and understand for people who are used to the fiat inflationary system and so they latch onto it. But the problem is what happens when the last Bitcoins are given away to miners? Who is going to pay the miners for donating their hardware and electricity bills to support the network? So this is a non-trivial problem. It's contentious in the Bitcoin community. Monero's, as it does with so many other things, I think kind of steps back, looks at what Bitcoin does, thinks about what's happening over there and then comes up with something to address some of the conflict and drama that is in the currently dominant cryptocurrency. So in Monero, there's a tail emission. That is, the block reward will never go under 0.6 Monero per block. So what does this mean? It means that miners are guaranteed to be incentivized to support the network in perpetuity. It's gonna be infinite. There's gonna be money for miners forever. We don't worry about that here in Bitcoin, in Monero. Now, because there's a 0.6 Monero per block emission, that means that there's no fixed, we can't say that there's only gonna be 21 million Monero. There's gonna be more. But that inflation of the money supply is linear. That's crucial. It's linear. It's linear inflation of the money supply. So if you look at the annual inflation rate of something that's growing linearly, it's asymptotically zero. Right? So the quantity of interest in macroeconomics is the annual inflation rate. All the macroeconomic theory frameworks use that as an input. So it's the inflation rate that is macroeconomically relevant. And that is, that is a smoothly decreasing function toward zero in Monero. So you have this great situation in which macroeconomically you have zero, zero relevant inflation, yet you're paying the miners in perpetuity. Here's what that looks like. So this is a 30 year plot. As a long-term investor, I like plots with very long time scales on the horizontal axis. So the dotted blue line here, you're seeing is where we are in the present. There's been 10 years of cryptocurrency so far. And this is showing you how many Bitcoin exist as a function of time and how many Monero exist as a function of time. So Monero is a younger offshoot of cryptocurrency. It's five years old. And so you can see it started from zero. And the tail emission, you can see in the form of Monero's curve going slightly positively linear for all time. Whereas the Bitcoin curve reaches a limit of 21 million and then never grows. But then that introduces the problem that I mentioned before of how are you gonna pay the miners once that reward goes to zero. This is the monetary supply curve. Now if we take this and ask the question, what's the inflation rate? In other words, you look at the number of Monero now versus the number of Monero a year ago. And you get this. So this is basically the first derivative of the previous plot. This is annual supply inflation. And here you can see the black line is Bitcoin. And you can see every four years there's this drastic cutting in half of the block reward. In orange, you see the Monero inflation curve. And to contrast that, I've also added the inflation rate for gold. People usually don't think of gold as inflating, but it's actually being mined out of the ground. And so the world supply of above ground gold is in fact inflating. And kind of interestingly, if you analyze that gold curve and you ask the question, is that gold growth more consistent with linear growth or exponential growth? It's actually more consistent with exponential growth. And as you know, all exponential curves have in common that they have this kind of runaway hockey stick appearance. It doesn't matter how low the exponential growth rate is. It's eventually gonna look like the hockey stick if it's exponential, whereas with linear supply curve, again, the inflation rate is going to asymptotically approach zero. In blue, you see the inflation rate for USM1 currency. So this is the subset of US dollars that is in the form of cash, paper bills, and coins. So one thing that the central governance of money is supposed to do is supposed to kind of adjust the money supply so that it closely matches the actual economic output of society. If you look at the inflation curve for the US dollar, I mean, compared to crypto, it kind of looks like a hot mess. I mean, like, do we really know what we're doing? I mean, I hope we do since the Fed exists, but you look at a curve like this and, you know, well, it looks rather volatile compared to cryptocurrency. All right, there are a couple forms of unwanted scarcity in cryptocurrency that, again, I think Monero is proactively taking steps to address. One is unwanted scarcity and mining hardware. So the miner reward should be linear with miner expense. So in the original Bitcoin white paper, Satoshi put in the phrase one CPU, one vote. The idea is that all the computers in this decentralized network should have sort of an equal probability of hitting the next block, of finding a nonce that satisfies the difficulty that will get them the reward. Because that's what you need to have a decentralized system is you want a bunch of little guys working together to come to consensus. But unfortunately, economies of scale in Silicon hardware development have destroyed this linearity. So if you have a CPU and you join it to the Bitcoin network, now there's basically no chance that you will, like it's vanishingly small, the chance that you will be able to get a Bitcoin block with your little CPU. That is because the algorithms that are used in Bitcoin are simple enough that you can design custom pieces of hardware. In other words, ASICs, custom pieces of hardware have been designed, like from the Silicon up to do nothing but mine for Bitcoin. And when you put those on the network, they obliterate any effort by CPUs to mine. So what's the situation in Bitcoin mining today? It's a Chinese oligopoly because there's been the firms that are