Speaker 1: But knowledge to work and grow your business with c
Speaker 1: i T from transportation to healthcare to manufacturing. C i
Speaker 1: T offers commercial lending, leasing, and treasury management services for
Speaker 1: small and middle market businesses. Learn more at c i
Speaker 1: T dot com put Knowledge to Work. Hello, and welcome
Speaker 1: to another episode of the Odd Lots Podcast. I'm Joe Wisenthal,
Speaker 1: Managing editor at Bloomberg Markets. Sadly, I am alone today.
Speaker 1: My partner in crime and colleague Tracy Alloway as away,
Speaker 1: so it's just going to be uh me on today's episode. Uh. Nonetheless,
Speaker 1: I am very excited about today's episode because we're going
Speaker 1: to be talking about money. We're going to be talking
Speaker 1: about digital money, and we're going to be talking to
Speaker 1: someone who has created their own currency. Everyone is for
Speaker 1: most people are probably familiar by now with Bitcoin, the
Speaker 1: cryptocurrency or digital currency that was started by someone under
Speaker 1: the pseudonym Satoshi Nakamoto. But of course Bitcoin is not
Speaker 1: the only digital currency in the world. There are hundreds,
Speaker 1: and in the case of many of them, the creator
Speaker 1: or creators are well known, and we have the creator
Speaker 1: of one of the new coins on the show today.
Speaker 1: It's a coin that has received a lot of attention
Speaker 1: a lot of enthusiasm in the digital currency community. It's
Speaker 1: called z cash, and we are going to be talking
Speaker 1: to Zuko Wilcox. He is the CEO of the company
Speaker 1: that has created z cash, and we're going to talk
Speaker 1: about how you create a new currency, why you create
Speaker 1: a new currency, why anyone would use it, and in
Speaker 1: general this sort of fascinating new world of digital currencies. Zico,
Speaker 1: Thank you very much for coming on, Thank you for
Speaker 1: having me. Glad to be here. Yeah, So, uh, why
Speaker 1: don't we just jump right into it? Uh? What is
Speaker 1: z cash. It's a cryptocurrency like bitcoin, and it's different
Speaker 1: from bitcoin in that it adds some cryptography. It uses
Speaker 1: some improved cryptography to make it so is that your
Speaker 1: transactions are not traced in the blockchain, invisible to the public. Right.
Speaker 1: So people currently think of bitcoin as being you know,
Speaker 1: anonymous secret um secret digital transactions. But people will say
Speaker 1: that it's not really that anonymous, that you could sort
Speaker 1: of figure out, um, who is buying what, and you
Speaker 1: could trace purchases and transactions. Ultimately, explain why this explained
Speaker 1: the misunderstanding and explain the innovation behind z cash, Uh
Speaker 1: that allows it to be untraceable. Yeah. The misunderstanding is
Speaker 1: that bitcoin doesn't require the use of your your legal
Speaker 1: name or your home address or anything like that, uh,
Speaker 1: in order to transfer bitcoin currency from one person to another. Instead,
Speaker 1: it just uses these cryptographic, random looking strings to represent
Speaker 1: your account identifier. And so in the early days, people
Speaker 1: thought of this as making it anonymous or making it
Speaker 1: so that people couldn't tell what you were doing with bitcoin. Um,
Speaker 1: but that's actually a mistake. It reminds me of the
Speaker 1: early days of the Internet because I P addresses. They're
Speaker 1: just four numbers with a dot between them, right, and so, uh,
Speaker 1: there was a cartoon that said on the Internet, no
Speaker 1: one knows you're a dog. Um. People thought that it
Speaker 1: was inherently impossible for people to tell what you were
Speaker 1: doing with the Internet, And now we know that's that's
Speaker 1: quite wrong. And we also know that with bitcoin nowadays,
Speaker 1: it's quite wrong because the Bitcoin protocol leaves a complete
Speaker 1: trace of all of the transactions between all of those
Speaker 1: Bitcoin addresses. What did you accomplish with this currency and
Speaker 1: sort of the you know, computer science breakthrough that solves
Speaker 1: this problem. Ah. So the change we made in z
Speaker 1: cash is that the transactions are optionally encrypted using cryptography,
Speaker 1: so that no one who's looking at the open public
Speaker 1: blockchain can see the details about which address the money
Speaker 1: came from, to which address it went, how much was transferred, UM,
Speaker 1: and UM other transaction data like the memo field that
Speaker 1: you write in what the purpose of this payment is. Now.
