How Distributed Ledgers Work (w/ Leemon Baird)

cryptocurrencies the future of finance? Or are they just digital tulips? These digital assets are
dividing investors, academics, and entrepreneurs. But they've also made
some of their founders and early investors
incredibly rich. This series gives
you the opportunity to hear from some of the
most influential people in the crypto world. In this episode, you'll hear
from Leemon Baird, the computer scientist behind Hashgraph. If you haven't heard of
Hashgraph, that's OK. The short explanation
is that Hashgraph is a distributed ledger
technology that's similar to blockchain but with
some unique and potentially very powerful features. Here's Leemon Baird to explain. LEEMON BAIRD: So
let's talk about, what are distributing ledgers? A distributed ledger, a DLT,
distributed ledger technology, is a way for a group
of people to come to an agreement,
even when they don't trust each other individually.

Or, more specifically,
it's a way for a bunch of computers
to automatically come to an agreement
on something, even though the owner
of this computer doesn't really trust the
owner of that computer or the owner of that computer. But we do at least trust that
the community, as a whole, doesn't have too many
bad apples in it. So maybe I don't particularly
trust the person running any of these 1 computers. But I trust that
the group as a whole doesn't have a third
of us being evil.

I trust that it's
less than that. There's only going to
be a few bad actors if there's any at all. If you're in that situation,
a distributed ledger can make you trust the
decisions of the group 100%. You can create real
money, cryptocurrencies out of thin air that
then have real value. You can store information and
be guaranteed that everybody is seeing the same thing. I'm not cooking the books and
keeping 2 sets of my records. You can be guaranteed everyone's
seeing the same thing. You can be guaranteed
that we're playing a game and that the rules are
being enforced fairly, even if I don't trust any 1 person. I don't have to trust the
1 person running a server to do the right thing. It's the community as a
whole that is enforcing it. This is an incredibly
powerful concept. And it's fairly new
of being able to have no leader, no one in charge.

We're all equal. And as long as I mostly judge
the group, trust the group, I can trust the
decisions perfectly. And given that foundation, you
can build all sorts of things on top of it. So that's what a
distributed ledger is. It's a way for a
bunch of computers to come to an agreement on
what we did, in what order we did it, and at
what time we did it.

And given that, then we
can see if what we did was actually valid. And then we can see how some
kind of shared information is changing over time. And we'll all agree
about how it's changing. And so we'll all have a
copy of the exact same world in our mind. So one of the most exciting
things in the last decade has been Bitcoin. So what is Bitcoin? What does it do? Why is it exciting? And how does it work? So here's what Bitcoin is. The idea was we want to
have a new kind of money. It's fun to hear
economists talk about it. Cryptocurrencies are a new
kind of money in some ways. They're not really money. They're a different kind of
thing– better in some ways. So what we want to do is
have this kind of money that's not run by any 1 person. It's run by a whole community. And no 1 person is special.

Everybody is equal. And we can trust
that there will only be 21 million coins ever made. Of course, coins here are just
1's and 0's in a computer. But we want to make
sure that we're going to be spending this money
and making sure that the money supply is constant. So each person has some money. And if I give you
some of my money, we're going to make sure
that everybody agrees that I no longer have it. And that you now have it. This is what we need
for cryptocurrency. We need for everybody to agree
on how much money each of us has. And everybody agrees that when
someone transfers the money, it was deducted from
the original person and added to the next person. So the total amount
of money is constant.

So how can Bitcoin achieve
this of making sure that the money doesn't
get duplicated? You don't double spend. I don't spend my 1 coin
at 2 different stores, and now, both of
them have the coin. The way we do it is we come to
an agreement on the ordering of the transactions. And that's basically
all we have to do. If I have 1 coin
that I own and we all agree that Leemon owns 1 coin.

And I spend it at Alice's store. And then I also spend it at
Bob's store at the same time. I'm cheating. I'm trying to buy 2
different things with 1 coin. The community as
a whole is going to have to come to an agreement. That spend at Alice's store
and that spend at Bob's store– which one came first? And then whichever store
they decide I came first at, that store gets
to keep the coin.

And the other store
is out of luck. They got a fake transaction. They got me spending
a coin I didn't own. It's like me selling
you the Brooklyn Bridge. So what we have to
decide as a community is the order and the transactions. And once we have
that, then we can all keep track of where
all the money goes. And so we all agree that the
spending at Alice's store came first.

So we all agree that Alice's
balance just went up 1 coin. And my balance went down 1 coin. And poor Bob doesn't have
anything happening with him. As long as we can agree
on these transactions, and we can agree on
their order, all is well. We have actually created
a new kind of money. Here was the idea for Bitcoin. Any 1 person in our
community that wants to can create a block. A block is just a
list of transactions. And we have this
sequence of blocks. And because we had the
sequence of blocks, and the transactions
are inside, we have a sequence of transactions. And so now, we've put all of
our transactions in order. And we can create
a cryptocurrency. Oh, wait a second– here's a slight problem. Alice tries to add another
block to the stack to the chain. And Bob tries to
add another block to the chain at the same time. The chain forks.

And now, each of these 2
forks, they're growing. But after a while, this
one's a little bit longer. Well, that means
everyone's going to try to add to this one,
because it's the longer one. So we're getting it
even more longer. And then they'll
keep adding to it. It will get even more longer. And pretty soon, we're all going
to realize this one is so long, we can just throw this one away. It's never going
to get extended. It doesn't count. And all these transactions
now get erased, and it didn't happen. And this is a disaster, because
maybe I spent some money in Alice's store in her branch.

And I spent some money on
Bob's store in his branch. And, now, which
one's the real one? I don't know the
ordering anymore. We can't deal with it. The whole system dies, so
we have to do it slowly. The whole core of Bitcoin
is, let's slow it down. We need to make sure that
anybody can add onto the chain, but not very often. We need to make it really slow. So here's what we do. We tell everybody, please
solve a really hard math problem that takes
a supercomputer a really long time to solve.

And when you solve it,
then you have permission to add the next block. ASH BENNINGTON: Leemon
Baird is incredibly passionate about distributed
ledger technologies, which are the kind of networks
that power cryptocurrencies and newer technologies
like Hashgraph. While listening to Leemon
explain how distributed ledgers work, I was struck not only
by the depth of his knowledge, but about how early we are
in the game with distributed ledger technologies. The core challenges
of digital assets are still being sorted out. How do we reach consensus
about the transactions created on the digital ledger? How can we be sure digital coins
aren't spent more than once? How do we validate the
sequence and authenticity of the transactions? Questions similar
to these inspired Leemon to create Hashgraph. But who will find the
definitive answers? And which specific
coins and ledgers will be the ones that
ultimately catch fire? That's something
we'll probably all have to wait a little
bit longer to find out.

Thanks for watching. For Real Vision,
I'm Ash Bennington.

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