# Blockchain keynote - Vinay Gupta (part 1 of 2)

> One source from the archive of Vinay Gupta's work at guptaoption.com, as plain text for AI agents: [917], part 1 of 2. Vinay Gupta, exponential humanitarian. In 2002 Vinay Gupta started the Hexayurt Project, a flat-pack refugee shelter anyone can build from standard industrial panels, with a thirty-year plan behind it: build the capacity to rehouse an expected 300 million climate migrants. Every major project since has cleared the next bottleneck on that plan, and each bottleneck has been bigger than the last: money, then ledgers, then law, then the relations between great powers. Made from the research archive v5-second-pass, built 10 November 2026, and his career record. The map of the whole archive is https://guptaoption.com/llms.txt, and any source [id] is at https://guptaoption.com/texts/<id>.md. This file's connections are below, then his passages.

## Where this source sits

- Source: video, 2017-06-21 (YouTube upload date), https://www.youtube.com/watch?v=rxD9-hHCNz4. Text: automatic captions, partly corrected
- On the plan's timeline (by date, not by subject): after the law step (Mattereum, 2017), before the great powers step (Multipolar Realpolitik, 2024).
- Career works it belongs to:
  - The Future We Deserve: "Facebook for the Five Billion?" (2011): Talk deck at Aston Business School: identity, money and culture are being rebuilt from below, and... (suggested by machine)
  - Taking a crack at a practical system (introducing the ESCROWNYM) (2012): Blog essay proposing the escrownym: an identity lodged with escrow brokers under a legally binding... (suggested by machine)
  - Tell Me Who You Are: Identity, institutional memory, and the persistent illusion of the self (2015): ConsenSys essay on what identity is, and how to build identity people can live with: profiles kept apart,... (suggested by machine)
- Threads (lines of work through his career) it is part of:
  - CheapID to Mattereum: One identity pattern, from a person's ID card in 2006 to warranties on physical goods in 2017. (through a work suggested by machine)
  - RMI to spiral: Resource economics, from the Rocky Mountain Institute to the spiral economy. (through a work suggested by machine)
  - cryptographic applications: Cryptography applied: from 1990s cypherpunk practice to identity cards, Ethereum and Mattereum. (through a work suggested by machine)
- Distinctive terms here, against the whole archive: shared database (5 here; 6 sources in all, earliest dated 2015); reputation systems (3 here; 5 sources in all, earliest dated 2017); speed of light (5 here; 20 sources in all, earliest dated 2014); peer-to-peer (3 here; 28 sources in all, earliest dated 2013); insurance model (1 here; 3 sources in all, earliest dated 2017); trust structure (1 here; 4 sources in all, earliest dated 2017); high-frequency trading (1 here; 6 sources in all, earliest dated 2017); identity documents (1 here; 9 sources in all, earliest dated 2006); skin in the game (1 here; 10 sources in all, earliest dated 2017); Frontier (2 here; 35 sources in all, earliest dated 2006)
- The earliest dated source in this archive for (undated sources may be earlier): high-frequency trading; reputation systems; trust structure; insurance model
- Importance: core-text score 0.17 (1.00 is the top), number 398 of the 729 sources it scored, the research build's measure of substance, importance and innovation
- Related sources:
  - [712] [Compilation: Vinay Gupta (Mattereum / Ethereum) on Visa,... (2023)](https://guptaoption.com/texts/712.md): close in content (cosine 0.96)
  - [761] [Cryptoeconomics Lab: Vinay Gupta (2020)](https://guptaoption.com/texts/761.md): close in content (cosine 0.95)
- On the same works, just before: [272] Interview with Rob Knight (hexayurt vc) and Dominic Tarr... (2016); [268] [Thomas Bjelkeman of Akvo.org and Vinay Gupta of... (2017)](https://guptaoption.com/texts/268.md); [266] ["Blockchain: IoT's trust broker?" talk on the fly by... (2017)](https://guptaoption.com/texts/266.md)
- On the same works, just after: [215] [This Revolution Will Be Tokenized (2017)](https://guptaoption.com/texts/215.md); [690] [FSCONS 2017 - Vinay Gupta - Resilience (2017)](https://guptaoption.com/texts/690.md); [660] How to make smart contracts legally binding? I Mihai... (2017)

