WEBVTT - Automatic transcript; recognition may contain errors. Reviewed for technical wording and speaker labels. Times match the published episode. 00:00:20.910 --> 00:00:26.510 Live from Utrecht, this is Ethereum Explained. Sjors, we're going to make a 00:00:26.510 --> 00:00:30.710 special episode today. We're going to make an episode about the Tornado Cash 00:00:30.710 --> 00:00:34.310 lawsuit that's going on in the Netherlands. So it will be a bit more 00:00:34.310 --> 00:00:39.740 Ethereum-focused and also a bit more Dutch law-focused. Yep. But first, 00:00:40.140 --> 00:00:46.440 you've been hacking something together. You've been developing something. What's going on? 00:00:46.790 --> 00:00:50.750 It's not so much about hacking things together. We have had support for Lightning 00:00:50.750 --> 00:00:55.830 streaming sats to our podcast for about a year now, I think. And there's some 00:00:55.830 --> 00:00:59.890 podcast players that support podcasting 2.0, for example, The Fountain, but 00:00:59.890 --> 00:01:03.570 there's others, where you can select a certain amount per minute and then it just 00:01:03.570 --> 00:01:08.390 streams those satoshis to our node, basically, or my node in this case. 00:01:09.690 --> 00:01:14.480 But there's another feature that comes with that, which is called boosts. And I 00:01:14.480 --> 00:01:17.660 don't think it's fully developed yet in terms of specs and interoperability 00:01:17.660 --> 00:01:21.940 between apps. So for now, at least when people make boosts in the Fountain app, I 00:01:21.940 --> 00:01:25.020 can see them. But I think there are ways to see them in different apps too that I 00:01:25.020 --> 00:01:29.160 still need to figure out. And so I figured it might be a good idea, as other 00:01:29.160 --> 00:01:35.090 podcasts have done, to read some of the best paying or best boosts but there are 00:01:35.090 --> 00:01:37.490 no guarantees for that so don't get any ideas. 00:01:37.490 --> 00:01:42.530 So so you're kind of planning to do this every episode now is that what's going on? 00:01:42.530 --> 00:01:43.050 Maybe. 00:01:43.150 --> 00:01:45.310 Okay well let's hear it then. 00:01:45.760 --> 00:01:51.580 Okay, so we got a boost on the last episode, 68, where we talked about RBF 00:01:51.580 --> 00:01:53.840 from at MRMR. 00:01:54.420 --> 00:02:01.040 And it was a whole 3,670—no, 74 sats. 00:02:01.340 --> 00:02:01.820 Ka-ching! 00:02:02.200 --> 00:02:07.080 Ka-ching! With the text, great topic, very useful as a node operator to learn 00:02:07.080 --> 00:02:10.120 about both the RBF stuff and how Core is maintained too. 00:02:10.280 --> 00:02:10.500 Perfect. 00:02:10.940 --> 00:02:11.120 Yep. 00:02:11.580 --> 00:02:12.600 Who is this from? 00:02:13.080 --> 00:02:14.520 At MRMR. 00:02:14.520 --> 00:02:19.260 Thank you MRMR for the what was it three thousand something sats? 00:02:19.260 --> 00:02:19.920 That's right. 00:02:19.920 --> 00:02:22.280 Nice. Are we gonna go out to dinner? 00:02:22.280 --> 00:02:23.020 No. 00:02:23.020 --> 00:02:23.780 After the episode? 00:02:23.780 --> 00:02:24.820 No. 00:02:25.140 --> 00:02:27.000 What are we gonna do with all the money Sjors? 00:02:27.000 --> 00:02:28.960 I don't know yet. I'm gonna stack it. 00:02:28.960 --> 00:02:34.870 Stack sats? All right. Yeah so as mentioned this will be a Kind 00:02:34.870 --> 00:02:39.510 of a special episode because there is a lawsuit going on in the Netherlands about 00:02:39.510 --> 00:02:44.910 the Tornado Cash case, which is the anonymity smart contract on Ethereum. 00:02:45.230 --> 00:02:51.090 So this episode will be less about Bitcoin and more about Ethereum and Dutch law. 00:02:51.770 --> 00:02:56.690 Yes, and we'll try to explain what you need to know to understand the case. We 00:02:56.690 --> 00:02:58.010 don't try to explain all of Ethereum. 00:02:59.140 --> 00:03:04.120 Yeah, nor will we explain all of Dutch law. But there's still some... Pretty 00:03:04.120 --> 00:03:10.080 obvious relevance to Bitcoin I think and especially maybe to Bitcoin 00:03:10.080 --> 00:03:15.440 developers developers of Bitcoin apps and of course especially Bitcoin 00:03:15.440 --> 00:03:21.080 developers that may be working on privacy tools yeah because it might set some 00:03:21.080 --> 00:03:26.380 kind of precedent or so that's that's going to be sort of the topic of this 00:03:26.380 --> 00:03:31.440 podcast and why we're talking about this so if you're not interested in that kind 00:03:31.440 --> 00:03:37.220 of stuff you could skip this episode but if you are keep listening. Okay Sjors, 00:03:37.220 --> 00:03:42.720 first of all let's start… so first of all what yeah we were at the pro forma case 00:03:42.720 --> 00:03:45.240 last week so what is this exactly? 