Episode 14: What is Proof of Work? Why you should know about it

We are often asked for a super basic, first principles explanation of Proof of Work. We make our best attempt to boil down PoW to its most basic points. 

We  discuss:

- What are the basics of Proof Of Work and how to think of it simply
- What's a good analogy and how it can be thought at as a game
- Some elegant aspects of PoW in the Bitcoin network design
- Data on ESG concerns  and how to think about Bitcoin's energy use long-term
- Why energy in the Bitcoin network is programmed to go down over time
- What makes an attack so difficult?

We do not provide financial advise in any form.  All information is our opinion and for entertainment use.

Every Podcast we add a video or podcast we think of as Value add:

Anthony Pompliano: EXCLUSIVE Michael Saylor Interview
https://www.youtube.com/watch?v=c3E91-RGjQE
Here, Saylor discusses how Microstrategy came to buy Bitcoin initially, the thought process at the time and how he looks at it one its one-year anniversary. 

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Transcript

Gabriel Riesco: 0:02

Welcome, everyone to one new episode of the crypto noobs. Podcast. I hope you're all doing great today. Good morning, Alex. How you doing?

Alexandre Fuchs: 0:11

Good, how you doing?

Gabriel Riesco: 0:13

Good, good. So today we're going to focus again on Bitcoin by on a very specific part of Bitcoin, which is proof of work, we're going to go over ways relevant way you should know about it, and why it's so important. Alex, go for it.

Alexandre Fuchs: 0:32

So I realized there's a big debate and a lot of information out there about the energy use of Bitcoin. And particularly as it comes to ESG mandates and a number of other concerns that some people have had about Bitcoin, specifically in proof of work. And in some ways, also the transition that a theorem is going to by moving from proof of work to proof of stake, and I thought it'd be useful to try to explain it, probably not the most accurately, but certainly the most simply to understand why it's a core piece of what Bitcoin is, and why it's important and why, in some ways, it's a very elegant solution to the problem at hand. And I didn't see that being discussed a lot. And it came out of a number of conversations I've had with a few friends, and I thought I'd share it. So just to simplify, let's try to understand what we're trying to accomplish. So in the existing system and the existing financial system, and what do we use every day, we're used to centralized actors. And one of the things that centralized systems do is that they allow you to have a bunch of tools accessing, say, a database. And without getting into all the technical pieces of it. Having a centralized system allows you to have a single piece of code that's running. So software is running and doing stuff, and saving, for example, your account balances and your transactions and all that stuff to a database. That database sits and protected with virtual machine guns, making sure nobody gets into words, hack proof, all that kind of stuff. The onus is on the centralized authority to make sure that all these transactions are valid, to be able to have access any transaction and check it to be able to reverse transactions, if there are problems, and all that kind of stuff in there. For again, this concept of trust is very important. That's why the Federal Reserve has its system, other banking institutions have their own system and private actors have their own systems that you trust whenever you use a Bank of America credit card, or JPMorgan Chase bank account, and so on, so forth. Now, in order to create a decentralized system, what you need as you need to get to the same answer, or you get to you have to have the same confidence in the fact that these transactions are going to be processed properly. But now in a completely open system, completely decentralized where there are hundreds, you know, dozens, hundreds, 1000s, millions of actors, who were all doing stuff in parallel in completely different places and still get to the same result, which is where you are certain about the ledger, a certain amount of transactions, that those transactions that are approved are correct. And that's ultimately you are building a blockchain in this particular case, but you're building a record, which everybody can trust and trust, again, being the wrong word, but can get comfortable, cannot be altered, cannot be falsified, has very low risk. Okay.