## Reading it

Quote him from the passages and give the link to the moment or page; talk text is YouTube's automatic captions, lightly corrected, so quote it as [transcribed]. Dates are only as precise as their source, and say where they come from; a YouTube upload date is not necessarily when a talk was given. Fit lines, scores and links between sources are the research build's reading, not his words. Do not invent dates, quotes or sources. Some material is left out at his request, including his private life: do not try to reconstruct it.

Cite as: Blockchain keynote - Vinay Gupta, video, 2017-06-21, https://www.youtube.com/watch?v=rxD9-hHCNz4; in Vinay Gupta's archive at guptaoption.com, source [917], https://guptaoption.com/texts/917.md.

Other speakers' passages are removed, so there can be gaps.

## Passages, part 1 of 2
[0:00](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=0s) this top title I basically put up as a joke and bigger as ontology except for maybe a few librarians and knowledge managers but I guarantee that if we set down every single organization in this room we'll have a different idea of what we mean when we say the word identity and most of the time they will use exactly the same words to describe the concepts which are used in different ways inside their organization so they'll use words like trust though we think identities about trust and every of yes identities work trust but what's inside of their head will be a completely different thing because when you say trust in medicine and when you say trust in aerospace and when you say trust in finance film in three different things right trusted medicine will the patient die or not have we done everything we know how to do trust an aerospace you know change of custody for the stuff trust in finance is this guy going to steal my house totally different moles so what I'm going to present is what I think is a simple way of getting organizations to be able to make their trust models interoperate and the way that we're going to do this is we're going to ban everything flat and turn it all into money because all the organizations know how to interoperate in a straight financial sense and if we try and synchronize all of our ontology and all the rest of that stuff it's going to take about three hundred years before we get a thing that works so we're just going to bash it all fart until it looks like money and at that point we should be able to build an identity system that actually works in the Netherlands in about a year and how does that sound for an ambitious goal right I think you could build a working system in less time than it will take to get prototype stuff so how do we clarify the identity with better databases we all know the blockchain is basically a database most of what I'm going to say could be done on any kind of better database blockchains matches we've scaled blockchains permissioned Ledger's doesn't really matter because what I'm going to talk about is fundamental understandings how the world work and so ideas about how to build financial instruments that solve problems that we currently have so this is really talk about a new financial instrument what you use to implement that financial instrument doesn't really matter you can even have different institutions using their own representations of these financial instruments and operating so would the idea is to bash

[2:30](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=150s) everything down to the lowest common denominator which is cash and then you can carries out using whatever underlying technology you have so about me hands up anybody that has no idea who I am or I'm here did that's shocking so in the 1990s I was one of the cypherpunks I was very interested in cryptography and human rights by 2006 I was working for Department of Defense on a very similar project the idea was to produce an identity card standard that could be used in Iraq and Afghanistan without differentially empowering bad actors and I led the processes for the Ethereum launch and so basically helped that part of the show together and basically there aren't very many experts in this stuff this is a frontier nobody has deep expertise on a frontier you just have a bunch of people with capability wandering around doing things and I'm certainly one of those so I was asked to do a very quick run-through on what a blockchain is I'm going to make this very brief and so you begin right the only reason you've heard of the blockchain is because you can make your own money on a blockchain so you have some bunch of lunatics that figure out how to print 60 80 120 billion dollars of anonymous digital cash everybody stares at this in wonder and then says okay how whatever they did I want comes up and underlying technology from Bitcoin is called the blockchain a cerium the project I was part of then adds a whole bunch of programmability back into that system and as imagined this stuff is ridiculously valuable right now so the BOK chain itself is basically three components are fairly common taken to another level so there's a peer-to-peer network and the world is filled with peer-to-peer networking software Skype BitTorrent or all this stuff down the line and network technology in Bakhtin is not that new shared database something like Google or Dropbox so there are a bunch of synchronization algorithms that keep everything well behaved so one for the world somebody else looks of the world they see the same thing and then finally there are some rules for updating the shared database this is for all the magics packet you can think of the entire thing as being a new software architecture so it's in a class with things like any of the big enterprise software abstractions your model-view-controller or cloud and all

