hi I'm James McGuire and our topic today is blockchain the distributed database technology that's getting a lot of hype a lot of investment to talk about that I'm joined by Bernard golden Bernard how you doing today I am excellent thank you so much and I know that Wired Magazine has anointed you one of the top 10 experts on cloud computing anywhere uh which is a nice honor in addition that of course you wrote the uh the dummies guy to Amazon web services which I have on my bookshelf uh and now you have launched an educational course about blockchain so you're definitely the person to talk to about this well I am I'm I I'm somebody to talk to about it and I'm probably a good person to talk to about it because the reason I put the course together was I see tremendous potential for blockchain but for the average person who who approaches it and says what do I do it's not easy to learn about it you know you end up going Here There and Everywhere right well I think it's a lot of the information is very new and it's interesting to me in terms of like you know what it is like there's a lot of banks getting on board uh there's a lot of investment in it and there's also some folks that are you know interested in it perhaps for not as legitimate a means um let's talk a little bit about actually what it is I mean what is blockchain is in that in that 101 primary mode what is blockchain what what does it help us do well blockchain is a way to capture transactions and make them immutable and I'll come back and talk about immutable and to achieve consensus about that those transactions and the data in those transactions in a way that's decentralized and not subject to the central control or the or the uh central control of an individual party if let me give you right yeah well let me give you an example so if I want to write a check to you or send you money through and that's a trusted party that has to be in the middle of that to make that transaction happen well you you cut out a little bit repeat that please so if I want to send money to you I have to do that via a trusted institution a bank right y I get my money that's where my money is stored and then I give it to you and let's say it's not cash which is a bearer currency but let's say it's a uh check or it's a uh debit card transaction or something like that right both of us have to trust that that bank is accurate and legitimate and in particular you right because let's say I show up with my card and say you know James you know you run a gas station I'd like some gas you have to trust that the card that I have comes from a legitimate organization that can V validate that there's money there right I've got to recognize the challenge the challenge about that is well there's many challenges depending on the circumstances but one is can you trust that bank and you might say well of course you can trust that bank you know I mean it's uh is you know most of these institutions have at one time or another been engaged in fraudulent activities they may not have affected your particular bank account but they've affected things like for example uh there was a huge Scandal a few years ago about basically fraudulently setting the rate of What's called liore the London interbank right uh rate and that's used as sort of The Benchmark rate against which many many financial instruments are set including mortgages right many mortgages are set against that well basically these Banks were all conspiring to set the rate at a at a level that was convenient for them and made money for them gotcha I mean hundreds of millions of dollars and probably hundreds of millions of people were affected by that fraud so that's my point about centralized control blockchain uses its mechanism to say to take that out of the hands of any individual party it's a DEC centralized consensus with many parties participating in achieving that consensus and so you if a transaction goes across blockchain you can trust it even even if you don't trust me if it says it came across and it's transfers value to you you can trust that the system was uh uh trustworthy without relying on any any individual party right of course and it's very resistant to be an altered when the record is made it it's it's hard it's not impossible to alter it and that's the immutability part that I mentioned and said would come back to so once a transaction is placed into the blockchain it goes through a process whereby excuse me essentially gets it gets baked into the flow of transactions and it's virtually impossible to go and change that and you know that's important because there's many many other types of fraud rely on sort of somebody going in and fiddling the books you know I mean it's authentic it's authenticated by mass collaboration which is interesting idea yes that's exactly right and so uh it makes it immutable and just about impossible to go back and change I mean you would have to for the person to go a person let's say an attacker to go back and change that they would have to expend an enormous amount of money in the form of processing power to to achieve that to the point where it's it's it's just not worth it and uh so why why is it getting so excited you know why is there so much excitement about blockchain now it's you know there's a lot of possibilities there and as a side issue of course it's separate from Bitcoin but it it enables Bitcoin and that it's uh it's distributed database the thing I find so interesting about Bitcoin is is you know it's a cryptocurrency not issued by a nation state um which is sort of an historical moment the idea of form of currency not backed by a country but actually you know backed by you know this information system yeah yeah you're exactly right well Bitcoin is a is a digital currency or sometimes called a cryptocurrency because underlying all of this