Thank you Charlie, let's have another round of applause. Up next, we have Andreas Antonopoulos.

So I may make this a bit difficult for the camera because I hate standing behind the podium. Welcome everyone. How are you, thank you for coming. How many people in this audience own Bitcoin?

So I usually start my question with that. And most audiences that gives me an accurate representation. You gave Bitcoin to every undergraduate, so you ruined my polling ability.

How many of you understand how mining works? Wow, okay. So today I am going to talk about mining. This is the MIT bitcoin expo, not the blockchain expo.

I go to conferences all the time that are blockchain conferences, and not Bitcoin conferences. A couple years ago, when Bitcoin came up in conversation or in the media, it was described as bullshit. Bitcoin, bah. Nerd money, right?

That was my reaction when I first came across Bitcoin until I read the whitepaper. The media continued with this story. Eh, Bitcoin is just silly. It's not going to work. It not working one year, two years, three years, not working four years, the story becomes less and less tenable. You keep announcing that Bitcoin is dead, only to be proven wrong 3 months later and be ridiculed by sites like Bitcoin Obituaries. So if you are a journalist that starts to hurt, so you have to change your song.

So this went from "Bitcoin is bullshit" to "the currency is bullshit, but the technology is interesting". They talk about putting the Federal Reserve in charge, giving the blockchain technology to Visa and they will build something cool with it. So they are triangulating.

And this is a fundamental failure of understanding of what the blockchain is. The blockchain without Bitcoin doesn't work. The blockchain doesn't work without Bitcoin. The blockchain and the technology behind Bitcoin is based on a very careful balance of game theory that creates conditions whereby participants in the network compete to solve a mathematical problem and get reward for it. In competing, and through this arms race, they have escalated this competition to a point of using massive rows of hardware in giant warehouses that consume megawatts of electricity. They are spending real money, as the journalists call it, to pay the electricity bills in order to make Bitcoin.

And this isn't some kind of side effect. This is not an appendage to the system. This is not some kind of weird fascination or get rich quick scheme. This is the entire basis of the security mechanism. You need competition. The competition needs to pit the possibility of pitting honest players against dishonest players. You enforce that by forcing the rules of consensus and you do that if only you give reward.

What happens if that reward is not valuable? Nobody needs to do it anymore. Why would anyone spend real electricity to do it? What would happen if the cost of mining was not expensive? What if you could make mining more efficient so that you are not wasting money securing the network? Well then the cost of attacking the network drops. So now you can attack the network without expending any money. So there's no incentive to do anything honestly.

The careful balance is this: I am going to invest in a load of hardware, I am going to hook this up to a megawatt of electricity and I am going to spend 90% of my profits on paying for that electricity bill. Meaning that if I mess up and I don't follow the rules of consensus and I do not play honestly, as defined by the rules, I will not get rewarded. And I will still have to pay the electricity bill, and this will cost me a lot of money. So it makes it dangerous to play against the rules of consensus. Short term you may win, but long-term you are burning an investment.

If you put all of your money into hashing to attack the network, once you built it and turn it on, you realize that you could attack the network, or you can make yourself some Bitcoin and earn that reward. The game theory makes sure that every time you make that thought, you play the game by the rules of consensus. If you have the hashing power, it is more profitable to play by the rules. You can't have cheap mining. Cheap mining means no risk. And without risk, why have reward?

You can't make mining without reward, because you can't take risk without a reward. You can't have a blockchain without this balance between risk and reward. There is no blockchain without a valuable currency unit.

Right now, Bitcoin is a featherweight in terms of international terms. Bitcoin is a toddler with only a $3 billion "valuation". There are many more corporations that have more money. There are countries with more money. By comparison, Bitcoin does not compete as a national currency. However, Bitcoin is currently running a global level security infrastructure which means that Bitcoin is resistant to international class computing attacks against it. We have bought a world class security infrastructure to run a featherweight class currency. Does that look inefficient? Yeah, it really does. We are securing from multinationals, conglomerates, nation states, etc. Bitcoin is alive despite the fact that it is being relentlessly attacked every day and every minute of every hour. The arms race created by the incentive structure of mining has escalated to the point of delivering world class, international class security for what is still a featherweight currency.