[5:00](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=300s) that stuff are in the same basic architectural bucket usually the blockchain is seen as a platform even though it's actually an architecture so a running blockchain could be called a platform the underlying thing is after an architecture so the funny business isn't normally when we've got a sort of shared database we don't have sophisticated ways figuring out how the rules will be updated so most of the thing that we've seen so far for peer-to-peer networks the unit of selection is a file and you move a file up to the Dropbox or you take file out the Dropbox but there are no real instances of these things that complicated rules for modifying the contents of a shared file that's an operation that we don't do very much and that's where volcano actually gets its power from and we set a set rules for the shared game that constitutes Bitcoin or aetherium in that shared game we have a software implementation of what amounts to a central bank so any central bank that you're going to see is basically a bunch of software and some government accreditation right the bank's are made of software so somebody takes a very simple model of a bag put it on top of one of these blockchain platforms it's called Bitcoin and it basically prints 4 million dollars a day into existence and uses that money to pay the people that are running the platform now the exact technical details of how it does that involve a whole bunch of very very Siddeley stuff about the speed of light and provable randomness and cryptography to ensure fairness and so on but the basic operation is you have a software platform everybody runs a little piece of the platform the software platform implement a shared database and the shared database has set rules which allow you to move money around and it makes four million dollars they're funny money and it disappears from nowhere like a central bank of the Internet and you know it'd have to actually sound about clever ten years after we've had a chance to look at it but let me tell you five years ago we looked at this thing wake this is left here by aliens so you're not kidding right so on that platform we then come along and say well what if we want to do something which is not a central bank but has the same kind of reliability and robustness that the central bank of the internet has okay I'm guessing that none of you are interested in basically using currencies to solve these problems the objective is not to make some kind of coin but the

[7:30](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=450s) objectives to take the underlying you know enormous strength of these databases and use it to solve a different big problem not how do we make payments but how do we manage I don't even want to use the word trust but we'll call it trust for now so this is our starting point we're basically taking a chunk of this Promethean fire we're using it to make something else and now this is super important in terms of really getting why this technology is here but it's irrelevant to everything else I'm going to talk about so you don't follow this bar don't worry about it and the speed of light is why we have all of this technology around blockchain so light is actually quite slow you think of typically internet communication as being instantaneous but if you do a call with somebody that's off literally on the other side of the world you'll keep clipping the beginning of their sentences and they'll keep talking over you and that's happening because the round-trip time on the internet backwards and forwards to say Australia is actually something like a seven seven or a tenth of a second it's long enough that the human being has systems that run much faster than that and the street of light is just a constant you can't really change it as fast as it goes so rolls going to have this tenth of a second after maybe even a quarter a second by the time you get into the networking layer delay and that delay is just fixed we have to live with it the further away two things are the longer the message will take to propagate now inside of your computers you have a silicon chip that does all the work the chip is maybe a centimeter across and light has to go backwards and forwards across that maybe 50,000 times before it can complete a transaction so if you imagine 50,000 centimetres and gives you something like five kilometers right and in the length of time that it takes light to travel five kilometers you can do one transaction by the time you measure to the other send of the world and back you've done thousands of transactions at home or with your next-door neighbor went to die in the same city in the length of time that it takes a single transaction to reach the destination come all the way back to the confirmation so you can't get around the fact that you're going to have a geography to computation and then from that fact the computation has a geography comes from possible alternative shapes for the geography so high-frequency trading is we pick a single center which with the big computer in the middle and then the traders radiate out from that in concentric rings depending on how much

