Future Money according to Henry Brade

Okay, so the topic is future money. Basically, I'm gonna talk about different kind of concepts like cryptocurrencies in general, Bitcoin versus other cryptocurrencies, talk about immutability, Lightning Network. Also a little bit lighter topic perhaps, the payments of the future, like how we will act, how will we actually pay in practice in the future. It's not necessarily a crypto-centric topic, but I think crypto can mix in well with that. Then I'm gonna summarize with what I think the future will hold, especially for crypto. And payments and so on. So let's start. I'm gonna tell you a little bit about myself first. I'm co-founder and CEO of Praesos. Praesos is a crypto company founded in 2012, so we've been doing this for quite a while. And a big disclaimer, everything I'm telling in the presentation is is purely my personal opinion. So this is a very personal presentation, not really representing what our company is doing in this space. So that's good to know. But anyways, Praasos is doing basically cryptocurrency brokering based from Finland. We have a European brokering platform called CoinMotion, or we kind of think of it as an investment platform. But we don't officially call it that. We have Bittiraha, which was our first service. It's an information news blog website for Finnish people for Bitcoin, the largest one since 2012 and now. It also has simple buying and selling features. Then we have a Bitcoin ATM network in Finland, 10 machines, which works with cash. And we also have Denarium, which is our physical wallet brand. So basically it's physical coins that have a Bitcoin wallet in them. Kind of a cold storage, but it's real nice looking, kind of a gift and collectible type of thing. But it's an actual wallet which can hold any amount of Bitcoin. We have gold, even gold coins, silver coins, bronze coins, gold-plated coins, and now we're coming up with gold bars as well, which is the newest product. Anyway, that about Prosus, and so we do a lot of things. We're also looking at launching a crypto fund, a Bitcoin fund at first, perhaps some other type of funds as well. So we're definitely doing a lot of things, but our focus has been moving towards crypto investing, crypto investments really tightly. So we did all of these things in the ecosystem since the beginning, but now we're really focusing on the investment side. But about me, I've been in Bitcoin since 2011, first as a hobbyist and a miner, and then I started being kind of, kind of getting into the idea that it's gonna actually change everything. It's going to challenge the central banks, truly challenge them. So I got really, really interested from an ideological point of view. And then I started founding Praasos, and it's— founding the company wasn't like, oh yeah, we're going to build a big startup that's going to make a lot of money and going to make a big exit. It wasn't about that. I don't still have an exit plan even though I've been running this for 6 years. I truly don't have an exit plan. But we've been growing quite a lot, but it's kind of a passion. Crypto and Bitcoin especially is something I like. I still think it's extremely revolutionary. I believe in it more than actually at any time before. So I just like to do what I'm doing. And that's as simple as that. In the past, I played online poker actually professionally, I think from 2006 to 2011, and I've done some work in the IT sector. I have a bachelor's degree in IT specialized in networking. Yeah, that's enough about me. We can go to the actual topic. So tokenization is the future. Blockchain will take over the world. This seems to be the pitch nowadays. So we can see there are many, many different coins and we've seen this revolution of different tokens in the last couple of years, like since basically Ethereum started in 2015. 2015, we've started to have this trend of everybody having their own coin. You can literally have your own coin if you want. And of course, we have the legendary Dogecoin there, which is absolutely great. But as much as this is cool in a sense, I think there's a lot of falsehood in this picture, and what I truly personally believe is more like this. And if I think like, what am I really interested in in the crypto space, I think it pretty much goes to this area. So in my opinion, there's only one cryptocurrency that's truly relevant, and it's Bitcoin. Because it's the only one that has the immutability, the decentralization, the security that's required for it to be a relevant cryptocurrency. And I'll talk about that a lot more in the next slide, about how important immutability is and why it makes Bitcoin different from basically all the other cryptocurrencies. And of course there's a lot of things. There's so much more liquidity in Bitcoin, there's so much more network effect, it's much more known as a brand than any other crypto. There's a lot of things, but it really comes down to the fact that I simply trust it more from a technical perspective. And as I said, I will go to that in more detail. There are a couple of coins I kind of like because they add something to Bitcoin, to the Bitcoin ecosystem. Clearly. One is Monero, which is focused completely on privacy. And as people who are familiar with cryptos know that Bitcoin is very not private. It's extremely transparent. You can supervise all the blockchain traffic. Basically, there are tools that you can use to find out what's