Gabriel Riesco: 3:39

Yeah. And to that point, I just want to add something where I think it's also genius. For me, it's kind of like a perfect business model, that decentralization in the sense that miners are the ones who are protecting the system, or mining actually Bitcoins. So those are the two jobs that they do. They're getting paid by the system by designed. Yeah, so for me, as a business owner, I think that's just, that's just great. Because it's not like someone that is like a person paying them. It's like the system was designed. So the workers are kind of like self rewarded by their job, right. And that's, that's like a big innovation, but not everyone understand about the session. Let's go through all that. I'm gonna let you go. I just want to make an offer, which I think it's genius. Let's work

Alexandre Fuchs: 4:26

through a couple of pieces, which are, in my mind quite, quite interesting to think through. So everybody knows that. The network uses a lot of energy. There's a lot of miners. So let's go through a couple of the basics one, this

Gabriel Riesco: 4:42

one on that poll. Yeah, sorry to interrupt you too. But I think I got the statistics, right. But I think Bitcoin is 0.04% of all global energy consumption. So I think that's a good data for people to know because it's very misunderstood. And there's all these like, fuss about it. And this is just data. This is not my brain, I think people should know. So it's 0.04% of global energy consumption just just on Bitcoin. So that's not a highlight.

Alexandre Fuchs: 5:13

Yeah, it's a fair point on the macro level, it's not, you know, in South, Central, that's huge. But you see a lot of comparison to small countries or to whatever it's, again, the way that Bitcoin is organized, it has basically, you're joining a network, as we talked about before you as a piece of software you can download. And with this piece of software, you can have multiple different roles. So you install this piece of software on a piece of hardware that you have, wherever that piece of hardware is, whatever capability to part of that piece of hardware is, and again, Bitcoin through the 2017. Block size war, and through a lot of the things that's maintained a very light footprints, what does that mean? It means that the software can run on a bunch of different machines, it doesn't have to run in a data center, it doesn't need a lot of memory, a lot of disk space, it can run fairly easily. And this is why there are many, many people who actually run nodes or miners all around the world, because it's relatively easy to install compared to other systems. And the size of the overall blockchain, all of the transactions accumulated since the Genesis block since the very beginning only amounts, you know, as of now, around 450 gigabytes, 450 gigabytes, if you want to think about is half of reasonably entry level, one terabyte disk drive that you would get if you walked into Best Buy, or any kind of hobby shop, to buy a machine. And so therefore, the idea is that you run this piece of software, and now you have one of two roles. One of them is to passively have a photocopy of the full ledger. So you can run a node and as a node, you have a copy of all the transactions since the beginning sitting there in millions of homes and places all around, which again, gives a sense of resilience to the network. And the way that the blockchain is structured, the way to think about it is that because all the blocks in the history, everything in the past is meant to be immutable, fixed, done. No context, you're not going to go into the database and change anything, these blocks are historical, they're now past, you can focus most of the security on the block being created now. So you don't have to worry about your whole database, because your whole database is already kind of gone. It's