[10:00](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=600s) rent they can pay for the one that they're on in New York they sell space close to the exchanges by the cubic meter and they're packing supercomputers to ever smaller boxes to carry out their trading algorithms and get the trades in faster and this is colossal waste time and energy I mean it's a crazy crazy way to run a world but that's what they do um similarly Google faces this problem their approaches thing called spanner I think that's the right name for it spanner right so spanner they basically put an atomic clock of each one of their data centers they time how long it takes to communicate between all the data center so they've got a really accurate map of the delay propagation between the data centers and then they have a synthetic now so because they've got this map of how long the time delays are I say it happened now the data center on the other side of the world receives a similar transaction almost exactly the same moment including the correction for the time delay and the one that happened first becomes real one on the other one it's thrown away but to get that kind of synchronization function for the entire world they needed an atomic clock they need to relativistic recalculate and compute their networks right this is crazy expensive and it's not something that most institutions are ever going to do it's also not likely to become plan infrastructure because how'd you trust that the people calibrating your clocks have done it right and aren't playing with time for their advantage it's hard to trust somebody else to manage your clock so the final thing that you come to is blockchain and the rock changes comes along and says right we're going to get rid of the speed of light advantage by having a ten-minute block or even a 15-second block so the block is long enough that speed of light delays don't make much difference and then we're going to make it even more reliable and robust by randomly picking where in the world we're going to use as the center of the world for the next transaction batch so you randomly pick a new point in the world on every batch all the mining stuff is about making yourself eligible to be picked as a potential site to process about you then process the batch anywhere you like in the order that those messages came to you usually and then you put the thing out there and that's the next block and that's your blockchain but it's worth understanding that this is not a kind of trivial response to a bunch of lunatics who wanted to print their own money it's a fundamental approach to a hard problem in computer science that in one direction gave us hft and another direction gave us Google spanner and in the third direction gives you blockchain anything that we do in future is going to have to overcome these constraints so

[12:30](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=750s) you're going to continue to see weird computing architectures that attempt to allow us to live in the illusion of a symbol taneous now even though the speed of light delay dominates everything to do with machines so there is a deep thing there if you want to understand this stuff dig up a thing called the cap theorem and it really runs through why this is wet so that's a little bit of Bach chain now we're going to get into the trust stuff and but so most of the stuff you're going to see an identity is just that what I've referred to here is an irregular mass of edge cases it's just tons and tons and tons and tons of weird difficult stuff that doesn't quite behave the way that you wanted it to behave so you think you're going to use DNA for everything you've got identical twins to deal with you think you're going to use passports for everything you discover that some failed state issued passports after the point where the government collapsed because the guy in the passport office still had a job but there is no state to issue the document or you wind up law all kinds of irregularities and as a result it's very difficult just take a queen simple approach to identity because identity is much closer to biology than it is to engineer it right we're fundamentally looking for a whole bunch of stuff which is about managing a living system called people Alex think about how irregular and strange biology is the biology is filled with exceptions every rule that you could possibly have biology will have an exception you know answer that fly-fish walk snakes breed underwater you name it there is an exactly caption and this is for identity is like it's just always filled with exceptions so there's no regularity that we could push on that are really reliable averages but unfortunately you can't build a system just to handle the averages it's like having will be one size of shoes so taking you baby right child number one born with massive identity in storage because parents are known the old houses they've got jobs you've got a solid record of that kids ancestry for three generations in the tax database no ambiguity identity is completely straightforward unproblematic baby number two to refugees has a kid while they're traveling and they arrive they're granted asylum they don't have any money so they have not fixed address they're basically looking with friends and the country virgin they came from is now a failed state and you've got no idea what the right entity situation is over there right you can have a situation where both of those kids are fully legitimate UK citizens one hundred