producing the ASICs are all based in China. They have their buddies and they have mining farms that buy these ASICs. And if you're not in that network, it's hard to be a big player. Now, this is not a negative because it's China, this is a negative because it's localized. It would be a problem if it were any country that had a localized kind of monopoly on the production of new blocks. So Minero's proof-of-work algorithm is evolving to keep CPU and GPU miners, in other words, the little guys of crypto relevant and in the running to get their own piece of the pie in terms of mining rewards. So the Kryptonite POW algorithm gave way to Kryptonite R once it was learned about a year and a half ago that there was a successful ASIC manufactured from Minero. And now there's a new algorithm of proof-of-work called RandomX, which is technically fascinating. For one thing, it uses floating point arithmetic to basically vet that miners are doing work. And so by doing this, it seeks to neutralize the advantage that ASICs have. Or in other words, an ASIC that is optimized to mine Minero is gonna be the same as a CPU that you can buy from A&D. That's the goal. And this RandomX change has gone through a formal audit. It's been audited four times. We've got green lights, and so it's gonna be implemented in one of the next upcoming updates of Minero. There's another form of unwanted scarcity I wanna talk about, and that is the ability of the little guy to get access to layer one. That is, can the little guy actually get their transaction onto the blockchain? So what happens in Bitcoin is that whenever there's a hype phase in Bitcoin and the price spikes, you see a spike in transactions going to the Bitcoin blockchain. Like basically the interest in price drives interest in adoption. You have noobs buying Bitcoin, and now they wanna use it. They wanna find out what this magical internet money's about. So then they go to write their check. They sign their transaction, say I wanna send a little bit of Bitcoin to my buddy here, and see. The problem is that at times of peak demand, Bitcoin's network clogs up, and so you have thousands of transactions waiting to process in the Bitcoin men pool. Now in the early versions of the code, Satoshi put in a one megabyte limit on the size of each new block. So every 10 minutes, the size of the block in kilobytes is specified, and it's one megabyte. Bitcoin has had a civil war over this. So if you're not kind of tuned into the crypto world, there is a big, it's like an E-Max versus VI battle royale. People are going at each other's throats, debating whether the one megabyte block size should be modified, there's lots of politics. It was exacerbated by the fact that most of the miners are Chinese, and so now you have a culture gap with most of the devs not being Chinese, and then that kind of adds to the drama. Monero avoids this by having an adaptive block size. So in Monero, there is no hard-coded limit on how many transactions can be in a block. There's a block reward penalty that kicks in to the miners if the block that a miner finds is too large. So, but what happens if there's actually organic growth and people are actually wanting to use the network? Well, how are the miners gonna get paid? If they don't get the block reward? The system also has a compensating feature that if there's high demand for transactions on Monero, then the users, the people actually making the spend instructions are asked to pay a bit more in fees. And so those fees go to the miner, right? So, and there's also in Monero ongoing research to reduce the transaction size and to relieve the burden of fees from the users. So this is how Monero has addressed one of the key stumbling blocks and drama points within Bitcoin. All right, the second foundation of Monero is fungibility. This is kind of Monero's key feature. So, and much has been said about it, so I'll just try to go over it quickly. But I want to mention that emphasize that Bitcoin is radically transparent. Bitcoin is completely see-through. So, I'm gonna go ahead and go ahead and go ahead and go ahead and go ahead and go ahead and go ahead and go ahead and go ahead and go ahead and go ahead and see through. So, I think Satoshi was putting together a bunch of different concepts from cryptography, game theory, distributed networks to put together Bitcoin. He needed a network of geeks to download the software, start their own little network, kick the tires, verify that the thing works like it says. If you want that to happen, you need to have a transparent blockchain. You need to have proof that, hey, hey yo, I just sent you a Bitcoin. I see that I spent it. see that you got it. Don't be denying that you got it. You know, I'm trying to hack this system, trying to spend this Bitcoin two times. Gee, I can't do it. Everyone can see I can't do it. Oh, this hacker over here claims that they hacked the protocol, but you go look at the, you know, blockchain, you can see that they didn't. They're full of it. So basically the early versions needed that transparency. Now fast forward ten years. We're in an age of surveillance capitalism. Basically everything you do is tracked. Like all the financial details in the fiat system, it gets, it gets creepy, right? So it's, the right tends to be concerned about the government knowing too much data. The left tends to be concerned about companies knowing too much data. I mean, the situation we have now is a nice combination of both. And so Bitcoin is adding fuel to that fire. It's completely transparent. So in the Bitcoin blockchain, what is visible to everyone and what is etched in the blockchain forever? Every transaction. So who sent, who received, how much? If you know somebody's Bitcoin address, it's trivial to go to a blockchain explorer and find out how much money they have. This is a showstopper for like my client base, which is kind of high net worth and institutional investors. Nobody wants people