is cryptography that's what makes it all secure right that's what achieves all of this this um uh decentralized consensus so some people say it's call it a cryptocurrency it is quite interesting that this is basically created by this computer system that has no owner that is not subject to any particular National laws right with some provisos about that and you know we can we can get on regulation maybe a little bit later it's quite important but yes it's created not it's not created by any national mint any national you know there's no Department of Treasury cranking out Bitcoin underlying the Bitcoin which is a store of value and a way to transfer value is the Bitcoin blockchain which we were just talking about right now the interesting thing about blockchain those characteristics I talked about like its immutability its decentralized consensus its ability to store data and not only with immutability but to store it securely so you could anonymize it or make it private all of those things are very interesting characteristics for many applications Beyond cryptocurrency so for example you might say you know you and I are going to agree that I will sell you a piece of property well obviously the cryptocurrency might be for the fee which would be great but there's typically a record of a you're talking about real property in other words houses or land and there's a deed and you'd want to transfer that as well and so you could capture that document into to the transaction stream and say on this date at this time this piece of property has validated by this deed was transferred from Bernard golden to James Maguire here's a record of it and that would become the canonical record of that deed it would say it own by James sire and I couldn't go back and this has happened many times I couldn't go back and say oh well I'll re I'll resell that piece of land to someone else or that piece of property right and I also couldn't go back and change it so you know it wasn't uh owned by you it was owned by me and those things happened many times so the ability to have um verified transactions with validated data that cannot be changed it's immutable is quite attractive for many other use cases other than digital currency and so what's happened is organizations and people have said let me design new blockchains to take advantage of those kinds of characteristics but to be better suited or to be well suited for other kinds of use cases because that real property and so forth is isn't a great natural fit for the Bitcoin blockchain for a variety of technical reasons and so people have created other blockchains that share those characteristics that take advantage of those kind of characteristics but are better suited for other kinds of use cases excuse how many how many blockchains are there out there if it can be even numbered well there's um uh many blockchains there's probably I would guess half a dozen to 10 sort of significant alternate blockchains that have been created and most of those are really devoted around business use cases and so you've got a variety of those uh that are supported by foundations or are uh sponsored by private companies again directed towards supporting those kinds of characteristics or taking advantage of those kind of characteristics to support particular use kinds particular kinds of use cases H you know let's let's talk about some interesting use cases I think it's fascinating you know a lot of large financial institutions they're getting on board and I know erston young has provided a digital wallets to all their their Swiss employees they they've installed a Bitcoin ATM in their office in Switzerland presumably backed by blockchain um what what are some other you know interesting use cases for blockchain uh well um so these are um these are some use cases that are sort of in the Zeitgeist and they may be further along in terms of being developed for uh production or they may be being prototyped but uh one that's quite interesting um and I should have said one of the other characteristics that about blockchain is um when you submit a transaction it dep it gets written into a block get put in the blockchain that can happen quite rapidly so that transaction hits the blockchain and it can be available within a matter of seconds or minutes and what's interesting about that is there are many Financial transactions that take a really long time to occur so one that's common is uh remittances you someone in one country wants to send money to a friend or relative in another country and that's quite challenging because it typically the that payment typically has to go through four or five different financial institutions Each of which imposes its own time delay in there Each of which has its own computer system to let it clear to let it clear and also probably to take advantage of the float you know right love that so forth and they often charge a lot of money for these transactions and everybody's you can kind of think of it of of this written mittens thing and many Financial sort of uh value chains as being kind of a stream of money and what happens is every one of those parties that's involved in it dips its cup into the stream to siphon off a little bit of it and say I'll you know I need you got to pay me something for this right so that's one use case is remittances and that's typically personto person but the business equivalent of that is foreign payments letters of credit and so forth and so in this example maybe you know James you decide what the world really needs is a James Maguire branded fidget spinner and indeed the world does need that yes exactly I'm sure you're working on it even as we speak and so you might want to have that manufactured in China probably you would maybe sure and so you need to have a way to make a payment to a Chinese manufacturer to to