00:03:45.240 --> 00:03:51.100 Yeah so it's a hearing where the judge decides whether or not to keep somebody 00:03:51.100 --> 00:03:57.040 locked up for longer pending the investigation. And so it's mostly a formality. 00:03:57.280 --> 00:04:01.600 It's not really supposed to be about the case itself. However, because there was 00:04:01.600 --> 00:04:04.920 a lot of press around, I guess, and maybe for other reasons, they did talk a lot 00:04:04.920 --> 00:04:07.980 about the contents of the case itself. So it took two hours instead of the 00:04:07.980 --> 00:04:09.960 official one hour that was scheduled for it. 00:04:10.260 --> 00:04:11.620 Yeah. So what is the context? 00:04:12.570 --> 00:04:17.190 So yeah, the context is that Alexei P, as we should call him, was arrested in... 00:04:17.190 --> 00:04:19.110 Well, that's a very Dutch thing, right? 00:04:19.590 --> 00:04:23.350 Yeah, we're recording it here. So it's kind of weird because Dutch media will 00:04:23.350 --> 00:04:25.970 always use the first name and then the initial of the last name. But American 00:04:25.970 --> 00:04:29.050 media will only use the last name. So in the end... 00:04:29.050 --> 00:04:34.430 Yeah, Dutch media don't use the last, not the full last name of a suspect for as 00:04:34.430 --> 00:04:35.530 long as he's still a suspect. 00:04:35.830 --> 00:04:39.130 And even after that, because the idea would be that if you Google their full name 00:04:39.130 --> 00:04:40.330 later, you won't find anything. 00:04:40.910 --> 00:04:46.620 Right, yeah. Yeah, I was wondering what I should do as a Dutch journalist, 00:04:46.620 --> 00:04:52.120 but kind of working for an American publication. I just figured... I mean, even 00:04:52.120 --> 00:04:57.400 the free Alexei... I don't even remember his last name right now. They're using 00:04:57.400 --> 00:05:00.120 his last name, so I figured I can just use it, I guess. 00:05:00.500 --> 00:05:04.720 There are some examples of suspects that use their full names, usually with 00:05:04.720 --> 00:05:08.380 permission from them. Anyway, that doesn't really matter. The thing is, he was 00:05:08.380 --> 00:05:11.730 arrested in August. On some sort of suspicion of money laundering but the 00:05:11.730 --> 00:05:16.090 suspicion is still was still very vague at the time and then they get a certain 00:05:16.090 --> 00:05:20.370 amount of time say up to three months to actually come up with a more fully 00:05:20.370 --> 00:05:22.670 fleshed out complaint or charge. 00:05:22.670 --> 00:05:27.870 And well I think you're skipping some things now. So he was charged for money 00:05:27.870 --> 00:05:28.830 laundering why? 00:05:30.010 --> 00:05:32.190 Well, that was still quite vague at the time. 00:05:32.330 --> 00:05:34.590 Okay, but he was a developer of a privacy... 00:05:34.590 --> 00:05:38.390 Yeah, yeah, of course. So it was because he was a developer of the Tornado Cash 00:05:38.390 --> 00:05:41.030 Ethereum smart contract and some of the stuff around it. 00:05:42.390 --> 00:05:46.650 Right. Okay. So, and that was a pro forma case. So that wasn't the actual court 00:05:46.650 --> 00:05:52.190 case yet, but it was just to decide if he should be kept, which English term? 00:05:52.250 --> 00:05:52.570 Detained. 00:05:52.770 --> 00:05:54.130 Detained for longer. Yeah. 00:05:54.290 --> 00:05:54.410 Yeah. 00:05:54.470 --> 00:05:57.830 Which happened. So he's still detained now. So he's been detained for three 00:05:57.830 --> 00:06:00.850 months and now he's going to be detained for another three. 00:06:01.130 --> 00:06:01.450 Yep. 00:06:01.590 --> 00:06:02.050 And then. 00:06:02.650 --> 00:06:04.670 And then they just have another hearing like that. 00:06:05.170 --> 00:06:09.510 Yeah. Just not a pro forma case. Right. So do we know when the actual court case 00:06:09.510 --> 00:06:09.930 is going to be? 00:06:10.090 --> 00:06:10.250 Nope. 00:06:10.650 --> 00:06:16.330 Okay. All right. So that's sort of the context that I think that that's the 00:06:16.330 --> 00:06:22.010 context that our listeners need, right? Okay. So let's move on to this 00:06:22.010 --> 00:06:27.010 actual smart contract itself. Then the thing that he was developing, it was him 00:06:27.010 --> 00:06:30.610 and two other developers, right? But these other developers are not in the 00:06:30.610 --> 00:06:34.190 Netherlands. So he was living in the Netherlands, even though he is Russian, he's 00:06:34.190 --> 00:06:35.490 a Russian national. 