going on and and uncover identities and so on. Extremely unprivate. So that's basically the key issue with Bitcoin. I would say it's one of the only issues it really has. So Monero is kind of doing the technical development on that side to really try to make a private cryptocurrency. It's very difficult because it's kind of a mouse— cat-and-mouse game. The analysis tools are getting more advanced. At the same time, Monero is trying to upgrade its privacy. But I think all the ideas coming from— and there's some other projects as well that are doing privacy enhancements. I think they're useful because they give us ideas of what we could do in Bitcoin. Some of them are not doable in Bitcoin because they require too big of a protocol upgrade, which is not possible because Bitcoin is immutable. Kind of good and bad, but I think it's more good, so we have to live with it. But there are some privacy upgrades we can do without like doing hard forks and stuff like that. We could enhance the privacy with various methods. I can talk about that a little bit more as well later. Litecoin, I think, is sort of useful because it's been as a testnet for Bitcoin. The SegWit upgrade that Bitcoin got was basically activated first in Litecoin, and that really helped with the activation in Bitcoin. It actually helped because the community was split, well, somewhat split. There was some controversy around the upgrade, and it went smoothly in Litecoin, and they were able to push it there. So then it made it easier for Bitcoin to get that upgrade, and I hope Litecoin does stuff like that in the future as well. Now there's the Schnorr signatures, it's the next big upgrade for Bitcoin. I hope they do it first in Litecoin so we see this kind of— because if you do something in testnet like Bitcoin testnet, it's not real in the sense because it's not real money, it's worthless tokens. So it's not the same thing as doing it in another cryptocurrency which is actually worth something on the market. If you do an upgrade there, you validate it in kind of a more meaningful way. So I see the Litecoin testnet as much more useful than Bitcoin's own testnet with useless tokens or worthless tokens. Okay, this is a wall of text. I was actually meant to make it a little bit smaller, but I sometimes kind of get carried away. So don't try to read all of it. Let's just concentrate on the top paragraph, so one paragraph at a time. So the first one is like, what makes cryptocurrency and blockchain unique compared to legacy systems such as, let's say, central banking, commercial banking, or Visa or things like that? The only thing that really makes it unique is that it's not under centralized control. Nobody can change the rules without wide agreement from the user base. No centralized party can tamper with the ledger, so you cannot like change the history. No centralized party can freeze anyone's tokens, so everyone is like, can trust that my account will not be frozen. You cannot trust that with banks, you cannot trust it with Visa, you cannot trust it with PayPal. There are a lot of cases where funds get frozen even though the person is not even doing anything illegal. He's just suspected of doing something and they just freeze it. Things like that don't happen with Bitcoin because you cannot freeze the funds. And— wait a second. And now we come to the other important part, which is the second paragraph. And also in the first one there was the part about You cannot create new tokens at will. Bitcoin has the 21 million cap. You can just create that much and there's no party that can decide, let's print some more. If that were decided ever, which I think is unlikely, it would have to be a wide consensus of the whole user base. But the important thing now, like why is Bitcoin different to other cryptocurrencies? Like, I think this kind of argument, like how it's different to fiat money and stuff like that, that's pretty old. Like, we've been talking about these arguments since 2011. But now that there's a lot of other cryptocurrencies, I think it's also important to differentiate the different cryptocurrencies from each other. Because for many people, they're like the same. They're like, somebody's just a fan of Ripple, somebody's a fan of EOS, somebody's a fan of Ethereum, somebody's a fan of Dash, and so on. But why? Usually it's just because they've been listening to the hype around that coin and they just became a fan of it for really no reason other than just, it just happened to be kind of, they ran into it in advertisements or friends or other avenues. But I think it's important to really see like what's the actual difference between the coins. And I think that Bitcoin really stands out in this sense that there's proof that it's decentralized, there's proof that it's immutable, because you can only prove it in a situation where somebody tries to attack it or tries to change the rules or do various things. And in Bitcoin there has been various struggles. There's been scaling debates, it's been torn apart, the whole community, in different ways. There's been groups of corporations in the economy, crypto economy, trying to change certain parts of Bitcoin's rules. They've failed at doing that. They failed every time. So Bitcoin is extremely difficult to change. In any way. Sometimes it's not good because it can, like, you can, it's difficult to do any kind of development on Bitcoin or big improvements because it's difficult