Kind: captions
Language: en
the following is a conversation with
sergey nazarov
ceo of chain link which is a
decentralized oracle network that
provides data to smart
contracts he and his team have done
seminal research and engineering in the
space of smart contracts
check out the chain link 2.0 white paper
that i found to be a great overview of
their technology and vision
it's 136 pages but very accessible
quick mention of our sponsors wine
access
athletic greens magic spoon indeed
and better help check them out in the
description to support this podcast
as a side note let me say that
externally connected smart contracts
that combine the ocean of data out there
with the security of the blockchain
are fascinating to me both technically
and philosophically
data is knowledge and knowledge is power
i think the more reliable data sources
we integrate
into our decision making especially
when those decisions are executed by
programs the more efficient and
productive our decisions become
there are interactions between humans
that should not be formalized digitally
like love for example but for all the
others
there's no reason for smart contracts
not to automate away
the menial parts of life making more
room for
good conversation over brisket and maybe
some vodka
with old and new friends this is the lex
friedman podcast
and here is my conversation with sergey
nazarov
is that yorzuk there he so i gave away
everything i own
a few times in my life and he
accidentally survived
and i don't like stuffed animals what i
really liked about i got him in a thrift
store what i liked about him is because
i'd never seen a stuffed animal
that looks pissed off at life like
they're usually smiling in a dumbest of
ways
and this guy was just pissed yeah i
gotta tell you that's
actually pretty funny i like this guy if
you had to live
only in the digital world or the
physical world
which would you choose so i i think this
is actually a question
more about what the fidelity of the
digital world would be
versus the physical world i i think this
this type of question this whole
simulation thing actually comes
from papers about 20 30 years ago in in
the philosophical world where people
try to make this thought experiment of
of would you be comfortable
if if everything that was happening to
you happened in a simulation
what they were trying to do is they were
intuitively trying to understand
is is there some kind of intuitive um
personal connection we have to something
being the real world
right and then the matrix movie actually
came out of these papers
and then these ideas made its way it
made their way into the public
consciousness
um i personally think that if i had the
choice to be in the digital world at the
same fidelity
as the real world with immortality i
would absolutely go with the digital
wait wait wait wait wait how'd you add
the immortality part
that's a won't get immortality if you
think about how we would go into the
digital world right our our our brain
patterns would be mapped
onto some kind of uh probably virtual
machine right
and that would mean a multi immortality
right because the virtual machine has no
limit
to how long it can be don't you think
there will be like a versioning system
like uh there'll be this is a soft
fork versus hard fork question whether
sergey version
2.0 would be different from sergey
version 1.0
there'll be an upgrade so that's
immortality sergey 1.0 would die in the
digital world and you should get
you get like a software update and then
that's it
you know well yeah when people go into
the star trek transporter are they
killed or are they transported
i i don't really know i haven't read any
papers on this i haven't really thought
about it too much there's no white paper
on the transporter
not not at this point so what what does
fidelity mean exactly
to you is it like strictly so the
fidelity of the physics world
the physical world is maybe now
questions of physics
quantum mechanics what is at the at the
bottom of it all
right or do you mean the fidelity of the
actual experience it's just it's just
perception
it's just just the human but that's
limited by human cognitive capabilities
it is but i don't really have anything
else right i think all of these papers
that brought up these questions of a
simulation they were like
in epistemology and metaphysics right
and what they were trying to do
i think was they were trying to put
people through a thought experiment
where
they would come out on the other end and
say the
reality of life is really worth
something and i don't
i don't you know ignorance isn't bliss
which is that's the consistent statement
in the matrix right ignorance is bliss
is that that's what one of the guys says
when he's like you know doing something
wrong and
trying to get back into the matrix and
and the question is is ignorance bliss
um and it's like a different version of
that i
i think from a perceptual point of view
if my perceptions
aren't in any way different so fidelity
is very good
it doesn't matter now i i don't know
right so if i
that it's if i don't know something it
doesn't really exist and if it doesn't
exist
in in in my perception or my
consciousness then it doesn't exist
period for me at least and then whether
it exists in some
you know more metaphysical um version of
things
i i personally never really got into the
metaphysics stuff because i i could
never really um
i couldn't understand what the point of
it was right it it
it's one of these things where i
couldn't really get what um
what the what the practical application
of it was and this is this is from those
realm of questions right like
if there was something about the world
but you didn't have a
capacity to perceive it would it matter
to you
uh to me it wouldn't matter right to me
to me by the way the simulation thing is
a really interesting engineering
question
which is how difficult is it to engineer
virtual reality a digital world that is
sufficiently
of high fidelity where you would want to
live in it i think that's a really
testable and a fascinating engineering
question because my intuition says like
it's not as difficult as we think
it's not nearly as difficult as having
to create
a quantum mechanical simulation that's