send that and so um you would you know typically go through a letter to credit process or something depending on how big a company you were and how big company the manufacturer is and so forth and again you're sort of back to a lot of paperwork has to get shuffled and some of these are actual physical documents that have to get sent around and then they get digitized and so forth and so on and again it can take days to get payment across or or even longer and you know one of the other problems with that is every time somebody touches it that's an opportunity for a mistake for an error to creep in you know you send $10,000 but the bank on the other end somebody fat fingers it and says it's $1,000 and your fidget spinner manufacturer says Hey where's my other $9,000 right let let me tell you about a really interesting use case that's somewhat analogous to that and it's contract manufacturing by which I mean Hardware manufacturing so you know companies like Cisco or logit Tech or all the way down to just about you know two guys in a dog or two people in a dog right you know they'll design a product but then they'll have it manufactured by some other third party and you know foxcon manufactures iPhones and so forth and so on right well the reality is foxcon then turns around and goes to its subcontractors who are typically maybe located nearby and those subcontractors go to other subcontractors to really literally you're down to two guys and a dog in in a place who do some little piece of it that subsequently get well the challenge Small Time contractor pardon me a very small time contractor you're talking about yes who is participating in this value chain this supply chain well right the problem is you know there may be a very large order from a very large company that goes to foxcon but for all that money to flow down through all the payments and the you know the receivables and all that to get to that small company is very challenging and those small companies often have real cash flow issues right I know I've received an order but I've got to go manufacture this fidget spinner thing or whatever it is right but I don't have the cash and I can't get the cash because you know so forth so um one of the contract manufacturers it may have been foxcon I'm not 100% sure has contracted with a peer-to-peer lending company in China for those people who lend into that for that to be lent to people in this in the supply chain of this contract manufacturer so that's a way for people to say you know there's an order for fidget Spinners I'm going to put in some money for that I'll get a return on that that money can flow very quickly across blockchain to that person and it's validated all the way through because you're capturing the contract of from each of the parties and it's all based on one you know one large contract and so that's a way for money to flow from lenders peer-to-peer lenders to that you know two guys and a dog that need to manufacture one little part part of it and the people who are making the loan are getting a better rate of return than they would if they just put their money in the bank so it's a very interesting blockchainbased use case now that's one that's sort of in the in development stages yeah but you can see that that uh solves problems and one of the I I refer to blockchain as an innovation platform and by by which I mean is it's a new method of of executing some kind of transaction it's a digital transaction typically that replaces an atom based one you know you can look at Kindles as Innovation platform or you can look at cloud computing as Innovation platform blockchain is one as well and often you know Innovation platforms typically harm incumbents and Industries so for example cloud computing you know there's problems with HP and so forth and so on but what it an innovation platform also does is it enables new use cases that could never have occurred so for example Spotify you can't imagine Spotify operating in a world where you know they have to go get servers from HP and build data center well right meaning that they enabled new use cases that really couldn't be done couldn't be supported under the old meod doing things the Innovation platform enables it well this peer-to-peer financing thing could never have been done Absol blockchain you know it just would have been too difficult to capture all the transactions into the system I mean you'll notice that like go go I'm sorry I'm sorry some of the people that are losing out there some of the older financial institutions are there who who is the loser in that process well you know there's some losers in that you know if you look at the scale of all of these kinds of supply chain Financial transactions some of them are large enough that they can get the attention of you know local banks or financial institutions something like that right for th for that portion of them of the of the overall transactions yes a bank would be hurt but there's also a large number of transactions that today aren't are sort of uh over D they could never get to a bank a bank would say that's too small it's not important enough and that can now be enabled and this is very much in line with um Clayton christenson's theory of disruptive innovation where you know a new less expensive alternative comes into a market and IT addresses people who are over served meaning they're not you know the current the current uh Solutions are just too much for them right so um so it some of them would harm existing Financial institutions some of them would be net new never could have been done kinds of transactions what about some of the uh the controversies around blockchain obviously it's it's a new emerging technology it will it will disrupt things not not everyone trusts it as much um some people think it's going to fade away I mean what what do you