Anna (00:00:05): Welcome to Zero Knowledge. I'm your host Anna Rose. In this podcast, we will be exploring the latest in zero knowledge research and the decentralized web, as well as new paradigms that promise to change the way we interact and transact online. This week Josh Cincinnati and I chat with Jill Carlson, a longstanding expert in the blockchain space who was previously at Slow Ventures. We discuss Jill's journey into crypto, how the old financial system compares with DeFi on the metrics of transparency and privacy. We explore the concept of selective disclosure, Jill's move towards zk and how to get privacy into existing systems. We also look at the role of regulation and more. Anna (00:00:52): But before we kick off, I want to encourage you to sign up for the zkMesh newsletter. This is a newsletter that we send out every month. Next issue goes out at the beginning of August. It's full of updates and new research in the zk space. I've added a link in the show notes. Anna (00:01:06): I also want to thank this week's sponsor Least Authority. Least Authority is a leader in the security of distributed systems. They provide security consulting services, develop open source products and contribute to the advancement of learning and research in the field. This month, Least Authority published a whitepaper on Zero Knowledge Access Passes, or ZKAPs, a protocol that enables users to access services without revealing personal information. Collecting personal data can be incredibly valuable to some services, which is why it's been compared to the new oil. But data can just as often be a liability - or toxic waste - to others. The whitepaper explains the protocol to technical and non-technical audiences alike. Least Authority has also reached a notable milestone this month with the completion of their 100th security audit. To read their published audits, which include multiple projects on Ethereum, Tezos and other notable ecosystems, or to check out the ZKAPs whitepaper, visit their website at leastauthority.com. We've also added the link to this in the show notes. So thank you again, Least Authority! Now, here is our conversation with Jill. Anna (00:02:13): First off, I want to welcome Josh back to the show. Hi, Josh! Josh (00:02:19): Hello, hi. Good to be back! Anna (00:02:23): And for this episode, you're going to be co-hosting with me as we interview Jill. So welcome to the show, Jill! Jill (00:02:29): Thank you so much. It's a privilege! Anna (00:02:30): So I think starting off, I actually want to do a quick catch up with Josh, because I haven't actually seen you in, I think, 4 months or so. And so I want to hear what's new with you. What have you been up to since we last spoke back in, I think, February or so? Josh (00:02:49): Yeah, it was that long ago. I don't remember if I mentioned it back then, but so I'm now advising and on the board of a few projects, I am advising the Sia Foundation, Sia, for those who don't know, is a decentralized storage protocol that is actually getting a lot of great pickup, one of these projects meant to help decentralize the web, in this case, the CDN layer of the web. And then I also, and this is something I think we're going to talk about a little bit more in the episode, is I joined the board of the Mina Foundation alongside Jill and a few others. And we'll talk a little bit more about Mina later, but obviously I'm very excited about that project as well. But to be honest, the most exciting project in my life right now is the fact that my wife and I welcomed our second child into the world just last month. And that has also been the most time-consuming project. But yeah, he's a real, cute little baby. And just going through all those newborn steps with him, and that's just going to consume my life for a couple more months and then decades as we raise him. Anna (00:04:00): So you've been a little busy, maybe outside of the crypto sphere. But I do want to mention something you mentioned back in our first episode of this year, we did a looking forward episode with James and Tarun and you made a comment about, you were like, "We're at the beginning of a run, of a bull run". And I remember being like, "What?", cause at the time it was like "It's too high!" You actually called it, in a way. Josh (00:04:31): Yeah. Well, I guess I did. That might be the first price-related prediction I got right, which of course I never profited from, because that's just the way of the world for me. But then I was, I can't believe how high things got and honestly, how high things still are, it's sort of crazy. But yeah, it's been a nutty six months for sure. Anna (00:04:57): Cool. All right, Jill, I want to say hello. I want to welcome you. I invited you to come on the show in part, I mean, before this, I really only knew you from Twitter, I've always read insightful posts and I think one of the reasons I wanted to invite you onto the show now is I noticed you were moving closer and closer or you entered the zk space. And so a lot of your content starts to overlap with what I'm working on. And I think that's what I want to do with this interview, is understand a little bit what has your journey been to the zk space? So yeah, I think let's kick off. Jill (00:05:34): Fantastic. I'm excited to dive in. I mean, you actually, Anna, have been a key part of my journey into the zk space. Despite having run my own podcast at one point, despite being big in my own way and knowledgeable, I think, about the podcasting space, I don't actually listen to that many podcasts on a regular and consistent basis, but yours is one that I do. And so I'm fangirling over here to be on this show that I've listened to for hours and hours and hours of, and it's funny because I've gotten to know your voice so well, both in the metaphorical sense of your voice in this space, talking about all of this stuff, but also very literally your voice and now to be able to put the face to the voice, it's very cool. So thanks for having me. Anna (00:06:27): There is something funny about being a podcaster, audio only podcaster, where people once in a while will recognize my voice. And I have heard the comment "I thought you'd be taller". Jill (00:06:42): That's better though, Anna, than being known for your Twitter, where you just don't know what to say when people are like, "Oh, I knew you on Twitter!" and I'm like, "Do I apologize for it now? Do I try to make it seem like I'm less insufferable in real life?", but then that might not be actually true as it plays out. Anna (00:07:02): I know there's so much more to you than your persona on Twitter. I actually would love to start from the beginning. We did have one meeting before this, where we got to talk a little bit about what you were doing before. But I think for the listeners, I want to get a bit of an intro to you and what you were doing, maybe a little bit pre-crypto and what led you into it. Jill (00:07:26): Yeah, sure. So let's see. Pre-crypto, I was... Pre-crypto, it was 2012 - 2013. I was working as a bond trader at Goldman Sachs. I was a few years out of college and I'd done the pretty standard route, I would say, for a liberal arts major out of college, which is to jump on, at least at the time, from where I was coming from, it was to jump on 1 of 2 or 3 bandwagons. It was either to go to law school, which was not going to happen for me. It was to go into consulting, which I considered, but I didn't end up getting offers of any of the big consulting firms. Or it was to go to Wall Street. And both of my parents had worked on Wall Street, I grew up around the markets, I grew up with CNBC on TV and Bloomberg News and my parents reading the FT around the breakfast table. And so I had some exposure and interest to all manner of things finance