David joins us to discuss Saito’s Novel Consensus Model & Reaching Massive Scale on L1.
David Lancashire is the co-founder of Saito — a new generation of blockchain that fixes the economic problems in all proof-of-work and proof-of-stake class networks and enables massive on-chain scaling while maintaining both network decentralization and security.
The result is a mass-data blockchain that can run bandwidth-intensive applications, ranging from social networks and gaming to payment channels and more, all without the complex architecture of a virtual-machine layer.
In September 2018, Saito closed a successful seed round, with the project raising money from some of Asia’s most sophisticated blockchain investors—including INBlockchain, Neo Global Capital, Fengshui Capital, Fission Capital, BCH Angel Fund.
David has since been asked to present his ideas at the likes of Tsinghua University in Beijing, Deconomy in Seoul, and the Asia Blockchain Summit in Taipei.
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The following transcript was created using artificial intelligence. There will be some grammatical errors below.
00:00:03:08 – 00:00:16:15
Richard Carthon: Hello, everyone. Welcome to another episode of Crypto Current. Your host here, Richard Carthon. And today I have a very special guest all the way out in Taiwan working on a really cool layer. One solution we have David. How you doing today?
00:00:17:26 – 00:00:27:08
David: You know, it’s the beginning of the day for you and it’s the end of it for me, but it’s been a good day. So, yeah, things are great, you know? Thanks for taking the time to talk to us today.
00:00:27:27 – 00:00:37:11
Richard Carthon: Absolutely, man. Well, excited to learn more about everything you have going on. But first, let’s dive more into who you are in a little bit of background on yourself. Do you mind us sharing a little bit?
00:00:38:13 – 00:01:10:26
David: Yeah, sure. You know, I guess my background, I’m Canadian. I went to grad school in the States at Berkeley and was studying kind of economics, political science, cryptography ended up in China, running my own business eventually and, you know, got into crypto like a lot of people do. It kind of takes you off the beaten path. And this was back like 2012, 2013. And so we were my co-founder and I, we were in Beijing through all of the Blocksize wars, all of this crazy, really crazy early stage growth.
00:01:12:01 – 00:01:37:09
David: And, you know, Saito emerges, what we’re doing emerges from that period because our way of looking at the problems is very different than other people. And it took us until about 2017 to figure out actually, we think the way we need to solve these problems is solving economic problems, not technical ones. And that led to Saito, which is a layer one blockchain. And hopefully we can talk about it today, you know?
00:01:37:12 – 00:02:00:24
Richard Carthon: Oh, definitely, man. So like, it’s cool that you’ve been in this space for as long as you have. And again, you go to the core what some some core challenges were and still are today, and it was the impetus for creating. Saito So let’s kind of just start there. Like what were some of these underlying challenges from a foundational standpoint that you saw that needed to be addressed?
00:02:01:28 – 00:02:03:16
David: Well, the
00:02:05:02 – 00:02:39:08
David: a lot of people, they think about blockchain as something that’s technical. And so when they see problems like, oh, we’re having problems growing the blockchain, they they immediately jump to this is a technical problem with the technical solution. For instance, a really obvious one is the blocksize cap. Right. Like, how big should we let blocks get? And we now have lots of technical discussions, like, oh, what’s the latency of sending blocks back and forth and, you know, miners, how big how big blocks can the people actually process?
00:02:40:24 – 00:03:01:10
David: But if we take a look at the Blocksize wars, there’s another way of looking at that same problem, which is. And there there are two big problems. This is the first one. It’s that the miners, the block producers, they don’t have an incentive to make the right size blocks. If you could fix that problem, then you wouldn’t need a blocksize cap.
00:03:03:03 – 00:03:33:20
David: But it’s a really weird thing to come into a tech space and say, because people are like, Should we have one megabyte blocks? Should we have two megabyte blocks? And if you come, you said, well, actually, you should fix the economic layer so that people are maximizing their profitability when they are maximizing the size of the blockchain. But it’s not like it’s not too big. That’s a really weird thing to say. People really have difficulty grappling with it, but that’s the solution that Sitel actually comes up with for blockchain blocksize.
00:03:34:20 – 00:03:35:27
David: There’s another problem to
00:03:37:18 – 00:04:05:29
David: the second problem. Another incentive issue is it’s like, what do we pay for? And a lot of people, you know, if, you know, why do we pay for mining and why do we pay for staking? People have decided that this is what’s proper to pay for because this is what Bitcoin does. Proof of work, proof of stake comes in. And there are a lot of real fundamental economic problems that this creates and other chains. One of them you you know about in furore, I imagine you have some fear with it.