Gabriel Riesco: 7:33

in the wild. And it's secured globally, by a lot of people,

Alexandre Fuchs: 7:37

yeah, a lot of people have it. And for example, you would have to go into millions of people's houses that change, you know, the living record of the transaction, if you wanted to steal a million Bitcoin put into your account, you'd have to replicate that change, you know, in millions of places. So instead of worrying about being able to change the database, which, for example, in a centralized system, you could imagine that there's a lot of efforts at securing the ability to go in and to add $1,000 into your billion dollars into your bank account. so on so forth, that's particular part of changing the historical record is very difficult to do in Bitcoin, again, because of its decentralized distributed nature, right. The second piece, which is therefore the focus of the security, is all about making sure that the next block every 10 minutes, is secured. Right. So again, let's now think quickly about proof of stake versus proof of work. Proof of stake has been discussed as being much more efficient and using less energy, and so on, so forth. But here, the logic and proof of stake says that, okay, I'm going to stake something that is valuable. Again, you know, like 32, eath, and eath, 2.0 network, I'm going to put money and put value at risk so that if I do something bad, it is taken away from me, so I have something to lose, if I do something bad. And if I lose it, then that's the cost, right. So in that particular respect, what you tell yourself is that you need, you know, many fewer players. But again, there's a bunch of different things that happened with that, including the fact that you have to come up with a lot of money in order to be one of the people who participate in validating the transactions. And you are subject to potentially some attacks, if a very large player wanted to go and spend a lot of money to try to take over the the network again, you know, it's secure. But I'm not going to say that it's not that it's a that's a bad system at all. That's not my point here. I want to focus on a proof of work piece. But the proof of stake by definition is going to be more centralized, and also usually is tied to systems that have much higher throughput of transactions, which structurally anyhow, make the fact that the blockchain is so much larger, and therefore probably is not appropriate for being run. In the nodes in a distributed fashion, the way that you know the history of Bitcoin fits on our hard drive. And we can get into sharding into a number of different technologies, which are used on a proof of stake system, or maybe using a future in order to try to make it a little bit more lightweight. But leave it to be that the proof of stake requires every actor who is validating a transaction to essentially have a lot of capital at risk. And that's the way that this system gets enforced. Proof of Work is kind of is really elegant in the following way. I'm going to use a metaphor, because that's probably the way that's going to be best explained. But the way to think of proof of work is that you are invited to play a game. And the game has two components, there are two things that you need to do if you want to validate a Bitcoin transaction. So what's Bitcoin says and what the software says it's like, anybody can come and play that game. And a game involves some rewards. These are the rewards that you were talking about before, which is every block issues, new Bitcoin that are given to the people who validates transactions. So again, this is how the network gets secured, because there's a remuneration, this compensation for the work that you put into trying to help validate network and again, validate that last block that every 10 minute block to make sure that that block is correct. So the idea is, is actually quite elegant, that's okay, come and play this game, you have a chance of winning. And let me tell you what you have to do in order to play the game. And the game is for you to do two things. The first thing is you have to calculate correctly, all of the transactions in that block, which is you have to look at all the keys, you have to look at all the transactions, you have to put them in the right place. And you have to write it perfect block, which is a correct block. Right, we'll get to that later in case you are trying to steal or you're trying to, you know, hack the system, what you would need to do, because obviously, you would then be mining, you will then be creating a false block. But the idea here is simply if you want to play, anybody can play, the first thing you need to do is you need to calculate something correctly. Right? That's a first thing. The second thing that you do is you play a game of chance. And that game of chance is one where you get to get something, let's just make it super simple. You get something and I will tell you if you got it or not. Right? Which sounds insane, right? That sounds like what are you talking about? Like, why do I have to do this amount of work here the correct work of analyzing all the transactions, that's A and then B play this complete game of chance, which is like a roulette or, you know, or throwing a dice. I mean, exactly the way to think about maybe as a metaphor is I'm rolling a dice, and how big and how many facets the DICE has is where we're going to discuss next. So what happens is in the very beginning of Bitcoin, not very many people wanted to mine. This is statistical, which is fascinating, which is one of the most popular probably most advanced miners out there, the bitmain, which is Chinese company, which is one of the large companies that makes miners bitmain ant miners s 19 Pro, which is kind of the one that currently is one of the better ones, they just announced a new one. But let's just say that's where the market is. Now, one of these machines represents the network network computing power that existed in the whole system of Bitcoin in 2013. So from 2010 to 2013, there's not a lot of people doing a lot of mining, right. So at that particular point, it was exactly the same game, it was just that there are fewer people showing up and saying I want these rewards, I want to play the game. And these people at the time, there are fewer of them what they would do and remember the rewards half every four years. We'll get into that later. But basically, at a time when they would do is that they would have a dice that maybe had 200,000 faces, right? So we all know is six face dice. That's the usual DICE DICE that you roll. But the way to think about it is that you're taking game of chance and there were maybe 500,000 faces that I died we got one chance and some maps right

