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  • GARY GENSLER: Thank you again for all being here.

  • We're going to talk a little bit about the challenges

  • of blockchain technology.

  • I'm apologizing in advance.

  • I'm supposed to be, like, across campus for a 4 o'clock meeting.

  • So I won't have much time right at the end

  • to do the little wrap with students coming up.

  • I will note also that if you want to come see me

  • I'm open to it.

  • Next week's a great week, by the way, because I'm here

  • all four or five days.

  • But I don't have set office hours.

  • Just email me.

  • Copy Dylan, who's the new course administrator.

  • There was a swap out from Ryan.

  • Or copy Talida or Sabrina or something.

  • But just shoot me an email, and then I'll

  • set something up with you if you want to follow up either

  • on your projects, or it's a question about anything

  • around blockchain.

  • I also want to thank-- we don't usually have people

  • here with jackets on.

  • But we have six or eight veterans

  • who have served our country, and I thank you for your service.

  • [APPLAUSE]

  • They're here to observe us.

  • I don't know whether we'll scare them away or not.

  • But thank you for joining us.

  • So today's topics are going to be around--

  • of course, we're going to go through the readings

  • a little bit.

  • We don't have Larry Lessig, and it's a little bit more relaxed.

  • So I might be doing some cold calling if that's all right.

  • I'm going to go back a little bit

  • to the technical features in a quick wrap-- in two

  • slides or three slides.

  • But I just want to do that as the setup again.

  • And, of course, because you all love hash functions so much,

  • it's just a way to bring it back to some

  • of the technical features to set up, really,

  • what are some of the issues.

  • We have-- I think it's lecture 11 and 12,

  • where it's just what I call act two as the economics.

  • But I want to set up a little bit about the economics.

  • You saw that in the reading--

  • the 21st Geneva report that Simon Johnson and Neha

  • Narula and Mike Casey and Jonah and I wrote.

  • So now you all--

  • I only assigned his seven pages out of it.

  • So I hope that you read the seven pages.

  • But some of the costs and trade-offs,

  • the challenges of blockchain technology that are very real.

  • I'll give you my own perspective on where

  • I think this will sort out over the next 3 to 10 years.

  • So I'll do some predictions.

  • Vitalik Buterin has also talked about a trilemma,

  • and I want to chat about that.

  • And that was one of the readings, if I recall.

  • He's such a leader in this community

  • that when he writes and says something like this,

  • it was relevant, I think, that everybody's understand

  • what Vitalik Buterin's kind of "trilemma" is,

  • even though that some people think he's mistaken.

  • Some possible solutions to this--

  • we have, who's attending today, Madars

  • who is actually one of the developers on some

  • of the solutions around zero-knowledge proofs.

  • And he might get called on.

  • He works over at the Digital Currency Initiative.

  • I hope you're ready.

  • And why I think governance is the most challenging piece.

  • So with that, the readings--

  • I have a list of everybody that hasn't spoken yet.

  • [LAUGHTER]

  • So the goal is to speak.

  • That's what class participation is.

  • I'm going to be lighthearted about it.

  • I-- it's not that long ago I was a student, really.

  • I remember all this, you know.

  • You want to get your name off this list.

  • I just want to say kind of encouraging.

  • So should I do it alphabetical from the list as to who

  • wants to tell me?

  • No.

  • No.

  • You look like you're ducking your head.

  • What's your name?

  • [LAUGHTER]

  • AUDIENCE: Wendy

  • GARY GENSLER: What's that?

  • AUDIENCE: Wendy.

  • Wendy.

  • GARY GENSLER: Wendy.

  • Wendy.

  • What did you take from the seven pages of the Geneva report?

  • Did you read-- did you do the readings?

  • So what did you take from the great work of Simon Johnson--

  • and I helped him out, you know?

  • AUDIENCE: [INAUDIBLE]

  • GARY GENSLER: Anything about the business challenges

  • of blockchain from the readings.

  • AUDIENCE: It takes a long time to do the [INAUDIBLE]..

  • GARY GENSLER: So one challenge is time--

  • latency.

  • It takes a long time to do.

  • Wendy raises.

  • Yes.

  • If you could say your first name?

  • AUDIENCE: Catalina.

  • GARY GENSLER: Catalina.

  • It really helps Sabrina out--

  • get you off the list.

  • So it's self-motivation to say your name.

  • So Catalina.

  • AUDIENCE: There is also a problem with performance

  • and scalability.

  • GARY GENSLER: Right.

  • So it's sort of related.

  • They're not alone-- but performance, scalability,

  • the time it takes to do a transaction.

  • Other challenges?

  • Yes?

  • AUDIENCE: There are issues

  • GARY GENSLER: First name?

  • AUDIENCE: Samir.

  • There are issues with micro payments

  • and how they're [INAUDIBLE] inconsistently confirmed.

  • GARY GENSLER: So how to do micro payments.