00:04:07:16 – 00:04:37:28
David: You know, last time we were at the Stanford Blockchain Conference, the numbers we were hearing that they were processing about 80 to 90% of ethereum’s fee flow, which means $0.90 of every dollar that the network collects goes through that one corporate controlled server. Right. So if you’re collecting $0.90 out of every dollar, you own that network, right? Because you control who actually gets ultimately to put that money in their pocket. And right now, in fear is being a good boy.
00:04:38:04 – 00:05:09:01
David: It’s sharing that with the other people on the network. And so there’s this lovely land grab where everyone’s like, Yeah, let me set up a miner, let me set up a validator. And they’re not actually running infrastructure that gets people using the network and making fees. So everyone is kind of charismatically free riding on this company that is funded by Joe Lubin, an early heath guy. But the network itself isn’t sustainable. And we take a look at all of these proof of stake networks and the proof of work ones that are trying to scale.
00:05:09:13 – 00:05:43:13
David: And what we see is actually what economics started predicting in the 1960s, which is that the networks are kind of falling apart into a monopolistic, oligopolistic corporate structure, because at the end of the day, you need someone to pay for stuff. And if the network, the consensus layer isn’t doing it, the free market has to. And again, this is why incentives matter, because if you’re you know, you’ve got if you say, well, we’re going to let the free market do it, it doesn’t mean the free market is going to be successful at doing it in the way you want it to happen.
00:05:43:22 – 00:06:05:11
David: Right. Like you can get market successes, but you can also get market failures. And because of the economic incentive misalignments, what we see in proof of work and proof of stake is market failures that lead to. The data flows on the network being controlled by these big companies. And the solution for that is we actually need to pay for it in consensus.
00:06:06:09 – 00:06:24:27
Richard Carthon: In consensus. Okay. So let’s stick with those two problems at first. First is just how big do we make these blocks on the blockchain, right? How much data we put on, whether it’s one megabyte up to gigabyte, etc., and it’s not necessarily that we should be framing that way. It’s like, how are we incentivizing the size of those?
00:06:24:29 – 00:06:55:24
David: That’s the technical framing. Everyone jumps into it. The first is how can we make it so that if you are a block producer, you don’t want to add more data than the chain can support, right? Because you fix that. You don’t have a blow problem. You don’t need a block size cap. I mean, and one of the things is a lot of the times with devs who approaches technical, you say, well, what’s your solution? Then they’ll go like, Oh, a megabyte and say, Well, what information are you using to make that judgment? You know, like they have no idea.
00:06:56:23 – 00:07:29:16
David: They have a preference based on their own viewpoint. But, you know, it’s not objective. They they really genuinely don’t know and they can’t forecast what costs are going to be in the future. So you need a market solution. You need the market to be able to tell you, look, this is the optimal this is the optimal amount of data for me. So that’s one. The second one is really about value measurement, right? Right. Like all proof of work and proof of stake. It’s we’re paying the security providers and we’re not paying anyone else. And well, that leads to market failures.
00:07:29:18 – 00:08:00:27
David: It’s like a company that pays you to it’s a house painting company. And what it’s going to do is it’s going to pay you to buy cans of paint. So if someone goes out and buys a can of paint, it will pay for that. But it’s not paying for people to go out and paint houses and it’s not painting for salesmen to go out and get customers. So there are all of these activities that these networks need, like what Inferior provides, like somebody needs to get the block data to the users and to their wallets. That’s like what Bitcoin.com does. That’s what Ether Scan does.
00:08:01:22 – 00:08:34:02
David: Any time you’re running like, it’s what insurer does. So there’s all of this work and we’re not paying for it either. And so, you know, your incentive if you’re in the network, is, well, you don’t want that job. Like, don’t give me the job of collecting the money. I want the job of getting paid. And what’s happened in the space is people like Vitalik, she says the job of the miners is to secure the network she’s totally from. The job of the miners is supposed to be to do whatever it needs to make money. But in reality there is a market failure.
00:08:34:04 – 00:08:36:20
David: They’re like, All I do is focus on the thing that makes the money.
00:08:38:10 – 00:08:57:11
David: So, you know, that’s a value measurement problem and that’s fundamental because like how if you have proof of work and proof of stake, how do you pay someone to go out and get money? Like the algorithm can’t do it. I could show up and see, Hey, he goes, I collected a million bucks for us. And people say, Okay, well, what’s your proof?