Speaker 1: One of the reasons people are skeptical about digital currencies,
Speaker 1: or maybe they're negative on them, is they say, well, yes,
Speaker 1: there may be some justification for them, but you know,
Speaker 1: the only thing it makes sense is for crime and
Speaker 1: circumventing governments and so forth. And then you come along
Speaker 1: and say, ah, yeah, not only have we built on
Speaker 1: top of these digital currencies, but we've even made it
Speaker 1: more anonymous, which would lead people to think that so
Speaker 1: they've just made a currency that's even better for crime
Speaker 1: and the black market. Is that what your currency is
Speaker 1: good for? No, that's what That's what a lot of
Speaker 1: people sort of jumped to. But that's not what it
Speaker 1: gets used for in practice. UM. Neither z cash, which
Speaker 1: is brand new UM. It just launched at the end
Speaker 1: of October, right, Yeah, it's only been out there for
Speaker 1: a few weeks UM, but it's gotten this incredible uptake
Speaker 1: all across the world. There are thousands of UH computers
Speaker 1: and probably more than a hundred countries right now that
Speaker 1: are running z cash UM and there's no reports or
Speaker 1: even rumors of any use of it for anything illegal.
Speaker 1: And I remember this when the same UH sort of
Speaker 1: question was asked about bitcoin, like you alluded to, When
Speaker 1: bitcoin was new, a lot of people either they couldn't
Speaker 1: get their head around why it could be valid and valuable,
Speaker 1: or they were just more excited and interested in the
Speaker 1: in the crime story. But as the years have gone by,
Speaker 1: the non criminal uses of bitcoin are increasingly important. Right
Speaker 1: I expect the same will probably happen with z cash.
Speaker 1: That the use of a currency like this for crossing
Speaker 1: borders UM, circling the whole globe UM, and being an
Speaker 1: open and permission list thing that anyone can plug into
Speaker 1: and anyone can add their own service or their own
Speaker 1: business into it without thus making themselves dependent on some
Speaker 1: you know, third party like PayPal or UH some foreign
Speaker 1: government or anything like that. With bitcoin, you know, one
Speaker 1: of the challenges that I've had with sort of wrapping
Speaker 1: my head around is why is there any value to
Speaker 1: it in the first place? UM. And it's sort of
Speaker 1: like this difficult philosophical question that I think actually applies
Speaker 1: to all money, and it applies to gold arguably and
Speaker 1: lots of things. So it's not just a bitcoin, but
Speaker 1: in other words, like we all you know, people somehow
Speaker 1: except that there's value to these currencies sort of x nilo.
Speaker 1: I mean with the dollar, with the U. S Dollar,
Speaker 1: you could say, well, you have to use the dollar
Speaker 1: to pay your taxes. Uh, And so that sort of
Speaker 1: creates a reason that dollars inherently have value. Um, what
Speaker 1: how do you answer this question a with cryptocurrencies in general,
Speaker 1: and then be with a brand new one like why
Speaker 1: do two separate people on different parts of the globe
Speaker 1: agree that a z z cash has value to it?
