About 40 years ago, Silvio Micali and his colleague Shafi Goldwasser wanted to figure out how to play poker together on their phones. They needed a way to ensure that neither of them recognized the other player’s hand.
Two UC Berkeley computer science graduate students have developed what Micali calls “the first secure encryption scheme the world has ever seen.” For their invention, which proved to be vital to the modern Internet, they were awarded the A.M. Turing Prize, which is considered the computer equivalent of the Nobel Prize.
Today, 67-year-old Micali is working on another application of encryption: the blockchain, which is the backbone of bitcoin and other cryptocurrencies. This week at the Milken Institute Global Conference, an MIT professor was promoting Algorand, a blockchain he developed that he says is greener, faster, and more secure than other protocols.
Blockchains are usually described as public ledgers where transactions are recorded on an open network. Validating a set of transactions to add to the ledger is one of the biggest security concerns. Algorand says it is using a new approach involving random selection of its users to ensure transaction blocks are more resistant to hacks that cost crypto holders a record $14 billion last year by one count.
Algorand is one of many new blockchains that seek to transform finance and the modern world by serving as a platform for so-called decentralized smart contracts that can be entered into between people and across borders without government intermediaries.
The announcement at the Milken conference that Algorand would partner with FIFA, the governing body of world football, boosted the price of ALGO coin, making it the 30th largest cryptocurrency on Coinbase on Tuesday with a $4.5 billion market cap. (The market capitalization of Bitcoin is $725 billion.)
Your contributions to modern encryption earned you the Turing Award. What applications does it have today?
It is used to protect many things that go through the Internet. When you send a message to Citicorp, one of the practical by-products of our work is that your browser knows that it is really talking to Citicorp, and not to an intermediary intercepting messages and pretending to be Citicorp.
Bitcoin has been around since 2009. What was your first impression of him?
I got the basic idea. The idea is beautiful, but the solution is somehow not very elegant. We all strive for beauty and elegance in what we do.
One of the criticisms of bitcoin is the energy required to validate transactions and mine new coins. There is a bill in the New York State Assembly that would impose a moratorium on bitcoin mining. Can you describe the energy efficiency of Algorand in terms I can understand?
Bitcoin consumes as much electricity as a small country, and we are going to consume as much electricity as about 10 houses. [Algorand uses a so-called pure proof-of-stake method for validating blocks of transactions, versus bitcoin’s far more energy-intensive proof-of-work system.]
Where are we on the blockchain adoption curve?
We are in a very divided world. We have blockchain 1.0, 2.0, 3.0, 4.0 which I think is Algorand coexisting at the same time. So it’s very unique. If you look at the industrial revolution… you have more and more sophisticated [technologies], so usually not all of these things coexist. We are in a very unique moment where there are extremely complex blockchains like ours and where there are very early generation blockchains that continue to exist at the same time. It is as if Neanderthal and Homo sapiens lived together.
What do you see in 10 years?
The moment the blockchain is used for transactions, the few blockchains that are truly capable of doing very low cost transactions will emerge, in my opinion. As traditional finance begins to infiltrate the blockchain, you will see that blockchains that are truly mass and transactional will accelerate. And a few stocks of valuables [like bitcoin] possibly stay.
New blockchains such as Algorand are being created as platforms for various decentralized applications such as digital currencies, carbon trading and personal identity. However, many people are more interested in buying coins as a speculative investment.
First of all, we cannot stop people from speculating. But what we want to give is the technology that allows people to use our platform for various transactions, including really complex transactions.
Can you provide an example?
So, if you look at stocks, yes, stock settlement time is T plus 2. T is the time you buy a stock, and two is the number of days after which that transaction settles. That is, two days of waiting for a transaction. We settle our [blockchain] transactions in 4.4 seconds today, at the end of the second quarter in 4 seconds and at the end of the third quarter in 2.5 seconds. This is a huge difference.
This future is hard to predict and anyone who logs into a Coinbase account for the first time will be confused by all the cryptocurrencies available to invest. What specific piece of advice would you give to a newbie?
I really believe that you should invest in what you understand. But no one can say that you have to understand the technology, just as you have to understand how flying in an airplane works in order to get on a plane. But you must ask some very simple questions.
The main tool for investing in cryptocurrency is consensus. [verification of the blockchain]. One question I would ask if you want to join the blockchain is “Can I join the consensus process of this blockchain?” This is a very fair question. And if the answer is: “Of course, buy a couple of supercomputers and join us.” And you say, “I don’t have a bunch of supercomputers or the money to buy them.” So I would say be careful.
Any other bad answers?
If the answer is: “You could, but we already have a club. Sorry, you’re not from the club.” Then I must say that you should be concerned.
Got a good answer?
If the answer is not only that you are allowed to join, but that you have the technical means to join because a laptop or something very simple is enough, then I have to say that this means that the blockchain is indeed decentralized. And I believe that decentralization is indeed the main source of security.
Last question. You are a brilliant computer scientist at the Massachusetts Institute of Technology, winner of the Turing Award. Did you lie to us? Could you be Satoshi Nakamoto, the legendary anonymous Bitcoin creator?
[Big laugh.] No, but I can’t prove it.