00:06:36.710 --> 00:06:40.570 But the other two developers are somewhere else, I guess, in the Dutch… And 00:06:40.570 --> 00:06:45.110 prosecutors, you know, put him in prison, jail for now. 00:06:45.470 --> 00:06:45.570 Yeah. 00:06:46.330 --> 00:06:48.650 Okay, so what is Tornado Cash? 00:06:49.010 --> 00:06:52.750 Yeah, so Tornado Cash is multiple things. And this is kind of what makes the case 00:06:52.750 --> 00:06:57.690 somewhat confusing and also somewhat interesting. So the core of Tornado Cash is 00:06:57.690 --> 00:07:01.330 a set of smart contracts. But you can see it as one smart contract, but it's 00:07:01.330 --> 00:07:05.610 actually multiple ones. That allow you to put in a fixed amount of Ether. So for 00:07:05.610 --> 00:07:09.970 example, 100 Ether or 10 Ether or 1 Ether. You put it in and then you take it 00:07:09.970 --> 00:07:15.300 out. From some other place in a and that's done using zero-knowledge proofs in a 00:07:15.300 --> 00:07:20.260 way that you cannot or at least not naively see which which ETH going in 00:07:20.260 --> 00:07:21.840 corresponds to which ETH going out. 00:07:21.840 --> 00:07:25.420 Or you're saying you take it out from some other place you take it out of the same… 00:07:25.870 --> 00:07:30.690 You take it out of the same bucket, but you take it somewhere else. So in 00:07:30.690 --> 00:07:34.350 Ethereum, you tend to work with accounts. Accounts are just like addresses, but 00:07:34.350 --> 00:07:38.650 they're reused quite heavily. And so you will use one address, one Ethereum 00:07:38.650 --> 00:07:42.950 account to put money into the smart contract. And then you'd use another Ethereum 00:07:42.950 --> 00:07:46.730 account to take the money out of the smart contract. And the way you take it out 00:07:46.730 --> 00:07:50.750 is by... Proving to the smart contract using some sort of fancy zero-knowledge 00:07:50.750 --> 00:07:54.690 proof that you are allowed to take something out of the smart contract. 00:07:55.030 --> 00:07:55.090 Yeah. 00:07:55.290 --> 00:07:58.470 But there's no trace of who took out what. 00:07:58.850 --> 00:08:03.110 Yeah. And I think that we're not going to get into the details of how this 00:08:03.110 --> 00:08:06.570 zero-knowledge works or anything like that. This is just the general concept. 00:08:06.810 --> 00:08:06.890 Yeah. 00:08:07.190 --> 00:08:09.370 It works, or at least it seems to work. 00:08:09.610 --> 00:08:13.310 Yeah, I mean, I'm not an expert in zero-knowledge proofs. My understanding is 00:08:13.310 --> 00:08:18.210 that if the zero-knowledge math is incorrect, then somebody might actually empty 00:08:18.210 --> 00:08:22.270 out the smart contract. That's sort of the trade-off, depending on how they've done it. 00:08:22.640 --> 00:08:26.900 Yeah, well, we can just assume that it works for this case that we're talking 00:08:26.900 --> 00:08:31.440 about, and I think that's all Bitcoiners need to know at this point. So it works, 00:08:31.520 --> 00:08:36.360 but there is a problem, and the problem is fee-related, right? A privacy leak 00:08:36.360 --> 00:08:36.940 potential. 00:08:37.240 --> 00:08:40.180 Yeah, so this contract, you might think, okay, it could just live on its own in 00:08:40.180 --> 00:08:43.140 the blockchain, and it does kind of live on its own in the blockchain, and it 00:08:43.140 --> 00:08:44.320 does not have a backdoor. 00:08:45.790 --> 00:08:49.290 So many Ethereum smart contracts these days have some sort of administrative 00:08:49.290 --> 00:08:54.670 override, but they sealed all that stuff. So that part of the system is pretty 00:08:54.670 --> 00:08:59.530 autonomous and it's just there. But there is an ecosystem around it. And part of 00:08:59.530 --> 00:09:03.050 the reason for that ecosystem around it is that taking the money out is not as 00:09:03.050 --> 00:09:07.610 easy as it sounds. Because there's a chicken-egg problem here. If in Ethereum you 00:09:07.610 --> 00:09:11.130 wanted to do anything with a smart contract, such as getting money out of the 00:09:11.130 --> 00:09:15.770 smart contract, you have to send a command to the smart contract. And this 00:09:15.770 --> 00:09:19.930 command requires a little bit of ETH, called gas, in order to execute the 00:09:19.930 --> 00:09:25.670 command. But you cannot borrow ETH. So if your account is 00:09:25.670 --> 00:09:30.310 zero, then you actually need to... To put some ETH in it before you can then go 00:09:30.310 --> 00:09:35.330 and get it out of the smart contract. And the problem with doing that is that you 00:09:35.330 --> 00:09:41.150 might then accidentally link your original ETH to the other contract. So you have 00:09:41.150 --> 00:09:45.210 one public key or one address where you had your original funds, you put some of 00:09:45.210 --> 00:09:48.610 that in the smart contract, and then maybe you moved some of those original funds 00:09:48.610 --> 00:09:52.750 to another address just enough so you can pay the smart contract to take it out. 00:09:53.250 --> 00:09:57.230 But then any blockchain analytics