Speaker montage: I mean, you motherfuckers come to my city and traffic is insane for like, you know, a whole week that if you want 10,000 acres for Arthur Hayes city, we can do that. Even Squid Game is showing all the South Koreans killing each other or whatever, right? And how much baijo did you drink? Not a dividend. It's a tale of Tuan. Now your losses are on someone else's balance sheet. Generally speaking, airdrops are kind of pointless anyways. Um, I named trading firms who are very involved. I like that ether is the ultimate topic. Defi protocols are the antidote to this problem.
Haseeb Qureshi: Welcome to the chopping block. Every couple of weeks, the, uh, now 5 of us get together and, uh, give the industry insider's perspective on the crypto topics of the day. So quick intros Rishi got Tom, the Defi maven and master of memes.
Tom Schmidt: Hello everyone.
Haseeb Qureshi: And you got Tarun the Giga Brain and Gren Pooba at Gauntlet. And joining us again, a token 2049 tradition. We've got Arthur Hayes, the arbiter of Alpha at Nelstrom.
Arthur Hayes: Howdy.
Haseeb Qureshi: And then of course we've got Bology, the Bitcoin brainiac. And I'm gonna see the head hog man at Dragonfly. We're early season investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see choppingblock. XYZ for more disclosures. So we are here at Token 2049 in Singapore. It is, I think at this point, the biggest crypto conference in the world. It's one of the only places where I think you still feel this kind of energy. Um, and it's sort of like the US conferences have gotten very institutional, a lot of suits. This is like the one retail mega conference that still gets the juices flowing. How, how have you guys felt about Token 2049?
Arthur Hayes: I mean, you motherfuckers come to my city and traffic is insane for like, you know, a whole week.
Tarun Chitra: But it's not just us. It's like it's everything. Happening at the same time, you know, there's like 5 conferences happening. There's like Milk Inn. There's, there's obviously F1 happening this weekend. So it's not just us. Also, the air here is insanely bad for some reason. It's like Delhi.
Another speaker: It's bad.
Another speaker: Yeah, it's worse than Delhi.
Another speaker: Yeah, that's what I've heard the fires in Indonesia.
Tom Schmidt: I feel like the institutional shift. You also feel it here. There's like the first year where there's been no like wrapped Lambo out front and it's like just everyone is growing up a little bit, which makes me a little bit sad. I kind of was looking forward to more kind of jubilation, I guess.
Arthur Hayes: Everyone's broke.
Another speaker: There's one more day you could, you can make your dream happen.
Tom Schmidt: So yeah, that's true. That's true. The Lambeaus are tomorrow.
Balaji Srinivasan: Um, you know, I have an observation, by the way, which is, I think crypto is sort of M&Aing Western institutions, but Eastern institutions are more functional, so they will survive. Western institutions, financial systems won't. Anything that's holding a lot of 10 year, 20 year, 30 year treasuries. I'm sure Arthur has some opinions on that.
Arthur Hayes: They're wrecked.
Haseeb Qureshi: Fair enough. Well, I wanted to start with this story. So speaking of fires in Southeast Asia. The network state has recently pulled the plug on its headquarters in Southeast Asia and is now moving to Kazakhstan.
Balaji Srinivasan: Well, so yeah, so we actually already moved, already moved to Kazakhstan.
Haseeb Qureshi: Tell, tell us the story of how this all played out.
Balaji Srinivasan: So actually, we actually still have, you know, an office in Singapore and we're actually going to open up something else in Southeast Asia. So stationed on that. But basically, Kazakhstan, just to talk about Kazakhstan. Khalisan is going to be the next El Salvador, the next UAE, the next Singapore, and the reason is, um, so first, why was it off the radar, right? Well, there's a Bhara movie which really misled everybody about what Khalisan is. It's, it's not, you know, you see a movie and you think, OK, it's like a caricature of reality, but it's like in the ballpark, you know, but, uh, like Jurassic Ballpark, you know, you ballpark. Approximated like the DNA in Jurassic Park, but it's actually totally not and really what Khazan is is it's land Asia and you're all familiar with like coastal Asia because you know the way Americans or Westerners learn geography is America fights wars there. So like Vietnam, Korea, Japan, Americans know those countries exist, right? And they're on the coast. Right, China also, you know, was a part of the Korean War, right? Singapore, recently Crazy Rich Asians, there's a movie, they know Singapore exists, but they're all on the coast, and Khasan is so far inland, and it's adjacent to Russia and China, it speaks Russian, so it doesn't post in English, right? So for all these reasons, you, you know, Americans don't really have a reason to go there, plus Barat made it seem like it's not like a great place. And so because of that, it's like this encased in amber, absolutely amazing country, which is, I would call it Singapore but with space to build. So it has all of the quality of governance of a UAE or Singapore with really high IQ people and government, like they're number one in the physics Olympiads tying with China and India, which is pretty legit as a country, right?
Another speaker: Yeah, yeah, with 21 million people, they're tying countries at 70, 70 with 21 million people in Kazakhstan. Because it is an enormous landmass.