00:08:59:11 – 00:09:37:03
David: You know, because what happens is going to give money to some guy who shows up. And there’s a lot of these technical solutions, like there’s a beautiful one with iOS where people are trying to design these technical constitutions and mechanisms to measure it, right? Where you’ve got the master nodes which have special rules for them, right? Like that’s no longer an open network because you’ve now got these special nodes that have special rules and you can’t just set one of those up. But the U.S. story I heard, and I’m pretty sure it’s not apocryphal, is that in the early days, they had five servers that were storing copies of the blockchain full copies, and they needed those full copies of the blockchain to get paid.
00:09:37:20 – 00:09:44:01
David: What it actually was, was a single server with five net cards. So it was all just on one hard drive.
00:09:45:17 – 00:09:51:18
David: You know, how do you measure that? You can’t you can’t cheat. Yeah. So, like, if you’re in a mart. Go ahead.
00:09:52:03 – 00:10:16:01
David: No. So I just to to bring it back home, so and then to to to kind of dive into how Seto is is fixing these challenges. So again, going back to the first problem, which is deciding how big do you want your blockchain to be? There shouldn’t be like a hard set number that the based on the incentives that are going on should be the deciding factor, which I’m sure you’ll explain how you’re going to address that.
00:10:16:19 – 00:10:25:11
David: Like the question is, what is the optimal size for the blockchain? This is not big. Should our blocs be like? The answer to that is your block should be optimally big.
00:10:26:04 – 00:10:26:27
David: Optimally big.
00:10:27:15 – 00:10:39:12
David: They should be optimally big. Right? Like I want the blockchain to like here’s here’s a thought experiment and it kind of gets maybe to what people can think about this. If you
00:10:41:01 – 00:10:45:28
David: if adding more data increases the value that the blockchain delivers.
00:10:47:22 – 00:11:13:24
David: And doesn’t lead the blockchain to collapse. You want to increase the blocks because you want to be maximizing value. That’s what would be optimal. Now, if you’re collapsing the blockchain, you’re obviously not increasing value because the network disappears. But it’s a different kind of question to ask. It’s also very like it feels abstract and theoretical when you first come to it. Right. Because they’re used to four megabytes.
00:11:14:02 – 00:11:43:15
David: Right. And people are used to that. And I definitely want to come back and see how, you know, say those is solving that. But then I also want to go to a problem too really quickly, just another way of framing it, where a lot of these blockchains are proof of work, proof of stake, where they are paying the network to basically lay down the piping. Right. So. So the way I’m looking at is like you go to city, you’re putting in the infrastructure and you put all the piping for all the sewage. But then you don’t want to build the houses, build the bathrooms, build the everything else that you would need to do the whole thing.
00:11:43:25 – 00:12:09:24
David: Pay for piping. You don’t pay for the network. Proof of stake is stake. Right. People love it. It’s like that’s free money. I have some tokens. I put them in the staking back. I make money. It’s not I’m not I’m not putting down pipes. Right. I’m running fiber optic infrastructure from Asia to North America. I’m not running an ISP, but if someone goes to Etherscan and they want to check some smart contract address, like that’s not. I’m not paying for that.
00:12:11:01 – 00:12:32:15
David: No now. So so to complete that, right. So when you have this in the way that you’re explaining it is although they are making money with that it is not properly incentivizing to. Further built out that as a solution that, like, kind of completes the entire circle of economic value.
00:12:33:06 – 00:12:47:14
David: Yeah. Let’s drag it back to 2014, 2015, because right now, if you say the things people were saying about proof of work and proof of stake back then, you sound stupid, but it’s great to remind people of what people were saying
00:12:49:02 – 00:13:22:07
David: back then. You’ve got the big blockers and proof of work and you’ve got the BTC guys and the BTC guys say, Look, we can’t let this network get big. If the network gets big and. Volunteers are going to go away and no one’s going to run these nodes on the network. And we’ve actually seen with the scalable blockchains like Ethereum, the volunteers go away very, very quickly. But. They’re the big blockers and they say, well, no, no, no, no, you don’t understand economics. The miners are making money and the miners need a big network in order to make money.
00:13:22:22 – 00:13:26:19
David: So the miners will pay for the network or they won’t make money.
00:13:28:14 – 00:14:00:17
David: And there’s a variation of that basically in almost every scalable model of proof of work and proof of stake. It’s like, well, if we don’t scale, somebody is not going to make money. And so they’re going to solve this problem for us because it’s the free market. And people hear that and they go, Well, that makes sense, right? Like, I want to make money, so I’ll do what I need to make money. But. There’s actually a fundamental market problem there like this. It’s not how free markets work. Note first of all, that there are two equilibrium in that statement.
00:14:01:12 – 00:14:32:04
David: Miners will pay for it for. Miners will get paid. So one, why are we assuming that the miners get they pay for it and they get paid is the successful outcome? Why are we assuming this asset the successful outcome is the outcome? Well, we can’t do that. That’s like reasoning backwards. That’s like saying we’re all going to pay our tax because if we don’t, we’re going to be invaded by a foreign country. That might be true, but that doesn’t mean that everyone’s going to pay their tax.