just being able to snoop on your account. See how much money you have. It's a showstopper. The other thing is that because Bitcoin is transparent, you can trace the record of ownership of every single Bitcoin in existence. You can trace it back to the miner who first got the Bitcoin and who they passed it off to blah, blah, blah until you get it, right? So it's as if you have a dollar bill on which the back of the dollar bill has a neat table, which says at this time this dollar bill was owned by Steve. Then it went to Joe on this date and that stuff is etched into the back of that dollar bill and it's backed up by the proof of work security. You can't fake that. You can't deny that it's not true. So the consequence of this is that it's not just value that transfers when you send Bitcoin to somebody. It's also their reputation. The sender's reputation transfers to the receiver. Now, this is just a screwed up situation with money, right? So you don't want to have to conduct a background investigation on the guy who's trying to send you money for coffee because you're worried that they might be kind of associated with something unsavory, right? It basically introduces a burden of due diligence and know your customer on every little guy who owns Bitcoin. Now, there are companies out there whose job it is to try to start with the Bitcoin blockchain, which is again, it's fully transparent. Everyone can see who sent what to who and then associate each of those Bitcoin addresses to actual humans, right? Names and faces, associating that. And that information is out there. For example, if you buy Bitcoin at Coinbase, you have to go through their KYC process. You have to say who you are. You have to upload photos of yourself holding your passport up, you know, and all sorts of like hoops to prove who you are. That puts a face and name to the Bitcoin address that they give you. And so it's just off to the races with trying to add little pieces of data that will put names and faces on the Bitcoin blockchain and, you know, basically docks everybody. So in the Bitcoin protocol, it encourages guilt by association. It encourages people to say, oh, you got Bitcoin from that bad guy. You must be bad because the people doing blockchain analysis have no other information. Like you might sell your car to somebody who did something bad. You don't know that. You gave you're selling your car. Some guy had Bitcoin. You took it and now you're, you're all of a sudden you're finding your bank accounts being frozen. Like this kind of thing is happening in Bitcoin. The protocol also encourages voyeurism. So like every other day on Reddit there's a new post saying, oh, you know, this whale of Bitcoin just sent their Bitcoins to the Binance address. Are they going to sell? It's frankly creepy. It should be nobody's business that, you know, some person sent their money to an exchange. Finally, there is an important paper that came out by Akerlof in 1970 that talks about the market for used cars. This is not an obscure paper. Akerlof actually won the Nobel Prize in Economics in 2001, largely based on this paper. So here's what this paper says. Think about the market for used cars. You're a used car seller. There are two types of used car sellers. They're used car sellers who did a good job maintaining their car. They took care of it. They did the maintenance. They changed the oil. They have a good one and they're trying to sell it. On the other hand, you have used car sellers who did none of that. They treated their car like junk. They abused it. You know, they didn't get things fixed. You have people like that also trying to sell their used car. Cosmetically they're identical. Enter you, now, you're a buyer. You don't know if you're getting a good used car or a bad used car. You would be willing to pay a higher price for the good one. But for a bad one, you're willing to pay a lower price. But you're ignorant as to the actual identity of the goodness or badness of any given used car. So what do you do? You hedge. You say, oh, I think there's a 50% probability that I'm going to get a bad one. Therefore, I'm going to offer exactly half of the, you know, I'm going to split the difference. I would pay this for a good car and less for a bad car. I'm going to pay, I'm going to offer half. I'm going to offer in between because I don't know if it's a good one or a bad one. When the purchaser of the used car offers half, how do the sellers respond? The sellers of the good car know that they took care of it. So they're going to be insulted by this offer of less money for what they've done. They want to be rewarded for taking care of their car. But the buyers are not offering that because they're suspicious. So the new car buyers are going to exit the market. They're going to keep their cars. The result is the market becomes overrun by the bad cars. Right? So it's a natural kind of feedback loop that happens when you have a state of ignorance on the part of buyers as to what they're buying and there's differential quality levels in what they're buying. It tends to drive out the sellers of the good stuff. Think of this in Bitcoin now. You're a Bitcoin user. You want to sell your Bitcoin to somebody. You could be one of two types. You could be a squeaky clean guy. You know, played by the rules. You have nothing to hide. You want to sell your Bitcoin or you could be one of the 1% of Bitcoin users. This was a Bitcoin, a Bloomberg study that just came out. 1% of Bitcoin is used in transactions that are questionable. Like it's far less than what the media would have you believe. 