Balaji Srinivasan: Exactly. So they're 3000 times the size of Singapore, but only 3x the size population-wise. So Kazakhstan is the place that if you want 10,000 acres for Arthur Hayes City, we can do that.
Arthur Hayes: Nightclub by every corner.
Balaji Srinivasan: Yeah, you can get it and they'll want you there, OK? And the people will love it. They want to build startup cities, they want to build crypto cities. In fact, they've got you, you, if you come to Network City conference on Friday, you're. See a delegation from Kazakhstan. Many senior ministers have come down. This is Kazakhstan's sort of big thing on the world stage. Binance is now opening up Sarah Solana, you know, last year had a special economic zone. Sherman Pishabar just is setting up there. Olaf has come up there. There's gonna be a lot of things happening there because it has all the digital stuff that we know. It's got actually a really, really good crypto law. Um, it's, it's, if you want to build data centers, they've got the space. Texas is now banning them. You know, or stopping them. Kazakhstan has the lowest energy and building costs in Asia because it's got like enormous amounts of it's like 40% of the world's uranium, so it's got all the digital and all the physical. See, Singapore is an amazing, amazing place, but doesn't have any land, right? Or there's countries that have land but they don't have great governments. It's very unusual to have both.
Haseeb Qureshi: So, so, so when you left Southeast Asia, I remember you were, you were sort of looking at many different jurisdictions to go to next, and I think you might be one of the only people in the world who has done this kind of jurisdiction shopping under duress in the way that that things played out. What, what was that like?
Balaji Srinivasan: So great question. So, so the thing is, first of all, um, You know, 10 different countries bid for network school, OK, or more than 10 in fact, and we're gonna open up nodes all around the world. We've clearly got something where we can print out Silicon Valley in a new place, especially with all the visas being cut off to the US. There's this flow of talent that wants to go somewhere and now it will go everywhere, right? And they'll decentralize just like crypto itself, just like our community here is whatever, you know, 50 passports in this room, um, that's something just like cryptocurrency doesn't map to legacy currencies. Crypto identity doesn't map to legacy identities, right? That's the next big step for us, you know, get out of your, your currency, then get out of your legacy identity, get a new passport, you know, second passport is much more important than the first home. So many of these countries, that's go ahead.
Haseeb Qureshi: No, no, no, I mean that's a, that's a perfect biology. I think I'm more curious what is like horse trading look like when you're shopping for a new jurisdiction? Like who's coming after you? What are the levers you can pull?
Balaji Srinivasan: Good question.
Haseeb Qureshi: What do they offer? Like, what do the offers look like?
Balaji Srinivasan: Yeah, yeah, yeah. So, so, um. Without kissing and telling, so to speak, OK, uh, it's actually a lot like I'm just saying I'll give a little bit, yeah, it's, it's, it's like, uh, it's a lot like enterprise sales, you know, it's like basically as you ascend from retail to SMB to like enterprise to small governments to large governments, small governments are actually a lot like enterprises. See, the thing is this is one of the secrets, right? Most countries are small countries. OK, most people have not actually made this graph. Take the 193 UN members. Let's use as an operational definition of what a country is, OK? There's exceptions and so on, but let's use that. And you make a histogram of their populations and you'll find that half of them have less than 10 million people and like 20% have less than 1 million people, right? Only a small fraction of countries by number are the 100 million plus countries like Russia, China, India, America. Most sovereigns are small, like Cayman Islands, you know, the population of Cayman Islands, who knows how, you know, 60,000, 70,000, yeah, exactly. What's BVI? It's like 30K, OK, that's smaller than Palo Alto. So the number one asset that they have is a flag, OK, and so the complementarity between what we do, we've got these gigantic crypto networks, social networks, we're gigantic international networks, but we have no physicality. They are small states, they have physicality, they have legitimacy, but they don't have any. Anywhere near the capital or connections in many sense of the term that we have, that's a really great deal to be done, right? a billion dollars goes a long way in a country with 100,000 people or a million people. It's like $1000 a head, $10,000 a head, right? So you have a lot more leverage than you think, and the key is to now here's the tricky part, you actually have to go to these places. And the reason you have to go to them is you have to just assume that Hollywood, Hollywood is wrong, but you don't know what is right. You can't ballpark, do you see what I'm saying? And here's why Hollywood is actually deeply wrong. Essentially Hollywood doesn't show, I don't wanna give the ball to you guys, I wanna, I don't demopolis, but Hollywood does not show movies of prosperous non-Western countries. With the exception of Crazy Rich Asians, that's like, you know, even Squid Game is showing all the South Koreans killing each other or whatever, right? And and these are, you know, and the reason is it's depressing for Americans to see other people doing well. So even if you post a video. Of like Chinese glowing cities, they'll be like, oh my God, they just put LEDs on their cities, right? They don't understand. You'll see this, you know, complete cope on, on social media, and it, it neglects the fact that Shenzhen basically didn't exist in its current form 40 years ago. It's like, no, they put LEDs on the cities, they built the cities, right? Um, so the point is that without travel you can't calibrate as to some countries really are bad and, and you have the whole 2x2, right? You think it's bad, it is bad. You think it's bad, it is good. You think it's good, it is bad. You think it's good, it is good. Literally the whole 2 by 2 is there.