  • You want to tease that out?

  • Why is there a problem with micro payments?

  • AUDIENCE: I can't remember the exact details,

  • but it was around just the fact that-- because they're

  • so small, they were just essentially inconsistently

  • [INAUDIBLE].

  • GARY GENSLER: All right.

  • So how to do micro payments.

  • And the small micro payments--

  • partly because they're so small--

  • may be relative to the fees and the cost of the network.

  • Alexis?

  • AUDIENCE: Yeah, I just wanted to add, like on this point

  • because basically the minors will

  • try to add to the blockchain first

  • the transaction with the highest fees.

  • So a small transaction could take [INAUDIBLE]..

  • GARY GENSLER: So there's economic incentives

  • that are involved here.

  • We're now moving a little bit away

  • from all that stuff-- the broccoli that I said

  • that we were all going to be eating about hash functions

  • and so forth.

  • Akira.

  • AUDIENCE: Yeah.

  • Other challenges-- the privacy and security.

  • [INAUDIBLE] those concerns identity of [INAUDIBLE]..

  • And [INAUDIBLE] concern privacy protection of customers.

  • GARY GENSLER: OK.

  • So Akira just raised a bunch of points

  • about privacy and security-- about the individuals

  • and the regulators.

  • Does anybody want to tease that out a little bit more?

  • AUDIENCE: Well, the bank has more of an incentive

  • to keep things on the privacy side,

  • whereas regulators obviously will

  • have pried into the details.

  • GARY GENSLER: OK.

  • So you have that natural public policy

  • tension that doesn't only exist around blockchain.

  • Jihee?

  • AUDIENCE: I could hear anything back here.

  • So if people can speak up a little bit.

  • GARY GENSLER: OK.

  • Do you want to say it again?

  • AUDIENCE: So inherently, the regulators

  • want to look into the details of the transaction,

  • whereas banks have a high incentive to keep [INAUDIBLE]

  • privacy side.

  • GARY GENSLER: So on the one side,

  • there's a commercial interest to keep things private.

  • On the other side, the official sector might want to peer in.

  • And then interestingly, on top of it-- layered on it--

  • the official sector also wants privacy for everybody other

  • than the official sector.

  • So like in Europe, there's a new requirement

  • that wasn't in the readings.

  • Don't worry.

  • But is anybody familiar with the directive-- the privacy

  • directive called GDPR?

  • I don't remember your name.

  • I'm sorry.

  • AUDIENCE: Erin.

  • GARY GENSLER: Erin.

  • You want to tell the class a little bit

  • about GDPR, or if you--

  • AUDIENCE: I'm not certain there.

  • I just know that it's a big deal right now

  • with going after [INAUDIBLE]

  • GARY GENSLER: Stephanie.

  • AUDIENCE: Yeah.

  • So my understanding is that, especially when

  • it comes to advertising to consumers, they have--

  • consumers in the EU have to really check certain boxes

  • to agree to be advertised to as opposed to just

  • automatically getting that.

  • GARY GENSLER: Right.

  • So Joe Quinn?

  • AUDIENCE: It's a private deal.

  • You have also the right to opt out of being tracked--

  • everything you do.

  • GARY GENSLER: Michael?

  • This is Michael?

  • AUDIENCE: I was going to say we worked on this--

  • company I worked on at the summer.

  • We had to put purging mechanisms into our databases.

  • GARY GENSLER: All right.

  • So it's a remarkable new law.

  • Europe is, in a sense--

  • if you wish to say-- either more privacy protection, or ahead

  • of the US.

  • You know, and each jurisdiction has

  • their own cultural and political norms.

  • But Europe as a whole has moved further, in a sense.

  • You have a right to be forgotten.

  • You have a right to access the information as well.

  • And so how to be forgotten in the context

  • of an immutable blockchain is an interesting just technical set

  • of issues.

  • Yes?

  • AUDIENCE: There was a question I was going to ask--

  • Kyle is my name.

  • GARY GENSLER: What's your first name?

  • AUDIENCE: Kyle.

  • GARY GENSLER: Kyle.

  • OK.

  • AUDIENCE: I worked for a company this summer

  • that processes transactions.

  • And it was our understanding-- speaking with lawyers

  • in Europe--

  • that under GDPR, you're allowed to request your transactions

  • because the transactions count as personal information.

  • You're allowed to request your transactions

  • to be erased from the ledger, which

  • obviously opens the door to all kinds of fraudulent behaviors.

  • I'm just curious to know if you've

  • heard of any sort of resolution to that.

  • GARY GENSLER: I haven't.

  • I was speaking at a conference earlier

  • today here at MIT with a bunch of member companies

  • to the Computer Science and AI lab.

  • And one of the participants said they

  • thought they had a technical set of solutions to it.

  • So we're going to talk more about the privacy

  • issues and GDPR in the public policy session next week.

  • So I'll try--