If you look at it, you may say it's sort of expensive for a $2 or $4 billion currency. Well, that assumes that the currency wont grow. That's a fundamental misunderstanding, that mining has to scale as the adoption of the currency scales. We already have world class security from the mining. We don't need a single petahash of more mining to scale Bitcoin to $100 billion or $1 trillion. We could run a $1 trillion Bitcoin network on the current 400 petahashes of mining that we have right now, I don't remember the exact number.

We have bought ourselves a big vault, and it was expensive, and we opened up that giant warehouse vault and we parked a tricycle in it. A kid's tricycle. One time that vault could hold 100 ferraris, and right now it is holding a tricycle and it looks silly, but that's okay. We can grow into it.

And this is important and some people don't understand. When we grow into it, then Bitcoin is not inefficient. If Bitcoin is supporting a national-scale currency in the order of $100 billion or $200 billion or even $500 billion dollars, suddenly Bitcoin is the most efficient payment network and low-cost currency that has ever been built by man. Suddenly it is the most eco-friendly currency on the planet. The carbon footprint on a per transaction basis is minuscule. Right now, it's not. But the beauty about this is that Bitcoin is two completely independent economic systems, with only a single link-- price.

It is an economic system of transactions between its participants. Also, it is a giant industrial economy of mining. These two are related in a loose and elastic fashion. So for those who don't understand how mining works, I will give you a quick analogy to tell you about the concepts. Specifically, the concept of difficulty and adaptive difficulty algorithms. So people are in a competition and the problem gets more or less difficult. For most people, this is hard to understand. The first thing you must not say when you introduce Bitcoin to people is that is a math-based currency. Well, most people are going to ask if they have to solve differential equations to pay for coffee, this is ridiculous, this is terrible. Well, I suck at math too, so that would be my reaction.

An easier analogy, ... how many people are familiar with sudoku? Oh, that's more people than raised their hand for mining. So, sudoku is interesting because it has some strong analogies to mining. It is an asymmetric algorithm. Easier to verify than it is to solve. I show you a completed sudoku. In a few seconds you can run a quick check to see whether it works. I can give you one that is partially full and you can say yep obviously incomplete. Guess what happens when I start scaling that problem up? I make a 10 row sudoku and turn it into a 100 row sudoku. I show you when it is full and completed, you can just take 10 seconds to confirm, alright that looks good. So the effort you put into verification has not dramatically changed. It has gone up linearly. Try solving it though. The difficulty of solving that sudoku has increased exponentially, it is much harder to solve a 100x100 sudoku.

So we fill this room with sudoku solvers. And I give $100 to the first person who solves the sudoku. Just before we start, I put some numbers on the screen and say fill these in. The first person to solve it gets $100. So as soon as you get it, you raise your hand and I verify it and you get $100. Takes you about 10 minutes. People think it is a pretty good deal, let me call my friends at the MIT dorms, and bring in my buddies and we'll make a pool and bus them all in, and soon we will have 100 people showing up to solve sudoku. So when the 100 people show up, it might take you 8 minutes instead of 10 minutes. But then I'll say, hang on, this is not taking long enough. So I will increase the rows and columns by 20%, so that it gets harder. So whenever it takes 8 minutes instead of 10, we can always add 20% more columns. If it takes a bit longer, we make it easier. And if it takes less time, we make it harder.

That's Bitcoin. The numbers you put into the empty sudoku, that's Bitcoin transactions. Others can verify this. The numbers being filled in tells me that you did some work. There's no way that you just came up with those numbers. I know that filling in a sudoku is going to take some time. So you proved that you did work. The sudoku itself, a solved sudoku, upon presentation implies proof-of-work. It shows that you have done the work. As long as the initial input is something that I choose or something random.