1%. So let's say you're 1% of these bad guys. You have a Bitcoin. You got it by hacking something or whatever. And you're trying to sell that. Now you both have what appear to be identical Bitcoins. Right? The same thing is going to happen. We also, we already see evidence of basically virgin Bitcoins being sold for higher prices than used Bitcoins. So there's a premium being paid to Chinese miners who sell them. They're never used before Bitcoin that they received from mining. And the price for the used Bitcoins is becoming lower. That's because the buyer doesn't know what the history of the Bitcoin is. So this exact same process is happening in Bitcoin. It's a fatal flaw. In Monero, the blockchain tracks who sent how much to whom just like in Bitcoin. However, what you can learn from looking at the blockchain, it depends on who you are. If you're just a random person who has no Monero and you look at the Monero blockchain, what you can see is that there were blocks that happened. You can see that each of those blocks had a certain reward that went to a miner. You can see the amount of that reward. And then you'll see a bunch of transactions. You'll see like checks right that were sent from people within from one person in Monero network to the other. But they're all encrypted to you a stranger. They look like encrypted garbage. The sender is encrypted. The receiver is encrypted. The amount sent is encrypted. Now let's say you own a view key from Monero. It could be your own view key. It could be your buddy's view key. If you have a view key, then now you can scan the blockchain with your view key. And then what will happen is that those transactions that have to do with that view key will become decrypted. Everything else will remain encrypted. It's just a very common sense way to run things. Like you should have access to things that pertain to you. You shouldn't have access to the things that don't pertain to you. It's pretty 101. But apparently in blockchain because of the first paper coming out being not having that situation, it's sort of like a niche idea at this point, which makes really little sense. So in Monero, there's technologies that are used together to synthesize fungibility. There's ring signatures which get used for sender privacy. So when you send Monero, your identity is joined with the identities of 10 other people in Monero. And all you know is that one of these 11 people sent the Monero. You can cryptographically prove that one of the 11 sent it, but you can't prove that you actually sent it. So every transaction looks like a group of 11 sending some money to somebody. That's ring signatures. Stealth addresses protect the recipient privacy. So if I send Monero to you, your address does not show up on the blockchain. It's an encrypted version of your address which differs for every transaction. Confidential amounts will hide the amount privacy and there's more math behind that. All three of these ingredients combine to synthesize Monero's fungibility which is on by default. There are some other projects that do not provide privacy by default. You opt into the privacy. This subjects you to the lemon problem. The people who are opting in to get privacy on their transparent coins are going to tend to be the bad ones. So if you're a squeaky clean guy, and that's who I care about, they're my client base, if you're a squeaky clean guy, why would you even engage in this? You're just going to put your reputation at risk. It just guarantees that only the shady people are going to use it. So in Monero, the coins are indistinguishable. They're amnesiac. So user privacy stems from this fungibility. Now unfortunately, I think because Monero is not the market leader right now, it gets subject to some slander. One of those slanders is that only bad guys are going to want Monero. And this I think is an unfortunate situation. Monero benefits people who have nothing to hide. It eliminates the risk that people will receive coins that are tainted due to no fault of the receiver. So this car example before, I sell my car to somebody and unbeknownst to me, they did something that was not so cool. And now I'm getting blamed because I'm associated with that person because the money has a complete transparent history behind it. That's the best, that is the biggest selling point for people who are squeaky clean. It's counterintuitive because you would think that the privacy coin is most useful for people who have something to hide. It's most useful for people who have nothing to hide because they have reputations to protect. For businesses, Monero protects them because it eliminates the risk of competitors snooping around for trade secrets. So if you're a business, you have suppliers, you're a customer to other businesses you get your stuff from, and you have your own customers. That pricing information is not something that companies just give out. It's part of their secret sauce. The identity of their suppliers, how they buy it, how much they buy it. These are trade secrets and people have no problem with that. Like businesses are entitled to have trade secrets. There's nothing nefarious about that. For employees, let's say you work for a company that is crypto savvy and they're doing their payroll in crypto. Well, imagine that they're doing their payroll in a transparent crypto like Bitcoin. Every Friday you see your pay check in Bitcoin. It shows your employer's address. It shows your address. It shows how much you got. Now you know your employer's Bitcoin address. You go to your board one Friday. You go to your thing, your blockchain explorer just at your desk. You browse to an explorer. You type in your boss's Bitcoin address. Now you see how much money they have. Oh, gee. Now there are 50 other payroll transactions. You don't know their payroll, but they happen to happen on the Friday afternoon that you got paid. So what else would it be? Now you have 50 other transactions that go into your buddies. Now you have this nice little voyeuristic puzzle going on. You're going to try and figure out what your neighbors make. Oh, gee. Fred just left the company last week. There's a Bitcoin address that didn't get money this week. I guess I know who Fred is. There's all this snooping that you can do with sensitive information. For high net