large enough to capture the full human
experience like
it might be just as simple as just a
really nice quake game
like with a nice engine with you know
that just creating all the basic visual
elements
that tricked our cognitive our visual
cortex into believing that we're
actually
in the physical environment and i think
that
if that's true then that's quite you
know that
a high fidelity digital world is
actually achievable within
you know a century and and that changes
things
yeah yeah maybe maybe in my in our
lifetime i'm really hoping for that i'm
hoping somebody can copy my brain waves
onto a virtual machine
yeah and uh you know allow those uh
allow that consciousness to continue to
exist
whether that's that's death or not i
don't i don't know
but i i think it's actually um gonna
require some serious leaps like even
even the vr headsets right
they um don't work if they go below 90
frame rates
right people people start getting
freaked out so you have to go from one
gaming screen of you know 60 frames per
second to two screens of 90 frames per
second
and so the people's hardware today can't
even handle that and that's for these
for these two little screens by your
eyeballs
what it's going to take to like you know
completely trick my consciousness
into not knowing the difference in terms
of like you know all the
sensory inputs um my i'm keeping my
fingers crossed whoever whoever whoever
does that
and and is close to doing that they
should contact me i i want to have my
brain waves
turned into a virtual machine would you
in that context if morpheus came to you
would you take the blue pill or the red
pill
meaning would you be happy just living
in that world
and not knowing that you're living
inside that virtual world that's running
a computer
or would you want to know the truth of
it well actually
i think that's a very different question
right there's a there's a there's a
actually moral ethical question there
about whether you should allow a bunch
of people to get you know manipulated
and killed and slaved because in the
matrix they're all enslaved and
in as as as as like you know a triple a
battery
to turn a human being into the battery
right um
so i i think the the moral and ethical
question of that
fascinating enough isn't actually
different than the more unethical
questions we face today
in modern daily life but i
probably have given the choice of just
completely going along
or going against it i would probably go
against it
if i had to make this kind of binary
choice because going
going along with it
i think at that scale of scary you know
stuff happening to people
is is probably something really um
really really difficult
but for your individual life it's way
more fun to go along with it
so you're saying you value
the opposing a system that includes the
suffering of others
versus just for yourself and enjoying
the ride
i mean what what's what's if there is
such a binary choice
why choose the opposite system i think
it's the nature of um kind of the
ethical dilemma that you face in that
situation
there's kind of some you know this is
obviously not something that's happening
now right
we don't know this right
at the end of the day at that scale
of of something like that happening yeah
that scale
of of people being um you know
manipulated and harmed
then i think pretty much almost all
people have an obligation
to go to go against it uh
probably that's what that that looks
like in my opinion
so you've talked about the concept of
definitive truth
what is it and in general what is the
nature of truth in human civilization
and just talking about the digital age
uh the nature of truth in the digital
age
so the interesting thing about
definitive truth is that it actually
exists on um on this at least in my mind
on this spectrum
between objective truth and just you
know somebody
uh made something up and nobody else
agrees so what i
what i think definitive truth is is it's
somewhere in the middle on that spectrum
where if you and me define
uh what truth is right like if you and
me have an agreement of some kind
and we say as long as the weather
is sunny or the weather isn't there is
no rain on that day
then there will be an insurance policy
that results and you and me both agree
that as long as three sensors
three monitoring weather monitoring
stations all say that
then the definitive truth for us and for
that agreement
is the result of of those systems
coming to consensus about what happened
out in the real world
i i think the objective um truth
definition
from from kind of the philosophical
world is really really
stringent and very very hard to attain
and that's not
that's not what this is and that's
actually not what commerce
or the ability for people to interact
about contracts needs
what i think the world of commerce needs
is an upgrade
from someone can unilaterally decide
what the truth is
two there can be a pre-agreed set
of conditions where we define what the
truth is
under those conditions and then you know
you and me basically say
if these 20 nodes or of these 30 data
sources
come to consensus within you know this
method of consensus with this threshold
of agreement
then definitive truth has been achieved
for you and me in in our relationship
for this specific agreement and the
specificity and
and our shared agreement to that kind of
truth or that definitive truth
being acceptable to both both of us is
is probably what's
what's um kind of necessary and
sufficient for everything to move
forward in a better way
in any case much better than you know
i'm a bank or an insurance company
i'm going to unilaterally decide what
happens it's it's definitely an upgrade
from that
do you think it's possible to define
formally in this way
a definitive truth for many things in
this world like you talked about whether
basically defining that if three sensors
of weather agree
then that we're going to agree that that
is a definitive
useful truth for us to operate under
so how many things in this world can be
formalized in this way do you think
uh a huge a huge amount so so there's
there's actually
um two two things going on here
one thing is the amount of data that
already exists right and the pieces of
data coming off of
you know markets iot shipment of goods