00:14:32:19 – 00:15:04:27
David: And, you know, people if I think part of the problem is that a lot of the people it’s a very naive view of markets, which assumes the job of the free market is to solve their problem. But the job of the free market is not to solve their problem. The free market is just a set of incentives that leads you to a certain outcome. And what they’re doing there is their reasoning backwards from their desired outcome. And they’re saying, because the desired outcome is the best outcome, that’s the one we’re oriented towards. To give you an example of just how wrong this is.
00:15:04:29 – 00:15:35:29
David: Have you heard of the prisoner’s dilemma? Yes. Right. So hopefully people listening have you’ve got two guys and they’re separate in the cops. Go to them and say, look, if you read out your friend, we’re not going to put you in jail for very long. He’s going to go in the tank for 20 years and they’re trying to get both of them to cooperate. If what people were saying in blockchain made any sense. The prisoner’s dilemma would not be a problem because people would be like, well, of course the prisoners won’t rat out each other because that would be suboptimal.
00:15:38:01 – 00:15:57:21
David: Right, like they reasoned backwards. The best outcome for everyone is that everyone doesn’t talk to the cops, so nobody talks to the cops. But it’s like, No, that’s not how a free market works. What happens in a free market is people maximize what is, they maximize their own profits. It’s right to structure. And what that means is
00:15:59:08 – 00:16:11:04
David: that the Nash equilibrium, if you know about game theory, you work through this stuff. It’s a situation in which you will do this regardless of what the other guy does, because no matter what he does, that’s what makes you best off.
00:16:11:21 – 00:16:49:24
Richard Carthon: That’s right. Real quick, I do just want to do a quick side note on this. So back in college or university, I took a negotiation class and the very first day we basically played this game where you had to you the goal was to win, period. And you were a gas station owner. And basically if you both decided to put the same price, you both made the same amount of money. But if one decided to go a little bit lower, they were going to make 50% more than the other person. So you’re supposed to talk, figure out, hey, what are we going to do? And logically, you should both agree because by the end of it you’re going to make the same amount of money.
00:16:49:26 – 00:17:24:12
Richard Carthon: But if one of you were to oh, the other thing was if you both decided to lower your prices, then you would both make 25% of what it was. Right? So you can either make 150 or 25, and logically you’re like, okay, well, we will both come out on top if we just do the same pricing. But you are incentivized to maximize. So therefore, if as soon as one person messes over the other person, now you’ve lost the trust that you’re both going to try to do the lower price and then ultimately you both hurt each other. The point being is that when you’re in an open market, as much as you think logically, hey, everyone should just do the same thing.
00:17:24:15 – 00:17:29:25
Richard Carthon: You’re not. Because as long as there’s a free market and capitalism and other stuff like that, people are going to try to maximize profits.
00:17:30:05 – 00:18:01:25
David: You it’s it’s not the free market what people say proof working proof sake it’s just wrong they’re saying what they’re saying is they’re saying I can’t solve this problem. I’ve got this stuff I need to pay for. The free market will take care of it because it’s value. And they don’t understand they genuinely don’t understand economics and they don’t understand free markets. Don’t do that like these people. They say, well, of course you guys will cooperate or somebody will pay you to cooperate because that’s how like that’s how this remarkable story get this problem. And yeah, it’s not, you know, so.
00:18:02:11 – 00:18:14:26
Richard Carthon: So. David so we’ve addressed two major things and these are two big problems. And I just kind of and I’m sure the audience is curious as well. So how how is it that you’ve now built up Saito to address those two issues?
00:18:16:05 – 00:18:21:10
David: Well, do you want a technical discussion of the mechanism that solves them or.
00:18:21:17 – 00:18:27:27
Richard Carthon: No high level of like, okay, this is our approach to tackling both of these challenges.
00:18:29:03 – 00:18:59:16
David: I mean, basically you fix the incentives. What we have with the first problem is we have something that’s we call it the transient chain. It’s a looping blockchain where you put a transaction on the chain and it kind of loops around. And at the very end, it’s going to pay a tiny fee through consensus that jumps it to the top of the chain again. And the result is that new and old transactions are always competing for space on the chain. And.
00:19:00:20 – 00:19:06:28
David: The people that are making blocks, they maximize their income when they maximize the amount of data they can put on the chain.
00:19:08:24 – 00:19:22:11
David: But if they put too much data on the chain, then they’re paying higher costs than they need to pay. So the economic incentives basically lead to the optimal blockchain size. You can think of it as a form of rent, but it’s a very smart form of rent.