worth and institutional investors, it eliminates the risk that blockchain research will be used to target them. So there are a number of reasons that Monero benefits people with nothing to hide. All right. The third foundation, users. So they're user types. I'm just going to arbitrarily divide them into short term and long term. Short term users are people who have an immediate need to spend Monero, so they get some Monero and then they spend it. In contrast to that, you have people who don't have an immediate idea for what they want to spend their Monero on, and we'll call them investors. Traditionally, this project has been very in favor. It's emphasized the use case of people needing Monero for their daily lives. We're talking people like whistleblowers who are exposing corruption in their government. They are subject to unjust persecution if they make their knowledge known, and so they want to have a form of value transfer that is not easily traceable. Or you have citizens in repressive regimes who are barred from, for example, taking their money out of their country, and they want some way to preserve their hard earned wealth. And so technically what they would be doing is not kosher by their particular jurisdiction, but it might be just fine in the jurisdiction that they're about to be moving to. So it's use cases like this that have been emphasized by the Monero project, and investors have not been quite so welcome. But I think there's a false dichotomy here. So Gresham's law applies to users too. Gresham's law is the idea that the superior forms of money will get hoarded, and the inferior forms of money will get circulated. So basically it's the Bitcoin pizza thing. So if you own an asset like Bitcoin, which you think is going to be subject to potential massive appreciation in the future, there's no way you're going to spend your Bitcoin to buy a pizza. You're just going to use your US dollars. Why would you give away your kind of lottery ticket when you have just regular old cash that you can use? That's Gresham's law. That applies to everyday users of Monero too. So everyday users of Monero who get a little bit more Monero than they think they're going to use, and then they just store some, like they're a small-time investor. So there's a kind of false dichotomy between these two types. Another thing is that investors are often portrayed as being mere speculators. They're just greedy speculators who don't do anything useful. Consider the example of jet fuel futures, where you have an airline that is worried that jet fuel prices will increase in the future, so they lock down a contract for the future purchase of jet fuel. Somebody has to be on the opposite side of that contract. So if you're a speculator who thinks that the price of jet fuel is actually going to go down, that's a contract that you will agree to participate in with the airline, because you think that jet fuel is going to go down in price. Therefore, in the future, when the airline needs it, you'll be able to buy the fuel for cheap, sell it to the airline for the price that they agreed to in the contract, and make money. That's a speculator. But for some reason, the hedger who's being cautious and prudent is given a sort of moral free pass, whereas the speculator is not. Whereas the reality is you need both parties to make that contract happen. The reality is a little more gray than you might think. I used to be a symphony orchestra musician. I played first violin, and then there was a keyboardist for a, one of the major league US orchestras before it, unfortunately, filed for chapter seven in the Great Recession. But one thing that used to upset me was the fact that there are these rare, strata-various violins that are out there that some investor buys and then puts in a closet. Basically, you have this kind of rare treasure that could be used to play concerts, and yet it's just sitting in some rich person's closet. There's a different perspective to this, though, because every year there are strata-variouses that get destroyed by accident. There are artists who absentmindedly kind of leave their precious strata in the backseat of a New York taxi cab that actually happened. And so you can argue that the act of holding a strata is actually preserving its function for future generations. And so I think there's something similar happening for long-term investors who hold cryptocurrency. Right now we're in a time of history where it's a pain in the butt, frankly, to learn all this stuff, figure it out, buy it yourself, investigate yourself, keep it safe. It's a pain. But people are working on that. And if you project that the fundamental scarcity of your asset is going to be needed in the future, you combine that with the projection of easier users' experience in the future. Basically the investors in that situation, they're putting their capital on the line and being rewarded or not rewarded based on how things go. But the service that they're providing is preservation of a scarce asset for future generations. Finally, there's US tax law's impact on this user mix. So the US tax law holds cryptocurrency to be a, you have to treat it like stock. So if you buy Monero and then you later sell it, you have a capital gain, you're supposed to report the capital gain and pay capital gains tax on it. Capital gains tax is different whether you hold the asset for a year or more or shorter than a year. Basically if you hold the asset for a year or longer, you get a discount on your taxes. That's for most people. It depends on your personal situation. But for most people, long-term capital gains tax rates are lower. What that means is that because the US tax law is the way it is, it rewards people who do their research and pick an asset that has long-term potential. And so for a quality project like Monero, it's going to attract that sort of investor, the one who does their due diligence and looks carefully. I think there's a certain