“In math we trust” — Prof. Shoucheng Zhang

Keynote @ Stanford Blockchain Salon

I’d like to talk to you about my thoughts about the foundation of the crypto economy. All these meetings are usually called blockchain but very likely blockchain will be superseded by other structures such as tree, so maybe it’s not such an accurate description and a more general description could be called crypto economic science.

Economic science has always been viewed as not so precise compared to natural science but crypto economic science could be precise and so particularly in this talk I will draw connections between natural science and crypto economic science and hopefully we enter into a new era where the foundations of this new crypto economic science could be a lot more solid and then we will be able to make more precise predictions.

These days we all talk about blockchain and crypto as a medium of exchange so I’d first like to draw some analogies to help us to ask a question and possibly answer the question about what’s the intrinsic value of a medium of exchange.

In physics, charges can interact with each other at a distance, repelling or attracting, which is like pairwise barter economy where people exchange goods for goods. The interaction actually happens through a medium of exchange — electric field, and similarly in monetary economy, money is the medium of exchange.

What is the intrinsic value of a medium of exchange?

In the physical world, Einstein assigned electromagnetic field an intrinsic value, energy, defined through this equation —

E = hv

In monetary economy, I would argue that the intrinsic value of money lies in its consensus. Let’s compare apple with gold coin, as a medium of exchange. They both have value but apple has really large variance and tends to decay with time, and also an apple’s value can be so different to different participants of economy. So there is no consensus about what is meant by one apple. Gold coin on the other side has consensus. Why? We know how to assess the content of gold and stripes was introduced on coin edge to prevent debasement of the gold coin. And these credits go to Archimedes and Newton. (Why? Check out the video for the two little stories!)

Why does consensus have intrinsic value?

Magnets and bacteria are the two examples from the natural world where consensus are reached without any centralized entity. (Again, details in the video.)

The second law of thermodynamics states that the entropy of the total system always tends to increase, i.e. the natural force always tends to make things more random. High consensus implies more uniform and low entropy, which is counter-intuitive and entropy of a subsystem cannot be reduced without dumping entropy elsewhere(Maxwell’s demon, Fisher-Lynch-Patterson theorem). Therefore consensus is valuable.

And likewise, blockchain system can reach robust consensus by computing mathematical hash functions, i.e. it reaches low entropy by dumping extra entropy through proof of work. People say it is a waste of energy but it is actually fundamental. Some attempts claim they can achieve much faster transactions without energy waste, these can not be possible.

Cyclic evolution of centralization VS. decentralization

In the era of circuit switching, AT&T becomes the centralized monopoly of network resources. Packet switching based on TCP/IP leads to a decentralization network, breaking the monopoly of AT&T.

Fragmentation of web content leads to the centralized content platforms like Google and Facebook. Blockchain technology leads to a new wave of decentralization with self-organized p2p trust and consensus based on math.

Math is the language of God

Among all branches of human knowledge, we have the highest consensus on mathematics. The deepest truth of our physical universe is revealed to us by the most profound equations of theoretical physics, a beautiful application of mathematics to the natural world.

Humanity is now reaching a new era where trust and consensus is built upon math!

Math in the centerpiece of crypto economic science

Public/private key based on elliptic curve.

This makes transaction, signature and authentication possible. Cryptographic hash function.

It has the one-way nature, very hard to compute but very easy to verify the solution. Zero-knowledge proof. Zk-snark and Zk-stark.

Under the condition of privacy preservation we can still do certain kind of computation and this will enable a data marketplace. Secure multi-party computation, differential privacy.

In the case of sensitive survey, or genomics-based computation. Formal verification.

Verify what a smart contract does is what it’s supposed to do. Homomorphic encryption. Dag, directed acyclic graph: money grows on trees!

Blockchain only keeps the longest chain and drops the temporary forks, while DAG gives credit to those forks, making it harder to hack.

Blockchain+AI in symbiosis

AI needs data, but data is monopolized by centralized platforms without an incentive structure so AI as it stands now is broken.

Crypto-economics creates a data marketplace with the right incentive for data providers. It can also do social good. Corner cases are most valuable for machine learning. Therefore, in a fair data marketplace, value of data is measured by mutual entropy. In our society, some minority experiences discrimination, however, in a crypto data marketplace, their data would be valued most. Therefore, crypto-economics could counteract the biases of current socio-economics.

AI can help monitor compliance on the blockchain, perform formal verification of smart contracts, detect malicious manipulations.

The symbiosis of AI+Blockchain can greatly expand the eco-system.

About DHVC

The basic idea is innovation is based on education and research. We are building bridges between academia and investment, US and China.

Some directions that we are excited about are blockchain scaling solutions, tokenization of network infrastructure, privacy preserving genomics and healthcare data marketplace, distributed energy marketplace, tokenized sharing economy, and identity management on blockchain.

Principia

In 1680 Newton published “Principia” which gave the mathematical foundation of all of the natural sciences. And I think with the advent of crypto economy, we’ll have a mathematical foundation of social science and economic science.