Haseeb Qureshi: And you saw all of those when you were evaluating.
Balaji Srinivasan: That's right. So and that just means you just have to put a lot of miles and you actually have to see it on the ground.
Haseeb Qureshi: So who are the folks who are, you think it's good and is good, and who are the folks you thought it was bad and they were good?
Balaji Srinivasan: Well, you know, who's who's bad, I'll say who's who is, who do people think is good and is bad is Western countries.
Haseeb Qureshi: They were Western countries also, but they actually bid on your network site. Do they want?
Balaji Srinivasan: No, no, no, but what I mean is like they are, they're in a bizarre, you know what it is, the, the terms first world and third world are obsolete. I just think about it in terms of descending world and ascending world, right? So the first world. Is like the fail son who's like inherited something that they couldn't build, right, the Brooklyn woke, you know, and they're like,
Haseeb Qureshi: You were really trying to pry a list of countries out of you and you are not, not come on man. Who did you sing KTV with? How much baijo did you drink?
Balaji Srinivasan: Zero KTB absolutely unhappy, but, but, but it's not that much like enterprise sales. What I'll, yeah, yeah, what I'll say is countries under 10 million people, which is like 100 countries, really like, you know, a billion dollars goes a long way, right? And so I mean one of the things, here's another way to calibrate it, OK, take your Twitter following, you know, Arthur, your Twitter following, make a histogram and, and just, you know, I can do this for you in a day. Take any country, take its legislators, its president, and so on, and compare how many followers they have to how many followers you have, right? Your visit to that jurisdiction will be the number one news event of their year. OK, I, I, I, I realized even for congressmen and senators in America, tech guys actually have much more distribution than you think. If you just took a liking to a certain politician and just wanted to retweet everything they did, like, I mean, obviously you have to, like, there's no, it's something where you actually actually believe in it, right? But you would be a very important constituent for them, you know, you should live in the jurisdiction and so on and so forth, right? So our, you know, like, uh, Basically we radically underestimate our leverage is is a short version.
Haseeb Qureshi: So Abiology has given us an experiment. We have to go look at who's retweeting him to figure out the list of countries.
Balaji Srinivasan: He won't say the country, but the data is, I didn't make it that easy for you.
Another speaker: I'm not by this time next year we're each buying a politician.
Balaji Srinivasan: No, no, no, no, it's not, it's very clear. You're not buying a politician. What you're doing is you're actually making a capital investment in the country, right? So that's the thing is the. World countries are a sending world because they actually haven't many of them are post-communist or they're like in Latin America they're post, I don't know what you call it post-drugs, you know, right, like, like what, uh, Kelly is, I mean, right, post-inflation in the case of Argentina, right? It's like everyone in the US keeps making post-economic memes given some of the recent, you know, and now we're talking about the post-drug economy. Well, actually, I don't know if we have to hit the post-drug. OK, it's actually interesting. It's like. Like, uh, post-economic normally means, you know, OK, you're wealthy enough, you don't have to worry about things, right? These guys are like sort of post anti-economic. Whatever communism was, whatever Keynesianism is, is like anti-economics. So the great thing about them is they have immunity, they have antibodies to all the communist Keynesian stuff. I love it so much. I don't have to explain it from scratch. I don't we don't have to debate about whether, you know, effort leads to results or whatever. So that whole part of the world, all those people. They're ready to do business and here's the thing, you know, the best part, you go to these countries and there's multiple of them, they have murals of Elon. OK. They have murals of all the tech guys. They're not like trying to shoot at them or say, you know, this is saying a prophet is without honor in his own home. OK. They love tech. OK, Arthur, they'll build you a statue. OK, I'm serious. They really will if you find a country and you basically adopt it, right? I mean, you have to actually commit. That's the thing.
Haseeb Qureshi: So are you moving to Kazakhstan, huh?
Balaji Srinivasan: Yeah, I, I've already set up there. We set there months ago.
Haseeb Qureshi: Do you have, do you have, is there a statue of you in Kazakhstan?
Balaji Srinivasan: Yeah, I never asked for a statue of me. I'm kind of, how about you statues.
Another speaker: I think it's got to be on a horse statues.
Another speaker: Arthur, Arthur will have a great statue. It'll be like a Greek god kind of statue.
Balaji Srinivasan: So that's why I recommend like holding a longbow.
Arthur Hayes: I could do that, yeah, something like that.
Balaji Srinivasan: That's right. But, but. You know, I, I, I just mean there's a figure of speech. The point being they will welcome you as opposed to throw Molotov cocktails at Sam Altman's houses, which they're doing in San Francisco, right? So like, and, and to be very clear about this, some countries will welcome you depending on who you are. Yeah, look, there's a bunch of blue states that think billionaires should not exist, OK? And there's a bunch of small states that want those tech billionaires there, and so they're both going to get what they want, kind of, which is blue billionaires will not exist. OK, you will not be able to be a billionaire in a blue state because they'll pass these taxes and so and so. That's why Larry Page is out. That's why Sergey Brin is out. That's why Zuck is out. That's why Larry Elson's out. That's why Elon is out. Teal is out. Bezos is out, right? Ken Griffin is out. All of them out of blue states, right? So those all just go to zero and lose their tax base and lose their billionaires and the loser sent to millionaires and so on. And where did they go? OK, they can go within America, but actually the world is a lot bigger than that.