to change. But that's one of the key features of Bitcoin because when we know it's that difficult, we know it's also difficult to do any kind of bad changes. So effectively, for example, the number of Bitcoins in existence, like how many will be at the maximum amount, how many are created. We can really trust it will stay that way, at least much more than with any other cryptocurrency. Every other cryptocurrency is either completely centralized or at least much more centralized than Bitcoin. That's simply a fact. And one of the key proofs of this is that it's much easier to make changes in those cryptocurrencies, because that's really the only way you can actually know how centralized they are or not. If they're making good changes or bad changes is in this sense irrelevant, because what we're talking about is future threats of changes, like can a state actor, for example, threaten a developer or group of developers or miners or companies in the space to do some kind of change to benefit the state or apply some kind of AML laws or freeze somebody's funds or something like that. These kind of threats have not been really relevant yet, but I believe as crypto gets bigger, they will become relevant. And Bitcoin is the only cryptocurrency I can really I really trust to not fall down from those threats. Like, I don't trust anything else, like, because they're too centralized. The states can pressure and make changes in most other cryptocurrencies, most likely, if they really want to do it. In Bitcoin, I believe they cannot do it even if they wanted to, and it's the only cryptocurrency that I can believe that. They may be able to do it even in Bitcoin, and then Bitcoin will fail in its original mission. But I think Bitcoin has the best chance of being completely independent from anything, any power entities in the current traditional economy. That's not the case with other cryptos. And I think that these things are kind of in the core of what cryptocurrency is and what it's supposed to be and what it originally was about. A lot of the new crypto tokens are not really made with this in mind. And then often the kind of question arises, like, why is they— why are they made in the first place? Like, there's a lot of things you can do with simply having a database, like a Let's say you would have a GitHub type of system where you can make commits to code, and then you cryptographically sign the commit, and people know who has made the commit to the code, and so on. So you can kind of have similar systems. The difference is the database is held by a single entity, so it's just GitHub. But basically the authentication of all the changes are done cryptographically in a similar way as in blockchains. So I think that we have a big problem if the cryptocurrency is not really decentralized and not really independent and open truly. Like if it's not, then I think in many cases a traditional database enhanced with cryptographic signature features could be a much smarter way to do things than a blockchain. So this is interesting to me. Let's go to the next one. This is about why is Bitcoin actually useful. And this kind of is connected to the whole immutability issue and the censorship resistance. There was a recent study about corruption, and it was— I knew it was a lot, I knew the number was big, but I didn't know it was this big. The estimate is 6 billion people, which is approximately 85% of all people, live under significantly corrupt governments. And in my opinion, the more corruption and limitations of individual monetary liberty, the more helpful Bitcoin is. So in a situation where the state wants to limit somebody's ability to transfer money or use money or hold money, Bitcoin is useful because it's extremely difficult to do that with Bitcoin. So the correct question is not what use is Bitcoin for a Finnish person, rather it is what use is Bitcoin for a Venezuelan person. Because a Finnish person mostly has their monetary things in order. So you have bank accounts, you have credit cards, you have various methods. Payments work smoothly. Everything is fairly okay in this sense. So it's not really a problem. It's not normal or regular that banks are freezing personal customers' money in the bank account. So it's not something that happens every day. So it's rather an exception. But in a country where it's more of a rule than exception, Bitcoin becomes suddenly much, much more useful. But there is another thing where Bitcoin is useful, not just in these corrupt countries, but basically in any country, and that's about the risks of national currency. We've already seen this happen in smaller countries. We've seen Venezuela, of course, we've seen Iran, we've seen huge inflation in Argentina as well, in South Africa, and also in Russia there's been problems with the currency. We still haven't seen like a huge meltdown of a big currency like US dollar or euro or yuan, but it's a risk that exists, and if we have a new type of financial crisis which is more of a monetary crisis, if we have this kind of crisis, we could see one of the big ones have an inflationary meltdown. Might not necessarily happen, but it's a risk. And in these kind of situations, I would see Bitcoin as a pretty good hedge for any investor, any saver. Then about scaling. There's been a lot of talk about scaling, a lot of articles like, okay, Bitcoin has problems scaling. And that's been true that it's been an extremely difficult