see some of the controversies around blockchain well um you you can look at it from the point of view of anytime there's Financial transactions you encounter Regulatory Compliance and you know there are some people who feel like Regulatory Compliance you know sort of the crypto Libertarians who kind of go you know the Federal Reserve Bank is is you know bogus and and you know that sort of thing I I I'm not talking about that I mean from at least from my perspective there's very there there are strong reasons why there is financial compliance regulatory regimens that's because there's been fraud and so that's been created to avoid that kind of thing so whenever a new wit method of of sort of financial Arrangements comes into play the people who are current who are you know regulating the current Arrangements go well how does that affect this how you know is there a way for us to ensure that these things are safe and not subject to fraud and so forth so so one very large one is you know will the Regulatory Agencies um recognize and support this or will they look at it and say no this is you know there's something about it that's doesn't align with our compliance regimen or is illegal even you know it's more than just that so that's one very common uh concern or or drawback or whatever you want to call it right consideration about it right um another one that's uh quite challenging is uh you know you want to carry on these business relationships and I just give an example with this crowdfunding thing you need to capture for that to work you need to capture that agreement in something that can be automatically uh executed through some sort of blockchain transaction right in other words I want to put a bid in on somebody man facturing you know 100,000 fidget spins right so I I say okay I've got some money in my bank account or maybe I've got some cryptocurrency but I want it to go to that thing not just sit in my account or go off to something else so there's got to be something that can receive that and go oh there's a a bid being place for that fidget spinner manufacturing and can then say okay how does it stand you know how does James's bid compar to Bernard's oh James is the one that will win and then direct that money to that manufacturer right because the whole thing is that this runs on a blockchain it's all automated transactions there's no party that in sits in the middle and so forth so designing these business relationships the the term that gets used a lot is smart contracts designing these you know is relatively challenging and you know you want to make sure that they're bulletproof that they're secure that you know you can't submit this thing and then I somehow intercept it and go oh instead of it going to the fidget spinner manufacturer put it in my Swiss bank account because that would be cool right so the design and execution of these smart contracts and this is really in its infancy I mean these there's discussion about it and you need it to be in place but it's not like there that there's a long track record of them so that's a consideration or a concern you know can we capture these kinds of business relationships these contracts in automatically executing code and have it be reliable and secure and so forth and so on that's another typical consideration you know it see thinking about you know the the the future of blockchain and I I read this thing in the Harvard Business Review I thought suggested the blockchain is is a foundational technology and then and thus quote has the potential to create new foundations for our economic and social systems it went on to say that while foundational Innovations can have enormous impact it will take decades for blockchain to seep into our economic and social infrastructure looking ahead to the the future of blockchain chain do you think it's actually going to take decades for this to to truly take off you know it's it's uh interesting and great that you brought that up I actually did a video about that particular article talking about it okay and they called their Theory transformational they didn't use disruption but you know transformation or something like that and um they they developed a sort of a theory about that and as you said they said these things are have are profound but they take 30 or 40 years to play out right so I analyzed it and I first thing I did was I sort of integrated it with this theory of Clayton Christian disruptive innovation how does it relate to that that theory and basically it's an extension and so I talked about that the thing that I I think they're I disagreed with them and this is the reason I I believe they're they're reasoning from an analogy that was appropriate for the time of that example and the example they used basically was tcpip in the internet uhuh and they said hey you know tcpip was invented in the late 60s but really when did you know websites really get going well the early 990s and when did you know huge business get done out late 90s so you know it's 30 years 40 years and I think that's that's quite accurate I mean it's it's an accurate assessment of it but it doesn't reflect technology today technology today moves much much faster in part because it can run on that that thing that was laid down it's kind of the equivalent of or analogy might be the interstate highway system you know it took a long time to build that out right but people started innovating on top of it and that moved a lot faster than the highway so people started putting together you know fast food chains and so forth and so on and today we're now in a time when these things diffuse these techn technology Innovations diffuse so much faster I mean you know you can argue that apple inv the smartphone now there were other things before but you know the previous the previous uh dominant platform was Blackberry