Speaker 1: And and see, like you say, with with any other
Speaker 1: kind of currency or or or a gold coin or
Speaker 1: anything else, it's a there's a mystery to it. And
Speaker 1: sometimes people mistakenly think that a gold coin or a
Speaker 1: or a hundred dollar bill is valuable because it's backed
Speaker 1: by something else. But that's got to be a mistake
Speaker 1: because if that were the only value it had, you
Speaker 1: could just use the something else. Well. Well, I mean,
Speaker 1: like you know, the the US dollar is arguably backed
Speaker 1: by a gigantic army, and there's a law that says
Speaker 1: you will go to prison if you don't pay the
Speaker 1: government a certain amount of dollars relative to your income
Speaker 1: at the end of every year. So, I mean, you
Speaker 1: could you could see how there are these structures that
Speaker 1: buttress the value of fiat money. Yeah, there's there's a
Speaker 1: there's a buttress, But that can't be the full explanation,
Speaker 1: because people value it and desire it and use it
Speaker 1: for purposes beyond paying taxes and getting along with the army. Um.
Speaker 1: And in fact, you can see with fiat currencies like that,
Speaker 1: if the people collectively start to value them less and less,
Speaker 1: then eventually the army and the revenue service also start
Speaker 1: valuing them less and less. Right, But how do you
Speaker 1: get But you know, it seems to me, how do
Speaker 1: you germinate that in the first place. Yeah, it's a
Speaker 1: really good question. I remember years of consternation and and
Speaker 1: and confusion among people when bitcoin was new, where a
Speaker 1: lot of people said, very decisively, this is impossible, this
Speaker 1: is a scam, This makes no sense. It you know,
Speaker 1: it cannot last. It is only somebody's ripping someone else off.
Speaker 1: And once they're done this is over. And you know,
Speaker 1: I thought at the time, I disagree. I think this
Speaker 1: can last. I think it makes sense. But I'm never
Speaker 1: going to convince these people. But what is going to
Speaker 1: convince them is if a few years go by and
Speaker 1: it's still here. And that's what happened with bitcoin after
Speaker 1: like you know, about four four years or so of that,
Speaker 1: then the voices saying that it was impossible and meaningless
Speaker 1: sort of faded out. Um so, and then how do
Speaker 1: we germinate it? Well, you know, ze cash has been,
Speaker 1: like you mentioned at the beginning of this podcast, remarkably
Speaker 1: sort of popular, widely, widely anticipated, and widely accepted. And
Speaker 1: ever since it's launched only a couple of weeks ago,
Speaker 1: there have been dozens of companies have announced that they've
Speaker 1: added z cash integration. So there's a company called Purse
Speaker 1: and you can buy anything you want off of Amazon
Speaker 1: dot com and pay with the cash, and they give
Speaker 1: you a discount because they have access to discounted Amazon points. Um.
Speaker 1: And there's you know, there are merchants that will sell
Speaker 1: you T shirts and Neon signs and things like that
Speaker 1: over the internet and charge you in ze cash. It's
Speaker 1: a social it's a social activity. It's the fact that
Speaker 1: it has to be something thing that you care about
Speaker 1: and you value. But in addition to that, you have
Speaker 1: to have a group or a community of other people
Speaker 1: who also care about it, you know. And I first
Speaker 1: started trying to wrap my head around bitcoin, I thought
Speaker 1: that the you know, it's kind of like Facebook in
Speaker 1: the sense that Facebook would have no value if nobody
Speaker 1: was there. That's right, And you could create another social
Speaker 1: network that had all the functions of Facebook and perhaps
Speaker 1: arguably better. And some have existed, but they've never had
Speaker 1: any value because nobody was there. It's still not totally satisfying,
Speaker 1: but it's it's sort of gets there. That's what economists
Speaker 1: call the network effect, right, a network effect, it's definitely
Speaker 1: true of It's definitely true of Facebook and social networks UM,
Speaker 1: and it's also definitely true of currencies. Currencies are very
Speaker 1: strongly affected by the network effect. UM. So it's kind
Speaker 1: of both. It's both that there's a lot of people
Speaker 1: out there who value z cash for itself, and there's
Speaker 1: also a widespread um belief that other people are valuing
Speaker 1: z cash, so that it's going to you're gonna you know,
Speaker 1: it's gonna have currency, so to speak. But what really
Speaker 1: inspires me the most is the people who are who
Speaker 1: just love it because they love privacy and they think
Speaker 1: it's it's helpful to underprivileged people. Uh that it empowers
Speaker 1: people because it crosses borders and allows people to cooperate
Speaker 1: who previously weren't able to reach each other to cooperate.