problem. Bitcoin has trouble scaling. But it's not a problem that's unsolvable. It's simply not possible to do easily because basically, as I mentioned before, in Bitcoin the most important thing is basically the immutability. And you need decentralization for that. You need the fact that every single user of Bitcoin needs to be able to validate everything in the blockchain him or herself. So you need to be able to run a node so you can yourself validate everything, not trust a third party to do that, because otherwise you lose the point. You would have to trust the third party and then you get back to the legacy systems then. So Bitcoin has been developed this way. It doesn't require more than a regular computer to run a node. Still doesn't, and it never will likely, because that's the development direction of where Bitcoin is going. The developers and the community at large do not want that kind of system where it requires a supercomputer to run a node, because then you start breaking the immutability and the decentralization. And the openness of the system. So how do you then scale if you have those limitations? There are ways to scale, like just increase the block size. So instead it's been, it was 1 megabyte, but now it's technically 2 megabytes thanks to SegWit, which is a good upgrade, but 2 megabytes is not gonna be enough for the world. So you could raise it to 200, but then suddenly running a node which will validate everything will become extremely hard. Hard. So that's why Bitcoin doesn't scale that way. Also, there's network issues, there's latency issues. You have to sync all the traffic between US and China and Europe. How do you do that with 200-megabyte blocks? Not very well. You'll get a lot of latency, a lot of delay. The technology is not even near good enough, like in terms of networks and computers, to be able to have an efficient network with that kind of block sizes. That everyone can validate with regular computers. But there has been now developed actually a lot of methods to scale without breaking that decentralization or increasing block size to unsustainable levels. One of them was recently launched Blockstream's Liquid sidechain. And it's actually as a concept fairly similar to Lightning Network, which I will talk about in a second. Basically, the sidechain called Liquid is for settlement purposes of crypto exchanges. So if crypto exchange wants to send to another crypto exchange, which is most of the traffic in the Bitcoin network, like I would say like 80% of the transactions are transactions between different exchanges. So with Liquid, they can basically put bitcoins into the sidechain And then through the sidechains they can settle a lot of transactions, small or really big ones, quickly and with less cost and less, I would say, burden on the Bitcoin blockchain. So it's useful in the settlement part, especially between kind of institutional entities. But when we talk about regular payments, like commercial payments in online Machine payments, also like payments in a physical store. Then we come to Lightning Network, which is quite interesting. It's been in development for a couple of years, but it was launched in Bitcoin mainnet. Well, the different implementations— there's 3 main ones. There's Lightning Labs LND, then there's Blockstream's c-lightning, and then there's Eclair. He declares, well, I forgot about it. There's a French third implementation, less known by name, but a really good one as well. So, and they're all intercompatible with each other. So even though there's 3 main implementations, they're all part of the same Lightning Network. So there's never Lightning Networks, there's one Lightning Network where everything is compatible. But I think they started around March this year in the mainnet, so using actual bitcoins. And what it basically allows us to do is to do a lot of transactions with very, very low fees and completely instantly. So it's like super instant. If you look at Bitcoin transactions, you have an announcement to the network, takes a couple of seconds to go all over the world. Then you have the mining process. It will take like average 10 minutes to get one confirmation. If you want more security, you have to wait like 30 minutes to get 3 confirmations. That's how Bitcoin itself works. And you do need to send a transaction in the Bitcoin network to open a Lightning channel. But once you've opened it, you can send Lightning transactions which are done directly, can be done directly between the channel participants, and that will be super fast. So we're talking about settlement in basically milliseconds. So I would say, so complete settlement in milliseconds compared to Bitcoin's like couple of seconds announcement and then 10, 30 minutes to fully confirm. So it's quite useful. It's meant for smaller payments, so you wouldn't be sending €10,000 worth of Bitcoin with Lightning. You would use a regular Bitcoin transaction for that. But you would send €10, even €1. You could send 1 cent with Lightning. The interesting thing is Bitcoin is divisible to 100 million satoshis, which is the smallest unit, which is called a Satoshi. In Lightning Network, you can actually send kind of parts of a Satoshi. So you can actually send a 10th of a Satoshi in the Lightning Network, even though it's not technically possible in Bitcoin. But of course, when you close the channel, which needs a Bitcoin transaction, they would have to be rounded