That's Bitcoin mining. It started off with Satoshi and others doing it on their laptops. Today it is rows of machines in China from coal and Iceland from geothermal. What this has bought us is world-class security for a featherweight currency.

The beauty of this is that the number of miners in the space has nothing to do with how much money is on the Bitcoin network. Nor how many transactions there are. Only thing that matters is whether it's profitable or not to continue mining.

People sometimes say they read that mining will not be profitable when X happens. I can tell you that mining will always be profitable. The simple feedback loop results in what is known in economics as a perfect market. The difficulty calibration fixes the supply according to the demand. When supply consistently meets demands and it moves in lockstep, participation will only return marginal profits over a long period of time for the most efficient operators. It will drive you to highest efficiency in a brutally competitive market.

Satoshi didn't just invent a new currency. He gave us the world's first perfect market. Which is quite stunning as an achievement. There is no other market that has a tight feedback loop on 2016 blocks every 2 weeks calibrating supply and adjusting price across a global network that is completely decentralized that is supporting an industrial economy at 3,600 BTC per day. This market grew from nothing to a world-class security mechanism in just 5 years.

The next time that somebody says to you "Yeah, I like the blockchain technology, but Bitcoin is silly", or "could we do it without mining", or "I like mining, but could we do it without electricity?" Understand that they don't understand the basic economic principles of the mining market. Without reward there is no risk. Without the careful balance between risk and reward, there is no security for the blockchain, and therefore the blockchain doesn't work in that situation and the currency is valueless.

People who tell you that they want the blockchain without Bitcoin are people who say "We like the lightbulb, but can you do it without electricity? Can't we just do it with kerosene?" Really what they are thinking of is a kerosene lamp. We have already done that.

"I really like this automobile, but it sounds like oil purification is a big hassle. Could we run it with a horse that eats hay? Because we have plenty of that. Yes, but what you're thinking of is the steam locomotive and the horse carriage". We already did that. You can't do light bulbs without electricity, you can't do automobiles without gasoline, and you can't do the blockchain without Bitcoin.

Thank you. I will take, maybe 10 minutes? 9 minutes to take some questions. Please ask the question once you have the microphone. We want the audience to be able to hear it. Thank you.

Q: Andreas, how are you. Thank you for the talk. It's always great. What's the transition, best case, away from fractional reserve banking?

A: What is the transition away from fractional reserve banking? Best case scenario? I think people underestimate the other side. Meaning that, we're not just trying to make Bitcoin succeed. That's part of the equation. But it doesn't exist in a vacuum. There's a context. Over 194 other national currencies. Here's something you don't see on the news, or only rarely. Our generation is currently experiencing a historic event that has not happened in the last 3 centuries. A currency war. A race to the bottom of absolutely unprecedented scale. Never before in the history of currencies have 21 central banks fixed their interest banks at zero and kept them there for almost six years. This has never happened before. Never before in history has a central bank gone to negative interest rates, and then be followed by 6 other central banks. Never before has deflation been occurring simultaneously throughout the world economy. It is not only about Bitcoin succeeding. There's also the collapse of the entire economic system around it collapsing. We are watching. This is not flippant or funny. This is what leads to wars, violence, strife and ash and ruins in real life. The last time we had a currency crisis of this scale, and it wasn't this big, it was in the 1930s. We know what happened next. We are living in a time where every central bank has gone nuts, and everyone is pretending as if nothing to see here. Stock market at all time high, and yet huge amounts of unemployment. Bonds tanking? Stock market exploding. Currency tanking? Stock market exploding. These things are not possible. Rational economics tells us that these things do not work. The small question is what happens next. The big question is what happens and where do we go when the era of central banking dies?

Next question? Who has a microphone?

Q: Your whole premise of the talk is about greed and honesty. As the ecosystem develops and there's more financial derivative instruments, do you see a possible scenario where a derivative instrument with a 51% attack could be used to destroy the system?