00:19:24:03 – 00:19:56:25
David: We’ve got like PDFs and slideshows and videos to talk about this. It’s called Automatic Transaction Rebroadcasting. It basically also solves a lot of problems on the site. Like the blockchain can never get too big to collapse. So, so big it collapses, right? Because if it gets too big and the cost of supporting it gets really high, the people will make blocks. They actually want to shrink it down because shrinking it down allows them to make more money. So that’s the first solution. The second solution is understanding the problem.
00:19:57:03 – 00:20:28:07
David: The problem is one of value measurement, right? So if we go back to the prisoner’s dilemma, like, what are you cheating on? What you’re really doing is you’re doing some form of work that. Allows you to privatize gains, but allows you to socialize losses. And the socialized losses part are like, well, I’m going to get the staking income, but inferior will pay for fee collection. Someone else will pay for the server that’s supporting like clients on the network, like a theory and they’ve got huge issues with likely support.
00:20:28:15 – 00:20:34:26
David: No one wants to run the servers because they’re expensive. So it’s like, Well, I’ll make money staking, but I’m not going to do that. Someone else can do that.
00:20:36:19 – 00:21:13:01
David: And the solution that we use for this is we don’t have mining, we don’t have staking. We have a different consensus algorithm. And what it does is it measures the amount of money that people bring into the network, and people are paid for collecting money. And the mechanism has the properties of proof of work and the properties of proof of stake. But we don’t have stake and we don’t have mining is something that’s producing blocks. It’s just money. And what’s really challenging for people that say, though, is that this seems like it’s a crazy idea because, like, we’re spending money to make blocks and then we make the block.
00:21:13:03 – 00:21:52:17
David: Can we make some money? Why can’t I just spin this thing in circles like an engine? But that problem is actually what Saito solves. So the problems that Saito solve are with these money only blockchain systems. And we do it basically by if you’re a block producer, you’ve got to pay people who collect the fees for you’ve got to pay them. And if you don’t pay them, it’s going to cost you more money than it’s worth. So the cheapest thing to do is to pay them the money that they’re due. And the end result of this is that if you’re playing this game in Saito, if you were using fees that come from real people, real users.
00:21:53:21 – 00:22:22:18
David: You will make money. But if you’re an attacker, you’re going to have to spend your own money to try to compete, and you’re going to lose much more of that than you can get back. So it’s it’s an economic game. It’s not like a voting game. Proof of work and proof of stake or voting games. It’s like take this money, go out the back door, buy some mining, buy some staking or rent it. Come back in. And whoever has 51%, we’re going to give them all the money. So it’s not like.
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00:22:24:10 – 00:22:49:03
David: So that is too interesting approaches to it, especially the solving the first problem to where you have old transactions and new transactions competing basically for consensus and then getting rewarded for the optimal size. So basically when you go back and look at different blocks on on your chain, they are different sizes, which I think that in itself is unique. And then you have the other piece of it.
00:22:49:10 – 00:23:15:05
David: Where things average out, right? Okay. Like if there’s one block that’s huge, the block producers have the incentive to fold the fees and make the next one slightly larger. Right. Like no one wants a gigabyte block and then a megabyte block. But yeah, it’s like the free market. The profit incentives are what? Regulate it. No, we don’t need a developer we like. Well, I think it’s two megabytes now.
00:23:15:27 – 00:23:23:07
David: Right. So that’s constantly adjusting. And then from the other side of it, you have incentivized.
00:23:25:09 – 00:23:45:05
David: Users who are coming on and using it that don’t want to attack and try to manipulate it because it’s it’s it wouldn’t benefit them to do so. It benefits them to cooperate and kind of work in a synergistic way so that they can optimize and spend the least amount of money while making the most amount at the same time.
00:23:47:00 – 00:24:21:23
David: It solves a lot of problems and it solves a lot of problems because these fundamental issues, the scalability trilemma, which isn’t real, but that’s an economic problem and it’s an economic problem and proof of work and proof of stake. The 51% attack is an economic problem. But what is that? That’s I can buy 51% of votes and collect 100% of the money. So. Well, what is that? That’s privatizing gain and socializing loss. The property that Zito’s consensus mechanism guarantees is you will be paid.
00:24:22:13 – 00:24:54:22
David: If you do 20% of the work, you will be paid your 20% regardless of who produces the block. So State has got these wonderful properties that no other blockchain has. Like you can have a single. Google in the network that is producing 80% of the blocks in the network. And everyone else is perfectly happy because they can’t attack, because if they attack, they will go bankrupt because the cost of attacking the network at scale is so high that they’ll lose like it’s basically inverse.