that way, but I hadn't studied finance at all formally. I'd taken intro Economics courses, but I was a history major. But lo and behold, I ended up on bond trading desk, I was trading bonds and then derivatives. So credit default swaps, that kind of thing. This was just post 08 crisis, a few years post crisis, just to set the scene, set the context a little bit. So Wall Street was going through all kinds of upheavals and it was this sort of environment where most of the people around me of course were older than me, had been on Wall Street for a number of years. And they were all grumpy about the way that things were changing, in terms of bonuses being cut, in terms of new regulations coming in and really changing the paradigm that they had known and grown up in and built their careers in. And so that was a lot of the context that got me thinking about just financial systems and the structures of these things and why they are the way that they are. And yeah, it sets the stage for how I ended up getting into crypto. Anna (00:09:34): You've just mentioned you had studied history. Jill (00:09:36): Yeah. Anna (00:09:36): This, by the way, is one of my big hobbies. I never studied history formally. I did a bit of art history, but throughout my twenties, I basically did a self-study constantly. Here in Berlin there's a lot of great museums. And I've traveled around Greece and Rome, I've done a lot of the classics. So I saw in doing a bit of research for this, that you had written your thesis on something to do with Rome. But what I want to understand is how does that transition into finance? You just mentioned that there's these paths for liberal arts, but did you bring anything with you? Jill (00:10:16): That's kind of the joke is that there's no way I think to spin it, in which it very directly translates into finance. You're bringing me back to my job interviews for these things and I'm trying to piece together how on earth I made this degree in ancient Greek and Latin languages and histories somehow relevant to these jobs that I was interviewing for. That was the running joke. But I would say that there are a lot of lessons of history, just more broadly, that once you're aware of that history, whether it's through formal study or whether it's through what you're talking about of just informal reading about it and being exposed to it, you can't help, but mirror things onto what's going on today. We can get into all of that, but there were things around like the 3rd century crisis of the Roman empire, which was this great period of upheaval and when a lot of people started to plot the decline and fall of the Roman empire, from that, I think that you could map onto geopolitics today. And then there's more, there was more concrete things. I would love to get into the parallels with crypto, where you're talking about these ancient civilizations, experimenting with governance and design, communications, networking across these broad areas without the technology that we have today. So that's a whole rabbit hole that we can go down, but I'm also not going to sit here and pretend like my knowledge of the middle voice in ancient Greek in any way contributed to any success on Wall Street. Anna (00:12:00): All right. So let's dive into what I think a lot of the listeners are here for. I feel like we may need to have another history session, maybe over drinks sometime, but okay. So you were working as a banker? Broker? Jill (00:12:14): A bond trader. Anna (00:12:15): A bond trader. And you started to look around, you started to observe changes and you were thinking... Basically help us understand where was the shift towards crypto? What was the moment or what was it that got you into it? Jill (00:12:30): So specifically I would say the thing that got me into it was, I was working with Latin American debt and derivatives, and therefore I was working with a lot of colleagues based in Latin America and specifically Argentina, which at the time was going through a default and a restructuring. I think it was their 3rd restructuring in 2 or 3 decades, just a lot of upheaval, very high inflation rates in Argentina at the time. Also capital controls were in place, so people were not able to freely move their money offshore from the country and all of these dynamics. First of all, going back to historical perspective for a second, you can see these things playing out into a crisis for the country, just knowing a little bit about how these things have played out both specifically for Argentina in the past, but also for other countries that have gone through similar. And a lot of my colleagues down in Argentina were aware of these dynamics and being very proactive about it. And were looking for any way to get their money out of the country and diversify it in offshore, ahead of what they thought would be a hard default restructuring again and, again, continued inflation. And so they got into Bitcoin. This was early 2013, late 2012. And I was catching up with them every morning, the first thing you do, very bleary-eyed, you're getting to the desk at 6:00 AM, especially as the most junior person there. The first thing you're doing is you're getting on the phone with the folks in other time zones who can update you on the markets. So I'd spend an hour every morning talking to these brokers of mine in Argentina. And their enthusiasm for Bitcoin, I was initially so skeptical, because I, at the time, had only ever heard of Bitcoin in the context of darknet markets and idiot friends of mine in college buying drugs online with it and whatever. But there I was convinced by them, "Okay, this is a really interesting thing. This is enabling something in a real economic way for people who've never been able to do this before." These friends of mine would have had very few other options readily accessible to them to get money offshore and Bitcoin was that. And so it was through that lens that I was like, "All right, there's something interesting here." And so with that, I fell down the crypto rabbit hole. Anna (00:15:02): What did it mean for you to start working in this space? What did you do? This is actually maybe a question to everyone out there too. It's when you start in it, either you join a company, but if you don't immediately join a project, what is it? Actually, what did you do? Did you join something right away or did you freelance? Jill (00:15:20): Yeah. So I mean, it's such a funny thing. It's like, "Oh, when do you start counting from?" I've actually struggled with this. People ask me, when did you get into crypto? And I'm like, "Well, do I count from when I first bought Bitcoin? Or do I count from when I first decided that I was going to make this really not just my career, but my life? Or do I start from the first job that I had?" I guess what I would start from here was the decision point of, "Okay, I want to commit myself to this and pivot my professional life in this direction". And that came while I was in grad school. So after a couple of years on the bond trading desk at Goldman, I started applying to grad school programs in economics and international finance and politics, in that intersection. With, at the time that I was applying, a view towards doing a master's maybe even a PhD program in this space, and then coming back and working at a big, fancy hedge fund in New York that was covering, again, these emerging markets countries and living happily ever after in Greenwich, Connecticut. And all of my friends in New York still joke that I got lost on the way to Greenwich, Connecticut, which indeed I did, because basically I showed up at this master's degree program that, again, was supposed to just be on mainstream finance and politics and economics, stuff that I hadn't studied in