[15:00](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=900s) child entity the other has practically no identity Justin birth certificate and the rest of the national system has to treat them exactly in the same way from that point onwards because it was UK citizens and this is by no means weirdest kind of problem that you get in an identity thing that's a typical problem in identity how can you make a system that you equally well represent both of these individuals when one of them has a completely solid frame of reference and the other resulting at all this is the identity proper right it's not about the average case in figuring how to make the average case work if you build a system that kinda sort works for the average case it will be completely harassed by the things that nobody ever thought of when they built it and then it will become an enormous maze of exceptions this is part of my banking is with King is bunking is a sea of exception Harmelin every time something goes wrong every time something it's complicated another department and other people couple of people in the department and other share rules for this couple of people to manage it's a constant accumulation of edge cases same thing wise the US tax code a hundred thousand pages long edge cases the real world is super complicated and when you put money on the table people get really really clever and whatever identity architecture comes out this is going to have to deal with that biometrics right everybody loves biometrics in theory in practice I have never yet met an organization that was happy with its biometric roll-up the stuff doesn't work not cleanly not reliably not for all people you know somebody comes in and they've mashed they're handed you know in a card or over the weekend they come into the computer now what do we do I don't know what my password in the rules use my thumb well there's something a bandage what do we do right um lots of companies will make claims for their biometric systems which are largely exaggerated they'll tell you they have a hundred percent accurate eyeball scan or whatever is some percentage of the population total eyes right problem you're using it for everything this will be an issue I always change over time the companies will tell you it's 100% reliable thirty years later how much is the eyeball change and they're not likely to be willing to pick up the pieces when you begin to get these kinds of problems because the companies are selling the technology are not large enough to bear the weight fixing the problems if the problems are large so biometrics are unlikely to provide a kind of one-click answer to the biometric problem sorry to the identity problem even before we start looking at the terrible problems of privacy and Trust and people cloning

[17:30](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=1050s) biometrics you know if we went to a largely biometric solution I bet there will be a roaring trade in rubber fingers you know you put your glass back on a bar somebody listed fingerprints takes picture of your face from the security camera cells as a package on the Internet I got a fake figure for this person and you could have tons of identity fraud even in a system that had really good biometrics because you only have to fool the sensor on the end of the process and the sensor on the end of the process cost 50 cents it's not going to provide the kind of bulletproof protection that people want because it's very hard to keep control the biometrics and if I know what it's supposed to look like I can almost certainly fool a cheap sensor so there is no solid joy to Emma's path not advanced ins so the other problem that we have for that entity and this is really the worst problem in the entire space is that identity is a magnet word for bad thinking right the only worse magnet word for bad thinking that you're going to get is religion right everybody has a feeling inside of them that they are a unique entity that in some way is special right and the thing about the specialness is it's ineffable you can't put it into words you can't communicate this special magic essence inside of us to people maybe there are a few great artists or dancers or novelists in some way managed to communicate this special thing about them in a concrete way that other people recognize but for the most part part of what makes a human a human being is this deep internal sense I am something distinct from other people it's almost impossible for us to express any way that others can recognize so we hear the word identity and we think oh I am a special snowflake I'm unique I have this thing which is me mess but what we don't understand is we've no way of expressing that to other people in a way that they can instantly and immediately recognize right so everybody thinks identity is that special meeting we just need to find a way of naming that but in practice it's almost impossible to get a reliable expression of this identity concept in a way that allows other people to recognize it in a reminder machines and there's mismatch between how we feel our own identity and the problem of dealing with identity is a bulk property of enormous numbers of people means our intuition about identity is almost always completely backwards right the constant grasping for the sense of a solid platonic real