Gabriel Riesco: 14:11

the big days. Yeah, that's

Alexandre Fuchs: 14:12

exactly what I'm trying to metaphor can only go so far. But the idea is that you take a completely random chance and if it's true if you roll the rights you know if you guess the right thing, and the network tells you hey, you are the winner lottery complete exactly like buying you know, whatever the lottery is. You win the reward, and you're like, oh, wow, everybody else doesn't get a reward. What happens? Everybody competed. Everybody did this thing. This is the reason why pools exist. So what the pools do is they say, Okay, if anybody in my pool wins the reward by guessing correctly then everybody splits it that's how they handle it. That's why there are few pools and you meant you know, you've just been in the pool the pool, earns a fee. And then the idea is that now when you go mine, you'd never mind by yourself because your chance of mining by yourself is essentially, you know, close to zero. But you get just a part of a pool. And again, as part of a pool, you have a good chance of earning rewards. Now, what's magical about this is that to deliver difficulty, or the number of faces on the dice, that you're rolling, the chances that you have the odds of the lottery, whatever you want to call it, right? increases the odds. So I should say that your chance decreases and the number of the your chance decreases as more people want to mine. Right? So again, to the example that I had before, maybe there was 100,000 sided dice when you were rolling it in 2013. And by now the dice the DICE has, you know, 100 million size or 500 million size or whatever the number is, right? It has way, way, way less chance for you to win, because there's way more people playing, right. And this is where the energy usage comes in. Because the whole idea is that as the price of Bitcoin goes up, then you have more and more reason to try to, in some way participate in a pool in order to try to get some of the rewards is why mining has been quite profitable the last 18 months, as you've seen BTC go up, you know, 1020 times, right? But what's magical about this, is that okay, so all so the system basically picks at random, someone says you win the reward, I'm going to take your computer that block, and I'm going to put that block in the blockchain. So it picks at random, right? It cannot pick it cannot find somebody who is a hacker, right, that hacker doesn't have a place to go to be sure that he's going to get this thing, the only way a hacker would be able. So let's say for example, you wanted to break this and you wanted to add yourself a million dollar million Bitcoin to your account, right? Just how would you do it? Well, you would have to be part of a pool. Or you would be basically have to be picked at random amongst billions of possibilities, right? To be the person whose block would be taken in order to get your false block added to the blockchain. And in order to do that, basically, this is what they call 51% attacks or any of the other things that you heard, but it's even more complicated 51%. Because basically, if you want to be sure that your block is going to get picked, which is again picked at random, you now have to be just an overwhelming part of a network. So in some ways, the energy which is being spent in all these miners and all this efforts, it sounds insane, but it is protecting the network, because it's making it essentially practically impossible for hackers to come in, to provide a false block along with its guess, and be picked by the network as the one block the randomness, the lottery system makes it possible that, well, it's going to hit in the most logic in the most logically adopted solution to the block, which is the one that most people are going to just accept, right and compute which is kind of elegant in some ways. Because what it does is it says Like if somebody you know in whatever specter right, like the evil agency of dreams, Vaughn or whatever, decided, you must break Bitcoin, I'm giving you the job to bring Bitcoin. Now you have probabilities, which are all screwed up, like, that person cannot assure that they can break into it in any possible way. Because the probability that you know, if there's 150, eggs, a hash of mining power now more or less 101 60, whatever it is, you'd have to secretly deploy that amount, and then more, right? In one attack, you know, at one particular point, and even if you've just deployed, let's say, 170, or in 60x, a hash when there is 160x 100 capacity, now, you still only have a 5050 chance of being able to break it in order to assure you 90%, you'd have to have like nine times or you know, whatever the number is, right? The lottery system actually ensures in some way, some fair or some dynamics of game theory that makes it really difficult for you, particularly as the network grows in size, and more people are mining. And so what's what's kind of magical about it is that they, in some ways in the construction, they knew that the more people would mined and the more there would be value in the Bitcoin, the more it would attract miners, which would must secure the systems more, but at the same time, they put in the system where the rewards go down by half every four years, which basically means that you have some four sides, you have the ability to reduce the energy consumption in a very predictable way while not hurting the security that much that much because everybody can predict the rewards are going to go down and therefore the public suitability of mining is going to come down in some ways, as the price happens as the price moves. Right now we're in a very special period where the price has exploded, and therefore mining is incredibly profitable compared to where it was before, right. So why you see, you know, the interest in mining and some sort. But what's fascinating is it over time you have a predictable drawdown, your principal reduction in the rewards, which itself, irrespective of what the the bitcoin price will do, will reduce the amount of energies that the system will use. Because remember, the amount of work that's necessary to calculate correctly, the next block is a billionth million billions of the amount of work that's being done out there in terms of cryptography and work, it's a very, very small amount, every one of these people is doing it independently, it's a very small amount of the overall work being done. So you can reduce the energy over time in a predictable way, while still securing the network and making sure that every moment, there's enough people competing so that an actor can really come in and take over all the miners, there's no incentive for the miners to go away, they don't have any incentives to rent their miners to some bad actor, if a bad actor comes and starts providing false proofs. Since everybody can see everything, you can see that the false block is being advertised. If you see a lot of people with the same false block, you can start seeing that there's an attack, there's a number of ways in which the system is actually really elegant and protecting itself. This long kind of expose is to say that, what's what's kind of interesting about this is that yes, it uses a lot of energy. Now, however, the energy is is required in order to lock in and secure the amount of value that's in Bitcoin. So in the very short term, energy grows, if the value in Bitcoin grows, which means that it's a valuable use of the energy, because if value is very low, there'll be less energy being used, there's a relationship direct between the amount of energy being used, and the amount of value that's in the network, which is a very helpful thing. And number two, yes, over time, that energy goes down, because the system and the protocol is written in a way that yeah, if energy feels like it's high at a time where Bitcoin explodes in value, because of course, in the short term, people can throw a lot of a lot of resources to try to mine it. Over time, the energy and the security needs, sorry, to giving you say the same, but the energy used to secure the network goes down, because the rewards go down. And the importance of that is that it is a system that is self, if self reinforcing, or self healing, it is establishing itself. And as it grows into value, it uses more energy, in order to make sure it's secure, which is one of the purposes of the Bitcoin network of the proof of work network. But also which is magical is that it also knows that it needs to reduce its energy over time, the energy devoted to the mining and to the securing of network, such that over time that energy is handled, if for example, the level of rewards have been the same throughout the life of the instruments, you know, again, remember the house every four years, and then 2140. If it'd be the same, then actually the budget of an energy would have gone higher and higher and higher and stayed high. But actually, the reduction in the rewards ensures that even if energy feels like it's high now, a couple years from now, it'll be less and it'll be less, and it'll be less, even if this if we don't lose anything in security. Does that make sense?

