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I'm going to talk about three different things, they're all related, and I'm really
just going

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to mention the first two and then get into this third one.

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So the first and most important thing is sort of some like emergency discourse kind
of repair

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type concept.

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So an objective function is something that you want to achieve.

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So if you don't agree on that first, the conversation is a waste of time after that.

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So I think there are a lot of people here, you know, this is a very diverse
community.

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Some people are interested in cheap transactions.

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Other people want to like single-handedly overthrow most of the world's governments.

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Some people want to like timestamp documents.

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So if you can't agree on what the objective is, everything you could say after that
might

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be true and you could still get a different conclusion and everything would be a
disaster.

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So I just wanted to mention this in two slides, this is the second one.

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So related to the block size, if you, if someone hasn't stated what they think the

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block size does for Bitcoin, then you can't even tell if what they said is related
to

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improving Bitcoin according to them, let alone whether you even care if what they
said was

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right because you even agree with the purpose that they expressed.

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So secondly, if you're going to state conditions under which the block size should
increase,

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you should also be able to say state conditions under which it should decrease.

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They're actually the same question because either it's related fundamentally to some

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principle or it's just kind of like what you think today and tomorrow it could be
something

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else or if you went to a different person, they could think something else.

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So that's, I just really wanted to mention that because I think a lot of misery, and

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I hope it's not too patronizing because, you know, professional philosophers
struggle with

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this kind of reduction to first principles a lot and I think a lot of misery has
basically

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been the result of this and nothing else.

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So I also wanted to briefly mention something that I wrote a blog post about very
recently.

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So not agreeing on the objective function is almost as bad as not agreeing on the
constraint.

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So decentralization is something that I think we would all agree is sort of this
constraint

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and we need to keep it at some acceptable level.

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So I don't really actually want to go into this because there's not a lot of time,
but

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basically my conclusion is that if you, you need to run a full node in order to know
whether

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or not you've been paid or you're asking someone else if you've been paid and so you
have to

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trust them.

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So this process of using money becomes more decentralized when it's easier and
cheaper

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to run a full node and I think, so this is like the scalability comment I wanted to
make

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is that I think that since it's an engineering requirement that Bitcoin be kind of
above

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the law.

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So it's not like you don't have to want to break the law or anything, but if you
acknowledge

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the law as an authority, it is no longer peer-to-peer.

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So everything that's peer-to-peer, BitTorrent, Bitcoin, whatever, it all is above
the law

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just by design.

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So it's not like, it doesn't have to mean anything politically, but my point is that

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I think the real constraint is actually not upstream bandwidth, but I think it's
actually

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Tor bandwidth so that things remain private and I think it would be very cool if
someone

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could figure out how to do metering of the bandwidth using Bitcoin itself and with
that

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being the case, you would have actual price for this bandwidth and that would be the
last

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abstract thing and you could add them all up and then you'd have an actual number
for

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measuring decentralization.

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But since this is part of the communication block and I really have something
important

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to say about this concept of peer-to-peer governance.

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So I think we can all agree that governance is more important, or at least it
affects

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the software, the causality kind of like goes up through this pyramid.

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The governance is the only thing that can change the protocol's rules and so it's
actually

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even more important than the operation of the protocol or the software that uses the

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protocol.

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It's sort of, it's more important.

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It's really, really difficult to figure out how to do this and how to communicate
this

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information given that everyone is going to be an equal peer and I really think that

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no one has ever done this before because even something else that's peer-to-peer
like BitTorrent,

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it doesn't really matter if you fork BitTorrent and you create a new BitTorrent
client.

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It doesn't affect the people who are already using their old BitTorrent client at
all.

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So it's like they're all soft forks when it comes to BitTorrent or basically
anything

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else but with money it's a big deal because what other people do affects you and so
we're

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kind of like all in this together whether we like it or not.

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So you need some kind of governance thing, yet with this peer-to-peer thing it's
going

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to be very difficult.

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So I'm suggesting that we can use markets to inform this governance process.

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So it's not like a government, like you don't have to do this, but it's like what
should

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the government do, governance.

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So markets can help us inform this governance process a lot, I think.

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So first of all, they're totally peer-to-peer and like permissionless and
decentralized

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just in their nature because all the information happens locally, but what I really
wanted

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to explain is that markets transform subjective values into objective information.

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So that's a very helpful thing.

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When you, in capital markets like the stock market, you make a trade, you have
contributed

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knowledge to the market.

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So you think the current price is X and you change it to Y and you think that the X
was

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wrong and you think that Y is right.

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But more importantly than this knowledge that you contribute, you know that anyone
could

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have changed the price to anything, but they did not.

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It's you who's changing it from X to Y.

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So you think that you're actually the number one expert in the entire world because
anyone

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could have done this thing and picked up expected value and made some money in
expectation,

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but they did not and you are doing it instead.