type of community investor that does a bunch of things and kind of deserves a spot at the table. One is that they have the attitude that they're bearing financial risk of the project. By owning a token, you do not become a customer. You become a shareer of the financial risk of the project. The community investor will take self-custody because if you leave your coins on exchange, they're subject to getting hacked and going to somebody that's not trustworthy. By taking your coins off the exchange and into your own custody, keeping your own private key, you do your part in securing that the scarce asset will be decentralized and available for future generations. Community investors zoom out. There's a tendency among new crypto guys to really zoom in, like on the time scale, zoom in on the money scale and do things like, oh gee, I hope the crypto is going to go 5% up today. I mean, it's ridiculous if you zoom out to long time scales. You see that the real game in cryptocurrency is getting in at the right order of magnitude. Not trying to make 5%. You're trying to get in at the right number of zeros. Community investors not only take the step of protecting their scarce asset by owning their own private keys, but they will also take the time and trouble to put legal structures up to also protect the assets. So, for example, using trusts to ensure that assets are there for future generations is something that you can do with cryptocurrency. It's kind of a new field within the trust world, and I work with some very esteemed partners in the trust world who are familiar with that whole, it's like a whole separate planet. And I kind of have the exciting job of being able to liaise with those people to get legal structures like trusts in place for holders of crypto. Community investors actively participate in the project. They actively contribute to the project rather than try to take things from it. And here are the benefits to the project. The assets of the project get safeguarded for future users. Long-term investors will drive the price up because they get on the demand side of the curve. Therefore, the clearing price for the asset will rise. In Minera, we don't particularly care that the price is going to go up on its own because this is not a get-rich-quick sort of ethos project. However, a rising price of Minera does attract miners who have CPUs and GPUs that they can point to the network to help secure it. So, a rising price is a leading indicator. It's a precursor of rising hash power. And so, in that sense, long-term investors serve to strengthen the network. So, a taxonomy of assets. There's non-fungible and fungible. Within decentralized assets, Bitcoin is not fungible. It's totally traceable. Therefore, its competition is things like PayPal. Like, basically, if you're going to be, if you're going to have a form of money that's attached to your name, like, you're competing with PayPal because if you want PayPal, like, PayPal makes it dead easy to send money. That's their thing. And if you're willing to be, you know, associated with your account, then that's who you're competing with. Whereas, Minero is basically gold that understands TCP, IP. Right? I mean, they've tried to put, you know, Ethernet jacks on gold. It didn't work. This is the closest thing humanity has come to that. If you look at the monthly returns since Minero has been in existence, it's, they're pretty spectacular. These are monthly returns. So, I'm showing Minero, Bitcoin versus gold, which is sort of the physical old world analog, US stocks and US bonds. Now, in the traditional investing world, correlations are crucially important. So, what you're looking at here is monthly returns correlated against each other. You can see that the correlation coefficient of Minero and Bitcoin is 0.35, which is significant. So, they tend to go up and down together slightly. But if you look at Minero versus US stocks, you're looking at a 0.02 correlation. US bonds, it's a negative 0.034 correlation. Why is that relevant? Because in modern portfolio theory, and this was another Nobel Prize in economics, Markowitz, 1954, I think, if you take two different assets that have ups and downs that don't correlate together and you add them together to make a portfolio of them, your overall volatility goes down. This should be kind of intuitive. If you have two things that don't wiggle the same way and you add them up, then the sum is going to have less wiggle than if you just doubled one of your investments, right? So, basically, on Wall Street, uncorrelated gains are like everyone's like willing to, you know, put their career on the line to get that. And it's been realized. Now, of course, future results don't, you know, future results are not dependent on past results. But one thing that is, that does tend to persist in finance is correlation structure. So, that is, it's not wise to think that the price went up before, so it'll continue to go up. It's slightly more okay to say that the asset has been uncorrelated in the past, so it's likely to remain uncorrelated in the future. Is Monero just levered Bitcoin? So, because Monero is more volatile than Bitcoin, you could ask the question, well, I'm just going to, you know, borrow money, buy more Bitcoin and then I'll replicate Monero. Can you do that? So, you can do a regression analysis to figure that out. The result that you get is that Monero wiggles up and down like 1.1 times Bitcoin, which means that the outperformance that we've seen historically from Monero is only minimally explained by the risk factors that are subject to Bitcoin. The rest of it is idiosyncratic. It's unique to Monero. And anyone who's been in Monero for a number of years will attest to this, that usually it's pretty boring as an investor being in Monero, but then there are some exhilarating times when the price will triple or quadruple, you know, in a week. And then it's back to normal. It's back to boring. It's