00:24:55:04 – 00:25:25:07
David: If you’ve got 80% of the work attacking the chain costs you the cost of 20% per block. So why would you do that? One, you’re not going to do it because there’s no economic incentive to try to get that point of leverage. But you like, why would you want to burn money to attack a blockchain that’s making you money? But, you know, you can you can think about it like maybe I’ll throw a really interesting thought experiment, which is a lot of people, which is there’s a lot of people in blockchain.
00:25:25:09 – 00:25:46:03
David: They say decentralization, decentralization, decentralization. What is the value of decentralization? That’s a technical term, but almost nobody who says decentralization matters is actually thinking about, like, the topology of the network. They’re using it to imply something else like.
00:25:50:01 – 00:26:04:10
David: When I came to the clinic. They imply, I think when you think of decentralization is freedom and not being one entity owning it and you having a lot more control of your own information, etc..
00:26:04:16 – 00:26:36:20
David: More that it’s it’s basically it’s an economic property called openness, which is not exclude ability, which means everyone gets to participate on equal terms. So, you know, if you want to use the network, you’re on the same terms as everyone else. And if you want to participate in running the network, you’re participating on the same terms as everyone else. And in proof of work and proof of stake, it’s very, very easy for those properties to get destroyed, right? Like proof of work the bigger blocks get, the harder they are to move around the network.
00:26:36:22 – 00:27:09:26
David: And there’s a bunch of slow miners that get them late and they’re just not profitable because they’re always mining on the last block, you know, or you get like three proof of stake cartels and they’re teaming up and they’re doing miner extracted value and they’re way more profitable than everyone else. And so they use the fact that they’re huge to just drive the profits for everyone else and around. And we get like leading finance figures like this one staking as a service company that’s basically cleaning up. It’s going to be a huge monopoly and it’s too there’s no solution for that.
00:27:09:28 – 00:27:41:15
David: And but people say, oh, decentralization. It’s like, no, it’s openness, right. In 94. But go back to the incentive problems, because a lot of these incentive problems well, in economics, they’re called collective action problems. And they’re caused when you have openness and you have money at stake. Openness means you don’t have a government, you don’t have a trusted third party deciding what you can choose. There’s no police. Like if you choose to lower the cost of your gas, the cops are going to come and throw you in the slammer.
00:27:42:07 – 00:27:54:25
David: It’s an open system. You can do whatever you want. It’s the same in blockchain. If these people and so there’s these economic terms, economic concepts that say to actually protects. And the problem of proof of work and proof of stake is that they don’t.
00:27:57:11 – 00:28:14:23
David: So with getting away from the concept of proof of work and proof of stake, which you say that you’re that Saito is creating its own mechanism to combat against both of these that truly help solve the challenges that have been talked about today. Or how would you describe how would you describe that?
00:28:15:08 – 00:28:24:26
David: Either solves it. It solves it kind of as I said, the the work in the system is going out and collecting money. So what happens is people go out and collect money.
00:28:27:03 – 00:28:58:15
David: People were really good at that. They’ll get a chance to produce a block. And then the network plays a game that picks someone who wins. And the person who wins is not likely to be the block producer. Sometimes it will be, though. So everyone who does the work of collecting money has a chance to get paid from the lottery. But no, you know, it’s the block producers like, Oh, I want to produce all these blocks. I’m attacking the network. They’re spending all of their own money to do that. But their chance of getting it back is very small. So what Saito does is it does something.
00:28:58:17 – 00:29:00:22
David: The proof of work and proof of stake and even approach.
00:29:02:16 – 00:29:35:10
David: It guarantees that if someone is attacking the network, it will always cost them money. Unless they are doing it with fees that are paid for by other people. So it’s basically is the to guarantees this fundamental property of bitcoin, which is that you can, you know, if you want to wait, you’re making a transaction. You don’t know if this guy’s going to stab you in the back. So you want to wait ten confirmations? 20 confirmations? Well, we can guarantee that that cost will hold.
00:29:35:12 – 00:29:54:09
David: And so you can wait however many you need to be safe. That’s not the case with Bitcoin is not the case with privacy. It’s the case until someone has 51% or until the network loses the core properties of openness. And all of a sudden there are a couple of big players who can decide to do what they want.
00:29:57:02 – 00:30:13:24
David: It’s a really interesting concept. So your take, you’re making it more secure in the sense that there’s more levers in place. For the future levels in place for people to have malicious. Actions that they can take.
