56: How To Launch Your Own Form Of Money

so it's just going to be uh me on today's episode. Uh. Nonetheless, I am very excited about today's episode because we're going to be talking about money. We're going to be talking about digital money, and we're going to be talking to someone who has created their own currency. Everyone is for most people are probably familiar by now with Bitcoin, the cryptocurrency or digital currency that was started by someone under the pseudonym Satoshi Nakamoto. But of course Bitcoin is not

the only digital currency in the world. There are hundreds, and in the case of many of them, the creator or creators are well known, and we have the creator of one of the new coins on the show today. It's a coin that has received a lot of attention a lot of enthusiasm in the digital currency community. It's called z cash, and we are going to be talking

to Zuko Wilcox. He is the CEO of the company that has created z cash, and we're going to talk about how you create a new currency, why you create a new currency, why anyone would use it, and in general this sort of fascinating new world of digital currencies. Zico, Thank you very much for coming on, Thank you for having me. Glad to be here. Yeah, So, uh, why don't we just jump right into it? Uh? What is z cash. It's a cryptocurrency like bitcoin, and it's different

from bitcoin in that it adds some cryptography. It uses some improved cryptography to make it so is that your transactions are not traced in the blockchain, invisible to the public. Right. So people currently think of bitcoin as being you know, anonymous secret um secret digital transactions. But people will say that it's not really that anonymous, that you could sort of figure out, um, who is buying what, and you

could trace purchases and transactions. Ultimately, explain why this explained the misunderstanding and explain the innovation behind z cash, Uh that allows it to be untraceable. Yeah. The misunderstanding is that bitcoin doesn't require the use of your your legal name or your home address or anything like that, uh, in order to transfer bitcoin currency from one person to another. Instead, it just uses these cryptographic, random looking strings to represent

your account identifier. And so in the early days, people thought of this as making it anonymous or making it so that people couldn't tell what you were doing with bitcoin. Um, but that's actually a mistake. It reminds me of the early days of the Internet because I P addresses. They're just four numbers with a dot between them, right, and so, uh, there was a cartoon that said on the Internet, no

one knows you're a dog. Um. People thought that it was inherently impossible for people to tell what you were doing with the Internet, And now we know that's that's quite wrong. And we also know that with bitcoin nowadays, it's quite wrong because the Bitcoin protocol leaves a complete trace of all of the transactions between all of those Bitcoin addresses. What did you accomplish with this currency and sort of the you know, computer science breakthrough that solves

this problem. Ah. So the change we made in z cash is that the transactions are optionally encrypted using cryptography, so that no one who's looking at the open public blockchain can see the details about which address the money came from, to which address it went, how much was transferred, UM, and UM other transaction data like the memo field that you write in what the purpose of this payment is. Now.

One of the reasons people are skeptical about digital currencies, or maybe they're negative on them, is they say, well, yes, there may be some justification for them, but you know, the only thing it makes sense is for crime and

circumventing governments and so forth. And then you come along and say, ah, yeah, not only have we built on top of these digital currencies, but we've even made it more anonymous, which would lead people to think that so they've just made a currency that's even better for crime and the black market. Is that what your currency is good for? No, that's what That's what a lot of people sort of jumped to. But that's not what it gets used for in practice. UM. Neither z cash, which

is brand new UM. It just launched at the end of October, right, Yeah, it's only been out there for a few weeks UM, but it's gotten this incredible uptake all across the world. There are thousands of UH computers and probably more than a hundred countries right now that are running z cash UM and there's no reports or even rumors of any use of it for anything illegal.

And I remember this when the same UH sort of question was asked about bitcoin, like you alluded to, When bitcoin was new, a lot of people either they couldn't get their head around why it could be valid and valuable, or they were just more excited and interested in the in the crime story. But as the years have gone by, the non criminal uses of bitcoin are increasingly important. Right I expect the same will probably happen with z cash.

