So, my name is Jameson Lopp. For those of you who know me, you may be a little bit surprised
why is this guy up here talking about DeFi? I thought he was a Bitcoin maximalist. So,
I've been working in the Bitcoin space for about five years now, mostly doing security
stuff and we're almost there. Maybe one or two more taps down or can we get a full screen?
Well, let's see. Almost, almost. All right. So, I'm not a DeFi expert. So, when I was
asked to come here and give a talk, I figured I should probably figure out what this DeFi
thing was all about. So, obviously, I went to not Google, but DuckDuckGo because it's
a little better privacy engine and I typed in what is DeFi? And obviously, I went to
the first authority that could tell us what things actually mean. So, as we all know,
Merriam-Webster's English Dictionary defines DeFi as challenge or defiance. And I figured,
you know, Merriam-Webster, they are the authority in this space. They must be correct. So, I
decided to base my entire presentation off of Merriam-Webster's Dictionary. So, if you're
actually familiar with DeFi, then you're familiar with what it actually stands for, you know,
decentralized finance. What does that actually mean? I mean, if we look at this entire ecosystem
that has grown up over the past couple of years, you'll see all kinds of stuff from
custodial services, payments, infrastructure, exchanges, lending, yada, yada, yada. It looks
a lot like traditional finance from a high level. But, of course, you start digging in
and you see, well, these different companies and projects, they're leveraging fairly breakthrough
technologies to try to put a new spin on finance. You know, we're decentralizing it. We're
trying to get rid of a lot of the authorities in the system. But I think there's some good
questions around, well, how well have we actually been able to do that? So, what is decentralization?
Well, of course, it means without a center. Unfortunately, this is a very vague term and
it's not necessarily always a good thing. And I tried to get this point across here
by showing you this decentralized network model in the middle. And that might look nice
and pretty, but if you think adversarially and you look at that, you're going to see
multiple single points of failure in there. So, sure, there's no central point of the
network. But if you take out one of those nodes or one of those other nodes, now your
whole network is split apart and fractured and you're probably going to have a lot of
problems trying to actually do whatever you're trying to get done. So, one of the things
I'm going to try to point out in this talk is that we're not really just trying to go
for decentralization. We're going for robustness. We're going for censorship resistance. We're
going for an inversion of power. Like, we want control to be spread out to a sufficient
degree that no one can abuse these systems for their own personal gain. So, what is DeFi?
I think that what we're really trying to go for is defiance. We are trying to build systems
that are defiant against authorities. They continue to stand in defiance of those who
want to wield power over us. So, is it really DeFi if you have a single point of failure
where some authority can turn something off, where some authority can dictate who gets
to use the system or how do they get to use the system? I would argue that no, that is
not really the goal of what we want with DeFi. So, decentralization theater is a really big
problem in this space. It's also a big problem to define and quantify in the first place.
I'll try to go into a little bit more explanation as to why I believe it's so complicated. One
example here is decentralized lending. There are a number of decentralized lending platforms
out there and all of them have something in common, which is that they have gotten rid
of the need for a centralized custodian and that is great. That is an amazing first step
away from the traditional financial models that we've had to live within for so long.
But is that enough? Well, if you start digging in and looking at all of the other pieces
of functionality that are required for decentralized lending, you'll notice that most if not all
of these services have various centralized points that can become points of failure.