Another speaker: Kazakhstan, Kazakhstan. No, no, he also mentioned Teal, so Uruguay, right? Paraguay and Uruguay, that has to be on the list.
Haseeb Qureshi: OK, so Latin America, Latin America, very interesting. Did you have Latin American bidders?
Balaji Srinivasan: What's that?
Haseeb Qureshi: Were there any bidders who were from Latin America?
Balaji Srinivasan: Uh, what can I say about that? It's a big, yeah, it's a big place.
Haseeb Qureshi: Come on.
Balaji Srinivasan: Let's say, let's say it's, yeah, potentially, potentially, yeah, come on, man.
Haseeb Qureshi: OK, OK, we're not getting in there. We're not getting in there, you know, he likes it though, Tina, but let's move on. Let's move on. OK, OK. So speaking of going to 01 of the big announcements yesterday was this giant drop by OpenAI. OpenAI released something like 700 AI written manuscripts producing new mathematical results that they, some of which they had formalized and leaned, some of which they just kind of had this, I don't know, AI slop that they published. There was a couple of really massive results. In this drop, one of which is considered to be one of the most significant results in the last 100 years, which is known as the quasi-Riemann hypothesis, there was some stuff about matrix multiplication. There was some stuff about fast Fourier transforms, particularly weird results, I think, in improvement in asymptotics. It's freaked a lot of people out. And part of the reason why it's freaked a lot of people out is that of course there's this idea that OK, mathematicians are maybe now either obsolete or they're very quickly facing a complete change in what their job is going to look like, and we're not immune to what's happening in mathematics because of course crypto is dependent on mathematics. And so yesterday Justin Drake, one of the cryptographers at the Ethereum Foundation, he posted that it is time for crypto to go into bunker mode. Now what is bunker mode? Bunker mode in his, in his parlance, like, look, mathematics is now going into overdrive. Things that took, you know, 5, 10 years are now happening in days. And we don't know what's going to change. Normally, a lot of the cryptography that we use in blockchains, they change over time, right? We used to use Shot 2. Now we use Shot 3 in Ethereum. You know, back in the day we used MD5 20 years ago, and we move across cryptographic algorithms over time. But the pace at which we move is much slower than the pace at which this math is now happening. We had 700 drops. In this opening drop that sorry, 700 results, they came as opening a drop. There were 0 related to cryptography. That's really weird. It's really weird because probably the most economically significant part of math is cryptography, and yet there was not a single result in cryptography, which probably implies that there were some results, but they didn't publish them. Because they may be doing some responsible disclosure or they may just be saying, look, this is so potentially damaging that we need to do some totally different paradigm of how we deal with this. So Justin Drake's recommendation is that look, freeze, do not move, take all of your assets that are of any size and put them into addresses that have never signed any transaction because we don't know what's coming. And if a lot of the mathematics that undergirds blockchains like the discrete log problem, which is the foundation of public key cryptography, if it turns out that you know we don't have any proofs that this stuff is hard for classical computers, we're pretty sure it is because a lot of smart people have tried and they haven't been able to prove anything, um, but that's true of a lot of stuff that's now falling in mathematics and so the kind of pace that we use for crypto in the past may not be the right pace to think about what's happening going forward. And so his recommendation is this we're now maybe going through a critical period and everybody should be a little bit scared. Um, how do you guys react to this warning from Justin Drake?
Tarun Chitra: So I think there's like two things that are a little bit, it's also, by the way, a lot of people had responses to this, including Vitalic and others that were like this might be a little extreme. I think the first thing to note is that most of the advances that people found are not like practical algorithms, they're generally like OK, there's something that you learn in intro CS class that like you can't multiply two numbers faster than a certain amount of time. That's clearly wrong, but it also assumes that you have like infinite memory. So I think there's a sense in which the practical algorithms that break this stuff versus like the theory of like, oh, there exists an attack are actually quite, there's still quite a big gap. That that said like practical when there's open AI has infinite compute resources to put out these things, whereas if you're an attacker you don't.
Haseeb Qureshi: We don't know how much I don't, I haven't gone through this, but like how much compute did it cost for them to do each one of these discoveries? Have they published I mean they said 3 hours.
Tarun Chitra: They said 3 hours on average, on average, but that's right. So, but you can, you can now add up the 2100 hours, right? So it's not like that crazy. I think the main or 21,000 hours. So the main thing I think is worth thinking about is like. OK, even if ECDSA breaks tomorrow, the question is like, can I forge a signature in X amount of time? Like there is some proof of work even if I know an attack, right? So let's say it takes 5 days to forge. I think then, then you have to be a lot more worried.
Haseeb Qureshi: But I, but we're not gonna know. How are we gonna know who's gonna tell us, Hey, guess what, everybody, ECDSA is broken. What the fuck do you do now?
