Currency and Development of Blockchain Part 2 problems and challenges | Blockchain: Out of the Labs

So that's a really interesting last point, and I think that's one of the benefits of Storj, right, is that you guys have a really large buy-in from the community and everyone's kind of evangelizing what you're doing. So do you think working with this technology as a startup is a benefit in that you can help with the network effect, or do you think that there are other challenges that offset that?

Sometimes it feels like all a wash. We've had a lot of help from our community. We have hundreds of contributors who are working on Storj. We have community members that are working frontline customer support for us on a volunteer basis. So we get a lot of benefit out of that simply because they want to feel involved in this. And having a token, they can hold the token and feel involved. And issuing a token, we can pay people in that token when we would previously have had to pay in US dollars. So we get kind of a financial boost there. But to complicate that, you have to worry about Several kinds of regulation, like John was talking about. There's money transmitter licensing. We've had to structure our entire business around avoiding being classified by FinCEN as a money transmitter. It's still a very open question in the space whether token issuances are securities, or what qualities of a token issuance would make it a security. And if tokens are securities, then we're going to have problems with the SEC, and many, many companies in the space are going to have problems. So we're getting some benefit out of it, but it comes with a lot of risks and a lot of unknowns.

It's a really good point. Um, so it seems as regulations have popped up once or twice, and Kat, you're entering the healthcare industry, um, so what are some of the hurdles that you're seeing that you're going to need to, uh, kind of overcome? And then how are you going to navigate that? Is it working with regulators, or is it something else?

Yeah, so that's— healthcare is notoriously regulated, just like the financial sector. So we've been very strategic in how we're entering the market with blockchain. So we essentially created the most safe way, which is the way that blockchain is intended to be used right now, which is the immutable ledger. So what we're doing is any activity in our platform is hashed and stored on the blockchain so that we can meet basic HIPAA requirements. So when we speak with providers or hospitals, teams, we actually don't mention we're using blockchain technology. Unless we happen to be speaking to someone on their IT team that is just really passionate about it, we just tell them we have the most secure HIPAA protocol that exists right now, and that suffices. What we're going to hit or get into when we start to grow this and start to reach towards our vision is there is a push and pull with who owns the data, the reliance of a hospital and health insurance on data for every single day decisions. Clinical and operational decisions. So there's a push and pull at the hospital level, there's a push and pull at the insurance, at the physician level. In terms of the government regulatory side, they are actually in full support of blockchain and exploring blockchain. Back in October of last year, the ONC put out a challenge to figure out how they can use blockchain in healthcare. So they're actively working, they've spoken to us, we have an open line of communication to figure out how we're using it. I would say that the more of the resistance we will see from the actual hospital side.

That's a really interesting point. So one of the big elephants in the ecosystem right now is the inefficiencies with adding blocks, right? It takes 10 minutes, we're limited to 1 millibyte of data per block, so it's a— it's really tough to scale. And that kind of created an opportunity, is that correct? How do you view the opportunity with the Lightning Network? and what you guys are doing? Is it that the inefficiency will always exist so you will be able to push this forward? And what's next for you guys?

Sure.

So I'm actually going to briefly answer your previous question. When we were first getting started, so we had a meeting about a little bit over a year ago, a year and a half ago, with a very longstanding, well-known US technology company. And we were chatting with a highly technical person and he basically told us, yeah, everyone at our company thinks Lightning Network is a joke. And we were like, wait, what? We were like, look at all the crypto! And, you know, and it turns out that actually they just thought that Bitcoin people were— I think he used the term bozos. So one of the challenges when you're getting started and when you're doing something that people think is crazy is you're going to get told that what you're doing is insane and everyone thinks you're crazy. And I'm sure a lot of us have experienced that on this panel. But, you know, you've got to persevere and you've just got to say, okay, well, I I believe something that not everyone else believes, and that's how you succeed in this field. So, getting to the second question. So yeah, so Bitcoin as a blockchain has what's called a 10-minute block time confirmation time. There's a current limit of about 5 transactions per second. It may go up to maybe 10 on the blockchain. One of the issues is that every node on the Bitcoin network, full node, knows about every transaction that ever occurred. So if I spend $5 for a coffee, every other node needs to know about that. That is pretty inefficient. For example, imagine if to send an email you had to download every email ever sent by everyone else. That's not going to work, right? So on the Bitcoin blockchain, we have what's called global consensus. Lightning enables local consensus on a layer 2 on top of Bitcoin. We are not a separate currency. We are a layer 2 protocol that uses real transactions from the underlying blockchain. And as a result, we can enable—

Local consensus.

