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NEHA NARULA: OK, so let's get started.

OK?

So great.

We're here to talk about cryptocurrency

engineering and design.

I think the first question that comes up that's very obvious

is what is a cryptocurrency?

So this word was kind of invented 10 years ago when--

I don't know how many of you know the origin story of where

bitcoin came from, but basically a pseudonym on the internet

dropped a paper and some open source code

in a forum on an email list, and said, hey,

I have this idea for this thing called bitcoin.

It's kind of like electronic cash.

Here's how I think it could work,

and here is some code if you want to run it and become part

of this peer-to-peer network.

We don't know who this person is.

This person has basically virtually disappeared

from the internet and from the world.

But it's created something that has captured

so many people's imaginations and has sort of, depending

on how you measure it, created billions

and billions of dollars of economic value

and inspired a lot of people to think about how

to use this technology to solve a myriad of different problems,

not just electronic payments.

So cryptocurrencies and the technology behind them

are inspiring people to think about how to bank the unbanked,

add more auditability and traceability to our world,

get rid of trusted intermediaries and institutions

in certain situations, and basically solve

every problem, if you read about what blockchains

can do on the internet.

Now that's not exactly what this class is about.

This class is not going to be about applications.

This class is going to be about technology and infrastructure.

You're going to learn how to create a cryptocurrency, what

goes inside a cryptocurrency, what's important,

what are the techniques.

And what application you choose to apply that to down the line,

that's kind of up to you.

But we're not going to be doing digital identity or health care

records or something like that.

We're going to be talking about the technology.

So a big question is how are cryptocurrencies

different from regular currencies?

And another thing that I want to make really clear

is that the terms in this space are still being defined.

So you will hear people throw around

all sorts of terms-- cryptocurrency, blockchain,

consensus.

And these words kind of have floating, evolving meanings

right now.

Part of that is because bitcoin, the first cryptocurrency,

didn't come from academia, as far as we know.

It came from a community of enthusiasts on the internet.

And so it doesn't necessarily have the same basis and rigor

that we might expect from most of our academic fields

of study.

It's totally OK.

We're figuring it out as we go along.

And academia is really embracing this topic.

So if any of you are graduate students who

are looking for an area in which to do research,

I think basically, the number of papers

published on cryptocurrencies and blockchain technology

in respected academic venues is doubling every year.

So there's huge opportunity here.

So cryptocurrencies are not regular currencies.

They're not $1.00 or a pound or a euro,

what we normally think of as currency.

They're something different.

Bitcoin was sort of created out of nowhere.

And what does it mean to create a cryptocurrency?

Who says you can create a cryptocurrency?

What backs a cryptocurrency?

Why is it valuable?

Well, first, before we answer that question,

I just want to make it really clear what

this course is not about, OK?

We are not going to help you ICO.

If you are interested in ICO'ing, just go.

That's not what this class is going to be about.

We are not going to offer any trading advice.

We have zero opinions on whether you should buy bitcoin

now or sell or whatever, or zen cash,

or whatever all these things are.

So none of that.

Don't even ask us.

We're not interested.

And this class is not really going

to be about permissioned blockchains either.

Now you might not know what this term means yet,

and that's totally OK, but I just

want to make it clear that what we're talking about here

are cryptocurrencies.

They're open permission with systems in which there is

a token which has some value.

So that's what we're not going to do in the class.

So going back to--

and let me just pause there for a moment.

Let me pause and ask you if there are any questions so far

about what I've said.

Yeah.

AUDIENCE: Do they always have to have value?

NEHA NARULA: No, not at all.

And let's start to get into that.

So the question was do tokens always have to have value?

So I think, really, to understand

what are cryptocurrencies, what are tokens, what do they mean,

we have to talk about money.

And we have to talk about what money is and what it means.

So this is going to be very hand-wavy

and I'm sure not very satisfying to a real monetary economist.

But money developed-- there are a few different theories

about how money developed.

There is this thing called the coincidence of wants.

So maybe I have a sheep and Tadge has some wheat.

I am hungry and would like to make bread.

Tadge would really like to make a sweater.

And so we can barter, we can trade.

I have one set of goods that is useful to Tadge.

Tadge has another set of goods that are useful to me.

We can get together and make an exchange.

So that's fantastic.

Barter is incredibly important.

Barter has existed for a long time.

But what if Tadge doesn't have wheat, Tadge has vegetables,

and I don't want vegetables.

I want wheat.

But Tadge still wants the wool from the sheep.

How do we execute this trade?

We don't have a coincidence of wants.

We don't actually want the exact same thing from each other.

So some theories are that money evolved out of this problem.

And money can be represented in so many different ways.

Money, I think, was first created around 5000 BC,

so it's really, really, really old.

The things that represented money usually

had certain properties.

They were rare.

They were not easily reproducible.

People, at times, used things like shells or beads for money.

The first coins-- this is like a really interesting coin

that was developed.

Precious metals were often used for money.

And then eventually we sort of evolved

into what we think of as money now,

which is paper bills, currency.

Another theory of how money came about

is this idea of receipts, debt and credit.

So maybe I have a sheep, and I shear all of my sheep

and collect a lot of wool.

What I can do is I can store that wool somewhere.

And I can get a receipt from someone

from having stored that wool, and that receipt is of value.

It entitles the person who holds the receipt to the good that

is being stored.

And so another theory of money is

that money evolved out of these receipts,

trading these receipts back and forth.

Instead of taking all that wool with you,

you leave it in one place in a depository,

and the receipt acts as a bearer instrument.

Whoever owns it has access to the wool in the depository.

And so you can kind of see two different ideas

about what money is develop from this.

One