basically there are these sharp market realizations that, oh, there's this meritorious project that we've been ignoring. And, you know, let's adjust the price. All right, again, as a long-term investor, you want to zoom out. So, here I'm showing a 10-year timescale of price history. You can see in blue the S&P 500 on this scale, and this is a log scale of price. You see each one of these units on the left-hand side is an order of magnitude. It's an extra zero. So we're talking a 1 million X return on the vertical scale. Now, when you choose a scale like that, the performance of the U.S. stock market looks like a very anemic line. Contrast this with the news coverage where a 20% drop in the S&P, it's like all over CNBC for like three days, right? That's just like a tiny pebble in the road on this. In yellow, you can see the price action of gold, and then we have Bitcoin and Monero. Now, when I look at this, I see that there are two components that can explain this curve. If you look at the Bitcoin curve, it's basically you see a smooth kind of growing component to it, and then on top of that, you have these like massive ups and downs, right? They don't look that massive, but again, keep in mind that one of those units is a factor of 10. So each one of those little hiccups is like a 20X price pump followed by losing 90%. And those happen with some regularity. And those, so basically you have a component of like the smart money who puts in the research to learn the stuff and comes to the conclusion that this stuff is for real. They get on the buy side and they stay there. On the other side, you have less informed investors who, because they don't take the time or trouble to kind of put in the discipline to learn about this stuff, as a proxy for a deep knowledge, they put their finger in the air and they look at what their friends are doing, and then they copy their friends. So in other words, if the price is going up, oh, I better get in. If the price is going down, oh, I better get out. You know, that sort of simplistic thinking. That leads to these bubble and pop cycles. So what you will see in the news coverage is a magnification of the ups and downs, but you'll never see it really talked about that Bitcoin is one of the first assets in the history of humanity to do a 1 million X in a 10-year timespan. If you look at Monero, I think there's a similar dynamic happening. And arguably, there's more potential upside because it's a relatively unknown project. One thing that I want to emphasize, some people get hung up over the actual unit price of things. So this is a trap. This happens in traditional finance too. There are people who think, oh, this penny stock is only worth 3 cents. So if it goes to 4 cents, I'm making it easy, 33%. Thinking that one penny increase is not a big deal because it's just a penny. The reality is the kind of effort, what is needed for a stock to go from 3 cents to 4 cents is the same magnitude to propel a stock from 3,000 to 4,000. It's the percent that is relevant, not the unit. Does that make sense? That's why you don't have companies saying, oh, for every share of stock, we're going to give you a million shares of stock, new stock. So now your new shares of stock are worth 3 tenths of the penny and gee, you should really buy it because it could go to 4 tenths of a penny and that's only a tenth of a penny. That sort of logic is rampant in crypto. I think it's just like Wall Street people say really cringy things on a technical level. For blockchain, they're like nubes to investing and the blockchain side, you say things like that and then it's equally cringy to people who have studied finance. So my point being unit prices are not that relevant. So how do you get a sense of whether Monero at 100 bucks, which is the rough price it is today, is that overvalued or unvalued? You can do a ratio. So basically the next chart that I'm going to show is showing you the value of all Bitcoin in the world at a given moment divided by the value of all of the above ground gold in the world at that same moment. It's a ratio. It's a crypto to gold ratio. Here's what you get. You see the meteoric sort of exponential rise and you see that at the current moment, the total value of all the world's Bitcoin and this chart is, I updated it through the end of July. So it's only a few days old. You can see that all the Bitcoin in the world is worth roughly 3% the value of all of the gold in the world. Whereas if you look at Monero, which arguably is a much closer approximation to actual gold because it's fungible, it's much closer to an actual, you know, internetable gold than Monero, than Bitcoin is yet the value of all the Monero in the world is about two tenths of a, two hundredths of a percent of that of all the physical gold in the world. This is the chart that basically humanity is in the process of figuring out what the correct value is and makes it sort of an exciting time to be alive. All right. I'm way over time. Sorry. There's one more thing I have like three slides left. One is culture. So because cryptocurrencies are decentralized assemblages of people, it's not citizenship based, right? It's global. It's any person can opt in and join a cryptocurrency sort of network. And as a result, there's an ethos that gets associated with each project. Monero keeps basically all of the good things of Bitcoin in this regard. In Monero, there's no formal organizational structure. There's no centralized authority to go after the culture. Like I've been to a lot of meetups. I've been to a lot of people. What I find is that consistently there's an idealistic, scientific and yet welcoming cypherpunk community, which I think is a perfect fit for DEF CON. This is basically the if DEF CON people could like sit down and make a crypto from scratch, it would look like Monero. There's also in common this kind of tendency for both people in DEF CON and I would say people in Monero to be