company could just see that it's probably the 00:09:57.230 --> 00:10:01.530 same person taking the money in and taking the money out. So there's a solution 00:10:01.530 --> 00:10:05.010 for that, and it's called a relayer, which I think is a somewhat confusing term, 00:10:05.070 --> 00:10:10.150 but it doesn't really matter. This relayer is not a... Well, I think it's 00:10:10.150 --> 00:10:14.860 partially a smart contract and it's partially a web service. And what you do is 00:10:14.860 --> 00:10:20.580 you go online to some website and you upload your proof that you got 00:10:20.580 --> 00:10:25.600 when you put the money inside the Tornado Cash. And by uploading that proof and 00:10:25.600 --> 00:10:30.300 saying, I want the money to go out to this address, basically to my new address, 00:10:30.440 --> 00:10:34.920 that service will then call the smart contract for you. So they'll pay the gas 00:10:34.920 --> 00:10:39.160 fees and they'll send you the whatever comes out of the smart contract minus fees. 00:10:41.400 --> 00:10:41.960 Okay. 00:10:43.880 --> 00:10:47.380 So so this is a way to solve the chicken egg problem somebody else is paying your 00:10:47.380 --> 00:10:51.600 gas fees and there's some way to make sure that they can't steal more than they 00:10:51.600 --> 00:10:54.480 say they're going to steal based on the fee right? 00:10:54.480 --> 00:11:00.060 Okay so that's the general idea of how Tornado Cash works and then I think 00:11:00.060 --> 00:11:05.700 the next step would be so here we get sort of to where it gets interesting 00:11:05.700 --> 00:11:09.740 in relation to the court case there's something going on… 00:11:11.280 --> 00:11:11.920 with tokens. 00:11:12.600 --> 00:11:16.320 Yeah, because if we just look at relayers, you could say, well, those relayers 00:11:16.320 --> 00:11:20.600 are taking fees. So you could... I think, pretty easily argue that a relayer is 00:11:20.600 --> 00:11:24.480 at least taking fees, is making money. The original smart contract was not making 00:11:24.480 --> 00:11:30.160 any money. However, as far as I know, Alexei is not accused of running a 00:11:30.160 --> 00:11:33.400 relayer, or at least not yet accused, because they're still sort of drawing up 00:11:33.400 --> 00:11:33.840 these charges. 00:11:34.460 --> 00:11:40.480 Yeah, as we mentioned, the court case hasn't happened yet. We've only seen sort of... 00:11:41.750 --> 00:11:44.770 Trailer. We've seen the trailer of the court case, but we don't know what's 00:11:44.770 --> 00:11:46.210 actually going to... 00:11:46.210 --> 00:11:49.650 Yeah, but I would say based on the rest of what we can discuss in this case, if 00:11:49.650 --> 00:11:53.870 you do run a relayer, you may have a similar problem, but that's not what this 00:11:53.870 --> 00:11:57.490 case seems to be about. You think relayers are interesting, but then the question 00:11:57.490 --> 00:12:01.550 is, everybody could run a relayer. So now as a user, how do you decide which 00:12:01.550 --> 00:12:05.700 relayer to use and how do you actually use the relayer? And for this, there was a 00:12:05.700 --> 00:12:10.600 bunch of other software tools that Alexei and others developed that basically 00:12:10.600 --> 00:12:16.420 made it easy if you have a MetaMask browser or a MetaMask browser plugin to 00:12:16.420 --> 00:12:21.020 just go to a website and click on a few buttons and it would just pick a relayer 00:12:21.020 --> 00:12:24.820 for you and it would do all the complicated stuff that you need to do to use a 00:12:24.820 --> 00:12:30.520 relayer. And that software is kind of where the 00:12:30.520 --> 00:12:35.580 tokenomics come in. And I don't like using this word. But tokenomics it is. 00:12:36.280 --> 00:12:40.220 Because so far you say, why the hell do you need a token for any of this? And the 00:12:40.220 --> 00:12:44.220 answer is you don't. But, you know, some people just like to build tokenomics 00:12:44.220 --> 00:12:49.740 systems. And so there is one. So there is a token called TORN. T-O-R-N. 00:12:50.380 --> 00:12:56.360 And basically what happens is this little website that the users use has a list 00:12:56.360 --> 00:13:02.320 of available relays. And in order to pick a relay, it looks at what's the 00:13:02.320 --> 00:13:06.100 lowest fee. That makes sense. But it also looks at who has staked the most TORN. 00:13:06.860 --> 00:13:10.060 So you can apparently, if you own these TORN tokens, you can stake them 00:13:10.060 --> 00:13:15.440 somewhere, somehow, and that'll give your relay priority over other relays, at 00:13:15.440 --> 00:13:18.880 least to the users of that software. So that's not enforced in the consensus 00:13:18.880 --> 00:13:23.380 anywhere. So now you can say, okay, so there's a reason to own this TORN token, 00:13:23.540 --> 00:13:28.100 namely for your relays to be more popular. So that's sort of a tokenomic story. 