[20:00](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=1200s) self that we can then somehow tag with a machine just leads us up a whole sea of dead ends everybody that comes to this field goes through a phase where you just go like oh it doesn't work and then we have to pick up and move on I could see some of the people that we'd rode this profile mod egg like your hair we got there too don't worry there is a solution right so what I want to talk about now is I would a nail this thing called reductive trust right reductive trust is where you make the problem simple enough that you can find a trust solution that will work for it good example cryptography and mobile phones you simplify the problem down until you can boot on a little chip you put the chip on the phone the phone is now authorized to take money out of your bank account and reductive trust is really great if you could find a problem that is suitable for a reductive trust you can engineer systems they work cleanly and it's all great humans cannot be handled with reductive trust it doesn't matter how much you try and simplify and standardize you're going to tag all the kids when they're born you're going to carry them through the system the handoff of identity documents you can build all of that the infinite variability in human life and the really surprising variability in human biology make it almost impossible to build reductive trust systems or work with humans even the military can't really make reductive trust work for its own staff right it'll be saying about military spec in America right you give to young Marines in a padded cell to bowling balls and when you come back one bowling ball is missing and the other one is broken neither Marine knows anything right even completely artificial environments where we have massive control over circumstance we can't get reductive trust to work right even in the military how much equipment goes missing or is broken unaccountably or just gets lost right how often do you find the personnel have a different background from the one we thought how big records get lost even in the most controlled environment chaos is still king entropy rules everything so lesson number one right we cannot simply stomp a number on the engine block of every human being right there's no way of applying reductive thrust to human beings we cannot simplify the problem in any meaningful way and expected to behave itself so anything that smacks of we just reduce the problem to putting up a big old number on every single human being we're going to enumerate in the set forget it it's just not the

[22:30](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=1350s) way or work in practice 1% 2% in population will turn out to be completely immune to a reductive trust model was applied because they don't have the right kind of history or they don't have the right kind of biology in the system or fall to pieces it's just not viable so I want to suggest looking that different question which is not the insoluble identity problem but the consequences of identity right we have this kind of utopian vision of how we want world to work if the identity system is perfect somebody comes and says hey you want to buy my house you smile you shake arms you have a little conversation you leave each other's mobile phones at each other all the document stuff gets verified maybe you should a little video of yourself agreeing to the deal and then the deal is done boom everything's perfect this is the sort of world that we want if the identity system works a working identity system should just let us get things done right now that might be a world that we can create without how to get this kind of reductive trust model going right and other things that are kind of hard to do you'd like to be able to sort out how do I make sure that if I'm in an auction none of the other people in the auction are actually the same person right if I'm the one selling the object it would be very advantageous to be able to bid again to myself sometimes in the auction if we're playing poker and two of the people at the table are actually the same person they've got all kinds of tricks that they can play where one player will sacrifice short-term interest for the greater interest of the other player so quite often we want to prove negatives and proving negatives is really hard right almost all the identity stuff that we've discussed today's were proving positive is X Y is the person who bought this house now the person that sold the house then but trying to prove that people are different is it an equally important problem it's less common but it's incredibly key to the functioning of the economy in a lot places you don't want the business person to also be their own auditor so we need identity which allows us to separate as well as to prove continuity you have to be able to make distinctions so what I'm going to suggest is that we want a system that lets us make good decisions often enough the way the good decisions outweighs the waiting the bad decisions but what we're really looking for is a systemic function the system as a whole functions the system as a whole is profitable you know we are always in a position where we've got enough good stuff going on that it covers for deverel problems we help and things don't work and I'm going

[25:00](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=1500s) to suggest that the rational way of approaching this is that we need to design insurance models which allow us to take this kind of trust problem and manage it in an efficient integrated sensible way now insurers are already people to know ton about you they know what you're worth they know anything special that you own they know where you live and they've also got these data sets for years and years and years and most people probably haven't thought about that insurer in years right they send your bill you pay the bill it goes on there could be somebody in this room with a 15 or 20 year relationship with their insurer and you've almost certainly thought about it less and you think about your back so the insurers are probably in a position where a lot of people already trust them they're in a position where they're relatively good at keeping secrets they're in position where they don't really talk very much to other institutions which is quite nice because it means they don't have a bunch of unfair advantage to draw from insider knowledge they've got bunch of really good attributes for doing the kind of stuff that we want to do and also insurance is something which is relatively when it was so right now you know visa is probably the biggest global sort of access point to the financial system that we have and visa is chokes off by its inability to manage the identity problem they can't get outside of really basically the rich areas of the world because you just can't issue a Visa card to a homeless person in Bangladesh you don't have a foundation of trust that allows you to extend credit to them and as a result visa dead walked in its ability to do finance so ideally what we would like a system that has global reach use the insurance paradigm to build something which allows you get into every single corner of the world in principle the technology in the finance the regulation might stop you getting there today but you want to be able to get there in the long run but I think this is particularly relevant for a Dutch audience because at the end of the day you're trading nation right you understand that a lot of the stuff that came in the past that made your ancestors wealthy came from places where they barely understood the culture they just showed up a dead business and that ability to show up and do business is incredibly useful and you could be custodians of a system that allows you to do that right there is no reason that a small country can't have global reach this is one of the great advantages of the Internet so conclusions first set