undergrad, I wanted to fill that gap. By the time I got there... I'd taken the summer off. So I got into this program, wrapped up my work with Goldman, took the summer off. By the time I got there, I went into the professors on the first day who were advising and supervising the program. And I was like, "Okay, I know that this is not what I applied to do, but I want to study this Bitcoin thing, because I think that this is a thing". This was 2015, I guess, the likes of the IMF were just starting to pay attention to it at that point. And thank God they were, because I think that that was the only data point that I had to go into these professors with concretely to be like, "Let me study this". And I ended up writing a dissertation on the use of Bitcoin to evade capital controls. So this very thing that got me into the space, this very thing that I'd seen live. And that was my first formal work in the space. And then following that, or during that program, really, I started applying to every job that there was out there in the crypto space, which of course there were only like, I don't know, 15 companies that existed total, I think at the time. And basically none of them replied to me for 9 months. And then it was sort of a Deus ex machina moment, where out of nowhere in the last week or so of the master's degree program, I ended up getting a job in Silicon Valley. So that was kind of that journey. Anna (00:18:15): Cool. Josh (00:18:17): Speaking as someone who entered into the industry, again with a very fuzzy definition of "entered", I also don't know exactly how to define it, but, I think for me, the promise of the space and the promise of the industry is still very much tied with that original idea, that exists this money or these financial rails that are outside the control of any given governing body in the traditional sense. And I'm wondering for you, Jill, do you feel like that vision is still what is both exciting about what's happening in the industry? Or has it changed or morphed as you've been here for as long as you have? Jill (00:19:02): Yeah, no, I think that that's a great point, Josh. And I think that for me, from the outset, there have always been a few different visions of what this technology, cryptocurrency, blockchain, whatever can offer. And the one that we just covered, my origin story, I guess, of my thinking around is exactly that, it's this technology that enables people to transact and interact financially outside of the traditional system and is maybe in particular serving those who are disenfranchised by the traditional system. And that has always been one thread or theme for me that I think I've been very convinced by. And that has always, in many ways, been my own ground truth of why are we all here? What is this all about? If nothing else, I believe that Bitcoin and similar technologies are going to persist, because they offer this sort of escape hatch for people. I think though that there's also another thread that is worth mentioning, because I think that it overlaps more, in many ways, with the privacy and the zk angle and a lot of the innovation that we've seen in this space over the last several years, which is not necessarily an alternative to the traditional financial system, but almost like a supplement to it or the traditional financial system, just in a better and more efficient and more interesting and more creative form. And that's how I think of, for example, DeFi. That's how I think of CBDC - Central Bank Digital Currencies - which are getting a lot of hype and attention right now, even things like NFTs, a lot of the creative use cases really don't have much to do with in franchising, the disenfranchised, or offering this alternative exterior path to transacting and financial interactions. But they're just these more creative ways of interacting and transacting that get unlocked by all of this. But again, those ways, it's worth mentioning DeFi, I think is likely to be heavily regulated by the end of the day in much the same way that I was there sitting on a trading desk, watching all of these Dodd-Frank regulations and Basel III capital limitations and so forth come into the Wall Street marketplace. I could very well imagine talking to your kids, my kids, whatever in 30-50 years about, "Oh yeah, I remember when DeFi was the Wild West before we had all of these regulations and controls around it". And I think that that's totally valid too. I think that's actually fine if it ends up like that. I don't think that takes away from, again, a lot of the really cool and valuable and creative use cases that are getting unlocked by it. Josh (00:22:10): Yeah. I think you're right. I think it's totally fine if that emerges that way and there's some smart regulation that comes with it so that we're not all yield farming, terrible long tail nonsense, that results in everything... The financial system collapsing every... Anna (00:22:27): It's great while it lasts. Josh (00:22:29): Yeah. It's like, "Oh no, my YAMs are gone now. I can't, my checks are bouncing. How did that happen?" Anna (00:22:36): Not my YAMs, come on! Josh (00:22:36): But I think that that's generally a positive for that industry, part of the industry growing up. But the thing that, and I know this is near and dear to your heart, as well as mine, is the prospect of that regulation effectively enabling more surveillance capitalism, either privately or through the governing regulatory bodies. And it almost seems, when you look at all of them, I'm definitely not an expert in US financial regulation, but I certainly know enough of the history to know that every time there seems to be a law put in place meant to protect consumers in some way, or to prevent criminal activity, stuff like the Bank Secrecy Act, for example, with that comes this tacit acknowledgement that, "Oh, you are going to be much more surveilled than you were before, potentially even near passively". And I'm wondering to what degree you think it's possible for DeFi to evolve that way without bringing with it all of these, what I view as foundational sins of the traditional regulatory framework that we have. Jill (00:23:52): Yeah. No. Well, I don't know if you just teed this up intentionally, but I feel like you've just been perfectly keyed up. Josh (00:23:58): A little bit. Jill (00:23:58): This answer that I'll give you, which loops it all back to zero knowledge and privacy and all of that, which is that I think that in many ways, my experience, albeit brief, of working on Wall Street radicalized me in many ways about my views. Anna (00:24:18): Wow! With regards to this, I'm like... Jill (00:24:20): This system is so messed up and it's so prone to human error and there's all of this compliance burden and overhead being put into things like KYC and AML. And it's not actually really clear, if you look at the numbers around it and you look at the output of how much good that's actually doing. Whereas it's very clear that that is keeping a lot of people out of the financial system, who maybe should or could have access to it. And it's also creating exactly, as you said, Josh, the surveillance state around money and financial flows and, you know, what's the old trope? "Follow the money". Money has become the choke point for controlling and enforcing against criminal activity, but that comes with all of these implications around our own rights to privacy. And I think that that is what's so fascinates me about the whole zero knowledge space and around the innovations of privacy and the breakthroughs in cryptography that are enabled on all of this, is that we can now rethink what we have to share in order to prove that we are not engaging in criminal activity or that we are not doing things that I think that we can probably