00:13:28.220 --> 00:13:31.500 And that comes back in the case, basically, to bite them. 00:13:32.720 --> 00:13:37.140 Okay, first of all, Sjors, this all sounds very Ethereum-y. Why do you know all 00:13:37.140 --> 00:13:39.620 this? Did you research all of this just for the podcast? 00:13:40.300 --> 00:13:42.740 I've been researching some of this stuff over the last few months. 00:13:42.940 --> 00:13:44.360 Because of the court case. 00:13:44.600 --> 00:13:48.480 Yeah, my approach with a lot of altcoins is to ignore them until something 00:13:48.480 --> 00:13:52.100 explodes. But I have in the past worked a little bit with Ethereum too. So I have 00:13:52.100 --> 00:13:55.180 some background understanding of how it works. But I don't want to say I'm 00:13:55.180 --> 00:13:55.940 completely up to date. 00:13:57.450 --> 00:14:03.170 Okay, well, so... Tokenomics all sounds fantastically futuristic 00:14:03.170 --> 00:14:08.640 very exciting but there's also something going on and I think this is 00:14:08.640 --> 00:14:12.620 where it really gets relevant for the court case because as you mentioned 00:14:13.950 --> 00:14:19.870 The whole relayer thing doesn't seem to be the issue here for Alexei, even 00:14:19.870 --> 00:14:23.670 though he might be running a relay or not. We'll have to see, or maybe we'll see 00:14:23.670 --> 00:14:24.230 all about that. 00:14:24.350 --> 00:14:27.650 I think so far they're saying he's not. At least the defense is saying he's not. 00:14:27.950 --> 00:14:33.210 So there's a double function for the token. And that is where it gets relevant 00:14:33.210 --> 00:14:37.710 for the court case potentially, or it seems like it, which is governance. 00:14:38.090 --> 00:14:42.010 Yeah, I think they're both relevant for the court case, but governance is the 00:14:42.010 --> 00:14:43.890 second reason why they may be very relevant. 00:14:44.190 --> 00:14:49.670 Yeah, so supposedly this is, here we get another great Ethereum term. It's a DAO. 00:14:50.710 --> 00:14:55.630 And there's a token involved that does something governance-y. And you're going 00:14:55.630 --> 00:15:00.210 to explain us all about the governance-y, Ethereum, DAO, token-y stuff as well now. 00:15:00.490 --> 00:15:05.070 Yeah, but this is where I have to disclaim that I'm not super up to date on how 00:15:05.070 --> 00:15:07.810 it works. And part of the reason is because it's just not that well documented. 00:15:08.210 --> 00:15:12.530 And some of the documentation got wiped out with the original sort of OFAC 00:15:12.530 --> 00:15:16.310 sanctions where lots of websites started disappearing, which made it more 00:15:16.310 --> 00:15:17.190 difficult to understand. 00:15:17.910 --> 00:15:19.810 Sorry, what websites were disappearing? 00:15:20.170 --> 00:15:23.950 Well, tornado.cash, some documentation sites, everything hosted by GitHub. 00:15:24.710 --> 00:15:27.530 Oh, really? So it was taken down? 00:15:28.750 --> 00:15:29.110 Preemptively. 00:15:29.410 --> 00:15:29.670 Oh, really? 00:15:29.830 --> 00:15:33.110 So not by the government. It was basically companies like GitHub, which is run by 00:15:33.110 --> 00:15:36.550 Microsoft. Their compliance team just shut everything down. It was remotely 00:15:36.550 --> 00:15:39.230 related to a Tornado Cash. And some of that stuff got back. 00:15:39.990 --> 00:15:40.350 Interesting. 00:15:40.870 --> 00:15:43.670 But that made it a bit more difficult for me to study how the whole thing works. 00:15:43.850 --> 00:15:48.270 So I may be a little off on the tokenomics and some other podcasts maybe will 00:15:48.300 --> 00:15:50.600 explain it better. But the governance anyway… 00:15:53.700 --> 00:15:57.560 So one thing you can do with it, DAO basically just means you have a smart 00:15:57.560 --> 00:16:00.780 contract and the tokens give you a vote in that smart contract. That's probably 00:16:00.780 --> 00:16:06.220 the simplest way to say it. And then how the voting exactly works depends on how 00:16:06.220 --> 00:16:08.800 you've implemented the smart contract. So it might be that you need a full 00:16:08.800 --> 00:16:09.600 majority change. 00:16:09.980 --> 00:16:14.300 Yeah, so editor, Sjors’s got a neighbor who's drilling holes in his walls today. 00:16:15.550 --> 00:16:21.050 So I guess we're sort of occasionally taking a break until he stops. And 00:16:21.050 --> 00:16:23.810 hopefully you can kind of edit this out as well as possible. 00:16:25.060 --> 00:16:26.140 Yep. Do you remember? 00:16:26.560 --> 00:16:26.640 Yeah. 00:16:26.860 --> 00:16:28.120 Just keep going, I guess. 