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So it's like you're really saying that you're the expert.

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So this is sort of like a maximization of the signal-to-noise ratio in a way and
market

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prices are constantly and unanimously acceptable.

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So at all times, to all people, the price is an acceptable measure of future reality

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because if this is ever not the case, someone can trade and introduce something
that, introduce

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an edit to the forecast that nets them money.

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But most important of all, the real purpose of all this is that prices are what game
theorists

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call common knowledge.

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So if I know the price of something is K and you know that it's K, I mean we can
just look

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at whatever price we're talking about and we'll both know that it's K and everyone
will

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know that everyone knows that it's K and everyone will know that everyone knows that

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it's K ad infinitum, et cetera.

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So common knowledge enables something called free coordination.

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So since everyone is on the same page, it's very easy for a group of people to just
switch

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from one thing to another thing even without any kind of leader being involved.

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So that's a really important thing.

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So I kind of think of it as actually it's not sort of like you have these proofs in

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cryptography that you know like a certain number or something.

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But I see prices as kind of like an expertise proof.

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You can just look at them and everyone knows that this was an accumulation of a
serious

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quantity of expertise.

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And so that can be very helpful to us.

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And it's not commonly known that markets can be about anything.

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They don't need to be about capital.

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They can be about these events which are today commonly called prediction markets.

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So you have these like partitions of mutually exclusive states.

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And so on the left here, one of these things is paying a dollar.

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Only one of them because Hillary Clinton is either going to be elected or not
elected.

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And on the right, it's basically the same question.

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It's electoral college votes in the United States.

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There's 538 electoral college votes for president.

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And you can just instead of being, you know, it's like zero, one, you can just split
this

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thing so you can get a continuous measure instead of a discrete one.

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So this has some costs even though it's only like an information thing.

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So a cost that it does not have is you're not like sacrificing any of your autonomy

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or anything.

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You can still decide to ignore this later.

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But it does have some costs.

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And so the cost of it, you need an oracle, you need this market infrastructure, you
need

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traders.

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And so as was mentioned, I have my own project Truthcoin aims to eliminate the
oracle completely

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and make it peer-to-peer.

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But it's highly experimental and requires peg sidechains which don't currently
exist.

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So you could make a very, very, very simplified version instead which is sort of
what I'm

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proposing with this federated idea.

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And you could have these multi-sig functionaries.

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So this is kind of like a tradeoff, right?

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So I'm saying you're picking like something like seven people to just type in five
or

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six numbers later.

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You need to type in, you know, what the objective function ended up being.

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But they don't need to use any expertise or anything like that.

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They just type in something that we all know and you're just trusting them to do it
honestly.

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So this is a tradeoff like anything else.

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So like for example, the SHA-3 competition that we just heard about, you had to have

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experts kind of administer.

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That was like endorsed by like the federal government and there was like a hierarchy

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of expertise and the experts were sort of in charge.

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But with this, you know, you don't have experts.

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You have these representatives who you're only picking them based on how likely they

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are to do this job.

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So you're not saying they're smart or that you like them or anything.

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You just think that they're likely to type in these numbers honestly, possibly
because

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they own Bitcoin businesses that would lose future business or something like that.

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So the problem with the experts thing is that it's a circular definition and this is
a very

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diverse community and it's like who is going to resolve a dispute if you think
someone

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is an expert and someone is not.

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But it's much easier, it's much more objective to pick the representatives.

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The other thing is that there's this tradeoff between meta-deception and deception.

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So the expert, you might pick these seven people or these three in this case and
they

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might deceive you, but you would know that you had been deceived because they had
these

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numbers and they just typed in numbers that were different.

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So you would know that they deceived you, whereas today I think we're just kind of
confused

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in general and it's sort of like we don't know what we're confused about or who is
actually

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more confident or more of an expert about a certain thing than someone else.

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And so it's just a tradeoff like anything else, but this is the bad news.

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So I don't really have a lot of time to go into this, but I think people, the other
two

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things, so the market infrastructure is actually very, very, very easy.

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You don't need to do this thing with having everyone submit bids and asks into like
a

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big order book and like waiting for them to overlap or something like that.

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You can actually have something called a market scoring rule, which just has a
single state

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and then a single person just atomically updates the state and it's only them.

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So it's just like passing a single Bitcoin around, only faster.

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But the way this works is that there's this formula that you have these mutually
exclusive

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states and you have the formula that relates the total number of outstanding shares
to

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an account, the money that the market owns, and people propose updates to the share
state.

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If you want to buy shares, you propose an update that has more shares.

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If you want to sell, you propose an update that has lower shares.

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You do this on your own computer.

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You use this tiny formula.

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You can actually change the formula around a lot, but you use some formula to relate

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these things.

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And if you pay the difference, then it's valid.