Instant clearing and very high-volume transacting, say hopefully millions of transactions per second. Visa can do about 60,000 per second right now. So the way that we see scalability is that you—

it's—

you can't scale things on a blockchain to enable 7 billion people in the world to use it, plus say many more millions, billions of machines. But we need to have incremental scaling. That I hopefully— I hope that will happen in our community. There's a current debate internally where a lot of people are discussing this. But if you're going to get the very high volume, you've got to go to these layer 2 technologies.

And so within the Bitcoin ecosystem, you need a layer 2 technology to bring the latency down from 10 minutes to— how long are your transactions?

Instant.

Instant. Within Ethereum, there is a 14-second latency, which is significantly less than Bitcoin. But depending on your business model, that still might not be enough.

And they can right now handle about 50 to 60 transactions per second.

So they're going—

they're better than Bitcoin, but there's still going to be a scalability issue. So there's also a Lightning-style technology for Ethereum.

Yeah, absolutely. So how— Niraj, you're building on Ethereum and your product is going to really need efficiency. So how are you viewing the challenge? Do you think that we need a layer 2 or are you guys solving this in a different way?

Yes, initially we thought that we need to build a layer 2 to Ethereum protocol, and that's where 6 months ago, like, we started reading the code, like, okay, how really Ethereum 2.0 works. We all talk about proof of stake is going to come, but it's a long time, like, time. And as part of SFSC, San Francisco Stock Exchange, we can't wait. So what we did is we changed the Ethereum code We change the Ethereum code to reduce from 14 seconds to less than a second. So because with 14 seconds, if you are doing trading, my human will not allow me to to create a system where every time you bid you have to wait 14 seconds. So we reduce it. We not only reduce it the way proof of works works or Ethereum's proof of work works that slowly if hash power increases it keeps on increasing the difficulty. We not only reduce it. But we made it constant that every transaction will be done in less than one second. We went a little bit ahead, so we all say that okay, because of mining, lots of hash power is being wasted. To be for a general topic, we are wasting whole lot of computing power. So why why should we do mining 24 hours? If you are in a private network and if your business is only working from nine to five, you don't need to do mining after five. Right, like why to do mining 24 hours if you're in a private network? So we went one step ahead. We made our Ethereum a bit little bit more smart. The way now it works is that okay when transaction will comes in, that's the time only when mining will happen. So transaction comes in, mining will happen. Your block is created. That's it. Mining will stop. Now when the transaction again will come in, it will do the mining. It will stop. So as a stock exchange, suppose we are operating from 9 to 4 or 9 to 3. So okay, mining will happen like 9 to 3. We assume that transactions will keep on coming, so mining will keep on happening, and after 3, automatically the mining will stop. And that's where we made like this Ethereum protocol more efficient, and basically we made it to use so that it is useful for my particular use case. And that's how we modify. One more thing to answer your previous question, the challenges which we So, I'm a whole technology person. I don't understand business. I only understand technology. All the contracts, all the contracts and everywhere I go, one thing like, like money part is like everyone gets attracted to the money part that okay ICOs or money. But I don't find people or actually the problem which we faced is that when we started working for San Francisco Stock Exchange, go and find some developers, Solidity developers or blockchain developers, but there are none. That you know there's no application developers. When we started it, I started finding in the market that you know you find some blockchain developers or Solidity developers. There were none, and that was the biggest problem—the human resource, the human capital—the biggest problem in blockchain. So students or college students, you know one one of the advices here: If you want to invest in blockchain, don't invest in money, but invest in studying blockchain. And that's the reason Central Superstock Action what I did. Like we created our own. To teach our developers so that they can come and work with us. So that was the biggest problem which I think you know most of the blockchain people, any blockchain company will face if there is no human capital and human people to work on it.

I absolutely agree with that point. I've been talking to a lot of colleges.