00:16:28.830 --> 00:16:33.190 So DAO means that you have tokens, those can vote, and the way the voting works 00:16:33.190 --> 00:16:36.610 will vary depending on the implementation. You could have, say, if you want to 00:16:36.610 --> 00:16:40.950 change anything about the rules, then you need a 51% vote, or you could say, 00:16:41.030 --> 00:16:45.150 well, it's 51% of the people who show up to vote, stuff like that, whatever. One 00:16:45.150 --> 00:16:50.170 of the things you might be able to vote for... Is the little website that people 00:16:50.170 --> 00:16:55.010 see. And this is where I'm not entirely sure if it actually works this way, but I 00:16:55.010 --> 00:17:00.650 suspect it did. The website you see when you go to your MetaMask browser to 00:17:00.650 --> 00:17:05.410 tornado.cash can be hosted on something called the Interplanetary File System, 00:17:05.590 --> 00:17:08.890 which is a nice distributed sort of file system out there. 00:17:09.860 --> 00:17:11.540 And you identify files… 00:17:11.420 --> 00:17:13.340 This is all Ethereum stuff, right? 00:17:13.540 --> 00:17:16.260 No, IPFS exists outside of Ethereum. 00:17:16.480 --> 00:17:16.820 Oh, okay. 00:17:17.640 --> 00:17:20.800 Basically, it's just a distributed file system. I don't know all the trade-offs 00:17:20.800 --> 00:17:25.880 of it. But kind of like Tor in the sense that you have a hash of a file and 00:17:25.880 --> 00:17:30.820 that's how you identify it. So you give the file system a hash and it somehow 00:17:30.820 --> 00:17:35.260 finds the original file and presents it to you. And this is interesting because a 00:17:35.260 --> 00:17:39.240 hash actually is a checksum of the contents of the file. So in this case, you 00:17:39.240 --> 00:17:43.740 might have a hash that represents a specific piece of HTML and JavaScript and all 00:17:43.740 --> 00:17:44.280 this logic. 00:17:45.620 --> 00:17:50.640 And... Like I said, the little website you get when you use MetaMask controls 00:17:50.640 --> 00:17:55.780 which of the relayers you're going to use, and controls how the tokenomics 00:17:55.780 --> 00:17:59.340 actually pick the relayer. So this is not implemented in a smart contract, this 00:17:59.340 --> 00:18:02.780 is implemented in a website. The website basically just tells your browser, go 00:18:02.780 --> 00:18:08.400 and pick this particular relay. So if you control which website the user 00:18:08.400 --> 00:18:13.580 sees... Because you can decide which hash the user's website is going to look 00:18:13.580 --> 00:18:19.300 for, that gives you some control over the system. And in theory, you can have the 00:18:19.300 --> 00:18:24.620 smart contract itself point to a specific hash. 00:18:25.280 --> 00:18:30.140 So then you could have a DAO that could vote over which hash gets to be the real 00:18:30.140 --> 00:18:34.960 website for the end user. And then, of course, if you control the majority of the 00:18:34.960 --> 00:18:40.580 DAO tokens or somehow manipulate the vote, then, well, you control the website, 00:18:40.580 --> 00:18:44.400 and that basically could be an argument to say that you are in control of a 00:18:44.400 --> 00:18:49.190 certain system or not. Obviously none of this has been fleshed out by the 00:18:49.190 --> 00:18:53.010 prosecutor in enough detail and I feel sorry for whoever actually has to do all 00:18:53.010 --> 00:18:57.150 the tokenomics both on the side of the prosecutor explaining why tokenomics are 00:18:57.150 --> 00:19:01.710 or are not actually decentralized I mean another defense to try and explain why 00:19:01.710 --> 00:19:02.170 they're wrong. 00:19:02.170 --> 00:19:06.930 Yeah and I feel bad for the host of this podcast having to listen to all of this 00:19:06.930 --> 00:19:10.830 and try to understand no I'm joking I think it's actually kind of interesting. 00:19:11.600 --> 00:19:15.520 I'm just happy that we don't usually make an Ethereum podcast, I guess. 00:19:15.940 --> 00:19:16.060 Yeah. 00:19:16.340 --> 00:19:21.860 But I want to clarify one thing before we move on. So we have mentioned this, but 00:19:21.860 --> 00:19:26.220 it's worth kind of repeating this. So we're talking about all this tokenomics and 00:19:26.220 --> 00:19:31.720 governance and how it might work or might not. But this is kind of separate. 