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If you don't, it's not valid.

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So you can buy.

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It issues the shares.

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You can do buying.

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You can do selling.

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On the right, I have this first difference.

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So time is on this vertical axis and on the right, I have this first difference.

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So this red guy at time equals nine bought 18 shares for 12.86 something, and then
this

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00:11:57,700 --> 00:12:08,660
green guy at time equals 12 sold 21 shares of that right, more right state for 2.7.

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00:12:08,660 --> 00:12:12,780
But my point is just that this does everything you would want and it's literally one
formula

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and it just doesn't get any simpler than this.

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So that would not be a lot of work and I already have code that does that anyway.

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So the other thing is getting the users involved and you might think that you would
just create

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two different markets and have an objective function for one, an objective function
for

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00:12:25,820 --> 00:12:30,580
another and you would then just look at them and see which price is higher because
this

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is a representation of the future reality if you do a certain thing like that.

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00:12:34,380 --> 00:12:38,580
But you can actually go way crazier than that by combining them and now you've got
four

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00:12:38,580 --> 00:12:40,440
mutually exclusive states.

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00:12:40,440 --> 00:12:42,660
You get a lot of stuff for free.

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00:12:42,660 --> 00:12:46,420
You get things like decision insurance so you can just set up something that pays
you

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00:12:46,420 --> 00:12:49,780
a ton of Bitcoin if something that you don't like happens.

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00:12:49,780 --> 00:12:54,580
So if you're interested in, you want to see the block size increase, you could bet
that

200
00:12:54,580 --> 00:12:58,300
it would not increase and then after you're disappointed at least you get a lot of
money.

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00:12:58,300 --> 00:13:01,260
So it's sort of like hedging yourself, something like that.

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00:13:01,260 --> 00:13:05,180
You can do that, you get that for free as just a result of this, you know, summing
these

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00:13:05,180 --> 00:13:06,180
things.

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You also get, depends on, you can bet on the objective function itself vertically.

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00:13:11,620 --> 00:13:17,300
But the cool thing is that for every n dimensions you have here, you get n minus 1
relationships

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00:13:17,300 --> 00:13:20,820
and that lets things get really fancy because I don't really want to go into it
because

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00:13:20,820 --> 00:13:25,380
it takes a lot of time but you can basically invest a total of one Bitcoin and get a
total

208
00:13:25,380 --> 00:13:28,540
of one Bitcoin back if things didn't go your way.

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00:13:28,540 --> 00:13:32,540
So if you really wanted the block size to increase, you could do this thing where if

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00:13:32,540 --> 00:13:34,520
it didn't increase, you'd get a Bitcoin back.

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00:13:34,520 --> 00:13:40,100
But if it did increase, you would get something equal, the entire portfolio that you
invested,

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00:13:40,140 --> 00:13:45,220
the one Bitcoin would be worth the Bitcoin return between now and the time that you
made

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00:13:45,220 --> 00:13:46,220
the investment.

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00:13:46,220 --> 00:13:50,260
And you can go even crazier than that by multiplying again by the exchange rate and
you can put

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00:13:50,260 --> 00:13:52,860
that entire process in cash.

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00:13:52,860 --> 00:14:00,060
So believe it or not, you can actually start with $500 US and end up with at least
$500

217
00:14:00,060 --> 00:14:04,020
or more, even if the Bitcoin price collapses, as long as it doesn't go to zero, it's
actually

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the log price, so that's why that doesn't make sense.

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You can start with $500 cash and you can get it all back if someone screws up the
decision

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according to you and if the decision goes the way you thought it should, you'd get
something

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that covaries with the objective function.

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So you basically always have, tons of people have an incentive to participate in
this market

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and you can even charge these people a little bit of money for this insurance
service and

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this money can pool up as liquidity, something called liquidity sensitive market
scoring

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rule and then there's like a big pot of money for ideally like researchers to kind
of like

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start fighting over and then as they fight over it more, the market becomes even
more

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liquid and that's how it might work, it might work better.

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So I'm just going to really quickly go over the benefits, the Oracle is a slightly
annoying

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cost, but the main benefit is that you can use the price as an objective function
and

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the price kind of catches everything, right?

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It's like everything you would want, if Bitcoin is useful or whether or not it's
different

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from something else that we already have and so the price is kind of like this big
funnel

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that catches everything.

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But even if you wanted to have lots and lots of different objective functions,
another

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benefit is that you can just keep redoing this, it's very simple, you just need the

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Oracle to type in these things later.

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Paul?

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Yes?

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I think we're hitting overtime.

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Oh yeah.

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For this 15 minute presentation.

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That's fine, yes.

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Thanks for cutting me off.

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It was awesome though.

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Loved it.

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Okay, thanks a lot.

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And people remember to, this point is really important about agreeing on an
objective function.

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Paul?

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It's time to go.