Bitcoin & Nodes | Jack Saba

Hi, I'm Joe Natoli, one of the program coordinators at Draper University, and today I'm here with—

Jack Seba. I am managing partner of Day One Investments. We are a seed and Series A venture capital fund specifically investing in blockchain-enabled startups.

So today we're gonna be talking about blockchain and its potential. So Jack, what excites you about this technology?

Its potential. It's so early on, it's really hard to understand where this technology is going to go. But I think we can best understand it through the potential of the internet. So if you take a second and try to understand all the power that the internet has provided people, the wealth of knowledge that you can access, all the music and videos and TV shows you can stream, all the people in the world that you can connect with, it seems almost inconceivable that in the early '90s people described it as just email, just a way to send emails back and forth. So the way that the internet allowed us to facilitate information and communication The blockchain is going to enable us to transfer anything of value. So what that means for people around the world is that this is going to be the first time for billions of people that they have access to a bank account, that they have access to alternative loans and alternative assets, the first time that they have an identity, the first time that they can securely and in perpetuity prove that their land is their land. So essentially, this technology is going to enable a middle class to emerge in many emerging markets. And it's going to create efficiencies in developed countries where there's high friction, high costs, and low levels of trust in archaic systems and infrastructure. So really excited about the potential of where everything's heading.

So all of this is going to be enabled through the blockchain, correct?

Yes.

So let's take a minute and go back and kind of talk about where the blockchain came from and a little bit about its history so we can understand how it's going to affect these areas in the future. So where did it start?

So it started in 2008 as a white paper that was released by Satoshi Nakamoto.

Who—

and that's a pseudonym— that was either an individual or a group of people. But what it was is—

So no one knows who Satoshi Nakamoto is?

No one has no idea. But it's actually great because the whole principle of the network is that it's decentralized and democratized. So if we knew who he was, he would be an authority in the space, and whenever there was a challenge, he would be able to harp on it. But what the paper provided was a road, an understanding of the infrastructure that was going to provide Bitcoin, which is the first application built on the blockchain.

I think that's what most people are familiar with is Bitcoin.

Yeah.

So how does that— how do they work together?

So Bitcoin is the first kind of house or the first application built on the foundation of a blockchain. And what it does, it's a coin or something of value that can be transferred from one individual to another in a way that's guaranteed to be valid and final. And so that was the first time on the internet that something of value could not be duplicated, could not be double spent. And its owner was known not by name or anything, but by possession. Like, if you hold on to this Bitcoin, that is your Bitcoin, and no one can duplicate it or take it from you. And when I transfer it to you, it then becomes yours. And that's the first time that that's ever been able to happen on the internet, where so many things can be streamed and pulled and duplicated and taken. Whoever owns it, that's theirs.

And how does it accomplish this? This like directive of ownership.

So let's take a step back and look at the first problem that the blockchain or Bitcoin solved. And I think that then we can get there. So if you want to transfer value right now, if I want to send you money from my account to your account and I say I live in New Hampshire and you're out here in California, the way it works now is that it would go from my small bank in New Hampshire to a big regional bank, to an intermediary, to a big bank out here, to your small bank.

And this is traditional funds.

Traditional finance, traditional in the banking system that we have now. And the reason that it takes— it takes 3 days for that to happen. And the reason is that each one of those intermediaries needs to receive the transaction, reconcile with the individual before them that the money started in my account, that it moved to this account, and then it was being transferred on. Each one of those intermediaries, it takes about half a day for it to clear, and they charge. So it takes 3 days and it costs you money to move money from my account to your account.

Which sucks.

It's awful. And so what Bitcoin did was, for the first time ever, it enabled me to move value from me directly to you. Because what it did was instead of having to deal with institutions, it is a peer-to-peer network. So there are all these computers on the network and they all have the same record of events. They share the same ledger. And so from the inception of the blockchain, the genesis block, to where we are now, there is one succinct truth of events that all networks accept. And so when I go to move money from my account to your account, it looks at my transaction history and says, okay, I've accrued enough value up until now. Your account exists, and I am the one that's signing the signature. And if any one of those things is missing, the transaction is invalidated by the network. So now we're not relying on institutions, we're relying on computers to say, based on history and based on the command that's happening, this is a valid transaction. And then it moves the money to your account.

I can already see the question of, where are or who are these computers, and how do they come into existence? Like, how do they get onto the network?

So they're called nodes on the network, and they could be anybody. So Bitcoin is a public blockchain, which means that anyone can provide a node, and anyone can be a user. So what you do is you set up your computer, and you download the blockchain. So now you have all the history of everything that has happened.

You download the ledger of the blockchain.

The ledger of the blockchain. And so that seems like it would be a lot, but for— it's been around since 2008. It's doing hundreds of thousands of transactions a day. It's only about 70 gigabytes long. So it's not big. So you would download that and you'd have the information, and so as you try to do transactions, you would be a validator. You would say, okay, this person sent it at this time, it would work this way, and then it moved. So what's interesting is the computers on the network are trying to compete to add the next block to the network. So let's accept the fact that there is a blockchain, there's a history of events that have occurred. And right now, a bunch of transactions are occurring at the same time. Those are grouped together in a block. And what happens is there is a long number associated with that block, that all the computers in the networks are trying to guess. And they continue to guess. They have to guess hundreds of thousands of times in order to get to the right answer.

Is this a randomly generated number?

Randomly generated number. It's based on the transactions that occurred. They're kind of grouped together. Then that creates a sub-number. And then those are linked together, and those are linked together, and ultimately it comes up with the header. And the computer that guesses the number correctly first adds the blockchain to the network. Everyone is seeing the same transactions occur. So once it's added, everyone agrees that that is a valid block and valid transactions are in it. And now it's a part of the history of events that have occurred.