00:19:32.040 --> 00:19:37.760 So this is still separate from the actual mixing tool, right? This is all 00:19:37.760 --> 00:19:40.200 relevant to the relayers, which is sort of... 00:19:40.850 --> 00:19:45.930 Yeah, the analogy I made yesterday in our preparation is of a lake. And so you 00:19:45.930 --> 00:19:49.990 could say the original smart contract, the original Tornado Cash core smart 00:19:49.990 --> 00:19:54.070 contract could be like a big lake with lots of fish in it. And that's where all 00:19:54.070 --> 00:20:00.050 the money is. But then the Alexei and others built a whole nice little harbor. At 00:20:00.050 --> 00:20:04.050 the side of that lake that way you can rent boats to go on the lake and etc etc 00:20:04.050 --> 00:20:08.550 but in principle anybody can do that they don't have monopoly control over the 00:20:08.550 --> 00:20:12.570 lake itself and so if you shut them down or even if you shut those those helper 00:20:12.570 --> 00:20:15.710 smart contracts down because that's kind of how it works you have a main smart 00:20:15.710 --> 00:20:19.030 contract and a bunch of helper smart contracts around it the lake is still there 00:20:19.030 --> 00:20:22.450 and somebody else could use it. And in fact, you can just copy paste the whole 00:20:22.450 --> 00:20:23.830 smart contract and create another lake. 00:20:23.950 --> 00:20:27.430 They probably did also build the lake though, right? It's just, they're just 00:20:27.430 --> 00:20:28.330 different smart contracts. 00:20:28.730 --> 00:20:32.710 But the lake, the analogy with the lake, I make it because that smart contract is 00:20:32.710 --> 00:20:33.370 closed. 00:20:33.610 --> 00:20:35.450 It doesn't have the DAO stuff going on. 00:20:35.730 --> 00:20:40.530 And it's sort of frozen the way it is. And the prosecutor even mentioned this 00:20:40.530 --> 00:20:46.030 sort of in their opening statement saying, well, if it was only a smart contract 00:20:46.030 --> 00:20:49.790 that was created a long time ago and not touched, we wouldn't be here. But in 00:20:49.790 --> 00:20:55.720 fact there's much more going on so what that says is that perhaps if 00:20:55.720 --> 00:20:59.400 you do make a smart contract that is immutable and you don't touch it anymore and 00:20:59.400 --> 00:21:03.840 you're not doing any governance stuff then maybe you might be okay according to 00:21:03.840 --> 00:21:07.940 them which of course is all just their opinion it's not been you know checked by 00:21:07.940 --> 00:21:08.380 any judge. 00:21:08.380 --> 00:21:13.340 Okay so we've discussed the DAO kind of stuff and the tokenomics at least to an 00:21:13.340 --> 00:21:16.700 extent that we sort of cover that well enough I think? 00:21:16.700 --> 00:21:19.500 I think so I mean we can cover some of the compliance tools they built but maybe 00:21:19.500 --> 00:21:21.320 we can do that later as we yeah 00:21:22.280 --> 00:21:26.040 So the first thing I want to mention here is that so when did when his arrest 00:21:26.040 --> 00:21:32.020 when Alexei’s arrest first made the news the general impression 00:21:32.020 --> 00:21:37.920 or the general what people thought was that he was arrested for writing free 00:21:38.300 --> 00:21:44.100 software open source software yeah and it now seems at least in the 00:21:44.500 --> 00:21:50.480 you know preview court case or whatever the pro forma it seems that there's 00:21:50.480 --> 00:21:54.740 that that's not really the reason or at least that's not the complete reason or 00:21:54.740 --> 00:21:58.460 that's not the full reason because it seems like it has a lot to do with the 00:21:58.460 --> 00:22:03.660 tokenomics yes because the prosecutor suggested that Alexei and the other 00:22:03.660 --> 00:22:08.000 Tornado Cash developers actually own most of the tokens themselves 00:22:08.750 --> 00:22:12.550 Yeah, they're basically saying that his company is Tornado Cash, that all of 00:22:12.550 --> 00:22:16.870 Tornado Cash, the whole ecosystem, all the tokens, all the smart contracts are 00:22:16.870 --> 00:22:18.950 run by them just like it is a business. 00:22:19.370 --> 00:22:24.010 So yeah, so when this first made the news, when the whole court case first made 00:22:24.010 --> 00:22:29.910 the news, the general sort of assumption, impression was that this developer was 00:22:29.910 --> 00:22:35.630 being arrested for writing free software, open source software. But now it seems 00:22:35.630 --> 00:22:41.570 that it has more to do with... Him owning him basically 00:22:41.570 --> 00:22:46.830 just controlling this smart contract by holding most of the tokens 00:22:46.830 --> 00:22:51.810 right so it has more to do with the tokenomics so to say than with the actual 00:22:51.810 --> 00:22:53.750 writing of software it seems like. 00:22:53.750 --> 00:22:58.590 Yes I think so because the the picture they're painting is to say well if it… 00:22:59.720 --> 00:23:03.880 I think the picture of the prosecutor's painting is that it's not just an 00:23:03.880 --> 00:23:08.860 autonomous software system. It's actually a company run by people. And those 00:23:08.860 --> 00:23:13.400 people do some sort of sham voting. They're basically claiming that all these 00:23:13.400 --> 00:23:17.940 votes that are happening are really just manipulated by the company. And it's all 00:23:17.940 --> 00:23:22.640 just completely centralized. And therefore, they are doing the money laundering. 