Tarun Chitra: I would say also the rest of the financial system is broken first, yes, to be sure, like it's not just crypto that we have much shittier cryptography and most of Tradfi, right? And, and so like at least cryptos in the open, you'll see an attack. There has to be some public sort of canary in the, the coal mine. But I, I think like the, the, the bunker mode thing is also a little bit weird because it's like, OK, go to an address you never signed from. Well, if they already broke the signature, they found a, a reverse, you know, one time thing to supposedly one way function, you're fucked anyway. Like, who cares whether it's never signed before? Like even the, the known ciphertext is not going to help you attack. So I think the whole thing is like, yes, there is something to be afraid of, but the thing to be afraid of is more that someone figured out how to make these things practical. Quickly with AI versus like, OK, they found the theoretical attack, but it's like 1080, the constants in front of everything are 1080.
Another speaker: We were talking about that yesterday, right? It's like I have, I have several, go ahead, you're gonna finish.
Tarun Chitra: Uh, that was we were talking about this yesterday, right? Like there is this thing about humans and that they've overindexed on elegance in the answer, right? They want to make math have an elegant answer versus just like what's the most efficient answer, and I think that's the thing that we probably have, that's the biggest philosophical. Difference it seems to be so
Balaji Srinivasan: I have several thoughts on all this. The first is, um, this kind of drop of results is similar, you know, there's actually a journal called Ramanugen's Notebooks where people go through Ramanugen's old results and try to prove them and so on, and this is kind of similar to that where you just get these results dropped and then you have to try to figure out, you know, how to make sense somehow you relate to things, number 1. Number 2 is, um. I think crypto in the fullness of time, maybe it's the first hit, but it's also the one that survives, and I've been thinking about this for years, which is, you know, there's only really two large groups in the world that take the internet seriously, which are China and crypto because the great firewall and the blockchain respectively, those are defensive structures on the internet. The Pentagon, by contrast gets hacked over and over and over again. OPM gets hacked. All Web 2 systems with maybe the exception of Google and Facebook owners that have the tokens to insulate them, are all going to get hacked. And web 3 systems by contrast have at least a live bug bounty where if they get hacked partially or what have you, then their price drops but they don't totally die and the reason is they actually also have a social component. So that gets the next point. One thing I think we might have to do is a new social smart contract among blockchains which is basically something as follows. It's like. You use Ethereum and by using Ethereum you may have to assent to something on chain that says if there's a hack of this, that or the other hash function or you know digital signature or what have you, then the miners can rewind state to like something a week ago or something like that and all transactions are reversed and everybody has consented to that as part of the. Terms of service on chains, there's no controversy as to whether or not you could rewind the chain. OK. Proof of fake chains can do that, right? They can do long range unwinding, OK. And then other chains may decide not to do that, but that's a great thing about blockchains. You can have many different types of things like this, right?
Haseeb Qureshi: I mean that that was more possible, let's say 5, 10 years ago, right now there's so many cross chain dependencies and so many other systems. Like if you're rewinding all these bridges, it depends what chain it is.
Balaji Srinivasan: Sure, sure, if it's, if it's like a Bitcoin style, there's not a lot of state, there's not a lot of complexity, then yeah, that's, that's doable.
Haseeb Qureshi: But like I think the reality is that any such unwind would be so damaging. And the other thing too is like we're really not ready for a new architecture.
Balaji Srinivasan: Well, it's damaging, but like it's always quantifiable how much money is lost, right? It's like some amount. You know, a crash in price, like, OK, whatever people lose whatever a million dollars, even a billion dollars, but then the thing, I mean, that's like, um, I don't know, like the financial crisis of 2008, right? The, the people will lose money when financial things happen. It's not gonna be zero loss. It's just gonna turn out that that chain and and people might have, there might be a coin holder vote which legitimates whether that chain rewinding happens, right? But because maybe it's only 100.
Haseeb Qureshi: Post hack, you can't do a coin to vote anymore because the coins themselves are suspect.