any any number of other things like even
even your youtube channel has a certain
amount of likes
or a certain amount of clicks or certain
amount of views and even that's
quantifiable right so even
to a certain degree what we do here
today you and me right now
can be quantified as far as the amount
of views the amount of
clicks the amount of any number of
others you the viewer have power
of data in your hands by clicking like
or dislike right now
or the subscribe button or the
unsubscribe button which i encourage you
to do
anyway okay so there's data flowing in
into
all interactions in this world there's
data there's more and more data right
like
more data more and more data that data
is more and more accessible to everybody
and that accessibility and the fact that
there's more of it means we can form
more definitive truth
proofs we can form more and more proofs
and as we form those proofs
well we can provide them to these
blockchains and smart contract systems
that consume them
and then they're tamper proof right so
they can't be manipulated
and so now we've combined a system that
can prove things with a system that
guarantees us certain outcomes
and we have a better system of contracts
which is which is
uh actually an unbelievably powerful
tool that has never existed before
can we talk about the world of commerce
and finance decentralized finance
what is it uh what's its promise
from both the philosophical and uh
technical perspective if we just zoom in
on that particular space of the
digital world sure so the the
centralized finance
is the instantiation of a specific type
of
smart contract right or what i call
hybrid smart contracts
which are these contracts that combine
the on-chain code together with the
off-chain
proofs that something happened that's
they're called a hybrid because they
basically use both of these systems
right the blockchain
and the proofs about what happened and
what defy
is is one specific type of hybrid smart
contract that
is taking on the contractual agreements
you traditionally find
in the financial global financial system
right and and that's basically the world
of lending the
the world of yield generation for people
giving me or giving giving whoever their
money and
and somebody giving back them yield back
to them which is what bonds do and what
treasury's doing what a lot of the
global financial markets do as well as
the ability to gain
exposure and protection from different
types of events and risks
that's a lot of what derivatives do
right derivatives allow us to say hey
something's going to happen
and i'm either going to protect myself
by getting paid if it happens
or i'm going to benefit from it
happening by basically saying it's going
to happen putting money down on that
and that prediction will get me a return
now
that's a lot a very large part of the
global financial system
excluding all the stuff for global trade
and letters of credit and all the stuff
that facilitates
international trade so excluding
excluding that at least for now
so if we look at what decentralized
finance does it takes
all of those agreements about generating
yield lending
and all of these types of things you
find in global finance and the world of
derivatives
and a few other types of financial
products and it basically puts them
into a different format right so the
format you have
for centralized financial agreements is
that you go to a bank
even if you're a hedge fund even if
you're like the richest people you you
go to a bank
they make a product for you and you hope
that they honor the product that they
made for you
or you do a deal with another hedge fund
or or or whoever some counterparty
and you hope that that deal is honored
yep
and then um a number of very freaky
things start to take place
one one of them is people don't have
clarity
about what the agreement is right so a
lot of people don't know
exactly what the agreement is between
um between those parties because they
can't actually see it
sometimes agreements are kept very
private or parts of them are kept
private
and that keeps you know other
counterparties other people in the
system from understanding what's going
on
this is actually partly what happened
with the mortgage crisis the mortgage
crisis in 2008 was basically
there were a lot of agreements there
were a lot of assets but because the
centralized financial system worked in
such an opaque way
it was so unbelievably difficult to
understand what was going on
right and so that lack of understanding
for the global financial system
basically led to a big boom
and then correspondingly very very big
bust
which amazingly enough had a huge impact
on everybody even though they didn't
participate in the boom part of the
of the equation um in in any case
what decentralized finance does is it
takes these
financial contracts that power the
global financial system it puts them in
this new blockchain based
format that basically at this point
provides three very powerful things
the first thing that it provides is
complete transparency over what's going
on
with your financial product so this
means when you use a financial product
in the d5 format
you and you as a technical person
actually can drill down
very very very deeply and you can
understand
where the collateral is you can
understand how much collateral there is
you can understand what format it's in
you can understand how
it's changing you can understand this on
a you know second to second or block to
block basis
right so you have complete transparency
into what's going on
in the financial protocol that you have
your assets in
which is because blockchains and the
infrastructure all of these things
are built on force that transparency
right whereas the centralized financial
system is very very good at
hiding it it's very good at hiding it
and packaging things in a glossy wrapper
creating a boom then a bust
decentralized finance is built on
infrastructure that forces transparency
such that everyone can understand what
the financial product does from day one
and in fact escaping that property is
practically impossible or if someone
tries to escape it
it becomes immediately obvious and
people don't use their financial product
so so that's number one number two is