That the use of a currency like this for crossing borders UM, circling the whole globe UM, and being an open and permission list thing that anyone can plug into and anyone can add their own service or their own business into it without thus making themselves dependent on some you know, third party like PayPal or UH some foreign government or anything like that. With bitcoin, you know, one of the challenges that I've had with sort of wrapping my head around is why is there any value to

it in the first place? UM. And it's sort of like this difficult philosophical question that I think actually applies to all money, and it applies to gold arguably and lots of things. So it's not just a bitcoin, but in other words, like we all you know, people somehow except that there's value to these currencies sort of x nilo. I mean with the dollar, with the U. S Dollar, you could say, well, you have to use the dollar to pay your taxes. Uh, And so that sort of

creates a reason that dollars inherently have value. Um, what how do you answer this question a with cryptocurrencies in general, and then be with a brand new one like why do two separate people on different parts of the globe agree that a z z cash has value to it? And and see, like you say, with with any other kind of currency or or or a gold coin or

anything else, it's a there's a mystery to it. And sometimes people mistakenly think that a gold coin or a or a hundred dollar bill is valuable because it's backed by something else. But that's got to be a mistake because if that were the only value it had, you

could just use the something else. Well. Well, I mean, like you know, the the US dollar is arguably backed by a gigantic army, and there's a law that says you will go to prison if you don't pay the government a certain amount of dollars relative to your income at the end of every year. So, I mean, you could you could see how there are these structures that

buttress the value of fiat money. Yeah, there's there's a there's a buttress, But that can't be the full explanation, because people value it and desire it and use it for purposes beyond paying taxes and getting along with the army. Um. And in fact, you can see with fiat currencies like that, if the people collectively start to value them less and less, then eventually the army and the revenue service also start

valuing them less and less. Right, But how do you get But you know, it seems to me, how do you germinate that in the first place. Yeah, it's a really good question. I remember years of consternation and and and confusion among people when bitcoin was new, where a lot of people said, very decisively, this is impossible, this is a scam, This makes no sense. It you know, it cannot last. It is only somebody's ripping someone else off. And once they're done this is over. And you know,

I thought at the time, I disagree. I think this can last. I think it makes sense. But I'm never going to convince these people. But what is going to convince them is if a few years go by and it's still here. And that's what happened with bitcoin after like you know, about four four years or so of that, then the voices saying that it was impossible and meaningless sort of faded out. Um so, and then how do

we germinate it? Well, you know, ze cash has been, like you mentioned at the beginning of this podcast, remarkably sort of popular, widely, widely anticipated, and widely accepted. And ever since it's launched only a couple of weeks ago, there have been dozens of companies have announced that they've added z cash integration. So there's a company called Purse and you can buy anything you want off of Amazon dot com and pay with the cash, and they give

you a discount because they have access to discounted Amazon points. Um. And there's you know, there are merchants that will sell you T shirts and Neon signs and things like that over the internet and charge you in ze cash. It's a social it's a social activity. It's the fact that it has to be something thing that you care about and you value. But in addition to that, you have to have a group or a community of other people

who also care about it, you know. And I first started trying to wrap my head around bitcoin, I thought that the you know, it's kind of like Facebook in the sense that Facebook would have no value if nobody was there. That's right, And you could create another social network that had all the functions of Facebook and perhaps arguably better. And some have existed, but they've never had any value because nobody was there. It's still not totally satisfying,

but it's it's sort of gets there. That's what economists call the network effect, right, a network effect, it's definitely true of It's definitely true of Facebook and social networks UM, and it's also definitely true of currencies. Currencies are very strongly affected by the network effect. UM. So it's kind

of both. It's both that there's a lot of people out there who value z cash for itself, and there's also a widespread um belief that other people are valuing z cash, so that it's going to you're gonna you know, it's gonna have currency, so to speak. But what really inspires me the most is the people who are who just love it because they love privacy and they think

it's it's helpful to underprivileged people. Uh that it empowers people because it crosses borders and allows people to cooperate who previously weren't able to reach each other to cooperate. And I've had this wonderful experience of people coming up to me just to say, we care about this. My community is on board, and we're glad that this has happening. We think it's important. It kind of makes the head