A: I think that 51% attacks are overrated as a practical consideration. A 51% attack does not give the attacker a good outcome. It takes a lot of resources. I think that when you reach the point where you have that many resources, well the natural and rational decision is to invest into Bitcoin. An attacker who is not motivated by profit, but purely for destructive reasons, that will force the system to evolve. Bitcoin is decentralized and it is dynamically scalable and can be modified. It is software. And it is not easy to modify it because it requires consensus, but if it is under attack, then the consensus happens more easily. I am very confident that software systems can and do adapt to external threats. When they do so, they become stronger over time. We have seen this. Bitcoin has suffered setbacks again and again and again, and as time goes by, Bitcoin gets stronger, more secure, it gets harder to attack it. It is building immunity.

Q: Everything that I see and read in presentations that you give and what people in this room are doing with Bitcoin, is true. It is solving a lot of problems. Software will solve problems. Technology always solves problems. However, we live in a world where even if that is true, philosophy or what convinces people of things... something like Bitcoin is at the forefront of this giant will of convincing of philosophy, the question now is how do we convince those who invest in Bitcoin that it has this world-class security? When all we hear about is hacking attacks to steal Bitcoin and please don't use the recent incident by the $1 billion stolen from the Russian and Chinese guys with real cash? It's going to get hacked, so you can't use Bitcoin, how do you convince people? How do you convince people out of that?

A: I think we don't convince people to use Bitcoin. I think we work harder on making Bitcoin more useful instead. The simple truth is that if I have to convince an American of the usefulness of Bitcoin, it's an uphill struggle. You are 5% of the population, your bank is not stealing from you actively, the government is only somewhat inflating your currency, and that's the exception. Then there are 193 currencies that are far worse, and most people live in a world different from this. Bitcoin does not require a hard sell because it solves life and death problems for some people in this world. There are 6 billion people who do not have access to banking. They have governments that are actively stealing from them, and is little different from organized crime. Or where the banks are organized crime. The simplest process of securing a future for your children is fraught with risk. As you see an entire fortune of yours destroyed not once but twice or three times in a single generation. In these places, in the places where the only form of technology available is a Nokia 1000 feature phone, where the nearest bank is 100 miles upstream by canoe, and where banking services will never reach-- we have the opportunity to bring 6 billion people into a global economy that they have been excluded from because of politics, cost and efficiency. We have engineered a technological leap-frog event, just like cell phones leapfrogged landlines in Southeast Asia. Every single one of those cell phones can become a stock exchange terminal, a mortgage origination terminal, a microloan terminal. Every phone becomes a banking service. If you bring that to the world, they don't need convincing.

Q: Sounds like you were claiming that the current mining security is enough to sustain a much larger ... wont more miners scale up their operations to claim the reward?

A: If the economy grows, then it depends- the only dependence is on whether the Bitcoin price encourages speculation. The mining industry in terms of say 2014 out, and what we looked at from 2008 to 2014, is that in the first period we are looking at order of magnitude improvements going from CPU mining to GPU mining to FPGAs to ASICs. You are looking at 100x plus improvements generation on generation of chips. That evolution has now run smack into Moore's law and is at the cutting edge of Moore's law at 28 nanometers or below. There is no 100x improvement available at the moment. Bitcoin mining is driving chip fabrication faster than desktop CPUs, which is incredible to even think about it. It may be the first technology that goes below 14 nanometers even before GPUs. We may not see 100x improvements. You cannot outpace the competition because the next generation has not yet been invented. So now mining has to be hyper-efficient in terms of operating costs, electricity price, thermal efficiency, electrical efficiency. That's where we will see improvements. There is no 100x increase possible in the next generation, I predict that we are going to see mining technologies surpass the current state of the art in data centers, and instead start to become the state of the art level of nuclear reactors. You are not looking at a 10 kW air-cooled rack in a data center, but rather a 100 kW submerged in mineral oil in a cooling bath which is really nuclear reactor technology, and that's where you see the next generation of efficiency. The mining industry cannot scale 100x because of physics, but the economy will scale a lot more than that.

Out of time. Thank you so much everyone.