mostly all agree on. We can get into the fine tuned debate of the libertarians in our space, who would say, "Well, Jill, you have to go all the way to the heart of it and say that the problem is that the government shouldn't have control over any of it to begin with". I don't actually believe that. I think that there are certain things that again, probably most of us can all agree on. We don't want those types of activities taking place, and it's actually maybe even good that we can trace and track some of this. But again, I want to be able to prove those things by sharing with banks, enforcement agents, government, whoever, as little as possible. And I think that that's where a lot of the really interesting breakthroughs are going to happen and start to come through here. Anna (00:26:28): And this is where the zero knowledge proof can start the advent of it and the inclusion of it in blockchain systems, it starts to offer what you're describing, because I guess before, even though there have been attempts through other means, there is this really compelling idea that you can prove something to be true without revealing anything else, simple idea here, but if you can do that, is there a way to function within those systems and actually also potentially show your honesty, show your legality without showing anything else. You don't have to reveal everything to everyone at any time. Jill (00:27:07): Exactly. And this is something that, again, going back to the Wall Street days, which as you can tell were very informative and formative and all of this, but I think about the data sharing that you would have to do even just on a daily basis. So at the end of the day you would have to reconcile all of your trades and you would have to acknowledge your counterparties, who you are and so on and so forth for a lot of the derivative products. And there are a lot of good reasons why you would have to do that. For example, you would have to make sure that you didn't have an excess or outsize amount of counterparty risk with whomever you were facing on some of these swap trades, poor controls around those types of risks for basically how, in part anyway, how Lehman Brothers happened, go back and watch The Big Short it's a great demonstration of how a lot of lack of risk controls ended up building up into all of this. But the problem was, as soon as you would disclose to your counterparty who you were so that they could keep track of their own risk, you were then basically showing them your poker hand. You could come back and use that against them the next day they could come back and use that against you the next day. There were all of these types of dynamics, where some form of selective disclosure would have actually solved a lot of the very real problems and dynamics as traders are facing each other, as banks are facing each other on these trades. And so that was a whole other... I often talk about the Argentina story and this colleague that I had, but a lot of this more nitty gritty, almost like the really boring details of how back office reconciliation works, which of course I hated having to deal with at the time, as the junior kid on the desk, it all flowed downhill and it was my problem at the end of every day, that was actually as informative, I would say, in terms of how I think about, where a lot of these applications might be interesting and become real as the Argentina story. Anna (00:29:14): I want to continue on this topic, because what we're talking about right now is the idea that, by enforcing some kind of KYC, AML or some of the regulation, actually discloses a lot, but your experience in the financial industry, to me as somebody who has not worked in it and who actually has a little bit of a negative view of it since I was quite young, to me, it's the intransparency of it that is so dangerous. And so it's so interesting that what we're talking about now is the transparency, the attempted transparency, is the problem, but can you talk about that flip side? And maybe where does the ZKP flip it? The financial system is intransparent and yet privacy wrecking. It sounds like, that's so weird! Jill (00:30:05): That is such an interesting way of putting it, Anna. And this is why I was so excited to come on here, the conversation, because that actually crystallizes something that I think a lot about, which is that to date, prior to the commercialization of things like zero knowledge proofs, the way that we talked about privacy was basically black or white. It was this privacy and transparency were both these very crude tools that we could use to go after problems. But in every regard you would end up, Josh, as you just said, with the worst of both worlds. And I think that that's very true in the financial services industry, where you're absolutely right. So much of it, by necessity, I think, in many ways is so intransparent, there isn't one big auditable record to show that all of these banks are solvent and to show even exactly how much liquidity is in the money supply of a given country or a given currency. There are all of these ways in which it's so opaque. And again, I think in many cases there's actually decently reasonable reasons for that. But then in other regards, in an attempt to make the financial services industry functioning and in order to be compliant and meet all of this regulatory overhead and so forth, we bring in this very crude tool, in this case of transparency, and implement things like KYC and AML and implement capital requirements on banks and implement requirements of counterparty disclosure and all of these things. That, again, it's weird to say that transparency is causing the problems, but because it's such a crude tool and because we haven't had this ability to fine tune what gets disclosed to who and when and why, because we haven't unlocked this whole spectrum of possibility around privacy and transparency, both sides of it caused problems. And that's actually not something that had even really clicked into place for me, until you just said it, Anna. But I think that it's a really great demonstration of the problems. Anna (00:32:23): And there's one other thing that I think the financial system has done up to date too. And that's to be very patronizing to small investors. And you really witnessed it this year, so it's, let's say, it's intransparent, except when it uses transparencies like a hammer, but then it also patronizes folks that are believed to not know their own ability to invest correctly, without intermediaries. By the way, you're just describing my general feelings about financial system, which is why... I went to business school, but I had a bad attitude about it. So I was like a punk rock kid in a business school being like "Fuck the man!" And yet still had to get good grades and pass the test. So... Jill (00:33:08): I was meanwhile like the scared kid wearing an ill-fitting suit, sitting in this New York bank being like, "What am I doing here? This is messed up. I hate this!", but very quietly and all the time with a smile on her face. So yeah, I respect the open blatant punk rock attitude. I wish I'd been cool enough to adopt that, Anna. Anna (00:33:34): Well you probably got better grades, cause it's a weird attitude to have in a university program. I also realized at the end of all of this, it's like, "What am I trained to do?" And I'm like, "Business. Wait, what?". I wished I had studied history. But anyway, back to this. So the patronizing, I mean, this is my projection on the financial industry, as it was. Let's think about and talk about what has changed? I mean, blockchain brought transparency in a massive way. And at the same time it had pseudonymity, sort of seeming privacy, but that has been all but debunked at