which was basically a phone with email and didn't really do much beyond that so you know Apple sort of invented the smartphone well that was 2007 right you know they sell they sell 180 billion of those things and the smartphone has completely revolutionized Our Lives you know within a decade right and so you know that's so the I don't agree with them be in this in the time scale they estimate because I believe that we're much more adapted to adopting technology than during the time of when tcpip came along do you think there's going to be some resistance to blockchain because it's decentralized and to a certain extent it takes power away from some some of the you know individual Nation or Bank that are based in certain areas or it's it's separate from Bitcoin you know Bitcoin then becomes this cryptocurrency that no one no no Nation owns uh is do some look at blockchain and go look we don't want to lose control to that regard well absolutely I mean you know anytime you come along and say hey let's disrupt uh the existing system uh you know there's going to be people who go wa wait a second particular those who are prospered under the current system so uh you just to talk about the current piece uh there are certainly countries that are hesitant about it or or dead sets against it and those are often comp countries that want to impose controls on the use of their currency or Capital controls so you can't export Capital out of those countries right so for example they would not be that enthusiastic about blockchain or Bitcoin let's say uh it's not yet at this stage because really Bitcoin is so small in the overall scale of the global economy right but you can imagine central banks not wanting the currency to be get out of their control you know have a significant part of the current you know Trend business transactions right so on the other hand there are central banks that are looking at it saying well you know this digital currency stuff is is the is the bomb you know it's fantastic right we'll put one together for ourselves and for example the UK Central Bank has said let's explore putting together a a cryptocurrency pound and Canada has looked at it as well so you know it's it's and and by that they would keep control of over it because they could still do things like you know let's increase the money supply when times are tough because that'll make people more likely to spend you know because they have they have uh uh's what I'm looking for policy uh measures they want to be able to take right Economic Policy right so you know that's another kind of reaction to it it's like you know it's a great idea but I'll put it under our control and and by the way there's other reasons for that as well in that um you know they they one of the benefits of a digital currency one of so one of the things about another characteristic of the Bitcoin blockchain is it's completely transparent every transaction gets put across there and you can look at it right now you can't necessarily know who it was because everybody's got a digital Identity or crypto identity but you can see those transactions that kind of transparency is something that regulatory agencies are very interested in now for most business transactions in the world you're not going to want to make it so that anybody can see it right because for example if Boeing submits a bid on some kind of Defense contract they don't want uh right loed Martin to be able to see it but you can very much Envision a situation where the parties to a contract you know Boeing and the federal government both can see it but also the a regulatory agency that needs to track the payments or needs to track the commercial conditions or something like that can also see it and that the system is set up so that they have the ability to access it while other inappropriate parties don't have the access to it and again that's that's done via cryptographic means and so forth and so on right so that's um so yes there are people people in agencies I shouldn't say people but the agencies and governmental uh agencies governmental entities that may not be enthusiastic about it but there are others that have reason to be interested in it and supportive of it now and what what that you end up is you can end up with a governmental body that has entities within it holding very different viewpoints about cryptocurrency or about blockchain some of them think it's great and some of them are like you know power yeah well and also you know for example Bitcoin uh you know there are some organization some governmental agencies that are kind of interested in it for lots of different reasons but if you look at the police they're concerned that it's being used for you know criminal activities right so they're not they're not so enthusiastic about it interesting you know ber that's a lot of good stuff um I think you you said it it's I to track how this goes in the years ahead I think it is gonna have a big effect on things absolutely you know and and a little about your course if people wanted to find your course where would they find your course yeah well uh what I've done is uh put up a place where they can go find out about it they can uh sign up they'll get two free hours of training so it's you know there's stuff that they can learn about blockchain at no charge and they'll learn about the overall course as well and what I'd like to do is maybe give you that link and you can put it into the uh notes of this hangout so people can go take a look they can just click on it and go and find out about it and that that would be great I'd love for them to learn about it all right excellent uh Bernard thank you very much appreciate it James thank you so much for inviting me on and talking to me about blockchain today all right byebye
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