control
so if you look at what happened with
robin hood everybody thought the system
worked a certain way right everybody
thought i have a brokerage account
i can trade things under you know a
certain set of market conditions
and then the market conditions changed
within the band of what people thought
they could do and everybody was
fascinated to find out
that oh my god i thought my band of
market conditions in which i can control
my assets is x
but it's actually y it's actually much
much smaller band
and the the reason it is a much much
smaller group of market conditions
is that the system doesn't work the way
people think it works
the system was wrapped up in a nice
glossy wrapper and given to them to get
them to participate in the system
because their system requires and needs
their participation
but if you actually look at how the
system works underneath
you will see that it does not work the
way people think they that it works
and this is actually another reason that
defy is so powerful because defy
actually and and these blockchain
contracts give people
the version of the world they think they
already have
which is why they don't beg for it right
so everybody thinks they're in a certain
version of the world that works in this
reliable way
transparent way they're not they don't
realize it
and so they're confused when you tell
them i'm going to make the world work
this way because they think they're
already in that world
but then things like robin hood make it
immediately painfully clear that that's
not how the world works so that the
second real property of defy is control
which means that you control your assets
not a bank not a broker not a third
party you
you control your bitcoins you control
your tokens in the finance protocol
if you don't like how something's going
in that protocol you can remove it you
can send it to another protocol
or you can use a feature of the protocol
to do something it's supposed to do
and guess what nobody can just say oops
you know that feature that isn't so good
for my friends over here
you know that feature is actually you
know we're just going to pause that
feature in the critical moment
when you need it to to to execute your
you know your strategy which is why you
took all the risks to begin with
and then the final reason um you know
the final thing to know about d5
is that d5 is inherently global and
actually right now
provides better yield globally so if you
go to a bank right now with the us
dollar
you get one percent or less if you go to
d5 with the us dollar
you get seven or eight percent so
if if we think about that um in in a
world where there's a lot of inflation
coming down the road
and we think about well
you know a lot more systems might be
failing soon
and and and they might be highlighting
these types of problems that were there
for
or as a result of the type of control
that you see in
in robinhood and people are more and
more concerned
about both transparency and control and
they're looking for yield to combat
inflation
um i i think that's what defy is about
in a practical sense
it is this clarity about your risk it is
control
over your assets and amazingly at the
same time as having those two
unbelievably useful properties
it is actually superior yield which
which
which which which just leads me to the
very obvious conclusion that
the only reason defy isn't more used is
because more people don't know about it
and by virtue of this long kind of you
know
explanation here and here and elsewhere
more people will know about it
and it's just such an obviously superior
solution that i i haven't heard a single
explanation as to why
um no no don't earn eight percent and
take less risk and have more
transparency
with your assets earn seven percent less
take more risk
and um give people the ability to change
the rules on you at their discretion
go do that who's going to do that and in
general
on the first two of transparency control
first of all i do
think maybe you can correct me but from
my perspective
they're they're like deeply tied
together in the sense that transparency
gives control
transparency creates accountability and
and there's this kind of
game being played game game theoretic
game where if i know
if you know i'm going to discover your
deviation you're not going to deviate
yes this could be a whole other
conversation but just as a small aside
on the social network side of things
which i've been thinking deeply about
in the past year or so of how to do it
right
there how to fix our social media
and i tend to believe that
human beings if they're given clear
transparency about which data is being
stored how it's being used
where it's being moved about just all a
clear
simple transparency of
how their data is being used and them
having the control
at the very minimal level of being able
to participate
or to walk away and walk away means
delete everything you've ever known
about me
that that will create a much much better
world
that currently there's a complete lack
of transparency on social media how the
data is being used
for your own protection i mean there's a
lot of parallels to the central bank
situation
and there's not a control element of
being able to walk away like being able
to delete all your data
delete your account on facebook is very
difficult
it doesn't take a single click which i
think is what it should take there
should be a big red button that says
delete everything you've ever known
about me or like forget me
so i think that couple together can
create a very
different kind of world and create a an
incentivization
that will uh lead to like progress and
innovation and just like a much better
social network
and a really good business for
the future social networks but so i tend
to see like control
as naturally uh being
a sort of an outgrowth from the
transparency it should all start the
transparency which is why the smart
contract formulation
is fascinating because like you're
you're formalizing
in a simple clear way any agreements
that you're participating in
and as a side comment also what's really
inspiring to me
is that i think there's a greater i
don't know if this is always the case
but it seems like from having talked to
people on the psychological element