Balaji Srinivasan: So that's why you have to contemplate that. Is it like the Dow attacker where they've got 30% of the coins and then they can corrupt it, you know, or, or, or maybe it's only the coins from 30 days ago can vote and so on and so forth and your old, you know, keys work. There's many ways you can do this as you start thinking through like the verticality of this, and crypto is, if there's one thing we're good at, it's this kind of thing, right? This is the thing we are good at, right? And legacy systems are not good at this, right? Now the other thing I think is gonna happen is this is gonna accelerate the Ted Kaczynski ification of a large segment of the population where there's a growing anti-tech move. I mean, I, I think anti-tech is the new anti-capitalism, and it's morphed just enough evolutionarily, it's like a virus that's adapted just enough that it appeals. Enough to the right that it doesn't see it as exactly communist, just kind of a morph on communism where it says, look, there's all these crazy things that are happening with the emergence of all these technologies. Let's just throw it all away and go back to living in the woods like men were supposed to, you know, and it's like a right. That's a, that's a, there's a, it's very similar to the same romantic sentiment that accompanied the industrial revolution for many of the same reasons because people were in the middle of the disruption, everything was changing, and, and they weren't yet in a stable state. And so a big part of communism was the rejection of all this change, and there's a rightist aspect of that as well. Anyway, the point is, a lot of people are gonna be like, I just want physical coins, I just wanna be offline everything, I just wanna be. Caveman again. What is my and the problem is that yeah, you can, you can potentially do that. It's pretty hard to do that in our, our, our modern world. So much of the supply chain is going to be digital. So you're going to have this rage at that's why I like, that's why I'm out here, right? Like the East will deal with it better because it's got a better social fabric. In the West, just, you know, America's got 300 million guns. Anyway, Tom, what's
Tom Schmidt: Yeah, I think when it comes to anything like this or, you know, AI safety, I think looking at actions is like usually a lot more instructive than looking at words. It's very cheap to go in Bloomberg and, you know, get some eyeballs. It's another thing to, you know, I think of the anthropic safety researcher that retired about a year ago and said he's going to go live in the countryside in England and like write poetry, and I respect that. And to my mind that that's kind of more showing action. And so for this, you know, I um. I think I, I take more worry when I see sort of large whales actually, you know, enacting this protocol and sort of moving on chain and so I think we see exchanges, protocols. Large holders actually doing this, then you're actually like putting, you know, words, you're putting action behind your words, and then I think there's a lot more belief to it, but I think a lot of these things kind of fall victim to this like Goldilocks idea. I mean, same with these like really elegant proofs of, well, kind of, kind of like with QD, it's so far out we're going to kind of very gradual sort of heads up when in reality we've gone from you need a quantum computer to maybe break ECDSA, which is to it's, you know, 5 days with a, you know, commercial grade hardware to, you know, maybe 3 months from now it's you can do it on your MacBook. And I think there's something scary. I saw a couple hours ago Matt Green, who's a famous A cryptographer from Johns Hopkins tweeted that he thinks maybe public public private key cryptography is over, um, and that was a, you know, again, word talk is cheap, but hey, maybe he's going to put everything in clear text from now on.
Another speaker: To be fair, he was, he was fighting with another cryptographer in that thread about this. I mean, social media amplifies to be as as possible.
Another speaker: So, well, I think it's more funny that Vitali had to write this post that was like. Actually, don't listen to Justin Drake in like a different, it was like, it was like a longer post.
Haseeb Qureshi: Yeah, I, I, I think this is kind of the crypto equivalent to doomerism, which is that like, you know, the, the people who are saying this, like Justin Drake, that's very good. Like the reality is that against Justin, I think it's, it was, I think it's good for him to, I think it's very good that he wrote it. It's very good to float it. It's very good to argue and counter argue this very important point. I have nothing against Justin on this, but, but that's clever. Crypto doomerism is very, yeah, and, and look, the reality is that even Justin Drake is not claiming that this will happen, but he's saying that look, the probability went from like 0.1% to like 5%. And 5% is enough that like you should probably get insurance against a 5% outcome that results in wiping out all of crypto. The thing about this is like one thing I do want to talk about is there are, and it's and I was arguing this with Yudkowsky years ago and I probably, I should repost it now, there are hard bounds on what AIs can do. Why you can prove that turbulent or chaotic. Phenomena, you can't forecast them out, like no matter, you know, like, like there's computational limits on how many time steps out you can forecast them given finite precision arithmetic, um, you know, and then if, depending on, you know, where certain, you know, theorems are, there's cryptographic systems that you also can't forecast out. So there's like boxes, mathematical boxes that you can put these AIs in that they can't break out of mathematical and in some cases physical limits. And so a lot of people treat them as being completely omnipotent. They can crack anything, but unless like there's an error in our derivation of a of a theorem, which is possible, right?
Another speaker: Um, well, but the point is for public cryptography, we have no hardness proofs. Like we don't actually have any proof that we have assume P is not equal to NP hypothesis, then you have a proof.
Haseeb Qureshi: Sure, sure. But I think also there was, there was a bunch of these, I think they were Chinese post quantum signature algorithms that were candidates for post quantum algorithms, and some researcher basically disproved every single one in a single AI fueled data drop. So. The like the reality is that even, OK, you know, we're not even talking about post quantum, right? Because quantum is a lot of engineering problems, not just scientific problems. Um, but even going to post quantum, it's like, OK, well, a lot of these algorithms might just get busted. Over the next year or two, in which case that also speaks to waiting longer for a post quantum transition if the, the algorithms that we're considering right now, we have, we have very weak evidence that they're of, of how robust they are unless they're purely hash-based, uh, algorithms which are
Balaji Srinivasan: there's there's gonna be something where there's like a hack proof physical component to many things like. You know, basically that, you know, what AI is like very strong in the digital world but not yet really strong offline. It has to actually animate a robot, animate a drone to go and do something, right? So, like a lot of things are gonna be ritualized offline kinds of things like AI makes the offline more valuable proof of human, you know, like in-person things become more valuable.
