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GARY GENSLER: Thank you again for all being here.

We're going to talk a little bit about the challenges

of blockchain technology.

I'm apologizing in advance.

I'm supposed to be, like, across campus for a 4 o'clock meeting.

So I won't have much time right at the end

to do the little wrap with students coming up.

I will note also that if you want to come see me

I'm open to it.

Next week's a great week, by the way, because I'm here

all four or five days.

But I don't have set office hours.

Just email me.

Copy Dylan, who's the new course administrator.

There was a swap out from Ryan.

Or copy Talida or Sabrina or something.

But just shoot me an email, and then I'll

set something up with you if you want to follow up either

on your projects, or it's a question about anything

around blockchain.

I also want to thank-- we don't usually have people

here with jackets on.

But we have six or eight veterans

who have served our country, and I thank you for your service.

[APPLAUSE]

They're here to observe us.

I don't know whether we'll scare them away or not.

But thank you for joining us.

So today's topics are going to be around--

of course, we're going to go through the readings

a little bit.

We don't have Larry Lessig, and it's a little bit more relaxed.

So I might be doing some cold calling if that's all right.

I'm going to go back a little bit

to the technical features in a quick wrap-- in two

slides or three slides.

But I just want to do that as the setup again.

And, of course, because you all love hash functions so much,

it's just a way to bring it back to some

of the technical features to set up, really,

what are some of the issues.

We have-- I think it's lecture 11 and 12,

where it's just what I call act two as the economics.

But I want to set up a little bit about the economics.

You saw that in the reading--

the 21st Geneva report that Simon Johnson and Neha

Narula and Mike Casey and Jonah and I wrote.

So now you all--

I only assigned his seven pages out of it.

So I hope that you read the seven pages.

But some of the costs and trade-offs,

the challenges of blockchain technology that are very real.

I'll give you my own perspective on where

I think this will sort out over the next 3 to 10 years.

So I'll do some predictions.

Vitalik Buterin has also talked about a trilemma,

and I want to chat about that.

And that was one of the readings, if I recall.

He's such a leader in this community

that when he writes and says something like this,

it was relevant, I think, that everybody's understand

what Vitalik Buterin's kind of "trilemma" is,

even though that some people think he's mistaken.

Some possible solutions to this--

we have, who's attending today, Madars

who is actually one of the developers on some

of the solutions around zero-knowledge proofs.

And he might get called on.

He works over at the Digital Currency Initiative.

I hope you're ready.

And why I think governance is the most challenging piece.

So with that, the readings--

I have a list of everybody that hasn't spoken yet.

[LAUGHTER]

So the goal is to speak.

That's what class participation is.

I'm going to be lighthearted about it.

I-- it's not that long ago I was a student, really.

I remember all this, you know.

You want to get your name off this list.

I just want to say kind of encouraging.

So should I do it alphabetical from the list as to who

wants to tell me?

No.

No.

You look like you're ducking your head.

What's your name?

[LAUGHTER]

AUDIENCE: Wendy

GARY GENSLER: What's that?

AUDIENCE: Wendy.

Wendy.

GARY GENSLER: Wendy.

Wendy.

What did you take from the seven pages of the Geneva report?

Did you read-- did you do the readings?

So what did you take from the great work of Simon Johnson--

and I helped him out, you know?

AUDIENCE: [INAUDIBLE]

GARY GENSLER: Anything about the business challenges

of blockchain from the readings.

AUDIENCE: It takes a long time to do the [INAUDIBLE]..

GARY GENSLER: So one challenge is time--

latency.

It takes a long time to do.

Wendy raises.

Yes.

If you could say your first name?

AUDIENCE: Catalina.

GARY GENSLER: Catalina.

It really helps Sabrina out--

get you off the list.

So it's self-motivation to say your name.

So Catalina.

AUDIENCE: There is also a problem with performance

and scalability.

GARY GENSLER: Right.

So it's sort of related.

They're not alone-- but performance, scalability,

the time it takes to do a transaction.

Other challenges?

Yes?

AUDIENCE: There are issues

GARY GENSLER: First name?

AUDIENCE: Samir.

There are issues with micro payments

and how they're [INAUDIBLE] inconsistently confirmed.

GARY GENSLER: So how to do micro payments.

You want to tease that out?

Why is there a problem with micro payments?

AUDIENCE: I can't remember the exact details,

but it was around just the fact that-- because they're

so small, they were just essentially inconsistently

[INAUDIBLE].

GARY GENSLER: All right.

So how to do micro payments.

And the small micro payments--

partly because they're so small--

may be relative to the fees and the cost of the network.

Alexis?

AUDIENCE: Yeah, I just wanted to add, like on this point

because basically the minors will

try to add to the blockchain first

the transaction with the highest fees.

So a small transaction could take [INAUDIBLE]..

GARY GENSLER: So there's economic incentives

that are involved here.

We're now moving a little bit away

from all that stuff-- the broccoli that I said

that we were all going to be eating about hash functions

and so forth.

Akira.

AUDIENCE: Yeah.

Other challenges-- the privacy and security.

[INAUDIBLE] those concerns identity of [INAUDIBLE]..

And [INAUDIBLE] concern privacy protection of customers.

GARY GENSLER: OK.

So Akira just raised a bunch of points

about privacy and security-- about the individuals

and the regulators.

Does anybody want to tease that out a little bit more?

AUDIENCE: Well, the bank has more of an incentive

to keep things on the privacy side,

whereas regulators obviously will

have pried into the details.

GARY GENSLER: OK.

So you have that natural public policy

tension that doesn't only exist around blockchain.

Jihee?

AUDIENCE: I could hear anything back here.

So if people can speak up a little bit.