there's a hunger amongst people
to for transparency and
for control like transparency another
word for that is authenticity
if you look at the kind of stuff that
people hunger for now
they want to know the reality of who you
are as an individual so that means you
can create businesses you can create
tools that are built on authenticity a
transparency
and then the same i'm inspired by
the intelligence of people if you give
them control if you give them power
that they would make good choices that's
really exciting
of course not everybody but that means
that decentralized power
can create effective systems
so couple that there's a hunger for
transparency so we can move to a world
where everyone's being just like real
you know
conveying their genuine human nature and
people are sufficiently intelligent that
if you're if they're given power
in a distributed mass scale sense that
we're going to build a better world to
that
as opposed to centralized supervised
control where only a small percent of
the population
know what the hell they're doing
everybody else is clueless sheep
i'm i'm so those two coupled together is
really
to me inspiring just to really quickly
comment on the stuff that you just said
which i think is super
super super fascinating um i i think
that's all exactly right
i think everything that you said is is
right and i think it's actually going to
be the same for social media and banking
and every other type of contract
is that all of those systems that house
people's value for them
and take control of of either their
social media value
or their financial value or whatever for
them
all of that is going to be made
available to people in like this
autonomous piece of code that does the
same thing that the centralized entity
used to do
so they get all the features but the
autonomous piece of code
gives them the ability to have control
while getting all the features
right so so banks give you features
social media sites give you features
you know whatever other system that you
use online gives you features
and then it takes your data and it takes
control of your assets from you
in return for those features right i
think the whole big difference here
partly in line with you know the
definition of smart contracts and its
evolution
is that there's this uh now this this
autonomous piece of code
that's giving you all those features
without
requiring the ownership and lock-in
and control and unilateral kind of
ownership of your data or your value
or or whatever it is that that you're
giving it right
and i think what this will lead to
fundamentally
is just more of a free market dynamic
among how
people make i i think with the social
media folks you should you should just
make some kind of law or something where
you can just export all your data from
them
everyone should be able to get their
data exported by another application
and then the network effect of all these
social media sites will kind of crumble
because people will just
combine your twitter data with your
facebook data with everything else
into an application that you control and
there will just be
thousands of different interfaces
competing for how to consume all the
social media data
because it isn't locked in in one
centralized actors control
and so this is this is just the
recurring pattern of what i think all of
this will do
is it'll give peach it gives it gives
people a better deal right it gives them
features
without ownership of data without
ownership of value
and and and that's really the difference
so i think this is a good place to talk
about smart contracts then can you tell
me the history of smart contracts
and the basic sort of definitions of
what is it
sure so i think smart contracts as a
definition has actually gone through
some through some kind of changes or
small evolution
initially i think it was actually a
conception of a digital agreement
that was tamper-proof and could know
things about the world right so it could
get proof
and it could define that something
happened and it could conclude
an outcome and release payment or do
something else that's actually the
definition of smart contracts
that i began working in this industry
with seven or eight years ago when i
started making smart contracts
that is the conception that i had of a
smart contract
then what happened was that was really
hard to do right
building that type of tamper-proof
digital agreement that could also know
things about the real world
and release payments back to people
about those events that were codified in
this tamper-proof format
was actually a very tall order turns out
it's consistent of three parts it's
consisting of the contract
the proof about what happened and you
know the release of value
the way things have evolved so far is
that
the definition has now come to mean
on-chain code
right so it's come to mean the
codification
of contractual agreement on a blockchain
right so there's some code of somewhere
on some blockchain
that defines what the agreement is
now that eliminates the part of the
definition that's related to knowing
things about the world
and it partly eliminates the definition
about payments and and stuff like that
but basically it's it's on chain code
right we in in our recent work on
on the second white paper have actually
put out a different definition
that we call hybrid smart contracts that
actually tries to go back to the initial
definition
that i started with seven or eight years
ago which basically says
that there's some proof somewhere that's
proven to the contract and the contract
can know that
and the contract can gain proof then it
can use that proof to settle
um the agreement that's codified on a
blockchain
so you you both need a mechanism to
provide proof you need a mechanism
to codify the contract in a tamper proof
way on something like a blockchain
and then as with all contracts there's a
presumption that there's some kind of
release of value
so i think a smart contract in our
industry right now
means on chain code which limits it to
whatever can be done on chain
only and then in in our internal
definition for us
and for us at chain link and for me um
it's hybrid smart contracts
which is actually the original
definition it's the it's the idea that a