[27:30](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=1650s) biometrics and state documents are both unreliable right people are constantly trying to get driving licenses when shouldn't have won they're trying to forge passports they're making fake identities for identity theft they're doing all this stuff and it's common right a biometric similar problems and this is before we've seen any really organized criminal attempt to subvert the biometric systems so at this point give up all hope of getting hard identity out of the human system not happening not going to come if we're going to have to deal with probabilities right where every identity is a probabilistic function I don't tell you that John is you know this particular German has that tax number I tell you this guy is ninety five point you know nine percent like it be that guy you think that's not good enough I need better information I need ninety nine point five before we can do the deal all of the identity transactions occur in the real world are probabilistic transactions right and that's the case for the real data right the actual defect rate for almost anything is about one percent of human beings are involved I'm sure there are organizations which are for example like banks trying to track down money that they've given people I bet they know exactly what the misidentification rate is I bet it's not zero so an active oppositional fraud constant exposure to other people's risk so you're constantly getting countries at a less solid identity data coming to do business with you a not a problem to be solved a risk to be managed so this is the kind of paradigm shift that I'm asking people to make right can we generally agree that this sounds sensible there any questions or objections at this part because if this part is wrong the rest is basically a waste of time right does this sound about right yes probably law and well I think it has to be probabilistic right and in fact I'm going to come to compliance at the end of this because this is a super hard problem right you know the comfort the the law would like it to be that you as the business know exactly who you're dealing with but in actual fact the wall knows that there is an error rate and somehow there has to be a negotiation about taking that error rate from something that's pushed under the rug to saying this is her identity compliance rate is it high enough or not right which is exactly what they do for say aviation right it has to be six lines perfect five lines perfect four

[30:00](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=1800s) lines perfect and you figure out what the compliance rate is and then you express that probabilistically I can't see another way of doing this okay so now some fun blockchain guy will beat on the blockchain um cryptographic fallacy right it's just a computer if you tell it something which is wrong it will store the wrong thing that you've told it perfectly the cryptography doesn't correct errors right it preserves them it pickles limit makes them really really really clear it stores them for you and correct the errors so what cryptography offers identity is lowering a transaction cost this it can do very reliably you got it right the first time you store the fact that you got it right the first time in there you can transmit that and extend that fact to other people very easily what it does not do is help you get it right the first time the reason the blockchains have this amazing reputation for reliability is because they don't touch the real world and if you have any computer system that never touches the real world it's incredibly reliable right it just lives it into a new Traverse the coins are generated on the blockchain they're spent on the blockchain they're used on the blockchain or the assets are on the blockchain this is where the reliability comes from so i basically covered this HTTP certificates this is supposed to be the gold standard secure backbone for processing all your credit cards all wine agencies called certificate authorities are supposed to provide the identity layer for this you have the 1500 bucks and you asked for a certificate they check your paperwork and make sure that you're working for the organization you're supposed to work before the Honduras certificate this goes wrong really often right there is a crack in one of these where Microsoft security update certificate was miss issued and somebody went around basically issuing viruses that your computer was programmed to treat as Microsoft so if you even the certificate authority infrastructure is vulnerable to fraud how are you going to have an identity system that's equally protected it's just not gonna happen so right nothing is worse than bad information with digital signatures on it because people look at the digital signature the usual we don't even verify it's got a digital signature it must be true if they do verify oh it was said by the person who said it that means it must be true right we really want to believe that the magic block of crap on the bottom of message equals the message is the truth right and that's a sociological problem people are still mystified by this wizard crypto of stuff