this point as anything real. Josh, what would you say, do you think you can still exist pseudonymously on the blockchain? Josh (00:34:24): Yeah, you can. But the amount of effort that it takes, to me, it's similar to the amount of effort it takes to browse the web pseudonymously or anonymously, you really have to put the work in to do it right. And I certainly felt that way. I would say that, and obviously I'm a bit biased from my experience, but I would say Zcash is one of the examples of the easiest possible path toward preserving your anonymity, if you just use shielded addresses, but even the act of just using shielded addresses and the educational challenge of transparent versus shielded. I mean, all those things were just like, it's a giant can of worms that, I still think to this day, is not really resolved on Zcash and certainly not resolved for privacy approaches atop other blockchains that have easy base layer data tracking or data collection ability for lots of folks. And I definitely had personally this misunderstanding, when I started early on thinking that Bitcoin was a purely private system and I think lots of early Bitcoiners had that impression when they started. Anna (00:35:34): What did you do, Josh? You know, it's written on the blockchain now... Josh (00:35:40): It's there, you just have to... I'm sure. If you see men in suits leading me off camera, tell my wife and kids I love them. But I think that that is certainly the impression that most people have. And I think people that are somewhat on autopilot about the way that their activity on the web is tracked, they don't really understand it and then they do. And that doesn't make the tool of the web, as it exists today, or Bitcoin, as it exists today, any less powerful, but it does change the way that you perceive it and interact with it. And then I think start to approach, "Well, how can we fix these things? What are ways in which we can improve this?" And, to be honest, I'd love to hear Jill's thoughts about the state of DeFi today, but the way that DeFi works today terrifies me, absolutely terrifies me. Anna (00:36:35): Let's go back to that finance-to-now. It's like the transparency is there. So it's not as intransparent as the larger financial banks and entities, with these big power makers. Now we know their addresses, we know the power makers addresses, and it's far less patronizing to investors in a lot of ways. The boundary's technical... Jill (00:36:56): For now. Anna (00:36:56): Yeah, I guess you're right. But in general, a lot of people can jump in, if they want to, if they want to put in the time, they're not actually blocked at the door, because they don't have enough money, which the other system seems to block them. But I want to continue on the question that Josh has asked, cause on the privacy front, it's the far end of the transparency spectrum, the privacy transparency. It's a mess. Jill (00:37:18): Yeah. I mean, I was just talking a moment ago, about how on Wall Street, it was this issue of at the end of every day, you would have to disclose who you were and your identity basically. And then therefore kind of your whole poker hand of what you were doing to your counterparties, who, to be clear, are your competitors sitting in front on the poker table from you. DeFi is like that on a continuous, ongoing, rolling basis. You can see in real time who's doing what and where, and you can back into why, and miner extractable value is just one of the many ways for this. Such a topic. I'm almost worried about having brought it up, because I know that you've gone into so many deep dives on this on your show. And then I will not be able to hold water, but just to bring home the point though of why this is such a problem, you can't have that level of transparency in a really functional and incentive-aligned financial system, but you do need to be able to have some degree of auditability within that system, optimally, in order to prove that the system is working and there aren't bad actors breaking the rules within the system and there's sufficient liquidity and so forth. And so that paradox of how do we keep the right things private, but also make other things auditable and provable, that is where it gets really interesting. And that's where, again, to me, I just come back to we have somehow been endowed with this magical math that can seemingly enable some of this. And that's the area that I'm really excited to be exploring. I want to add one more thing though, just quickly, which is to Josh's point though, it's such an educational barrier. In the first place, to educate people about why this is needed and why Bitcoin and other cryptocurrencies and blockchains are not in fact private, they are fully transparent and fully auditable. Every time I talk to someone who's not directly in the crypto space, I am always simultaneously frustrated and also blown away by the fact that I'll say to them, "Oh, well, you know how Bitcoin is not actually private, it's fully transparent?" and I'll have people literally reply, very little context on the crypto space, and be like, "No, Jill, you're wrong. It's fully private." And I'm like, "Eh... It's actually really wrong!" And then you have moments like the ransomware thing a few weeks ago that was tracked down, I think using Chainalysis or at least a similar tool within a matter of hours, and the whole mainstream media is like, "How is this possible?" It's like, "Well, this is a known thing about Bitcoin at this point". And so, Josh, I think that you bring up a great point that the first hurdle in a lot of this, when it comes time for actual adoption, is just going to be not just education, but almost actually bringing people back a step to unlearn what they think they know. And so that's a really interesting challenge of all of this as well. Anna (00:40:39): So going back to the DeFi paradigm, it not having privacy baked in at all, it doesn't seem to be one of the core tenants of DeFi: be private, no way. Everything is very public. In a way the games and the strategies know, the actors know that they're public, they may even use it as marketing. Tarun has brought that up a couple of times, where they'll do a strategy to get people to follow them. But one of the points, I mentioned this all the time on the show, but the idea of trying to put privacy on after seems to be very difficult. How can we bake privacy in at the beginning? I don't know that we can do it in the existing DeFi games, but maybe in something else. Do you have any ideas on how to do that? That's a huge question, I realize. Jill (00:41:29): Yeah, it's interesting. It actually reminds me and brings me back to really where we started the show 45 minutes ago, where I was talking about I started working on Wall Street in this post 08 paradigm, where all of this new regulation, all of these new protocols around what needed to be disclosed and recorded and so forth were coming into place. And the old system, the old guard was railing against it and to a lot of people it didn't really make sense. Then there were also just major, major, major logistical challenges of implementing these new protocols and rule sets and what have you. If you look at the budget that went into compliance across banks between 2008 and 2012, I'm sure it was just astronomical. And I think it's always interesting to think about those parallels of... I am convinced that there is very little that is new in the world that we are doing for truly the first time. And I think that that's a really interesting parallel to draw of if we were to try and introduce new protocols around privacy and what has to be private and what has to be transparent into cryptocurrency and into the DeFi ecosystems, what are the instances where these types