00:30:14:12 – 00:30:45:23
David: Think of it this way. Proof of work and proof of stake. It’s a voting system, right? The vote is on who gets to make money. That’s what I’m hashing. That’s what I’m staking, because I want to make a block and I want to make money. And if you’re if your chain gets orphaned or your block gets orphaned or you don’t, you’re not making any money. So we’ve got this big back door, which is the free market. You go out that you take your money, you go, you buy some cash, come back. And whoever’s bought the votes, well, they get the money.
00:30:46:22 – 00:31:17:17
David: That’s why the cost of attack on proof of work and proof of stake is a maximum of about how it’s about half of the fees in the network. Saito. You know, if you get to 51%, you can do whatever you want with blockchain because you can always get all of the money. With Saito, our cost of attack is never negative. It’s always positive. So. If the blockchain is doing, if you’ve got a proof of work, blockchain doing 100 K in fees a day, you’ve got to say to blockchain doing 110 fees a day. We’re twice as secure as.
00:31:18:24 – 00:31:57:17
David: In reality, actually, the cost of attack is much higher than 100%. But it’s revolutionary in the sense in terms of solving the economic fundamentals. And one of the ways we have to do that is we the consensus mechanism doesn’t have this back door. Right. Because what do you do? Like the proof of work. You can’t control what people are doing with hash power. You can’t control who is buying and renting and colluding. And, you know, the consensus mechanism can’t see that it’s literally just have some money. Oh, who has the votes? So it’s these very simple and gamble economic mechanisms with Saito because the work is collecting money.
00:31:57:19 – 00:32:30:03
David: There’s something that’s really interesting. The only way you can attack that, like the only way you can attack that if you don’t have people giving you money, is to reach into your pocket, get your own wallet, and start spending your own money. And the way that the payment lottery works, if you’re spending your own money to produce blocks, you’re bleeding out to other people in the network. So there’s always a cost. And in fact, if you want to attack the network, that’s great because you’re literally going to be paying everyone in it. So like it’s a revolutionary and profound shift.
00:32:30:05 – 00:33:01:04
David: And one of the changes is we go away from having this backdoor outside market to a consensus mechanism that is measuring something that is objective and everyone can agree on, which is where did this money come from? And the technical changes are like some people say, oh, it’s complicated because they’re thinking proof of work is just like natural. And they’re thinking that like having this outside market where people can gaming conspire is normal. And it’s like, no. So it was much simpler. It just says, if you’re making a blog.
00:33:01:20 – 00:33:11:20
David: Show us the work. Show us who’s putting the money into the box. Where does it come from? And we’re going to play a game that guarantees that if that money is yours, you’re going to lose it.
00:33:13:15 – 00:33:22:17
David: And the question is, how much can we force you to lose? And that’s the really interesting security question, because we can force you to lose more than certainly more than 50%.
00:33:23:14 – 00:33:51:28
David: Right. So. Well, I’ll tell you what. And then this is when you when you look at foundationally and addressing these blockchain issues, say those really tackling them head on and coming out with a like you said, a revolutionary approach to attacking these. But for for someone who’s listening to this, they’re like, man, this is really interesting. I really like this approach. I really want to potentially build on this or use this, etc.. What are some first steps they can take to start participating on the sale of blockchain?
00:33:52:28 – 00:34:16:14
David: Come to see total IO. We’ve got an arcade so it’s saying itto dot io forward slash arcade and people can actually use the applications that exist on the network. So it’s a bunch of right now it’s heavily gaming because we’re we need transaction volume, we need fee throughput for the network to be secure. So that’s what we’re building. But yeah, people can use the blockchain right now
00:34:18:10 – 00:34:51:08
David: because there’s some, there’s like a lot of wonderful things that happen when you fix economics. Like, I’ll give you an example, Richard, when you fix the economics, well, we’re fixing the 51% attack. And the solution is you find a way to give the money to people who are earlier in the network who collect the fee. Right. So taking money away from the block producer and giving it to the routing node, it’s like a tax. But all of a sudden, not only have we solved the 51% attack here, but we’re paying these guys who were earlier in the routing network.
00:34:51:19 – 00:35:34:29
David: So we’re paying in fear because if you were making a transaction or you’re running an application in a Etherium, for instance, you’re connected to ensure and you send your transaction to them. So I would say, though, if you send your transaction to someone, you’re paying them because they get a portion of the fee statistically on average, because that’s how you have to tax the block producer say you’re making a block, but you’re making it with this with this work that these other guys did payment for. So you’ve got to give them a on payment. What that means is, you know, in proof of work, not only is the security much higher in Saito, but in proof of work, you’re spending 100% of network revenue on average on hash power, but you’re just burning it.