Tarun Chitra: Something I, you know, I think a lot, but I, I would add one thing, which is, you know, most people in crypto, they hear, OK, there's a quantum computer, it's gonna break ECDSA, it's gonna break integer factorization, whatever. But there are known money schemes that look like blockchains that use quantum states where you basically can't clone them, and you get a very blockchain like no double spend properties. And in fact, these were like kind of theorized in the 1970s and only in the last like 10 years of people like make them kind of usable. And so there are everyone's always like quantum computer crypto's over, but there's also like quantum computer now I can have these much harder to copy physical states that you can generate secret keys on demand from, and that stuff is actually much more secure than kind of our existing cryptography system. So I think you should be a little more optimistic that like if we have the quantum cure to break stuff, there's also the quantum computer. To be the new money system.
Balaji Srinivasan: So, so something actually you just you're kind of prompted thinking a lot of blockchains may start to actually bundle an AI model with the node. Why? Because they'll throw some of the compute not just at mining but at tokens to keep trying to hack the chain itself, right? Because you have a token budget for defense to try to find a compromise before the attacker does. And in general, it's not 100%, obviously you need to have better prompting and so on, but if the token budget for the defender is greater than the token budget of the attacker by 10x and the defender cares more, right, which it would, you take some of that crypto, you spend it on AI tokens, you spend some of the compute on AI tokens, you start bundling AI models with your nodes, right, with your Bitcoin. Node with your Ethereum node and so on. So this actually rhymes with what you're working on with flop.
Tarun Chitra: Yeah, more like a settlement layer, but we're not like bundling nodes, but this isn't the problem we're trying to solve.
Balaji Srinivasan: Yeah, trying to be more a little bit less cryptography and more like what the fuck are they gonna spend? What are you doing? Can you explain? I don't, I'm not up to date.
Tarun Chitra: What are you basically it's the flop network is we call it food for your AI agent. So what is the payment network of AI? Our theory is it should be whatever some currency that we create that's directly convertible into compute and that is what why you would hold it similarly we hold dollars because we can buy food.
Balaji Srinivasan: So maybe it's self-referential where it uses that compute to fortify itself, you know,
Tarun Chitra: yeah, I think it's the other way around. It's you, you know, bundle a blockchain with your uh with your matrix multiplication.
Balaji Srinivasan: Yeah, and basically like. Formal verification, I mean, well, formal verification only gets you so far if there's like new math or what have you, but, um, but even still, whatever the new model is, you know, you have some open router style model registry. Like it's almost like high frequency trading, right? As soon as that new model is listed, your blockchain has a token budget hits that it asks. Questions of every single line of the code base, um, you're getting new prompts obviously that's also an important kind of thing and it's constantly trying to hack itself and patch itself before an attacker can kind of do that and probably the defender cares more so that's one possible model. Agentic blockchain may actually be something very different than people think it's not spending but defending.
Haseeb Qureshi: Oh, there you go. Um, OK, last story I want to touch on is there's been another spat of recent shutdowns. So just in the last week, we had Blast, uh, the, the L2 that was, uh, came about after the launch of Blur, and then Abstract, which is associated with pudgy penguins and that whole ecosystem, also announced that they were shutting down. Um, naturally, whenever these things shut down, you got a lot of people getting mad saying, oh, you know, I, I was farming this, I had corn. You know, why, why is this thing, why are you doing this to me? Um, but I think it's a sign of the times that we used to tell ourselves in crypto, it's like, OK, well we have infinite block space, we can create new ones on demand. It's so cheap. These things live on forever, they never shut down. And now all of a sudden these things seem surprisingly terrestrial. They're, they're these economic concerns of, oh, you know, the, the, the uh abstract guys were saying, you know, we spent tens of millions of dollars running the L2. And you know, where, where's those tens of millions of dollars going? It's not on the sequencer, it's like on the indexers, it's on the integrations, it's on this, on that. Um, so, so how should we think about this moment with now it seems like Blockspace is consolidating, maybe we overbuilt and what what does that mean for the future?
Arthur Hayes: I mean, when the number goes down, people leave, period. End of sentence. It's all about the price. Like look at the chart of any of these dog shit coins now 90 something
Another speaker: but actually didn't they didn't they have a coin? They didn't teach you, right?
Another speaker: I think they did, yeah, of course.
Another speaker: But you were saying uh no one booked out Marquee.
Arthur Hayes: Yeah, so Marquee last year was I think half a million dollars on like a random weekday minimum spend and it was fully booked all week last year. This year, not a single booking. And it was all shit coin projects spending investor money um on marquee and you know, average DJs.
Another speaker: Really, really.
Balaji Srinivasan: So, so first I want to say every, it's really hard to build a company. So I feel bad for these guys. They got very. Far, it's much, it's like many people die at zero. They don't even get to tens of millions of anything, so huge sympathy for them, props for them. The second thing is you can think of, you, you, you know, Carlotta Perez's work on, you know, or if you heard the Gardner hype cycle, right? Carlotta Perez shows that goes back all the way to railroads and earlier. Basically you can think of almost every new market as a financial bubble that um incentivizes the search for like, like Web 1.0 was the search for Amazon, right? And then like Web 2.0 was the Amazon, Google Web. 1.0 Amazon Web 2.0 was a search for Facebook and and Twitter, right? And so all of that spend and L2s and so on got you um Solana. It got you near, it got you stablecoins. It got you all this stuff. And if you go back and look at all the money that was invested in Web 1.0, it's like a rounding error relative to Amazon or to Google's market cap today, even, even like inflation adjusted and discount rate adjusted and so on and so forth. Every failure was worth the successes by a lot, right? So it's like this giant parallel search of the world for what technology would scale blockchains. That was a huge deal five years ago. And now we take that for granted that you can just blast transactions on both Ethereum and Solana for the most part, right?