mis-portrayed, misunderstood, basically treated with some suspicion for no reason. Well, we still have a thing called innocent until proven guilty in this country. And we still have a thing called the First Amendment, which requires people to actually stand up and exercise their rights, lest they get taken away. So I think participating in a forum like DEF CON, participating in a project like Monero are both ways to exercise your First Amendment right. Monero Research Lab is full-time PhDs that are dedicated to improving the guts of Monero. There's like lots of very smart people on this project. In terms of developer effort, it actually ranks number three behind Bitcoin and Ethereum. Next after that is Monero in terms of developer effort. All right. Also relevant, just like Bitcoin, there was no pre-mine. So some crypto projects will kind of do a bunch of mining for themselves, then announce to the world, hey, there's a new great new crypto that's going to cure cancer, kind of not mentioning that for the last three months they've been mining for themselves a bunch of the tokens. That's a pre-mine. It didn't happen in Monero. There's no pre-sale. There's no Insta-mine. There is no token sale. There are all these kind of rather scammy ways that people have come up with to make a personal buck off of the development of new crypto. None of that happened in Monero. There's no diversion of miner fees. So when a user pays a fee to them to get their transaction through, 100% of it goes to the miner that supported them. Among other things, this ensures FinCEN compliance. So if you want to talk about regulatory compliance, the fact that the miners in Monero are getting 100% of the reward is one of the criteria that the US FinCEN defined as being a decentralized virtual currency, which is the good kind. It's also compliant with privacy regulations. So in Europe, they have some pretty strong privacy regulation because they're concerned about that. Monero is just a natural fit for that. It complies with that. Whereas all these transparent coins do not. It's 100% free and open source software. There's lots of projects out there who do some similar things that decided that, well, we want to try and make trade secrets with our crypto. We're not going to share the source code. That is not Monero. Monero also has, I think, the right mindset when it comes to the pace of innovation. So there are regular six-month hard forks in Monero. This is another point of civil war in Bitcoin because you have basically the dominant people in Bitcoin are basically allergic to hard forks. They insist that any new change in the code must be backwards compatible with the old code. And so this leads to a number of flame wars. I will say that one fantastic thing, if you're a newb coming into crypto, if you look into Monero, you will not be forced to make a decision about which people within Monero you're supposed to hate. Because if you go into Bitcoin, this is like newb 101. You've got to find out, are you in the Bitcoin core, Bitcoin Cash, Bitcoin SVCAMs, and then you have to wage G-HOT against the others because they don't have the right vision. This has not happened to Monero and it's because the project is focused. It has an idealistic vision of the type of user that it wants to help and then everything is subservient to that. It's not so ill-defined that you could have three different projects all calling themselves Bitcoin, all of them vastly different. Finally, there's a tendency within crypto investors to look at the next new shiny thing and go pick it up. A lot of people miss Bitcoin. They had the chance to buy it at a buck and didn't. And so now that it's above 10,000, they're looking at the next new shiny thing because they don't want to miss out. That leads to a phenomenon that actually also happens in the capital markets. IPOs tend to be oversold when they first get listed because there's a bunch of hype to the new projects. And then as the hype kind of dies away, the price settles down. Something like this also happens in crypto. It's like the next new shiny crypto that has like two weeks of history gets like heralded as the new thing. Experience counts because like in Monero, which is a fairly old project at this point in crypto terms of over five years, it has a history of basically doing the right thing for its users. It has a history of basically keeping its mouth shut, not shooting t-shirts out of t-shirt cannons at people, just basically keeping your mouth shut, doing good innovation, writing good code, and then periodically dropping an upgrade on the world. That does something better. Like for example, bulletproofs came out in the last major upgrade. Bulletproofs are a way to ensure that the hiding of the amount that gets sent can be done cryptographically securely with one-tenth of the kilobyte space that it formerly did. So basically overnight, the fee per transaction in Monero got cut by an order of magnitude. Today, the cost to send a private by default transaction in Monero is four-tenths of the penny. And it's because these fundamental improvements in basically the engine under the hood are happening quietly without fanfare, mostly getting ignored by the market. But it's been happening for a sustained pace for over five years now. All right. To summarize the talk, Monero is what Bitcoin nudes think they bought. And that's why I think everyone at DEF CON should be excited about this project and look into participating on their own. After doing their own due diligence research and disbelieving every word that I've just said. All right. Here's a list of Monero resources. I'll just leave it up for reference. Thank you very much.
cryptocurrencies do is separate the concepts of fiat currencies, for cryptocurrencies. You have long term, this is a problem that all investors The community investor will take self-custody things from it. And here are the benefits to the happened to Monero and it's because the project