00:35:35:18 – 00:35:54:01
David: And so what you still got to pay for in Shura, they still need a business model. So either they’re going to add on extra fees or they’re going to do what firms do, which is they’re going to say, well, we’ve got these transaction fees and we’re going to sell them to a guy because he’s going to give us a kickback. No, none of those are good solutions.
00:35:56:00 – 00:35:56:24
David: If you
00:35:58:17 – 00:36:29:08
David: you know, if they if they monetize the data, the network loses its property bonus. No one can come in and set up a server because like, we are not going to make any money. So this property of openness, of non exclude ability, the free market is going to destroy it. That’s actually is what we’re seeing with all of the scalable proof of work and proof of stake blockchains. The more they scale, the more the free market is having to monetize data and close access to the ability to make money. But yeah, like going right back to the original point in fury and say to what makes money.
00:36:29:21 – 00:37:02:22
David: So if you are using the blockchain and you connect to a server and the server is running some games during poker, we got a bunch of board games. If people are playing that game, they’re paying the server because they’re making transactions and they’re giving them to the server. So all of a sudden the money that’s flowing into A6 and mining is now flowing in to data centers and ISP’s and data provision. So the things we can use the blockchain for, we can use it for a lot more because like we don’t need to rely on volunteer nodes to run these P2P data.
00:37:02:27 – 00:37:28:25
David: You know, like if you want to make money, set up a server and tell users to come and connect to you and it’s going to cost you. You’re going to have to spend money on a good server and you’re going to have to spend money on bandwidth. But like that’s our form of mining. So it’s like the stuff that’s useful is the form of mining, not the stuff that’s useless. So there’s a paradigm shift. It’s, it affects the entire, the entire way the blockchain works.
00:37:29:24 – 00:37:55:07
David: And you got to get people to get involved, to participate. And by getting people to do these transactions and be a part of it, they can participate and truly earning the money that’s incentivized by utilizing this blockchain. So I think, again, that’s a really cool approach. And David, you’ve given us a ton of really good information today. But you know, as we kind of wrap up today, what is a final thought that you want to leave with all of our listeners?
00:37:57:00 – 00:38:00:26
David: Um. I would say that to us.
00:38:02:27 – 00:38:31:00
David: The problems that Saito solves are not addressed elsewhere in the industry. And, you know, we’ve got a video that someone put together. Have you seen ready? Player one. Yes. It’s a fun film. I think it’s actually Spielberg’s best in ages. But there’s that scene with the race with Percival where, you know, they’re having the race and all the cars scream off and he turns around and he starts driving backwards. And that’s what say to us.
00:38:32:29 – 00:39:04:18
David: We’re in some ways, we’re a bet on proper economics and ideas. But for everyone who believes in the project, it’s a revolutionary paradigm shift on the on the scale of Bitcoin. And so I’d encourage anyone who is really interested in how do we scale the blockchain to come and learn more. There’s a ton of substance. We’ve got lots of videos, white paper, all of that stuff. But yeah, it’s not easy. We’ve got a great telegram group where people can come and ask questions too.
00:39:05:23 – 00:39:23:27
David: But yeah, it’s don’t assume that because people are throwing these technical attention there. Don’t assume that because people are saying this. They actually know what they’re doing. They generally don’t. A lot of what passes for technical progress in proof of stake and dags and proof of work circles is some developer.
00:39:25:22 – 00:39:39:03
David: Hard coding economic variables. And saying, okay, we’re going to do this and it’s just not going to work. So, yeah, come learn about data. It’s a bit of a rabbit hole, but if you fall down, you’ll end up in a much better place.
00:39:40:15 – 00:40:13:01
David: Excellent. Well, you did definitely given me a lot to think about. And I think the the approach there’s there’s definitely a lot of things that challenge the the norms that have been set up as current crypto reality. So thank you for great conversation challenging some my own thinking I’m sure challenge a lot of the thinking of our listeners out there. I know I’m keen on learning a little bit more about what’s going on with Saito. So everyone listening, make sure you go check out as ait0 that I owe that. Saito David, thank you again so much for spending some time with us and of course, for anyone listening.
00:40:13:10 – 00:40:14:03
David: Oh, you have one more thing.
00:40:14:24 – 00:40:27:06
David: No, I was just going to say thank you. Hopefully, you know, people who’ve done Game three that kind of get it, people who don’t, they often have problems with this. But it’s but it’s it’s optimal. If everyone pays, it’s like, yeah, but you don’t want to,
00:40:28:24 – 00:40:31:02
David: you don’t pay. And they’re like, Oh, okay.
00:40:32:02 – 00:40:39:12
David: I absolutely will. Everyone make sure you go and check again. Check go check out Saito that I know and everyone listening stay cryptocurrency.
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