And there are tradeoffs as to why you may want that or not want that in different aspects
of the system and how it functions. But ultimately, I think the question is, do we want to get
to pure decentralization? Is the level of robustness and censorship resistance that
provides actually worth the effort? And I think what you'll find, especially with all
of these projects, is that it may be that the final end game of decentralization for
a project is actually the decentralization of the developers of the community behind
that project. We see a lot of ICOs, a lot of companies, a lot of for-profit motivated
endeavors, which is fine to get things off the ground, but I think that if you are going
for the ultimate decentralized and robust system in the long term, you want to get as
many if not all of these aspects completely decentralized and basically run by a community
of volunteers. So other choke points, these are all going to change depending on what
type of system you're looking at, who is driving the consensus of the system, who is validating
it, who may be controlling custody of assets. I think oracles in particular in DeFi are
a really big question of how is this oracle working. And when I say oracle, I basically
mean whenever you're running a system that needs to ingest data from outside of the system,
how do you get that data into the system without simply throwing up your hands and pointing
to one party and saying, oh, they're the ones who are going to be doing quality control
for the data. For example, that could be price data getting into a lending service. So how
are you going to solve the garbage in, garbage out problem of these systems is like any other
database without handing over trust to someone. How decentralized do you need to make that
oracle in order to make it robust against whatever adversaries, whatever failure modes
you're really worried about. And another thing I think also that could be a problem in Ethereum
for example is the rise of some of these really large infrastructure providers like Infura.
You once again have to ask yourself if we're building a really awesome decentralized app
but everyone is running the app and accessing the information from the system through a
single service like Infura or some other infrastructure provider that makes it easy, what are the
tradeoffs that we're giving away there. Is it really still DeFi if we're all accessing
a decentralized platform through a single choke point. So what is this about? This is
about control. There is this famous quote which I believe is not actually attributed
to anyone in reality that says, permit me to issue and control the money of a nation
and I care not who makes its laws. And that's because if you can control people's money,
you can control their behavior, you can control their speech, you can control a lot of aspects
of their lives. I think this is one of the major reasons why Bitcoin, why cryptocurrency,
why DeFi is really being developed by ideologically minded people is because they understand all
of the problems that this control can create over the long run even if it's not obvious
to the people who are using these systems from day to day. They're not really thinking
about it. And so if we want to spread out control, if we want to make these systems
more robust, we also need diversification. And you can think of this in terms of like
biological diversification where a single virus or pathogen can utterly decimate an
entire ecosystem if it is homogenous. That applies to pretty much anything including
software. So an example that happened in Bitcoin was that there was one piece of Bitcoin software
called Bitcoin Unlimited which had a few different critical errors in it that got exploited.
And you can actually see this is a basically count of nodes of that implementation over
time. There are multiple points in time where these critical vulnerabilities were discovered
and exploited by adversaries and essentially crashed all of those pieces of software running
in the system. Now if Bitcoin had been a homogenous network and this was the only software that
was running the Bitcoin network, that would have been very dire. The entire network would
have gone down. But thankfully there's something like a dozen different Bitcoin implementations
and the problems that are found tend to be more localized rather than systemic. So this
type of thing I think should also be applied to DeFi which at the moment can be more prevalent
if you're looking at things like smart contracts. If you only have like one team of developers
working on one smart contract, you have to ask yourself like is that really sufficiently
diversified to prevent these type of failures. Now at a higher level like working on the
governance of these things, the evolution of these systems, you also have to ask yourself
what is the process for making changes to the system? AKA what is the governance? Who
has the control to decide what changes are made? And this is one of those weird things
where worse is better from a certain standpoint. The more difficult it is to make changes to
a system, the more robust that system is against some sort of attacker coming in and getting
changes made to the system that end up being worse in the long run. This is of course also
very hard to quantify and apologies once again for the technical problem. If this was animated
then you would basically see a blossoming of data propagating across nodes on the Bitcoin
network which is a way that I try to describe to people what I believe is this new form
of governance that has basically been created as a result of these decentralized systems.
Instead of having top down authorities basically do a command and control hierarchy where someone
above dictates the change and then the rest of the people lower in the hierarchy have
to follow those orders, it's actually the inverse. Instead we have thousands if not
hundreds of thousands of individual actors who are deciding themselves what rules do
they want the system to run by? What game essentially do they want to play? And they
are essentially creating bureaucracy by running these rules and by connecting to each other.