Gabriel Riesco: 23:47

Yes, the question I have there is, if the rewards go down on the mind, the mining and the miners get rewarded less than they've compensated, we would tend to think that there will be less miners involved, because there's less incentives. So how, how does that work?

Alexandre Fuchs: 24:06

So the importance is an attack or an attack is kinetic, an attack is in short term. So a block gets mined every 10 minutes. And let's just assume that we've had correct blocks, and these blocks keep on getting printed every 10 minutes. In order for an actor to come in. Compared to a centralized system, first, you know about it right away. And you have to deploy a, you have to, let's say, let's talk about a 51% attack, which is the simplest but which is also the one that doesn't, that gives you 51% chance of hacking, right? You'd have to deploy twice the energy that was there the block before, not a year before, not six months before, not 10 years before, but 10 minutes before you have to somehow be able to overwhelm and network in that instance. That's the security attack vector. That's the that's the that's the, that's what the protocol forces you to do as an attacker. Compare that, for example, to finding a backdoor into a centralized system, where you could be in that system for months and years looking around, before you actually act, right, in this case has nothing to break into. There's no secret system, no access to a database, no, nothing that you you know, there's no Mission Impossible going into some data center to try to put something in something not at all. In this particular it's a lottery system, because it's open, it forces you as an attack vector, because again, the blockchain is historical, you can go and change that and 10 million people's homes and and in each of the nodes, you can't change that. So you've got to change the block. And the only way to change the block is at a particular block, you can't start changing in three blocks before we're slowly get in No, there is a block where you have to put in your effort. And the only way to put in your effort when you have so much existing hashing power has to be kinetic, it has to basically go from one to two, just to get 50% chance or 123. If you want 66% chance, or one to four, if you want to have 75% chances of being able to hack in 10 minutes. So you have to have an overwhelming attack. So what happens is that right now you have 100. To your point, right now you have 160x a hash of power, right? Two things happen. The first thing is that every year, the hash rates, the the ability of machines to make more computation for less energy goes up. Right, which is beneficial on both sides, it could be benefits to attacker benefits into defender, whichever it is, right. But what happens is that