contract
can both know what happened and
automatically
resolve to to the proper outcome based
on what happened
so you're referring to the chain link
2.0 white paper which is
uh paper that i recommend people look
it's a very easy read and very well
structured and very thorough so i really
enjoyed it
very recently released i guess can you
dig in deeper what is a hybrid
smart contract you mentioned sort of
this idea of data
or knowing about the world and on chain
and off chain so what are the different
roles in this so hybrid by the way
refers to
the fact that it's on chain and off
chain contracts
so maybe digging deeper of what the heck
is it
and what does it mean to know stuff
about the world from
like how do you actually achieve that
yeah absolutely
so the on-chain part is where the
agreement itself is
that's the smart contract itself and
that's where you codify
certain conditions such as the
conditions under which an interest
payment is made or the conditions under
which the the contract pays out the full
amount that it holds
to someone based on a derivative outcome
or something like that
now what the on chain code is very good
at is creating transparency about what
the core conditions of the contract are
it's very good at taking in money from
other private keys that send it
tokens and send it value to hold and
then it's also very good
at returning money or returning value
back to other
addresses or other private keys it can
also be involved in governance it can be
involved
in a few other private key signature
based
operations but primarily the on-chain
part of a hybrid smart contract
from what i've seen so far defines the
agreement
takes in value and returns value uh
based upon the conditions codified in
the agreement on a blockchain
the second and equally important off
chain part
is where the term oracle and oracle
comes in or an oracle mechanism or a
decentralized oracle network
as we describe it in the paper and this
is another
decentralized computational system
that has a different goal right so
blockchains
have the goal of packaging transactions
into blocks
and connecting them in a crypto
cryptographically unique way to create
security and assurance about
that chain of transactions oracles
and decentralized oracle networks
achieve
um consensus and they achieve
decentralization
about the topic of what happened right
so blockchains
structure transactions some of those
transactions might be the state changes
in different pieces of on-chain code and
then those on-chain pieces of code
require
input i think the thing that people get
kind of a little bit thrown by
is despite being called smart contracts
the on-chain code on a blockchain cannot
actually
speak to any other system so blockchains
are valuable and useful as far as
they're tamper-proof and secure
and to be tamper-proof and secure
they're made this kind of walled garden
that is able to know and interact only
with the highly reliable information
that's within that system which is
basically
tokens and private key signatures
all the other world's information is not
available in a blockchain
inherently and a smart contract or a
piece of unchained code can't just say
hey i'm going to go get some data from
over here because the api they would get
it from
creates a whole bunch of security
concerns for the blockchain itself
and a whole bunch of consensus issues
about how to agree on what that api said
or what the truth of the world is right
because it's not even agreeing
on what one api said it's more so
creating a reliable form of
decentralized computation
that can give you a definitive proof of
what happened and not just what one api
said so for example some of our most
widely used networks
have well over 30 nodes and well over 10
data sources that are all providing
information about the same type of data
and then there's consensus on that one
piece of data which is then
written in and essentially given back
into the on-chain code
to tell it what happened because you
can't really make an agreement
unless you know what happened right if
you and me were to make an agreement and
set some contractual conditions
but our agreement could never know what
happened it would be completely you know
useless
however if you and me made an agreement
and there was another system called an
oracle mechanism or decentralized oracle
network that proved what happened
definitively and you and me pre-agreed
that whatever this mechanism says is
what happened
then we can achieve an entirely new
level of automation
right we can suddenly say there's this
piece of unchained code that's highly
reliable
we can give it millions billions
eventually trillions of dollars in value
and it is controlled by this other
system over here that's also highly
reliable
under this configurable set of
definitive truth and decentralization
conditions which we all agree
are sufficiently stringent to control
that much value
and therefore the combination of this
tamper-proof on-chain representation of
a contract
and this uh mutually agreed upon
definition
of a trigger or a proof system
combined is a hybrid smart contract
which as you can see
um probably already does a lot more
than just a contract on chain right can
you talk about this consensus mechanism
which by the way is just
fascinating so there is the on-chain
consensus mechanism of proof of work and
proof of stake
and then there is this oracle network
consensus mechanism of
what is true so how do you
can you compare the two like how do you
achieve that kind of consensus how do
you achieve security
in integrating data about the world
in a way that's definitively true
in a way that is usefully true such that
we can rely on it in making
major agreements that as you said
involve billions of trillions of dollars
right so this is the challenging this is
the challenging question right this is
the challenging
um problem that oracle networks
oracles we at chain link that that we
work on
in order to create this definitive truth
to trigger
and create hyper automation in this more
advanced form
more advanced form of hybrid smart
contracts the the reality i think
of this problem is that it is very
specific to
each use case and it and this
is actually how we've architected our