hurt thinking about where these things come from. But in a way, I think all the good things in life make the head hurt if you try to think them through. Yeah, you know it's it rises from human behavior, and human behavior is one of the biggest mysteries. I want to take a quick break for a sponsor and we'll be right back. But knowledge to work and grow your business with c i T from transportation to healthcare to manufacturing. C i T offer commercial lending, leasing, and treasury management

services for small and middle market businesses. Learn more at c i T dot com. Put knowledge to work and we're back with Zuko Wilcox. He's the CEO of the z cash company um, which is a company that has launched a new cryptocurrency. You know, when we talk about bitcoin, we uh everybody. Most people know that there's this mysterious creator who went by the pseudonym Satoshi Nakamoto. No one really knows for sure who it is. That mysterious origin kind of helps, uh uh sort of adds to the

fascination and allure with bitcoin. Obviously, Zuko z cash is different because there's a company with investors that have launched this currency. Uh explained to us sort of the advantages and this advantages of having specific founders and backers and investors associated with your launch. Well, there are advantages and disadvantages in terms of people's trust. The fact that we have these investors causes some people to trust us more

and other people to trust us less. And the fact that we have a company with employees and a CEO causes some people to have more confidence in the future of our project and other people to have less. Um But the reason we did it was not that consideration. It was in order to be able to fund the work. There's been a lot of engineering effort that we've already put into get this far, and we have a roadmap for pouring in years more of engineering effort to improve

the protocol over the coming years. Tell us about your ceremony when you officially launched the currency. You put put up a blog post about this sort of extraordinary, extraordinarily complex launching event that you did to sort of ensure people that UM you know, is safe and secret and wasn't going to be hacked. Walk us through this sort of elaborate launch that you did. Well, there's a cryptographic value that we needed to produce, uh to use it. It's kind of a public key, crypto public key that

needs to be used in the protocol. He has to be used by all the users, and the associated private key, if it existed, could be used to counterfeit money, so counterfeitsy cash. So we came up with a protocol and a ceremony which allows us to generate that public key without the corresponding private key ever coming into existence. And we call that thing the toxic waste private key UM.

And our analogy is if you have a factory that produces something and as a side effect, it produces these chemicals, These precursors, and individually, each precursor is harmless. But if they all get together and it turns into toxic waste, that's really dangerous and difficult to deal with. So we designed this system to produce the necessary public key and keep all the precursors separate until they could be safely destroyed.

And we executed this protocol with six different people that we recruited from I was one of them, and then five different people that we recruited who we trusted to be competent and not to get hacked while they were doing this, And as far as we can tell, none of us got hacked, so all six of the precursors got destroyed. The details of this ceremony, as you call it,

are pretty interesting. Explain some of what you did, uh, to sort of coordinate these five different people, Well, there were six different people, and uh, the the main goal was to prevent some attacker from hacking all six of us at once and stealing the precursor from each of us. Right.

So one thing we did was that we recruited people who were themselves exceptional computer security experts, and we let them have a degree of autonomy about what sort of defensive measures they would take um so that there would be a variety of defensive measures in play, so that even if an attack or figured out how to hack one of us, you wouldn't figure out how to attack how to hack the others. And then each of us

had an air gapped machine. We went. We did this thing called random purchase, which is you drive to a random computer store without like calling ahead in case the attacker is spying on your phone. Uh So we turned off our phones and we drove. We got an old paper map, remember those got out of paper map, found the computer store on the map and drove there and we walked down the computer store and said, we want

one of these here computers. And then the salesman said, okay, there's there's two sitting here in a box, you know in boxes on the showroom floor, and you can have this one. And we said no, no, we want the other one. He said, okay, fine, you can have the other one, which we did. The whole random purchase process is to prevent the possibility that an attacker could plant a backdoor into the machines. So if you just order

machines from Amazon, it's possible. And in fact, the Snowden disclosures revealed that it's actually practiced that sometimes people intercept your shipment of your computer and open it up and plant a bug in it and then seal it back up and deliver it to your house. Um, so that's why we did random purchase. So people went around in all six in the six different locations across the globe

and purchased a random computer from the store. And then we air gapped them, which means we you know, unscrewed the lid of the computer and pulled out all the radios, all the WiFi and Bluetooth and any kind of networking so that these computers couldn't connect to any network. And then we did all that before we first turned them on.