Gabriel Riesco: 26:51

you

Alexandre Fuchs: 26:53

even if, say four years from now you had 75x A hash, right? Let's say that like half of the hashing, power disappears, because you know, the rewards are not as good and therefore everything stayed the same, and the pricing and so on so forth. At every point in time, you need to double, triple or quadruple whatever is installed in that moment, within 10 minutes. And at a certain level, it becomes impossible we pass this level long ago, it's impossible to just deploy such kinetic force into the system without people knowing about it, you'd have to control supply chains, you'd have to, you know, if if, for example, if campus mining is having a lot of complaints, because servers that were promised the customers are arriving late, and there's supply chain problems, and mag and semiconductor problems at TSMC, and supply chain issues, and so on so forth. How is a bad actor going to overwhelm the system to try to get much more of the system? Now, you can always think that a government or somebody can try, you know, that's right, you know, that China in some ways, is secretly building an army of things to try to do that. But isn't that a realistic case? Right? A real estate case is a hacker trying to find a way to get into a system elegantly by finding some flaw in the code or something. Not really this kind of immediate public brute force, every when there's an attack, if it attacks, everybody's gonna see it, you're just gonna see the overwhelming hash rate explode in a matter of minutes. It it's a very public attack, it's a very visible attack, it cannot be really hidden all that well. I don't know if that helps.

Gabriel Riesco: 28:44

No, it does help. Now, the question was, that I was asking is, it seems like over time, from what you're saying that less Miners are going to get involved? Since there's going to be less incentives? Am I getting that wrong?

Alexandre Fuchs: 29:00

It all depends on where the pricing is. And all depends. I mean, two things, I think on that one, the first thing is, again, the level of computing power that you need in order to calculate correctly the next block is not very big. So we do not I don't think risk ever getting to the point which exists in other blockchains by the way, where the participation of the net of the miners is so low that you're just not getting enough stuff calculated. So you know, the blockchain dies, basically, this is where the difficulty comes in. Right? This is the number of faces on the day, you know, you could change it back to one out of six and have a normal day and you'd still have some security probably not very good. You get my point. So you can reduce the difficulties mean by a factor of a million and you'd still have pretty good security because of the lottery system is truly the lottery system. And right now is So, you know, think of a, what a chance of gaining the tri state lottery five times in a row, right? We had these level of odds. The second thing is price of Bitcoin, you know, again, we're back to, it goes back to zero and all this is a waste of time, of course. But if it continues to grow or stabilize, then it becomes a profitable business to mine at pretty much any basis, right? Some people will magnet, there will be out there mining it with for some kind of compensation, even if the compensation goes down. They're still profitable. In some ways. It's super profitable now.

Gabriel Riesco: 30:45

Yeah, it seems that if there's, the price goes down, and there's less incentive, there's probably going to be less miners still, we kind of adjust itself in a way, and when the price goes up, then there's going to be more incentive. So miners are gonna keep trying to get that reward as it goes up. So in that sense, it seems like a very flexible, adjustable system by default. And I