system is in a very flexible way
so so for example um you need an ability
for an oracle network to grow in the
amount of nodes that it has
relative to the value it secures right
so if you have an oracle network
that secures a hundred thousand dollars
in like a beta of a financial product
maybe it can be fined with owens only
seven nodes and only two or three data
sources
right because the risk to that to that
oracle network is relatively low based
on the value it secures
so the first question is actually how
do you scale security relative to value
secured by that oracle network because
it wouldn't be very efficient to have
a thousand nodes securing a hundred
thousand dollars
worth worth of value so one of the first
questions is
how do we properly scale and how do we
compose ensembles of nodes
in a decentralized way where we can know
that okay we're going from seven nodes
in a network to 15 to 31 to 57
to 105 to you know a thousand right
so that's that's one dimension of the
problem so you have to be scaling the
number of nodes
relative to the value that's that's
derived
from the truth integrated into those
nodes
well that's not the only problem right
the the other side of this is that
you're trying to create
a deterministic result a deterministic
output
from a set of non-deterministic
disparate systems data sources
or places that prove things can you also
just as a decide
what is an oracle node what is the role
of an oracle node
sure so an an oracle node essentially
exists in both places it exists in both
worlds
it exists as an on-chain contract that
represents
either an oracle network or an oracle
node so there's an on-chain interface in
the form of a contract that says
i i exist to give you this list of
inputs
you can request weather data from me you
can request price data from me
you can ask me to send the payment
somewhere like an api so it's a pointer
to uh
api that uh about that that provides
truth about this world
it's an interface so just like an api is
an interface for web 2.0 engineers
um oracle networks and the contracts
that represent
them or individual nodes are the
interface
of web 3.0 use of services
and services includes all services
data payment systems messaging systems
whatever web 2.0 or any
kind of computing service that you can
conceptualize
needs an interface on chain in the form
of a contract that says
here are the services i can provide for
you here are the transactions you need
to send me
to get back this data or that
computation or this result
and then what you actually see is that
the centralized oracle networks because
they're uniquely capable of generating
their own computations in a
decentralized way around
the data that they have access to you
actually see
the centralized oracle networks
generating a lot of these services so
for example
we have a randomness service a
verifiable randomness
function service that basically provides
randomness
on chain and that randomness is then
used in lotteries and various other
contracts that need randomness
but that randomness that's not a piece
of data that comes from somewhere else
we don't go to another
data source and get it we generate it
within an oracle node
that then provides it over into oracle
node or oracle nodes that provide it
into the contracts
themselves so why do you say oracle
nodes are non-deterministic
well they they are as far as they come
to consensus but there's
see there's there's there's this kind of
different problem here right the
blockchains are very focused on
generating blocks of transactions within
a smaller universe of transaction types
a certain block size and a certain set
of conditions
and and then they have a economic system
that says
you i will perpetually generate blocks
of this size
with these transaction types in in this
kind of limited set of
transaction types whether those are utxo
transactions or scripted
solidity or whatever it is oracles and
oracle networks they're um
we don't have a blockchain for example
there is no chain-link blockchain our
our goal is not to generate a certain
set of
very clearly predetermined transaction
types
into a set of transactions that are put
into blocks and will infinitely be you
know done that way
our goal is actually to create what we
call a meta layer
a decentralized made a layer between the
non-deterministic
highly um unreliable world and the
highly hyper reliable world of
blockchains
so that the unreliable world can be
passed through this decentralized meta
layer
and it can co-exist with the with the
reliable chain uh unchained world
exactly it can coexist and in some cases
the meta layer might generate it
so that the problem in in giving you
this straight answer is that there's
just such a wide array of services
right right if you were to say well
sergey how how do we
generate randomness from a data source
well we don't use a data source to
generate the randomness
that's the type of service that can be
generated in an oracle network itself
and so there will be certain
computations that oracle networks
themselves
generate themselves to augment and
improve blockchains
and it is actually the goal of oracle's
to consistently do that so if you were
to think about
the stack in a very generic high level
you would see
blockchains or databases they're
basically the data structures that
retain
a lot of information in this transparent
highly reliable form
smart contract code is the application
logic
it is it is the logic under which all of
this kind of activity occurs
um you know storing data in the in the
data structure in the in the blockchain
as a database in in in a certain
conceptualization of it
and then oracles and oracle networks
are all the services that are used by
the application code
so you know by analogy let's take uber
uber initially
some core code goes and gets the gps api
from google maps about the user's
location sends a message to the user
through twilio
pays the driver through stripe if those
services weren't available to the people
who made uber
they wouldn't have made uber right
because they would have written their
core code on some database
and then they would have had to make a
geolocation company a telecom messaging
company
and the global payments company and they