of shifts have happened in other places and other financial systems? I think that's one of them. And I think it does speak to the challenges there. Now to get to your question of how do we actually go about that? I mean, I think that there are a few principles that I have around how this will have to play out. And then there's a lot of unknown space. I would say one of the principles that I have though, is that you can't just come in and reinvent something wholesale, altogether at this point, you have to be building off of what exists already. And that goes, very broadly we could be talking about anything really in technology broadly, but I think it certainly applies here to the DeFi space where liquidity is king. It doesn't matter what features and functionality you have, if you don't have liquidity. And if you're not tapping into and connecting into that liquidity that already exists, you're going to have a really hard time of it. And so I think that that's one thing that I think about is just, as we seek to roll out and implement some of these privacy solutions that are coming down the pipeline, we have to be thinking about how those can inter-operate with the existing system and how they can draw liquidity from there. That's probably the key principle really that I would point to in terms of how I think about these things being brought to market. The other thing that I would say is just you have to make sure that you're solving the right privacy problem for the right set of users. Because again, to this point of we're suddenly for the first time opening up this whole spectrum of possibility around privacy of what is private to whom under what circumstances and when, and then what is still auditable and transparent. And there are so many little devilishly tricky ways, I think, to get that wrong. And so you have to be really clear about, "Okay, am I serving the person in the hyperinflationary country who's trying to get their money offshore and is worried about the government being able to have insight into that? Or am I serving the big bad crypto hedge fund who doesn't want to be leaking all of their alpha or be dealing with MEV problems?" Those are two very different privacy paradigms, not to mention the whole scope of other players in the space that you could imagine applying this to. But I think it's really important to be very specific about who you're serving and what that looks like. Anna (00:45:31): Do you see privacy as taking a place in the DeFi ecosystem? Or could you, I know I'm asking you to predict the future here, but do we want to see privacy in every part of DeFi systems? Jill (00:45:41): I think, yes and no. I think there are certain areas, where it is very clear to me that privacy will play a role and will have to play a role. I think that privacy is one part, perhaps one small part, of solving MEV problems. I think that privacy is going to become very important, again, as the players in the space become more sophisticated and become more sensitive about leaking their trades and leaking that alpha, not to get too jargony on that. But then I think that there's also going to be a myriad different ways, in which the no longer quite so blunt tool of transparency will also still play a very important role. And so just as today, just as we have on one end of the spectrum, fully private Zcash and then we have things a little bit more in the middle, although really today it is still the two ends of the spectrum: fully private Zcash or Monero or whatever. And then on the other end of the spectrum, you have things that are fully transparent. I think that that spectrum is going to open up in terms of just what assets look like in terms of the traceability of them. I also think that applies to DeFi applications, where I could imagine a fully private DEX that's operating effectively as a dark pool. I could imagine basically Uniswap as it exists today and other decentralized exchanges. But then I can also imagine a whole range of things in the middle, where privacy is being applied maybe to make trades private to the broader universe, but maybe there are still certain things being proven to counterparties around the liquidity profile of those counterparties, around even the jurisdictions of those counterparties. I could imagine some of this auditability functionality or even disclosures being made to whoever it is that's running the decentralized exchange, to bring it into compliance while also still maintaining privacy to the broader world. There are a lot of different ways that I could imagine that playing out. And so I guess, hopefully, to answer your question, Anna, I don't think it's going to be a blanket thing in one way or the other, but I think that there's going to be this whole spectrum of things. And I think that it's going to be then a question of educating people and making sure that it's transparent, I guess, of what people are interacting with and what the regulatory and compliance paradigm of that is. And then what they're giving up on the other side of that. That's how I would imagine it playing out within DeFi. Anna (00:48:27): Do you think that, given what you know about the existing large players in the financial space, do you think that privacy is actually a must-have for them to adopt crypto? Or do you think they will just ignore their past ways of doing business and jump in? Jill (00:48:44): Yeah, I think that these large financial players, especially on the hedge fund side, where it's a little bit more of the Wild West still there, there's not quite as much scrutiny as, for example, the big banks are under. I think that they are going to go wherever they can find returns. And I think that even if privacy is not rolled out in the way that they might want it to be, even if they have outstanding concerns about data leakage and scrutiny and whatever, I think, yeah, they are a sort of capitalist sharks sufficiently that they will jump in. But that having been said, I do think that even just from a compliance point of view, there are certain things around data privacy, that a lot of these big companies just have no choice, again, like a legal enforcement perspective to comply with. And so I think that that's where a lot of the limitations will come in. And I think that also just from a comfort perspective, never has anyone been able to marry the type of functionality in terms of openness, in terms of auditability, in terms of whatever else that the crypto space can offer, with both data privacy and also compliance before. And I think that if I look at the space today and I look at who the major players are within it, which is still really, it's like a lot of individuals on some level, it's a lot of funds, informal funds, you can even call them that, could have cropped up around the space. And then also more formal funds, whether it's venture funds, hedge funds, whatever that have cropped up around the space, but not a lot of big incumbents are using this stuff, not a lot of big incumbents are using decentralized exchanges. You don't see big corporations using stable coins for cross-border payroll or anything like that yet. There's still so much space to grow the user base of this ecosystem. And I do think that that more broadly will come with the ability to marry, again, data privacy on one side and compliance on the other side. And I think that that's, again, to this spectrum idea. I think that that's something that gets opened up there. Anna (00:51:17): Cool. Josh (00:51:18): A quick follow-up to that. Do you think that it's possible to, given that our industry is so keen on clever incentive alignment, and I think we've talked, maybe there's been a little discussion about this on the podcast before, but I'm wondering on your view of... Do you