00:23:22.800 --> 00:23:25.780 Sounds like a pretty good prosecutor in that sense to me. 00:23:26.290 --> 00:23:31.490 Well it's a very [unclear] maxi prosecutor I guess. Right, the argument is still 00:23:31.490 --> 00:23:35.210 very vague. I mean I would not disagree that the system might be very centralized 00:23:35.210 --> 00:23:39.450 in a way but that still leaves a lot of open questions of whether they're really 00:23:39.450 --> 00:23:43.950 doing the money laundering right? They're building a system that is doing things 00:23:43.950 --> 00:23:45.170 but the system… 00:23:45.170 --> 00:23:50.890 I mean I want to be clear… that I I I favor privacy tools and all of that just 00:23:50.890 --> 00:23:55.190 the sham decentralization that sounds like that that's probably right it sounds 00:23:55.190 --> 00:24:01.040 to me. Is yeah but based on you know everything I know of anything that's 00:24:01.040 --> 00:24:04.240 going on in Ethereum that sounds about right but like you said maybe it was a 00:24:04.240 --> 00:24:09.810 maybe that's a very that that's certainly a very Bitcoin maxi position so okay so 00:24:09.810 --> 00:24:11.650 basically the… 00:24:13.890 --> 00:24:19.670 prosecutor says Alexei controls smart contract de facto and 00:24:19.670 --> 00:24:22.030 then he's being arrested because… 00:24:23.280 --> 00:24:27.060 And they're making money. But the making money argument is also, again, a bit 00:24:27.060 --> 00:24:31.200 vague because the argument from the prosecutor seems to be, well, the token is 00:24:31.200 --> 00:24:34.280 going up in value because of the money laundering and because the token is going 00:24:34.280 --> 00:24:37.040 up in value, they can cash out that value and that's why he has a Porsche. 00:24:38.410 --> 00:24:40.710 Yeah they did mention they mentioned the Porsche. 00:24:40.710 --> 00:24:45.030 So but this this argument again is it's very hand wavy so we'll have to see how 00:24:45.030 --> 00:24:48.350 they really make that legal argument that just because you own tokens and they go 00:24:48.350 --> 00:24:52.110 up in value that that means that you're responsible for the money laundering in 00:24:52.110 --> 00:24:54.910 some way well it's not it's not an obvious direct link there. 00:24:54.910 --> 00:24:59.150 Well that's what I was gonna ask so that's what the prosecutor alleges right? 00:24:59.150 --> 00:25:05.110 That first of all they knew that criminals were using their tools to 00:25:05.110 --> 00:25:10.280 launder their proceeds. And they were told about this. And then second, 00:25:10.740 --> 00:25:16.580 there were compliance tools available, which they chose not to build in, 00:25:16.760 --> 00:25:18.400 even though they could have. 00:25:18.700 --> 00:25:24.520 Yeah. So I guess we can do a little tour of money laundering law, I guess, which 00:25:24.520 --> 00:25:30.310 I'm not an expert on, but I can see various forms, various legal gradations of 00:25:30.310 --> 00:25:35.960 money laundering. And one of them is about as simple as... Somehow 00:25:35.960 --> 00:25:39.800 causing the origin of funds to be hidden. Like, that's enough. 00:25:40.160 --> 00:25:40.240 Yeah. 00:25:40.560 --> 00:25:44.200 And then that's what the law says, but there are some legal tests that you have 00:25:44.200 --> 00:25:47.220 to go through in order to prove that money laundering... For a prosecutor to 00:25:47.220 --> 00:25:49.980 prove that money laundering happened, it's not enough to say, well, you were 00:25:49.980 --> 00:25:54.940 hiding the origin. Basically, they have to show that the money was used. The 00:25:54.940 --> 00:25:58.200 laundering was... Basically, the thing that was being laundered was actually 00:25:58.200 --> 00:26:01.640 criminal money. So they have to prove that all or some of the money had a 00:26:01.640 --> 00:26:05.920 criminal origin. Then you have to prove that the suspect knew that this criminal 00:26:05.920 --> 00:26:10.210 origin... Existed or at least should have known and then well there's a couple of 00:26:10.210 --> 00:26:15.330 other tests basically along those lines now to prove that they knew that criminal 00:26:15.330 --> 00:26:18.790 things were going through that was pretty easy because like lots of companies I 00:26:18.790 --> 00:26:21.930 guess have shown that was that's not disputed that much that there were some 00:26:21.930 --> 00:26:25.350 criminals using it but then I guess you could somehow defend yourself by saying 00:26:25.350 --> 00:26:28.730 well but we have all these compliance mechanisms I mean that's what banks do 00:26:28.730 --> 00:26:31.770