Speaker 1: And I've had this wonderful experience of people coming up
Speaker 1: to me just to say, we care about this. My
Speaker 1: community is on board, and we're glad that this has happening.
Speaker 1: We think it's important. It kind of makes the head
Speaker 1: hurt thinking about where these things come from. But in
Speaker 1: a way, I think all the good things in life
Speaker 1: make the head hurt if you try to think them through. Yeah,
Speaker 1: you know it's it rises from human behavior, and human
Speaker 1: behavior is one of the biggest mysteries. I want to
Speaker 1: take a quick break for a sponsor and we'll be
Speaker 1: right back. But knowledge to work and grow your business
Speaker 1: with c i T from transportation to healthcare to manufacturing.
Speaker 1: C i T offer commercial lending, leasing, and treasury management
Speaker 1: services for small and middle market businesses. Learn more at
Speaker 1: c i T dot com. Put knowledge to work and
Speaker 1: we're back with Zuko Wilcox. He's the CEO of the
Speaker 1: z cash company um, which is a company that has
Speaker 1: launched a new cryptocurrency. You know, when we talk about bitcoin,
Speaker 1: we uh everybody. Most people know that there's this mysterious
Speaker 1: creator who went by the pseudonym Satoshi Nakamoto. No one
Speaker 1: really knows for sure who it is. That mysterious origin
Speaker 1: kind of helps, uh uh sort of adds to the
Speaker 1: fascination and allure with bitcoin. Obviously, Zuko z cash is
Speaker 1: different because there's a company with investors that have launched
Speaker 1: this currency. Uh explained to us sort of the advantages
Speaker 1: and this advantages of having specific founders and backers and
Speaker 1: investors associated with your launch. Well, there are advantages and
Speaker 1: disadvantages in terms of people's trust. The fact that we
Speaker 1: have these investors causes some people to trust us more
Speaker 1: and other people to trust us less. And the fact
Speaker 1: that we have a company with employees and a CEO
Speaker 1: causes some people to have more confidence in the future
Speaker 1: of our project and other people to have less. Um
Speaker 1: But the reason we did it was not that consideration.
Speaker 1: It was in order to be able to fund the work.
Speaker 1: There's been a lot of engineering effort that we've already
Speaker 1: put into get this far, and we have a roadmap
Speaker 1: for pouring in years more of engineering effort to improve
Speaker 1: the protocol over the coming years. Tell us about your
Speaker 1: ceremony when you officially launched the currency. You put put
Speaker 1: up a blog post about this sort of extraordinary, extraordinarily
Speaker 1: complex launching event that you did to sort of ensure
Speaker 1: people that UM you know, is safe and secret and
Speaker 1: wasn't going to be hacked. Walk us through this sort
Speaker 1: of elaborate launch that you did. Well, there's a cryptographic
Speaker 1: value that we needed to produce, uh to use it.
Speaker 1: It's kind of a public key, crypto public key that
Speaker 1: needs to be used in the protocol. He has to
Speaker 1: be used by all the users, and the associated private key,
Speaker 1: if it existed, could be used to counterfeit money, so
Speaker 1: counterfeitsy cash. So we came up with a protocol and
Speaker 1: a ceremony which allows us to generate that public key
Speaker 1: without the corresponding private key ever coming into existence. And
Speaker 1: we call that thing the toxic waste private key UM.
Speaker 1: And our analogy is if you have a factory that
Speaker 1: produces something and as a side effect, it produces these chemicals,
Speaker 1: These precursors, and individually, each precursor is harmless. But if
Speaker 1: they all get together and it turns into toxic waste,
Speaker 1: that's really dangerous and difficult to deal with. So we
Speaker 1: designed this system to produce the necessary public key and
Speaker 1: keep all the precursors separate until they could be safely destroyed.