think there's anything that we can do from a cypherpunk perspective that's purely incentive alignment-based to encourage people to adopt privacy preserving-technologies? Because when you look at the things that exist on, for example, Tornado Cash on Ethereum, it is significantly more expensive to use, if you want to transfer money that way, even though it provides Zcash-like privacy guarantees. And so I'm wondering, do you think it's possible for that kind of a solution to emerge, where there is this incentive somehow that is not a regulatory incentive, although I do want to touch on the regulatory thing in a bit, but I just wanted to get your thoughts on that. Jill (00:52:19): So I love that notion. I am skeptical though. And this goes back also a little bit to Anna's question earlier around how do we go about bootstrapping privacy into things that already exist. In many ways that's what Tornado Cash is doing, creating this privacy-oriented stable coin. I think that incentives, I think in the way that you're alluding to, Josh, like airdrops and like... Look, I think that they play an important role or maybe it's even more complex than airdrops, maybe it's something more ongoing, but I think that they can play a crucial role in bootstrapping a user base around an application or bootstrapping liquidity around it that has clearly played out very well for a lot of projects in the DeFi space. But I think that with something as hairy and as ideological as privacy and in some cases also as practical as privacy, I think that that is, at best, a short term solution just to get a flywheel going. But if that flywheel isn't going to keep spinning on its own, in the sense of people continuing to want to use this, then I think that we're going to be challenged. I think that the more important thing to focus on is just almost like user experience parity, I would say, as opposed to creating incentives of like, "Oh, you're going to get this frosting and the cherry on top and whatever." It's like, "Just make the underlying cake as good as the pre-existing one", if that makes sense. And so I think that you're right to mention the challenge with Tornado Cash of the cost of using it, as opposed to creating some sort of incentive or rebate around it, we just need to make the user experience of it as good as that of using something like USDC, if we want to worry about adoption, which is challenging, but given the pace at which breakthroughs seem to be happening in this space, again, to be clear, I'm not a cryptographer myself, but my understanding of these things, I'm optimistic that we're heading in the right direction. Josh (00:54:35): Yeah, same here. Anna (00:54:37): It's a cool way of thinking about it, you're sort of sneaking it in. I don't need to know that it's there, but it's actually changing the paradigm from the web to data mining version of everything. Jill (00:54:48): I mean, I think that that's true broadly, if you think about how we tend to conceive of privacy or lack thereof in the way that we use technology today. Sure, in the last few years, especially with Cambridge Analytica and so forth, privacy has become more of a topic, but I'll be honest, even though If love this campaign, I think that the whole Apple campaign around privacy is weird to me. I don't think about privacy really, when I'm using iMessage or when I'm taking photos on my iPhone. Anna (00:55:29): I do, I so do. And I'm not doing a very good job, but I'm totally aware every time I send a message that's silly or at all something I wouldn't say, I'm super like, "Oh, man!" I constantly make jokes about someone reading my texts. And it's always on my mind. I don't know about you, Josh. I feel like you're further on that spectrum than I am. Josh (00:55:51): Oh, I'm crazy about it, but I know I'm crazy about it, I know I'm paranoid. But I do wonder, because I think that both views are valid, at least the people that I interact with on a daily basis, there's some people, when I tell them, "I don't want to use Zoom for obvious reasons to me". And they're like, "What is wrong with you? I want to be able to just video chat, let's do it". So I can see both perspectives. Jill (00:56:21): There's a whole thing to unpack, but I so want to dive into, but we're running out of time. But I feel like this is a really interesting dichotomy between me and the two of you about how we approach technology and usability and what we're optimizing for and where privacy sits within that, that I think is actually indicative of the two camps that crypto users tend to sit in of like, for me, I want the thing to work and I want it to be delightful and I want there to be reasonable privacy assumptions around it. But I, at no point, want to be thinking about the optimization of privacy within this thing that I'm using. Whereas I think that the two of you are probably more representative certainly of the audience of this podcast, but I think possibly also more representative of the crypto industry in general, where privacy is something that you are actively optimizing for. And I think that there are two almost different design philosophies, as you look at the way that privacy should play out. Anna (00:57:39): I would make a pretty strong distinction though. I think Josh and I are not on the same level, because I do use Zoom. And I think for me, it's like, I'm conscious of it, I want usability, so I won't go to the lengths that maybe, Josh, you'll go to, to preserve privacy, for sure. I want to move quickly, I need things to work quickly, but every time I do it, I'm hyper aware of it. And that might also be, because I have this podcast, because I talk about it all the time. But I'm just aware. I have the idea that somebody could always be watching. It's kind of screwed up. It's not the best way to live. Josh (00:58:17): And I take it for me, it's... Jill (00:58:20): You're not wrong. Josh (00:58:23): Yeah, you're not wrong. And in my case, I take it to the extreme that for me, every time I send an obfuscated cryptocurrency transaction, and it's usually for something trivial, like sticker packs or merch, but it's a political act of "I'm sending this, you can't look at it, or it would take a lot for you to look at it". And I get a lot of intrinsic enjoyment out of making it a political act every time that I send a transaction that is supposed to be like cash to me, but electronically. And I think that's how I felt when I was doing, when I was doing early Bitcoin transactions without realizing that they weren't private. Anna (00:59:04): Josh, do you feel like you were rug pulled a little bit on that? Did you feel fooled, when you found out? Josh (00:59:11): No, I just felt ignorant, I guess, early on, cause I wasn't... I wouldn't call it a rug pull necessarily, as much as it was a teachable moment for me. And I'm still a huge... Jill (00:59:29): We all went through that. Josh (00:59:30): We all went through it. And I'm still a huge Bitcoin fan, because I think there features of the Bitcoin system that actually aren't emulated in any other protocol and are probably very difficult to emulate in another protocol. Despite I think the perception that it's an old and boring protocol, there's a lot, if you've been here for a while, there's a lot that you find very appealing and strong about the way that it's a very socially resilient protocol in a lot of ways. But it is, I think, that everyone that appreciates it that way, also understands, there are fundamental privacy issues that can't be solved easily, compared to newer problems. And you just have to live with that, that knowledge and be a little sad about it. It's all part of, I think, just like learning the web wasn't really that private, it's the same kind of journey that people go through. To switch