So now that they're random purchased and air gapped, we feel pretty sure that there's no attacker out there who has a backdoor in any of these computers, at least not a back towards that they can they can use. And then, uh, now that we have these air gapped computers, we still need to deliver the the protocol messages to each computer so that each one can perform it's part of the computation and send its answer back to produce the shared public key. So we decided to use DVDs

to deliver those messages. Yeah, paper maps and DVD this is throwback all the way. So uh so, the messages that got exchanged between the air gapped computers were only exchanged by means of right ones append only DVDs, and that means it produced and an evidence trail of all of the communications that we did during the ceremony. And afterwards we collected those um the recordings of those messages and uploaded them to the Internet archive for historians to analyze.

What else, some of the people did some some fun things. One of them. Three of the participants in the ceremony were anonymous. At the time, only I knew their identities, and three of them were some known computer scientists and

Washington d C policy UH experts and me. And then at the end of the ceremony, as soon as we had finished producing the correct public key and everyone had deleted their own precursor, then we revealed one of the three anonymous people was a well known large information security consulting firm and that they were running their part of the ceremony in their lab under surveillance, and that they were in parallel trying to hack into a copy of

their computer to see how hackable it was. And it all sounds extraordinary, like it sounds like something out of a movie where you that you like a hacker movie, and I get that, like I haven't even told you that. The last let me tell you the last few parts. There were three anonymous people. One turned out to be

an infosyc lab one it turned out nobody. Nobody knew this at the time, but it turned out that he was a well known bitcoin developer, and that he performed his part of the ceremony in a moving car on an empty Canadian highway in the far North because he figured that would make it harder for anyone to hack into his computer during the process. And the last one remains anonymous. So there's your there's your mystery. If you want to have something like Satoshi Nakamoto, it's the sixth

participant in the ceremony. That's exactly what I was about to get at. So part of the ceremony, and we just have a few minutes left. But part of the ceremony obviously is to prove forever in history and theory that there's no way anyone could make counterfeit z cash. But also part of it is just too it appears create a sort of aura and mythology around it that sort of befits the uh sort of mystery of all currency. Well,

I guess that's a convenient side effect. But you know, like since like all currency and language and all these sort of shared social conventions have mysterious origins, it seems like it very much helps to have a sort of fascinating creation myth that would come out of a movie about hackers. Yeah, and and some of the some of the participants destroyed the hardware with fire after, so in future generations children have an excuse to use fireworks on

that day. I'm very eager to see how this works out. I actually, uh, a friend of mine and I had sort of have seriously have jokingly launched our own currency a couple of years ago, called us stalwart bucks uh, named after my Twitter handle. At one point on an Indian exchange. The total outstanding value is about forty dollars. Of all of them, it's now probably zero because I don't think a single one is traded in a year and a half. We gotta leave there, Zucho Wilcox, Uh,

the backer of z cash. We're going to be watching it to see if you can make a dent in the cryptocurrency world. And hopefully maybe we'll have you back on here in a year and we can see what we've see what you've learned. But I really appreciate you coming on today, Thank you very much. But by and uh,

that'll do it for today's Odd Lots podcast. Here's normally where I would talk to Tracy and talk about what we learned on the episode, but um, she's not here, and so I don't think I have anything to add. Thanks for listening everyone. You can find me on Twitter at the Stalwart and you can follow Zoko on Twitter at zooko z z o o Ko. Put knowledge to work and grow your business with ce i T from

transportation to healthcare to manufacturing. C i T offers commercial lending, leasing, and treasury management services for small and middle market businesses. Learn more at c I T dot com. Put Knowledge to Work.