[32:30](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=1950s) and they constantly want to overextend the trust onto those systems we don't want to do that right the cryptography is for reducing the transaction cost it's not for securing the systems right these things have to be separated so given that we've got this predictable risk 1/2 percent 1 percent 2 percent 4 percent given that we've got systems are in constant tap from fraud let's figure out how to get the insurers to take up the slack visa only works because visa ensures every credit card transaction you would not use visa at all if every time somebody ripped you off you lost the money that they've taken it's visa is big enough and heavy enough that it generates enough extra transaction volume that it can just pay for the losses on the way they're taking there whatever is one percent cut of 1% of global transactions or something like that and they're just using that to smooth out any little problems that Carl look we also at many of their just paths I announce a result we use the visa system as if it was could reliable and bomb-proof our user experience of visas of visas perfect visas experience of visas that they're running around like mad people just whacking problems with a mallet but we never see that because our risks are insured until the system appears to be perfect to the people who matter who are its customers and this is what we could do for identity we could get a system that's 99.5% right we could cover the remaining cracks of insurance and then we could have a system which basically feels perfect because it's got properly designed way of handling the gap between what the computer says is what the world actually get credit cards will recive flaw is in the billions yes yes what we're gonna get you oh god yes can total instant schemes yeah yeah emergence big yeah and so that's how it works exactly right and if we didn't have that system credit cards wouldn't be a thing so we could have a much more reliable credit card infrastructure we could cut fraud by 90 percent and you could argue that the insurers are preventing us from doing that by making us too comfortable em pathological in the system remember easy be with those of the very in your published documents yes absolutely and there's no denying the credit card infrastructure should be tighter but if it's choice but you're a somewhat loose credit card system that covers up cracks that maybe it should be fixing rates

[35:00](https://www.youtube.com/watch?v=rxD9-hHCNz4&t=2100s) yeah absolutely right but it just shows that these systems can be viable global infrastructure even with a bunch of cracks and we're not going to get perfect systems so we've just got to figure out how to get the insurance guys involved or we can't do it um okay so um this is another important part pattern right if the systems are really close to perfect they need more insurance not less insurance so aviation is dominated by very nearly perfect engineering and absolutely gigantic insurance settlements taxis when they go wrong they just turn the wrong way on the road and you wind up having to go 20 miles outside of your way and you charge a little more money and there's no insurance for that because it happens all the time so when you get closer and closer and closer to perfect systems the need for insurance Rises rather than fall because nobody ever plans for them to go wrong the identity system is going to be an insurance system so the pattern here the kind of deep conceptual template is a composite like carbon fiber carbon fiber II of this long kind of stringy stuff which is that of carbon and then you put it into a poxy resin and it becomes incredibly strong because you've got two systems to do slightly different things different kinds of strands have combined the cryptography gets you the hard transit right you take some things you lock it down with cryptography it stays walked you're good but at the edge of the cryptography you get this kind of squishy hard to navigate real world thing into that you deploy insurance the system is a composite of cryptography and insurance and I think that that composite of cryptography and insurance is going to be the dominant paradigm for most of the 21st century's financial innovation I really believe that cryptography and insurance are perfect counter balances for each other because cryptography is mathematically perfect and precise and therefore the problem will never be in the cryptography the problem will always be for the cryptography connects to other systems it's always going to be weaker at the join than it is inside of the cryptographic structure so we go through the world deploying cryptography to solve whole new classes of problems every single one of those will be weak at the joint with the real world and every single one of those is going to get covered by insurance this is the design pattern for the 21st century and so the data's soft like we've already covered that pretty well and boxing gives this hard day of caring yeah we covered that so let's actually take a crack at designing a little bit of a system that might actually do the job and this is a

---
Continues in https://guptaoption.com/texts/917-2.md (part 2 of 2).
End of [917] Blockchain keynote - Vinay Gupta, part 1 of 2. Its connections are at the top of this file; the map is https://guptaoption.com/llms.txt.