And so rather than the rules of the system being imposed from below, they sort of bubble
up from the bottom where the individuals create this organic consensus that emerges as a result
of the overlap and the rules that people agree upon. And it's sort of a lowest common denominator
of consensus if you will. Along the lines of control and robustness and freedom really
within these systems I think the privacy aspect is often overlooked where we need to understand
that privacy is an important part of freedom. They're basically two sides of the same coin
because knowledge is power. And I think a lot of people don't realize or they don't
think about the fact that when other people have knowledge of you they have a degree of
power over you. Because they can see what you're doing and they may be able to predict
what you're going to do in the future. They may be able to influence actions. They may
be able to put pressure on you based upon knowledge that they have. So if we want improved
level of security and freedom from what we're experiencing today we need to have this shield
of privacy that basically prevents third parties from having power over us. And privacy needs
to be the default. That's one thing that I've learned over the years is that people
are not going to choose privacy if it's not the default option. They're also not going
to put in a lot of effort to get privacy if it's not the default. So it needs to be cheap.
It needs to be easy. And if we're lucky that can get us to a level of freedom we have not
seen before. But one of the controversial aspects of freedom is that it will be abused
by some people. And if we're going to build systems that truly are open finance then and
this is going to be controversial for a number of people they need to be open for terrorists.
They need to be open for criminals. They need to be accessible for people to do bad things
with. Because if your enemy cannot use the system, if you can dictate that someone that
you don't like cannot use a system, that means there must be some point within the system
that is not sufficiently decentralized. Some point where authorities are exerting pressure
on a choke point. And you have to ask yourself if that is the case, what are we doing? Have
we put in all of this effort, all of these resources just to build another system that
someone has control over and can dictate who can access that system? So a real defy I believe
is going to create liquid free markets. And free markets are black markets. And if people
disagree with that, they're going to need to find other ways to basically root out the
bad actors rather than trying to control the base level of the system itself. Because you
try to control the system, you're just going to ruin the integrity of everything that we've
built so far. Another issue that I hope will continue to get solved is that so far it seems
like most of defy has been just re-implementing traditional finance with a few tweaks to try
to get rid of some of the third party actors. I think there's a lot of room for innovation
here. And that's what I hope that a lot of you will be focused on is not just creating
new ways to do old things, but creating completely new ways of interacting economically that
have never even been possible before. I really like some of the P2P lending stuff. It seems
to be coming along. And really what I think this ecosystem can enable us to do is to unlock
a lot of the existing human capital that is already out there. There are billions of people
who don't have access to traditional finance. And if we can get them into this new financial
system, they already have plenty of economic and human capital themselves that is currently
unable to be put to work. So if we can get them into a system in the first place, then
I think that will be good for us. It will be good for the entire world. And looking
back at old world stuff, I also see a lot of people that are building these traditional
choke points type of technologies. I think that if we're going to go with a privacy oriented
route trying to give people the freedom to do what they want, then we should be rejecting
some of these legacy technologies, basically this reg tech that a number of people are
working on. There will be good business for that. I'm sure people will make a decent living
with reg tech and trying to bridge the gaps between the new and the old world. But that's
not what I'm interested in. I'm interested in moving forward and moving past a lot of
that stuff. So this is why I think that DeFi should be about defiance, not decentralization.
We need to defy the banks. We need to defy custodians, authorities. We need to defy anyone
who is trying to exert control over us. And decentralization is a path to get there. It
is the means. It is not the end. I believe the end is defiance. Because we have seen
for centuries, for millennia, authorities have been erecting these barbed wire fences,
basically entrenching themselves into power. And they've been doing this often by creating
things they call laws. And these laws are for our own good, for our own safety. But
now we have the tools. We have the ability to build systems that run the rules to which
we agree, not to which others dictate to us. And so we finally have the ability to cut
these barbed wire fences. And I hope that you will join me in doing that in defying
the existing power structures and reaching out and building a truly free world. Thank
you.