Another speaker: That's what you also use were to search for base and Robinhood chain. So you're, you know, you're 100% out on your portfolio is in the greater good.
Balaji Srinivasan: Yeah, OK. Well, the other thing, the other thing is actually on your earlier point, there's one other thing in terms of these hack chains, um, it's just gonna mean diversification. I think there's like, like with the math problem thing for Malaria, I just want to make one remark. There's at least 3 approaches you can take. The first is go like mountain man physicality, right, minimum necessary online, and some people are gonna do that, OK. The second approach is actually to trust the government like the Chinese government that'll just reset whatever and. Run the chains for you.
Another speaker: The L2s are the ghost cities that that die and then get demolished.
Balaji Srinivasan: Yes. So, so basically, you know, you can trust fiat, you can trust physical or you can trust multiple, right? So fiat is like you're trusting like the Chinese government or some government. Physical is you're just going totally offline. You're only trusting like the physical world. And then multiple is you're diversified across multiple chains and maybe physical. gold, and maybe like Singapore dollars and so on and so forth. So if there is a hack, you're only losing like 10% or something like that, right? Because now you have to re-underwrite your portfolio with, hey, what is the problem that this actually literally goes to zero due to a hack, then even if it's got the upside of 10x, it's got the possibility of going down 100%. So therefore I don't put it all in the best asset. Instead I intentionally diversify it on the on the way.
Another speaker: Maybe the answer is we just gotta go to like username password logins for blockchains like like oh off of Facebook.
Haseeb Qureshi: OK, what's your take?
Tarun Chitra: Um, yeah, it's like the Chinese ghost cities, like there are too many that were overbuilt, there was a bubble. Then there was kind of tons of scams. All the debt except except instead with the blockchain, I can just shut with the L2 at least. I can say bye bye sequencer and that the entire town gets demolished.
Another speaker: True, true, right? Although it's like it's a more efficient version.
Balaji Srinivasan: But look, all those L2s were good because they kind of made Ethereum improve, you know, it was, it was like not.
Another speaker: Not all, not all L2s improved. Some, I wanna say a lot.
Balaji Srinivasan: When I say a lot, I don't know. I, I, what I mean by that is the how much money did you lose on L2s?
Another speaker: 00.
Balaji Srinivasan: OK, there we go. Very noble, very noble of you to point out a nice externalities of L2s. I mean, yeah, yeah, there's a positive externalities. Look, I mean, look, it's, it's just, hey, I'm not, I'm not knocking. He's a good investor, right?
Another speaker: That's true. That's true.
Haseeb Qureshi: I will say, no, look, I, I do think um there is a sense in which it's similar to Chinese ghost cities in that Ethereum really did encourage the creation of L2s, right? This was in a way kind of loosely centrally planned in Vitalic and the EF being like L2 is the solution, everyone make an L2 and like almost certainly it was almost like hyperstitioned that there was going to be demand for all these L2s and that they would be cheap and efficient to run. It turns out they're not. It turns out like every, there's so many middlemen that like kind of take little pieces when you launch an L2 of pay us for indexing, pay us for being included on a coin market cap and Dehi Lama and blah blah blah blah.
Another speaker: And what's that? Oracles and Oracle.
Haseeb Qureshi: That's right. That's right. That's right. And so like to be relevant as an L2 is actually quite expensive. And uh and that that probably explained a lot of the capital destruction beyond just but also like there are a lot of. To is like abstract and blast that we're just like we copy pasta we didn't really change much of the L2 we provided no technological innovation provide no economic innovation in terms of the fee fee model. OK, what do you expect is gonna happen? I'm just copy pasting a bunch of potential for Robin to chain that was the right answer, which is we don't need technology but they have clients have distribution.
Another speaker: They're clients exactly distribution distribution is the innovation, but they're bringing. That's bringing economic activity. These other ones were like, hey, if you build it, they will come. They have the party at Marquee and maybe we'll have some clients.
Haseeb Qureshi: No, well, look, the entire ET model was a thesis that was like, you know, I mean, like Solona disproved that thesis in many ways, and then Ethereum responded.
Balaji Srinivasan: But, but like you, you needed essentially like a global search, a global draft to find. The Anatole who could code as well as, you know, all of italic, right? And you know, that was like, otherwise it would have, you actually needed an example of an L1 that could actually scale that then forced it to not be L2s. So you kind of just need to run the experiment and see what version was going to work.
Haseeb Qureshi: OK, fair enough. On that note, we're out of time, we got to wrap. Thank you, everybody, and uh we'll see you around Singapore.