Speaker 1: And we executed this protocol with six different people that
Speaker 1: we recruited from I was one of them, and then
Speaker 1: five different people that we recruited who we trusted to
Speaker 1: be competent and not to get hacked while they were
Speaker 1: doing this, And as far as we can tell, none
Speaker 1: of us got hacked, so all six of the precursors
Speaker 1: got destroyed. The details of this ceremony, as you call it,
Speaker 1: are pretty interesting. Explain some of what you did, uh,
Speaker 1: to sort of coordinate these five different people, Well, there
Speaker 1: were six different people, and uh, the the main goal
Speaker 1: was to prevent some attacker from hacking all six of
Speaker 1: us at once and stealing the precursor from each of us. Right.
Speaker 1: So one thing we did was that we recruited people
Speaker 1: who were themselves exceptional computer security experts, and we let
Speaker 1: them have a degree of autonomy about what sort of
Speaker 1: defensive measures they would take um so that there would
Speaker 1: be a variety of defensive measures in play, so that
Speaker 1: even if an attack or figured out how to hack
Speaker 1: one of us, you wouldn't figure out how to attack
Speaker 1: how to hack the others. And then each of us
Speaker 1: had an air gapped machine. We went. We did this
Speaker 1: thing called random purchase, which is you drive to a
Speaker 1: random computer store without like calling ahead in case the
Speaker 1: attacker is spying on your phone. Uh So we turned
Speaker 1: off our phones and we drove. We got an old
Speaker 1: paper map, remember those got out of paper map, found
Speaker 1: the computer store on the map and drove there and
Speaker 1: we walked down the computer store and said, we want
Speaker 1: one of these here computers. And then the salesman said, okay,
Speaker 1: there's there's two sitting here in a box, you know
Speaker 1: in boxes on the showroom floor, and you can have
Speaker 1: this one. And we said no, no, we want the
Speaker 1: other one. He said, okay, fine, you can have the
Speaker 1: other one, which we did. The whole random purchase process
Speaker 1: is to prevent the possibility that an attacker could plant
Speaker 1: a backdoor into the machines. So if you just order
Speaker 1: machines from Amazon, it's possible. And in fact, the Snowden
Speaker 1: disclosures revealed that it's actually practiced that sometimes people intercept
Speaker 1: your shipment of your computer and open it up and
Speaker 1: plant a bug in it and then seal it back
Speaker 1: up and deliver it to your house. Um, so that's
Speaker 1: why we did random purchase. So people went around in
Speaker 1: all six in the six different locations across the globe
Speaker 1: and purchased a random computer from the store. And then
Speaker 1: we air gapped them, which means we you know, unscrewed
Speaker 1: the lid of the computer and pulled out all the radios,
Speaker 1: all the WiFi and Bluetooth and any kind of networking
Speaker 1: so that these computers couldn't connect to any network. And
Speaker 1: then we did all that before we first turned them on.
Speaker 1: So now that they're random purchased and air gapped, we
Speaker 1: feel pretty sure that there's no attacker out there who
Speaker 1: has a backdoor in any of these computers, at least
Speaker 1: not a back towards that they can they can use.
Speaker 1: And then, uh, now that we have these air gapped computers,
Speaker 1: we still need to deliver the the protocol messages to
Speaker 1: each computer so that each one can perform it's part
Speaker 1: of the computation and send its answer back to produce
Speaker 1: the shared public key. So we decided to use DVDs
Speaker 1: to deliver those messages. Yeah, paper maps and DVD this
Speaker 1: is throwback all the way. So uh so, the messages
Speaker 1: that got exchanged between the air gapped computers were only
Speaker 1: exchanged by means of right ones append only DVDs, and
Speaker 1: that means it produced and an evidence trail of all
Speaker 1: of the communications that we did during the ceremony. And
Speaker 1: afterwards we collected those um the recordings of those messages
Speaker 1: and uploaded them to the Internet archive for historians to analyze.
Speaker 1: What else, some of the people did some some fun things.