up to Satoshis. In order for the settlement to be possible in the Bitcoin network. But in the channels, inside the channel, you can actually send even sub-satoshis. So I think, yeah, so the way it basically works is the channel is always between 2 parties. So you have party A, party B. They put funds in the channel and open it through a basic Bitcoin transaction. Then they can make even thousands of payments in the channel, and then they close it when they want to close it. Either party can close it at any time if they want to. And it's a network, basically meaning that they are routed between different channels. So if person A wants to pay person C, it will make a change in the channel between A and B and another change in the channel between B and C at the same time. So then you would have a transaction between A and C. Basically, party B in this case, the one in the middle, can take a small routing fee from the Lightning transaction. These fees are generally very small because it's quite competitive. There's a lot of Lightning nodes, a lot of channels, and the wallets will choose the most optimal channel. So if you charge too much for a routing fee, nobody's going to use that. Your channels. But if you charge a little bit, only a little bit, somebody will use it and you'll get a small amount of money for the routing. So it's technically possible to even make money using Lightning. That's interesting. Not a lot of it necessarily unless you have a huge amount of liquidity. Maybe if you have 10,000 channels with thousands of bitcoins in them, then you can probably make decent money if there's a lot of usage. Right now it's simply It's in a testing phase. There was a question. I can take questions in the middle. I'll take more at the end. But if there's something that needs clarification immediately, then just raise your hand. What do you have one? Okay. Okay. So one important thing about Lightning is, which is important to understand, it's not an IOU system. So it's not based on trust or loans or anything like that. The parties actually need to lock the funds in the channel, both of the parties, and they remain in control of sending the funds. So they will only move in the channel with the cryptographic signature using the private keys of the owner of the funds. So it's not like some third parties get control of it. Third parties are part of the routing of the payments, But the only thing they could do is basically, I would say, tamper with the payments in a way that stops them. So if there's somebody trying to make a payment, suddenly one part of the channel just goes offline, either by accident or intentionally, then the payment will simply fail. You will have to do it again. But there's no way for somebody to just take the funds. Of course, there's some tricky things, so it's not this rosy. Like, there is some tricky things. For example, Lightning requires a node to be online. If you're offline, you are subject to certain risks. But then there's recently— they've made a lot of upgrades to this. There's a concept called watchtower nodes, which will basically watch for like a problem, like somebody trying to exploit an offline node. And the thing is that the punishment in these cases, if you try to upload, let's say, into the network a previous state of the channel, which is not the current state but previous state, because you're trying to steal money from the channel, and the other network sees this, they will actually punish by— it will actually punish the person trying the previous state by him losing all the money. So this can also happen accidentally, which has happened recently. There's a problem with a little bit of bug with Lightning backups. It's not easy to handle that. So if you're not technically very competent, it's easy to upload a backup of a Lightning channel which is old. So it's not the current channel state, it's an older state. If you do that, you lose all your money in the channel. So it's, I would say the whole technology is not something you would put a lot of money in at the moment. You can put like €10, €50 to test it and get familiar with it. But all of these issues, they are working on them, like the new backup systems, the watchtower nodes and everything. Like the development pace of Lightning is absolutely incredible. There's never been anything like it in Bitcoin at least. There's a lot of developers working on this and 3 main implementations. It's really developing at lightning speed. I see that in 2019 the whole thing will be at a totally different level and we'll also be seeing actual use cases for it. It can be useful for a lot of things, even new business models where you can pay on demand for using any kind of services. You can pay a single cent. You can pay for something, let's say, every second or every millisecond with Lightning. And this can all be automated with AI and all kinds of things. This kind of thing is not really possible with traditional payment methods. Like, it may be possible with, let's say, a single bank, single centralized system, But having a universal system that would be supported potentially all over the world, I think Bitcoin specifically has that possibility. Because you don't really have USD micropayments. You have, let's say, Nordea micropayments or whatever micropayments. They are within that system. But with Lightning, it's possible to actually have a global system that's supported worldwide, but it'll take years.