gears for a little bit, Jill, you've talked about how regulation is going to be a core part of DeFi in the future. I would love to get your perspective on how we can educate regulators in such a way that we get the ideal kind of regulation for DeFi. And also I want to know, in your view, what does that ideal regulation actually look like? And as close to brass tacks as you can get in terms of how you would even go about deploying some sort of regulatory-compliant Uniswap, for example, how does that look to you? Jill (01:01:03): Yeah, absolutely. So I guess, first and foremost, I want to say when I say, I think that DeFi is going to be regulated, that is not in any way a normative statement on my part. That's not what I want. That's not what I think should happen... Anna (01:01:17): How are you going to regulate DeFi, Jill? [laughs] Jill (01:01:23): I think it's coming. I mean, I think that there's huge opportunity there to educate policy makers and regulators about what this is, as an enabling technology, to enable new types of oversight and enforcement that weren't possible before. And again, specifically what that means to me is regulation and enforcement that only collects the necessary, the bare minimum information that you need, in order to make a judgment about what someone is doing on this system or within this paradigm. And so what you can imagine there is something like a credentialing system, where I might get onboarded via, say, Coinbase, as an American who is KYC and AMLed. And I might be issued therefore a credential to whatever my address is, that then, ideally, I could go around the Web3 ecosystem and demonstrate this credential within the various transactions that I'm doing that could then be audited by select parties to be able to verify like, "Okay, she was onboarded via Coinbase, because Coinbase issued her this credential, she's good to go and good to be doing the transactions that she is". You could also imagine even taking that one step further, where maybe I've also been onboarded via CoinList. And CoinList has also issued me an accredited, back to your the financial system patronizes people, Anna, I've also been issued maybe an accredited investor status credential, and that would allow me to go around and invest in private offerings and things like that. That is a huge leap from the system, as it exists today, that's asking regulators to revisit all of their standards around PII and personal data custody and who has to have it on their books and who has to be the book of record on it and all of that. This credentialing system that I'm describing is not at all how things work today. But I think that that would be an example of a very favorable outcome for everyone, because companies don't want to have all of that data necessarily on their books all the time. The interoperability between companies around KYC and identity management is a nightmare, as it exists today. And I, as the user, don't want to be having to re-verify my data with everyone, as we go. Anna (01:04:13): But once something like that happens, to me, just bringing it back to ZKPs, cause what you're saying is that might come into play, where you have to get accredited somewhere. But I love the idea of like, so sure you were accredited to somewhere in some capacity. Jill (01:04:28): Exactly. Anna (01:04:28): But then having the ability to use that in all sorts of places, without revealing anything else, other than someone legitimate that, according to the system said, you're okay. That being a little bit your passport, but private. Jill (01:04:46): Exactly. That's a very important point, Anna, to bring it back to where ZKPs come into this. And I think that that is the real crux of this to me, of how can we make this such that I'm not broadcasting that information to everyone all the time as we go. Anna (01:05:04): Yeah. And maybe that's where privacy becomes key to DeFi. Maybe it's through regulation coming in. It's almost like if regulators could be educated to understand that cool dynamic that ZKPs offer, maybe they would be up for it, because it's like, "Okay, you want some sort of KYC-type thing and you have the onboard ramps. Okay. But let's make sure that we actually also are protecting people." They talk about protecting investors, let's really understand what protecting investors means, protecting business interests, protecting all sorts of things that they care about. Use zero knowledge proofs on all the other levels potentially for that. This is my hope. We don't have enough time to go into it enough. I'm so rushing against the clock. What a bummer. Jill (01:05:51): Exactly. And I think that it's going to be an interesting question as we move forward here of just how do we frame all of this? Because I do think that framing it as privacy technology, even though I've used the word privacy 800 times in the last 45 minutes here, I think that that could pose challenges to people who've come to learn privacy as a bad word. And so instead we need to be reframing things around the combination of auditability and data security and protection, all of that. But for another time. Josh (01:06:21): Yeah, consumer protection, I think would be a pretty awesome angle. Even though I don't want to live in a compliant way, but I understand why it has to be that way. Anna (01:06:32): All right. So we're pretty much at time, but there is one topic that we have to mention, because it's awesome that the three of us are on this call together. And we are also all involved in an organization. Josh, you mentioned this earlier, so the Mina Foundation, you are a board member there, Jill, you're also a board member there and I'm actually an advisor to the project. So that's something that ties us all together. I am curious, what is this experience for you being part of a project, a zk-focused project already? Jill (01:07:03): Josh has obviously had that experience before. Mina is the first, but not the last zk-oriented project that I I'm working with. And I think for me, it's just crystallized some of these challenges around really defining your user and your use case. And I think that that's something that in many ways, the Mina Foundation has done an amazing job of and O(1) Labs and the rest of the community around the project has done a great job of really identifying the problem that they're going after, which in this case is a combination of privacy and also unwieldy blockchain sizes. But it also just crystallizes for me again, how early we are as an industry in terms of educating around and evangelizing around these types of problems. And I think that there's a lot of scope for opportunity there and I think it's coming. Anna (01:07:59): Cool. In the next few months I hope to be doing a full episode on the Mina project as well, to explore some of those use cases. It is known for very experimental, very new use cases for ZKPs and privacy tech. And I'm excited to dig into that. Sadly, we don't have enough time on this show to go into it with the three of us, but I thought it was worth mentioning anyway. So we're at the end of the interview, but Jill, thank you so much for coming on to the show and having this conversation with us. Jill (01:08:28): Thank you so much. This was a pleasure. Anna (01:08:30): And Josh, thanks for coming back. Josh (01:08:32): Yeah. Anna (01:08:32): I hope to see you again soon. Josh (01:08:35): Yeah, likewise. Anna (01:08:35): And maybe in the coming year, you'll have more time for crypto stuff? Josh (01:08:40): Yes, absolutely. I have plans once my newborn starts sleeping through the night. Anna (01:08:46): Okay. Makes sense. Very cool. All right. I want to say thank you to the podcast producer, Andrey, the podcast editor Henrik, and to our listeners. Thanks for listening.