Alexandre Fuchs: 31:14

know it addresses up I mean, the other way to think about it

Gabriel Riesco: 31:16

from another difficulty level, so adjust itself in

Alexandre Fuchs: 31:20

Justin has been addressing quite high again, because in the short run, the price is going up so much that there's an enormous amount of demand for playing the game or supply of mining capacity, depending how you want to think about it. Let's not forget that it costs you. It does put some numbers just for fun. We went through this last week. But riots and Mara and all the big miners were buying these miners for about three or $4,000, early last year, middle last year, which is probably around the production costs, I'm guessing, if you go to buy them now on the spot market, they're anywhere between 9015 $1,000. So they're expensive. Because there's a premium now to try to get your hands on it, the cost of them to build my senses has not gone up by that much. Certainly. So you're talking about like, you know, machines that cost. And again, let some people might know their coins with graphics cards and some jewelry, which are in the 1000s of dollars, but you're talking about 1000 to 5000, maybe $10,000 investments, but probably the cost of the production when everything stabilizes and gets back to normal, it's probably, you know, let's say $5,000, right? That's attainable. That's a decentralized system, anybody can really start mining and you know, you know, if that price goes down, or if it continues to, it's a reasonably you know, again, we're not compared to the amount of effort that you have to do to participate in a centralized network, or you have to build all this stuff. Now we're talking about everyone bringing to the network, small pieces that interact and build strength in the network. So again, these are network effects on the mining side, just as much as there is on the value side, we're getting a little bit off topic. But the point I wanted to try to make to try to summarize the proof of work base is that it was designed to use energy, it was designed to use energy in a scalable fashion, which means as as Bitcoin became more important, it would use more energy. But at the same time, it was built in a way where if you try to attack it, the energy needs are very difficult to access. It's not just money that you need, you need energy and energy is more difficult than money to find in that particular respect. Because you have to actually have machines doing things haven't been, you know, invested in them hooked up by just being in network, and so on, so forth, that were not there 10 minutes ago, in that context. And also structurally, that demand of energy or that need for energy goes down every four years with the rewards. So it's an elegant way of, again, trying to accomplish if you go back to the very beginning, we are trying to find a decentralized system that comes up with an accurate answer verifiable with some game theory and some game mechanics that ensure that bad actors can't come in and screw things easily. And it's using network effects to say, Okay, how much energy do I need to secure that? Find something which is expensive for people to use hard for people to deploy, but also that, you know, reduce over time, once it's figured out what level it needs. Nobody could predict it. The point being, again, is that if you sit there and you try to build a centralized system, you sit there and you go and you think about for a year or five years or however long it's going to take the central banks to figure out CBDCs to try to figure out their software requirements and there's another knock and stuff fantastic. Congratulations. This is basically saying here's a piece of code. The market will determine the amount of security needs the market will determine the The amount of energy that he needs, and I'm putting some incentives so that it's the energy is required in any regard for an attack is is really difficult to, to examine due to the muster at scale. And it's going to go down over time. So in terms of ESG, concerns, in terms of the environmental concerns, the the the, I think it's easy to get to the conclusion that the value of peer to peer store of value fundamental layer, digital currencies, needed some energy to secure. And this is one of the more direct ways the more auditable, and more predictable, if not predictable, the more network use adapted, you know, the one that has the most relationship to its value that you could find that you could find, or at least an elegant solution to it, rather than, for example, building massive things without really knowing where your capacity or your value is going to be. To that point, whatever people are going to spend on CBDCs, for the US dollar, or for the, you know, the any of the other currencies, they don't know whether it's gonna be successful or not. There's an enormous amount of effort that's out there to try and go in and do things. This is not illegal in a way that basically says, you know, we're going to use energy. Yeah, the energy is going to go up as the value in the network goes up. And it'll go down structurally over time without hurting security. It's a smart, it's a smart piece of code

Gabriel Riesco: 36:36

was also designed to be decentralized. So if you want to centralize it, so it seems like it wasn't built for that, right. Anyways, I think that was a very interesting one. Thank you, Alex. I hope you enjoyed that one. And we'll see you and you'll hear about us in the next podcast. Thanks,

Alexandre Fuchs: 36:58

that hope that was

Gabriel Riesco: 36:59

helpful. Have a great day, guys. Bye.