Speaker 1: One of them. Three of the participants in the ceremony
Speaker 1: were anonymous. At the time, only I knew their identities,
Speaker 1: and three of them were some known computer scientists and
Speaker 1: Washington d C policy UH experts and me. And then
Speaker 1: at the end of the ceremony, as soon as we
Speaker 1: had finished producing the correct public key and everyone had
Speaker 1: deleted their own precursor, then we revealed one of the
Speaker 1: three anonymous people was a well known large information security
Speaker 1: consulting firm and that they were running their part of
Speaker 1: the ceremony in their lab under surveillance, and that they
Speaker 1: were in parallel trying to hack into a copy of
Speaker 1: their computer to see how hackable it was. And it
Speaker 1: all sounds extraordinary, like it sounds like something out of
Speaker 1: a movie where you that you like a hacker movie,
Speaker 1: and I get that, like I haven't even told you that.
Speaker 1: The last let me tell you the last few parts.
Speaker 1: There were three anonymous people. One turned out to be
Speaker 1: an infosyc lab one it turned out nobody. Nobody knew
Speaker 1: this at the time, but it turned out that he
Speaker 1: was a well known bitcoin developer, and that he performed
Speaker 1: his part of the ceremony in a moving car on
Speaker 1: an empty Canadian highway in the far North because he
Speaker 1: figured that would make it harder for anyone to hack
Speaker 1: into his computer during the process. And the last one
Speaker 1: remains anonymous. So there's your there's your mystery. If you
Speaker 1: want to have something like Satoshi Nakamoto, it's the sixth
Speaker 1: participant in the ceremony. That's exactly what I was about
Speaker 1: to get at. So part of the ceremony, and we
Speaker 1: just have a few minutes left. But part of the
Speaker 1: ceremony obviously is to prove forever in history and theory
Speaker 1: that there's no way anyone could make counterfeit z cash.
Speaker 1: But also part of it is just too it appears
Speaker 1: create a sort of aura and mythology around it that
Speaker 1: sort of befits the uh sort of mystery of all currency. Well,
Speaker 1: I guess that's a convenient side effect. But you know,
Speaker 1: like since like all currency and language and all these
Speaker 1: sort of shared social conventions have mysterious origins, it seems
Speaker 1: like it very much helps to have a sort of
Speaker 1: fascinating creation myth that would come out of a movie
Speaker 1: about hackers. Yeah, and and some of the some of
Speaker 1: the participants destroyed the hardware with fire after, so in
Speaker 1: future generations children have an excuse to use fireworks on
Speaker 1: that day. I'm very eager to see how this works out.
Speaker 1: I actually, uh, a friend of mine and I had
Speaker 1: sort of have seriously have jokingly launched our own currency
Speaker 1: a couple of years ago, called us stalwart bucks uh,
Speaker 1: named after my Twitter handle. At one point on an
Speaker 1: Indian exchange. The total outstanding value is about forty dollars.
Speaker 1: Of all of them, it's now probably zero because I
Speaker 1: don't think a single one is traded in a year
Speaker 1: and a half. We gotta leave there, Zucho Wilcox, Uh,
Speaker 1: the backer of z cash. We're going to be watching
Speaker 1: it to see if you can make a dent in
Speaker 1: the cryptocurrency world. And hopefully maybe we'll have you back
Speaker 1: on here in a year and we can see what
Speaker 1: we've see what you've learned. But I really appreciate you
Speaker 1: coming on today, Thank you very much. But by and uh,
Speaker 1: that'll do it for today's Odd Lots podcast. Here's normally
Speaker 1: where I would talk to Tracy and talk about what
Speaker 1: we learned on the episode, but um, she's not here,
Speaker 1: and so I don't think I have anything to add.
Speaker 1: Thanks for listening everyone. You can find me on Twitter
Speaker 1: at the Stalwart and you can follow Zoko on Twitter
Speaker 1: at zooko z z o o Ko. Put knowledge to
Speaker 1: work and grow your business with ce i T from
Speaker 1: transportation to healthcare to manufacturing. C i T offers commercial lending, leasing,
Speaker 1: and treasury management services for small and middle market businesses.
Speaker 1: Learn more at c I T dot com. Put Knowledge
Speaker 1: to Work.