wouldn't have done that because it's too
hard
and that's the weird scenario that a lot
of people in our industry are in
and that's the problem that oracle's and
oracle networks fix
is they provide these decentralized
services to take
um this developer ecosystem the
blockchain
and smart contract developer ecosystem
from hey
i can have a database and write some
application logic about tokenization and
voting
and private key signing all of which is
super useful and is a critical
foundation
but now if you just lay around all the
world's services
whether that's market data weather data
randomness suddenly people can build
defy
fraud proof gaming fraud proof global
trade fraud proof ad networks
and and that's why this world of
decentralized services and decentralized
oracle networks
is particularly you know in my opinion
important to our industry
yeah it's funny and you you you talk
about that the current sort of
decentralized world d5 but decentralized
services world is primarily just tokens
and it's basically just financial
transactions
and the kind of thing the reason why
it's super exciting the kind of thing
you're doing with chain link and oracle
networks
is that you can basically open up the
whole world of services
to into this kind of uh
decentralized smart contract world
i mean you're talking about
just orders of magnitude greater impact
financially and just
socially and philosophically
are there interesting near-term and
long-term applications that excite you
yeah there's there's a lot that excites
me and that is how i think about it that
it's not just about we made a
decentralized oracle network
it's about we made a decentralized
service or collection of services that's
going from hundreds to thousands
and then people are able to build the
hybrid smart contracts which i think
will redefine what our industry is about
because for example for the people that
only learned about blockchains through
the
lens of nfts they understand blockchains
through nfts
not through speculative tokens or
bitcoins right and i think that
that that will continue i i think the
use cases that excite me
they vary between the developed uh
market that developed worlds economies
and
emerging markets i think in the
developed world
what you will see is that transparency
creating
a level a new level of information for
how
markets work and the risk that is in
markets and
kind of the dynamics that put the global
financial system
at systemic financial risk like 2008 and
my hope is that all of this
infrastructure will
will soften the boom and bust cycles
by making information immediately
available to all market participants
which is by the way what all market
participants want except for the very
very very
small minority that are able to game the
system and their benefit
and benefit from booms but avoid busts
because of their asymmetric access to
information which really everybody
should have and which this technically
solves
i think in the process of doing that and
which is happening i think right about
now
you see a polishing of the technology
such that it can be made available to
emerging markets
and on a personal level i feel that um
the emerging markets will benefit much
more from this technology
just like the emerging markets benefit
much more from the internet
or from those you know 50 android phones
that people can have
because it's it's such a massive shift
in how people's lives work right
i have always had access to books and a
library which has been fantastic and
very important
but there are places in the world where
people don't have libraries
but they now they have the internet and
a 50 android phone
and they can watch the same stanford
lecture that i watch i mean that's kind
of mind-blowing
realistically right they they just went
from zero to one in a very very dramatic
way
i think all of these smart contracts
and in in my case i think the one that i
seem to keep coming back to is crop
insurance
where partly because it doesn't have a
tokenization component partly because
it's actually much more important than
than it might seem um what is crop
insurance
right so exactly so so this this this is
the nature of why it's sometimes
hard to see the full value of what our
industry does because it solves all
these kinds of back-end problems that we
don't have right so
crop insurance is if i own a farm and it
doesn't rain i get an insurance payout
so i don't need to close down my farm
because if it didn't rain
i don't have crops right so people in
the developed world
can get crop insurance and there's
all kinds of systems that basically pay
them out and then they can argue with
the legal
with the insurance company if they don't
get paid out properly and whatever
and this allows people to smooth out
risk
in fact a lot of the global options
markets
were about this right they were
initially about people selling
their produce or their crops ahead of
time so that
if there was a risk of drought they
weren't impacted by it
right and that's where a lot of options
trading and all this kind of stuff came
from
even though it's now turned into this
kind of global casino
but in the emerging market there are
there are literally people that
if they don't have rain for two seasons
they need to close down their farm and
become a migrant worker of some kind
and now they have a 50 android phone
where they can read wikipedia
but they're still decades away from an
insurance company coming to their
geography and offering them insurance
because their local legal system simply
doesn't allow that type of thing to
exist
no insurance companies going to go and
create insurance entity and offer them
insurance
because you know the levels of fraud and
the ability to resolve that fraud
through courts would just not exist
so now these people have to wait for
decades to have this very basic form of
financial protection
or or something like a bank account even
and with this technology they don't
right so with this technology if i have
a 50 android phone
and the smart contract has data from
satellites or weather stations about the
weather conditions
in the geography that my farm is in i
can i can
put value into the smart contract and
the smart contract will automatically
pay me out back pay me back out at m